Iverson v. Reton , 192 Wis. 418 ( 1927 )

The following opinion was filed December 7, 1926:

Doerfler, J.

It is to the credit of the profession that cases like the instant one (which has dragged its weary way along in the courts for a period of about thirteen years) are extremely scarce. At an earlier date in the history of the common law it not infrequently happened that cases were passed on from father to son and from one generation to another, and such occurrences afforded interesting subjects for satirical writers of fiction, having as their object the improvement in the administration of justice. In the course of time, due to the hearty co-operation on the part of both the Bench and the Bar, a radical change has been wrought, in favor of an early termination of litigation. Time plays havoc with the memory of man. Valuable documents oftentimes become lost, mislaid, or destroyed. Important witnesses die or remove far from the jurisdiction of the court. Long delays involve duplications of labor on the part of attorneys and of judges. It must be conceded that some of the delays appearing in this case were entirely justifiable. Attorneys have died, and others have removed from the state. The World War also played a part in the protraction of the litigation. But when all is said by way of excuse and mitigation which can properly be said, we cannot' help but agree with the learned trial judge when he expressed a well-deserved censure with respect to those delays which were unwarranted and inexcusable.

Most of the findings of the referee were approved by the trial court. The court held that the six-year statute did not begin to run in 1902, when Niels Reton withdrew from the firm, but from the time of the discovery of the fraud, after the death of Iverson. In that respect he overruled the findings and conclusions of the referee, and decided that the accounting should include the entire period from 1886 on. The court also supplemented the report of the referee by-holding that by reason of the close connections of Iverson with the Reton brothers and their mother, and by reason of the differences in the ages between the two brothers and Iverson, a relationship of confidence and trust sprang up and was maintained, and that such relationship excused the Re-ton brothers in failing to inform themselves during this long period of time of the actual condition of the .partnership affairs and in failing to demand an accounting, or in failing to sue for a dissolution of the firm.

While it is true that Iverson when he entered the firm was thirty years of age, and that the Reton brothers at that time were respectively nineteen and seventeen years of age, the latter soon arrived at their majority. A reading of the evidence in this case discloses and impresses one with the fact that the Retons were not of an-average mental caliber, but that they were keen in their comprehension and understanding of business transactions, and occupied a position, from an intellectual standpoint, above that of the average person. Both of the brothers testified at the trial in a manner which precludes the conclusion that they were the confiding tools of Iverson. While the referee found that Iverson was a man of great intelligence and business capacity, there is no satisfactory evidence in the case to convince us that he had an extensive knowledge of bookkeeping, and the testimony of the bankers who expressed an opinion upon that subject is entitled to very little weight in view of the actual physical facts that developed during the course of the trial. It is nigh incredible to believe that John Reton, who was connected .with the firm business for a period of about twenty-five years, at no time made inquiries as to the financial condition of the firm or as to his actual interest therein. And what is said here of John Reton is equally applicable to Niels Reton with respect to the time that he was interested as a member of the firm. The firm was organized for profit. It was not a family affair. While Iverson was the business and financial manager and the bookkeeper of the firm, all of the partners had an equal interest in the business and in its success. This firm during the entire period did not confine its operations merely to the conduct of a jewelry business. They purchased and held, during various periods of time, numerous pieces of real estate. They operated farms. They purchased, for the business, the real estate on one of the principal business streets in the city of Stevens Point, with the store building thereon, and also purchased other lots in said city. They purchased- live stock for the farms, and exchanged merchandise for live stock. The financial and business affairs, therefore, of the company were extensive, and from the entries on the books and from other evidence it appears that their operations exceeded the sum of half a million dollars. What these operations would amount to if all the transactions properly appeared upon the books it is impossible for any one to determine.

John Reton was a man of great business initiative. On his own individual account he engaged in lumbering interests .in Panama. He also had interests in Oklahoma and in Illinois and in other places, and a considerable portion of his time was occupied in promoting such interests. To hold that John Reton was an equal partner in this business for a period of twenty-five years, without inquiring or knowing at any time the approximate standing, from a financial standpoint, of the firm, ignores entirely the element of self-interest which predominates in human nature. Neither did John possess a simple, docile, and trusting character. His testimony in the case evinces positiveness, determination, and even combativeness. During this long period of time the books kept by Iverson were open for examination and inspection to both of the Re tons while they were members of this firm. For a period of about three years after Iver-son’s marriage, from about the year 1897, he devoted his time during the hours of the day to the conduct of his farm, known as the Karner farm, and on the evening of each business day he would call at the store and attend to the bookkeeping. During this period of time ample opportunity was afforded both of the Retons to make an examination and inspection of the books. Everything apparently was open and above board. Had there been any large wrongful withdrawals by Iverson from the firm assets, no one was better able to detect the same than these two brothers.

In connection with the firm business and his own individual business Iverson maintained bank accounts, and there is no pretext that the firm’s deposit books, its check books, and its canceled vouchers were not at all times available to the Reton brothers. The withdrawals of the Reton brothers, however, were made in cash, and it is not reasonably certain that all of their withdrawals were registered by proper entries in the books of the firm. During the period of one entire year, if we rely upon the report of the accountant, John Reton withdrew from the firm the paltry sum of fifty cents, and during other periods his withdrawals were comparatively small and negligible. Under these circumstances, taking full cognizance of the selfish instincts of the average man and the intellectuality displayed by these two brothers, the contention of the latter that during this long period of time they were in total ignorance, and were content to remain in total ignorance of the financial condition of the firm and of their approximate interest in the firm is contrary to all reasonable probability. Herschman v. C., M. & St. P. R. Co. 176 Wis. 209, 186 N. W. 613. Every small stockholder in a business corporation is interested in its financial condition, and when dividends are passed by the directors he is immediately prompted to make inquiry. Such being the fact in relation to a stockholder of a corporation, however small may be his holdings, what can be said of an active, equal copartner in a firm doing as extensive and varied a business as that conducted by the firm in the instant case? Every transaction of a copartnership is ordinarily the subject of the scrutiny of the active partners in the business, for, being an enterprise engaged in for profit, and being the source from which the partners not only secure a livelihood but an accumulation for the future benefit of each party interested, a failure to be alert at all times may result in disaster.

While an occasional inadvertence may occur, and while wrongful entries made upon the books by the bookkeeper at times may be overlooked or undiscovered, due to a relationship of confidence and trust existing between the co-partners, it is incredible and contrary to all reasonable probability that a practice due to a general scheme of dishonesty involving the sum of upwards of $27,000, which includes innumerable transactions, could be pursued over a period of twenty-five years, not only without being discovered, but that the partners of the type herein involved should have made no inquiry with respect to their own interests during all this time; and it appears to us further not only highly improbable, but nigh impossible, that the defendant John Reton, to whom the books and records of the firm were at all times available, in a business in which he was an equal partner, should not during a period of twenty-five years have discovered the form of bookkeeping employed and its utter unavailability as a basis for determining the respective interests of the copartners. True, the defendant takes the position that he was ignorant of proper bookkeeping methods. Assuming this to be true, his self-interest would naturally prompt him from time to time to seek advice upon this subject, and expert accountants were at all times available to him, and upon such he might have called for advice and assistance. Being ignorant himself of bookkeeping, he might have requested a statement from Iverson, to whom he intrusted the financial end of the business, and the conclusion is well nigh irresistible that the Reton brothers, during all times while they were members of the firm, were aware of the general bookkeeping scheme conducted by Iverson.

At the time when Niels Reton withdrew from the firm, in the year 1902, the financial condition of the business and the interests of each copartner therein were prominently brought to the fore. True, the referee found that the settlement then made was not based upon an actual accounting. The settlement, however, manifested a conclusion on the part of all of the copartners that Niels’ net interest was not worth in excess of $1,700. The relationship of Niels to his brother John was not only one of business but also one of blood. Had he merely transferred his interest for this sum to John Reton, it might readily be argued that the blood relationship predominated, and that he was willing to make a great sacrifice in the interests of a devoted brother. In the purchase of Niels’ interest, however, Iverson became the owner of an undivided one-half thereof, and the transaction, to say the least, constitutes an evidentiary fact with strong probative force that the amount paid for Niels’ interest represented approximately its real worth.

The parties in this case have appealed to a court of equity in order that certain alleged wrongful acts may find a proper remedy. The burden of proof with respect to the allegations in the cross-complaint rested upon the defendant, and this burden must be discharged by evidence of a clear and satisfactory nature. “Equity delights to do justice,” and the relief demanded, to a large extent, must appeal to the conscience of the chancellor. Sitting here in judgment upon this case, as an appellate court and in the capacity of chancellors in an equity action, notwithstanding the findings of the referee and the decision of the trial court, we have come to the conclusion that by reason of the physical facts disclosed by the evidence, the attitude of the parties, and the incredibility of the testimony of the defendant and of Niels Reton, that the Reton brothers at all times while they were members of the firm having at all times had access to the books and records, and being of more than average intelligence, not only acquiesced in Iverson’s system of bookkeeping, but that they impliedly, if not expressly, consented thereto. But it' must be assumed that they at all times knew approximately the financial condition of the business; that they had at all times access to the books, and that nothing was hidden from them; that if they did not avail themselves personally of their rights to make an examination, they were authorized to have such examination made by accountants; that when Niels Reton withdrew from the firm, the financial condition of the same and the amount of its assets were prominently brought to their mind, and that when the interest of Niels was sold, the determination on the part of John Reton and Iverson was based upon an approximate valuation of the firm’s net assets.

No accounting was demanded until after the death of Iverson, who during his lifetime was in a position where he might have given valuable aid and thrown light upon the various firm transactions and upon the entries appearing upon the books, and as to the various conferences held, if any, and conclusions arrived at from time to time of how the business stood, and what the interests of the copartners thereof were. The defendant and his brother have slept upon their rights until Iverson’s death, and then a situation arose which made it impossible to do justice between these parties. In such a case a court of equity will leave the parties litigant in the condition in which they find themselves, a condition wrought in part by their own acts and their own negligence. See Lawrence v. Rokes, 61 Me. 38; Stout v. Seabrook’s Ex’rs, 30 N. J. Eq. 187; Teipner v. Teipner, 135 Wis. 380, 115 N. W. 1092. The Teipner Case, supra, discloses a situation very similar to that which exists in the instant case, and is ample authority for the conclusions arrived at by the court herein.

We are satisfied that the conclusions of the referee and the court in regard to the Eau Pleine farm are correct; likewise as to the findings with respect to the property situated in the city of Stevens Point, consisting of the store property and the lots.

We also affirm the judgment of the court in relation to the Earner farm property and the Ashland hotel property.

The judgment of the court with respect to the sale of the stock of merchandise and the allowance to Aurilla Iverson is also affirmed.

The order directing the payment of the expert accountant out of the proceeds of the partnership assets, being a discretionary order, is affirmed.

The judgment with respect to the accounting of the partnership transactions from the inception of the firm up to the time of its final dissolution, occurring upon the death of Iverson (except as herein stated), is reversed.

The decision of the trial court on all transactions in respect to the winding up of the partnership business, occurring since the death of Iverson up to the time of the entry of judgment, is expressly affirmed.

By the Court. — The judgment is affirmed in part and reversed in part, as above indicated, and the cause is remanded for further proceedings in accordance with this opinion.

A motion for a rehearing was denied, with $25 costs, on April 5, 1927.