McCormick v. Gray

Mr. Justice CURTIS delivered the opinion of the court. This is a bill for an account of certain partnership transactions betwen McCormick and Gray, and to set aside an award by which that account has been stated. The bill was demurred to, apd, by a decree of the Circuit' Court of the United States for the District of Illinois, it was dismissed, and the complainant appealed. The demurrer raises the question, whether the award is valid? The objection to the award is, that it is not pursuant to the submission. To decide this question, it is necessary to examine the terms of the submission and the award. The submission is contained in arbitration-bonds, mutually executed by the parties, bearing date on the 20th day of December, 1848, submitting, generally, all their partnership and other differences with this limitation: “ Provided, that the award so to be made by said arbitrator shall not in any way alter or affect the demands of property and assets in the hands of William B. Ogden, as the trusted of said parties, or the agreements between, said parties, relatívé to the collection and disposition of said demands, assets, and property; but the same shall remain under the provisions of said contract.” This clause in the submission refers to an assignment of the principal part of the choses in action of the partnership, in trust *36 to collect thém, made by the partners before the execution of the submission-bonds, 'which assignment recites the fact of the submission, and contains agreements as. to marshalling this part of the partnership assets. Amongst other trusts declared in this assignment are the following: — “1st. Said Ogden shah proceed to collect said, assets as speedily as may be, and, after first paying all expenses, costs, and commissions attending the collection and disbursement of the same, he shall pay over to said McCormick the sum of $14,610, on account of patent fees due him for the manufacture of said Virginia Reapers, as aforesaid. • .“ 2d. To pay all legal liabilities and debts of said McCormick .and Gray as they shall become due. “ 3d. The balance of said assets, as fast as collected, shall be paid in pro rata sums, as follows, — to said McCormick, one half of all moneys collected; to Ogden and Jones, one fourth part of said moneys, being the. amount heretofore sold and assigned by said Gray to them; and the remaining one fourth part, to said Charles M. Gray. Provided, however, and it is hereby expressly understood and agreed between the said McCormick and Gray, that- the respective • sums herein ■ provided by this clause, to be paid to said McCormick and Gray, respectively, shall be retained by the said Ogden, to await the award-of Judge Dickey, in the submission ‘above referred to, and shall in no case be paid over by him to either of said parties until said award shall be made; and when said award shall be made, in case it shall be made against either-party, the amount of such award shall betaken out of the moneys going to the party against whom said award shall be made, and paid over to the amount thereof, to the party in whose favor said award shall be made; and when said award shall have been paid, the balance of said moneys going to said McCormick and Gray, if any there shall be, shall be paid over to them, respectively, in. the proportion hereinbefore provided for. Provided,'“further, that, if said Gray shall not pay to said McCormick, within, thirty days from the date hereof, the sum of $2,500, on account of the indebtedness of Gray and Warner to said McCormick, then the said Ogden shall retain and pay 'over to said McCormick, out of the rest of 'the moneys to be paid to said Gray, as aforesaid, after first paying any award which said judge may make in the submission above mentioned, against said Gray, the aforesaid sum of $2,500, on account of the-said indebtedness of said Gray and Warner, aforesaid, together with ten per cent, damage thereon, as; a penalty for any delinquency on the part of said Gray, to pay said, sum of $2,500 within the time- above limited, every thing hereinbefore contained to the contrary notwithstanding; and the said Gray' agrees *37 to furnish the said McCormick, within the thirty days aforesaid, a full,’ true, and correct account or statement of the -indebtedness of said Gray and Warner to said McCormick; and any excess over and above the said sum of $2,500, which said account or statement shall show to be due tto said McCormick, shall also be paid to him by said Gray, within the thirty days above limited, or, in default thereof, the said Ogden shall pay the' same out of the same funds, in the same manner and with the like penalty that the said sum of $2,500 is hereinbefore provided to be paid.” These stipulations, by which this part of the partnership assets is disposed of, are, in legal effect, incorporated, into the submission, and limit the authority of the arbitrator. He could do nothing to alter or affect them. But, instead of observing this limitation, his award treats the entire property of the partnership, and the respective rights of the partners, as if no such, agreements had been made. He postpones the payment of the fourteen thousand six hum dred and ten dollars to McCormick, for his patent fees to the payment of the debts of the firm, though the agreement of the parties was, that it should be first paid out of the choses in action assigned. It is argued, that this was justified by the prior right of creditors. But, as between the partners, they had a perfect right to control the possession of the partnership funds, and. determine that the whole, or any part,-should go into the possession of either partner. Both are ultimately liable for the debts, and whether one or other member of the firm shall have possession of the funds, either under a claim as a creditor of the firm, or otherwise, while they act in good faith, is a matter wholly subject to their control. Indeed it is only through them,' and by means of their equity to have the partnership property applied to the payment of the partnership debts, that creditors have any lien on, or specific rights to, the property of the firm, as distinguished from the property of its members. Ex parte Ruffin, 6 Ves. 119; Ex parte Fell, 10 Ves. 347; Ex parte Williams, 11 Ves. 5. This partnership was solvent, and the object of the submission was to adjust the relative rights of the partners. The payment of the debts, and a provision for them out of the partnership funds, was probably necessary, in order to make a final settlement, without recourse over, in .consequence of payments .compulsorily made by one partner, which might disturb the - balance between himself and his' copartner. But it certainly was not within the authority of the referee to-' make this pro* vision out of a fund which the partners had otherwise dis-of by an agreement, which they made part of *38 the submission, and which constituted a limitation on his authority. It is said-that, by the terms of the agreement between the parties contained in the assignment, these debts were to be paid as they should become due, and that to support the award the court will intend, they were all payable at the time it was made. But if this were intended, the agreement, would nevertheless remain, by force of which McCormick’s patent fees were to be first paid, out of the proceeds of that particular part of the property assigned.- The partners agreed in the assignment, that, after paying McCormick the sum of $14,610, and discharging the legal liabilities of the firm, the balance of the assets assigned, as fast as collected, should be paid, one half to McCormick, one fourth’to Gray, and the remaining fourth to certain assignees of Gray, but that each partner should have a lien on the share of the other, for any.balance found due to him by the arbitrator: and that McCormick should' have a lien on Gray’s share, in the hands of the assignee, for a specific claim of' twenty-five hundred dollars, together with any. further amount which plight prove to be due to him according to an account therein agreed to be rendered. Upon the face of the award we are unable, by any fair intendment, to reconcile it with these stipulations. The radical error of the arbitrator seems to have been, that he disregarded these arrangements of the parties, by which they had finally bound, so much of their assets as .were in the hands of the assignee. It was his duty to assume that their contract, in respect to this part of the partnership property, was to be specifically executed, and then 'proceed to consider the equities of the parties in consequence of such an appropriation of those funds, as well as in consequence of the other facts. But each partner had a right to the specific performance of the trusts declared in the assignment, and the submission gave no power to the arbitrator to make an award inconsistent with fheir execution. But this award is so. In one aspect of this bill, it is a bill for the execution of those trusts, and no reason appears why they should not be executed, except the award. If the award .is- valid, the court below rightly decided that the bill must be dismissed, for it not only bars the general account of the partnership transactions, but destroys the particular trusts created by the assignment in favor of each partner, in respect to the proceeds of the choses in action assigned. Yet it was expressly agreed- that the arbitrator should do nothing which could have that effect, and so far as the award is relied on as a defence to the bill against Gray and Ogden, the trustee, to have these trusts *39 performed, it is in direct conflict with the express words of the submission. It is suggested that the award may be held valid in part, and so far as it does pursue the submission. There are cases in which, after rejecting part of an award, the residue is sufficiently final, certain, and in conformity with the submission, to stand; but it is' indispensable that the part thus allowed to stand should appear to be in no way affected by the departure from the submission. In the present case this does not appear. • On the contrary, the basis of this whole award is erroneous, resting on the assumption that the disposal of the entire assets of the partnership was the subject of the award, and it is certain the arbitrator could properly have made no part of this award, as it stands, if he had assumed that the trusts declared in the assignment were to be executed. It is objected that the amount in controversy is not sufficient to justify an appeal to this court; but this is a suit for an account involving verj large sums of money, the complainant claiming sums greatly exceeding two thousand dollars, by force of the assignment and otherwise, and the defendant Gray insisting on the award, as a oar to the whole claim. It is no answer to say that, if this suit should be defeated, the complainant may have some other title, which will, not be worth two thousand dollars less than the value of whaf he now claims. The question is, whether the matter in dispute in this suit is of the value of two thousand dollars. Besides, this matter is a claim for an account far exceeding that amount, and it does'not appear that the defendant concedes to the complainant his whole claim, except some sum less than two thousand dollars. There remains, therefore, a dispute concerning this- large claim, not narrowed by any concession of the defendant,- so as to be reduced below the sum which is required by law for an appeal. It is urged, also, that the appeal is not well taken, because the complainant obtained leave to amend, after the decree dismissing the bill was entered. But it appears from the record that this decree to dismiss the bill was regularly stricken out before the leave to amend was granted, and afterwards, when the complainant elected not to.amend, the bill was ordered to be dismissed by reason of the demurrer. P’rom this last-mentioned decree the appeal was taken, and it was regularly and properly allowed. The decree of the Circuit Court must be reversed, and the case remanded with directions to that court to overrule the demurrer, and order the defendants to answer the bill. *40 Order. This cause came on to be heard on the transcript of the record from the Circuit Court of the United States for the District of Illinois, and was argued by counsel. .On consideration whereof, it is now here ordered, adjudged, and decreed by this court, that the decree of the said Circuit .Court in this cause be, and the same is hereby reversed with costs, and that this cause be, and the same is hereby remanded to the said Circuit Court, with directions to overrule the demurrer, and order the defendants to answer the bill.