Court Opinion

ID: 6584621
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:41:25.393077+00
Date Added: 2024-06-11T15:57:25.201728
License: Public Domain

ROWELL, J.
It is manifest that the bill cannot be maintained against the defendants Tuttle and Slason, for the allegations relied upon for relief against them are negatived by the findings of the master. Nor do these findings show that the orator and the defendant Thompson were partners, as the latter claims. Thompson and Freeman were partners in business. The orator signed with Freeman for money that went into the concern, - and becoming. . alarmed lest he should lose thereby, *279he consulted Thompson about the matter, and thereupon procured a chattel mortgage and an assignment from Freeman of his entire interest in the partnership for the sole'purP°se of security against such loss. At the time of the assignment it was understood between Thompson and the orator that the business should be closed out and sold as a whole as soon as possible, the debts paid, and the remainder divided between them according to their several interests. Freeman and the orator understood that if anything remained in the orator’s hands after such division and his indemnity, it should belong to Freeman. Freeman did not continue with the firm as an active member, •but only as a clerk for wages, and the partnership was soon dissolved by mutual consent, for prudential reasons, and the firm name of C. A. Thompson & Co. adopted, the orator -objecting to have his name appear in connection therewith. The business was thereafter carried on in the new name, Thompson being the managing man until his health failed, when he turned the business over to the orator, who took charge and proceeded to dispose of the property, buying no more goods, and closed out the stock in about two months. The relation that the orator originally sustained to Thompson and to the property and the business was never changed, •and was never, so far as appears, understood by them to be changed, and Thompson knew what that relation was from the first, as the orator .consulted him about the matter before he took his assignment. The orator was' a mere security-holder throughout, and therefore, as matter of law, any residue in his hands would belong to Freeman, as they understood it would. He could in no event participate in the profits as a principal trader in the management of the business, which is essential to a partnership, but does not of itself as matter of law, constitute a partnership, though a most important element in determining whether one exists •or not. Hence as the orator had no community of interest *280in the profits as such principal, there was no partnership between him and Thompson. A community of interest by way of security for the payment of money by Freeman is not enough. Thus, in Mollow v. The Court of Wards, L. R. 4 P. C. 419, the person sought to be charged as a partner advanced large sums of money to a firm of merchants, and took as a security a charge of twenty per cent, commission on all the profits made by the firm until the whole amount of the debt due him should be paid off, with twelve per cent, interest on all cash advances that had been or might be thereafter made by him to the firm ; and large powers of control were conferred upon him, but he had no initiative power. The court held that the contract was really and in substance what it purported to be, namely, one of loan and security between debtors and their creditor, and not one of partnership; and said that if cases should arise where persons, under the guise of such an arrangement,, were really trading as principals, and putting forward as ostensible traders others who were really their agents, the law would look to the body and substance of the arrangement, and fasten responsibility on the parties according to their true and real character.
The case stands for disposition, therefore, between Thompson and the orator on the basis of a joint ownership between them of the character shown, and not on the basis that they were partners ; and as no question is made as to the snfficiency of the pleadings for such relief as they may be entitled to, the case stands for consideration in this behalf on its merits, leaving the parties to apply below for such amendments, if any, as they may deem necessary.
It makes no practical difference whether the firm was dissolved by Freeman’s assignment to the orator or by mutual consent soon after; for if by the former, the rights and powers of the firm rested wholly in Thompson as far as necessary to enable him to properly administer his quasf *281trust of settling the business and accounting to the orator for Freeman’s share of the residue remaining for distribution ; and if by the latter, Thompson was, as the case shows, the liquidating partner, and as such he was the agent of the late firm to collect and adjust its bills receivable, to convert its assets into money, to discharge its outstanding liabilities, and to pay over to the orator Freeman’s share of the surplus ; and in either view he has the right that partners generally have in respect of being reimbursed for advances, which is, to have a-lien on the assets, and after the partnership debts are satisfied, to be paid before the surplus is divided.
The master finds that the orator has in his hands a balance of $294.29, derived from the business while he had charge of it. This he must account for. It is conceded, however, that he may deduct therefrom the sum of $150, due him for services in closing out the business, which leaves $144.29 to be accounted for.
The orator claims a personal decree against Thompson for $600 that he put into the concern in the manner following : Thompson applied to him and said that the debts were pressing and that he must furnish more money on that account and to equalize what he himself had advanced; and thereupon the orator advanced $600, taking no evidence of indebtedness, and the amount was credited to him on the books of the concern in his regular account. He claimed before the master that this was a loan to Thompson ; but the master finds that he advanced the money for the purpose claimed by Thompson, namely, to pay the pressing debts of the concern, and that Thompson advanced a like amount tor the same purpose. On this finding the orator cannot have a personal decree against Thompson for this money. He must be taken to have assumed the risk of getting his pay out of the assets, the same as Thompson did; and this is the fair intendment of the finding, as his claim of a loan to *282Thompson is negatived. But he has a lien on the assets for reimbursement, subject, however, to the rights of partnership creditors, for in the bill he"expressly subordinates his rights to theirs, and the law does the same. Nor are his rights in this behalf superior to Thompson’s rights, for they appear by the finding to have intended to put themselves on an equality in this matter, as one object of the orator’s advance was to equal Thompson’s advance. The orator claims no other allowances.
The defendant Thompson claims under his cross-bill, that if there was no partnership between him and the orator, their joint ownership of the property was such as to make the orator liable for one-half of all the debts and expenses necessarily incurred in the management of the business, of which there are outstanding and unpaid the sum of $173.21 ; that in addition thereto he is liable for one-half of the $1000 for which the Tuttle note was given by C. A. Thompson & Co., as the master has found that that money was used by Thompson in paying debts of Thompson & Freeman that were a lien on the goods and in managing the business; and that the orator should pay to him one-half of these sums, aggregating $1173.21, less what may be realized on the $320 of accounts due to Thompson & Co., although he is not liable on the Tuttle note nor to the creditors to whom the other bills are due. But this claim cannot be maintained. Although by his assignment the orator became a joint owner with Thompson, yet he did not thereby acquire a right to joint possession of the partnership property nor to a joint management and control of the business. On dissolution by death, the surviving partner settles the partnership affairs. So on dissolution by the sale of one partner of his interest or by his being adjudged' bankrupt or insolvent, the other partner is entitled to the exclusive possession of ' the partnership property and the exclusive management and control of the business for the purpose of winding it up. *283Harvey v. Crickett, 5 Maul & Sel. 336; Renton v. Chaplin, 9 N. J. Eq. 62; Note to Gilmore v. Ham, 40 Am. St. Rep. 571. And if the dissolution in this case is regarded as having been by mutual consent and not by the assignment to the orator, Thompson’s rights and authority in the premises would be practically the same as against the orator, as if he was the liquidating partner. So in either view he had no authority in law to chargejhe orator in this behalf, and .no authority in fact appears; and there is no principle of equity on which the orator can be charged, as he had no right to participate in the management of the business, nor any power of control over Thompson in respect of it, except through the medium of the Court of Chancery, which, for cause shown, would interfere by appointing a receiver.
The other claims made by the defendant Thompson are based upon the idea of a partnership between him and the orator; and as none existed, they cannot be maintained.
The defendants Tuttle and Slason claim that the case shows that the orator wantonly obtained the injunction against their enforcing their notes against the partnership property and against Thompson’s paying the same thereout, and that under the protection of the injunction he disposed of the property and used the avails thereof for his own benefit, and they insist that he should in this suit make good to them the loss they have thereby sustained. But if their claim is well founded, it is more a matter of injunction damages than for relief otherwise in this proceeding.
An account has been taken that may be sufficient for the purpose of a final decree ; but if not, such further accounting should be had as may be found necessary. The assets not realized upon should be converted into money as far as possible and the firm debts paid, after which the orator and the defendant Thompson will be equally entitled to be reimbursed their advances, and any residue remaining will be equally distributed between them. Whether the Tuttle note *284is to stand on the footing of a firm debt or not, or whether the money obtained thereon is to be regarded as an advance by Thompson, or how otherwise the matter should be treated, is not decided, as the question, if any there is, was not raised in argument, and we are disinclined to consider it when the parties have not been heard upon it and when it can be raised, if it becomes important, at a later stage of the case.

Reversed and remanded.

Taft and Munson, JJ., being engaged in County Court, did not sit.