Case Name: Gray v. Kerr
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1889-12-10
Citations: 46 Ohio St. 652
Docket Number: 
Parties: Gray v. Kerr.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 46
Pages: 652–662

Head Matter:
Gray v. Kerr.
Partnership — Accounting between partners— When action for accrues— When statute of limitations begins to rum.
1. The obligation of a partner to account with his co-partners after the dissolution of the partnership, where there has been no fraudulent application or investment of the partnership property by him, nor agreement making him the liquidating partner, or otherwise giving him possession or control of the partnership assets, is not a continuing or subsisting trust within the meaning of Sec. 4974 of the Revised Statutes.
2. A cause of action in favor of one partner against his co-partner for an account, accrues upon the dissolution of the partnership, unless there is some agreement, express or implied, fixing a period for accounting beyond that time, or circumstances rendering an accounting then impracticable.
3. Such actions are governed by Section 4985 of the Revised Statutes, and can only be brought within ten years after the cause of action accrues..
(Decided December 10, 1889.)
Error to the District Court of Belmont County.
James W. Gray, the plaintiff in error, on the 24th of April, 1878, commenced his action in the Court of Common Pleas of Belmont county to obtain the settlement of the accounts of a co-partnership theretofore existing between the parties, and to-recover whatever balance, might be found due him thereon. The petition states that the agreement of co-partnership was entered into in April, 1864, whereby the partners agreed to furnish, each an equal amount of the capital, and to share equally, the profits or losses of the business. The plaintiff furnished $1,653.05 of the capital while defendant only furnished $488.55, the latter agreeing to pay the former interest. on the difference. The business of the partnership comprised the purchase and sale of two rafts of lumber, and nothing more. The whole of the lumber was sold at a net prpfit of $1,256.83. The plaintiff charges, that in May and June, 1864, the defendant drew out $352.00 of the capital by him invested, and became indebted to the firm in the sum of $2,330.-60; while the plaintiff’s account showed him to be a ci’editor of the firm to the amount of $152.43; and he avers there is due him $1,241.02 with interest from January 1, 1867, and also interest on $758.25 (the amount of the capital upon which the defendant agreed to pay the plaintiff interest) from June 3, 1864.
The answer admits the agreement of partnership as stated in the petition, and that the partnership terminated ; and denies the other averments of the petition. The defendant also pleads the statute of limitations, in two separate defenses; one, alleging that the plaintiff’s cause of action did not accrue within six years, and the other, that it did not accrue within ten years next before the commencement of the action.
The allegations of new matter in the answer were denied by a reply, and at the Sping term, 1881, by agreement of the parties, the case was referred to a referee, “ to hear and determine the same, to state an account between the parties, and report his findings of fact and conclusions of law separately.” On the 7th day of March, 1883, the referee filed his report in which his conclusions of fact are stated as follows: “ The co-
partnership was formed at the time and on the terms in the petition set forth; the capital was furnished by the partners in the amounts shown in the petition, to-wit: James W. Gray, $1,653.05; James Kerr, $488.55. Of the capital 'furnished by James Kerr, he drew out, May 19, 1864, $350.00; June 3, 1864, $2.00. The business stock of the co-partnership consisted of two rafts of lumber; one, bought May 9, 1864, for $2,065.00, and one May 23, 1865, for $1,262.50. The sale of this lumber, partly as rough lumber, and partly as dressed, constituted the partnership transactions. These sales continued, as shown by the books and evidence, until the last of the year 1865, when the partnership transactions, so far as the sales of lumber were concerned, practically ceased; the plaintiff going into another business, and the defendant continuing the lumber business. During the time of the sales of the lumber, and from that time continuously until the present, the plaintiff, by agreement and at the instance of the defendant, was the custodian of the only book in which the partnership accounts were kept, and he made the entries therein, and having no office, the book was kept at the house of the plaintiff, remote from the firm’s place of business, but adjacent to the house of the defendant, the plaintiff and defendant occupying a double dwelling house during the time of the sales, and for some time subsequent. The personal and social relations of the parties were friendly until a comparatively short timebefore suit was brought. At the close of the sales of lumber the plaintiff had charge of the collecting and settlement of the partnership accounts for lumber sold, and continued to have charge of it until the bringing of this suit. After the close of the year 1866, no report was made to defendant of the progress of the settlement. No accounting was ever had between the parties. At or near the close of the year 1866, the defendant claims that his impression was that something would be due him. The plaintiff claims that the defendant was indebted to him, but there was no mutual understanding between them. The main difference between the parties rests on a question arising out of the sale of $1,500.27 of lumber to' Hanes & Wilson. This sale was concluded Nov. 28, 1865, and was a kind of closing out sale. It was paid for as follows : Dec. 9, 1865, check, Wheeling bank, $200.00; May 14, 1866, check, Wheeling bank, $1,300.27. The testimony as to which of the parties got this latter check is conflicting, and depends-entirely on the parties. The check cannot be found, although search has been made for it; but the referee is of the opinion, and so finds, that the weight of testimony is in favor of, and sustains the conclusion, that the defendant got the check of $1,300.27. The referee finds, that at the close of 1865, there were outstanding claims amounting in round numbers to the sum of $2,600.00. Of this sum all but $337.98 was collected during the first six months of 1866. Of this, again, $36.40 has. not been paid, leaving $301.58, which has been collected and settled, as follows:
1. May, 1867...................................... $50 42
2. July, 1868, cash.............................. 25 00
3. March 19, 1869, cash........................ 14 65
4. -, 1870, settlement....................... ' 53 40
5. June, 1871, organ............................ 60 00
6. -, 1871, settlement....................... 44 85
7. Dec., 1873, settlement....................... 21 72
8. -, 1875..................................... 31 54 ”
“ Item No. 1 is charged od the book to the defendant. The account in which it is credited has the following entry : 1867, May, by note to Kerr, $50.42. Items 2 and 8 make up an account against one II. Helling, and the evidence is that the last item was a settlement of some dealings between the plaintiff, or another firm of which he was a member, and the said Helling. Items 5 and 7 constitute the balance due against-one Jager on August 16, 1865. None of these collections were reported to the defendant, nor did he see the book until 1875 or 1876. No demand was made on the defendant for a settlement until the year 1875 or 1876. The defendant, at-the time the demand was made, or a firm of which he was a member, had claims against some firms of which the plaintiff was a member, and on pressing these claims, the plaintiff claimed a balance. Some negotiations were had, but no settlement made. The referee finds that if the account is not barred by the statute of limitations, the amount due the plaintiff from the defendant would be the amount shown in exhibit “ A,” hereto attached and made a part hereof. The master finds that there was no refusal to account made by the defendant until after 1876, and then, that the defendant claimed that he did not owe anything. In addition to the foregoing conclusions of fact, the referee finds that a reasonable time to collect and settle the accounts and claims of the co-partnership would be not to exceed three or four years from the termination of the sales of lumber by it. The referee concludes, as matter of law, that four years from the close of the sales was sufficient time to set the statute running. This would start it in December, 1869, and as the action was not brought until April, 1878, the referee finds, as a conclusion of law, that the plea of the statute of limitations is sustained by the evidence, and that the action of the plaintiff was barred before it was commenced. As a further conclusion, the referee concludes that the defendant is entitled to a decree dismissing the bill of the plaintiff with costs of suit.
Exhibit “A” referred to in the report is as follows :
“If the claim is not barred by the statute of limitations, the master would find the amount due plaintiff from the defendant to be eleven hundred and one dollars and twenty-eight cents ($1,101.28), with interest on seven hundred and fifty-eight dollars and twenty-five cents, from June 3, 1864, and on the balance thereof, from the first day of January, 1867.”
Neither party excepted to the referee’s report. At the next term of the court after it was filed, the plaintiff moved for judgment in his favor, upon it, which motion the court overruled, and rendered judgment for the defendant. The plaintiff excepted, and prosecuted error to the district court to reverse the judgment, solely on the ground that the court erred in overruling his motion, and rendering judgment for the defendant.
The judgment was affirmed by the district court, and the plaintiff seeks by this proceeding to reverse the judgments of the district and common pleas courts.
J. Q. Gray, for plaintiff in error.
L. J. C. Drennen, for defendant in error.

Opinion:
Williams, J.
Was the plaintiff's action barred by the statute of limitations ? If it was, there is no error in the judgments of the courts below. If it was not, the plaintiff is entitled to judgment upon the report of the referee.
The original action was one, that before the adoption of the code of civil procedure, was known as a suit in equity for an accounting between co-partners; and much of the discussion of counsel, has been directed to the rules applied in courts of equity, to defenses founded on the lapse of time. Those courts, it is admitted, were not always agreed, either upon the ground on which such defenses were sustained, or in regard to the length of time necessary to make them available. Some, adopted by analogy, the statutes of limitations applicable to similar actions at law, and others, the more general rule, that nothing short of such laches, as, from loss of papers, death of parties, or witnesses, or other circumstances, prevented a just settlement, would bar the action. The referee in the case, reports as his conclusion of law, that there is no certain rule, "as to when the limitation will prevail in equity; " and he decides that under the circumstances of the case, " four years from the close of the sales, was sufficient time to set the statute running," and the action, not having been commenced for more than six years thereafter, was barred. Since the distinction between suits in equity and .actions at law has been abrogated, and the civil action substituted for them, by the code of civil precedure, its provisions limiting the time for commencing actions, apply to all civil actions, whether they be such as were theretofore of a legal, or equitable nature, and must, furnish the guide, in determining whether the plaintiff's action was barred.
The plaintiff in error contends, however, that the action is expressly saved from the limitations of the statute, by sec. 4974, (Revised Statutes,) which provides that the chapter prescribing the time within which actions may be commenced, shall not apply to the case of a continuing and subsisting trust. His position is, that a trust relation subsists between the oo-partners after the dissolution of the firm, as well as before; that notwithstanding the dissolution, the partnership may be said to continue, with all the incidents pertaining to that relation, for the purpose of settling its affairs, and, until that is accomplished, each partner is a trustee for the other. In support of this position, we are referred to the case of Pomeroy v. Benton, 57 Mo. 531. That was a case " Where one member of .a firm who had the entire management of the partnership, without the knowledge or consent of his co-partner used the money, assets and credit of the concern in outside speculations, and appropriated the benefits to himself individually, and subsequently rendered to his co-partner a false balance sheet, purporting to correctly exhibit the true condition of the firm affairs, but which in fact did not mention or allude to the outside operations, and assured his co-partner that this statement was correct, and on the faith, of this statement and his representations his partner was induced to convey to him all his interest in the concern, and to execute a bill of sale therefor;" and it was held, that " outside of any stipulations in the partnership articles, good faith should restrain one partner from embarking the funds or credit of the firm outside of their legitimate scope, and for his own advantage ; and if such ventures are made by one partner, he cannot appropriate the profits to himself, but must account for them to the partnership."' It is said by the judge who delivered the opinion in the case,. " That every partner is the agent of his co-partner is a very familiar doctrine, and it arises from the necessities of his co-partnership relation. A doctrine equally well settled, though not yet hackneyed through frequent quotation, is, that the same rules and tests are applied to the eonduet of partners as are-ordinarily applicable to that of trustees; and that the duties,, functions, rights and obligations of partners may be for the-most part comprehended by the same words which define those of trustees and agents." And he cites Kelly v. Greenleaf, 3 Story R. 93, where it is held, that " Where a partner fraudulently, without the consent of his co-partners, applies the partnership funds to his private purposes and profit, or invests the same in his own name and-for his own use, his co-partners, may, if they can distinctly trace the investment, follow it, and treat it as trust property held for the benefit of the firm, by the partner or by any person in whoso hands it may be, except a bona fide purchaser, without notice."
There is another class of cases which hold, that a liquidating or surviving partner, who becomes possessed of the partnership assets, is a trustee for their proper application to the firm creditors, and, he is bound of course, to distribute to the co-partner, or his representative, his share of any surplus remaining after the discharge of the partnership liabilities. In such case, the surviving or liquidating partner is acting for all the partners, and his possession is not adverse, until a renunciation by him, or so long as the postponement of a final settlement is consistent with a faithful discharge of his duties. It was said by Lord Chancollor Eldon, that a partner, who after dissolution has the actual possession of the partnership property, has it clothed with a trust for the co-partners, to apply the property to the partnership debts. Williams Ex Parte, 11 Vesey Jun. 5. The obligation, however, of the liquidating or surviving partner, to account for the surplus, after the partnership liabilities are discharged, is not that of a trustee, but of a debtor.
No authority is found in these cases, nor in any to which we have been referred, upon which it can be maintained, that a partner who has neither been guilty of a misapplication of the partnership assets, nor had possession or control of them after dissolution, as liquidating or surviving partner, or otherwise, is in any sense a trustee of his co-partner; and no ground for such a claim is perceived. Nor do we think a trust relation exists between partners generally after dissolution, where there has been no agreement, and no concealment or fraud. 2 Bates Partnership, see. 942; Pierce v. McClellan, 93 Ill. 245; McKelvey's Appeal, 72 Penn. St. 409; Jenny v. Perkins, 17 Mich. 28; Collier on Part., 6th Ed., sec. 297, note 6. It has long been the established doctrine of courts of equity, that subsisting trusts are not within the operation of statutes of limitation, and suits to enforce them are not barred by lapse of time; and yet it is said by most writers on the law of partnerships, to be well settled, that suits for accounting between partners are subject to the bar of the statute, or to limitations analogous to the statute. 2 Bates on Part., sec. 942; Story on Part., 7 Ed. sec. 233, note 4. Pierve v. McClellan, 93 Ill. 245; Collier on Part., 6th Ed., sec 297, note 6.
There is nothing in the circumstances of this case upon which to ground a trust in favor of the plaintiff. No partnership property came to the defendant's possession after the dissolution, and he was not charged, by any agreement, with the duty of collecting the debts due the partnership, nor did he in fact collect them. It appears from the report of the referee, that the only book pertaining to the partnership business, was kept by the plaintiff, and retained in his custody after the termination of the partnership; and, that he had charge of the collection and settlement of the firm accounts. Nothing came to the hands of the defendant after the dissolution, except the sum of $50.42 in the mouth of May, 1867, and this was entered on the book by the plaintiff at that time; and all other charges against the defendant, were by the plaintiff, entered on the book prior to that time.
The plaintiff's action, is therefore, subject to the limitations presci'ibed for commencing civil actions, and, since such actions can only be commenced within the period prescribed after the cause of action accrues, it becomes important to determine when, in cases of this kind, the cause of action accrues. The contention of the plaintiff in error is, that the right of action does not accrue until all the partnership claims have been collected, and its liabilities discharged; and authorities are found which support this position. But the generally accepted, and we think the better rule, is, that the right of action is complete, and the statute begins to run, when the partnership is dissolved, unless there is some agreemeent fixing a period for accounting beyond the time of dissolution, or circumstance that renders an accounting then impracticable. In a recent and excellent work on the law of partnerships, the author speaking on this subject says: " Any partner after dissolution, or if there has been no dissolution, but he has grounds to seek it, can maintain a bill for an accounting, although he is a debtor partner, and no balance will be coming to him, for he has a right to have the assets applied to the debts, to ascertain and reduce his ultimate liability. And though the losses have been caused by his violation of agreement, to the extent of requiring them to fall upon himself." Bates on Partnership, sec. 921.
In Collier on Partnership, sec. 282, it is said: " The account which a court of equity decrees between partners is usu ally consequent upon a dissolution, and Lord Eldon was inclined to hold that it must depend upon a dissolution."
Mr. Parsons in his work on partnership, on page 326, says, "a court of equity frequently decrees an account between partners; almost always, however, where there has been or is to be a dissolution of the partnership." And again, on page 554 of the same work, it is said: " Whenever there is a dissolution of a partnership, for any cause, it would seem that there must be an account, if it be demanded by any party in i nterc-st. But it is always possible for partners or their representatives to agree together upon some arrangements which render an account unnecessary." In Wood on the Limitation of Actions, that author, speaking of the application of the statute of limitations to actions for an accounting between partners, says: "There is no definite rule of law that the statute begins to run immediately upon the dissolution of the partnership, and the question as to whether it does or not, must depend upon the peculiar circumstances of each case. But unless there is some covenant or agreement, express or implied, fixing a period for accounting beyond the time of dissolution, or circumstances that render an accounting impossible, the statute begins to run from the time when the partnership is in fact dissolved." Wood on Limitation of Actions, sec. 210. And further on in the same section, it is said, " Whore partnership affairs are unsettled at the time the firm is dissolved, and by written agreement one of the partners is designated to keep and dispose of the firm assets at such prices and upon such terms as he can, a continuing trust is thereby created, and the statute does not begin to run in favor of the liquidating partner, so long as he acts under the trust, or admits its continúan ce."
The essential allegations of a petition, in the ordinary case for the settlement of a partneship, are, the fact of a partnership between the parties, the transaction of partnership business by them under it, its dissolution, and unsettled accounts growing out of it. These facts appearing, the petition is not demurable. The judgment under the code in such cases, is as flexible as the former decree in chancery, and may be sufficiently comprehensive to determine the ultimate rights of the parties. It may provide for the sale or other disposition of any remaining assets of the copartnership; the collection of outstanding claims, and the payment of any unsatisfied partnership liabilities; and, then, settle the rights of the parties concerning any surplus of the partnership assets, or reserve their settlement for future adjudication. There was, in this case, no agreement postponing the accounting beyond the dissolution of the copartnership, nor other circumstance rendering an accounting then impossible or impracticable. No charge is made, that the defendant employed the partnership assets for his individual advantage, and there is no imputation of fraud or concealment on his part. Nor was the defendant, in any sense, a liquidating partner. It appears from the report of the referee, that the partnership business terminated at the close of the year 1865, when, the plaintiff went into other business for himself, and defendant did likewise. There was, at that time, it is true, no express agreement of dissolution, but a partnership may bo terminated and dissolved by the completion of its business, and this partnership was then in fact dissolved. At the time of the dissolution there were outstanding claims due the firm, all of which, except a small amount, were collected by the plaintiff within less than a year, and nothing was received by the defendant subsequent to May, 1867. It is not shown that there were any unpaid liabilies of the firm, and no reason appears why the action could not have been commenced immediately after the dissolution; from which time in this case, the statute of limitations began to run.
The only remaining question is, what period of time will bar the action ? A majority of the court are of the opinion that actions of this class are governed by the provisions of section 4985, (Rev. Stats.) and can only be brought within ten years after the cause of action accrues; and, as more than that period elapsed between the dissolution of the partnership and the commence'ment of the plaintiff's action, the courts below properly held that the action was barred.
Judgment affirmed.