King v. Leighton

• Decision Date: 24 November 1885
• Citation: 3 N.E. 594,100 N.Y. 386
• Parties: KING, Jr., v. LEIGHTON.
• Court: New York Court of Appeals Court of Appeals

100 N.Y. 386

3 N.E. 594

KING, Jr.,

v.LEIGHTON.¹

Court of Appeals of New York.

Filed November 24, 1885.

Sherman S. Rogers, for appellant, William J. King, Jr.

Wm. F. Cogswell, for respondent, Thomas Leighton.

RUGER, C. J.

The general term reversed the judgment entered in favor of the plaintiff upon an acconting between partners, on the ground that the referee erroneously allowed him the contracts which were completed contracts whicb were completed after the assumed dissolution of the firm occasioned by the bankruptcy of the plaintiff. This was held to follow from the effect ascribed by that court to the acts of the plaintiff, and his receiver and assignee in bankruptcy, in collecting rent from the defendant for the use of the plaintiff's shops and machinery in completing such contracts. The partnership agreement between the plaintiff and defendant provided for the formation of a firm, to carry on the business of building bridges together, under the name of T. Leighton & Co., at Buffalo, the plaintiff to contribute shop-room, power, and machinery as his share of capital to the enterprise, and to receive one-third of the profits; and the defendant to bestow his personal attention to the business, contribute whatever additional capital was necessary to carry it on, and have two-thirds of the profits. It was held that the collection of rent for the use of such property, after plaintiff's bankruptcy, indicated an intention on his part to waive any interest in the profits of the business thereafter made in completing the contracts previously entered into and unfinished at the time of bankruptcy, and was equivalent to a withdrawal of the capital contributed by him to the firm. It was further held that the plaintiff did not thereby waive his interest in the assets of the firm, but that such interest consisted of a share in the value of the contracts as they existed at the time of bankruptcy, and that the defendant, by his appropriation of the firm's contracts after plaintiff's bankruptcy, became liable to that extent only to plaintiff's representatives.

We are unable to agree with that court in either of the propositions stated. The action was brought for an accounting between partners, and, incidentally, to set aside and vacate a written release of plaintiff's claims against the firm of T. Leighton & Co. executed by him to the defendant on February 28, 1873, about eight months after the bankruptcy, and which was claimed to have been procured by the defendant through fraudulent representations made to the plaintiff as to the value of his interest in the assets of the firm. The referee found, upon evidence sufficient, as we think, to support the finding, the fact that such fraudulent representations were made by the defendant, and that the release was given by the plaintiff in reliance thereon. He thereupon held that such release was void, and ordered a general accounting as to all partnership matters between the parties, and the same was thereupon had before the referee, and resulted in a judgment in plaintiff's favor.

The rent in question, so far as is disclosed by the evidence, was paid under the following circumstances: About the time of the plaintiff's bankruptcy he and the defendant entered into a contract, whereby the defendant agreed thereafter to pay $20 per day for the use of the shop, power, and machinery, and subsequently, in July, 1873, after the partnership work had been substantially completed, modified the same by agreeing to pay for such property, with some increased facilities, the sum of $35 per day. During the period covered by this contract the defendant occupied the premises in question, not only for the purpose of completing the partnership work, but also in prosecuting an extensive business on his individual account. No objection was ever made by him to the payment of such rent, or claim that he was entitled to the possession of such shops, power, and machinery free of rent, by virtue of the partnership agreement. It does not appear that anything was said at the time of making this agreement between the parties as to the special reasons why rent was required to be paid, or with reference to a transfer of the plaintiff's interest in the firm assets to the defendant, or a release thereof, or a withdrawal of plaintiff's capital from the firm, or the manner of completing or closing up its unfinished business. We do not think, under these circumstances, that it was a necessary or legitimate deduction from the facts that the acceptance of rent operated as a release of plaintiff's interest in the partnership assets, or as the indication of an intention to waive his claim to a share of the prospective profits which might arise from the uncompleted business of the firm. The contract to pay rent has a legitimate operation as a modification of the partnership agreement, induced by the changed conditions effected by the plaintiff's bankruptcy and the individual business expected to be thereafter carried on by the defendant, without extending it by implication to a subject not mentioned by either party at the time of making it, and probably not within their contemplation. It is altogether probable that the plaintiff, induced by the misrepresentation of the defendant as to the prosperity of the firm business and his interest therein, was led to believe it had but little value, and was too insignificant to require special stipulations or care; but it is nevertheless true that neither party did at that time enter into express stipulations with reference either to the completed or uncompleted business of the firm. When the firm became dissolved by the plaintiff's bankruptcy, it was not permissible for the defendant to take new contracts, and continue the business in their name; and, being apparently desirous of still continuing in the same line of business at the same place, it became necessary for him to first acquire that right from the plaintiff or his assignee. Nothing appears in the case to rebut the inference that an amount was agreed upon as rent, apportioned to the individual business expected thereafter to be carried on by the defendant in the demised premises, and that inference is strengthened by the fact that a largely increased sum was paid as rent after the partnership business was completed. The finding that the agreement embodying an express release of the plaintiff's interest in the firm assets to the defendant was fraudulent and void would seem to require as a necessary consequence a similar finding as to the invalidity of an implied release founded apparently upon acts induced by the same influences. The implication of a contract between parties upon a subject to which their attention has been directed, and which they have omitted to provide for by express agreements, should not be made by a court except to enforce a manifest equity, or from unequivocal acts of the parties indicating an intention to effect such a result. Having arrived at the conclusion that the receipt of rent did not have the effect claimed for it by the respondent, it remains to be seen whether any error occurred on the trial which required a reversal of the judgment by the general term.

It is claimed that such error was committed in allowing the plaintiff to recover the profits made after the dissolution of the firm, as shown by the amount actually received, instead of awarding him the value of the pending contracts at the time of dissolution. Reference to the authorities does not justify the claim made on behalf of the defendant. The elementary writers concur uniformly in the proposition that the bankruptcy of one member of a firm works a dissolution of the partnership only to the extent of disabling it from entering into new engagements, or assuming new obligations, except such as are required to complete its unfinished business and to wind up its affairs. The bankrupt still remains liable upon all existing contracts, and his interest in the partnership, as well as his individual estate, may be resorted to for the enforcement of such liabilities. The assignee of a bankrupt member of a firm becomes tenant in common of its assets with the...