Bruns v. Spalding ( 1900 )

The appellants filed a bill in equity against the appellees and Frank O. Singer, Jr., to which the appellees demurred, and the demurrer having been sustained an amended bill was filed and apro forma decree was passed sustaining a demurrer to it and dismissing both bills. As the latter contains the material parts of the original one, it will only be necessary to discuss it.

According to the allegations in it, Charles E. Spalding was the owner of a tract of land on Eutaw Place in the City of Baltimore, and he and Frank O. Singer, Jr., entered into a parol agreement for its development to the following effect: Singer was to procure a builder who would lease, from Spalding, the land in twelve sub-divisions, each being subject to a ground-rent of $506.25, and who would improve each of the lots by the erection of a dwelling house thereon. Singer was to devote his time and pledge his credit in assisting and enabling the builder to obtain the necessary materials for the construction of the houses. Spalding was to contribute $24,000.00, as a bonus, to aid the builder. As soon as the houses were completed and the ground-rents became marketable, the latter were to be sold by Spalding and out of the proceeds of the sales he was to receive the purchase money paid for the land, the amount advanced as a bonus; six per cent interest on those sums and an extra bonus advanced by him after the work was begun. He was to deduct those sums from the proceeds of sales of the ground-rents and the accrued rents from July 1, 1897, and the remainder was to be equally divided between him and Singer. One Joseph K. Hubbard was procured by Singer as the builder, the leases were made to him and he proceeded with the erection of the twelve houses, but, before completing them, he failed and receivers were appointed to take charge of them. Spalding then notified Singer that unless he procured the consent of the creditors to have the houses completed by the receivers, and unless they were so completed, he would consider the agreement at an end, and Singer would not be entitled to the stipulated division of profits. Singer made the arrangement and the houses were completed, but in order to have that done he, at the request of Spalding, entered into a contract with the receivers, whereby he agreed to furnish all the mill work necessary and, with the knowledge and assent of Spalding, agreed to pledge his interest in the profits to the complainants, who were lumber merchants, in order to obtain financial aid from them, and to guarantee the claim they held against Hubbard. The complainants furnished the receivers with materials amounting to $1,163.00 and advanced $6,780.00 in cash to Singer. Those amounts, and the bill due by Hubbard, left Singer in debt to the complainants and, in accordance with his agreement to secure them out of his share of the profits, he gave them an order on Spalding for $7,500,00, and also executed an assignment of that amount of his profits to them. The bill alleges a demand on Spalding for Singer's share of the profits, to the amount due the complainants, and his refusal, and that Spalding had sold four of the ground-rents, had collected accrued rents and that he could have sold the other ground-rents, but had refused to do so at a full valuation. It is also alleged that a partnership existed between Singer and Spalding as to this transaction. The complainants pray (1), that Spalding may upon oath answer the bill and discover and set forth in detail all sums received by him, the amount expended by him for bonus and purchase money and that he account to them for all their interest in the profits; (2), that he may be enjoined from collecting a promissory note for $1,500.00, which will be hereafter referred to; (3), that receivers may be appointed to take charge of the ground-rents remaining unsold, with the power to sell them and distribute the fund so received and (4), for further relief.

It will be well to first determine whether the allegations, if true, are sufficient to show that a partnership existed between Spalding and Singer, for if we reach a conclusion in favor of the appellants as to that, it will relieve the case of some of the objections interposed by the appellees. The amended bill alleges in terms that Spalding and Singer "entered for their joint benefit and profit into a partnership agreement for the development of a certain tract of land," and, in speaking of what Singer was to do, it stated that he "was to make a contribution towards said partnership enterprise in this wise, etc." He was to receive one-half of the net profits resulting from the transaction and it is averred that Spalding recognized the arrangement as a partnership, that he notified Singer that unless certain things were done, as shown above, "he," the said Spalding, "would consider the said partnership agreement at an end." The terms of the contract, as set out in the bill, do not contradict the theory of a partnership, although it is contended on the part of the appellees, that the order and assignment referred to on their face do so. But we do not so understand them. In the first place they were given more than a year after the alleged partnership was formed and after the complainants had given their assistance in money and materials, for which they seek to be reimbursed in part. The order is to pay the money "out of profits due me for services rendered as per verbal understanding on Hubbard Eutaw Place transaction," and adds "this order is given as per understanding with Heise and Bruns for the sale of lumber and mill work to receivers for completing said houses, if there was any shortage said Singer was to pay out of his profit in transaction," and the assignment reads "I hereby assign to Heise and Bruns $7,500.00 of my claim and interest in and arising out of the twelve ground-rents of $506.25 * * * * *. The title of which rents is held by Charles E. Spalding, except two of same which have been sold to him, but not accounted for to me. My interest in said rents being one-half of the profits in sale." There is nothing in either of them to show that the profits in the transaction he referred to were not his profits as partner, but when they are taken in connection with the allegations in the bill they would presumably refer to such profits and they may have been worded as they were to show that the complainants were to be paid by Singer — out of his share of the profits — and not by the firm. Such was the understanding, as alleged in the bill, which also charges that the pledge of Singer's interest in said profits was made "with the knowledge and assent of said Spalding." Singer had undertaken in the discharge of his part of the partnership contract to have the houses completed and it was proper that his profits and not those of the firm should protect the complainants, although he had informed the complainants of his partnership with Spalding.

It is true that the mere fact that a party is entitled to receive a definite share of profits out of a business does not necessarily make him a partner, but as was said in Badeley v.Consolidated Bank, L.R. 38 Ch. Div. 239, "it is one of the circumstances, and a very strong one, which are to be taken into consideration for the purpose of seeing whether or not a partnership exists." In Thillman v. Benton, 82 Md. 73, we said "we take it then to be well settled that a partnership is a contract of some kind involving mutual consent of the parties, and when such a contract is entered into between two or more persons for the purpose of carrying on a trade or business, with the right to participate in the profits of such trade or business, then such a contract constitutes a partnership, unless there be other facts and circumstances which show that some other relation existed." See also Rowland v.Long, 45 Md. 439, in connection with what is said of it in the case last cited. The case of Reddington v. Lanahan,59 Md. 429, relied on by the appellees, differs widely from this. There Reddington claimed that a partnership existed between him and one Eschbach, under an agreement which provided that the former should have one-sixth of the net profits arising from a contract that Eschbach had with the Mayor and City Council of Baltimore, but in the contract itself it was expressly stated that Reddington was not a partner. Manifestly he was not entitled to relief in a Court of Equity on the theory that he was a partner when he had, by the very terms of the contract he sought to enforce, expressly agreed that he was not.

It being then distinctly alleged that Singer and Spalding were partners, and there being nothing in the bill which we think contradicts that allegation, but on the contrary prima facie sustains it, we must, for the purposes of this case, as now before us, assume it to be true. That being so, are the complainants entitled to relief in a Court of Equity? The case ofReddington v. Lanahan, supra, in effect concedes that if Reddington was a partner, and, as such, entitled to share in the profits arising from the execution of the contract, he would be entitled to relief in a Court of Equity, and there can be no doubt about the right of Singer to maintain a bill in equity for an accounting, if it be true that he was a partner of Spalding. The contract was executed on his part and he is entitled to have an accounting and settlement of the partnership. The appellants are subrogated to his rights, to the extent of the assignment to them. The Courts of most of the States in this country, as well as the Supreme Court of the United States, hold that a Court of Equity will recognize and enforce an assignment of a definite portion of a debt or chose in action, even without the consent of a debtor. 2 Ency. of Law (2nd ed.) 1070. InGibson v. Finley, 4 Md. Ch. 75, the Chancellor spoke doubtfully as to whether an assignment of a part of a fund was an equitable assignment, without such assent. In Wilson Co. v.Carson Co., 12 Md. 54, and Harris v. Mayor, etc., ofBaltimore, 73 Md. 39, this Court said that a creditor could not split up and divide his claim without the consent of the debtor, but both of them were suits at law, and, without stopping to discuss that question, this bill expressly alleges that Spalding assented to the assignment. Indeed it may be that when an account is taken the assignment may cover more than is due, and as the appellants are subrogated pro tanto to the rights of Singer they are entitled to have an accounting, so as to ascertain just what the profits arising from this transaction are. A Court of Law could not properly ascertain the status of the accounts between the partners and a Court of Equity is usually the only Court in which accounts between partners can be settled.

But independent of the question whether there was a sufficient allegation of partnership, there is another ground upon which relief in equity can be given. In the very excellent note to the case of Wiggins v. Bisso in 5 Am. Eng. Decisions in Equity, on page 72, the question of accounting between joint owners of property is discussed. One of the instances there mentioned, in which it is said a bill will lie, is "to adjust the rights of those who are entitled to a share in the profits of a business adventure." Some of the cases there cited are very analogous to the one before us. In Petrie v. Torrent, 88 Mich. 43, the complainant had a verbal option under which he could purchase certain lands, timber and other property. Not having sufficient means himself, he made an arrangement with the defendant by which the latter agreed to pay one-half of the expense of examining the timber and, if satisfactory, to furnish the purchase money for the property and give the complainant one-third of the net profits from the sales. The complainant agreed to pay the other half of the expense of examining the timber, and to give his services in carrying out the enterprise. The purchase was made and the property taken in the name of the defendant, who, with the complainant's assistance, sold some of the property for more than the total cost, and he contracted for the manufacture of the rest of the timber into lumber, one-half of the gross receipts of which he was to receive. After he had received a large amount of such receipts, and on his failure to account to complainant for his share of the net profits, a bill in equity was filed by complainant and he was granted relief. In Scudder v. Budd,52 N.J. Eq. 320, the complainant and defendant made a parol agreement to build houses for sale, the latter to advance the money and the former to contribute his skill and time, each to have half of the profits after sale. It was held that, independent of the question whether a partnership existed between the parties, the complainant was entitled to maintain a bill for an accounting. See also Channon v. Stewart, 103 Ill. 541;Massachusetts General Hospital v. State Mutual Life AssuranceCompany, 4 Gray, 227; Hargrave v. Conroy, 19 N.J. Eq. 281, and other cases referred to in the note above mentioned. So whether Spalding and Singer were, technically speaking, partners or not, the latter would be entitled to file a bill for discovery and accounting under such circumstances as are alleged in the bill. The case of Union Passenger Railway Company v. Mayor,etc., of Baltimore, 71 Md. 238, might also be referred to as supporting this view.

We would remark in passing that the fact that the agreement was not in writing does not invalidate it as the Statute of Frauds is not applicable. Petrie v. Torrent, supra; Scudder v. Budd,supra; Howell v. Kelley, 149 Pa. St. 475. Especially is this so when the contract is executed. Hardesty v. Richardson,44 Md. 624; South Baltimore Co. v. Muhlbach, 69 Md. 404.

The bill only alleges that four of the ground-rents have been sold, but it is alleged that the defendant is unnecessarily delaying the sale of the others, which for eight months have been marketable, and the defendant has refused to sell them at a full valuation, which complainants are advised would be at a capitalization of five and five-eighths to five and one-half per cent. It is charged that it was agreed that they should be sold at a capitalization of five and five-eighths per cent, and therefore, if it be true that the defendant had refused to sell them, as alleged, the complainants are in a position to demand an accounting by Spalding for their value. As he was, under the agreement, to hold the property in his name until they could be sold, at the rate agreed upon, we can see no necessity for the appointment of a receiver unless the testimony develops such facts as may justify that course, but the Court below should require Spalding to discover and account with the complainants.

The bill also alleges that "sometime during these transactions the said Singer procured the endorsement of the complainants upon a certain promissory note for the amount of $1,600, which was negotiated to the defendant, Charles E. Spalding," which had been renewed from time to time and $100.00 paid on the principal, and it asks that Spalding be enjoined from collecting the note or enforcing the payment of the same in any manner, pending this cause. It is not alleged that the note was given in connection with the agreement between Singer and Spalding, but only that it was endorsed "sometime during these transactions." If it was given and endorsed by the complainants, as a part of the agreement to aid Singer in this enterprise, Spalding should not be permitted to enforce it, pending the accounting which we have said should be required, but if it was not, a Court of Equity should not interfere with its collection. As the bill stands, the Court could properly have sustained the demurrer to that part of it, and was right in refusing to grant the injunction. But as there was error in dismissing the amended bill, the decree will be reversed, and the defendants should be allowed a reasonable time in which to answer, after this case is remanded. Whether or not a receiver should be appointed must depend upon the facts which may be developed.

No question was raised at the argument as to the right to make Mrs. Spalding a party to the proceedings. We do not understand why she was, as the allegations in the bill are not sufficient to show that the ground-rents belonged to the partnership, but only the profits in the sale of them. As Mrs. Spalding was in nowise connected with the transaction and her inchoate right of dower cannot be affected by this proceeding, so far as we can see from the bill, if a sale should follow, there appears no reason for making her a party.

The decree dismissing the amended bill will be reversed. Each party will be directed to pay their own costs in this Court, the costs in the Court below to abide the result of the case.

Decree reversed and cause remanded, each party to pay theirown costs in this Court, and the costs below to abide the resultof the case.

(Decided January 9th, 1900).