Nichol v. Stewart , 36 Ark. 612 ( 1880 )

Eakin, J.

The articles of agreement for a planting partnership, executed in March, 1875, by complainant, Stewart, and Nichol, are carelessly drawn, They contain enough, however, to show, in themselves, the intention of the parties. It is clear that Nichol agreed to put in lands, at an estimated rent of $4,000.; and to advance, to the firm, the mules, implements, and supplies for the cultivation of the crop. The meinihg of this is, that he would furnish, free of cost, the use of sufficient mules and agricultural implements, retaining his property in them; and would advance to the firm such supplies as would be consumed in using, to be repaid to him individually out of the partnership crop. It was specially provided that no accounts should be created against the crop, save by Nichol himself.

Stewart, on his part, was to have- the sole and entire management of the laborers on the place, and bound himself to give his time, attention and best energies, to the business. In consideration of which he was to be allowed by Nichol the sum of $1,500, as a part of his share of the rent; the effect of which was to leave him individually indebted to Nichol in the sum of $500 for his half of the rent, the other $2,000 being retained by Nichol as landlord of the firm.

It was not contemplated, but, indeed, expressly forbid-' den, that the firm should contract any debts save, to Nichol himself. It was contemplated that a half of the crop of cotton and corn would not belong to the partners. In connection with a common and well known habit of business amongst planters, the inference is that it would go to the laborers. As for the rest, it was provided that Nichol would receive one-half (which would be one-fourth of the whole) and Stewart ‘'the remaining other half of one-half, after all indebtedness to said Nichol for rent, supplies, etc., is fully paid.” A reasonable construction of the concluding clause'in this provision would be to apply it to the whole of the arrangement for division, so that the charges would come out of the partnership crop before division, and not out of Stewart’s share alone; or what would be the same, that Stewart should be liable out of his share for half of these charges, as well as half the losses. Thus construed, the contract was fair, and easily intelligible without the •aid of extraneous evidence. To obtain an account and settlement of the partnership thus created, Stewart fi’ed this-bill against Nichol.

1. Parttes: In suits mr0 n tUIof ship6 busr of one part- nhbs-^"1" Right of mortgagee •of one part¡ner,inpartfS*!lp'ef~

Trulock Brothers, were, properly, on their motion, admitted as co-complainants. They showed themselves to be, at least, assignees of all Stewart’s interest in the re-suits of the partnership operations, and his individual cre(jitors> Under that state of things they would have, with Stewart, an interest in the results of the accounting, whilst Stewart, himself, would have a sufficient interest to maintain his original position as complainant. All that Trulock Brothers would get would go to diminish his indebtedness to them. It is not like a case where third parties come in and seek the privilege of prosecuting a suit, begun by one, wh;o in tjie beginning had no ..cause of action, nor interest in the subject-matter.

i-8 convenient to determine here; more definitely, what, exactly, were the rights of Trulock Brothers. In the first v 0 _ p}ace they were the individual creditors of Stewart. The * */ firm owed them nothing. They gave credit to Stewart alone. They had been advancing him money during the year of the partnership, and to secure payment took from him on the twenty-seventh of December a written conveyance of thirty bales of cotton on the partnership- place for the expressed consideration of $1,000! This gave them no right to the specific property. The articles of partnership-had bpen duly recorded. Besides, they actually knew all about it. They could only take in equity, for Stewart’s-debt, an assignment of his ultimate interest in the partnership effects, after all its debts had been paid, and the co-partner’s proper share taken out, together with all sums-due to him from the partnership effects, arising out of partnership transactions. Partners, as against each other, have each an equitable lien upon all the partnership assets, to-have them -applied, first, to the payment of partnership-debts, and next, to the adjustment of claims against each other arising from the partnership transactions. It is only-through this equity of the partners against each other and this trust of partnership effects in each other’s hands, that, the preference of firm creditors over individual creditors,, to be paid out of partnership effects, is worked out. ■ Otherwise than by this sort of subrogation, they have no lien at all upon partnership property. The whole effect of this-conveyance of Stewart, was to give Trulock Brothers, not a right to take the cotton from Nichol’s hands or to inter-. fere with its shipment, but to claim, on a settlement of partnership affairs, that so much of the ultimate interest of Stewart in the partnership effects as would not exceed the value of thirty bales of such cottqn as was on the place-when the assignment was made, should be paid to them. The cotton had not been divided.

They say that some time in March, 1876, Nichol agreed with them to pay all Stewart’s debt then due them, if they would release the mortgage and all claims against Stewart; and allow Nichol to ship all the cotton of the firm, which they did. Nichol denies this, and the testimony is in direct conflict. He says he only agreed with them to pay over, on Stewart’s debt, so much of the proceeds as would properly come to Stewart’s share. We are relieved from weighing this testimony for two reasons. If such a verbal contract was made, as they contend, and it were valid, as a novation, under the statute of frauds, it would leave them with only a personal debt against Nichol, for which they might sue at law, but could not get position in this suit to charge partnership effects as such. Besides, whatever may have been the contract originally, they soon differed as to its terms; and, to settle the matter, they took Niehol’s acceptance of an order, in their favor from Stewart, to pay over to them “ all balance” due him from Nichol on final settlement between them on the crop. The proof shows, further, that Trulock Brothers still hold the original debt against Stewart; so that it must be presumed that all idea of a novation was abandoned by all parties; and Trulock Brothers must stand upon their assignment of Stewart’s 'interest, and the terms of the order accepted by Nichol. The amount of Stewart’s debt to them is a matter with which Nichol had absolutely nothing to do. With regard to the partnership matters, they may claim Stewart’s share, be it much or little. All further settlements are between them and Stewart,

Their right t o make partnership debts, under special agreements.

Returning to a construction of the articles. Under them, Steward was prohibited from purchasing tools or creating a charge against the partnership for supplies. If he did so with Nichol’s assent, express or implied, he would be properly entitled however, to be reimbursed out of the crops, a fair valuation for the supplies; and a reasonable compensation for the use of such tools of his own as he may have furnished or purchased. He would have no right to demand pay for the tools .themselves, or to throw them on Nichols hands after the crop was made. The onus of showing Nichol’s assent would be upon'him, to remove the presumption that all advances made by him, in the face of the provision against creating debts, were meant to be gratuitous. Advances of supplies, or the use of his own tools, made from necessity, resulting from Niehol’s refusal on application, would stand on the ground of assent.

4. Dama ass Chancery jurisdiction in.

There was no decree as to the rights of the parties before the order of reference. The Master was simply substituted for the Chancellor, and intrusted to determine in the first instance, all questions of fact, and apply the equity.

This court has had occasion formerly to comprent on the mistaken view of the nature and functions of a Master, involved in this practice. It is plain, in this instance, that if the principles to govern the Master, had been first settled by the court, and embodied in directions, it would have saved expense and delay.

One of the exceptions to the report of the Master was, that it made no account of the damages, claimed by Nichol, to have resulted from the failure of Stewart to devote his undivided time, energies and attention to the business, whereby the laborers neglected their work, and much cotton was .lost by delay in picking. It is also claimed for Nichol that he lost considerably on advances he had made to laborers, and which their shares of the crop did not repay, whereas, had they been properly supervised and directed they would have made and picked out enough to have enabled Nichol to collect in full.

It is true, that, in an equity case involving matters appropriate to chancery jurisdiction, damages from malfeasances, misfeasances or non-feasances regarding the subj ect-matter, may be estimated incidentally, for the purpose of closing all litigation in one suit. They are not of themselves, however, proper subjects of chancery jurisdiction when they constitute the whole, or principal ground, of the relief sought. They should in all cases be affirmatively shown with some tolerable degree of certainty, or they should not be taken into the 'adjustment of matters arising from contract, or affecting property. Jurisdiction to award compensation for damages .has been assumed by courts of equity with great caution,- and manifest reluctance. In this case there was some evidence that Stewart had been absent, at times, from the crop, and that his attention had been at times attracted to other business; but the proof with regard thereto — the length of time he was absent, and- its consequences upon the business — are too vague to allow of any definite calculation. The damages shown are somewhat of a speculative character, and more consequential than direct. They were well left out of the calculation, especially as N'ichol is not shown to have made, at the time, any remonstrance, or complaint of the conduct of Stewart.

ners-Pakt~ Rights of, m partnership effects

With regard to the individual debts of the partners, to each other, the rule to be applied in favor of the assignees 7 x x # # 0f Stewart’s interest in the crop is, that Nichol had a lien upon all the proceeds of the crop to the extent of seeing all the partnership debts paid, and for the satisfaction of all his claims against Stewart arising out of the partnership transaction. But, as against assignees, this lien would not extend to secure any general balance due from one partner to another, upon all matters, nor a particular debt due from an assignor to the copartner, arising out of matters having no connection with the partnership, and so vice versa. Nichols acceptance of the order of Stewart bound him, by the tenor of the instrument, to pay to Trulock Brothers whatever might be found due to Stewart out of the ci’op. This must be construed to give them preference over any claim of Nichol against Stewart, for a private debt, not growing out of their partnership business,, or contracted in course of it with an understanding, express or implied, that it should be adjusted as a part of the-partnership business. See Nichol v. Mansford, 4 John. Ch., 522.

XJpon a bill for the settlement of a partnership, without, allegation to show an equity for a general accounting between the partners as to ,all matters, no mere individual debts between the partners, not connected with nor growing out of the partnership transactions, should be taken-, into account; especially against assignees of the interest ini the partnership, of one or more of them. It is not meant that, between the partners themselves, a bill might not be-framed to show an equity for a general accounting and. clean settlement. But this bill is not of that character,, and hence, no mere individual debts, outside of the pax’tnership matters, should be taken into the account in de-‘ termining the amount for which Nichol should account', to Trulock Brothers.

The Master reported, very truly, that the evidence was-so vague and unsatisfactory that he could only approximate results. It is a very common occurrence, and, in such eases, courts of chancery must do the best they caix to-close further question or litigation. Those who desire close and accurate settlements, should keep strict, precise and accurate accounts.

He found, as matter of fact, that Nichol had verbally assumed, and was thereby liable to pay the whole indebtedness of Stewart to Trulock Bx’others, amounting to $1,988.55 with interest from March 1, 1876, and that Stewart in addition to $1,600' advanced the firm for supplies and cotton picking, had purchased, and put upon the place, tools to the value of $229.88. Supplies advanced by Niehol were valued at $2,038.76. The proof of any circumstances sufficient to give Stewart a right to advance any supplies at all and charge the partnership, is very weak indeed. If, indeed, he did so, as the Master found, and the court approved, it relieved Niehol of just so much of a burden he had assumed, and upon a settlement, it would be equitable to allow it in advance of any special proofs on Nichol’s part that he suffered loss from not being allowed to do it himself.

It was error to allow anything for the tools. There was no proof of the value of their use, and from all that appears, they still belong to Stewart, unless Niehol has converted them. In either case he had a remedy at law, within the period of limitation. The Master properly declined to take any further account of the individual indebtedness of the partners to each other.

In stating the account, the Master charged Niehol with the proceeds of the crop, less his own advances and supplies — a balance of $3,154.84. Against this balance he charges him in favor of Trulock Brothers, with the sum of $1,600 advanced by Stewart to the firm, which he recommends that Niehol be made to pay, leaving still in his hands $1,554.84, of which Stewart would be entitled to half, or $777.67. Out of this he allows him to retain for his rent $500, leaving $277.67; to which he adds as due Stewart, one half the bill for implements, $114.94, and also a balance assumed on Trulock Brothers’ debt to make up its full amount, $338.58. According to this statement he reports that there would be coming to Stewart individually, after the satisfaction of Trulock Brothers, the sum of $54.06, but recommends, in view of the evidence, that Stewart have no decree for the balance.

The error.in this report is in holding Niehol responsible to Trulock Brothers for Stewart’s whole debt, and in allowing anything for the farming tools. Otherwise, it is as nearly correct as any investigation can, probably, make it.

The Chancellor supposed the Master was mistaken in holding Nichol bound by his verbal promise, instead of his written acceptance, but reached the same result by finding that Nichol was actually indebted to Stewart on the settlement of the partnership matters, in the sum of Trulock Brothers’ debt, and was so when he accepted the draft, and that the sum of $1,938.55 had been due from Nichol to the said firm since the first day of August, 1876, bearing interest at six per cent, from that date, amounting at the time of the decree to $365.50.

The decree for said amounts was entered in favor of Trulock Brothers against Nichols, with all costs.

It is impossible upon the proof to find Nichol indebted to Stewart in that amount, without including Nichol’s private indebtedness.

It is not a case in which the amount finally found in Nichol’s hands should bear interest. He is not liable to Trulock Brothers on their paper, but only for his fidelity in discharging his trust in winding up the partnership concern, and turning over to them Stewart’s part. The circumstances might well have justified a reasonable delay in making a settlement, until many matters, by no means plain, could be cleared up. The suit, moreover, was precipitated and actually brought before the cause of action accrued. The cotton had not been sold. Strictly, complainants ought not to have costs, yet as there must have been a euit some time, and no motion was made, upon this ground, to dismiss the snit, the costs below ought to be divided.

The best statement practical, had better be made now and here, and the controversy ended.

The decree is erroneous, but may be modified, and stand of its date:

Charge Niehol to partnership, Dr:

August 1,1876, proceeds of cotton................-.$5,193.60

Cr.

By his own advances..........■.......................... 2,038.76

By amount of Stewart’s advances, to be paid

Stewart............................................... 1,600.00

Total..................................................$3,638.76

Balance partnership funds.................,...........$1,554.84

One-half due Stewart.................................... 777.42

Charge Niehol to Stewart, Dr:

To one-half interest in balance, as above.........$ 777.42

Amount retained for him, as above................. 1,600.00

Total.................................................$2,377.42

Deduct for Stewart’s rent............................... 500.00

' Balance due Stewart.......................'..............$1,877.42

which Niehol ought to have been decreed to pay Trulock Brothers, without interest before decree; to be, when paid with interest at six per cent, from date of decree, a credit upon Stewart’s debt to them — saving their rights against Stewart as to any balance.

Let the decree be, here, modified as thus indicated; and, also, to divide the costs below, equally, between Niehol on one side and complainant on the other. All the costs* of this court to be paid by appellees. As thus modified let the decree be affirmed and stand as of the date of its rendition.