Case Name: Clement, Appellant, v. Clement
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1970-01-09
Citations: 436 Pa. 466
Docket Number: Appeals, Nos. 168 and 169
Parties: Clement, Appellant, v. Clement.
Judges: Before Jones, Cohen, Eagen, O’Brien, Roberts and Pomeroy, JJ.
Reporter: Pennsylvania State Reports
Volume: 436
Pages: 466–472

Head Matter:
Clement, Appellant, v. Clement.
Argued March 20, 1969.
Before Jones, Cohen, Eagen, O’Brien, Roberts and Pomeroy, JJ.
reargnment refused January 29, 1970.
Charles D. Coll, for appellant.
Marvin J. Apple, for' appellees.
' Harold A. Cold, with him Baskin, Boreman, Bachs, Condelman & Craig, for appellee.
January 9, 1970:

Opinion:
Opinion by
Mr. Justice Roberts,
Charles and L. W. Clement are brothers whose forty year partnership has ended in acrimonious litigation. The essence of the conflict lies in Charles' contention that L.W. has over the years wrongfully taken for himself more than his share of the partnership's profits. Charles discovered these misdeeds during negotiations with L.W. over the sale of Charles' interest in the partnership in 1964. He then filed an action in equity, asking for dissolution of the partnership, appointment of a receiver, and an accounting. Dissolution was ordered and a receiver appointed. After lengthy hearings on the issue of the accounting the chancellor decided that L.W., who was the brighter of . the two and who kept .the partnership books, had diverted partnership funds. The chancellor awarded Charles a one-half interest in several pieces of property owned by L.W. and in several insurance policies on L.W.'s life on the ground that these had been purchased with partnership assets.
The court en bane then heard the case and reversed the chancellor's decree in several material respects. The reversal was grounded on two propositions: that Charles' recovery could only be premised on a showing of fraud and that this burden was not met, and that the doctrine of laches foreclosed Charles' right to complain about the bulk of the alleged misdeeds.
We disagree with the court en banc's statement of the applicable law and therefore reverse. Our theory •is simple. There is a fiduciary relationship between partners. Where such a relationship exists actual fraud need not be shown. There was ample evidence of self-dealing and diversion of partnership assets on the part of L.W.—more than enough to sustain the chancellor's conclusion that several substantial investments made by L.W. over the years were bankrolled with funds improperly withdrawn from the partnership. Further, we are of the opinion that the doctrine of laches is inapplicable because Charles' delay in asserting his rights was as much a product of L.W.'s concealment and misbehavior as of any negligence on his part. In all this we are strongly motivated by the fact that the chancellor saw and heard the various witnesses for exhausting periods of time and was in a much better position than we could ever hope to be to taste the flavor of the testimony.
The Act of 1915, March 26, P. L. 18, part IY, §21, 59 P.S. §54, very simply and unambiguously provides that partners owe a fiduciary duty one to another. See also P.L.E. Partnerships, §71, 91, 93. One should not have to deal with his partner as though he were the opposite party in an arms-length transaction. One should be allowed to trust his partner, to expect that he is pursuing a common goal and not working at cross-purposes. This concept of the partnership entity was expressed most ably by Mr. Justice, then Judge, Cardozo in Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928):
"Joint adventurers, like copartners, owe to one another, while the enterprise continues, the duty of the finest loyalty. Many forms of eonduet permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the 'disintegrating erosion' of particular exceptions. . . . Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court." 249 N.Y. at 463-64, 164 N.E. at 546.
It would be unduly harsh to require that one must prove actual fraud before he can recover for a partner's derelictions. Where one partner has so dealt with the partnership as to raise the probability of wrongdoing it ought to be his responsibility to negate that inference. It has been held that "where a partner fails to keep a record of partnership transactions, and is unable to account for them, every presumption will be made against him." Bracht v. Connell, 313 Pa. 397, 405, 170 Atl. 297, 301 (1933). Likewise, where a partner commingles partnership funds with his own and generally deals loosely with partnership assets he ought to have to shoulder the task of demonstrating the probity of his conduct.
In the instant case L.W. dealt loosely with partnership funds. At various times he made substantial in vestments in his own name. He was totally unable to explain where he got the funds to make these investments. The court en banc held that Charles had no claim on the fruits of these investments because he could not trace the money that was invested therein dollar for dollar from the partnership. Charles should not have had this burden. He did show that his brother diverted substantial' sums from the partnership funds under his control. The inference that these funds provided L.W. with the wherewithal to make his investments was a perfectly reasonable one for the chancellor to make and his decision should have been allowed to stand.
The doctrine of laches has no role to play in the decision of this case. It is true that the transactions complained of cover a period of many years. However, we do not think that it can be said that Charles negligently slept on his rights to the detriment of his brother. L.W. actively concealed much of his wrongdoing. He cannot now rely upon the* doctrine of laches—that defense was not intended to reward the successful wrongdoer.
The decree is vacated and the case remanded for further proceedings consistent with this opinion.
Mr. Chief Justice Bell took no part in the consideration or decision of this case.