BROWN v. FINCH

BROWN v. FINCH. N. Y. Supreme Court, General Term, First Department; February, 1892. 1. Partnership ; Widow of deceased partner sharing in profits not a partner.J As between the parties under articles of co-partnership which provide that upon the death of a partner, the business shall continue during the life of his widow, and the survivor shall pay her a monthly stipend, the widow is not necessarily a partner, even if interested in the profits. 2. The same.] The capital of a firm of two members conducting an advertising agency consisted chiefly in the good-will of the business contributed by B. By the articles of co-partnership ' in the case of the death of B, the surviving partner had the right to continue the business and to take sole charge of its management, subject only to the duty of paying to B’s widow a portion of the profits. No interest in the good-will was conferred on B’s widow which could extend beyond her life, and upon her death it was to belong absolutely to the surviving partner. B having died, and a disagreement having arisen between his widow and partner, held', that the surviving partner and B’s widow were not, so clearly as to entitle the widow to the appointment of a receiver, pendente lite, .partners, notwithstanding the articles of co-partnership expressly provided that the death of either partner should not work a dissolution of the partnership. Appeal from an order of the Special Term appointing a receiver during the pendency of an action, and enjoining defendant. The action was brought by Sophia Brown individually and as executrix of Edward H. Brown against Lafayette J. Finch for an accounting, and that a partnership should be decreed dissolved. Upon granting the order appointing the receiver, ti e following memorandum was filed by Lawrence J.: “ I think there can be no doubt that the relationship between the parties to this action was that of partners. Under such a state of facts, the appointment of a receiver, where helpless difficulties arise between the partners, is almost a matter of course. Upon the affidavits presented upon this motion, it is apparent that the difficulties between the parties are of such a character that their right can only be adjusted by a judicial investigation and determination. It follows, therefore, that the motion for a receiver must be granted.” The further facts are fully stated in the opinion. Louis V. Booraem and Wm. B. McNiece (Booraem, Hamilton & Beckett, attorneys), for appellant. I. No co-partnership existed ( Citing Stewart v. Robinson, 115 N. Y. 328; Kennedy v. Porter, 109 Id. 526, 550; Lindley on Partnership, 435 ; London Ass. Co. v. Drennen, 116 U.S. 461). II. Agreements that capital shall, remain in a partnership after the death of a partner are valid and binding upon the estate of deceased (Citing Burwell v. Mandeville, 2 How. 560; Wild v. Davenport, 48 N. J. S. C. 137; Scholefield v. Echelberger, 7 Pet. 586; Dunn v. Collins, 6 How. 418 ; Story on Partnership, § 261a ). III. A receiver will not be appointed unless necessary to preserve property and protect plaintiff’s rights (Citing Gregory v. Gregory, 33 N. Y. Super. Ct. I ; Goodyear v. Betts, 7 How. 187; Jackson v. De Forest, 14 How. Pr. 82; Goulding v. Bain, 4 Sandf. 716 ). IV. A receiver will not be appointed on application of an executor of a deceased partner without special reason. (Lindley on Partnership, p. 549). Dittenhoefer & Gerber, for respondent. I. In an action for the dissolution of a partnership it is not necéssary to show gross misconduct to justify the appointment of a receiver. (Citing Lindley on Partnership, 228; Bishop v. Breckels, 1 Hoffman Ch. 534; Harrison v. Tennant, 21 Beav. 482; Arthur v. Lacey, Law Journal, March 10th, 1891; Martin v. Van Schaick, 4 Paiges Ch. 479; Lloreens v. Costa, 5 Weekly Dig. 484; White v. Calefas, 33 Super Ct. 299; Beach on Receivers, § 557). See note at the end of this case. [MAJORITY — VAN Brunt, P. J.] VAN Brunt, P. J. It is apparent from the memorandum made by the court upon the appointment of the receiver herein, that it was based upon the fact that the parties to the action were partners with each other, and that as irreconcilable difficulties had arisen between them, the appointment of a receiver became a matter of course. We fail to see how it is possible to hold the plaintiff and defendant as co-partners in the business which was being conducted by the defendant under the firm name of Brown & Pulverman. The complaint was not drawn upon any such theory, and the affidavit of the plaintiff upon which this motion was founded, admits that such was, not the fact. The plaintiff declares that the co-partnership was dissolved by the death of her testator, and the relief demanded is that an account be taken of all the dealings and transactions of said co-partnership from the time of its commencement to the time of its dissolution by the death of Brown, and that the defendant account for all his dealings and transactions in regard to the property, assets and effects of said co-partnership since such dissolution, and farther, that the said co-partnership be adjudged and decreed to be dissolved. This latter prayer was merely asking for a legal adjudication, that by the death of. Brown, the co-partnership had been dissolved, and not in any way was it claimed that the plaintiff was entitled to any relief except as representing the interest of Brown deceased. An examination of the articles of partnership annexed to the complaint -shows that the relation of partners does not exist between the plaintiff and the defendant, and that the co-partnership did not continue after the death of the plaintiff’s testator, unless a co-partnership can be composed of one individual. The defendant was merely the surviving partner of a partnership which had been dissolved, and carrying on business as such according to the terms of the articles of co-partnership between himself and the plaintiff’s testator. It is to be observed that by the articles of co-partnership it is provided that the death of either of the parties shall work a dissolution of the partnership, but that in the event of the death of the party of the first part, viz.: Finch, the party of the second part (the defendant), shall continue the business and pay the widow of the party of the first part $100 a month during her life from the profits arising on the interest of said party of the first part as it existed at the time of his death; and that on the first days of January and June, a balance should be struck, and the defendant should pay to the said widow the amount of any balance to her credit; and further, the said widow of said party of the first part shall have a. right, either by herself or her authorized representative, to examine the books of the firm at any time. This latter provision shows conclusively that it was not the intention of the parties that the widow should be a partner, otherwise it would have been entirely unnecessary to grant an authority upon the part of the widow to examine the books. Then follows a provision in respect to what should be done in case of the death of the defendant. In the event of his widow surviving him she is to be paid a monthly stipend and a balance of profits by the party of the first part, but no provision is mad for an examination of the books by the widow of the defendant; and it would hardly be claimed under this provision that in case of the death of the defendant, his widow would have been entitled to exercise the rights of a partner. The articles contained the further provision, that whenever the partnership was terminated for any cause, there should be an accounting and adjustment of co-partnership affairs, and that the party of the first part, or his legal representatives, within six months, shall pay to the defendant the sum to his credit on • the books of the firm at the time of the dissolution, together with his proportionate share of the profits and increase of the firm; and then provided that the good-will and firm name should be the exclusive property in any event, of the party of the first part and his representatives, except as provided in sections 18 and 19. By paragraph 18 it is provided that in the event of the death of either of the parties not leaving a widow or in the event of the death of the widow of either of the parties during the continuance of the agreement, then the entire good-will of the business shall belong to the surviving partner, subject only to a legal accounting to the legal representatives of said deceased partner, or if he dies leaving a .widow him surviving, then to the legal representatives of his widow for the profits accrued at the time of the death of said deceased partner or at the time of the death of his widow, if said partner dies leaving a widow him surviving. Paragraph 19 provides that after the death of both Brown and his widow, the firm name may be used by the defendant to continue the business on his own account, but he shall have no power to use said firm name except in accordance with the terms of the agreement, at any time prior to the death of Brown or his widow, without written agreement to that effect. These provisions show that it was the intention of these articles that the business should continue during the lifetime of th,e partners, and if either of them died, of his widow, in order to provide for such widow during her life; and that if the partner Brown died first, leaving a widow, upon the death of the widow, the defendant.was absolutely entitled to the good-will and firm name, without being liable in any way to the legal representatives of said Brown or of his widow. The articles further provide for an indefinite continuance of the partnership unless six months’ notice should be given by either of the parties thereto, or the widow of the partner Brown. They provide that in case of a dissolution of the co-partnership, by notice from the defendant after the death of Brown, and without the consent of his widow, the defendant should not, during the lifetime of the widow, act as an advertising agent, etc., within certain limits. Under these circumstances, it is difficult to see how the relation of partners existed between the plaintiff and defendant. Whatever her rights may be in respect to this business, it does not seem to be that of partner. . Neither has the plaintiff any interest in the firm name or good will of the business which can extend beyond her life, as the provision of the articles is that after her death the defendant shall own the firm name and be at liberty to continue the business without accounting either to Brown’s representatives or to his widow’s. We think that if a claim was made against the plaintiff as a co-partner in this business, for losses.sustained in the business, the claimants would find it exceedingly difficult to hold her individually or representatively liable therefor. It having been the manifest intention of the parties that, in case of the death of either, the survivor should continue the business and have sole charge thereof, there should be exceedingly cogent reasons adduced before the court should deprive the surviving partner of the fruits of that which had been assured to him by the agreement with his co-partner. Táking possession of the business in question would seem to be its absolute destruction, and would work irreparable injury to the defendant, who alone has the right to continúe the same. The facts presented upon the moving affidavits are denied in the main, and the true condition of affairs can only be ascertained by the examination of witnesses, and there is no evidence that irreparable injury will happen to the plaintiff if final relief is postponed until the decision of the questions of fact upon the trial. In the decision of this appeal we express no opinion as to what the ultimate rights of the plaintiff might be in an action brought in the form of the one at bar, leaving that question to be determined upon the trial of the case. We think,, therefore, that the order appointing the receiver should be reversed, with $10 costs and disbursements to the defendant to abide the final event. Patterson, J., concurs. For a special provision of law allowing a partner to be appointed manager pending litigation, see Code Civ. Pro. § 1947, and 2 Abb. New Pr. & F. 184-187. [DISSENT — O’Brien, J. (dissenting)] O’Brien, J. (dissenting) I do not concur in the result reached by the learned presiding justice," for reasons which may be briefly stated. The plaintiff sues in her individual right and as executrix of her husband. Her claim is predicated upon the written agreement which is set forth in the complaint and which has been analyzed by the presiding justice. It may be difficult to determine just what the plaintiff’s status thereunder was; but it seems to me to be more "nearly analogous to that of a partner than any other. The agreement itself provided that the death of one of the two partners should not work a dissolution of the co-partnership. Notwithstanding this provision, unless we assume that plaintiff became a co-partner, the co-partnership would have been dissolved, there remaining but one person, who of himself could not constitute a co-partnership, it requiring for that purpose more than one individual. After the death of plaintiff’s husband, she was accorded by the terms of the agreement evéry right usually accorded to partners except the active management of the business. Even in regard to what should become of the good will and firm name in the event of a dissolution between the plaintiff and the defendant, which was contemplated, provision was made for its reverting to the plaintiff, and it was only in the event of the death of plaintiff and her husband that it became the property of the defendant. It is unnecessary for us to determine what might be the relation of these parties as to creditors. . Cases occur where persons, who as between themselves are not partners, have been held as to creditors to be partners. The reverse of this proposition seems to me to be one likely to occur—that a partnership relation will exist between persons, one of whom it might be difficult to hold to the liability of a partner so far as the creditors might be concerned. Of this latter kind the present case, I think, furnishes a good illustration. The fact that the plaintiff is to have the right to examine the books and is given other rights accorded to partners expressly by the terms of the agreement, should not, it seems to me, be urged as a reason or argument for showing that she had not the rights of a partner. I am inclined to the view that the agreement between plaintiff’s husband and defendant contemplated upon the death of the former a partnership between his widow, who is the plaintiff here, and the defendant, who thus became the surviving partner under an arrangement, the effect of which was to transfer all the assets of the old firm to a co-partnership thus to be formed, in which each of the parties had definite and fixed rights, and in which the active management and control was given to defendant. To sustain, however, the order appealed from, it is unnecessary for us to go to the extent of holding that the plaintiff was a co-partner; for, considering her position as executrix, which gave her, as against the surviving partner, a right to an accounting, and her own right to share in the profits of the business, accorded under the agreement of partnership between the defendant and plaintiff’s husband; and considering the charges made against the defendant of wrong doing, which were not fully met, it was not error to appoint a receiver. The relation between the plaintiff and defendant constituted, to say the least, a quasi partnership, and the refusal of the defendant, in violation of the agreement, to permit- her to inspect the books of the business and the excuses given for the nonproduction of the books and vouchers, and the other charges made, showing a repudiation on the part of the defendant of all rights of the plaintiff in the business, presenting an honest difference of opinion, not only as to the administration of the assets which belong equal’y to both, and of which, so far as the good will and firm name was concerned, belonged entirely to the plaintiff during her life; these justified, in the presence of the quarrel between the parties, the appointment of a disinterested person as a receiver, to the end that the property might be preserved during the litigation, and, as the result of an accounting, distributed as justice might require. I am, therefore, of the opinion that the order appealed from should be affirmed, with costs and disbursements. Note on Liability of a Retiring Partner Who Leaves Capital in the Firm. The rules applicable to liability to creditors of an intended special partner, as if a general partner, by reason of departure from the statute of limited partnership, have been stated in 21 Abb. N. C. 55. The conditions on which the capital of a deceased partner may for a time remain in the business without involving his estate in general liability to creditors, as if a general partner, in 17 Id. 172 ; 21 Id. 70. The case in the text bears on the question what language in the articles will make the owner of such special capital a partner with the others as between themselves. The question whether they are partners as between themselves is of importance in several respects. (l) If they are the owner, one whose capital is used is necessarily liable, as a partner, to creditors. (2) If they are not, such one has not without special stipulation, any right of access to the books nor generally any right to an accounting in equity. (3) If they are not, such an one can maintain an action at law against the others; while, if a partner, he must, for such a remedy, wait till he has a balance struck, etc: The statute of limited partnership (1, R.S. 764) is for the benefit of creditors. It does not prevent partners agreeing among themselves that as between themselves one or another will bear all risks, or all losses. But it is the better opinion that a stipulation on the articles for limited liability cannot affect creditors even if they knew of its existence. Stipulations limiting the scope of business affect creditors, because they limit the authority of a partner in the matters in respect to which he may bind his co-partners. But a stipulation that he shall not bind them beyond a specified amount would be illusory, because one dealing with the firm could not, without taking an account, or relying on representations, ascertain •whether the liabilities of the firm in view of its assets involved any excess over the amount. Of course, if one dealing with the firm agreed to give credit only to the intending general partners, he would not have recourse against the intending special partner, but this would be because he had made not a firm contract but a special contract on the credit of individual partners. The distinction between the question when arising as between the partners, and when arising as between a partner and creditors, is well seen in the contrast between the case in the text and that of Jacquin v. Buisson. It is also shown in Durant v. Abendroth (97 N. Y. 132, 144,) holding that a violation of the limited partnership act does not necessarily make the partnership a general one as between the partners, but makes the special partner liable to creditors as if a general partner. In Jacquin v. Buisson, 11 How Pr. 385 ;-N. Y. Superior Court, special term, 1855), Jacquin sued as administrator of his father, who in his lifetime was partner with defendant. The partnership articles were executed at Brussels in the French language, establishing a commericaT partnership en nom collectif, to be located in New York. The articles stipulated that the death of plaintiff’s father should not be a dissolution ; but the heirs should have three months to determine whether to continue the same partnership or transform it into a partnership, en commandite. If they neglected within that time to make known their intentions, the partnership, shall of full right be transformed into such a partnership, en commandite, in regard to them.” The heirs of Jacquin allowed the time to pass after his death without announcing any intention as to the partnership. Held, that there was a general partnership which the representatives had not chosen to continue as such, and could not continue as a limited partnership without pursuing the regulations of the statute. Hoffman J., m reviewing the question whether the New York statute on limited partnerships is not merely permissive but exclusive, says (p. 393), “that the parties designated in articles or a will, to continue a partnership, or to be interested in It after a death, should be obliged to renew the formalities of the statute, if they would remain special partners, with the fund alone responsible; and if they continue the business without this form, then they become general partners, liable in like manner as all other dormant partners.” The general principle that common law liability exists in every case where the statute is not complied with, was also laid down by Mr. Surrogate Bradford in a very well-considered opinion in which ‘he reviewed the limited partnership laws of New York and the other American States (Fanshawe v. Lane, 16 Abb. P. R. 71, 76). He says : “The Societe en Commandite was an institution unknown to the common law. By the common law all partners were liable for the obligations of the firm, on the principle that every person who participates in the profits should bear his burden in the losses of the firm. By the Societe en Commandite a special privilege was secured. The special was liable only for the amount he invested in the partnership. This privilege was obtained, however, only upon compliance with all those provisions of law which exonerated him from a general liability.” The general doctrine of the American Courts is well stated in Shebel v. Strong (128 Pa. 315 ; s. c.,18 Atl. R. 397), by Sterrett J. (all concurring) as follows: “ The question is not one of good faith on the part of the defendant or of notice to the creditor, but whether, in their attempt to form a limited partnership, they have conformed to the law. If they did not, their attempt was abortive, and it is no defense that creditors had actual knowledge of the facts required to be set out in the fecorded statement. The averment in the affidavit of defense that plaintiffs had actual knowledge .of the extent and nature of the capital of the association and gave credit to it on the basis of a liability limited to such capital, is therefore insufficient. The context shows that the defendants do not mean by that averment to allege that there was any express contract between them and the plaintiffs whereby the liability of the former was limited to the capital stock subscribed as set forth in the statement ” (Citing Eliot v. Himrod, 108 Pa. 569; Hill v. Stetler, 13 Atl. 306; and again in 127 Pa. 145 ; s. c., 17 Atl. 887).