Case ID: sc-eq_32/html/0329-01.html
Source: Caselaw Access Project
Author: {"author": "Wardlaw, J. O’Neall, O. J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Executors of Dr. J. W. Schmidt vs. Robert Lebby.
    
      Partnership — Account Stated.
    
    Where two physicians agree to practice in copartnership, and divide the receipts of their practice, each is bound to devote his labor, skill, and services, as a physician, to the promotion of the common benefit 5 to keep books, and make entries of charges and receipts, and have them always ready for inspection and explanation j and if one should, for a considerable time, when in'good health and full practice, neglect to keep any account of his practice, he must, nevertheless, be'required to account for what he made, upon such evidence as may be adduced.
    Where, after the dissolution of a firm, one of the partners took the books to collect the accounts, and he rendered statements showing balances due by him on account of his payments and collections : Held, that such statements did not amount to an account stated, so as to preclude him from demanding an account from the other partner.
    BEFORE DARGAN, OH., AT CHARLESTON, FEBRUARY, 1858.
    This case was referred to the master, and was heard on exceptions to his report. The report is as follows:
    
      
      “ This case was referred to me to take an account of the partnership of Drs. J. W. Schmidt and Robert Lebby, and to report thereon.
    “ The articles of partnership have been submitted to me. They are dated the 2d January, 1850, and provide that the receipts arising from the practice of medicine by the parties to the said partnership, shall, during the term of its continuance, be divided in the proportion of three-fourths to Dr. Schmidt, and one-fourth to Dr. Lebby. On the 1st January, 1853, the health of Dr. Schmidt having failed, a new arrangement was entered into, whereby it was agreed that the said partnership should terminate on that day, and that for the year 1852, Dr. Lebby should receive two-thirds, and Dr. Schmidt one-third of the amount collected, and that Dr. Leb-by should attend to making out and collecting the bills due, and the final closing up of the partnership.
    
      “ Dr. Lebby has filed accounts, showing a balance due to the estate of Dr. Schmidt, on the 1st January, 1854, of $2,302 32, and an additional balance due said estate on the 1st June, 1856, of $407 84. In all, $2,710 16.
    “ These accounts are satisfactory to the complainants. But the defendant, Dr. Lebby, contends that Dr. Schmidt did not render any account of his earnings for the first thirteen months of the partnership, and that whatever said earnings were, he (Dr. Lebby) is entitled to his share, according to the partnership articles, and the same should be set off against his indebtedness to the estate of Dr. Schmidt, as shown by the accounts herewith filed. The complainants, who are the executors of Dr. Schmidt, allege that they have no account of the professional business of their testator, during his connection with Dr. Lebby.
    “ From the evidence submitted by the defendant, it appears that the books of the partnership, in the possession of Dr. Lebby, do not show what was Dr. Schmidt’s practice between the 2d January, 1850, and the 9th February, 1S51. The whole sum of the accounts, for the entire term of the partnership, (three years,) is about $18,000. Of this amount, only about $3,000 was earned by Dr. Schmidt, and this between February, 1851, and June, 1852. No books were furnished by Dr. Schmidt to show what were the services rendered by him to the partnership, except the one from which the accounts filed by Dr. Lebby are made up, and all that is contained in that book is embraced in the said account.
    “ There being no written data, from which an account can be stated of the practice of Dr. Schmidt during the first thirteen months of the partnership, the defendant relies upon the evidence of Dr. Fitch and' others, herewith submitted, to sustain his claim to a set-off against his indebtedness to the estate of Dr. Schmidt, as shown by the books of the partnership.
    “ Dr. Fitch, who was in partnership with Dr. Schmidt until the latter part of 1849, says that Dr. Lebby immediately succeeded him ; that Dr. Schmidt had, at that time, a large business and a fine reputation; that he appeared to be in active practice during the first year of his connection with Dr. Lebby, and expresses the opinion that Dr. Schmidt ought to have made, during the first thirteen months of the partnership, twice as much as Dr. Lebby, who had then but little practice aud influence. Dr. Panknin, apothecary, testifies to Dr. Schmidt having ordered, in 1850 and 1851, medicines for the otfice of Schmidt & Co., but not for prescriptions. And an extract from the books of Drs. Simons and Dawson, shows that those gentlemen attended a patient in consultation with Dr. Schmidt, from 25th September to 22d October, 1850.
    “ While this evidence clearly establishes the fact that Dr, Schmidt did practice in 1850, it does not enable me to deter-niine the extent of that practice, or what were his earnings during that year. The opinion of Dr. Fitch, that Dr. Schmidt ought to have made twice as much as Dr. Lebby, seems to be based upon the relative amount of their individual business previous to the partnership, and not to the proportion of service which'would properly be performed by each after the connection. The testimony, also, of Dr. Fitch, that Dr. Schmidt was engaged in active practice in 1850, is rendered uncertain in respect to the extent of that practice, by the explanation of the intelligent witness himself, that he did not meet with Dr. Schmidt in his practice, but that his opinion, as to the extent of his business, was formed-from seeing him riding through the streets, and stopping at different houses, where he knew he attended. The only positive evidence on this point is that furnished by Drs. Simons and Dawson, of their attendance, in consultation, with Dr. Schmidt, upon a single patient.
    “But whatever may have been the practice of Dr. Schmidt in 1850, it appears to be certain that he entered no charge against his patients, and. received no compensation for his services during that year. Dr. Fitch states that during the time he was in partnership with Dr. Schmidt, he, (Dr. Schmidt) kept no regular account of his own practice, and was careless about making entries in the partnership books, but that he believes that the books at the office exhibited all the collections made by Dr. Schmidt. ‘He had no idea that the Doctor acted unfairly in the matter of the accounts. He was negligent, but not dishonorable.’
    “But, while it is not claimed on behalf of the defendant that the complainants are liable to account for monies actually received by their testator for his services in 1850, it is contended that under the articles of partnership, Dr. Schmidt was bound to give his professional services in aid of the partnership, and if he chose to do nothing, or, if practising, neglected to charge for his services, his partner should not be the loser by his indolence or neglect.
    “The articles of partnership are silent as regards the services to be rendered by each partner, and I know of no principle of law which undertakes, when this is the case, ‘to settle between the parties the relative value of their unequal services in conducting the joint business.’ And the reason given for this not being attempted is obvious in this case, where ‘it is impossible to see how far in the original estimate of the parties when the connection was formed, the relative experience, reputation and business of each, entered as ingredients into the adjustment of the terms of the partnership.’
    “ Dr. Fitch paid to Dr. Schmidt $2,500 upon the formation of their partnership, as a bonus. ■ When the connection was formed with Dr. Lebby, he had but little practice, while that of Dr- Schmidt was large, and it does not appear that Dr. Lebby paid any bonus. It is reasonable to suppose that the reputation and business of Dr. Schmidt, and perhaps his prospective retirement from business, were considerations for Dr. Lebby to form the partnership. The fact that no objection is made to the comparatively small sum earned by Dr. Schrnidt ($3,000) from 1st February, 1851, to 12th June. 1852, a large portion of which (as alleged by the answer) has uever been collected, gives countenance to the opinion that the personal services of Dr. Schmidt were not the main considerations which moved the defendant to engage in the partnership. And, lastly, the articles of dissolution executed on the 1st January, 1853, while it provides that Dr. Lebby, in consideration of the failing health of Dr. Schmidt, shou d receive two-thirds and Dr. Schmidt one-third of the amount collected lor the year 1852, expressly stipulates that the proceeds of all business of the partnership for the two preceding years, shall be distributed according to the articles of copartnership.
    “ I find that Dr. Robert Lebby is indebted to the complainants as executors of Dr. J. Schmidt, in the sum of two thousand seven hundred and ten dollars and sixteen cents, as stated in the account herewith filed.”
    The defendant excepted to the report:
    1. Because the said master has reported a • balance of $2,710 16, as due by this defendant to the complainants upon a mutual accounting between them, when, in fact, the complainants have omitted to account for the earnings and receipts of their testator for a period of more than orie-third of the whole copartnership, whereas he ought to have refused to report any balance against this defendant until such account had been given by the complainants, or a fair allowance offered to be made by them upon reasonable grounds shown by them.
    2. Because the said master had no right to infer any such condition of the copartnership as that suggested in his report, namely, that complainants’ testator was not to be bound to practice for the joint benefit, as such a condition would be contrary to the nature of the copartnership proved.
    3. Because even if there had been a condition expressed in the articles of copartnership, whereby Dr. Schmidt was at liberty to decline practice, yet as the evidence shows that he did actually practice, and that for reward or pay during the period for which there is no account, the master should have required of the complainants a sufficient account, or a fair allowance for that period, before striking a balance against this defendant.
    4. Because the evidence does not justify the master’s conclusion, that Dr. Schmidt did not receive anything for his professional services and practice during that period, as the proof to the contrary is full and conclusive, and as much as the defendant was bound to offer.
    5. Because there was sufficient evidence before the master to have enabled the complainants to have proposed, and the said master to have allowed, or on the failure or refusal of the complainants to propose, for the said master to have found and reported a sum to be brought into account on the part of the complainants, as the amount of the earnings of the said Dr. Schmidt for the period alluded to, and that the said master should so have found and reported.
    Dargan, Ch. I refer to the commissioner’s report for the facts of this case.
    
      I am with the defendant in all his exceptions; that is to say, 1 agree to all the propositions asserted therein. By the necessary implication of the articles of copartnership, bearing date 2d January, 1850, it was stipulated that Dr. Schmidt should practice medicine in conjunction with Dr. Lebby; that he should charge those on whom he attended for those services, and that the benefit or gain of such practice should result to the copartnership for their mutual profit. Any other interpretation than this would make the instrument of copartnership illusory. Dr. Schmidt, by the terms of his compact, was bound to practice for the benefit of the firm, and to make charges.
    When the partnership was formed, he had a large practice, and an established reputation. Dr. Lebby was a young practitioner and a stranger in the city. He considered it, therefore, as conducive to his interest to enter into a copartnership with Dr. Schmidt; in which the latter was to receive three-fourths of the profits, and Dr. Lebby one-fourth. Dr. Schmidt was a man far advanced in life, and though, at the time the partnership was formed, he had a large practice, and was able to attend to it, his decadence afterwards was very rapid. The partnership was entered into on the second day of January, 1850, and was of indefinite duration. For the first part of the first year, Dr. Schmidt attended to his professional business, was active as usual, but so rapidly did his bodily infirmities grow upon him, that in the year 1852, he did but little in the way of practice ; nor was he able. There was, by this time, almost a total prostration of body and mind. Still, the partnership continued till the 1st of January, 1S53, when Dr. Schmidt being entirely incompetent for any business transactions, some members of his family intervened, and acting in the name of Dr. Schmidt, entered into other articles with Dr. Lebby, by which the partnership was dissolved, and the original articles modified. These last articles recite the fact of the incapacity of Dr. Schmidt, and the fact that the principal burthen of the duties of the partnership had devolved upon Dr. Lebby, and in consideration thereof it was agreed, that for the last year of the partnership, (1852,) Dr. Lebby should receive two-thirds and Dr. Schmidt but one-third of the profits. Each of the parties had kept books, in which their earnings, were registered at the time when their medical services were rendered; except that for the year 1850, no book of Dr. Schmidt was forthcoming.
    On the death of Dr. Schmidt, his will was admitted to probate, and his executors, the plaintiffs, have filed this bill for an account. But before the filing of the bill, they had demanded of Dr. Lebby an account. He accordingly stated an account of the date of 1st August, 1853, by which he acknowledges a balance due to the estate of Dr. Schmidt of $2,157 08. He subsequently rendered another account of the date 1st January, 1854, by which he states the balance due the estate of Dr. Schmidt to be $2,302 S2. This statement of account was based as well upon the books kept by Dr. Schmidt, so far as they were to be had, or known to exist, as upon the books kept by Dr. Lebby. The balance was struck without condition or reservation. No other books kept by Dr. Schmidt, than those used in making up this account, are known to exist. Dr. Lebby now resists the payment of the balance thus struck by himself, on the ground that he is entitled to demand an account of the representatives of Dr. Schmidt, for what he should have made by his practice, or of which he did actually make; or, at least, he should have an account of that kind for the year 1850, when it does not appear that Dr. Schmidt kept any books at all. It .was in evidence that Dr. Schmidt sometimes rendered professional services, for which hé made no charge.
    But I am of opinion that whatever may have been Dr. Lebby’s original rights in this regard, he has concluded himself by the account which he has stated; in which, without insisting upon the claim now set up, he has stated an account, and struck a balance against himself, as before stated. He did this deliberately, and with a knowledge of all the circumstances. He did it twice; for the second account is the same as the first, with the additions of some further collections. I do not perceive any proper ground upon which he can open this statement, and surcharge it in his own favor.
    Nor do I think that there is any ground for fear that injustice will be done by this view of the case. By the terms of the dissolution, Dr. Lebby was allowed two-thirds for the year 1S52. By this arrangement, he realized about $1,446 more than he would have done under the original agreement. This, I think, was a compromise, and was intended to cover all Dr. Schmidt’s short-comings and deficiencies; and would probably have not been conceded, if it had been then known or believed that Dr. Schmidt was to be called to a strict account. This inference is strongly corroborated by the fact that Dr. Lebby, shortly afterwards, stated an account precisely in the way in which it would have been stated, if such had been the understanding. Upon the whole, I think that the defendant is concluded by his own statement, rendered by him to the representatives of Dr. Schmidt, without condition or reservation. And I also think, all the circumstances considered, this view fulfils the strict justice of the case.
    It is ordered and decreed, that the defendant pay to the complainant the sum of two thousand seven hundred and ten dollars and sixteen cents, with interest from the first day of January, A. D. 1854.
    The defendant appealed, upon the ground that his Honor, the Chancellor, has erred in supposing that the agreement of dissolution of the partnership was an adjustment of the partnership accounts, and a discharge of the testator, or his executors, irom liability to account, or that the defendant’s rendition of his accounts as a partner was a copartnership account stated, which discharged the complainants from liability to account for their testator’s earnings in behalf of the partnership, and for monies thereby received in that behalf.
    
      McCrady, Campbell, for appellant.
    
      Memminger, contra.
   The opinion of the Court was delivered by

Wardlaw, J.

The Chancellor adjudges that, by fair implication from the articles of partnership between the testator of plaintiffs and the defendant, testator was bound by his contract to practice as a physician, to make proper charges for his skill and services, and to bring the compensation and gain of these services into the common fund for the advantage of both partners. Indeed, he adjudges in favor of the defendant all the propositions affirmed in his exceptions; and to this extent his opinion is uncontroverted and incontrovertible. It is of the very nature and essence of a partnership, that each partner shall exert due diligence arid skill, and devote his services and labors for the promotion of the common benefit of the concern, at such rate of compensation as may be stipulated; and that he shall not divert from the business of the firm that portion of diligence and skill he is bound to employ, nor engage in other business adverse to the common benefit. Sto. Part., 174-185. The partners are pledged to each other that the business shall be so conducted that each may see that it is proceeding prosperously, and not injuriously, to the common interest; and, as Judge Story says, sec. 181, each partner should keep precise accounts of all his own transactions for the firm, and have them always ready for inspection and explanation; if he receives any money for the firm he ought, at once, to enter the receipt in the books of the firm, so that it may be open to the inspection of all the partners. The testator of plaintiffs, while apparently in good health and full practice, from the beginning of the partnership, in January, 1850, until February, 1851, has rendered no account of his services and gains whatsoever, although, in the opinion of Dr. Fitch, he should have made twice as much as the defendant; and, although testator did enter charges in the books of the firm to the •amount of $3,000 for subsequent services. In the course of the year 1852, the body and mind of testator greatly failed, and the present plaintiffs intervening in his behalf, the partnership was dissolved January 2, 1853, and the proportion of defendant in the profits of 1852 was extended largely beyond his proportion as stipulated in the original articles. The consideration expressed for this change in favor of defendant was “justice” to the defendant from the condition of Dr. Schmidt’s health in 1852, in consequence of which the “larger part”— it is not said the whole — of the practice of the office had devolved on the defendant. It was stipulated in the articles of dissolution that defendant “will attend to the making out and collection of the bills and debts due, and final closing up of the business of said partnership, distributing proceeds as collected, in accordance to the articles of copartnership up to January ], 1852, and for that year,” as therein stipulated. Testator died in the former part of the year 1853; and after-wards defendant rendered an account of his receipts and disbursements, with the caption: “Dr. J. W. Schmidt, in account with Dr. R. Lebby, in liquidation of late firm of Schmidt & Lebby,” closing with the entry: “1853, Aug. 1. Balance due estate of J. W. Schmidt, $2,157 08.” He also rendered a second account for 1853, with the caption: “Estate of Dr. J. W. Schmidt in account with Dr. Robert Lebby in liquidation ;” by which, after bringing in the former balance, he states, as of the date of December 31, 1853, “Balance of account to credit of Dr. S. to date, $2,302 32.” In this condition of things, the bill was filed March 4, 1856, praying that defendant should pay to the said plaintiffs “ the said balance of $2,302 32, and .account to them for amounts received by him on account of the said partnership since January 1, 1854,” and for general relief. The defendant, in his answer, filed May 14, 1856, admits that he rendered accounts exhibiting a balance in his hands from his transactions for the firm of $2,302 52; but he states that no account whatever has been rendered by Dr. Schmidt or his representatives of testator’s transactions in the business of the firm for the first thirteen months of the partnership, and he claims to retain the sum in his hands until the plaintiffs shall so account; and swears to bis belief that if such account were fully and fairly stated, little or nothing would be left due by him. After answer, defendant filed a third account, headed: “Estate of J. W. Schmidt in account with Robert Lebby,” and closing:“ 1856, June I, by balance to credit (of plaintiffs) brought down, $407 84.” All the items in all of the accounts seem to be derived from the books kept by defendant, and the single book kept by Dr. Schmidt, beginning in February, 1851 ; and no full adjustment from all sources is professed. The Chancellor rejected the defendant’s claim for an account from the representatives of his partner, on the ground that defendant had “concluded himself by the account he has stated.” The defendant appeals for supposed error in this respect.

The defendant does not seek to surcharge or falsify the accounts he has rendered; on the contrary, affirms their accuracy: but he denies that they exceed a statement of his own transactions and of such of Dr. Schmidt’s as are found in one incomplete book, and that they amount, in any proper sense, to an account stated. We do not perceive, in the lights afforded to us, that these accounts are not exactly such in form and in substance as the defendant should have rendered, in case Dr. Schmidt or his representatives had rendered likewise full accounts as to his transactions concerning the partnership; nor that they were final; for defendant may have made subsequent collections, and consequently we do not find the evidence that they were intended to bar or waive an accounting from the other side. In bills for account, it is usually necessary to give jurisdiction to the Court of Equity, that there should be debits and credits, or one of them, on both sides; and in such suits the defendant is as much an actor as the plaintiff, and entitled to equal remedy and relief. Cross bills in such cases are very rare, unless the defendant seek discovery from the plaintiff as to matters not. suggested in the bill or insusceptible of proof aliunde. The plaintiff is entitled to an account current from the defendant, sustained by oath, and the defendant ought to be in no worse position in regard to the plaintiff. In this case, the master reports that plaintiffs “allege that they have no account of the professional business of their testator during his connection with Dr. Lebby;” but this is probably an unsworn defence made through counsel, and may be formally true, although they have, or might obtain, full information and belief as to the extent and value of his services. The defendant has made a prima facie showing that Dr. Schmidt bestowed valuable services in the joint business, in the year 1850 and early part of 1851, and the plaintiffs should not be excused from all liability by reason of vague allegations or defective information on their part.

An account stated, in its proper meaning, implies a mutual accounting, and striking a balance, acknowledged on one side and accepted by the other. Sto. Eq. Pl., 798; Sto. E. J., 523, 526. Between partners, where there have been dissolution of the partnership and an adjustment of their affairs, showing that the concern was unprofitable, and that nothing was due from one partner to the other, but that their debts to creditors were payable by the partners in unequal portions, and such actual payment to creditors has been made — these circumstances are equivalent to an account stated. Such was our case of Main vs. Howland, Rich. Eq. Ca., 352. This matter of account stated is frequently pleaded by defendants in bar of further accounting, but it would be difficult to find a sound precedent for a plaintiff to employ it as ground for recovering a specific sum in equity. If he be really entitled, for such reason, to a certain sum, his appropriate remedy is at law by action of assumpsit. The plaintiffs in this case do not set up, in their bill, an account stated with any strictness of averment; and they certainly claim a further account from defendant; and it is not of regular procedure to do both in the same suit, and still bar the defendant from any counter claim.

Courts of Equity wisely foster the private adjustment and settlement of disputed claims, but it is very unsafe to conjecture compromises without adequate proof. We do not see in the agreements for formation or dissolution of the partnership or elsewhere, satisfactory evidence that defendant has abandoned or waived, to any extent, or in any respect, the rights afforded to him by the law. It may be, as the master and Chancellor suppose, that by some process of irregular justice the defendant has obtained all the profit from this partnership that he is entitled to receive; but as ministers of the law, we think the defendant has the strict right to have the result ascertained by a regular procedure. We are aware that the master may have difficulty in attaining precise results in this case, but we trust that an approximation is at least probable.

It is ordered and decreed, that the circuit decree be set aside, and that the matters of account be recommitted to the master.

Johnstone, J., concurred.

O’Neall, O. J.,

dissenting, said: I think the master and the Chancellor took the right view of the case. The accounts made up by the defendant is plainly an account stated, in which the balances struck are in favor of the deceased. If the suit was at law, the defendant would be concluded, unless error could be shewn. The same rule, I apprehend, prevails in equity. For equity is bound to follow, and obey the law.

This is not disputed, I am told, by the majority, but they think it is not an account stated. Why? It is a statement of mutual accounts: that makes it an account stated. But it is supposed that Dr. Schmidt’s accounts of his operations, as a partner, are not brought in.' Iiow does that appear? Certainly not from the account.

In 1853, the defendant, and the children of Dr. Schmidt, dissolved the partnership, and in the deed drawn up on that occasion, it is stated that Dr. Schmidt, during the year 1852,. was incapacitated by disease from attending to practice, and, therefore, it was agreed that Dr. Lebby should take, of the profits of 1852, two-thirds, and'Dr. Schmidt one-third. The accounts were made up, acccording to this, by Dr. Lebby, on the 9th June, 1856, admitting the balances due Dr. Schmidt December 31, 1853, $2,302 32, and June 1, 1856, $407 84, making an aggregate of $2,710 16. These are plain admissions of indebtedness to that amount, as a partner. I have seen no evidence of any mistake in the accounts.

The defendant contends that Dr. Schmidt has not accounted for what he did as a partner. There is no doubt, if he made anything, it should have been brought into the accounts between them, before a balance was struck. A part only, it is alleged, was brought in, and now it is contended that Dr. Schmidt should be charged further. Striking a balance, it seems to me, concedes that everything is accounted for.

The master and the Chancellor are the judges of the disputed facts; they held there was no evidence that Dr. Schmidt made anything beyond what is accounted for. How can we say otherwise ?

The compromise, by which the defendant took a larger interest for 1852, and the accounts made up under it, satisfy me that the defendant is properly charged. I am, therefore, for affirming Chancellor Dargan’s decree.

Decree set aside.