Case ID: ind_158/html/0292-01.html
Source: Caselaw Access Project
Author: {"author": "Dowling, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Hanna et al. v. McLaughlin et al.
    [No. 19,511.
    Filed April 4, 1902.]
    Partnership. —Accounting. —Demand.—Dissolution.—No demand is necessary before bringing suit for an accounting and settlement between partners, where it is shown that the object for which the copartnership was entered into has been fully accomplished and nothing remains to be done except to divide the assets among the partners, pp. 294, %95.
    
    
      Same. — Conversion of Funds by Partner. — Trusts.—Where a partner without the consent of his copartners applied partnership funds to the payment of his individual debt, in the discharge of a mortgage lien on real estate owned by himself and wife, and afterward conveyed his interest in the property to his wife, who had knowledge of the fraud, such partner is a trustee of the firm for the partnership funds, and the real estate is subject to the trust in favor of the copartners to the extent of their interests in the funds thus converted, pp. 296, 297.
    
    From Jay Circuit Court; F. S. Caldwell, Special Judge.
    Suit by Samuel A. Hanna and others against Charles W. McLaughlin and wife for an accounting and the enforcement of a trust. From a judgment in favor of defendants, plaintiffs appeal. Transferred from the Appellate Court, under §1337u Burns 1901.
    
      Reversed.
    
    
      
      W. H. Williamson and S. A. D. Whipple, for appellants.
    
      E. McGriff and G. W. Bergman, for appellees.
   Dowling, J.

The appellants and the appellee, Charles W. McLaughlin, formed a supposed copartnership for the purpose of acting as the agents of one Fleming in finding a purchaser for property owned by Fleming. The firm was to advertise the property; all the expenses of the enterprise were to be borne equally by them; and the commissions they were to receive for making a sale were to be equally divided among the copartners. They found a purchaser, and the sale was effected. Their commissions amounted to $400 and were paid by Fleming to the appellee, Charles W. McLaughlin. He failed and refused to account to his copartners for the moneys so received, and converted them to his own use, and to the use of his wife, his co-appellee herein, in the following manner: The appellees, McLaughlin and wife, being the owners of the real estate described in the complaint, conveyed the same to one Charles H. Grant, in trust. At the request of the appellees, for their use, and in the discharge of his trust, Grant executed a mortgage on the premises to one Hutchens to secure the repayment of a debt of $500, and immediately afterwards reconveyed the premises to the appellees, in consideration of their agreement to pay said mortgage debt. The appellee, Charles W. McLaughlin, without the consent of his copartners, then paid the $400 of partnership funds so held by him to Hutchens on account of the mortgage debt of the appellees, and Hutchens released the said mortgage. Thereupon McLaughlin, without consideration, conveyed all of his interest in the said premises to his wife and co-appellee. At the time the $400 of partnership funds was applied upon the mortgage debt, and at the time of the conveyance of the mortgaged premises to Mrs. McLaughlin, she knew that the said moneys belonged to the firm. All the partnership debts were paid before this suit was brought, and the appellee, Charles W. McLaughlin, is insolvent. The foregoing facts are set out in the first paragraph of the complaint, and the relief sought in that .paragraph is an accounting, a personal judgment against Charles W. McLaughlin, and the enforcement of a lien for the amount due on the real estate conveyed to Mrs. McLaughlin. The second paragraph charges a conspiracy between McLaughlin and his wife'to defraud the appellants, and alleges, substantially, the same facts as the first. It asks for an accounting, a personal judgment against the appellee, Charles W. McLaughlin, a cancelation of the entry of satisfaction of the Hutchens mortgage, and the foreclosure of that mortgage for the use of the appellants. The appellee, Vone McLaughlin, demurred to each paragraph. Her demurrers were sustained, and judgment was rendered against the appellants. The rulings on the demurrers present the only questions for determination on this appeal.

It is urged in support of the decision of the trial court that a demand for a settlement before the commencement of the suit was necessary, and that neither paragraph of the complaint alleges such demand; that the suit was prematurely brought, because the partnership had not been wound up; and that, upon the facts pleaded, the appellants were entitled to no relief.

(1) No demand was necessary before bringing the action for an accounting and settlement. 15 Ency. Pl. & Pr., 1058; McClung v. Copehart, 24 Minn. 17. (2) The co-partnership had expired by its own implied limitation. This was, at most, a technical partnership' only. There was but a single transaction in which the parties were jointly interested, and that transaction was fully closed before the suit was brought. The facts closely resemble those in Felbel v. Kahn,; 29 App. Div. 270, 51 N. Y. Supp. 435, where it was held that the contract was not one of partnership which required an accounting to settle the rights of the parties, but a joint adventure, which, having been executed, might be recovered on at law. The complaint in this suit, however, is in the nature of a hill in equity, and, treating the contract as creating a copartnership, we think a good cause of action is stated. It is shown that the object for which the copartnership was entered into has been fully accomplished, and that nothing remains to he done except to divide the assets among the partners. It appears that one partner has wrongfully seized upon, and appropriated to his own use, the entire assets of the firm. The partnership cannot he regarded as still subsisting, hut, its purpose having been carried out, it may he treated as dissolved. By the express terms of the contract, there can he no further dealings of the partnership, and the difficulty suggested by the vice chancellor in Loscombe v. Russell, 4 Sim. 8, in cases of interference by the courts where the partnership still continues its active existence cannot, by any possibility, arise. The suit is not brought to enforce contribution, or to collect a debt alleged to he due from a partner to the firm, hut its purpose is to secure an accounting and a final settlement of the partnership affairs. 3 Kent Com., Lect. 43, p. 53; Story on Partnership, §280; Musier v. Trumpbour, 5 Wend. 274. Besides, the facts set forth show such a gross abuse of authority, and such misconduct on the part of the guilty partner, that a court of equitv would he justified in decreeing a dissolution, if it were necessary to do so, and ordering the partnership affairs wound up. Story on Part., §231. It is very evident that, considered as a suit for an accounting and a settlement of the partnership affairs, the complaint stated facts sufficient to require an answer from the defendants and appellees. (3) But under the circumstances set forth, the appellants were not only entitled to an accounting, hut also to a distribution of the moneys of the firm in the hands of the appellee, Charles W. McLaughlin, and to a judgment against him for the amounts due to each of his copartners, respectively, upon a final adjustment of the partnership accounts. Dale v. Thomas, 67 Ind. 570; Moran v. LeBlanc, 6 La. Ann. 113; Shattuck v. Lawson, 10 Gray (Mass.), 405; Arnold v. Arnold, 90 N. Y. 580; Meredith v. Ewing 85 Ind. 410; Dehority v. Nelson, 56 Ind. 414; Kimble v Seal, 92 Ind. 276; Miller v. Rapp, 135 Ind. 614, 618.

The demurrers admit that the appellee, Charles W. McLaughlin, has, without the consent of his copartners, applied the partnership funds to the payment of his individual debt in the discharge of a mortgage lien on real estate conveyed to his wife with notice of the fraud. As between themselves, the appellee, Charles W. McLaughlin, must be regarded as a trustee of the firm for the partnership funds collected and held by him. Where a trustee has, in fact, converted trust funds to his own use, or has, without authority, invested them in property into which they can be distinctly traced, the cestui que trust has the right to' follow the same into the new investment; and, where trust funds are invested in the hands of third persons having knowledge of their character, they still remain impressed with the obligation of the trust in the hands of the holders, and are subject to be reclaimed and restored to the trust fund. Pearce v. Dill, 149 Ind. 136; State v. Foster, 5 Wyo. 199, 38 Pac. 926, 29 L. R. A. 226, 63 Am. St. 47; Warren v. Union Bank, 157 N. Y. 259, 51 N. E. 1036, 43 L. R. A. 256, 68 Am. St. 777; Midland Nat. Bank v. Brightwell, 148 Mo. 358, 49 S. W. 994, 71 Am. St. 608, and note on p. 614. It must be held, on the pleadings as they now stand, that the real estate conveyed to Mrs. McLaughlin is subject to a trust in favor of the copartners to the extent of the shares of the appellants in the $400 of the funds used to discharge the mortgage debt.

For like reasons, we are of the opinion that the second paragraph, also, was sufficient in its statement of facts to entitle the appellants to an accounting, a personal judgment against Charles W. McLaughlin, and the enforcement of the trust against the real estate conveyed to the appellee, Vone McLaughlin; but we do not decide that any subrogation of the appellants to the rights of Hutchens in the mortgage took place. Under the second paragraph, as well as under the first, the trust may be enforced against the real estate conveyed to Mrs. McLaughlin to the extent hereinbefore indicated.

For the errors of the court in sustaining the demurrers of the appellee, Vone McLaughlin, to the first and second paragraphs of the complaint, the judgment is reversed, with instructions to the court to overrule the said demurrers, and for further proceedings in conformity to this opinion.