Source: https://supreme.justia.com/cases/federal/us/69/70/
Timestamp: 2019-04-23 05:59:43+00:00

Document:
1. After a partnership contract confessedly against public policy has been carried out, and money contributed by one of the partners has passed into other forms -- the results of the contemplated operation completed -- a partner in whose hands the profits are cannot refuse to account for and divide them on the ground of the illegal character of the original contract.
2. Where one partner who is in sound health is made sole agent of the partnership by another who is not, and who relies on him wholly for true accounts, and the party thus made agent manages the business at a distance from the other, communicating to him no information, the relation of partners, whatever it may be in general, becomes fiduciary, and the law governing such relations applies.
professed to tell, and want of consideration proportioned to the real value of the interest which the complainant had in the concern. The answer admitted the purchase by Brooks but denied the fraud. The court gave the relief prayed, and from its decree herein an appeal, the present suit, came here.
The case, as proved by the evidence and as shown and assumed by this Court after a very careful examination of an immense mass of testimony -- twelve hundred pages closely printed -- set forth in part in the opinion, but, as involving very voluminously controverted issues of fact, not necessary nor indeed possible to be presented here, [Footnote 1] was in substance this.
Martin and have full and exclusive control of the business -- an agreement, of course, by which he obtained a preponderating influence in the management of the partnership over Field. The bill indeed alleged that Brooks had a power of attorney from Martin authorizing him on all occasions to represent him in the partnership business. This fact was denied in the answer, but the answer admitted that Brooks was authorized by Martin to control the business. Martin advanced in cash over $57,000, and large purchases having been made of soldiers' claims, the parties closed their operations in New Orleans, where little was done after a few months in the way of purchasing warrants. Brooks then came to Washington to attend to the issue of warrants. Field, with two brothers of his, went to Wisconsin to locate the warrants and sell the lands. Martin still remained in New Orleans, carrying on his business of banker. From the time that Brooks and Field left New Orleans, the management of the entire business fell, apparently, under the direction of Brooks. None of it was conducted in New Orleans, nor, except five or six which Brooks bought at the suggestion of Martin, were any further warrants bought there. The accounts were kept in Wisconsin, two thousand miles from where Martin was, and who had no opportunity of hearing anything about the partnership except as it was communicated to him by Brooks or Field, or one of the brothers Field, who were employed as clerks or agents in the business. No reports of the business were made to Martin, and as the testimony showed, Brooks and Field managed it entirely without consulting him, irrespectively of his interest. The firm was known indifferently as Brooks & Field and as Brooks, Field & Co.
which might naturally make Martin "glad to escape with a few thousand dollars which it owed him as a creditor," an account which the court considered that it was impossible to regard as true.
In June, 1848, Martin at the invitation of Brooks, went to Pittsburgh, in Pennsylvania, to meet Brooks, who then and there, on the 28th June, 1848, bought out his interest in the partnership. Martin at this time had never been in the West, and in fact knew little or nothing as to the particulars of what had been done there. There was no evidence, indeed, except the answer of the defendant, which was discredited by facts, that Martin ever had a remote conception of the condition of the business. On the contrary, there were letters in the record begging for statements on that subject.
On the other hand, when Brooks and Martin met in Pittsburgh, Brooks had just come from Wisconsin, where he saw Field and his brothers and where he had the partnership books for examination, and spent several days in examining them. That he knew the real condition of the concern and was fully and minutely informed as to every item of its business was considered by the court as "beyond dispute."
the day before by a letter from George Field in which he suggested the propriety of remitting directly to New York. I feared he had so directed you. It would have greatly embarrassed my operation. I want all advice, as well as all remittances, to pass through myself. If Mr. Lake OR ANYONE ELSE ask information in relation to our matters, refer him to me, advising me of the circumstance."
of which Martin's share, for the partnership, by its terms, was not an equal one, came to $30,000.
The consideration of Brooks' purchase was an agreement by him to pay all debts of the partnership, about $45,000, and a payment, as he alleged, of $3,000 to Martin though, as Martin asserted, a payment of about one-half a balance due him on another account, which balance it was evident that Brooks was bound for. Brooks gave no security for his performance of his agreement to pay these debts.
At the time when this bill was filed, to-wit, on the 3d of August, 1857, which was apparently so soon as Martin had examined into the facts of the case, all the claims purchased by the firm had been turned into land warrants, and the warrants had been sold or located. Where the purchase had been made prior to the date of the warrant granted, assignments were subsequently made by the soldier. A portion of the lands thus located had been sold, part for cash, partly on mortgage, and the assets of the partnership consisted now almost wholly of cash securities or of land.
That notwithstanding the statement in the articles of partnership that the business of the firm related to the purchase and sale of bounty land warrants and scrip, such was not the true purpose of its formation, nor the business which it really transacted; but that the partners intended, and really did engage in buying up the claims of the soldiers, who were then returning from Mexico by way of New Orleans, for bounty land or scrip, long before any scrip or land warrants were issued by the Government [a fact of which there appeared, indeed, by the evidence, to be no great doubt]; that this was an illegal traffic, forbidden by the act of Congress of February, 1847, above referred to, and against public policy; that accordingly, the plaintiff could have no relief in a court of equity against his co-partner, even if it were made to appear that the latter realized a large sum out of the venture, and defrauded the former of his share of the amount so realized.
2. That no such fiduciary relation existed between the parties, from the mere fact of partnership, or from anything shown in the case, as entitled the complainant to relief.
-- that the traffic in which this firm engaged was the buying up of soldiers' claims, before any scrip or land warrants were issued, and not the purchase and sale of bounty land warrants and scrip -- is true. We have as little doubt that the traffic was illegal. Undoubtedly the main object of the ninth section of the Act of February 11, 1847, was to protect the soldier against improvident contracts of the precise character of those developed in this record. It was a wise and humane policy, and no court could hesitate to enforce it in a case which called for its application. If a soldier who had thus sold his claim to Brooks, Field & Co. had refused to perform his contract, or to do any act which was necessary to give them the full benefit of their purchase, no court would have compelled him to do it, or given them any relief against him. And if they had, by any such means, got possession of the land warrant or scrip of a soldier, no court would have refused, in a proper suit, to compel them to deliver up such land warrant or scrip to the soldier. Or if Brooks, after the signing of these articles of partnership, had said to Martin "I refuse to proceed with this partnership, because the purpose of it is illegal," Martin would have been entirely without remedy. If, on the other hand, he had said to Martin "I have bought one hundred soldiers' claims, for which I have agreed to pay a certain sum, which I require you to advance according to your agreement," Martin might have refused to comply with such a demand, and no court would have given either of his partners any remedy for such a refusal. To this extent go the cases of Russell v. Wheeler, [Footnote 3] Sheffner v. Gordon, [Footnote 4] Belding v. Pitkin, [Footnote 5] and the others cited by counsel for appellant, and no further.
the purchase had, in many cases, been cured by the assignment of the warrant by the soldier after its issue. A large proportion of the lands so located had also been sold, and the money paid for some of it, and notes and mortgages given for the remainder. There were then in the hands of defendant, lands, money, notes, and mortgages, the results of the partnership business, the original capital for which plaintiff had advanced. It is to have an account of these funds, and a division of these proceeds, that this bill is filed. Does it lie in the mouth of the partner who has, by fraudulent means, obtained possession and control of all these funds, to refuse to do equity to his other partners, because of the wrong originally done or intended to the soldier? It is difficult to perceive how the statute, enacted for the benefit of the soldier, is to be rendered any more effective by leaving all this in the hands of Brooks, instead of requiring him to execute justice as between himself and his partner; or what rule of public morals will be weakened by compelling him to do so? The title to the lands is not rendered void by the statute. It interposes no obstacle to the collection of the notes and mortgages. The transactions which were illegal have become accomplished facts, and cannot be affected by any action of the court in this case.
"The answer to the objection appears to me to be this -- that the plaintiff does not ask to enforce any agreement adverse to the provisions of the act of Parliament. He is not seeking compensation and payment for an illegal voyage. That matter was disposed of when Taylor [the defendant] received the money; and plaintiff is now only seeking payment for his share of the realized profits. . . . As between these two, can this supposed evasion of the law be set up as a defense by one against the otherwise clear title of the other? Can one of two partners possess himself of the property of the firm, and be permitted to retain it, if he can show that, in realizing it, some provision or some act of Parliament has been violated or neglected? . . . The answer to this, as to the former case, will be, that the transaction alleged to be illegal is completed and closed, and will not be in any manner affected by what the court is asked to do between the parties. . . . The difference between enforcing illegal contracts, and asserting title to money which has arisen from them, is distinctly taken in Tenant v. Elliot, [Footnote 7] and Farmer v. Russell, [Footnote 8] and recognized and approved by Sir William Grant in Thomson v. Thomson. [Footnote 9]"
announced is sound, and that it is directly applicable to the case before us.
The plaintiff alleges in his bill, that on the 28th day of June, 1848, he sold his interest in the partnership business to the defendant Brooks; that in making the sale he was overreached by the fraud of Brooks, who, by concealment of what he knew, and false representations in what he professed to tell, took advantage of the embarrassed financial condition of plaintiff, and his ignorance of the partnership business, and procured from him the sale for a consideration totally disproportioned to the real value of his interest in the concern. The defendant admits the purchase of plaintiff's interest, but denies the fraud, and insists that the transaction was in all respects fair and honest. The issue thus generally stated here, is the one mainly contested in the case; and so contested that a record of a thousand printed pages is mostly filled with testimony on this subject.
between the parties constitutes of itself a relation which calls for the application of the principles which we have alluded to, and Judge Story in recapitulating the confidential relations to which they are appropriate, [Footnote 11] mentions partner and partner as one of them. It is not necessary to decide here whether, in all cases, a sale by one partner to another of his interest in the partnership concern, will be scrutinized with the same closeness which is applied to fiduciary relations generally, for there are special circumstances in this case which bring it clearly within the rules applicable to that class of cases.
1. The defendant was not only the partner of plaintiff, but he was his special agent in the management of the business. The bill alleges that he had a power of attorney from plaintiff, authorizing him to represent, on all occasions, the interest of plaintiff in the conduct of the affairs of the firm, and although this is denied in the answer, and is not proven, the answer does state that at the time the partnership was formed, it was distinctly agreed between plaintiff and defendant that the latter was to have the full and exclusive control of the business, and should so far represent the plaintiff as to give defendant a preponderating influence in the management of the partnership over Mr. Field, the third partner. The record leaves no doubt that he acted throughout in accordance with this agreement.
in New Orleans save the purchase of five or six warrants made by Brooks on Martin's suggestion, nor were any reports made of the business to Martin.
Brooks and Field thus managed the entire concern, at a distance of near two thousand miles from Martin and, as we think the testimony shows, without consulting him in any way, and with very little regard for his large interest in the business.
Under these circumstances, Brooks must be held to have been not only the partner, but the special agent of Martin, and the purchase made by him of Martin's interest must be tested by the rules which govern such transactions as between principal and agent.
"On the whole, the doctrine may be generally stated, that wherever confidence is reposed, and one party has it in his power, in a secret manner, for his own advantage, to sacrifice those interests which he is bound to protect, he will not be permitted to hold any such advantage. [Footnote 12]"
"If a partner who exclusively superintends the business and accounts of the concern, by concealment of the true state of the accounts and business, purchase the share of the other partner for an inadequate price, by means of such concealment, the purchase will be held void. [Footnote 13]"
Speaking of a purchase by a trustee from his cestui que trust, Lord Chancellor Eldon says, in the case of Coles v. Trecothick, [Footnote 14] that though permitted, it is a transaction of great delicacy, and which the court will watch with the utmost diligence -- so much that it is very hazardous for a trustee to engage in such a transaction.
We lay down, then, as applicable to the case before us and to all others of like character that in order to sustain such a sale, it must be made to appear first that the price paid approximates reasonably near to a fair and adequate consideration for the thing purchased, and second that all the information in possession of the purchaser, which was necessary to enable the seller to form a sound judgment of the value of what he sold, should have been communicated by the former to the latter.
In regard to the adequacy of the price, it is obvious that Brooks did not pay to Martin anything which he was not bound to pay before the sale was made, or assume any obligation under which he did not already rest, nor did Martin receive anything which Brooks did not then own him, or his promise to do anything for which Brooks was not previously bound. The only matter in which their relations were changed was that Martin sold to Brooks his share of the profits of the business, and Brooks assumed to bear all Martin's share of the losses.
So the condition of the partnership business, at this time, shows a balance of $15,000 [Footnote 16] of profits, all of which was cash, or funds equal to cash. It further appears, that there were on hand and unsold over 45,000 acres of land, which, at the Government rate of $1.25 an acre, gives an aggregate value of $57,000. Add this to the $15,000 above mentioned, and we have $72,000 as the probable profits of the partnership venture, at the time of this sale.
It is said that the danger that soldiers would seek to reclaim the warrants, or the lands on which they had been located, under the provisions of the act of 1847, already mentioned, must have detracted largely from the amount which any prudent man would have given for Martin's interest in the concern. This danger was, however, a very remote and improbable one, and must have so appeared, when we consider that these claims have been bought from young men scattered over the different states of the Union, with no means of ascertaining where the warrants were located, or in whom the title was vested, and that the amount, in each case separately, was not worth the trouble and expense of the search and subsequent litigation. But while these considerations might have some weight, if the question of adequate price were otherwise in doubt, they can go but a little way to establish that point, in the circumstances of the present case.
Martin's share of the profits were $30,000, for which Brooks gave him substantially nothing.
Was Martin placed by Brooks in possession of all the information known to himself, and which was necessary to enable Martin to form a sound judgment of the value of what he was selling?
interview, and that he knew that Lake was the other partner in the firm of Martin & Co., we look upon it as remarkable; pointing clearly to one conclusion, namely, a determination to keep from Martin all the funds of the concern, and all information of its condition, in order that he might perform the operation of buying Martin's interest at a sacrifice.
We are of opinion, from a careful examination of the testimony, that Brooks occupied towards Martin a relation of confidence and trust, being his partner, his agent, and his brother-in-law, and having also entire control of the partnership business; that he took advantage of this position to conceal from Martin the prosperous condition of the concern, and purchased from him his interest, for a price totally disproportioned to its real value, and that, under such circumstances, it is the unquestionable duty of a court of chancery to set aside the contract of sale.
MR. JUSTICE CATRON dissented briefly; on the ground that the partnership, having been formed for the purpose of speculating in soldiers' claims to warrants, the original transaction was a fraud upon the act of Congress, violating public policy, and that in such a case equity does not interfere.
The printed record made a book of 1,201 pages of long primer, solid, a volume, of itself, larger than any volume of reports of this Court ever published.
9 Stat. at Large 125.
1 Bosanquet & Puller 3.
58 U. S. 17 How. 232.
1 Story's Equity § 323.
See also Michoud v. Girod, 4 How. 503; Bailey v. Teakle, 2 Bockenborough 51-54; Hunter v. Atkyns, 3 Mylne & Keene, 113; Maddeford v. Austwick, 1 Simons 89.
The court here made a computation giving this result.

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