Levy v. Leavitt

• Decision Date: 17 November 1931
• Citation: 257 N.Y. 461,178 N.E. 758
• Parties: LEVY v. LEAVITT.
• Court: New York Court of Appeals Court of Appeals

257 N.Y. 461

178 N.E. 758

LEVY

v.LEAVITT.

Court of Appeals of New York.

Nov. 17, 1931.

Action by Sylvan Levy against Louis Leavitt. Judgment confirming a report of a referee in favor of plaintiff was affirmed by the Appellate Division (232 App. Div. 1008, 247 N. Y. S. 1008), and defendant appeals; appellant also bringing up for review the interlocutory judgment of Special Term, affirmed by the Appellate Division.

Modified and, as modified, affirmed.

Appeal from Supreme Court, Appellate Division, First Department.

David L. Podell, Herman Shulman, Jacob J. Podell, and J. Martin Seiler, all of New York City, for appellant.

Jacob W. Kahn, of Brooklyn, for respondent.

LEHMAN, J.

In June, 1919, the plaintiff agreed to assume a 20 per cent. interest in the purchase for resale of a large quantity of bacon which the United States government offered for sale. The plaintiff paid the defendant the sum of $50,000 and received a letter from the defendant stating: ‘This is to acknowledge receipt of your check for $50,000 as part payment on the purchase of approximately 2,500,000 pounds of bacon. It is understood that you are to receive twenty per cent. of the net profits or stand twenty per cent. of the net loss should there be any loss.’ No formal contract was made. Indeed, the record does not show that the parties agreed as to how the purchase should be financed or how the joint venture should be conducted, but the evidence shows, and the trial court has in effect found, that the parties agreed that the joint venture should be managed by the defendant, and that the plaintiff was not obligated to perform any services or to make any further capital contributions.

The parties, undoubtedly, anticipated large profits to be derived from a quick resale of the bacon. Their anticipations were defeated through obstacles unexpectedly interposed by the United States government. Claiming that the defendant was violating the ‘Act To provide further for the national security and defense’ commonly known as the ‘Lever Act’ (40 Stat. 276), it procured an indictment against the defendant and libeled the bacon purchased by the joint venture. The defendant could not deliver to purchasers the bacon which had been taken from his possession. By the time that the defendant succeeded in obtaining a judicial determination in his favor, the bacon had so deteriorated that it was no longer readily salable.

The defendant then made extraordinary efforts to sell the bacon. He traveled through Europe in the hope that there he might find a purchaser for bacon which was not merchantable here. His efforts were fruitless. The bacon had then become unfit for human consumption and was seized and destroyed by the public authorities.

Through the destruction of the bacon the joint venture had irretrievably lost the entire purchase price of the bacon, amounting to about $700,000, augmented by expenses incurred in the conduct of the venture and offset only by payments for the small proportion of the bacon which had already been sold and delivered. Indemnification for such loss might still be obtained from the United States government if its executive, legislative, and judicial branches could all be convinced that the loss was occasioned by unfounded charges of the government, and that a moral duty rested on the government to make good such loss. The defendant succeeded in convincing the President and General Dawes, the Director of the Budget, that a favorable report should be made to Congress; he succeeded in convincing Congress that a statute should be enacted permitting the submission of the claim for indemnification to the Court of Claims, and his attorneys succeeded in convincing the court that the claim should be allowed with few deductions. For the plaintiff's share of the moneys received or expended by the defendant in the joint venture, the defendant must now account.

Upon the accounting, the defendant has been denied the right to charge as an expense of the joint venture or partnership the reasonable value of any services rendered by the defendant, and interest on any moneys which he loaned or furnished to the venture in the conduct of its business. The rights and obligations of the partners as between themselves arise from and are fixed by their agreement. Martin v. Peyton, 246 N. Y. 213, 158 N. E. 77;Corr v. Hoffman, 256 N. Y. 254, 176 N. E. 383. Here the agreement was oral and informal. There is nothing to show that the parties considered or discussed whether the defendant should be entitled to compensation for his services or to any interest for moneys he might furnish. The question then is whether from the relations of the parties and the circumstances of the transaction, an implication of a promise of compensation for services rendered or of interest upon moneys paid arises.

We consider first whether a charge may be made for services rendered. In Bradford v. Kimberly, 3 Johns. Ch. 431, 433, Chancellor Kent stated the rule: ‘In the case of joint partners, the general rule is, that one is not entitled to charge against another, a compensation for his more valuable or unequal services bestowed on the common concern, without a special agreement; for it is deemed a case of voluntary management.’ The rule has been often stated in different form, but no authority, judicial or extrajudicial, has seriously questioned its substance. In the ordinary course of business affairs, services are usually rendered with expectation of reward, and silent acceptance of such services may justify, or at times even dictate, the inference of an implied promise to pay the reasonable value of such services. The basis for such inference is lacking when circumstances point to the conclusion that the services were rendered voluntarily and without reasonable expectation of payment. Williston on Contracts, §§ 90, 91, and cases there cited. In the business of a partnership the services of a partner are rendered for the common benefit in the performance of an obligation created by the partnership agreement, and the resultant benefit is divided pro rata as provided in the partnership contract. Those profits constitute, in the absence of other agreement, the stipulated reward for services to be rendered, and there is no right to other compensation based on the reasonable value of the services actually rendered. Inequality in the value of services rendered, even the fact that the services were extraordinary and that, at the time the contract was made, the parties did not contemplate that such services would be required in the course of the partnership business, would not alone justify the award of compensation outside the share of profits accruing to the partner rendering the services. True, such circumstances, though insufficient alone to give rise to an implied promise to pay for the services rendered, may give significance and color to other evidence, tending to establish that the parties intended that special payment should be made for special services and expressed that intention-though perhaps somewhat equivocally, either in words or deeds.

So in spite of the rule that in the absence of a special contract a partner is not entitled to any remuneration for services performed in the partnership business, the courts have at times found such a special contract where the services were rendered under extraordinary circumstances. Perhaps the courts in some jurisdictions require less evidence of a special contract where the services were rendered after dissolution, and, indeed, at times awarded, without finding of special contract, compensation for services rendered by a surviving partner in the dissolution of the partnership. See Consaul v. Cummings, 222 U. S. 262, 32 S. Ct. 83, 56 L. Ed. 192. Such cases create at most an...