Case ID: ad_113/html/0247-01.html
Source: Caselaw Access Project
Author: {"author": "Ingraham, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Ferdinand S. M. Blun, Respondent, v. Rebbeca Mayer and Others, Appellants.
    (No. 2.)
    First Department,
    May 11, 1906.
    Partnership • accounting — when accommodation note is chargeable against former partnership and not against an individual partner — when costs of litigation chargeable against firm — allowance of interest on balances due partners of , old firm.
    When a former partnership had been accustomed to exchange accommodation notes with another firm and the liability on such notes has been charged to the partnership, on the formation of a new firm taking over the business of the old, sueh notes are properly treated as a partnership debt although issued at the instance of one partner against the objection of another.
    Legal expenses incurred by the old firm in a litigation continued by the new firm which took over the assets should be charged proportionately to the partners of the old firm.
    When the new firm takes over all the assets of the old .firm and the sum due a ■ member of the old firm who then retires is used by the new firm for its own benefit, the new firm is chargeable with interest thereon.
    • Appeal by the defendants, Bebecea Mayer and others, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Mew Yolk on the 3d day of July, 1905, pursuant to an order made at the Mew York Special Term and entered in said clerk’s office on the 29th day of June, 1905, overruling exceptions to the report of a referee and confirming the said report, and also from such order directing the entry of the said judgment,'with notice of an intention to bring up for review upon such appeal certain interlocutory orders entered in said clerk’s office.
    
      M. H. Regensburger, for the appellants.
    
      Charles Edward Souther, for the respondent.
   Ingraham, J.:

Upon this appeal from a final judgment the plaintiff asks to review certain interlocutory orders appointing a referee to take and state an account' of the dealings and transactions of the copartnership between the parties- to this action. This question is determined by another appeal between the same parties, decided herewith (Blun v. Mayer, No. 1, 113 App. Div. 242). The only question that will be considered on this appeal is as to the statement of the accounts between the parties. The copartnership in question was formed'by a written agreement dated December 4, 1875, and by it the . parties agreed to contribute to the capital of the firm all monies standing to their credit, on the books of the firm of Jacobs, Strouse & Co. on the 25th day of December, 18.75-.,” It appeared that there was, on the books of the old firm on the 24th day of December, 1875, stands ing to the credit of Rebecca Mayer $48,272-71; Solomon L. Jacobs, the Original plaintiff in this action, $44,823.55 -; Abrahanq Stro.use, . $21,857.18; and of Max Adler, . $26,816.78; and "these several amounts were thus contributed by "the various parties to this action as tli.eir capital of the new firm that -commenced business on the 25th day "of December," 1875. Pursuant to said articles of copartnership the new "firm took over all the agséts and property of the old firm and continued the business of such old firm until the 25th day of-December, 1876, when the new copartnership came' to an end by limitation. Upon the books of the hew firm when it expired there was credited to the- former plaintiff in this .action, Solomon L. Jacobs, the sum of $56,097.34. At the.time this new firm expired there was deducted from the amount which appeared to be due to Jacobs $5,568.29 which represented anote which had been made by S. Schiffer & Nephews which the old firm had been compelled to pay, together with the sum of $530.51, the accrued interest thereon. After the termination of this second copartnership the business was continued by the defendants xmder the firm name of Mayer, Strouse. - & Co., Jacobs, the former/plaintiff in this action, having no interest-therein, and these defendants thus took possession of and became possessed of all the stock of goods, machinery, appliances, books of • account, good will and other assets belonging to the second copartnership of Jacobs, Strouse & C.o¡, and used and employed the same for the, purposes and in the prosecution of their business. Under the copartnership agi’eement. Jacobs was entitled to thirty per cent of the net ..profits of the business, and this thirty per cent of such profits has been credited to his account which produced the balance in his favor upon the books of the copartnership. The. first question presented is whether the defendants were justified in charging to Jacobs’ account the amount of this note made by S. Schiffer & Nephews and the accrued interest thereon. The referee ■ found that “ The said note and interest, together amounting to $6,098.80, were not an indebtedness or liability-of the said Jacobs, nor Was he personally liable to the copartnership therefor, nor was either the said note or the said interest properly chargeable to his personal account; but the loss-of the said note and interest was a loss of the copartnership and properly chargeable against the several copartners proportionately, as provided in the copartnership agreement. Therefore, the said Jacobs should have had to his credit on said 24th of-December, 1876, the sum of $62,196.14, subject to be reduced by his proportionate share of said note and interest.” With this conclusion of the referee we concur. It seems that this Schiffer note was dated April 20, 1875. This was during the existence of the first firm and prior to the organization of the second firm.' It became due on August 20, 1875, and was then paid by the first firm. It would seem that this was one. of four accommodation notes that had been given by the first copartnership. for the accommodation of Schiffer & Nephews, the aggregate amount being $18,743.35 ; that the first firm and S. Schiffer & Nephews had “ exchanged notes for mutual interests,” with the firm of Jacobs, Strouse & Co., receiving Schiffer & Nephews’ notes for its accommodation, and Schiffer & Nephews receiving notes of Jacobs, Strouse & Co. for its accommodation. The firm of S. Schiffer & Nephews failed in 1875, and these notes which had been given by the first firm for the accommodation of Schiffer & Nephews firm were subsequently paid by the" first firm and charged to the account of Schiffer & Nephews. One of the defendants, who was a bookkeeper of the first firm, testified : “ They (S. Schiffer & Nephews) asked for as much accommodation as we asked of them. I know that, because for their own advantage, we gave them what they asked for and they gave us what we asked for, and for every note which they wantéd we took one from them.” When this note was given, Jacobs, the original plaintiff, came to the bookkeeper and requested him to make out a note- for that amount. The bookkeeper testified that he told Jacobs, “‘Uncle Leopold, you know you and Uncle Alec agreed not to give the Schiffers any more notes.’ Whereupon he said to me, ‘Well, I can’t help myself. I must give it to them;’” that the Uncle Alec referred to was Alexander J. Miyer. Alexander J. Mayer was called as a witness and testified that after this note was given, the bookkeeper called his attention to it and said that it had been issued by direction 'of Mr. Jacobs; that on the following day he saw. Jacobs and told him that that note would not be issued for account- of the firm; that it, liad to be his own individual matter; that Jacobs said that he knew the witness had' previously objected to it, but he repeated the story that he had told to the bookkeeper; that when the note matured, Schifier „& Nephews having failed, the witness asked Jacobs what was to be done about charging up that note ; that the witness said that it was to be cliargéd to him) but Jacobs-said.: “ No,, don’t charge it to me, keep it in the name of the firm on account of his personal relations with his brotherdnJáw, the elder Mr. Schifier; that he preferred to have it. that way.” That was all that appeared to have been said about that note during the continuance of that copartnership. In the month of December,. -1895, the first firm being, about to expire, Jacobs had am interview with the witness and said he wanted the copartnership continued and asked the witness if he could not succeed in-inducing Mr. Strouse and ‘Mr. Adler to continue it; that .the witness told Jacobs that the relation between him and Mr. Strouse was so bitter that he could not tell, but that he would try and see what could be done. The witness .then said : “You know .that that Schifier note is there .and that wants to be settled.” Jacobs said: “ Yes,T know, jmt it is all right, Schifier has a great deal of property in the city here, and' it will' come out all right, and besides that I have some property belonging to Schifier standing in my name:” They then, spoke about the control of the business and Jacobs said he Would be satisfied to leave everything in the witness’ hands; that the witness could decide at the end of the year ‘ anything that came up and that he would be guided by it, and it was in pursuance of that arrangement that tlié copartnership agreement in. the firin' No. 2 was executed. "

This is the otily evidence in relation to this note. It was issued in accordance with the custom that had - existed between these two firms in regard to issuing notes for their mutual accommodation. It was issued by one member of the firm against the--protest of Alexander J. Mayer who it appeared represented his¡.wife, a member of the firm, but it was still a firm obligation, and there was no understanding or arrangement by which it was to be charged to Jacobs. After it had been issued Alexander J. Mayer claimed that it should be. Jacobs objected and it was never charged to him during the existence of the firm. When the new firm was organized the amount to the credit of Jacobs was contributed by him as his capital to the new firm, and .that amount was fixed without charging against him the Schiifer & Nephews note, and so continued during the continuance of the second firm. If there was any question about the right of the. parties to have this Schiffer note charged to Jacobs personally, that question should have been settled before the commencement of the new firm; and all the parties to the firm having acquiesced in the contribution by Jacobs of the amount to his credit in the old firm as Ills capital in the .new firm, there was no justification for .charging him with the amount of this note upon the liquidation of the affairs of the second firm.

The defendant also claims that the referee erred in refusing to charge Jacobs with his proportion of certain payments made between April 21, 1877, and December 30, 1879, amounting to $3,656.70. These amounts appear in Schedule A annexed to the referee’s report. From the way these amounts, are entered it is almost impossible to ascertain the purpose for which these payments were made, and I cannot find that the testimony explains them. Nor can I find any evidence in the record that the amounts entered in this account were actually paid by any one. It was proved, however, that all of the merchandise of Jacobs, Strouse & Go. No. 2 went over to Mayer, Strouse & Go. at an agreed price, and that there was also taken over all the machinery of Jacobs, Strouse & Go. No. 2, together with the building at New Haven, which was used by that firm. I think that on this testimony as it stands the referee was justified in refusing to charge against the plaintiff the balance appearing in this account. In stating the accounts, however, it is quite clear that the referee allowed to the defendants certain of the payments which appear in. this schedule. Thus in Schedule A there are charges for insurance paid to Edeinberger. The referee charges against the defendants the balance of Jacobs’ share of the proceeds of the Edeinberger policy, after deducting premiums and disbursements set forth in. Schedule D, amounting to $1,175. -Schedule D- does not seem to be printed as a part of the record, but from this entry it would appear that the premiums paid Upon this policy had been deducted from the amount received, and thus the items in Schedule A for Klein bérger’s policy had been allowed. By the eleventh finding of fact the referee charges-.the plaintiff with the depreciation in the value of the factory, building at Hew Haven owned by Jacobs, Strouse & Co., wheréby the said firm sustained a loss of $6,172.80, of which thirty per cent was properly chargeable to said Jaeobs. The rent for this property was not chargeable to Jacobs, as the succeeding firm took the property and used it. He also charged to Jacobs his proportionate amount of the note of Sehiff fer A'Hephews, having before credited jiim with the amount of that' note which had been improperly charged against Jacobs.-

' The only. other question, so far as I can ascertain, is as to the • various amounts paid after the dissolution of the second firm for legal expenses. It appeared that prior to- -the dissolution of the- first firm there were two suits pending against it, one by Thompson, Langdon &■ Co., and one by Waterman, for alleged infringements of patents by the firm of Jakobs,-Strouse ,& Co., Ho; 1. These actions com tinned after the’dissolution of the second firm, and the charges appearing upon the accounts as paid to Starr & Buggies were for ■ legal services rendered in those actions. There are also items' of pay-' ments on account of a “ Tempering suit.” This seems to be the Waterman action above referred to. The-total amount charged in ,these accounts for the payments would seem to- be $5,374.52, but there is a credit’in this account of settlement of steel suits, which apparently refers to the same action,, óf $2,056.75, leaving abalance paid on account of these actions of $3,317.77, of which the plaintiff _ should be charged with thirty per cent, which would be ,$995.33. So far as can be ascertained from this evidence, these are the only items which- appear in the Schedule A "annexed to the "referee’s report for which the plaintiff should be charged, but with which- he has not been charged by the referee. . . '

There is also presented a .question as to the allowance of interest, the referee having charged against the defendants’ interest on the balance due by them from-the termination of the second firm until the date of his report. I think, under the circumstances, that the defendants are liable for interest. The question as to whether interest should or should not be allowed is discussed in Johnson v. Hartshorne (52 N. Y. 173), where the court say: “ There is and can be no fixed rule in settling partnership accounts in respect to interest. Its allowance must necessarily depend upon the circumstances of each case. Ordinarily, interest is not allowed after dissolution upon capital as such, although by the articles it is allowed during the partnership. *' * * The reason for this general rule is obvious. During the partnership all the partners have the benefit - of the capital to make profits, while upon dissolution this benefit ceases. But where the surviving partner unreasonably delays the payment of capital, interest will be allowed. * * * So it has been held that the period of dissolution is the proper time to make a rest and adjust the balance of the partnership account, and. the partner against whom the balance is found is chargeable with interest. * * * The circumstance that the surviving partner has charge of the- books and knows the state of _the accounts has been regarded as sufficient to charge him with -interest. * * * So whether or not the surviving partner has used the money in violation of his duty or made profits on it, or other circumstances of good or bad faith have a bearing upon the 'question of interest.”

In this case it appears that all the property of the copartnership was taken over by the defendants, who formed a new'copartnership and continued the business. The plaintiff’s interest, therefore, in the .copartnership that had expired was taken over and used'by the remaining partners in the conduct.of the new business which they conducted, and it seems to me inequitable to allow these partners to - take the plaintiff’s interest in the copartnership of which he was a member and use it to continue the business for their own benefit and not charge them with interest on the plaintiff’s capital invested in the copartnership and which was not paid to him.

My conclusion is that the referee was justified in charging the defendants with interest upon the amount due to Jacobs, the original plaintiff in this action, and the only respect in which there should be a " modification of this judgment is that there should be deducted from the amount of $30,988.25, found due by the referee, the sum of $995.33, the amount paid for defending the actions which, with interest thereon from JuneT, 1876, to April 20, 1905, amounts to $2,750.55. leaving the amount due to the plaintiff from the defendants $28,237.70, arid the Judgment, as thus modified should, be affirmed, without costs of this appeal.

O’Brien, P. J., McLaughlin, Clarke and Houghton, J.J., concurred.

judgment modified as directed in opinion, and as modified affirmed, without costs. Settle orders on notice.