Mary Westbrook Van Deusen and Alida Van Deusen Hibbard, Respondents, v. Henry S. Crispell, Appellant

Mary Westbrook Van Deusen and Alida Van Deusen Hibbard, Respondents, v. Henry S. Crispell, Appellant. Third Department, June 27, 1906. Par tnership — partner in one firm making sales to another firm in which he is interested — when liable to account for profits — amount with which such partner is chargeable. When a sole managing partner of one firm invests money in another firm carrying on the same business in the same locality and sells the goods of the first firm to the second firm, and on the dissolution of the first firm is sued to compel him to account for the profits received as a partner in the 'competing firm, he is charged with the burden of showing that the firm for which he sold the goods was not injured by his relations with the buying firm, and that he obtained the best price for the goods sold. When he admits that by selling the goods of one firm to the other at a ten per •cent gross profit, which rate of profit was less than the rate of profit on sales to other customers, the selling firm sustained a loss during the period, it is apparent that he realized a profit by being the selling agent of one firm and the buying agent of the other, and will he compelled to account for such profit. But in figuring the amount with which the defendant is chargeable, interest on the capital contributed by him to the buying firm should he deducted from Ills share of the profits of said firm and he should he charged with the balance with interest. Appeal by the defendant, Henry S. Orispell, from certain portions of a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of Ulster on the 7th day of December, 1905, upon the report of a referee appointed in proceedings for a copartnership accounting. Prior to February, 1891, the firm of Van Deusen Bros, was carrying on a wholesale and retail store for the sale of drugs, medicines, paints, oils and things usually sold by druggists, at the city of Kingston, H. T. At that .time the defendant, Orispell, having bought a one-fonrth interest in said firm, formed a copartnership with flie plaintiffs, the owners of the other three-fourths, continuing the business under the name of Van Deusen Bros., by the terms of which he was to be the active business member of the firm, to give his whole time, talent and ability to the business of the firm and do all in his power to promote its prosperity and insure its success, in consideration of which he was to receive from the firm $120 a month as a salary, the partnership to continue for three years. On the 23d day of January, 1897, the agreement was renewed for three years more on like terms, except defendant’s salary was fixed at $125 a month, and after the expiration of the second three years the business continued as before until April 13,1901, when the store and the principal part of its contents were destroyed by fire. On the 1st day of November, 1895, the defendant and one Bougliton purchased a retail drug store in the said city about a mile or a mile and a quarter from the store of Van Deusen Bros, and formed a partnership for carrying on a retail business therein under' the name of Crisyiell & Bougliton, each partner contributing $2,200 to the capital stock and sharing equally in the profits. The partnership agreement provided that said Crispell was not required to take any active part in the management of the business, the said Bougliton to contribute his entire time and talent and business energy in conducting the partnership business iiv.considoration of a salary of $12, which was afterwards increased to $15 per week, and since that time the latter partnership has continued and from time to time lias bought from Van Densen Bros, such drugs and medicines as it required in its business and was able to purchase from them. As the time of the formation of Crispell & Bougliton the plaintiffs saw the notice of the formation of the partnership in the newspaper and the defendant spoke to them about it and said he thought it would he a good thing for Van Deusen Bros. The plaintiffs were both unfamiliar with business, took no active part in the business and were not familiar with it. Bor the first three years a business mail had a power of attorney from them to transact their other business and to have charge of their interests in Van Densen Bros. He also told the plaintiffs that he thought the new firm would be a benefit to Van Deusen Bros. It does not appear that they had any other knowledge or information as to how the business of the latter firm was carried on or the profits thereof or its relations with Van Detiscn Bros, In this action to dissolve the firm oí Van Densen Bros, the referee has found that the defendant received net profits from the firm of Crispell & Boughton up to the time of the fire amounting to $4,003.68, and has determined that the defendant is indebted to the firm of Van Deusen Bros, in that amount with interest thereon. The appeal from that part of the judgment is the question now here. V. B. Van Wagonen, for the appellant. John G. Van Etten, for the respondents. [MAJORITY — Kellogg, J.:] Kellogg, J.: When the defendant, the managing partner in Van Densen Bros., owning a one-fourth interest therein, became the senior partner in Crispell & Boughton, owning a one-half interest, both firms being in the same city, and each engaged in carrying on a retail drug business, he assumed the burden of proving that the former firm was not injured by his relations and its relations with the latter firm. lie, as representing the former firm, sold to himself, as representing the latter firm, the principal part of the merchandise sold by the latter. Did he obtain the best price for the goods sold, or did his greater pecuniary interest in Crispell & Boughton lead him to buy cheaply? Most of the books were destroyed by the fire. As to the few matters which may be gathered from the remaining books, it is a fair inference that he did purchase cheaply. The evidence of the defendant and his present clerk is principally relied ‘upon as tending to show that the plaintiffs’ firm suffered no injury. The defendant says he directed that the sales to Crispell & Boughton be ten per cent above the cost price, and then states that that ten per cent is not the net profit going to the partners of Van Densen Bros, for the reason that the expenses of rents, salaries and for carrying on the business must be ascertained and a proper portion deducted. It appears that the expense account for one year was $18,352.21. Ten per cent of the total sale of Van Deusen Bros, was $12,459.48, and in answer to this question, “ And so when you sold goods to Crispell & Boughton at ten per cent gross profit that year you actually sustained a loss?” the defendant said, “Yes.” The explanation given by the defendant and his clerk of the discrepancy between the price at which certain articles were sold to Crispell & Boughton and to other dealers at a larger price is not satisfactory, and it is reasonably apparent that Van Deusen Bros, did not get the same prices from Crispell & Boughton that they obtained from other customers, and that the latter firm realized a profit by the defendant’s being the purchasing agent of one firm and the selling agent of the other. The defendant, in explaining the larger price paid by one dealer over that paid by Crispell & Boughton, said that that firm did not like it because Van Deusen Bros, had a retail department and in that way competed. We cannot say how other dealers felt or how much trade Van. Deusen Bros, lost from the fact that its managing partner was the senior partner in a firm organized and carried on solely for conducting a retail business. The defendant, in his amended verified answer, contends that while he formed the partnership with Boughton it was his mother’s money; that the business was for her benefit, and that lie was only nominally the partner, having no interest therein. He offers no evidence upon that subject, but his evidence shows that he was the partner. In the absence of the books the dealings between the two firms and how much Crispell & Boughton profited by its relations with Van Deusen Bros., or how much the latter firm lost on account of the business of the second firm, rests entirely upon the credit to to be given to the defendant and his witnesses. They are interested, and their evidence is not entirely convincing. The finding of the referee is sustained by the evidence, and his conclusions are right. An oversight was committed on the trial to the prejudice of the defendant. While he is charged with the profits received from Crispell & Boughton, and the interest thereon, no credit was given to him for the cash he had contributed to the capital of that firm. He contributed §2,200, and the interest thereon of §132 per year should be credited each year against the amount of profits he is charged with, and interest against him should be computed upon that balance. The judgment should be modified in that respect, and as so modified affirmed, without costs. All concurred. Judgment modified as per opinion, and as so modified unanimously affirmed, without costs.