Ivy v. Walker

George, J.,

delivered the opinion of the court.

The parties to the controversy were partners in a general mercantile business, and on the sixth day of March, a. d. 1876, they owned a stock of goods worth at first cost about $2,200, and had outstanding and due them debts to the amount of $20,000, part of which was good and part worthless. The firm also owed debts, and among them a debt to plaintiff in error, Ivy, amounting to six or seven thousand dollars. On that day a sale of the stock of goods was made to one Morgan, at the invoice price ; and the question at issue in this case is whether the circumstances connected with said sale authorized the inference that Ivy, prior to the sale to Morgan, bought the interest of Walker in the goods for a specific sum, which was to be paid directly by Ivy to Walker. The evidence shows that a day or two before the said 6th of March, Ivy, and Morgan, the purchaser, had some negotiations about a sale of the stock to Morgan, in which Morgan proposed to take the stock at invoice price if he could sell to Ivy or the firm a tract of land at a price named by him, and which exceeded in amount the value of the goods. Ivy was unwilling to make the trade without the consent of Walker, and he mentioned to Walker the negotiations, and asked him if he was willing to take an interest in the laud. Walker said he was not. Ivy then said that the price demanded by Morgan for the land was high, and asked Walker if he was willing for him to take the stock of goods at ten per cent less than invoice price ; to which Walker assented. Ivy thereupon sold the stock to *259 Morgan and bought his land, paying him the balance, not settled by the stock, out of his private assets. Au invoice was taken, and amounted to about $2,200 ; and Ivy charged himself on the books of the firm with the amount, less ten per cent. The partnership affairs are still unsettled, there being both claims to collect and debts to pay. On March 5,' 1879, being three years, lacking only one day, after this sale, Walker commenced this action against Ivy for one-half the price of the goods. From the time of the sale to the beginning of the suit no demand was made by Walker for the price of the goods, nor was any claim made by him to Ivy that he was1 entitled to receive the one-half of the price of the goods as his individual right, disconnected from a settlement of the partnership accounts.

On this state of facts the jury found for the plaintiff; and, a' motion for a new trial being overruled, the cause is brought here for review.

We think the learned judge who presided in the court below erred in refusing a new trial, and also in some of the charges given at the instance of the plaintiff.

It is well settled that no action at law can be maintained by one partner against his associate for money arising out of and connected with partnership business, until there has been a settlement of the partnership accounts. This results from the principle that a partner’s interest in the partnership effects is not his aliquot part thereof, or of any particular portion of them, but is his proper share in the balance or surplus remaining after the payment of the partnership debts and after a settlement of the accounts between the several partners.' A debt due by the firm to oue of the partners is a partnership liability, and must be paid, like other debts, before a division of the surplus among the partners can been forced by judicial proceedings. The remedy of a partner to reach this surplus Avhere no settlement of the accounts has taken place, is by bill in equity.

This is the general rule, but there is an exception to it Avhich *260 allows one partner to sue another at law for a balance found due by the defendant to the plaintiff on a partial settlement between them, or for a sum which one partner undertakes to pay to the other (not to the firm) upon a transaction between them concerning property which was once partnership assets, but which they have separated from the society effects. There is nothing in the mere relatiou of partners which prevents one from suing another at law ; the inability grows out of the subject-matter of the suit involving the settlement of the rights of partners in the firm assets, which a court of law is incompetent to make. This exception is well stated by Parsons (Pars, on Part., side p. 282) thus : “As it is perfectly well settled that a partner may sue his copartner on a cause which never pertained to the partnership, it seems quite as certain that he shall have his action for a cause which he can show to have been cut out from the partnership by himself and his partners jointly, and to be as completely separated from it as if there had never been any connection between them.” It must be shown that the partners have clearly and distinctly separated the property on which the action is based from the partnership effects, and that they have agreed to treat and consider it as insulated from the partnership business.

The transaction in controversy here does not come within this exception. It was but a sale by the partners, both consenting, to one of them, who by the purchase became a debtor to the firm, and not to the other partner separately and as an individual. There is nothing to suggest that the partners intended to separate the proceeds of the sale from the partnership effects or the firm accounts. There was no sale of the separate interest of Walker to Ivy, and no promise by the latter to the former to pay hiqi separately the price of the goods, or any part of it.' On the contrary, all the circumstances point to the opposite conclusion. The sale was of the whole stock to one of the partners, who, through the purchase, became the separate owner by the transfer to him of the title of the firm. There was no express promise to pay for the goods, *261 but the law implied a promise to pay the value to the owner and seller, which was the firm, and not to Walker, one of the partners. The firm also was in debt, and Ivv was a large creditor. He had a lien in equity on the goods and on their proceeds, to secure the payment of all the debts due by the firm, including his own; and he ought not to be held to have waived or surrendered this seeurhy unless the proof shows that he intended to do so, or that a waiver was the necessary result of the transaction. He entered the proceeds of the sale on the books of the firm to its credit, and to his debit. Walker, though he did not have possession of the books, had the power and the right to inspect them, and must be held to have had notice of this entry. The matter thus stood for three years without any objection on the part of Walker, or demand made for the payment of his alleged share of the money. This long acquiescence without complaint removes all doubt, if any existed, as to the nature of the transaction, and, with the other circumstances, renders it certain that there was no separation of the goods and their proceeds from the partnership effects. There was, therefore, no evidence to sustain the verdict.

The first charge given for the.plaintiff is erroneous, because there is no evidence which tends to show that Ivy agreed to pay Walker individually a certain sum for his share in the goods. The third charge is erroneous for the same reason.

Judgment reversed and a new trial granted.