Smith v. Virgin

Tenney, J. — The plaintiff and six of the defendants, move the acceptance of this report. Several are silent upon that question. Others make objections for the following reasons. The first is in reference to the jurisdiction of the referees, upon the ground, that all the defendants were not parties to the agreement to refer. The defendants in the bill are nineteen in number. Thirteen of them appeared before the referees, and put in written answers. Three appeared by attorney, but did not answer in writing. No appearance was entered by the other three. Neither of the six defendants last named executed the agreement to refer the action. Gilman L. Gale was the only one of those who did not — 153 — sign the agreement, that now interposes any objection to the acceptance of the award. Those who did not appear before the referees have not been prejudiced by the award, upon the hypothesis adopted, in any thing which makes them responsible. The parties who did appear, and who now make objection to the report, cannot be injured by any decree thereon, because their liability is made no greater by the failure of others to become parties to the agreement, or to appear before the referees. One only of those, who did not originally become parties to the reference, has been adjudged liable in any event to contribute towards the sum which is due from the copartnership, beyond the amount of its resources. And he is relieved oil account of his admitted insolvency. By his appearance which is not represented to be limited to any particular purpose, he must be considered as having ratified the agreement, and actually submitted to the jurisdiction of the referees. He stands in the same category with those who authorized the reference. No other whose name is on the agreement interposes any objection, or manifests any dissatisfaction. The parties to that agreement, having a full knowledge of the omission of some of the defendants to submit the subject-matter of the suit to referees, by their appearance, and a hearing before them upon the merits, have waived that objection and cannot be allowed now to revive it. 2. A further objection to the award is, that the referees did not decide upon all matters submitted, and that they passed upon questions not embraced in the bill, and therefore not in the submission; or in other words, that the award does not follow the submission. The object of the bill was an adjustment of the affairs between the plaintiffs and the company, and those who are liable to contribution, if the resources of the firm were insufficient to discharge the debts due from it. For this purpose the plaintiffs are as specific in their premises and in the statement of the facts as the knowledge possessed by them would probably allow. This was necessary in order that proof could bo offered in support of all the allegations substantially made. — 154 — The prayer of the bill is, that the debts due and owing from the company at the time of filing the bill may be ascertained; and also its rights, credits and assets, effects and property, applicable to the payment of its debts, the time when any member or stockholder, party to the bill, became liable for its indebtedness, and when that liability ceased; and what are the extent and amount of his liability; and to order and direct that the rights, credits, assets, effects and property of the company in whosesoever hands, of the members or shareholders, they may be found, so far as liable for the payment of its debts, may be so placed and disposed of as to satisfy and extinguish the claims against the company, to the extent that they are sufficient for that purpose; and in the event that they shall be found insufficient, to ascertain the just and equitable proportion which the several parties to the bill ought to contribute to the payment of the company debts, at the time of filing the bill, and order and decree the payment of the same accordingly. And such other and further relief is prayed, in the premises, as is proper and suited to their case according to the principles and rules of equity. Every part of the report is upon the matter which constitutes the premises of the bill, and falls within the prayer for relief. The debts due and owing from the company are specifically reported, both in reference to the creditors and the amount to each. ,The referees state the property and its character belonging to the company, which should be applied to the payment of its debts ; they also report, subject to the opinion of the Court upon the facts proved, the time during which any member of the company or shareholder, party to the bill, was • liable for its debts; also the extent and amount •of his liability; and they award that the property of' the company as reported by them, is to be appropriated toward the discharge of its liabilities, so far as it is sufficient, and that the deficiency having been ascertained in just and equitable proportions shall be paid accordingly by those who last composed the copartnership and are solvent. It is true that an interest in the real estate and personal pro — 155 — perty at one time belonging to the company, which were sold and conveyed by one of the stockholders, is claimed in the bill as being held in trust for the payment of the company’s debts, and for the benefit of the shareholders, successively, and it is denied that any shareholder can legally claim the same or any part thereof for his exclusive benefit. This is a statement of no fact but what is regarded by the plaintiffs as a principle in equity, applicable to the facts alleged. The principle contended for in the bill may have been erroneous, or the facts proved variant to some extent, from those alleged. Neither could restrict the referees in their duties, or authorize them to come to a conclusion which the facts shown, and the law, would not justify. They found the sale of the interest of one of the stockholders, and instead of the conclusion, that the interest was held in trust for the company by the purchaser, they regarded the copartnership dissolved. It is further objected that the award does not follow the bill and subject-matter submitted, because it puts upon a portion of the shareholders the payment of all the debts, whereas the bill prays a contribution among the several parties to the bill, in equitable proportions. The premises and the prayer of the bill do not furnish a basis for this objection. The language of the latter in this respect, is “ to ascertain the just and equitable proportion which the several parties to this bill ought to contribute to the payment of the company debts.” If any party to the bill ought not to contribute to the payment of the company debts at all, it is not a prayer that they shall be decreed to contribute. Under this head it is contended that the referees having found that in some of the transfers of shares the sellers undertook to indemnify the purchasers against the outstanding debts of the company, the referees should have transferred this liability for such debts to the purchasers, as it was proposed they should do, and was improperly refused. The referees do not undertake to adjust the rights between individuals under the special agreements, but only such as arise under the partnership affairs. Neither does the bill in its frame seek an adjustment inter — 156 — sese among all the partners, but only as between the plaintiffs and defendants. The referees have not in the latter omitted to report upon the subject submitted. If there has been any omission, the first fault was not in the referees, and no advantage on account of any defect in this particular has been attempted in a proper manner. The two first objections having a relation to the entire award, which would be fatal to its validity, if they were sustainable, are overruled. 3. The referees have made their award in its details, and in full, upon the legal hypothesis that under the association the partnership at the time of its dissolution consisted of those who then held the shares, and no others. At the hearing, that basis was denied to be correct in law, and the question is submitted by the referees to the Court with the facts found connected therewith. In a partnership at common law with no agreement to continue for any specified time, or to qualify in any manner the principles ordinarily applicable, a dissolution takes place on the assignment of the interest of any member. Story on Partnership, sect. 273. In such a case the assignee may be received as a partner in the place of the assignor. But it not only becomes a new firm, but the incoming member has no concern as a partner with the firm before the assignment, and is in no manner liable as such for its obligations. When an association consisting of many members is formed with the power of each, to some extent at least, to increase the number by the transfer of shares without the consent of the other members, it is obvious that unless the rules of ordinary common law partnerships are modified and in some respects restricted, their affairs will be exposed to become complex, involved and ruinous. It would be strange indeed if they could be prosperous for a long time, if each had the power to bind the company in every thing falling within its legitimate scope. ■ By the rules of the association, the whole business of the company was to be done by trustees, having duties in most respects similar to those of directors in certain private corporations. This was suited to render more simple the opera — 157 — tions of the company, and prevent the want of concert which might otherwise be attended with great derangement in the prosecution of its common affairs. The members of the company had no other duties to perform than to elect its officers. The officers were the trustees, who* were to hold all the property belonging to the company, and to dispose of the manufactured articles. They were required to render in at every annual and semi-annual meeting an account exhibiting in detail the precise situation of the property affairs, and business of the company, and of their doings for the current year. Under these regulations, if the association in other respects were like partnerships at common law, the settlements of the company with its individual members would be attended with great embarrassment. The transfer of interests in the smallest amount allowable, might be made daily, and if the changes of the firm were to be followed by the adjustment of the affairs of each copartnership, as it came into existence and after-wards expired, it would fail to be successful, and be attended with great perplexity, and occasion endless disputes. The accounts of the trustees, which they were required to exhibit, would well inform the shareholders whether the company was prosperous or otherwise, and thereby the valire of the shares could be ascertained with great accuracy. If it was the intention of the company that the transfer of a share should carry with it all the privileges and all the liabilities of the holder as incidental thereto, it would render the settlements required by the company with its individual members easy and simple, and the business would be carried on upon the same principles which ordinarily prevail in an incorporated stock company. The income as it should accumulate would follow the share whenever a dividend shoirld be made, and the share would bo subject to the debts of the company, and the holder himself personally liable after the company property should be exhausted, without reference to the time when the income should be received, or when the debt should be contracted. This would be so in harmony with the wants of — 158 — the association, that it would be surprising if no such provision should be found in some form in the articles adopted. By the 17th article no party to these presents shall be discharged from his obligations as a member of the company, by the transfer of his share or shares until the transfer is certified, and no person becoming a party by the purchase of a share or shares shall be entitled to the privilege of members till he signs these articles. It was intended that the evidence of membership, and the time when it commenced, and when it ended, should be proved by the party’s own signature upon the books of the company. The outgoing member was to escape none of his liabilities while the company existed, till this evidence of the change was afforded.' When the transfer was thus certified to the secretary, it is clearly implied that the seller was relieved from all liability. And if so, it is implied that they were transferred to the purchaser as an incident of the share, consequently the privileges and benefits attached to the share before the transfer, vested in the purchaser on his signing the articles, and ceased in the seller. The last copartnership was that composed of those who were members and shareholders at the time of its dissolution, and they were liable for the debts of the company beyond the amount belonging thereto. The objection that no decree can be entered against the last copartnership, because the award is in the alternative, and does not determine on the two hypotheses, has no legal foundation. On one hypothesis the whole matter submitted is examined, and an award made. If that hypothesis is correct the award was intended by the referees to be complete, and a decree in favor of the plaintiffs will follow. If it had been otherwise, the rule' would have been discharged, or the report recommitted under the decision of the court upon the question of law raised. The hypothesis on which parts of the award are based, being found correct, the other alternative would be erroneous, and all further proceedings thereunder would be useless. — 159 — The other objections all look to the award as intended by the referees to be final, both in law and fact. One question only was submitted to the Court for their decision. So far as other matters reported depend upon the correctness of this principle assumed by the referees, no objection is sustainable. On all other questions the award is conclusive. It is not improper to remark however, that if the referees had reported the facts upon all the points raised, and submitted the law applicable thereto, it is not perceived that the result would be different. The plaintiffs are entitled to a decree in pursuance of the award.