Towle v. Hammond

TAFT, Circuit Judge (after stating the facts as above). Serious questions as to the admissibility of material evidence upon which the complainant relies, as to the statute of limitations, and as to laches were considered by the circuit court, and decided adversely to the complainant. We do not find it necessary to consider any of them, for the reason that upon the record, and all the evidence as it is presented to the court, titis seems to be a very plain case for the defendant. The main controversy turns on the terms of the contract of partnership entered into between Hammond and Towle in the spring of 1877, after Ives, by reason of his failure, assignment, and bankruptcy, caused a dissolution of the partnership then existing between him, Hammond, and Towle. Towle testifies that he met Hammond upon the train between Chicago and Detroit by appointment; that Hammond told him that they would be able to continue the business without Ives; and that, when Towle inquired what became of Ives’ interest, Hammond replied, “We take it.” Hammond then had a chattel mortgage upon Ives’ interest for $66,000, and Ives’ interest did not at that time on the books amount to more than that sum. On the 1st of January, 1878, the amount to Ives’ credit in the partnership was $82,000, and Hammond then directed that Ives’ interest should be transferred to his credit. Hammond had ,meantime paid out of his own pocket the $66,000, with interest, due from him as an accommodation indorser for Ives. Then ensued the litigation which in June, 1880, resulted in an assignment by the assignee in bankruptcy of Ives’ interest to Hammond. In August of 1880, in January of 1881, in July of 1881, balances were struck and profits divided between Hammond and Towle on a basis of four-fifths interest in Hammond and one-fifth interest in Towle. In October, 1881, Hammond invited Towle — 515 — to subscribe to the corporation which was to succeed the firm, and to take therein one-fifth of the capital stock. Towle demurred to this, on the supposition that he had a larger interest, and inquired what became of Ives’ interest. Hammond replied that he has purchased Ives’ interest with his own money. Towle, on the faith of this statement, consented to receive a one-fifth interest in the new corporation. If Hammond said to Towle, in 1877, that he and Towle would buy Ives’ interest, and Hammond did then buy lYes’ interest, and take it to himself, Hammond would hold Ives’ interest for the benefit of both of them. But Towle’s acquiescence in Hammond’s statement in 1881, that he had bought Ives’ interest and paid for it with his own money, and Towle’s acceptance of one-fifth interest in reliance upon that statement, and his failure to object to the new arrangement for more than ten years, and until nearly six years after Hammond’s death, make it very clear to our minds that Hammond did not tell Towle, at the time that Towle met Hammond on the train, that they would both take Ives’ interest. Towle’s conduct is utterly at variance with such a state of fact. The bill makes no such averment, and Towle did not so testify until his cross-examination. The statement is not corroborated by any direct evidence as to the interview between the two men, because no one else appears to have been present. It is attempted to corroborate this, however, by alleged statements made by Hammond at other times, — one testified to by a witness (Mason) as made in June, 1880, and another by a witness (Davis) as made in September, 1880. These witnesses say that Hammond, in effect, told them that Towle then had one-third of the business, because he and Towle had bought Ives out. Mason was a former employé of Hammond’s, whose services Hammond had dispensed with because of a new arrangement he was obliged to make with the railroad companies, and who subsequently became a confidential agent of Towle. Davis was engaged in litigation -with Hammond, and seems to have been one of those instigating Towle to bring the present suit. The statements were made at a time when it is altogether unlikely that Hammond could or ■would have made them, for they were made after Ives’ share had been assigned to Hammond under an order of the court, and they were made at a time when the profits were being divided, one-fifth to Towle and four-fifths to Hammond. The evidence relied on was of casual conversations, held 10 years before the testimony was given, by witnesses who were naturally hostile to Hammond and friendly to the suit against him. The truth is, moreover, that the evidence of the complainant himself does not seem to the court to be worthy of the utmost credit; for in this very bill, filed in 1892, he permitted himself, on his oath, to charge his dead partner with false entries against him of more than $100,000, and with the appropriation and embezzlement of other sums, when it is made satisfactorily to appear that he was fully aware of the system of bookkeeping under which such charges were properly made, and were duly offset by proper credits on the other side of the ledger. Not only were these averments made in the bill by complainant, but his early testimony tended to support them, and it was not until a rigid — 516 — cross-examination and a production of the account book, a large part of which was kept by the complainant himself, and which showed the falsity- of these averments, that their unfounded character clearly appeared, and complainant’s counsel properly felt obliged to withdraw them. A party who puts himself in such a position before the court cannot expect that his testimony on other material points in the case will be accorded great weight, especially when it is so utterly at variance with his subsequent conduct. Eliminating, therefore, from our consideration, the conversation which Towle reports between himself and Hammond on the train in 1887, the only other evidence as to the terms of that partnership is the conversation which took place when Towle consented to receive one-fifth interest in the corporation. If there had been' no agreement or understanding theretofore, this was a ratification of the terms which Hammond claimed, and must be regarded as settling the ratable interests of the two in that firm, unless Towle was induced to agree to it by misrepresentation. Complainant’s witnesses state that Hammond said to Towle that he had bought Ives’ share from Ives, and that he paid for it with his own money. The bill avers that this was false, and that he paid for it out of the money of George H. Hammoud & Co. The books show conclusively that while, in making the payments to Ives, he used the checks of the firm, as he did in all his personal business, they were charged to him on the books of the firm as his individual payments. The statement of Hammond, therefore, that he paid for Ives’ interest with his own money was true. This is the only alleged misrepresentation averred in the bill, and it is difficult to understand how, in the absence of amendment, complainant can rely on any other. Still, let us consider the circumstance resting on the evidence of Towle alone, that Hammond, in his statement to Towle, fixed the purchase of Ives’ interest as at a time before Ives failed. When Towle was first a witness he did not report Hammond as fixing any time. It was not until two years later, when it became clear that Hammond had paid for Ives’ interest with his own money, that Towle recalled this part of the conversation. Such evidence, in view of the recklessness of Towle in his other testimony already alluded to, would l>e a very slender thread on which to hang a decree setting aside transactions of 20 years’ standing. But let us assume that it is true. Literally, Hammond did not buy Ives’ interest before he failed, but he did take a chattel mortgage on his interest to secure an amount equal to the entire sum then to the credit of Ives on the books of the firm, and as all he thereafter paid to secure the equity of redemption was $5,000, which was less than the increase in Ives’ book credit between the execution of the mortgage and the closing of Ives’ account, it would not have been unnatural for him to regard his real purchase as made when the chattel mortgage was given. Strictly speaking, of course, he had but a defeasible title before Ives’ failure; but, as it ripened into an absolute one afterwards, a reference to his purchase' as of the time when he took the defeasible title was a mistake entirely consistent with good faith. He did, In- fact, transfer the account of Ives to himself on the books of the — 517 — firm two years before he really acquired the equity of redemption. We can be quite sure that the distinction between the statement said to have been made to Towle and tbe facts was not sufficiently material to have made any change in Towle’s conduct. Towle doe¿ not say that it would have made any difference, and there is nothing else in the case to support such a conclusion. The material legal distinction between a purchase before and after Ives’ failure is pressed upon tbe court. The contention is that while it is true that one of three partners may buy tbe interest of another, and take an assignment of tbe same to himself, without acting as a trustee or agent for tbe third partner, and without hold; ing the assigned share for his benefit, before the dissolution of the partnership, he may not do so afterwards, and, if he does dó so afterwards, he holds as trustee for the third partner. No case has been cited in which such a distinction is announced, and if it existed there is nothing to show that either Hammond or Towle regarded it as important or likely to influence Towle in accepting or rejecting a one-fifth interest. The difference between the purchase before and after dissolution is said to grow out of the consequences of the dissolution. When one of several partners becomes bank-; rupt, it is said that the assignee of the bankrupt has no right to the possession of the assets of the partnership, and has only a claim for an accounting against the solvent members of the firm, and that thereafter the solvent members of the firm occupy a trust rela’: tion towards each other in dealing with the representa!ive of the bankrupt partner. The concession by tbe complainant, that one partner may buy the interest of another without liability to other partners to account for the profit of the purchase, is well justified by tbe cases following: Cassels v. Stewart, 6 App. Cas. 64; Lobdell v. Baldwin, 93 Mich. 569, 53 N. W. 730; Karrick v. Hannaman, 168 U. S. 334, 18 Sup. Ct. 135, 42 L. Ed. 484; Monroe v. Hamilton, 60 Ala. 232; Edens v. Williams, 36 Ill. 254; Frederick v. Cooper, 3 Iowa, 171; Dimon v. Hazard, 32 N. Y. 65; Reese v. Bradford, 13 Ala. 837. Upon dissolution by reason of the bankruptcy of one of the partners, the solvent partners have the right to settle the firm business, collect the assets, pay the debts, and distribute the surplus. Amsinck v. Bean, 22 Wall. 395, 403, 22 L. Ed. 801; Ex parte Owen, 13 Q. B. Div. 113; Lindl. Partn. 671; Bates, Partn, § 754, and cases cited. They, of course, are under obligation to pay the full share of the bankrupt to bis assignee. Tbe character of the respective shares to be distributed is not changed by the fact that the settlement is intrusted to the solvent partners. The title of the latter is not different from that of the assignee by reason of the bankruptcy. The change effected is only in the person to administer. The solvent partners do, not occupy any different relation as between themselves and the assignee and his share than they did when it was owned by the assignor. The extent of the interest of each is'exactly that which it was before dissolution^ Neither of the solvent partners is a trustee for the other in the division of the surplus between them and the assignee. They are settling up the estate for the firm’s benefit, and not for the benefit of thé two — 518 — solvent partners as against the assignee. After the surplus is accumulated and fixed, the shares are known. It is immaterial to each partner who owns the other shares, so long as he receives his rightful share of the surplus. If one of the solvent partners acquires the share of the bánlcrupt’s assignee, this neither increases nor diminishes the share of the other solvent partner, because it cannot affect at all the amount of the surplus to be divided. ' Each partner occupies to the other a fiduciary relation in collecting the assets and paying the debts of the partnership and accumulating the surplus fund for distribution; but, when the fund is accumulated and fixed, if cannot be material to each partner who the distributees shall be, provided always he secure his rightful share. If, therefore, one of the solvent partners buys the interest of the bankrupt partner from his assignee, he does nothing which prejudices the other solvent partner. It will neither increase nor cut down the amount which such partner will receive in the distribution. It therefore follows that Hammond’s purchase of Ives’ interest in the old firm did not inure to the benefit of Towle as a matter of equity or law, even though he acquired the equity of redemption in it after Ives failed. The representation, therefore, that he bought it before Ives failed, even if made, was immaterial, both in fact and law. We conclude that there was no material misrepresentation upon which the acquiescence of Towle in the division of interests between him and Hammond in the partnership of George H. Hammond & Co. from 1877 to 1881 was secured. We have proceeded on the assumption made by counsel for complainant that Towle had no knowledge whatever of the entries upon the books, — no knowledge whatever of the basis upon which the actual division of profits was made during the partnership. Counsel argued that Towle was an unlettered man, and not a man of business, and was completely under the control of Hammond. The evidence shows that Towle was engaged in large business ventures outside of the business of Hammond & Co. He was engaged in the sale of general merchandise, and in the lumber business; he was president of the First National Bank of Hammond; he was in the real-estate business; he was mayor of Hammond; trustee of the township; had a large interest in a distillery, in a spring -manufacturing business, in a carriage factory, in a steel-making plant,, in a foundry, and in the oil business. He kept such books as were kept at Hammond, and seems to have been quite successful in the management of all his ventures. This would seem strongly to refute the claim that he was a mere puppet in the hands of Hammond. ■ The bill avers, and counsel claim, that the division of interests after the death of Plummer between Hammond, Ives, and Towle was two-fifths to Hammond, two-fifths to Ives, and one-fifth to Towle. If we understand it, this attempt to increase the interest of Ives, .beyond what the’ books showed him to have had between 1873 and 1877, is to increase the amount for which Hammond was accountable to Towle by increasing the amount of the Ives interest in the business and the profits therefrom. We must presume that Ives knew’what his interest in the business was after Plummer retired. — 519 — Allen, Ives’ brother-in-law and representative in the business, kept the books, and from 1878 to 1877 there were divisions of the profits made as often as once a year, and in that division Hammond was credited with seven-fifteenths, Ives with five-fifteenths, and Towle with three-fifteenths. When Ives’ assignee came to file his hill for an accounting against the solvent partners, he averred that Ives’ interest was only five-fifteenths, and this was admitted by Hammond. Ives was an active business man, wlio lived in Michigan, and may be presumed to have known what the books contained, lie never claimed more than one-third interest, and it would seem absurd for Towle now to attempt to establish that his interest was larger than Ives himself claimed it to he. Towle seeks to recover from Hammond’s estate his distributive share of the amount drawn by Hammond as salary. He testifies that, when the firm of Hammond, Hummer & Co. was formed, it was agreed that Hammond and Ives were to receive no salary, but that Plummer and Towle were to be paid one. The books kept by Ives show that from the organization of the firm Hammond received a salary, and Ives did not. Certainly, then, Ives understood the agreement to be that Hammond should draw a salary; and we may presume that Plummer knew what the hooks showed, and acquiesced in Hammond’s salary. Without proof to support it, we cannot assume that Plummer was so densely ignorant of the partnership affairs as Towle testifies that he himself was. On Towle’s unsupported statement, inconsistent as it is with the books and with Ives’ and Plummer’s conduct, we cannot hold that his claim as to Hammond’s salary has been sustained. > » As to the amount charged to the complainant by payment to Myrick of $5,200, we have no doubt that this is offset by a credit to complainant of the same amount. There is every probability that the credit was included in a larger lump credit denominated in the books the "pay-roll account.” Upon cross-examination, the complainant, in effect, admitted that this was the probability. Myrick’s failure to recall the receipt of the money at this date, more than two decades before, when it is conceded that he did receive money to make purchases of cattle at some time, is not a successful impeachment of the account, which in every other respect is entirely accurate. The charge against the defendant of $20,000 because of an over-credit of $100,000 on refrigerator cars is not fully explained,- but, as the books show that the other partners, Hammond and Ives, were each charged their proper share of the $100,000, it certainly worked no injustice as between the partners. Upon the merits of the case, upon all the evidence, competent and incompetent, we are convinced that Hammond dealt justly with Towle, and was the chief instrumentality in laying the foundation of complainant’s fortune. The decree dismissing the bill is affirmed.