#### Anderson, Appellant, vs. Osceola Mill & Elevator Company, Respondent.

*April 30*

October 7, *1913.*

*Judgment:*Res judicata: *Issues: Matters determined: Partnership: Fraud.*

Causes of action in favor of a partnership and against a corporation for sums of money and other partnership assets received by the company through the fraudulent appropriation thereof, by one of the partners and the company’s agents, to the payment of the company’s claims against said partner individually, are *held*not to have been included in the issues or covered by the judgment in a former action brought by the corporation against the partnership, involving an account for goods sold and cash advanced to the firm and payments made thereon.

Appeal from a judgment of tbe circuit court for Polk county: Erane A. Boss, Circuit Judge.

*Reversed.*

Tbis is an action by the plaintiff, as assignee, to recover the assets of a former partnership between himself and one Solomonson. The plaintiff alleges that the defendant, through the fraudulent' conduct of its agents and his former partner, procured and obtained possession of the partnership property. The trial court awarded judgment dismissing plaintiff’s complaint and for costs. This is an appeal from such judgment.

Eor the appellant there was a brief by *Kennedy ■& Yates,*and oral argument by *W. T. Kennedy.*

Eor the respondent there was a brief by *McNally & Roar,*and oral argument by *W. F. McNally.*

The following opinion was filed May 31, 1913:

SiEBECKER, J.

Erom June 6, 1906, until September 19, 1909, the plaintiff and one E. S. Solomonson were partners and as such partners conducted the business of a country store *398at Nye, Wisconsin. The plaintiff was absent from the state most of this time and. Solomonson had charge of the business. During this time Solomonson was, individually, the agent for the defendant, the *Osceola Mill*& *Elevator Company*— hereinafter called the *Mill Company*— and as such agent had charge of defendant’s business and elevator at Nye. The defendant furnished Solomonson the money, from time to time, for carrying on its business of buying grain. In January, 1909, Solomonson was in arrears in his accounts as defendant’s agent, and to make good this shortage he issued two checks of the firm of Solomonson & Anderson of $500 each to be applied on his individual liability to the *Mill Company.*The plaintiff, *Anderson,*did not know of the issuance of these checks by Solomonson and did not have any knowledge thereof until the firm had become insolvent and after a trust deed of its property had been made by Solomonson while *Anderson*was out of the state. The *Mill Company*had knowledge of the fact that these were firm checks and that they were paid from partnership funds.

On or about the 30th day of, July, 1909, Solomonson again was in default in his accounts with the defendant' *Mill Company,*and he again issued two checks of Solomonson & Anderson for $500 each to the *Mill Company*to apply in payment of his individual liability, without the knowledge of *Anderson;*but the *Mill Company’s*representative knew that these checks were paid from partnership funds. It also appears that on or about the 6th day of September, 1909, the *Mill*Company, with Solomonson’s consent, took possession of the store and partnership business and collected accounts and notes due to the firm to the amount of $767.99. The plaintiff knew nothing of these transactions at the time. Solomonson had also cashed grain checks for farmers with the firm’s money, amounting to $1,492.25, without either the defendant’s or the plaintiff’s knowledge.

On or about the 28th day of September, 1909, the firm of *399Solomonson & Anderson was, and bas since continued to be, insolvent. At tbis time its property was transferred by trust deed for tbe benefit of its creditors. Solomonson was, at tbis time, also insolvent.

In October, 1909, Solomonson assigned all of bis interest in and to the partnership assets to the plaintiff. On the 8th day of December, 1909, the trustee of the firm property assigned to the plaintiff the book accounts, claims, and causes of action belonging to the firm. the plaintiff before the commencement of this action paid all of the indebtedness of the said firm, amounting to $5,000.

On the 24th day of November, 1909, the *Mill Company*commenced an action in, the Polk county circuit court against the firm of Solomonson & Anderson to recover an alleged balance due it for goods, wares, and merchandise sold and delivered to the firm of the alleged value of $3,868.33 and for cash advanced to. the firm amounting to $133.12, and for moneys of the plaintiff which it alleged bad been used by the defendants in their partnership business, the amount whereof it could not then state, and demanded judgment for $1,408.74. In that action the defendants admitted having purchased of plaintiff goods, wares, and merchandise of the nature stated, but denied the amount thereof as stated in the *Mill Company’s*complaint, and alleged that the goods purchased bad been fully paid for. the defendants also denied that they bad taken or appropriated any of the *Mill Company’s*money or mingled any of it with the moneys of the firm. the defendants further denied that the firm acted as the agent in any manner for the *Mill Company*in conducting its business at Nye.

The issues raised by the pleadings did not present the questions as to what amounts Solomonson was in default to the *Mill Company*nor as to what' amount of the partnership funds the *Mill Company*bad received from him through the fraudulent appropriation thereof by Solomonson and the com*400pany’s agents for the purpose of covering Solomonson’s defaults. the referee in the action found that Solomonson was the *Mill Company's*agent at Nye; that the copartnership was not the company’s agent, and that the firm did not appropriate or receive any of the *Mill Company’s*moneys or property nor mingle its funds with that of the partnership; that the *Mill Company*wrongfully attempted to charge Solo-monson’s shortage to the copartnership, and that a large amount of the partnership notes and assets which bad come into the *Mill Company’s*possession prior to and at the time the partnership failed in 1909 bad not been credited to the copartnership account. the referee also found the correct amount of the *Mill Company’s*total claim for goods and merchandise sold and delivered by it to the firm of Solomonson & Anderson and the payments the firm bad made thereon. In addition to the foregoing the referee , also reported some findings on the evidence adduced, stating the amounts of partnership notes and checks of the firm which the *Mill Company*bad received and not credited to any account of the copartnership, but bad attempted to credit and apply them in satisfaction of its claim against Solomonson in bis individual capacity under their contract of agency with him; and that its agents had obtained these with the knowledge that they were funds belonging to the firm of Solomonson & Anderson and that *Anderson*had no knowledge thereof nor assented or approved the same, and that its agents were informed that Solomon-son and the firm of Solomonson & Anderson were then insolvent. the circuit court upon motion of the parties, after argument, modified this report of the referee by striking out as surplusage the findings of the referee pertaining to the appropriation by the *Mill Company*of the moneys and assets of the firm which were thus obtained through the wrongful conduct of Solomonson and the company’s agents for the purpose of paying Solomonson’s individual liability as their defaulting agent; and approved by its judgment only such items *401of money or proceeds of notes wbicb were received by the *Mill Company*in payment of the account against the firm for goods, wares, and merchandise bought from the company, and found as to the items thus credited to the copartnership and covered by the findings thus approved that: “The total amount for wbicb the said firm should be credited greatly exceeds the proper charges,” and therefore made the following direction: “Wherefore it is further ordered that defendant have judgment that plaintiff has no cause of action and for this [their] costs and disbursements.” Judgment was accordingly entered dismissing plaintiff’s complaint and for costs.

In the instant action the court again found all the essential facts in accord with the .foregoing showing the relationship of the partners; the insolvency of Solomonson and of the firm in September, 1909; Solomonson’s defaults in account with the *Mill Company*as its agent at Nye and the payment, by checks and otherwise, of bis individual liability to the *Mill Company*out of the funds and assets of the firm without the knowledge, consent, or approval of *Anderson,*and that the *Mill Company’s*agents bad knowledge that these firm funds and assets were so applied without' *Anderson’s*knowledge. The court also found that the plaintiff in the instant action *{Anderson)*and bis copartner, Solomonson, bad in their answer in the former action, wherein the *Mill Company*was plaintiff and Solomonson and *Anderson,*as copartners, were defendants, alleged the same matter as a defense wbicb *Anderson*alleges in bis complaint as bis cause of action, and that evidence thereof was adduced and the rights of the parties in respect thereto were litigated, and that the plaintiff participated in the active litigation of said action, and that judgment was rendered therein adjudicating the rights of all parties in respect thereto; and upon these grounds adjudged in this action that such former adjudication estopped the plaintiff in this action from recovering on any of the claims *402in bis complaint as the assignee of the trustee of the firm property.

The plaintiff assails this finding and conclusion of the trial court upon the ground that the issues in the former action by the *Mill Company*against Solomonson and bimself as co-partners did not include the causes of action contained in bis complaint in the instant action and that they were in no way considered, litigated, or adjudicated therein. An examination of the record of the former ease shows that the court’s action in striking out the referee’s findings to the effect that Solomonson, in collusion with the company’s agents, bad paid to the company large sums of the firm’s money in satisfaction of bis individual obligations arising out of bis defaults as agent for the *Mill Company,*was manifestly based on the ground that the pleadings in that action presented no issue to determine the questions involved as to Solomonson’s agency and bis liability under the contract with the *Mill Company.*An examination of the pleadings in that action shows that the ruling was correct. the facts as there found, that the firm bad no interest in nor received any benefit from or through such agency business, and that the cause of action alleged was to recover a balance due the *Mill Company*on its account for goods, wares, and merchandise sold and delivered and for money loaned and advanced to the firm, clearly indicate that no accounting of the transaction pertaining to Solomonson’s defaults and the fraudulent appropriation of the firm’s assets in payment thereof was embraced in the issues of that action. It is obvious that' the issues presented only the questions of the amount due on the *Mill Company's*account against the co-partnership and whether or not the account was paid. the findings and judgment also clearly indicate that the court so treated the case and adjudicated what was due the *Mill Company*on its account against the copartnership and dismissed the *Mill Company’s*complaint with costs, upon the ground that this account was fully paid. True, some evidence show*403ing that Solomonson. bad paid and delivered to the *Mill*Com-para/ large sums of money and other assets of the firm was received; but it also appears that as to them the items embraced and enumerated in the third, fourth, fifth, and sixth findings of fact of the court in the instant case and amounting to $4,260.24'were intended by him and the *Mill Company*to apply as payment of bis individual obligation, and thus were not in fact embraced in the credits allowed by the court in the former action on the account of the *Mill Company*as payments. It is manifest from the record in the former case that the *Mill Company's*liabilities to the copartnership of Solomonson & Anderson for these items so obtained by it of the firm property were not assumed to be involved nor litigated or considered in that action. This is clearly indicated by the court’s action, acquiesced in by all who were before the court, in striking the referee’s findings in relation thereto from the report .as surplusage, and awarding judgment' regardless of them, dismissing the *Mill Company’s*complaint. If the items bad been considered to be within the issues and for determination, then the court would not have stricken them from the report as it' did, and judgment for recovery thereof upon the report of the referee as made to the court would necessarily have been awarded against the *Mill Company.*This view of the former action makes' the firm’s position therein merely defensive for the purpose of showing payment, and hence the other matters were immaterial and were properly eliminated by the court by its modification of the referee’s report and dismissal of the *Mill Company’s*complaint. This conclusion as to the nature of that action excludes all claims that it constituted an accounting and adjustment of all the claims, liabilities, and causes of action between the parties arising out of Solomonson’s defaults as agent of the *Mill Company*and out of any misappropriation of the firm’s funds by him and the *Mill Company*in payment of bis individual liabilities. Whether or not Solomonson isv *404liable to the *Mill Company*on account of the alleged defaults under bis contract of agency was not involved in the litigation nor determined. It therefore appears that recovery from the *Mill Company*of the property of the copartnership it bad wrongfully appropriated in payment of its alleged claim against Solomonson was not' embraced in the judgment in the former action, and that the claims and demands here involved have never been litigated and determined, nor has satisfaction thereof ever been made. It is elementary that Solomonson’s alleged liability to the *Mill Company*was an individual one and that the firm was not liable therefor, and hence the firm’s property could not be applied in satisfaction thereof without the consent and approval of *Anderson.*

It is considered that the court erred in bolding that the record in the former action shows that the causes of action embraced in the instant action were there adjudicated. Under these circumstances the former judgment does not preclude the plaintiff in this action from enforcing the causes of action alleged in bis complaint against the defendant; and upon the facts shown by the evidence be is entitled to recover the amount specified in the third, fourth, fifth, and sixth findings of the court, with interest thereon from the commencement of this action, and bis costs. *Moehlenpah v.*Mayhew, 138 Wis. 561, 119 N. W. 826; *Hardy v.*Mills, 35 Wis. 141; *Grunert v. Spalding,*104 Wis. 193, 80 N. W. 589.

*By the Court.*— Tbe judgment appealed from is reversed, and tbe cause remanded with directions to award judgment in tbe plaintiff’s favor as indicated in tbe opinion.

A motion for a rehearing was denied, with $25 costs, on October 7, 1913.