Casey v. Grantham

• Citation: 79 S.E.2d 735,239 N.C. 121
• Decision Date: 15 January 1954
• Docket Number: No. 236,236
• Parties: CASEY et al. v. GRANTHAM et al.
• Court: United States State Supreme Court of North Carolina

Page 735

79 S.E.2d 735

239 N.C. 121

CASEY et al. v. GRANTHAM et al.

No. 236

Supreme Court of North Carolina.

Jan. 15, 1954

J. Faison Thomson & Son and S. B. Berkeley, Goldsboro, for plaintiffs, appellants.

Paul B. Edmundson, Goldsboro, for defendant, appellee.

PARKER, Justice.

Upon the essential or ultimate facts stated in the complaint, which on a demurrer we are required to construe liberally with a view to substantial justice between the parties with every reasonable intendment to be made in favor of the pleader, these three questions are presented for decision: First, does the complaint state a cause of action for an accounting and settlement of partnership affairs between the partners W. D. Casey, Jr., and Harold J. Grantham; Second, can the plaintiffs enjoin the foreclosure sale under the deed of trust of the partnership property and the home and farm of the plaintiff W. D. Casey, Jr., until after an accounting and settlement of the partnership; and Third, if so, are Clarence Grantham and W. Powell Bland, Trustee, proper parties defendants so that it can be done in this suit?

It is elementary that the relationship of partners is fiduciary and imposes on them the obligation of the utmost good faith in their dealings with one another in respect to partnership affairs. Each is the confidential agent of the other, and each has a right to know all that the others know, and each is required to make full disclosure of all material facts within his knowledge in any way relating to the partnership affairs. 40 Am.Jur., Partnership, p. 217.

G.S. § 59-52 provides 'any partner shall have the right to a formal account as to partnership affairs: (a) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners * * * (d) Whenever other circumstances render it just and reasonable.'

Equitable jurisdiction is practically exclusive in proceedings for an account and settlement of partnership affairs, including suits for an accounting and settlement of the firm's affairs between the co-partners themselves. Pomeroy's Equitable Jurisprudence, 5th Ed., Vol. 4, p. 1078.

The complaint alleges that the partner Harold J. Grantham has usurped complete control and exclusive possession of the entire business and assets of the partnership; that the books and records of the partnership are in the hands of Harold J. Grantham and his wife; that Harold J. Grantham is squandering the assets and earnings of the partnership and refuses to account to his partner W. D. Casey, Jr., one of the plaintiffs, for any share of the profits or earnings of the business, though demand has been made therefor. The complaint clearly states a cause of action for an accounting of the partnership between the partners. Pugh v. Newbern, 193 N.C. 258, 136 S.E. 707, 58 A.L.R. 617.

G.S. § 59-68(1) reads: 'When dissolution is caused in any way except in contravention of the partnership agreement, each partner, as against his copartners and all persons claiming through them in respect of their interest in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners.'

'Each partner may be said to have an equitable lien on the partnership property for the purpose of having it applied in discharge of the debts of the firm; and to have a similar lien on the surplus assets for the purpose of having them applied in payment of what may be due to the partners respectively, after deducting what may be due from them, as partners to the firm.' Lindley on Partnership, 10th Ed., p. 426. See also Rowley Modern Law of Partnership, Vol. I, p. 413. For practical purposes this right does not exist until the affairs of the partnership have to be wound up, or the share of a partner ascertained. Lindley, ibid, p. 427.

It is said in 68 C.J.S., Partnership, § 185, p. 639, 'the right, in equity, to have the partnership and individual assets marshaled is for the benefit and protection of the partners themselves, and, therefore, the equity of a creditor, to the application of this doctrine, is of a dependent and subordinate character, and must be worked out through the medium of the partners or their representatives'--citing in support of the text Dilworth v. Curts, 139 Ill. 508, 29 N.E. 861, 865, where it is said 'the right in equity to have the partnership and individual assets marshaled is one resting in the hands of the partners, and must be worked out through them.'

Each partner has the right to have the partnership property applied to the payment or security of partnership debts in order to relieve him from personal liability. Bankers Trust Co. v. Knee, 222 Iowa 988, 270 N.W. 438; see also Simmons v. Simmons, 215 Iowa 654, 246 N.W. 597, 601.

It appears that under the general rule as to marshaling partnership and individual assets, or under the application of a principle of equity similar to that rule, the rule that partnership debts may be paid out of individual assets is subject to the modification that the individual assets may be so applied where, and only where, there are no firm assets, or where the firm assets have become exhausted. It would seem that the rationale for this modification to the rule rests upon the fact that the partners occupy the position of sureties in respect to their individual property being liable for the payment of partnership debts. 68 C.J.S., Partnership, § 195, p. 664; 35 Am.Jur., Marshaling Assets and Securities, Sec. 21; 37 Am.Jur., Mortgages, Sec. 695; Annotations; 47 L.R.A.,N.S., 303; 12 L.R.A.,N.S., 695; L.R.A.1917B, p. 528.

The complaint alleges that the partnership property conveyed in the deed of trust to Bland, Trustee, for the benefit of the defendant Clarence Grantham is well worth the amount of the debt and interest owed by the partnership to Clarence Grantham. The demurrer admits that allegation to be true. The reasonable inference to be drawn from the complaint is that all of the partnership property is situate in Wayne County, and is in the jurisdiction of the Superior Court of that county. There is nothing in the complaint to show that the partnership has any debt, except the debt to Clarence Grantham, father of Harold J. Grantham. Harold J. Grantham owes to his partner W. D. Casey, Jr., the obligation of the utmost good faith in respect to the partnership affairs, but instead of performing that duty he has in his possession the books, records and assets of the partnership, and refuses to account to Casey as to the partnership affairs. The complaint further alleges that Harold J. Grantham and his father Clarence Grantham are seeking to oust W. D. Casey, Jr., from the partnership so that they may take over not only the assets of the partnership, but also Casey's home and farm, and have had Bland, Trustee, to advertise for sale the property conveyed in the deed of trust to plaintiffs' irreparable damage.

It may be that the property of the partnership conveyed in the deed of trust may not sell for enough at a forced sale to pay Clarence Grantham's debt in full--though the demurrer admits that it will--but that Harold J. Grantham may be indebted to the partnership in an amount to make up such deficiency, if such a deficiency should exist. How can that be determined, until there is an accounting between the parties of the partnership affairs?

Under the rules laid down above it would seem to be plain that the plaintiffs have alleged sufficient facts to enjoin a foreclosure sale under the deed of trust until there has been an accounting and settlement of the partnership affairs between the partners, Casey and Harold J. Grantham. Under such circumstances it is the rule with us that an injunction should be granted where the injury, if any, which the defendant Clarence Grantham, would suffer from its issuance would be slight as compared with the irreparable damage which the plaintiffs would suffer from the forced sale of their home and farm from its refusal, if the plaintiffs should finally prevail. Huskins v. Yancey Hospital, Inc., 238 N.C. 357, 78 S.E.2d 116, where the authorities are cited.

We now come to the third question: Are W. Powell Bland, Trustee, and Clarence Grantham proper parties defendants so that such an injunction can be issued in this suit? The answer is Yes.

'As a rule, creditors of a partnership are neither necessary nor proper parties to a suit between partners for a firm settlement and accounting * * *. * * * the circumstances may be such that they are properly made parties in the first instance.' 68 C.J.S., Partnership, § 415, p. 939. In support of the statement 'the circumstances may be such that they are properly made parties in the first instance' the text cites Hoskins v. McGirl, 12 Mont. 563, 31 P. 544. In that case the headnote correctly states the court's decision as follows: 'A. and B., as partners, became indebted to C. and D., for which B. became liable, as A. afterwards withdrew. A., claiming that such debt had been fully paid, which B. denied, brought action against B., making C. and D. parties, for an accounting, and on a note which specified that B. should be allowed 'set-offs for all debts of the firm of A. & B. which he may now be or hereafter become liable to pay.' Held under Code, § 16, which provides that 'any person may be made a defendant who has or claims an interest in the controversy adverse to the plaintiff, or who is a necessary party to a complete determination or settlement of the question involved therein,' that C. and D. were proper parties.' In the opinion the court said: 'In an action of this nature, we are of opinion that the whole matter should be settled by the court, with all the parties before it at once, and that in such settlement Mund is a proper party.'

G.S. § 1-69 provides that 'all persons may be made defendants, jointly, severally, or in the alternative, who have, or...