Flint v. Johnson ( 1886 )

The opinion of the court was- delivered by

Royce, C. J.

The original bill was brought to procure the dissolution of a copartnership that then subsisted between the parties to the suit, for the appointment of a receiver, and for the taking an account of what was due said firm from each member thereof, and what was due to each mem-her of said firm, and for an injunction against the defendant Johnson.

After the defendant Johnson’s answer had been filed, and while the cause was pending, on the first day of July, 1878, the orators Wyman Flint and John G. Flint, .and the defendants, Johnson and Babbitt, entered into an agreement under seal, by which the copartnership was dissolved, and Johnson and Babbitt, for the consideration therein specified, conveyed all their interest in the property of the copartnership to the Flints. After said agreement had been made,, an accounting was ordered and had under the original bill, and the mastei made a report, which was filed November 15th, 1880. On the 2d day of February, 1881, and before any action had been taken on the report, the defendants Johnson and Babbitt brought a cross-bill against the orators, which was answered, and an accounting was taken under it, and the master’s report was filed at the September Term, 1881.

The case came on for hearing on the original bill and answer, and the master’s report therein, and the cross-bill and answer and the master’s report therein, and a proforma decree was ordered for the defendants, and an appeal was allowed to the orators. At the General Term in 1882 the cause was heard, the y>ro forma decree of the Court of Chancery was reversed, and cause remanded with mandate that the original bill be dismissed without costs, and that a decree be entered in the cross-bill that W. and J. G. Flint hold the uncollected debts due the firm in trust for the several partners in proportion to their respective interests 'in the partnership, and that there is due on the accounting to W. and J. G. Flint from George H. Babbitt 1,271.69 dollars; from George Hart 5,628.56 dollars; and from them to Wm. H. Johnson 2,272.28 dollars, with interest on said sums from June 1st, 1878, and that the orators in the cross-bill recover costs. But on motion of the defendants the decision was withheld for sixty days for time to file in the Court of Chancery further proceedings. Such proceedings were filed, and the decree was then reversed proforma, and cause remanded for further proceedings in the Court of Chancery, agreeably to the orders that had been and might be made by that court. The further proceeding which the defendants were permitted to file consisted of an additional bill of complaint against the orators in the original bill. The additional bill was answered, and another accounting was ordered and had, and the report of the master filed, and at the September Term, 1885, it was ordered proforma that the additional bill of complaint be dismissed ; and the cause comes here upon an appeal taken by Johnson and Babbitt from that order.

I have regarded it as proper to be thus explicit in stating what has been done as explanatory of the anomalous manner in which the matters for adjudication have been brought here.

The equitable rights of the parties are dependent upon the contract entered into by them on the first day of June, 1878, as expressed in the written contract, or as it should have been expressed. The orators claim that the construction given to said writing by the mandate before recited is conclusive, and that the rights of the parties are to be determined by the construction therein given.

We do not so regard it. What was said by the mandate was but the expression of the opinion of the court upon the case as it was then presented, and how it must be ultimately determined, if no supervenient facts should be brought on to the record. That it was not intended to be absolute and conclusive is obvious from the fact that leave was granted to file further proceedings, and the decree reversed and cause remanded to the Court of Chancery, to be proceeded with under the orders of that court. So that the mandate is no obstacle to a full consideration of the case as it is now presented.

The fourth article of said written agreement, and which is the only part of it that need be recited, provided that the stipulated value of Johnson and Babbitt’s four-sixteenths of the property of the firm, “ not including debts due the film,” was understood and agreed to be 4,500 dollars, and the Flints agreed to pay and assume for Johnson and Babbitt 4,500 dollars of the indebtedness of the firm; and it was agreed and understood that if the debts due from the firm should exceed the debts due to it, Johnson should pay three-sixteenths of such excess, and Babbitt one-sixteenth; and if the 4,500 dollars should be insufficient’ to pay their share of the debts oí said firm beyond the debts due to it, then Johnson and Babbitt should pay or secure such deficiency in the proportion stated.

The principal contention has been as to whether the Flints, under that contract, should account for all the debts that appeared to be due to the firm, or only such as were collectible. The construction of the contract does not appear to have been an issue before the master in taking the account under the original bill, and no ruling was made upon it. That accounting was confined to the ascertainment of the amounts due the respective partners from the firm. The accounting had, under the cross-bill, took a wider range; and in that accounting the master found and reported that the debts due from the firm, including the amounts due to the several partners, as set forth in his report under the original bill, amounted on the 1st day of June, 1878, to 56,338.61 dollars, and that the whole amount of debts due to the firm was on that date 39,-400.49 dollars; that of that amount only 15,824.37 dollars was good and collectible on said 1st day of June; leaving of said debts that were not good and collectible 23,576.12 dollars. Johnson and Babbitt claimed on that hearing that in ascertaining- their liabilities to make up their proportions of the deficiency of assets to pay the firm debts, the whole amount of the debts due the firm should be credited, and that the contract required that construction. And the Flints claimed that the contract only required them to credit the amount of said debts that were collectible. The master found and reported the amounts that would be required under both constructions of the contract, and referred the question as to how it should be construed to the court.

It does not appéar that an investigation was then made of the facts attending the execution of the contract, except as to the interlineation of the words not including debts due said firm, and the addition of the last clause; or as to bow the parties then understood it.

The decree that was appealed from was based upon that' report ; and the court had nothing to aid them in making the mandate but the contract made on the 1st of July, .1878, and the report of the master.

The master appointed to hear and report the facts under the additional bill of complaint has found that before the contract was executed, it was read over in the presence of the Flints and Johnson, and that the question was then made as to whether or not the debts due the firm, whether collectible or uncol-lectible, were to be considered in determining the amount to be paid by Johnson and Babbitt for their share of the indebtedness of the firm; and that Johnson had declined to make the agreement on the basis of what the Flints might succeed in collecting of the debts due the firm; that the contract was executed by Johnson and Babbitt in the belief that the fourth clause in the agreement would include, all the debts due the firm, collectible and uncollectible; and they were to be included in ascertaining the amount they were to pay of the indebtedness of the firm, and that they would not have executed it unless they had so believed ; that the Flints knew and understood that Johnson and Babbitt had that understanding and belief, and neither of them suggested or intimated that the contract would bear any other construction than the one they supposed; that relying upon the advice of counsel that their construction was right, they allowed the accounting to proceed without introducing testimony bearing upon the question of the diligence used by the Flints in collecting debts due the firm, which they would have done if they had not so believed.

It is evident from the facts so found' that the contract, if it is construed as the Flints claim, does not express the contract and agreement as understood by Johnson and Babbitt at the time of its execution, and as the Flints knew they understood it.

To allow a different construction to be put upon the contract by the Flints for their benefit than the one that they by their silence induced Johnson and Babbitt to believe would be put upon it, would operate as a fraud upon Johnson and Babbitt; and a court of equity will not aid the accomplishment of such a purpose, but will estop the Flints from claiming any other construction of the agreement than the one they, by their conduct, allowed Johnson and Babbitt to understand would bo put upon it at the time it was exected. The facts found would justify the court in ordering a reformation of the contract; but inasmuch as we are not embarrassed by the mandate heretofore made, and the case is presented as it would have been if the contract had been reformed, there is no necessity for such an order; and we see no obstacle to a final disposition of the case under the familiar principle of equity that compels parties to abide by and perform the agreements that they have entered into.

It was found in the first accounting that there was due from the firm to Johnson on the 14th day of September, 1878, $7,473.67, and to Babbitt $135.43; and in the accounting under the cross-bill the debts of the firm, as before stated, were found to be $56,338.61, and the debts due to the firm $39,400.49, leaving a deficiency of assets with which to pay the debts of $16,938.12.

And it was agreed, by article four of the contract, that if the $4,500, which was the agreed value of the interest of Johnson and Babbitt in the firm property conveyed by them to the Flints, should be insufficient to pay their proportions of the firm debts, that they would contribute to their payment in the following proportions : Johnson should pay three-sixteenths and Babitt one-sixteenth. The four-sixteenths of the debt which Johnson and Babbitt were under obligation to pay amounted to $4,234.52, and they paid, by the conveyance of their interest in the firm property to the Flints $4,500, which exceeded the amount they were under obligation to pay to liquidate the debts of the firm, thus leaving them to stand as creditors for the amounts found due them, and a decree should be entered that the original bill be dismissed without costs, and that Wyman and John Gr. Flint pay to George H. Babbitt the sum of $185.45, and interest on the same since the 14th day of September, 1880, and to William H. Johnson the sum of $7,345.11, the sum duo after deducting $129.66, which should have been charged to him as found, hy the report under the cross-bill, and interest on the same since the 14th of September, 1880, and for Johnson and Babbitt to recover their costs.

George Hart, one of the co-partners, was made a defendant to the cross-bill; and it was alleged in the cross-bill that the Flints had purchased of Hart all his interest in the property of the firm, and as a part of the consideration therefor had agreed with Hart to pay his share of the liabilities of the firm, and that allegation was admitted in the answer filed hy the Flints.

No decree then should be passed charging Hart with the payment of any portion of the claims of Johnson and Babbitt; and no facts are found that would justify a decree in favor of the Flints against Hart.

The decree of the Court of Chancery is reversed and cause remanded with mandate in accordance with the views herein-before expressed.