150 U.S. 524 (1893), 97, Latta v. Kilbourn

Docket Nº:No. 97
Citation:150 U.S. 524, 14 S.Ct. 201, 37 L.Ed. 1169
Party Name:Latta v. Kilbourn
Case Date:December 11, 1893
Court:United States Supreme Court

Page 524

150 U.S. 524 (1893)

14 S.Ct. 201, 37 L.Ed. 1169




No. 97

United States Supreme Court

December 11, 1893

Argued November 21-22, 1893




A decree in chancery which determines that a partnership existed between the parties, that one partner is entitled to recover of the other a share in the profits of the partnership business, that the defendant partner account to the plaintiff partner, and that the case be referred to a master to state such account upon proofs is not a final decree.

The plaintiff set up in his bill a verbal contract of partnership between the defendant and himself in the buying and selling of real estate, and called for an answer under oath. The defendant answered under oath, denying positively and in direct terms the existence of the alleged contract of partnership. Held that, under well settled rules of equity pleading and practice, this answer could be overcome only by the testimony of at least two witnesses, or of one witness with corroborating circumstances, and that the proofs in this case fail to break down the defendant's denial.

The violation by one partner of his undertaking to give to the firm or his associate an opportunity or option to engage in any particular transaction not within the scope of the firm's business does not entitle his co-partners to convert him into a constructive trustee in respect to the profits realized therefrom.

An agreement by partners that no one of them should engage in the buying and selling of real estate on his own account does not entitle the other partners to share in profits made by one of them in real estate speculations entered into by him without first securing the assent of his co-partners.

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Dean v. McDowell, 8 Ch.D. 345, approved and followed.

If a member of a partnership uses information obtained by him in the course of the transaction of the partnership business or by reason of his connection with the firm for purposes wholly without the scope of the partnership business, and not competing with it, the firm is not entitled to an account of any benefit derived therefrom.

The appellees, as members of a dissolved co-partnership, brought this suit against the appellant, another member thereof for an account of profits made by the latter in certain transactions alleged to have been within the scope of the partnership business and which, as claimed, it was his duty to have conducted for the benefit of the firm instead of for his individual advantage.

The material facts of the case, as disclosed by the pleadings and proofs, are as follows: in 1865, there existed in the City of Washington a co-partnership composed of R. M. Hall, C. H. Kirkendall, and Hallet Kilbourn, under the name of Hall, Kilbourn & Co., which was formed for the purpose of carrying on the business of "real estate brokers and auctioneers." The scope of this partnership, as indicated by the nature of its business, was one of agency, and consisted in negotiating and making sales and purchases of real property for the account of others.

In the latter part of 1865, Kirkendall withdrew from the firm, and the appellant, Latta, acquired and succeeded to Hall's interest therein, and thereafter the business of the co-partnership was conducted under the name of Kilbourn & Latta. These changes in the membership of the firm were attended with no change in the nature and scope of the partnership business, which continued the same after Latta came into the firm as before, except that the business of auctioneers was discontinued.

The partnership agreement of the former firm, as well as that of Kilbourn & Latta, was in parol, and the business of each, as proclaimed to the world by their advertising cards in the newspapers, by the sign at the firm's place of business, by letterheads, and as published in the city directory, was that of "real estate and note brokers," and consisted in buying and selling

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real estate on commission, renting houses, and negotiating loans. Kilbourn & Latta. as a firm, had no capital and owned no property except a few articles of office furniture of little value; nor was there any agreement, arrangement, or provision made by which capital was to be supplied for the use of the firm, if any should be needed or required in the conduct of its business. The personal services of the partners constituted the only means of carrying on the business of the firm, and each member was to share equally in the profits and losses of the business. Kilbourn was without means, while Latta was possessed of considerable property.

During the existence of this partnership, which continued from 1866 to January 1, 1871, each member of the firm, with the knowledge of his co-partner, purchased real estate and other property on his private or individual account, and no question was ever made by either partner of the right so to do, nor did either partner ever claim that the profits realized on such purchases should be treated as belonging to the firm or were subject to division among its members. By special agreement and as a special venture, the partners purchased on firm or joint account two parcels of land on speculation; the money to make the purchases being advanced by Latta, in whose name the title was taken. In the same way, by special agreement, they purchased bonds and other securities, and special accounts of such transactions were kept upon the firm's books. In several instances, the partners by special and mutual agreement, in lieu of commissions, took a share of the profits in property purchased and sold for the account of others, without assuming or incurring any responsibility for losses.

The two purchases of real estate on joint account, as well as those in which the partners of the firm took a share of profits in lieu of commissions, were special ventures in each case, entered into after special agreement between the partners, and were in no sense within the terms or objects, expressed or implied, of their regular partnership business. The scope and character of the firm's business did not extend to the buying and selling of real estate on account of the firm. It had no capital for that purpose, and no arrangements were

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provided by which it was to be supplied. The profits of the business were drawn and distributed as fast as earned.

On January 1, 1871, John F. Olmstead, who had been for many years a clerk for Kilbourn & Latta at an annual salary of twelve or fifteen hundred dollars, was admitted as a partner into the firm. The new partnership carried on its business under the same firm name of Kilbourn & Latta, the respective interests of the partners being three-eights of the profits of the business each to Kilbourn and Latta and two-eighths to Olmstead. This new firm, like the former, had no written articles of co-partnership. The scope and character of its business, as well as the respective interests of the partners therein, rested in parol. Olmstead brought no means into the concern, and neither the firm nor any member thereof except Latta possessed [14 S.Ct. 203] any property or capital. There was not only no provision or agreement for the accumulation of firm capital, but the course of business was directly the reverse, the habit of the partners being to draw against their respective shares of the profits, and on December 31 of each year the accounts were adjusted, and whatever balance each member of the firm had to his credit was drawn out of the firm and placed to his individual credit. The profits of the business, in which alone the partners were to share, were thus annually divided and distributed according to their respective interests.

Under this new firm, as under the old, the scope and character of its business, as indicated and made known to the public through the sign over its place of business, in the cards which it advertised, in the city directory, and its letterheads and envelopes, was that of "real estate and note brokers." Aside from the scope and character of the firm's business as thus described and brought to the notice of the public, each of the three partners testified that the new partnership was a continuation of the business of the former firm of Kilbourn & Latta.

Latta states that "there was no change whatever made at the time he [Olmstead] came in as to the terms of the partnership or the scope of the partnership business."

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Kilbourn states that he does

not remember now of any change late in the year 1870 in the firm of Kilbourn & Latta except the agreement to take in Mr. Olmstead and the change in the division of the profits. In all other respects, the firm continued afterwards just as it was before.

Olmstead testifies:

After I became a member of the firm, it was agreed that we should do a brokerage business and a commission business; that we should buy and sell property when opportunity offered and we had the facilities for doing it, and we should buy and sell securities, and do a general brokerage business, and a general commission business -- a general speculative business. I have stated all the stipulations substantially as well as I can recollect them. These stipulations were entered into on one of the last days of December, 1870. I don't know that there was any discussion as to whether the business of the firm was to be different after I entered it from what it was before. I don't know that there was any new arrangement touching the business in which the firm was to embark. The partnership business of the firm was, as I understood, to be just what it had been. They were to go on and do what they had been doing for a year or two, with the same scope and breadth.

It was further testified by...

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