Leach v. Leach

Wilde J.

delivered the opinion of the Court. Among other stipulations in the indenture between Thomas and James Leach, it was agreed, that at the expiration of the partnership James should take a full and just account in writing of the stock then remaining in the trade, and of the expenses and profits thereof, and should then deliver up to Thomas, his executors, administrators or assigns, for his or their use and benefit, all the stock then remaining, to the value of twenty thousand dollars, losses by bad debts, decay of goods, and inevitable accidents excepted.

On this stipulation several questions have been raised, and at a former hearing the plaintiffs offered evidence explanatory of the true meaning of the parties, and to show that the written agreement was erroneously drafted by mistake of the attorney who drew the same, if its true construction be such as is contended for by the defendant’s counsel. This evidence was deemed inadmissible and was rejected. It has been argued by die plaintiffs’ counsel, that it ought to have been admitted, on the ground that a party is entitled in a court of equity, to relief on account of an omission or plain mistake in a contract in writing, and that upon clear and satisfactory proof the court will rectify or reform the contract.

The power of a court of equity to reform or rectify contracts, however important and useful it may be in the administration of justice, is clearly not within the limited jurisdiction of this Court. The question was very ably argued, and fully considered, in the case of Dwight v. Pomeroy & al. 17 Mass. R. 303, which is a decisive authority against the admission of paroi evidence in the present case.

The plaintiffs’ counsel have attempted to distinguish the two cases, but we can perceive no distinction as to the rules of evidence, and the right of the Court to interfere by rectifying a written contract. It has been said that the Court has unlimited chancery jurisdiction in regard to all disputes between co-partners. This is true, but so also had the Court unlimited chancery jurisdiction as to all trusts arising under deeds, which was the subject matter of dispute in Dwight v. Pomeroy & al. The power of rectifying written contracts on paroi proof, belongs to a distinct head of chancery jurisdiction, which the legislature has not confided to this Court. So far, therefore, as the matters in dispute between the parties relate to the terms of the partnership, they must be decided according to the construction to be given to the written agreement.

The first question in this respect is, upon which of the parties the losses by bad debts are to fall ; whether they are to be deducted from the profits, or the capital stock belonging to the plaintiffs. The defendant’s counsel contend that the agreement is express, that “ all losses by bad debts, decay of goods, and inevitable accidents ” are to be deducted from the capital stock of $ 20,000. This is undoubtedly the literal construcion of one of the articles of partnership ; but in order to ascertain the intention of the parties, the whole agreement must be taken into consideration, and such a construction must be adopted, if it may be, as will render the various parts consistent with each other. Now, by another of the articles of partnership it was agreed, that all rents, taxes and expenses should be paid out of the profits of the trade ; that the defendant should keep up, and continue the stock at its quality and value as the same was received by him ; and should pay to the testator one full and just half part of all the residue of the profits of the said trade, after deducting expenses, &c. and should retain for his own use. and benefit the remainder of all said profits, as and for a full and entire recompense for his care, trouble and labor in the management of the said trade. By this article of the agreement the plaintiffs are clearly entitled to one half of the profits in addition to the capital stock, which was to be kept up to its original value. Both parties were to share the profits equally, and no profits were to be shared by either party unless the capital stock could be kept up to its original value with a surplus remaining ; for unless there was a surplus, there could be no profits.

Now it is clear, that this stipulation is altogether inconsist ent with the defendant’s construction of the other stipulation in regard to bad debts. For if the plaintiffs are to bear the whole loss of the bad debts, the profits will not be equally divided. The profits and the surplus over $20,000 are identical, and in this surplus the parties are to share equally. If there were no surplus except the bad debts, there would be no profits. The defendant claims one half of the nominal profits ; but if he is entitled to half of the nominal profit s, l:e must receive his pay in nominal debts, in the same proportion that the plaintiffs are to receive their share. The actual profits are to be now divided equally, and if any of the debts now supposed to be bad should be available, a further division of profits may be made. The clou e in the agreement lelied on by the defendant, may be construed consistently with this construction of the other parts of the agreement ; and it ought, we think, to be so construed. The defendant stipulated, at the determination of the partnership to deliver up to the testator, his executors, administrators or assigns, all the stock then remaining, to the value of $20,000, “ losses by bad debts, decay of goods, and inevitable accidents excepted.” This exception would have applied if the capital stock had been reduced below $20,000, but as the capital stock was to be kept up.to that value before any profits were to be divided, and as it has been so kept up, and a large surplus remains, the exception as tc bad debts, decay of goods, and inevitable accidents, has no application to the present rights of the parties ; for the capital stock has not been reduced. We are of opinion, therefore, that the plaintiffs are entitled to receive the capital stock to the amount of $ 20,000, and their share of the profits ; and it remains to be considered in what manner distribution is to be made.

The plaintiffs claim to be entitled to have the whole partnership effects sold, and that a distribution of the proceeds should be made in money. This claim would be well founded if there had been no stipulation between the parties as to the mode and manner of winding up the concern. But the partners had an unrestricted right to stipulate, by the articles of partnership, in what manner the partnership effects should be disposed of, at the dissolution of the partnership ; and whatever course was agreed upon, it must form the basis of the settlement between the representatives of the deceased and surviving partner. Gow, 430.

In the case of Cook v. Collingridge, 1 Jacob, 607, cited by the plaintiffs’ counsel, where articles of partnership provided that upon its expiration, the s.tock in trade should be divided, received and taken by the partners according to their interests, it was held, that as the articles could not be carried into execution literally, the settlement should be made by a sale and division of the whole. This decision is not opposed to the general principle, that stipulations of this kind are valid and binding, but is founded on the difficulty and impracticability, from the situation of the property, of executing the agreement of the parties in that case. The validity of such stipulations, if the execution of them be practicable, cannot be questioned, and there is no difficulty in executing the agreement of the partners in the present case.

By the articles of partnership the defendant was bound to deliver to the testator, his executors, administrators, or assigns, at the expiration of the partnership, all the stock remaining, to the amount of $ 20,000 ; but this obligation was modified by the testator’s will, under which the defendant had a right to -etain the greatest part of the property in trust, to be managed by him, according to his' discretion, for the best advantage of the minor children. But he was bound to deliver over to the widow and to Mary Ann Leach their portions of the stock, at the expiration of the partnership, and the residue to hold in trust under the will. The defendant, however, contends that the plaintiffs are bound to take the goods at costs, and not on a just valuation, because the stock was originally estimated at costs, and was not appraised. But the contract is express, that the goods to be delivered over are to be of the value of $20,000. If the stock was received at costs, the presumption is that it was of equal value, but it would not follow that the stock remaining unsold at the end of five years would be in value equal to the costs.

The widow, by the will, is to receive her portion of the goods at costs, but this provision in the will does not affect the defendant’s liability upon the contract, but directs only the apportionment between the widow and the children. The defendant is bound to set apart goods to the value of $ 20,000, to be divided between them as directed by the will, and it is immaterial to him how the apportionment between them is to be made.

One other question only remains to be considered. It is charged in the bill, and admitted by the answer, that during the continuance of the partnership the defendant took a new lease, in his own name, of the store in which the partnership business was transacted, for a term of years extending beyond the term of the copartnership, and the plaintiffs claim that the defendant shall be held to account for the profits, if any there be, arising from this new lease. This claim, we think, is well founded. The renewed lease formed a part of the partnership property at the time of the dissolution of the partnership. It was so decided, and we think on sound principles, in the case of Featherstonhaugh v. Fenwick, 17 Ves. 298. It is there said, that one partner cannot treat privately, and behind the backs of his copartners, for the lease of the premises where the joini trade is carried on, for his own individual benefit. If he does so treat, and obtains a lease in his own name, it is a trust for the partnership. If then the new lease was of any value, beyond the amount of the rent reserved,' we think the defendant is bound to account therefor.

Referred to a master.