Case Name: John C. Rodgers, Appellant, v. Frank H. Clement, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1897-04
Citations: 15 A.D. 561
Docket Number: 
Parties: John C. Rodgers, Appellant, v. Frank H. Clement, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 15
Pages: 561–567

Head Matter:
John C. Rodgers, Appellant, v. Frank H. Clement, Respondent.
Partnership) — allowance of interest upon money advanced by a partner — contingent expenses for unlawful ends, not allowed.
In the absence of a special contract, a controlling usage or peculiar circumstances showing that the payment of interest was contemplated, a partner who advances money to or for the benefit of his firm, in the firm business, is not entitled to interest thereon.
The assumptions by a partner that expenditures, of which he cannot give the details and for which he has no vouchers, must have been made for “ contingent expenses” does not entitle him to charge the firm with their amount.
Upon a partnership accounting one of the partners sought to charge the firm with moneys which he had paid to “gentlemen” for services in procuring subscriptions to a railroad which the partnership built, but refused to reveal the identity of the recipients upon the ground that the disclosure would incriminate him.
Held, that as it was clear that the money was used for illegal purposes, he would not be allowed to charge the firm with the expenditures;
That this would be so even though the other partner had sanctioned the payments, as the law will leave the parties to an illegal transaction just where they were when the litigation began.
Appeal by the plaintiff, John 0. Rodgers, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of New York on the 16th day of May, 1896, upon the report of a referee.
This appeal was transferred from the first department to the second department.
L. Laflin Kellogg, for the appellant.
F. R. Minrath, for the respondent.

Opinion:
Willard Bartlett, J.:
This is an action for an accounting between partners, in which the defendant after a trial before a referee has recovered a money judgment of $5,280.27 against the plaintiff.
The undertakings of the partnership were the construction of a railroad at Drum Point in Calvert county, in the State of Maryland, and the building of the Niagara power tunnel at Niagara Falls, in the State of New York. The present controversy arises chiefly out of the Maryland enterprise.
Upon this appeal the plaintiff complains of the action of the referee in two respects and in two respects only. He claims to be entitled to a credit of $5,860.93, which the referee refused to allow him upon the accounting, for interest on money which he contributed or procured and furnished for the use of the firm in carrying on the firm's work in Maryland. He also objects to a charge in the account of $2,095 in behalf of the defendant against the firm on the ground that it represents expenditures, some of which are not proved to have been made at all, and others of which, if made, were for unlawful purposes not sanctioned by the plaintiff or known to him.
We agree with the learned referee before whom the case was tried that the plaintiff contributed the sums on which he now claims interest without any agreement, express or implied, that he should receive interest thereon, and expecting to be paid for the use thereof only by his share of one-lialf the profits. The contract of partnership was oral. In order to procure the Drum Point contract it was necessary to raise and loan the sum of $15,000 to the persons who controlled it. The plaintiff undertook to raise and loan this amount and did so. His contention is that beyond this no agreement was made between him and the defendant as to the amount of capital to be furnished by either; but the defendant testifies that, while no special amount of capital was agreed upon, the plaintiff agreed to furnish whatever money was necessary in addition to the $5,000 or $6,000 which the defendant was able to put into the work. The profits of the enterprise were to be divided equally between the partners. Nothing was said on the subject of interest upon the amount of capital that either might contribute.
The plaintiff in fact supplied most of the money needed to carry on the Drum Point contract, and the defendant in fact did most of the work. The referee, upon conflicting evidence, has held that the defendant's version of the partnership agreement is correct, and we cannot say that he is wrong in this respect. Upon the terms of that agreement, and upon the action of the parties under it, depends to a great degree the question whether the plaintiff is entitled to interest upon the money which he furnished. The proof warranted the referee in finding that the plaintiff's principal contribution to the joint undertaking was the capital which he supplied, while the defendant's principal contribution was his active supervision of the work in Maryland. In this feature the case resembles Jackson v. Johnson (11 Hun, 509, modified in 74 N. Y. 607, but not on the question of interest; see 8 Abb. N. Y. Dig. 68, n. 2); for here it may be said, as was held there, that the parties considered the one contribution equal to the other, and that each partner was to find his compensation in his equal share of the profits.
A still closer likeness to the case at bar may be found in Lewis v. Whitehall Lumber Co. (14 N. Y. St. Repr. 302), which was an action to dissolve a partnership based upon an oral agreement, and for an accounting between the partners. The plaintiff, prior to the joint undertaking, had procured a contract for furnishing a quantity of ties to the Delaware and Hudson Canal Company. The referee who tried the case found that, in consideration of the assignment of this contract to the defendants as security, they undertook by the agreement constituting the copartnership to advance the money necessary to fulfill the contract and to assist actively in its performance ; also, that the plaintiff and an associate were to devote their time to the purchase and shipment of the ties, and that the profits were to be divided equally between the parties. "In the absence of any agreement to pay interest on advances," said Judge Alton B. Parker, speaking for the General Term of the third department, " the referee was justified in construing the agreement to mean that the defendant would furnish the money required for the privilege of sharing in the profits of the contract which plaintiff had procured. Interest was, therefore, properly disallowed."
A similar ruling in regard to the right of a partner to be allowed interest on the capital which he furnishes as against the work done by his copartner was made by the General Term of the fourth department in Sanford v. Barney (50 Hun, 108), where the opinion was written by Martin, J., now of the Court of Appeals.
The law applicable to this branch of the case at bar is well stated in Parsons on Partnership (4th ed. § 155, 156) in these words: "Whatever any one (partner) does, he has no claim for anything beyond his equal share of the common benefit, without the consent of his copartners. Upon the same principle, no partner is entitled to inter est on moneys advanced to or deposited with the firm for its use, unless there be a special agreement to that effect. There is no established rule as to the allowance of interest between partners. The circumstances of each particular case must determine." (See, also, Perley's Law of Interest, 70.)
The authorities already referred to show that interest has invariably been refused where the circumstances resembled those presented here. Most of the cases cited in behalf of the appellant are readily distinguishable in their' facts. In Lloyd v. Carrier (2 Lans. 364) the partner was held to be entitled to interest on advances not regui/red of Mm by the copartnership agreement. The advances spoken of in Beach v. Colles (85 N. Y. 511, 515) seem to have been made also without any previous obligation to make them. The question of interest involved in Collender v. Phelan (79 N. Y. 366) related only to interest on advances made by a surviving partner in paying the indebtedness of his firm to an amount in excess of the firm moneys in his hands. In Morris v. Allen (14 N. J. Eq. 44) the chancellor expressly says that there was no agreement to contribute capital, whereas in the present case, according to the defendant, the plaintiff expressly agreed to furnish whatever money should be necessary, over and above the comparatively modest contribution of the defendant. So, also, in Baker v. Mayo (129 Mass. 517) it did. not appear that there was any agreement between the partners on the subject of the amount of capital which each was to contribute. The partnership under consideration in the Mississippi case (Berry v. Folkes, 60 Miss. 576) contemplated the purchase on credit, and the ownership and management of an improved and arable plantation. The purchase was wholly on credit and payment was made in the promissory notes of the partners falling due annually over a period of five years. It was held that an agreement by one of them to advance money necessary to the prosecution of the partnership' business did not authorize the conclusion that he did not intend to charge interest for the money thus advanced. But there was a radical difference from the case at bar in the fact that the joint undertaking-involved no actual participation in the work of the partnership by either partner. One of them is described as a merchant and a man of large property ; the other as a lawyer in full practice; and both knew that neither could go upon the land and superintend opera tions there. The partner who made the advances, therefore, assumed more than an equal share of the burdens of the enterprise in furnishing the money, while in the present case the contributions of the plaintiff to the capital may fairly be regarded as having been offset by the actual services performed by the defendant in Maryland. In Hodges v. Parker (17 Vt. 242) it does not appear what were the terms of the partnership agreement.
The cases which most nearly sustain the position of the appellant with reference to this question of interest are Ligare v. Peacock (109 Ill. 94), and The Matter of the German Mining Co. (4 DeG., M. & G. 19). In the first of these one partner in an equal partnership was held to be chargeable with interest on the amount of capital which was contributed by the other partner in excess of one-lialf. In the English case the court with manifest hesitation allowed interest to shareholders in a mining company, which was really a partnership, upon moneys advanced by them for the purposes of the company. The weight of authority, however, upon a review of the many decisions which I have examined bearing upon the subject, appears to be in favor of the proposition that in the absence of a special contract, a controlling usage or peculiar circumstances showing that the payment of interest was contemplated, a partner who advances money to or for the benefit of his firm in the firm business is not entitled to interest thereon. (Lee v. Lashbrooke, 8 Dana, 214; Godfrey v. White, 43 Mich. 171; Gilman v. Vaughan, 44 Wis. 646.)
The suggestion is made that the admission and averment in the answer, that the plaintiff loaned the copartnership certain sums of money, all of which had been repaid, may be regarded as an acknowledgment of an obligation to pay interest on the part of the defendant. I agree with the learned referee, that the language of the answer should not receive this construction, as it was evidently used without reference to any claim of interest, and very probably referred to the loan of $15,000 to the parties from whom the Drum Point contract was obtained.
While for the foregoing reasons I am satisfied that the plaintiff's claim for interest was properly disallowed, I think the defendant was credited with too large an amount on account of what are called extraordinary expenditures in Maryland.
He was allowed to charge the firm with $2,095.05 for these expenses. Into this sum. entered $1,195.05 " contingent expenses," alleged by the defendant, to represent expenditures made by him for the benefit of the copartnership, of which, however, he could not give the. details, and for which he had no vouchers. The manner in which he arrived at the figures is thus stated in his own testimony : "Before I put the figures $1,195.05 I footed up the column. I footed up the cash on the credit side and found that it required $1,195.05 to balance, and then I made the entry of December thirty-first of just the sum that was required to balance; I made the contingent expenses just exactly the difference between these two columns of figures, so as to balance this account; I did not take it from any items of expense that I had, but simply to get rid of the cash which 1 was charged with on the books; that is always the way I found the item of contingent expenses." It thus appears that the amount of this item was fixed by a process of mathematical guesswork. The defendant ascertained what sum he was not otherwise able to account for and then guessed he must have used it for contingent expenses. The proof does not seem to me to be substantial enough to justify this charge against the firm.
It was also error to charge the firm with $600 which the defendant-testified that he paid out to "gentlemen" whose names he would not disclose, in "procuring the adjustment of the Calvert county subscriptions, the endeavor to obtain the Anne Arundel subscription and the State subscription " to the railroad which was under, construction. . The witness expressly refused to reveal the identity of the recipients of this money on the ground that the disclosure would tend to criminate him. It is plain, therefore, that he paid it away for illegal purposes, and that he cannot now be allowed to charge the firm with the payment. The plaintiff positively denied any knowledge or sanction of these expenditures, but even if he did know of them, that fact would not avail the defendant in seeking to obtain credit from the firm for so much money paid out, and as a result of such credit a money judgment against the plaintiff. In other words, if Mr. Clement, although with the authority of Mr. Rodgers, has expended money for criminal ends, the law will not permit him by means of this litigation to procure a judgment against Mr. Rodgers for .that money, but will leave the parties in respect to this portion of the case precisely where they were when the litigation began. (See Pepper v. Haight, 20 Barb. 429, 438, and cases there cited.) Nor is this result affected by the claim of the defendant that the entire item of $2,095.05 has been made good to the firm in the shape of increased profits, for each partner has been credited with his one-lialf of the total profits on the Maryland contract, leaving their relative positions unchanged so far as the "contingent expenses" and the incriminating payments are concerned.
These two items ($1,195.05 and $600) aggregate $1,795.05, in which amount the firm assets ought to be increased. If thus increased the plaintiff in the account would be entitled to one-half thereof, or $897.52 more than he has received credit for. The defendant's judgment against him, though right in other respects, is excessive to this extent.
A new trial should, therefore, be ordered, unless the defendant consents to reduce his recovery by deducting $897.52 therefrom, in which event the judgment should be affirmed, without costs.
All concurred.
Judgment reversed and new trial granted, costs to abide the event, unless within twenty days defendant stipulates to reduce his recovery by deducting therefrom $897.52, in which event the judgment so reduced is affirmed, without costs.