Collins v. Decker

Barrows, J. In 1875 the plaintiff had the possession and a bond for a deed of a grist mill and its privileges, for which he had paid $1,000, and was to pay, in order to entitle himself to a conveyance, $800 more April 7, 1876, and $770 April 7, 1877. In September, 1875, he made a verbal contract to sell the property to Decker, the defendant, for $3,000; received $1,300 from him, and gave him a receipt for that amount “ as pay towards mill.” Under this arrangement Decker took possession, and was engaged in running the mill and making repairs and improvements upon it, at considerable expense, until November 18, 1875, when the parties plaintiff and defendant made another verbal contract to carry on the business of the grist mill in partnership, which they did for about two years. Then the plaintiff notified defendant that he was going to dissolve the partnership, and defendant proposed that the dissolution should be mutual, and that they should “ bid for choice of the mill property.” Plaintiff does not contradict defendant’s testimony that he (the plaintiff) said he would shortly “say what he would give or take.” He did — 29 — not do this, however, but, a day or two after, took a deed of the mill property in his own name, discharged the bond, and mortgaged the property back to secure cor Gain indebtedness of the firm, and some of his own, and what remained unpaid of the purchase money, excluded his late copartner from the possession, and at once brought this bill in equity to close the affairs of the copartnership. Thus far no material conflict as to facts. But defendant claims, and plaintiff denies, that when they went into partnership it was verbally agreed and understood between them that the previous contract as to the purchase of the mill by defendant from plaintiff was to be abandoned by mutual consent; that the bond for the deed was to be regarded as partnership property, the balance due on the purchase money under the bond was to be paid by the partners equally, and when paid the deed should be taken to them as partners; that it was agreed that the $1,000 paid by Collins towards the pnrchase money and the $1,300 paid by the defendant to Collins should be regarded as so much of the company funds furnished by them respectively, as well as the grain stock and personal property which they turned in ; that defendant was to be allowed, as contributed by him to the company funds, the amount expended by him for repairs and improvements on the mill, and that all these matters were to be equitably adjusted as partuershi p transactions. To such a partnership, a place to carry on the business would be indispensable, and it is natural to suppose that the attention of tbe parties would be given in the outset to securing it. Yet the plaintiff testifies that neither then nor ever during the time they were in partnership was anj thing said about tlie rent of the mill, though it was worth $300 a year, and that he never called upon defendant for money on account of the purchase of the mill after they went into partnership, though he had done so a number of times before. A disinterested witness testifies that the plaintiff told him, iu the afternoon of the day that the partnership agreement was entered into, that “ ho (Collins) was to take one-half of the mill back, allowing Decker one-half of the amount which he had paid him for the mill and one-half of the cost of the improve — 30 — mente and repairs which Decker had put on the mill, and that they were going on in partnership, Collins to do the mill work and Decker the outside work, and each one to fitrnish one-half the capital to run the mill.” Taking the natural probabilities into the account in connection with the testimony, we regard it as satisfactorily proved against the plaintiff’s denial that the contract for the sale of the mill by him to the plaintiff was abandoned by mutual consent when they went into partnership, and thenceforward the understanding was that the purchase of the mill was to be completed by them jointly, and that it was to be their joint property when paid for, so much as had been paid for or laid out upon it by each to be treated as contributed to the capital of the company, and to be finally adjusted on equitable principles as partnership business. The questions for determination are how far this verbal agreement was binding on the defendant, and whether in consequence of it and the acts of the parties subsequently the mill property is to be regarded as company property, notwithstanding the plaintiff finally took the conveyance to himself alone. Some sums were paid out of the partnership funds in part payment of the plaintiff’s notes given for the balance of the purchase money when he took the bond for a deed, and also a dam tax of $75; and the mill property was taxed to the partnership, and the tax of 1876 was paid out of the company’s money. Some of these payments were made by giving credit on the books of the copartnership to the parties to whom the payments were made. Bill and answer alike assert the existence of a copartnership formed for the purpose of carrying on the grist mill business, and the proof is plenary'that the mill property in question was that which was used by the partnership, without the payment of rent to any one, or the assertion of a claim for rent by any one, for the purposes of their business as long as they continued in partnership, and that it was partly paid for as above stated out of company funds. Is it to be regarded as partnership property in the settlement of the partnership estate ? The plaintiff relies upon his legal title and the statute of frauds as conclusive that it should not be so regarded. — 31 — There arc not a few cases in which there has been more or less elaborate discussion of the effect of the existence of a copartnership, sometimes proved by written articles of agreement and sometimes established otherwise, upon the beneficial interest in, and ownership of, real estate, where such interests were claimed and found not to correspond with the legal title. The effect of the statute of frauds in such cases has necessarily been much considered. It would be difficult, if not impossible, to reconcile all the decisions and dicta upon this topic emanating from courts whose great learning and high authority are nevertheless conceded. Much of the apparent discrepancy, however, will disappear if the position of the parties litigating towards each other and their relation to the subject of controversy, the purposes for which the statute is invoked, and the limitations of the doctrines laid down, are all carefully observed. Sometimes the contention has been between the widow and heirs of a deceased partner and the surviving partners as to .the mode of disposition of real estate not needed in the form of cash for the payment of debts or the adjustment of the affairs of the partnership between the partners themselves, as in Shearer v. Shearer, 98 Mass. 107, and Wilcox v. Wilcox, 13 Allen, 252; sometimes between the copartnership creditors and creditors of the individual copartners as to the disposition of the proceeds of lands bought by one of the copartners in whole or in part with partnership funds, but not used for the purposes of the copartnership, as in Richards v. Manson, 101 Mass. 482, and Fall River Whaling Co. v. Borden, 10 Cush. 458 ; sometimes where the existence of the copartnership was in dispute and not clearly established, as in Smith v. Burnham, 3 Sumn. 435. If we adopt the English doctrine as laid down in Dale v. Hamilton, 5 Hare, 369, the defendant’s claim that this mill, thus occupied and used by the copartnership, and partly paid for with partnership funds as appears by the partnership books, should be regarded as partnership property in winding up its affairs is at once clearly established. In the case just cited the doctrine to be gathered from a review of all the cases is declared to be that where a copartnership is proved, though but by word of mouth, — 32 — the equitable consequences follow and partnership equities attach, the statute of frauds notwithstanding, the case being held to be that of a trust arising by implication of law, and so within the exception expressed in the statute. Attention is called in the elaborate and learned opinion of Cushing, J., in Fall River Whaling Co. v. Borden, ubi supra, to the fact that in Dale v. Hamilton the partnership alleged was in a single transaction of the purchase and sale of land, “ standing on parol merely, unsupported by any general partnership subsisting, or any collection and combination of general partnership writings and acts, and with no pretense of any partnership funds, either contemporaneously existing or subsequently acquired.” It, is not necessary for the decision of this case to inquire whether we could go so far as the Vice Chancellor did in Dale v. Hamilton, or whether its doctrine is practically denied in Farnham v. Clements, 51 Maine, 426. A verbal agreement to form a copartnership for the purpose of trading in land, whether generally or in a single instance, presents a different question as to the attaching of partnership equities to land bought in pursuance of such agreement by one of the parties and conveyed to him individually, from that which is presented where the existence of a copartnership is admitted by the parties respectively in bill and answer, and the land in question has been used for partnership purposes rent free during the entire existence of the partnership, and more or less of the money of each of the partners and of the partnership funds has been expended in paying for and improving it. Touching interests in lands acquired for the purposes of the partnership by one partner in his own name see Forster v. Hale, 3 Ves. 308, and Lord Loughborough’s opinion in the same case on appeal, to the effect that “the partnership being established by evidence by which a partnership may be proved, the premises necessary for the purposes of the partnership are by operation of law held ” for all such purposes. In Smith v. Tarlton, 2 Barb. Ch. R. 336, it was held that real estate purchased with partnership funds for the use of the firm, although the legal title is in the members of the firm in whose — 33 — names the conveyance is taken, is in equity considered the property of the firm, for the payment of its debts and for the purpose of adjusting the equitable claims of the copartners as between themselves. And this was a case whore a parol agreement for a partnership to carry on a certain kind of manufactures, and to that end to purchase a water privilege and site and erect buildings was proved ; and those members of the firm in whose names the title to the real estate was taken were endeavoring to misappropriate the property. As to the effect of the statute of frauds in these cases it is obviously a matter of no practical importance whether the requirements of the statute are complied with by such a memorandum or declaration in writing, as it calls for, or whether the ease falls within the recognized exception of trusts arising by implication of law. “ In either view of it,” remarks Cushing, J., (10 Cush. 471,) “ the question recurs, what proof of copartnership shall suffice to satisfy the demands of the statute.” It is generally understood that if the articles of copartnership are in writing, there is a sufficient compliance with the requirements of the statute to subject the partnership lands to all the equities growing out of that relation. Why is not the admission by the parties of the existence of the partnership upon the record in bill and answer a full equivalent ? Here are written recognitions of the fact of its existence subscribed by the respective parties and so placed before us that the existence of a partnership in the present case, so far as these parties are concerned, is indisputable. In Smith v. Burnham, 3 Sumn. 435, cited by the court in Farnham v. Clements, 51 Maine, 428, the partnership asserted in the bill was repudiated in the answer, and it did not appear that there were any partnership funds or any land used for the purposes of the copartnership, and there was no proof offered of any dealings between the parties as copartners except the alleged verbal agreement to form a copartnership for the purchase and sale of lands on speculation, the case in many respects resembling that of Dale v. Hamilton, ubi supra. Yet while Judge Story found no sufficient proof of the existence of a copartnership and — 34 — nothing to satisfy the requirements of the statute of frauds, he did not dispose of the case without a distinct declaration that had it been proved that part of the purchase money of the land had been paid by the plaintiff, or that the land had been purchased for partnership purposes with the funds.of an existing partnership, he should have recognized a resulting trust arising by operation of law within the exception of the statute. Cushing J., in Fall River Whaling Co. v. Borden, 10 Cush. 475, thus states the doctrine derived from an examination of the whole subject: “ A partnership satisfactorily proved, and certainly ' if proved by writings,.is to be held as raising in equity a partnership trust in partnership lands whatever the state of the legal title. If such writings of the copartnership refer directly to the land by name as partnership property, then the trust is proved by the statute. memorandum; if the writings do not by name refer to the land, then it is a trust therein by implication of law.” The various indicia of partnership property in this grist mill, (which was the seat of the partnership business) to which we have referred and which need not be recapitulated, satisfy us that it ought, in equity, as between these partners, to be so regarded. We cannot doubt that it was understood by and between the parties when they went into copartnership, that the previous verbal-contract for the sale of the mill by the plaintiff to the defendant should be treated as abandoned by mutual consent, and that the purchase of the mill should be completed for and on account of the copartnership, the sums paid and expended by the parties severally up to that time to be regarded as so much contributed to the partnership funds. “ When the legal title is held by one partner in excess of his beneficial interest, it is held in trust for the purposes of the partnership, and is chargeable in equity with all obligations growing out of that relation,” says Wells, J., in Shearer v. Shearer, ubi supra. What the actual condition of things in regard to indebtedness of the partnership to third parties or to the partners individually may require as to the disposition of the property, will depend upon future developments in the case. — 35 — In Buchan v. Sumner, 2 Barb. Ch. R. 165, while it was held that real estate purchased with partnership funds or for the use of the firm is in equity chargeable with the debts of the copartnership and with any balance which may be due from one copartner to another upon the winding up of the affairs of the firm, yet a court of equity will leave the legal title undisturbed except so far as is necessary to protect the equitable rights of the several members of the firm and those of the partnership creditors therein. The only decree that we are called upon at present to make is that the affairs of the partnership shall be closed up and the relation of the several partners as debtors to, or creditors of, the firm shall bo ascertained, and that the mill property conveyed to the plaintiff stand charged with all partnership equities, its disposition to depend upon the respective beneficial interests which the partners may be found to have therein upon the settlement of all the partnership accounts. Decree to he framed accordingly. Appleton, 0. J., Walton, Yibg-in and Libbey, JJ., concurred.