Mellor v. Smither

SHELBY, Circuit Judge, after stating the case as above, delivered the opinion of the court. The correct decision of this case turns on the question whether or not the plaintiff at the time he filed his bill had a cause of action. If he had no cause of action then, he cannot, by amendment or supplemental bill, introduce a cause of action that accrued thereafter, even though it arose out of the same transaction that was the subject of the original .bill. 1 Beach, Mod. Eq. Prac. § 496; Straughan v. Hallwood, 30 W. Va. 274, 4 S. E. 394, 8 Am. St. Rep. 29; Hill v. Hill, 10 Ala. 527. But where a cause of action exists at the filing of the bill which is defectively presented by the bill, the defects may be remedied by amendment (Equity Rules 28, 29), and matters occurring after the filing of the bill may be presented by supplemental bill (Equity Rule 57; Jenkins v. Bank, 127 U. S. 484, 486, 8 Sup. Ct. 1196, 32 L. Ed. 189; Hoxie v. Carr, 1 Sumn. 173, Fed. Cas. No. 6,802). Where material facts have occurred subsequent to the beginning of the suit, the court may give the plaintiff leave to file a supplemental bill, and where such leave is given the court will permit other matters to be introduced into the supplemental bill which might have been incorporated in the original bill by way of amendment. Stafford v. Howlett, 1 Paige, Ch. 200. But, in cases where the plaintiff had no cause of action when the bill was filed, neither amendment nor supplemental bill presenting occurrences subsequent to- the filing of the bill can prevent its dismissal. The application of these principles to this case presents this question: Did the assignment by Mellor & Fenton to William H. T. Hughes deprive the former of the right to file a bill to have an accounting of the partnership transactions between themselves and John T. Smither? The assignment in question is as follows: “Know all men by these presents that, for and in consideration of the sum of , one dollar and other valuable consideration, we, William Moseley Mellor and Edward Kentish Barnes, composing the firm of Mellor & Fenton, of Liverpool, England, do hereby assign, transfer, and set over to William H. T. Hughes, of the city of New York, all our claim and cause of action against John T.. Smither, of Temple, Texas, for a balance due upon an account stated and rendered to said Smither on the 5th day of February, 1894-, of transactions between June 10, 1892, and September 30, 1893, and also a certain other account rendered and stated to said Smither on January 12, [121] 1805, with respect to transactions betwen September 30, 1893, and January 12, 1895. In witness whereof we have hereunto set our hands and seals this 27th day of March, 1895. Mellor & Fenton. “E. Kentish Barnes.” The bill alleges that a partnership existed between the firm of Mellor & Fenton and John T. Smither for the purpose of dealing in cotton. Mellor & Fenton had prepared an account of their partnership dealings during certain periods, and sent it to Smither. He having made no objection to the account, they transferred it to Hughes, who sued on it at law as a stated account. Smither defended on the ground that the account between him and Mellor & Fenton had not been stated. It was decided that the action at law on the account would not lie, and the suit was dismissed without prejudice to the right to sue for an accounting. Hughes v. Smither, 23 App. Div. 590, 49 N. Y. Supp. 115, 163 N. Y. 553, 57 N. E. 1112. After the dismissal of the action at law by the supreme court of New York, and pending an appeal, this suit was begun by Mellor, surviving partner of Mellor & Fenton, against Smither, making Hughes also a party, for an accounting of the partnership transactions. Smither demurred to the bill, claiming that the assignment of the stated account to Hughes left no right -of action in Mellor for an accounting. The demurrer was sustained, but leave given to file a supplemental bill. An amended and supplemental bill was then filed, to which the defendant renewed his demurrers, as shown in the statement of the case. It is a general rule that when a partnership is ended, or where grounds for its dissolution exist, the right of a partner to maintain a bill is undoubted. As said by the text writers: “The right of every partner to have an account from his copartners of their dealings and transactions is too obvious to require comment.” George, Partn. § 142. Smither contended in the litigation at law in New York that the account had not been stated between him and Mellor and Fenton. The accounts not having been settled, the right to have them stated certainly existed after the assignment either in Mellor & Fenton, or in Hughes, or in both. Smither could not successfully contend that the assignment transferred no account stated, and yet that it had the effect of destroying the right as against him to secure a statement of the account. Whether or not the assignment conferred such rights on Hughes that he could have sued in equity for an accounting we need not consider.- We have here to deal only with the question of Mellor’s right to have an accounting, notwithstanding the assignment. It is stated by more than one learned author that a partner, after he had parted with his entire interest in the partnership, was entitled to an accounting. 'Findley says: “If a partner’s share is taken in execution, the purchaser from the sheriff is entitled to an account from the solvent partners, as is also the execution debtor himself.” 2 Lindl. Partn. § 493. This is quoted with approval in George, Partn. § 142. Bates, also, maintains the right of the partner whose interest in the firm has been sold under execution to have an accounting, but he says this is true, “for he may still have an interest, inasmuch as the sheriff cannot sell book debts.” 2 Bates, Partn. § 928. [122] In Habershon v. Blurton, 1 De Gex & S. 121, a case very often quoted by text writers, the sheriff under execution took possession of and sold “all the share and interest of the said Charles Habershon, as partner, with one John Blurton, of and in,” etc.; describing the partnership property. Habershon after this sale by the sheriff filed a bill against his former partner, Blurton, for an accounting, and the point was made against the bill that he had no interest, his share having been sold by the sheriff. The vice chancellor sustained the bill, and allowed the accounting “notwithstanding * * * the seizure by the sheriff and the language of the. assignment by him.” In Ketchum v. Durkee, 1 Hoff. Ch. 538, the court said that “a partner has a right to file a bill for a settlement of the affairs of the firm and a due application of the assets, even after an absolute transfer by himself to his copartner of the property charged with the debts.” We do not find that the supreme court has ever decided this question. The case of Fourth Nat. Bank of New York v. New Orleans & C. R. Co., 11 Wall. 624, 20 L. Ed. 82, is, however, very instructive, as discussing principles necessarily involved in this suit. One Graham in that case made an assignment of an interest held by him in a partnership. The court said that “the words of the assignment were very broad.” It purported to transfer all of the estate, right, title, and interest which Graham had in a certain lease, and also all his right, title, and interest in any property and effects of the partnership, and all debts due to him from the partnership or any member thereof. In a bill filed by the assignee of Graham’s right, which involved a settlement of a partnership, the court held that Graham, the assignor, was a necessary party; that the only effect of the assignment was to transfer any interest that Graham might have after a proper settlement of the partnership. The case could not proceed without Graham as a party, although he had assigned his interest in the partnership. This case, and others that we have cited, strongly indicate that a partner, even after he has transferred all of his interest in a partnership, would not lose the right to have a settlement in equity of the partnership accounts. See, also, Hoxie v. Carr, supra. The assignment under consideration here, however, does not purport to transfer all the right, title, and interest of Mellor & Fenton in the partnership with Smither. It purports only to transfer a stated account relating to certain periods embraced within the partnership. Smither has successfully contended that the account was not stated, and that no right of action on it as a stated account passed to the assignee. The amended and. supplemental bill shows that Hughes prior to his death disclaimed any right or interest in the claim for an accounting asserted here, and that since his death his executors (after the original bill was filed) have formally released and transferred to the plaintiff the alleged stated account against the defendant. If the averments of the bill are true, — and they are so considered on demurrer, — -the defendant on settlement owes the plaintiff $21,982.50. The claim for this sum cannot be asserted at law. The partnership accounts must be adjusted in equity. Hughes’ representatives (like Hughes in his lifetime) disclaim any right tb proceed to have the account stated. We cannot think that an ineffectual effort of one part [123] ner to state and assign an account against the other partner defeats the right of the former to have an accounting. The right to have an accounting of the partnership transaction remained in the plaintiff’s firm, notwithstanding the assignment to Hughes. The disclaimer of Hughes, his death, and the formal release by his executors of his apparent interest, though not necessary to show a right of action in the plaintiff, are properly brought before the court in the amended and supplemental bill. These facts show that the defendant will not be called on to settle with Hughes’ representatives after his settlement with the plaintiff; that any sum which he may owe, if it be found that he owes anything, is due to the plaintiff. The demurrer to the amended and supplemental bill should have been overruled. The decree of the circuit court is reversed, and the cause remanded, with instructions to overrule the demurrer and to allow the defendant to answer. Reversed.