Burns v. Rosenstein

Rosenstein Bros. (composed of the appellees Julius W. Rosenstein and Leo Rosenstein) and Henry Sellman, of New York, and J. J. Burns & Co., (composed of Joseph J. Burns and Robert Tarr,) formed a partnership in the business of canning fish, more particularly mackerel, and manufacturing pomace or fish guano, to be conducted, under the name of the Union Fish Company, on premises owned and occupied by Burns & Co. at Gloucester, Mass. It was provided, among other things, in the written agreement of partnership, that Rosenstein Bros. should furnish the capital to carry on the business, also all material at cost, and sell all the goods manufactured at the best obtainable prices; that Burns & Co. should have charge of and superintend the factory, and devote all necessary time to the business at Gloucester; that interest on the capital invested by Rosenstein Bros. should be computed at the rate of 6 per cent. per annum; that Rosenstein Bros. and Henry Sellman, jointly, should be entitled to five-eighths, and J. J. Burns & Co. to three-eighths, of the net profits of the business, (article 21;) that 'all losses, if any sustained, by reason of bad debts, shall be charged to profit and loss account, and are to be borne by the parties, jointly, in the ratio of their stipulated interest,' (article 22;) that Burns & Co. might take from the business $50 per week for individual use and account, and draw on Rosenstein Bros. for funds required in the business in sums of not over $1,500 in any one draft; and that the contract of partnership should remain in force for the term of five years, commencing May 1, 1881, and ending April 30, 1886.

The present suit was commenced November 7, 1881, in the supreme judicial court for the county of Essex, Mass. An attachment was sued out against the property of Burns & Co., and levied upon all their right, title, and interest in certain personal property, consisting of fish product, and in two schooners, and also upon a steam-engine and other property in the buildings occupied by the Union Fish Company.

An amended bill of complaint was filed, showing that the object of the suit was to obtain a decree for the dissolution of the partnership, and a settlement of its affairs under the direction of the court. The dissolution was asked mainly upon the ground that the defendants had violated the terms of partnership, and were improperly managing the business committed to their charge. The plaintiffs asked the appointment of a receiver to take charge of the goods and assets of the partnership, as well as an injunction restraining the defendants from disposing of its property, or from collecting the proceeds of any that had been sold.

By agreement of the parties an order was entered appointing a receiver of all the personal property of the partnership, with power to put the same in proper condition, and sell it for the best interests of all concerned, and to collect the amounts due from the trustees or garnishees named in the writ of attachment, depositing all amounts received in the registry of the court, subject to its orders.

The defendants demurred to the bill on the ground of multifariousness, for want of equity, and because it contained causes of action in respect to which there was a full and complete remedy at law. The suit was removed into the circuit court of the United States upon the petition and bond of the defendants. In that court the demurrer to the bill was overruled, Judge NELSON saying: 'The bill states a plain case for equitable relief. A partner is under no obligation to continue a member of a partnership when his copartner persistently and willfully violates the essential conditions upon which the contract of the partnership rests. He is not under the necessity of remaining in the firm, and resorting to his action at law upon the partnership contract for redress. He is at liberty to withdraw himself and his capital from the concern whenever it becomes reasonably certain that the business can no longer be carried on at a profit, whether through the misconduct of his copartner or from a failure of the business itself. So, if he has been induced to enter into the partnership contract through the deceit of his copartner, he may withdraw whenever the fraud practiced upon him becomes known. In neither case is he required to continue in the firm until thep artnership expires by limitation of time, but is at liberty at once to ask for a dissolution, and a winding up of the affairs of the partnership. The bill is not multifarious. It has a simple purpose,-the dissolution and winding up of the concern. Though several grounds for relief are stated, yet they arise out of the same series of transactions, relate to the same subject-matter, and can be conveniently settled in one suit. They are all properly joined in one bill.' 41 Fed. Rep. 841.

The defendants thereafter filed an answer controverting all the material allegations of the petition, particularly those charging them with dereliction of duty in the conduct of the business. But they averred 'that said plaintiffs, without cause, published a notice that they would no further carry on the business under said contract, and that they, by public notice, dissolved, violated, and put an end, so far as they could, to the same; and the defendants are entirely willing and desirous that all business connections between them and the plaintiffs should be dissolved, and forever ended, because of the dishonest, fraudulent, and unjust conduct, and violations of said contract by the plaintiffs.'

On the 21st of April, 1883, the court below made the following order: 'On reading the pleadings in the above-entitled cause, and hearing the counsel of the respective parties, and on consideration thereof, it is ordered that it be referred to George P. Sanger, Esq., as a master of this court, to hear the parties and their evidence, and report as to all issues of fact made by the pleadings in said cause, and to take an account of the dealings and transactions between said parties, and all claims for damages arising out of said transactions.'

The special master, on the 16th of October, 1885, made his report, from which it appears that when, in the course or the hearing before him, an examination of the books was reached, it was agreed by the parties that the book-keeper of the plaintiffs, and an expert book-keeper and accountant who had examined the books on both sides for the defendants, should together go over the books of both plaintiffs and defendants, and draw from them a statement of the condition of the Union Fish Company at the time the suit was brought, showing the indebtedness or otherwise of the parties to that company, giving the undisputed and disputed items of account in separate columns. Statements of that character were prepared and furnished to the special master, who made them a part of his report. After the testimony before him was concluded, but before arguments were heard, each party, at his request, presented a statement of the damages sustained by the alleged misconduct of the other party.

A copy of the master's report was furnished the parties before it was filed. He received no communication from the defendants or their counsel, but from the plaintiffs he received a statement of the objections upon their part to his draft of report. These objections were considered and overruled by him, and the report was filed October 16, 1885. On the 7th of December, 1885, no exceptions to it having been filed, it was confirmed under equity rule 83; and on the 6th of May, 1886, when the cause came on for further hearing, and after argument by counsel, it was adjudged by the court that the plaintiffs be paid the amount to the credit of the cause in the registry of the court, namely, $3,733.40, and the further sum of $1,679.14, with interest thereon from the date of the writ, that is, $2,131.94, and the costs of this suit to be taxed, with interest thereon from the date of the decree. It is suggested that the above result was reached in this wise: According to the report of the master the total liabilities of the Union Fish Company were $18,168.09,-to Burns & Co., $3,733.87, and to Rosenstein Bros., $14,434.22. From this sum of $18,168.09 deduct the assets, that is, the money in court, $3,733.40; and the balance of such liabilities was $14,434.69, which was th net loss of the partnership. Charge three-eighths of this net loss to Burns & Co., and deduct from such amount the liabilities of the company to them, there remained the sum of $1,679.14.

From the above decree the defendants prayed and were allowed an appeal to this court.

B. F. Butler, O. D. Barret, and E. J. Hadley, for appellants.

W. F. Slocum, for appellees.

Mr. Justice HARLAN after stating the facts in the foregoing language, delivered the opinion of the court.