Hallman v. Brock , 204 Ala. 17 ( 1920 )

The bill shows the existence of a mercantile partnership between complainant and respondents Ward and Hallman and a dissolution thereof, and seeks to bring said partners to an accounting and have certain assets of the firm received by them applied to the payment of the partnership debts. The bill also shows the sale of the stock of goods — the proceeds thereof being applied (as complainant believed) first to the payment of the firm's debts, and the remainder divided equally between the partners, each receiving $750.

The respondent Ward was bookkeeper of the firm, and the one upon whom the other two members relied as to questions of the firm's indebtedness. The averments of the bill show a gross fraud perpetrated upon the other members of the firm by respondent Ward falsely, and with the intention to deceive, representing that the list of creditors which he exhibited was correct as to number and amount due each, and that such list represented the entire indebtedness, when it subsequently developed that the firm owed an additional sum of $3,000, to speak in round numbers.

The $750 received by Hallman was deposited in the respondent Bank of Atmore to the credit of appellant, the wife of J. S. Hallman, without consideration from her, and therefore constituted a fraudulent gift of the firm's assets, as alleged in the bill.

The insistence that the bill shows a dissolution and final settlement of the partnership affairs, and no facts authorizing a reopening of the same, is without merit. If what was done by the partners is held to have been considered by the parties at the time a final settlement of the partnership affairs, yet there can be no question that the alleged fraud of respondent Ward entirely suffices to reopen the settlement, for, as said in Paulling v. Creagh, 54 Ala. 646:

"When fraud or undue advantage distinctly appears, affecting the whole account, the settlement will be annulled in toto, and the parties remitted to an accounting as if it had not been made."

See, also, Scheuer v. Berringer, 102 Ala. 216, 14 So. 640; Burks v. Parker, 192 Ala. 250, 68 So. 271. Under the averments of the bill, therefore, the amount received by respondent Hallman was the result of fraud, and in equity this sum is a part of the assets of the partnership, and as such subject to distribution among the creditors. While Hallman himself may have been innocent and as ignorant of the fraud as was complainant, yet he received the fund which was a result of the fraud, and, having parted with no consideration, cannot be permitted to receive the benefit thereof. The principle here involved is well expressed in the following quotation found in Law v. Grant, 37 Wis. 548:

"This case is brought within the broad principle, that no one can avail himself of fraud. * * * Where once a fraud has been committed, not only is the person who has committed the fraud precluded from deriving any benefit from it, but every other person is so likewise, unless there has been some consideration moving from himself. Where there has been consideration moving from a third person, and he was ignorant of the fraud, there such third person stands in the ordinary condition of a purchaser without notice; but where there has been no consideration moving from himself, a third person, however innocent, can derive no sort of benefit or advantage from the transaction."

So, here, J. S. Hallman can derive no advantage from this fraud, nor can his wife, the appellant, from whom no consideration passed.

It is further suggested that if there was fraud, it was of such character as only the creditors could complain, and therefore complainant here could not maintain this bill. The bill shows the utter insolvency of respondents J. S. Hallman and D. E. Ward. The complainant was individually liable for the entire indebtedness of the firm, and could be made to respond. In order to prevent a suit he executed a mortgage upon his own property. It would seem entirely clear, therefore, that this complainant was greatly interested in having a partnership settlement wherein an accounting may be had among the partners for the assets which they wrongfully received, so that said assets may be applied to the firm's indebtedness, and complainant relieved to this extent of the burden of the entire debt which he was wrongfully forced to assume. This contention is therefore untenable.

The bill is not one primarily for contribution, but its equity rests upon the right of complainant as a member of the firm to have a settlement of the affairs of the partnership, and an accounting of the assets and a proper distribution thereof for the payment of the debts.

The bill as amended was not subject to any demurrer interposed thereto, and the decree of the court below will accordingly be affirmed.

Affirmed.

ANDERSON, C. J., and SAYRE and BROWN, JJ., concur.