Court Opinion

ID: 6353652
Source: CourtListenerOpinion
Date Created: 2022-06-24 17:38:41.492634+00
Date Added: 2024-06-11T15:49:37.010494
License: Public Domain

The following opinion was delivered by
King, President. —
It is a doctrine of the law of partnership, that if, after the termination of any partnership, by death, dissolution, bankruptcy, or otherwise, the business is continued by a portion of the associates, with the capital or appliances of the firm, all profits derived from such continued business are part of the joint estate, and as such are to be accounted for to all the partners or their representatives, reasonable allowances being made to those of the associates by whom the active business has been conducted. These principles are the result of the cases of Crawshay v. Collins, 15 Vesey, 218; Same Case, 2 Russell, 325; Brown v. De Tartet, 1 Jacobs, 284; Wedderburne v. Wedderburne, 2 Keene, 722; and Long v. Magestre, 1 John. Ch. Rep. 305; Holden v. M’Mackin, ante, p. 270. It is a principle equally clear, that if one partner should clandestinely carry on another trade, or the same trade, for his private advantage, and in a manner injurious to the true interests of the partnership, or should divert the capital or funds of the partnership to such secret or sinister purposes, he will be compelled in equity to account for all profits made thereby: Story on Part. 273. In Burton v. Wookey, 3 Madd. 367, a partner making purchases. on his private account of merchandise in the trade in which his firm was engaged, was held liable to account to his partners for the profits of such purchases. “It is,” says Sir John Leach in that case, “ a maxim of the Courts *523of Equity, that a person who stands in a relation of trust or confidence to another shall not be permitted, in pursuit of his private advantage, to place himself in a situation which gives him a bias against the due discharge of that trust and confidence.” Nor will equity permit that parties bound to each other by express or implied contract to promote an undertaking for the common benefit, should any of them engage in another concern, which necessarily gives them a direct interest adverse to the original objects of their association: Glossington v. Thwartes, 1 Sim. & Stewart, 124, 133. And if one of several partners employ the partnership capital or effects, in a matter not the direct object of the association, he must account with his co-partners for the profits resulting from such an employment of the common effects. This was the case in Fanning v. Chadwick, 3 Pick. 420, where the defendant, who was a joint owner and commander of a whaling-ship, having received compensation in the course of his voyage for landing some prisoners, and also for saving property from a wreck, was held liable to account with his co-partner for the money so received.
In all this class of cases it will be perceived, that the profits of which an account was decreed, were derived either from the employment of the capital or appliances of the firm in the same business; in an analogous one; or in some new or incidental undertaking. It was because the profits claimed flowed from the use and employment of that which belonged to all, that the equity of all to pa.rtipate in such profits arose. This principle is one too clear to be questioned. But to bring this case within these admitted principles, it was argued that the labour of the associates forming the “ Putnam Mining Company,” was part of the capital of the association, and that all results of that labour, whether employed in mining or in any other pursuit in California, was the employment of that which belonged to the association, and entitled all the associates to participate in its results. • -
That the common stock, fund, or capital of a copartnership may consist of labour and skill as well as money, goods, or other property, is certainly true. One associate may contribute money, another property, and a third labour and skill. And if, during the existence of the enterprise, either party diverts that from the common object to which it was pledged, and employs it for other productive objects, either of the same or any other kind, he must bring the results into the common fund; because the consideration given by each for a joint participation in the common profits of the society, was the amount of money, the quantity of property, or *524the extent of labour and skill agreed to be furnished and employed for the common good by each respectively. If either associate could abstract his contribution, whether money, property, or labour, from the common capital, and employ it for his own profit, it is plain that he will receive his proportion of the profits of the joint concern without any corresponding consideration. So far this doctrine of implied obligation, arising from the subsisting relation of partner and co-partnership, is consistent with right reason, common justice, and mutuality of obligation between contracting parties. It simply operates to maintain good faith between the associates, and to oblige all who claim the benefit of the joint enterprise to contribute to its success that which each bound himself to do on entering into the association.
But the case before us is not that of one who, while a continuing member of an existing partnership,.to the business of which he has bound himself to devote all his labour and skill, withdraws a portion of that labour or skill from the common enterprise, and devotes it to his individual profit or advantage.
The defendants’ answer shows that, after an unsuccessful attempt by the associates in California to procure gold at the mines, all abandoned the enterprise as hopeless, and each sought to procure his own subsistence as best he could. The small fund advanced in New York by the plaintiff, who was the money partner, was'exhausted before the arrival of the associates at' the mines, and all exertions terminated with the failure of the first attempt. And seeing their destitute condition, it is difficult to -perceive how it could have been renewed with any rational prospect of a' successful issue. Under these circumstances, the defendant returned to San Francisco, and there successfully employed his industry as a pile-driver, from which source alone he has derived all the money which, by this procedure, the plaintiff seeks to possess himself, of as part of the result of the labour of the “Putnam Mining Company.”
It is difficult to perceive how this result could legally arise, even supposing the plaintiff to have wrongfully withdrawn from the company, and to have devoted his industry to other pursuits than those originally contemplated by the articles of association; unless we should hold that one of the 'effects of entering into a co-partnership for a term of years, is so to bind a party to it, as to force him to prosecute, under the most unpromising circumstances, such an enterprise ; and that the estimate of the damages sustained by the partnership from his withdrawal from it, must at least be all that his industry employed, during the undetermined part of the *525partnership, no matter how realized. Of his liability for such damages as a jury on a trial at law might award against him under the circumstances of such a withdrawal, no doubt can exist. These might be more or less than the subsequent earnings of his industry otherwise employed. But such a claim for damages could only be determined at law, and no specific lien exists on the avails of his intermediate labour that a Court of Equity could enforce by restraining him from the use of it before any alleged damage, arising from his withdrawal from the business of the partnership, had been ascertained by trial and verdict.
The present is not the case of an unauthorized and unnecessary abandonment of the joint enterprise. The answer and affidavit of the defendants, which are uncontradicted by any counter affidavit of the plaintiff, exhibit a case in which the association or partnership, admitting it not to have been formally dissolved, was dissolved in fact, by the associates in California, from their total destitution of funds or other means for the further prosecution of their enterprise, and from their mutual and necessary separation, arising from these causes. According to the apparent weight of the authorities, it is true that the answer filed after the plaintiff has served his notice of a motion for a special injunction, can only be used as an affidavit in opposition to those used by the plaintiff, and that the defendant cannot insist that under such circumstances the plaintiff is confined in his injunction to the equity confessed in the answer: Atkinson v. Collins, Hogan’s Rep. 110; Moffat v. Jones, 19 Vesey, 350. But giving for the purposes of this case no greater efficacy to the uncontradicted answer, it fully establishes the foregoing as the causes which produced the dissolution, in fact, of the “ Putnam Mining Company.”
To hold that in such a state of things the avails of the labour and skill of each of the adventurers, wherever and however employed in California, are to be deemed the assets of the company, would be carrying the doctrine of the implied accountability of co-partners to the partnership, to a most extravagant length. The money on which the injunction is proposed to operate, is neither the proceeds of the capital of the company employed after its dissolution, nor is it the result of the surreptitious employment of the labour or capital of the company during its actual existence by one of the associates for his own profit, nor is it the result of such labour and capital incidentally employed in objects different from those of the company by part of the associates. In such cases, equity either has actually compelled, or expressed itself prepared to *526compel, an account of such profit, for the common benefit of the partnership.
If it had been the intention of these parties that, in the event of any one of the associates withdrawing from the company, and otherwise employing himself, the avails of such employment should enure to the common benefit, it was an easy thing to have introduced such understanding into the articles. The case of separation of individuals from the association, before the term limited for the close of its existence, was in the contemplation of the associates. The case of such a withdrawal, or desertion, as it is called in the articles, was provided for. And the penalty on the deserter was fixed as the forfeiture of all his interest in the profits of the company, accumulated at the time of his desertion. The efl'ort here is to introduce through the action of this Court a new and stringent term into the contract of association, not expressed in it. But even if such a term had been found in the articles, still such a liability could only have arisen from a wilful and unnecessary abandonment of the enterprise, and would not have been consequent on an abandonment induced by inevitable and uncontrollable circumstances.
If the continuing partners of the “Putnam Mining Company,” or any of them, have sustained any special damage from the unjustifiable withdrawal of the defendants from the association, the remedy for the wrong is to be sought for at law. Equity can exercise no jurisdiction enabling it to possess itself of the results of the labour of such seceding partner, and to retain them to await the result of such an action, and to apply them to the payment of any damages a jury might award to the injured party. This-would be, under most circumstances of alleged breach of contract complained of, an energetic measure, and one certainly that no Court has the right to employ in a case like the present.
On the case therefore disclosed, the plaintiff cannot obtain the relief he asks here, and consequently we cannot properly award a preliminary injunction, which is never awarded except where the plaintiff shows a clear equity, entitling him to the aid and relief of the Court. A preliminary injunction is emphatically the strong arm of the Court, and is never awarded except in clear cases of right, and where no doubt exists as to the claim of the plaintiff to the remedy he invokes.
Special injunction refused.