Court Opinion

ID: 9722897
Source: CourtListenerOpinion
Date Created: 2023-08-26 09:54:33.532786+00
Date Added: 2024-06-11T13:00:34.625099
License: Public Domain

Smith, J.
(concurring specially)- — I concur completely in the majority affirming opinion. But in view of the dearth of cases involving the charge of cheating by false pretenses between partners and the partnership it is well to delve deeper into the question of the partnership relation at common law.
The need for doing this is emphasized by the attack (unjustified I think) made here upon the conclusion of the majority as a “reproach to the law and to the courts which administer it.” It is even suggested that “hidebound precedents and unrealistic legal fiction” are “standing in the way of punishment of a wrongdoer” and should be “swept away” and that “no rule of stare decisis should be allowed to prevail.”
I. The proposition advanced by and on behalf of the State is based on a theory that the partnership is an entity similar to a corporation, completely separate and distinct from the individuals who compose it.
The whole concept of partnership refutes this suggested analogy. In Iowa we have held (properly, I think) that the partnership, in its dealing with third persons, is a legal entity. It may enter into contract. It may sue and be sued. There is even a limited right to own property separate and distinct from that of the individual partners. But we have never held, nor has it been held elsewhere, so far as I can find, that partners and the partnership can litigate among themselves in law courts questions arising out of the partnership before there has been an accounting. “The court of equity is the chief and appropriate tribunal for the settlement of all controversies growing out of partnership transactions as such.” Mechem’s Elements of Partnership, Third Ed., section 148.
*855We quite recently (1945) said: “It is almost universally held * * * that a law action is not maintainable between partners with respect to partnership transactions unless there has been an accounting or settlement of the partnership affairs.” Johanik v. Des Moines Drug Co., 235 Iowa 679, 686, 17 N.W.2d 385, 390. See 68 C. J. S., Partnership, section 109; 40 Am. Jur., Partnership, sections 460, 465; Crane on Partnership (Hornbook series 1938) 310; Burdick on Partnership (1917) Third Ed. 330; Mechem’s Elements of Partnership, Third Ed., sections 130-132, 148.
The cases and textbooks quite generally state the reason for the doctrine to be the law court’s inherent inability to examine and adjust accounts, the fact that in absence of an accounting no cause of action can be shown to exist, and the further fact that a party cannot be a plaintiff and defendant at the same time.
Any analogy between partnerships and corporations as legal entities ends when we consider the legal relationship of partners among themselves and with the partnership. It is not a separate entity as to them. They are usually joint owners of its property and jointly entitled to its possession, sharers in its profits, liable for its obligations, and agents in the conduct of its business. There is in a partnership such a merging of relationship as to make unthinkable an action at law between them over partnership transactions. In that respect the partnership bears no similarity to the corporation. One is a relationship created by contract, the other an artificial being created by law.
It has been aptly said to be “impossible to determine whether or not the defendant partner is in fact indebted to the plaintiff partner until the partnership accounts are settled and the true standing of the parties has been ascertained.” Malott v. Seymour, 101 Cal. App.2d 245, 247, 225 P.2d 310, 311, citing Mechem’s Elements of Partnership, Second Ed., section 204.
This basic doctrine which forbids a court of law to entertain suits between partners and between them and their partnership in matters growing out of the partnership relation should be conclusive as to any criminal charge against a partner of obtaining property of or from his partnership by false pretenses. Every argument in support of the common-law rule can be *856urged with even greater force when the criminal law is invoked. A logical and time-honored rule that forbids criminal prosecution for an alleged fraud that the “victim” could not even assert in a court of law can hardly be brushed aside as a mere “technicality.”
II. It is the invariable rule that penal statutes are to be strictly construed and that any doubt must be resolved in favor of the one accused. Citation of cases seems unnecessary. “In Iowa all crimes are statutory. No matter how reprehensible an act may be, in the absence of a legislative penalty there can be no criminal prosecution. A strict construction * * * against the State is the recognized rule and the burden is upon the State to prove every element essential to constitute the crime charged.” State v. Hansen, 244 Iowa 145, 147, 55 N.W.2d 923.
The statute (section 713.1, Iowa Code, 1950) condemns the obtaining of property “from another” by false pretense. We are asked to construe the word “another” to include a partnership entity of which defendant is a member — a “part.”
Manifestly this would be a liberal construction in favor of the State, in view of the close legal and personal relation between partner and partnership in regard to partnership property and business transactions. A statute that expressly compelled or justified such a construction would probably be of doubtful wisdom, in view of the relationship it would invade.
The legislature might well hesitate to impose on the criminal court the complex procedure necessary to determine (“beyond a reasonable doubt”) whether a partner has defrauded the partnership or his fellow partner. And we would certainly violate every rule of construction if we held our legislature has done it under this language.
This does not mean a defrauded partner has no remedy. The doors of equity are open to him. He can there have determined whether he has in fact been defrauded and the extent of his loss if loss be shown. This the criminal court cannot do.
The majority opinion is right.