Riddle v. Whitehill

135 U.S. 621 (1890)

RIDDLE
v.
WHITEHILL.

No. 314.

Supreme Court of United States.

Submitted May 1, 1890. Decided May 19, 1890. APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE EASTERN DISTRICT OF ARKANSAS.

Mr. John Dalzell for appellants.

Mr. D.H. Reynolds for appellee.

MR. CHIEF JUSTICE FULLER, after stating the case as above reported, delivered the opinion of the court.

Upon the face of the bill, of which the transfer to the complainants formed a part, we think the latter could maintain the suit if a cause of action existed, and we assume that the demurrer was sustained and the bill dismissed as the result of the application of the statute of limitations or the doctrine of laches. Should this conclusion have been reached upon the facts admitted? By the terms of the agreement in question, the partnership was to continue for five years, provided Riddle, Coleman & Co. wished to remain in the coal business; but, if not, or if they desired to terminate this particular connection, J.M. Whitehill & Co. were "to wind up their affairs and sell the stock to the best advantage for all parties concerned." The five years ran out on the 7th day of March, 1875, but the firm went on in business. Many of the lots in question had been conveyed to Whitehill & Co. prior to 1875, and the term of the lease of the river front did not expire until May, 1877, when it was renewed for twenty years, an indication that the firm had then no intention of bringing its business to an end. The management at Arkansas City was confided to Whitehill, while Riddle, Coleman & Co. furnished the capital invested in the plant, and the coal from year to year, dealing in which was the specific object of the enterprise.

On the 15th day of October, 1877, the firm of Riddle, Coleman & Co., which had then been carrying on business at Pittsburg for more than twenty-seven years, was compelled to make an assignment. If a member of an ordinary partnership assigns, where the partnership is at will, the assignment dissolves it, and if it is not at will, the assignment may be treated by the other members of the concern as a cause for dissolution. The assignee of one partner cannot he made a member of a partnership against the will of the other partners, but the absolute right to have the affairs of the firm at once wound up, when the specified duration of the partnership has not expired, may be subject to modification according to circumstances. Taft v. Buffum, 14 Pick. 322; Buford v. Neeley, 2 Devereaux Eq. 48; Monroe v. Hamilton, 60 Alabama, 226; Lindley on Part. *364; Helmore v. Smith, 35 Ch. Div. 436. In the case at bar J.M. Whitehill & Co. continued in business after October, 1877, although the bill does not state for how long a time. The failure of Riddle, Coleman & Co. presumably prevented their furnishing coal, yet the averments of the bill show that the business of Whitehill & Co. had expanded far beyond the traffic to which it had been originally confined. But assuming that by the assignment the partnership of J.M. Whitehill & Co. was dissolved, it was the duty of Whitehill to proceed at once to wind up the business and sell the stock to the best advantage, not only for himself, but for Riddle, Coleman & Co., and this was in compliance with the express provisions of the agreement. It appears that a portion of the stock, to the amount of $16,000, was not sold until the 10th day of March, 1881, at which time the coal privilege at the landing was leased for ten years; and while some of the real estate had been disposed of, a large part remained yet to be divided, when the bill was filed. The proposed amendment showed that the firm's liabilities were not liquidated until 1883.

According to the allegations of the bill, on the 15th day of October, 1877, when Riddle, Coleman & Co. assigned, the firm of J.N. Whitehill & Co. was the owner of town lots, of river front, residences, store-houses, and a hotel, bought and paid for with the partnership funds. The title stood in the name either of J.M. Whitehill or of J.M. Whitehill & Co.; and part of the property was in use for partnership purposes and so employed, while a part was not, but represented the investment of partnership gains. A partnership, as such, could not hold the legal title to real estate, as it is not a person in fact or in law, and the situation in this case is well described in Percifall v. Pratt, 36 Arkansas, 464, where it was held: "If the title be made to all the partners by name, they hold the legal title as tenants in common, without survivorship. If to one partner alone, the whole legal title vests in him, which is the case, also, where the title is to a partnership name, which, as in this case, expresses the name of one party only, with the addition of `and company.' If the deed be to a name adopted as the firm style, which includes the name of no party, it passes nothing in law. The same occurs where the deed is to one already dead."

As to this real estate, whether the deeds ran to J.M. Whitehill & Co. or to J.M. Whitehill the latter held the title in trust, and it was so ruled in McGuire v. Ramsey, 9 Arkansas, 518. It is there said that "where real estate is purchased and paid for with partnership funds, but conveyed to one of the partners alone, a trust results in favor of the other partners;" and that lapse of time "cannot be allowed in favor of one partner in possession of real estate against the other, for the possession of one is the possession of both."

Lord Redesdale in Hovenden v. Lord Annesley, 2 Sch. & Lef. 607, 633, laid down the rule, that if the trust be constituted by act of the parties, the possession of the trustee is the possession of the cestui que trust, and no length of such possession will bar; but if a party is to be constituted a trustee by the decree of a court of equity, founded on fraud or the like, his possession is adverse, and the statute of limitations will run from the time that the circumstances of the fraud were discovered.

"As a general rule, doubtless," said Mr. Justice Gray, delivering the opinion of the court in Speidel v. Henrici, 120 U.S. 377, 386, "length of time is no bar to a trust clearly established, and express trusts are not within the statute of limitations, because the possession of the trustee is presumed to be the possession of his cestui que trust. But this rule is, in accordance with the reason on which it is founded, and as has been clearly pointed out by Chancellor Kent and Mr. Justice Story, subject to this qualification, that time begins to run against a trust as soon as it is openly disavowed by the trustee, insisting upon an adverse right and interest which is clearly and unequivocally made known to the cestui que trust; as when, for instance, such transactions take place between the trustee and the cestui que trust as would in case of tenants in common amount to an ouster of one of them by the other... . In the case of an implied or constructive trust, unless there has been a fraudulent concealment of the cause of action, lapse of time is as complete a bar in equity as at law." Courts of equity sometimes act in obedience to the statute, and sometimes apply it by way of analogy. Where the cause of action is legal and the statute has barred the remedy at law, the defence is as complete in equity as at law, but where the case falls within the proper, peculiar and exclusive jurisdiction of a court of equity the statute is not necessarily applied.

Real estate purchased with partnership funds for partnership uses, though the title be taken in the name of one partner, is in equity treated as personal property, so far as is necessary to pay the debts of the partnership and to adjust the equities of the partners; but the principle of equitable conversion has no further application. Clagett v. Kilbourne, 1 Black, U.S. 346, 349; Shanks v. Klein, 104 U.S. 18; Allen v. Withrow, 110 U.S. 119; Buchan v. Sumner, 2 Barb. Ch. 165; Collumb v. Read, 24 N.Y. 505. Whitehill here was in possession for the benefit of the parties lawfully entitled, and apparently occupied no position adverse to them.

In Knox v. Gye, L.R. 5 H.L. 656, the effect of the statute of limitations, 21 Jac. 1, c. 16, providing that all actions of account and upon the case should be commenced and sued within six years next after the cause of such action or suit, and not after, as repeated in the 9th section of the 19th & 20th Vict. c. 97, with this additional provision, namely, that "no claim in respect of a matter which arose more than six years before the commencement of such action or suit shall be enforceable by action or suit by reason only of some other matter or claim comprised in the same account having arisen within six years next before the commencement of such action or suit," upon a bill for an account brought by the executor of a deceased partner against the survivor, more than six years after the death, was considered. It was held that the matter, namely, the dissolution of the partnership, and, consequently, the possession of the partnership property by the surviving partner, arose more than six years before the commencement of the suit and was barred; that the right of action arose upon the death of the deceased partner, and the cause of action was the possession of the partnership estate by the surviving partner; that where, in the matter of the enforcement of a legal right, a court of common law would, under the provisions of the statute of limitations, refuse the enforcement after the lapse of six years from the accruing of the right of action, a court of equity would, where its power to grant relief was asked for under similar circumstances, adopt the principle of the statute, and decline to grant such relief.

Lords Westbury, Colonsay and Chelmsford concurred in the result, while the Lord Chancellor (Lord Hatherley) dissented. It was held by Lord Westbury that "there is no fiduciary relation between a surviving partner and the representatives of his deceased partner; there are legal obligations between them equally binding on both;" but the Lord Chancellor insisted with emphasis that "there is a fiduciary relation between them. The surviving partner alone having the legal interest in the partnership property, and being alone able to collect it, there arises a right in the representatives of the deceased partner to insist on the surviving partner holding the property, whenever received, subject to the rights of the deceased partner, and he cannot make use of the partnership assets without being liable to an account for them."

We are not prepared to decide that there is a definite rule of law that statutes of limitation commence to run immediately upon the dissolution of a partnership, irrespective of the circumstances of the particular case. Mr. Justice Lindley, in his excellent work on Partnership, says: "So long, indeed, as a partnership is subsisting, and each partner is exercising his rights and enjoying his own property, the statute of limitations has, it is conceived, no application at all; but as soon as the partnership is dissolved, or there is any exclusion of one partner by the others, the case is very different, and the statute begins to run." American ed. 1888, *510. The learned author in his last edition cites Knox v. Gye, supra, and Noyes v. Crawley, 10 Ch. Div. 31, in which Vice Chancellor Malins quotes the above language with commendation, and dissents from Miller v. Miller, L.R. 8 Eq. 499. Where, however, partnership affairs are being wound up in due course, without antagonism between the parties, or cause for judicial interference; where assets are being realized upon and liabilities extinguished, and no settlement has been made, the cause of action has not accrued, and the statute has not begun to run. Of course, where the partnership expires in accordance with its terms, or is dissolved by agreement, each partner as a general rule has an equal right to the possession of the partnership property, and if they cannot agree as to the disposition and division of it, a court of equity will appoint a receiver to collect and apply the effects. Each partner has a right to have the partnership assets applied in liquidation of the partnership debts, and to have the surplus assets divided, and each may insist on a sale, and that nothing shall be done except with a view to wind up the concern. But in case of dissolution by death, surviving partners are invested with the exclusive right of possession and management of the whole partnership property and business, for the purpose of paying the partnership debts and disposing of the effects of the concern for the benefit of themselves and the estate of the deceased. Emerson v. Senter, 118 U.S. 1. If they go on with the business under the credit, and risking the effects of the firm, and profits result, they will be bound to account for those profits as belonging to the firm, and they are liable to be charged with interest on the funds they use, though no profit, or even a loss, is made. And so, upon dissolution by an assignment, the solvent partners are in equity entitled to hold the effects and property in the way that surviving partners do, and if they continue the business it is at their own peril, in the absence of special provision.

When the right of action accrues, so as to set the statute of limitations in motion, depends, as we have said, upon circumstances, and cannot be held as matter of law to arise at the date of the dissolution, or to be carried back by relation to that date. Todd v. Rafferty's Administrator, 30 N.J. Eq. (3 Stewart) 254; Partridge v. Wells, 30 N.J. Eq. 176; Prentice v. Elliott, 72 Georgia, 154; Hammond v. Hammond, 20 Georgia, 556; Massey v. Tingle, 29 Missouri, 437; McClung v. Capehart, 24 Minnesota, 17; Hendy v. March, 75 California, 566; Foster v. Rison, 17 Grattan, 321; Boggs v. Johnson, 26 W. Va. 821; Atwater v. Fowler, 1 Edw. Ch. 417. In Causler v. Wharton, 62 Alabama, 358, the court held that where one partner, by a written agreement with the other, left the partnership assets with him to dispose of, whenever he could do so at a fair price, a continuing trust was thereby created, and the bar of the statute of limitations would not begin to run against the right to an account of the partnership dealings, so long as the party to whom the assets were delivered acted under the trust or admitted that it was still continuing. Under the agreement here, it is obvious that it was Whitehill who was to close up the business at Arkansas City, which had been under his management; and under the averments of this bill such a trust was created as would not be barred by the statute of limitations until it was repudiated by Whitehill, which attitude on his part there is nothing here to disclose unless his defence to the bill may be construed as such.

In Adams v. Taylor, 14 Arkansas, 62, it was held that "the relation between copartners does not create such a trust as will exempt a bill for a mere account and settlement from the operation of the statute of limitations, or the analogous bar by lapse of time, or staleness of the demand." That was a case where a partner came into chancery eight years after the dissolution of the partnership, for an account and settlement, and no circumstances of fraud, accident or concealment were alleged to have prevented the settlement after the partnership affairs had been wound up. The question of when the right of action accrued did not arise, nor was that anything more than, as stated by the court, a bill for a mere account and settlement; whereas we have in this case the state of affairs which existed in McGuire v. Ramsey, 9 Arkansas, 518, where, with respect to real estate paid for with partnership funds, it was held that the plea of the statute could not be allowed in favor of one partner in possession of such real estate as against the other.

The case of Chouteau v. Barlow, 110 U.S. 238, is very much in point. Sanford, Chouteau, Sarpy and Sire were copartners in business in St. Louis. During its existence the partnership purchased and paid for with the partnership funds, acre lands and town lots in Wisconsin and Minnesota, and held the same for the benefit of the copartnership. The firm was dissolved in 1852 by the retirement of Sanford, and some twenty-four years thereafter his executor and trustee filed a bill against the representatives of the other members of the firm, who had all died, to compel an accounting touching the property of the partnership and the proceeds of such property. The dispute between the parties was as to the terms of the agreement of dissolution of the partnership in 1852. The complainants alleged that Sanford released to Chouteau all his interest in the estate of the firm, except its lands and town lots in Minnesota, and that Chouteau agreed to relieve Sanford from the debts of the firm and assure to him his proportion of the lands and town lots free from any debt or liability growing out of the copartnership affairs. The answer alleged that Chouteau agreed to relieve Sanford from the debts of the firm, and that Sanford released to Chouteau all his interest in the assets of the firm, including his interest in any of the lands and town lots in Minnesota; and further averred, by way of defence, that more than six years had elapsed since the accruing of any of the alleged causes of action set out in the bill. The opinion of the court thus concludes: "On the whole case, we are of opinion, that, after the dissolution of the St. Louis firm, the members other than Sanford were entitled to collect and dispose of all its assets, including the Minnesota `outfit' and the Minnesota lands, to liquidate its affairs, without the interference of Sanford; that all claim on their part against Sanford individually was relinquished, leaving recourse only to those assets; and that, if there should be any surplus of those assets, after paying the debts of the firm and the advances of any of the other partners therefor, Sanford's executors would be entitled to his proper proportion of such surplus. No judicial accounting has been had on the basis of the rights of the parties as we have defined them. The bill prays that the defendants may account touching the affairs and property of the copartnership and touching the proceeds of any such property. We think the plaintiffs are entitled to such an accounting, and are not barred from it by laches or by the operation of any statute of limitations."

In the case at bar, the business of Riddle, Coleman & Co. was finally wound up by the payment of its debts in full, to do which, as we understand the bill, coupled with the terms of the deed to the complainants, a public sale was had with the consent of the creditors, and the complainants purchased the interest in and the rights and claims against certain companies and individuals in the South, along the Mississippi River, including the interest and claims against Whitehill and the late firm of J.M. Whitehill & Co. This was within four years after Whitehill had disposed of the enumerated assets and made the lease of the coaling privilege, and within three years after the payment of the outstanding indebtedness, according to the amendment. Certainly Whitehill ought not to be allowed to complain that he was permitted to take his time in selling the stock of the concern to the best advantage; and it is clear, as the case stands at present, that the statute did not run as against the trust in the real estate conveyed to him or to J.M. Whitehill & Co., and purchased with the money of the firm.

The decree is reversed and the cause remanded with directions to allow the complainants to amend their bill, and for further proceedings in conformity with this opinion.