Friedrich v. Durant , 194 Wis. 275 ( 1927 )

The following opinion was filed October 11, 1927:

R.osenberry, J.

The petitioner seeks a reversal of the judgment below upon the ground that the court erred (1) in finding that the evidence did not show continuance of the partnership after January 1, 1920; (2) the court erred in finding that the evidence did not show that the fee from the liquidating trustees was a partnership fee; (3) the court erred in finding that the fraudulent concealment of the amount of the fee by Paul D. Durant was not established; (4) the court erred in finding that the petitioner was not entitled to equitable relief. •

In the view which we take of the case it will not be necessary for us to discuss some of the propositions argued by counsel. For present purposes we shall assume that the court should have found that the partnership continued to on or about May 1, 1920; that the fee earned by Durant and paid by the Schoellkopf Liquidating Trustees was a partnership fee; that of the amount of $250,000, $150,000 was accounted for as a partnership asset; that $100,000 was wrongfully withheld from the partnership and invested by Durant in securities in his own name. In making these assumptions we do not hold that the facts stated are established so far as they are not found by the court, but assuming them to be true for the sake of argument, the petitioner is not entitled to recover.

As stated in petitioner’s brief, this is not a proceeding for a partnership accounting, it is not in assumpsit for an agreed debt arising out of a partnership relation, it is not for a conversion arising out of a fraudulent abstraction of funds, but it is an attempt to impress certain assets of the estate with a trust in favor of the petitioner, and it must stand or fall upon that ground. In order to recover, the petitioner must establish the fact that moneys belonging to him were without his consent withheld and wrongfully invested in the securities claimed. Bosworth v. Hopkins, 85 Wis. 50, 55 N. W. 424.

There was no proof whatever offered in the case either by the petitioner or the respondent showing that there had been a settlement of the copartnership affairs or that there had been an accord and satisfaction. Petitioner’s argument here is based upon the allegation that such fact is established by the pleadings.

In the amended petition it is alleged:

“That on or about the 1st day of May, 1920, the said partnership was dissolved by the said partners and all the accounts between the partners herein were settled and all the liabilities between the said partners paid, as this petitioner is informed and believes, and all the earnings and profits and property were divided except the right to said fee of $250,000.”

This allegation was categorically denied by the respondent’s answer “except that respondent admits that the relations between said Paul D. Durant and Herman Friedrich were dissolved and terminated on January 1, 1920, and that thereafter all of the accounts and liabilities between said Paul D. Durant and Herman Friedrich were fully settled either at the time of dissolution on January 1, 1920, or thereafter during the months of April or May, 1920.”

And as a separate defense the answer alleges on information and belief:

“That on May 20, 1920, the said Paul D. Durant delivered to said Herman Friedrich a check signed by said Paul D. Durant in the sum of $15,000, on which was indorsed the words ‘Final payment in full,’ and that said Herman Fried-rich accepted said check in final payment in full of all claims then existing between' the said Herman Friedrich and the said Paul D. Durant, and indorsed said check and deposited the same in his bank account on May 21, 1920, and that said payment and acceptance thereof by said Herman Friedrich constituted a compromise and settlement in full of all claims existing between said - Herman Friedrich and Paul D. Durant.”

From this state of the pleadings the petitioner deduces the following:

“We start, then, with the allegation by the petitioner that all the accounts except the $250,000 were settled, and the allegation by the- defendant that all the accounts which were mutual were settled; and that this $250,000 was not mutual, but the individual property of Durant. Whether this was a partnership or an individual fee is the issue submitted.

“Upon this state of the pleadings it devolved on the petitioner to prove: first, that a• partnership existed; second, that the work for the liquidating trustees was done by the partnership; third, that Durant bought property with the money which came info the hands of the administratrix.”

The conclusion reached by counsel that a settlement was admitted by the pleadings of everything but the $100,000 item is clearly a non sequitur. A denial by the respondent that there was a settlement made which excluded the fee of $250,000 and an allegation that either on January 1, 1920, or some time in the month of April or May, 1920, all of the accounts and liabilities between the said Paul D. Durant and Herman Friedrich were fully settled, does not amount to an admission of a settlement of everything excepting $100,000 out of the fee for $250,000. Ogden v. Atlas B. Co. (Mo. App.) 248 S. W. 644.

The evidence clearly discloses that $150,000 of the $250,000 fee was accounted for by Durant. The petitioner cannot separate the allegations of the answer into phrases and take out and apply those which suit his purpose and ignore the remainder. The petition sets up one claim, the answer another and inconsistent claim. The evidence nowhere discloses what other, items of partnership business or property were taken into. consideration in the making of the alleged settlement or accounting between the partners. Such evidence as was received tended to contradict the allegation of settlement contained in the petition to the extent that $150,000 of the $250,000 was in fact accounted for. The court was clearly right in finding that no settlement was established by the evidence and that the answer did not admit the allegation contained in the petition.

Taking into consideration the assumptions made, the situation presented by 'the record stated most favorably for the petitioner is this: the petitioner and the deceased, Durant, were in partnership, the partnership was dissolved on or about May 1, 1920; prior thereto the deceased had earned a fee of $250,000 belonging to the partnership, of this he had accounted to -the partnership for $150,000 and had wrongfully withheld $100,000; that some two years and nine months after the dissolution of the partnership Durant died, his estate was duly administered, notice of the time for filing claims was given, the time within which claims could be filed had long expired, the petitioner filed no claim against the estate of Durant, and now seeks to impress certain assets of the estate with a trust for his benefit on the theory that he was the owner of one fourth of the $100,000 withheld by Durant. It is practically conceded that the petitioner can recover upon no other basis.

What then is the nature of the petitioner’s interest in the $100,000 assumed to be wrongfully withheld from the partnership by Durant? Sec. 123.18, Stats. (Uniform Partnership Act), provides:

“Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property.”

If Durant wrongfully withheld funds of the partnership and invested such funds, he held the investment as trustee, not for Friedrich but for the partnership. The property held in trust for the benefit of the partnership was subject to the same accounting as any other partnership asset. While the offending partner might be chargeable as a trustee, that merely determines the nature of the partnership’s right to the property and the basis upon which an accounting might be had with the offending partner. The fact that he held certain amounts in trust for the partnership did not give to other partners an individual right in and to the fund so withheld. Such was the common-law rule.

Justice Story in Kelley v. Greenleaf, 3 Story, 101, approved in Bosworth v. Hopkins, 85 Wis. 50, 59, 55 N. W. 424, stated the law thus:

“If a partner fraudulently or improperly, without the consent of his partners, applies the partnership funds to his own private purposes, or for his own private profit or emolument, or invests the same improperly in his own name and for his own use, the other parties have a right, if they can distinctly trace the investment and elect so to do, to follow the partnership funds into the investment, and treat it as trust property held by that partner for the benefit of the firm.”

Whether the case be governed by the Uniform Partnership Act or by the law as it existed prior thereto in this state, there can be no doubt that the investment of partnership funds wrongfully made by a partner may be decreed to be held by him as a trustee for the benefit of the firm.

The provision of the Uniform Partnership Act, sec. 123.21, sub. (2) : “A partner is co-owner with his partners of specific partnership property holding as a tenant in partnership.” Sub'. (3) : “The incidents of this tenancy are such that: (a) A partner, subject to the provisions of this chapter and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners,” — does not change the rule. Whether one partner or another holds partnership property, he holds it for the firm and not for himself as an individual. His right to so hold it is equal to that of any other partner, there being nothing to the contrary in the statutes or the partnership agreement. The fact that by the common law as well as by the Uniform Partnership Act a partner’s right in specific partnership property is not assignable, clearly indicates the nature of his right.

When, if ever, may a partner claim to be the owner of a partnership asset or an interest in a partnership asset as an individual? The very great weight of authority is to the effect that, in the absence of statutory permission or express promise or fraud, an action at law as distinguished from an action in equity is not maintainable between partners with respect to partnership transactions unless there has been an accounting and settlement of partnership affairs. Sprout v. Crowley, 30 Wis. 187; Tolford v. Tolford, 44 Wis. 547; Smith v. Putnam, 107 Wis. 155, 82 N. W. 1077, 83 N. W. 288; Pope v. Thompson, 171 Wis. 468, 177 N. W. 607; J. V. LeClair Co. v. Rogers-Ruger Co. 124 Wis. 44, 102 N. W. 346; 21 A. L. R. note p. 34, and cases cited.

One of the principal reasons for the rule is that until there has been a partnership accounting a partner has no ascertainable interest in a partnership asset. His interest in partnership property is subject to the liabilities of the firm, to the claims of his copartners, and to all other matters properly considered in a partnership accounting. When there has been a partnership accounting; liabilities of thé partnership discharged; and the rights of partners adjusted, a partner has an ascertainable interest, and he may enforce that interest in an action at law. Until such a settlement and accounting has been had his sole remedy is in equity for an accounting. Rose v. Bradley, 91 Wis. 619, 65 N. W. 509. No partnership accounting having been established in this case, the petitioner had no ascertainable interest in the $100,000 at the time the petition was filed. Having no ascertainable interest therein, no trust could arise in his favor. No - fund to which he was legally entitled had been invested in any securities. The funds which went into the securities under the assumed facts were partnership funds, and if a trust arose it arose in favor of the partnership, and if it is to be asserted it is to be asserted on behalf of the partnership.

The petitioner's right, therefore, was the right to an accounting with the administratrix of his deceased partner’s estate and for any balance found due him. Petitioner’s right to such an accounting is barred by the statute of non-claim.

The facts in Davis v. Davis, 137 Wis. 640, 119 N. W. 334, were that one of the copartners died, the surviving partner continued to conduct the business and thereafter he died. The estate of the surviving partner was administered, and the widow of the partner first deceased brought an action for an accounting of the partnership affairs. The court held that the action for accounting was barred by the statute of non-claim. Sec. 3840, now sec. 313.03, Stats.

Other matters were discussed in briefs of counsel which might properly be treated here. The court is not in agreement upon them and we rest our conclusion upon the grounds stated.

By the Court. — Judgment affirmed.

Owen and Crownhart, JJ., dissent.

A motion for a rehearing was denied, with $25 costs, on December 6, 1927,