Comstock v. Buchanan

By the Court, Jambs, 'J.

This action is brought by the assignee of the interest of one member of a copartnership, to set aside a transfer, by another partner, to himself, of certain capital stock of a corporation, owned and held by said copartnership.

Hone of the exceptions to the findings of fact are well taken. The evidence was not only ample to sustain the findings, but a different finding would have been in disregard of the whole scope and force of the testimony. In fact the exceptions to the findings of fact were not much pressed on the argument. The facts of the case therefore must be regarded as established by the findings of the court below.

The Pioneer Paper Company is also made a defendant, and the prayer of the complaint is, that the transfer of the capital stock on the company’s books from S. A. Parks & Co. to Coe S. Buchanan be declared fraudulent and void as against Parks and the assignee of his intérest; that the new scrip issued to Buchanan at the time of said transfer be required.to be delivered up to be canceled; that said corporation be required to cancel the same and to issue other scrip therefor in the name of the plaintiff and Buchanan jointly.

The decree of the special term is in accordance with the prayer, except that it declares the plaintiff’s right to such stock to be subordinate to all equities existing against it, as between Parks and Buchanan, at the time of the transfer to the plaintiff.

As was said by the justice who tried this cause, “ one member of a firm cannot become the individual owner of the firm property without the consent, and against the wishes, of the other member.” One partner may sell the property of the firm and give a good title to a third party, but he cannot sell to himself. A sale to himself is simply void; no right or interest passes; the legal and equitable title remains as it was before the attempted transfer; it is still the property of the firm, though standing in the name of the individual partner. (Story on Part. § 101. Willcox v. Smith, 26 Barb. 351, 2. Comstock v. White, 31 id. 301.)

It being established by the finding, that the 113 shares of stock in dispute was the property of the firm of 8. A. Parks & Co.; that its transfer by Buchanan to himself was without the knowledge, or consent, or authority of his co-partners, it follows that the transfer was fraudulent and void; that the stock should be restored, the title replaced on the books of the corporation, new scrip issued, and the stock and scrip placed under the control and management of its rightful owner.

At the time of the transfer of this stock there had been no dissolution of the copartnership, and from aught that appears from the case, it still remains undissolved, although its general business was long since suspended. It was insisted that this assignment by Parks to the plaintiff worked a dissolution; and there is no doubt that an assignment by one partner of all his right, title and interest in th,e copartnership property would have that effect. (17 John. 525. 6 id. 417. 5 John. Ch. 144.) But this was not such an assignment; it was a sale and transfer of the interest, merely, which Parks had in this particular stock.

Parks did not thereby dispose of or release his rights in the partnership interest remaining, nor did Comstock become a member of the firm.. The copartnership remained as before, and Comstock became a tenant in common with Buchanan, of the corporation stock, subject to the equities of Buchanan as a member of the copartnership. Subject to such equities, as tenant in common, Comstock had a separate and distinct, although individual interest, in said stock. Standing in his own name alone, Buchanan might dispose of the whole stock and pass a good title; but standing in the name of Buchanan and Comstock, he could not. A tenant in common cannot dispose of the interest of his co-tenant in joint property.

The plaintiff does not bring this action as-a partner, but as a co-tenant; he does not sue for a dissolution of the copartnership or for an accounting, but to compel a restoration of property fraudulently taken.

It therefore being established that the stock was copartnership property; that the plaintiff has become the owner of one partner’s interest in said stock subject to the equities and rights of the firm; that the nominal title to said stock was fraudulently transferred from the firm to one of said partners, the plaintiff is entitled to have that stock restored, and its title placed in the name and under the control of its rightful owners, subject to such equities as existed against it at the time of sale to him.

It may be, as intimated, that there is no precedent for such a decree ; it may be that this is the first case of the kind ever brought before the courts. However that may be, there is manifest propriety in entertaining the action; thejudgment of the court below seems to be equitable and just, protecting and preserving the rights of all the parties, and should therefore be affirmed, ^(a)

[Clinton General Term, July 12, 1864.

Potter, Bockes, James and Rose-krans, Justices.]

(a) The above decision was, on appeal to the Court of Appeals, affirmed by that court; the following opinion being delivered:

Mason, J. None of thp findings of the judge in this case are without some evidence to sustain them, and his findings are therefore conclusive upon this court, and the judgment of this court must he pronounced upon the facts as found. (Fellows v. Northrup, 39 N Y. Rep. 117.)

Assuming the facts as found hy the judge at special term, this transfer of stock standing in the name of, and belonging to, the firm of Parks & Co., hy the other partner, Buchanan, to himself, and procuring this company to accept a surrender of the stock and to issue new certificates of stock to himself alone, cannot he sustained in a court of equity. (The New York Central Ins. Co. v. The National Protection Insurance Co., 20 Barb. 468. 4 Kern. 85.) Each partner, while acting within the scope of the partnership business, is deemed to be the authorized agent of the firm; and it is upon this principle that one of the partners can bind his associates. (2 Comst. 523. Worrall v. Munn, 1 Seld. 229, 239. Story on Partnership, $$ 1, 117.) When he steps out of the scope of the partnership business, and undertakes to transfer the property of the copartnership to himself, he acts beyond the authority of his agency, and his acts become invalid and cannot be sustained. (20 Barb. 553. 31 id. 301. 36 id. 270, 276.)

This stock having been thus illegally transferred to the defendant, and he having procured from this company new certificates of stock to he issued to himself, a court of equity could not do less than was done in this case. (Pollock v. The National Bank and another, 3 Selden, 274. Story on Partnership, § 227. 2 Story’s Eq. Juris. 692-702.)

No question can be entertained, on this appeal, as to Parks being a necessary party. If he was a proper or necessary party, the defect fully appears upon the face of the complaint, and the defendant has waived it by his omission to demur to the complaint. (Depuy v. Strong, 4 Trans. Appeals, 239. 12 Barb. 18. 2 Duer, 169. 9 How. Pr. 247. 10 Abb. Pr. 134.) This furnishes, also, an answer to the defendant’s offer of evidence in fols. 55 to 61 of the case, which was an offer to put in evidence paper No. 1. That evidence, if it could be admissible for any possible purpose, was to show that Parks had still some interest in the stock, and therefore should have been made a party. This evidence, however, was properly rejected, upon the grounds stated by the plaintiff’s counsel. That agreement was without a revenue stamp, and there was no offer, even to excuse the omission. The assignment by Parks to- the plaintiff was absolute and unconditional, and was under seal and stamped. The writing signed by Parks, Comstock and Wilson was not stamped. Nor was it under seal, and could not, therefore, qualify or vary the prior vajid assignment under seal. (Durgin v. Ireland, 14 N. Y. Rep. 322, Webb v. Rice, 6 Hill, 219. 1 id. 608. Nelson v. Sharp, 4 id. 584. Davidson v. Miner, 9 How. 524.) The offer of the defendant to go into an accounting between him and Parks, with a view of showing that in the final distribution of assets between him and Parks, there would be coming to him more than this 113 shares of stock, and that he really was equitably entitled to a greater share than his co-partner, Parks, was properly excluded.

The plaintiff’s claim, in this action, to have this fraudulent and illegal transfer of stock hy Buchanan, in the name of the firm, to himself, set aside, could not be met by such a defense. The pleadings and the parties before the court will not permit such an accounting. In order to justify such an accounting, Parks was a necessary party to the action, (Cummings v. Morris, 25 N. Y. Rep. 625.) If the defendant desired to make such a defense, he should have insisted, at the proper time, that Parks he brought in. This he could have done by demurring to the complaint, and perhaps could have instituted a cross action, and have made both the plaintiff and Parks parties. (25 N. Y. Rep. 631, 634. Durand v, Hankerson, 39 id. 293.)

It seems there was then a suit pending between the defendant and Parks for a dissolution, and the winding up of their copartnership matters, and that suit properly involved this issue, and the court were right in excluding that issue from this action, which had for its object the setting aside of this fraudulent transfer of these stocks to himself, and requiring this company to cancel the issue to the defendant, and to issue new stock to the plaintiff and the defendant jointly, leaving all the equities of the copartners as they were. No injustice is done the defendant in this decree. He is simply deprived of an advantage which, he thought to gain by his fraudulent and illegal conduct. This suit has no ■necessary connection with this matter of accounting between Parks and Buchanan, as the action is not brought for the purpose of settling the equitable rights of the parties to these stocks as a part and portion of the assets of the firm, and the defendant has no right to bring such an issue into the cause.

The judgment of the Supreme Court is right, and should be affirmed.