Case Name: James J. Hoey, as Temporary Receiver of the Scaglioline Brick and Fireproofing Company, Appellant v. William Fechtenberg, Respondent
Court: New York Supreme Court, Appellate Term
Jurisdiction: New York
Decision Date: 1907-11
Citations: 56 Misc. 576
Docket Number: 
Parties: James J. Hoey, as Temporary Receiver of the Scaglioline Brick and Fireproofing Company, Appellant v. William Fechtenberg, Respondent.
Judges: 
Reporter: New York Miscellaneous Reports
Volume: 56
Pages: 576–579

Head Matter:
James J. Hoey, as Temporary Receiver of the Scaglioline Brick and Fireproofing Company, Appellant v. William Fechtenberg, Respondent.
(Supreme Court, Appellate Term,
November, 1907.)
Partnership — Rights of partners inter se — Indebtedness of partner to firm.
A partner must account to the firm for his overdraft of profits, and his liability must be considered an asset which passes upon an assignment of all the firm’s property.
Where, upon an assignment to a corporation of all the property of a partnership previously formed, under whose articles each of the two partners was at liberty to draw $500 a month up to June 30, 1905, and thereafter an additional $500 a month if, in the judgment of the partners, the business warranted such payments, it appears that not only were there no profits of the business but there was a net deficit of about $5,000, the amount withdrawn by one of the partners and entered by him on' the firm’s books as a debt due from Mm to the firm constitutes an overdraft of profits which the receiver of the purchasing corporation, which subsequently went into voluntary dissolution, is entitled to recover for the benefit of its creditors.
Appeal by the plaintiff from an order of the City Court of the city of New York setting aside a verdict in favor of the plaintiff and granting a new trial.
William D. McNulty, for appellant.
Jacob Newman (Francis W. Russell, of counsel), for respondent.

Opinion:
Per Curiam.
On or about March 7, 1905, defendant entered into partnership with one Ernest May and one J. Hansen Feehtenberg to carry on business under the name of " The • Scaglioline Brick and Fireproofing Company." One of the articles of copartnership provided that defendant and said Ernest May should "draw on account of the prospective profits of said business the aggregate sum of five hundred dollars monthly until the 30th day of June, 1905," and that " if the said business in the judgment of the parties to this contract warrants, the said parties may withdraw on account of the profits an additional sum of five hundred dollars per month during the continuance of this agreement, so that each of the parties of the first and second parts may withdraw monthly from said business the sum of five hundred dollars, which sum shall be charged against the shares of the profits of said parties so withdrawing the same." On September 29, 1905, the partnership firm assigned the whole of its property and assets to the " Scaglioline Brick and Fireproofing Company," a corporation, in consideration for which the corporation issued all of its capital stock to the said firm, or its members, and assumed certain liabilities of said firm. The corporation subsequently went into voluntary dissolution, and plaintiff was appointed receiver in such proceeding. It appears that, between March second and September twenty-ninth, defendant had drawn from the firm $1,730.20, to recover which siim the receiver of the insolvent corporation brought this suit for the benefit of its creditors. The jury brought in a verdict for the plaintiff for the full claim, but the court set it aside; and, from the order entered thereon, setting aside the verdict and granting a new trial, plaintiff appeals. It is plaintiff's contention that this sum of $1,730.20 was an indebtedness on the part of defendant to the firm, and was a part of the assets transferred to the corporation by said firm. It will be seen from the articles of copartnership, in force up to the time of the assignment to the corporation, that defendant was at liberty to draw $500 a month up to June 30, 1905, and that thereafter he could draw an additional $500 a month, if in the judgment of the parties the business warranted such payments. The amount withdrawn by defendant came well within these figures, and defendant claims that the fact that the amount was charged against his account on the boobs of the firm does not imply that he was indebted to the firm for that amount, but simply that this amount was 'to be deducted from his share of the profits, in accordance with the above quoted article .of co-partnership. The bill of sale, however, was executed by the firm, as such, and it w'as the manifest intention of all the parties concerned that the transfer was to include all of the rights and assets of the firm, as such, and not merely the individual interest or right of the respective partners. The withdrawals of $500 a month by defendant are expressly stated in the above quoted article of copartnership to be " on account of the prospective profits of said business - * until the 80th day of June, 1905," and the withdrawals of the additional $500 a month are stated to be " on account of profits." It appears from the practically undisputed testimony of the expert accountant, who examined the books of the firm, that not only were there no profits, but there was a net deficit of about $4,984. The defendant's withdrawals of the firm funds, therefore, must be held to have constituted an overdraft of profits. A partner must account to 'the firm for his overdraft of profits, and this liability is to be considered as an asset of the firm, which, in the case at bar, was transferred to the corporation of which plaintiff is receiver. The defendant himself kept the books of the partnership, and on these books this sum of $1,730.20 was entered as a debt due from him to the firm at the time of the transfer to the corporation ; and the plaintiff urges that defendant, having thus by his own act represented to the corporation that this sum, as appearing upon the books of the firm, was a debt due by him to the firm, and having on the faith of this representation procured from the corporation a valuable consideration, i. 0., its capital stock and the assumption of certain liabilities, should be held to he estopped to deny the correctness of the firm records which he himself kept. It seems to ns that, having, at the time of the transfer, through the records of the firm, made the representation to the corporation that this amount of $1,730.20 was due from him to the firm, and by implication promised to pay it, defendant is barred from deriving any benefit from the fact, assuming such to be the fact, that the money was originally withdrawn by him under a claim of right. There appears to he sufficient evidence to sustain the finding of the jury, and we are of opinion that the learned court below fell into error in setting aside the verdict.
The order is reversed, with costs and disbursements and the verdict reinstated, with costs.
Present: Gildersleeve/Leventritt and Erlanger, JJ.
Order reversed, with costs and disbursements and verdict reinstated, with costs.