Palm v. Poponoe , 60 Kan. 297 ( 1899 )

The opinion of the court was delivered by

Smith, J. :

There is but one question necessary to be considered in this case, and that is decisive of the ihghts of the parties. There is no allegation in the petition of an accounting between John H. Wilder in his lifetime and Andrew Palm, his partner, or between the plaintiffs below and Andrew Palm. The absence of such an accounting is an insuperable obstacle to a recovery by the plaintiffs below.

John H. Wilder, deceased, and Andrew Palm Avere partners. The judgment rendered against them on February 8, 1886, in the district court of Douglas county, Kansas, in the suit of Edwin O. Watson, administrator of the estate of Luther Pease, deceased, was based upon a partnership debt. As early as 1866 this court decided that where suit is brought by one partner against another, as for a balance upon an accounting, it is necessary that an actual balance shall have been struck, or the items so agreed upon that nothing is left to be done but the computation. (Treadway v. Ryan and others, 3 Kan. 437.) Later, in the case of Stone v. Boone, 24 Kan. 337, the case of Treadway v. Ryan was followed. In O’Brien v. Smith, 42 Kan. 49, 21 Pac. 784, relief was denied to a partner, after a dissolution of the firm but before, an accounting, who sued his copartners for services. These decisions of our own court are but the reiteration of an elementary and long-established principle. In Sadler v. Nixon, 5 Barn. & Ad. 936, decided by Lord Denman, it was held that where one of several partners in trade pays money on account of his co-partners he cannot maintain an action against them for contribution on the ground that he made such payment not voluntarily but by compulsion of law.

Mr. Justice Story, in 1 Equity Jurisprudence, in a note to section 664, says: "There is no case in the English courts where any action at law, except an account, has been held to lie generally to settle partnership accounts, or for a contribution by one partner against the others, for money paid by him for the use of the partnership.” In Westerlo v. Evertson, 1 Wend. 532, it was held that the rule above stated applied to a partnership between practicing attorneys, although the same was not a trading concern. So, in Arnold v. Arnold et al., 90 N. Y. 580, it was decided that one member of a firm cannot recover from the representatives of a deceased copartner any portion of moneys received by the latter belonging to the former, unless upon an accounting or settlement of the affairs of the partnership a balance is found due to him. The reasons for the rule, with a collection of the authorities, are to be found in 2 Bates on Partnership, sections 849, 859, 881.

There may be cases where the transaction out of which the liability arises is independent of or outside of the partnership business, or where the partnership covers a single venture or but one transaction, so that no accounting is necessary. In such cases the rule is said to be different, but in a business involving a general partnership, and the allegations of the petition in this case indicate that the partnership covered a variety of transactions, we know of no exception to the rule stated. It will be noticed that the petition contains no averments as to the nature and amoupt of the indebtedness of this partnership ; and while it alleges that partnership property of Wilder & Palm was sold under execution and the proceeds applied in payment of the judgment, and after the death of John H. Wilder other property was sold by the order of the probate courts of Douglas county, Kansas, and Jackson county, Missouri, and the proceeds applied to the payment of the judgment, there is no statement or showing but that Andrew Palm, the other member of the partnership, paid out money on behalf of the firm to persons to whom the partnership might have been indebted. This shows the importance of the rule referred to and the necessity for an accounting ; for how could one partner know the state of account between the firm and the other partner when there has been no settlement of partnership business? And how unreasonable it would be to allow him or his representatives to maintain an action against the other for the proportion of what he paid without reference to the question as to what the other partner, defendant in the suit, might have paid? It might have appeared upon an accounting that Andrew Palm had paid debts for the firm of Wilder & Palm, and thereby decreased his liability to plaintiffs below, if he had paid less than the amount realized out of Wilder’s property. Or he might have paid more towards the liquidation of the firm’s liabilities than has been realized out of the property of John IT. Wilder, deceased, in which case Wilder and his representatives would be liable to Palm. These matters could only be settled by an accounting, and when the balance was struck the party in whose favor it was determined could then proceed in an action at law for its recovery.

Further, the petition assumes that the partnership was equal. This may or may not have been the case. This suit appears to have been tried upon the theory that, Wilder and Palm being partners, if Wilder has paid a debt, say for $1000, against the firm, without any accounting or settlement, he can sue Palm for $500 without any allegation or proof of the equality of the partnership or that an accounting had been had. The fallacy of this is self-evident.

It is contended by the defendants in error that paragraph 1 of the answer of defendant below, set forth in the statement of this case, healed the infirmities in the petition consequent on the failure to allege an accounting between the partners. It is claimed that, because the answer alleged that the partnership of Wilder & Palm had been dissolved by mutual consent for more than five years previous to the date on which the plaintiffs below alleged the partnership to have existed, this implies that an accounting had been had between the parties. We cannot agree to this proposition. The fact, as contended by counsel for defendants in error, that this answer alleges a dissolution of the copartnership and a suspension of business for more than five years prior to the time the judgment was rendered, may be admitted. Yet, this being true, it does not imply that an accounting had been had. In practice a dissolution almost always precedes an accounting. Partnership credits may be in process of collection, and other assets of the firm turned into money, before a satisfactory acounting between the partners can be had. The answer falls much short of containing an admission that an accounting had been had between the parties and the balance struck.

The decision of this case rests upon an old established principle of the law of partnership which has prevailed unshaken for years, and which is based upon the soundest reason. The judgment of the court below will be reversed.