Dovey v. Dovey

146 N.W. 923, 95 Neb. 624, 1914 Neb. LEXIS 252

• Court: Nebraska Supreme Court
• Decided: April 3, 1914
• Docket: No. 17,694
• Status: Published

Opinions

Barnes, J.

Tbis is an action to recover $7,500 in money paid to tbe defendant Oliver 0. Dovey, and for tbe return and cancelation of certain notes, and a mortgage given to secure tbe same, delivered to him, on the ground that they were obtained by duress. The issues were made up, and a trial to tbe district court for Douglas county resulted in a judgment for the defendant, and the plaintiffs have brought the case to this court by an appeal.

The evidence discloses that George E. Dovey and his father, E. G. Dovey, as equal partners, entered into a co-partnership in 1876, under the firm name of E. G. Dovey & Son, at Plattsmouth, Nebraska, and the partnership continued until the death of E. G. Dovey on February 1, 1881. It is conceded that at that time the net value of the partnership assets was $52,092.12, one-half of which belonged to the plaintiff, George E. Dovey, to wit, $26,016.21. In 1881 E. G. Dovey died intestate, leaving three sons, George E., Horatio N., and Oliver 0. Dovey, and his widow, Mrs. 0. Dovey. Each of the sons and the widow then became the owner of an undivided one-fourth im the one-half interest in the business which had belonged to E. G. Dovey, amounting to $6,511.55 each; George owning the other half interest in addition thereto. These facts are undisputed. It was alleged in the petition that after the death of E. G. Dovey the business was carried on under the same name as before, until September 22, 1909, when Oliver withdrew from the firm, and that at that time the total net assets amounted to $112,796.56; that during this whole period none of the parties placed any additional money or property in the business, and that no division of profits nor dividends were declared. The amount withdrawn by each was then set forth. It was then alleged that, when Oliver desired to withdraw, the parties were unable to agree; that Oliver employed counsel, and insisted upon the employment of an accountant to examine ¡the books. On recommendation of Oliver and his attorney, an accountant was selected, who acted under the advice of Oliver and his attorney, and presented different statements, which were all inaccurate, unjust and erroneous, and were so indefinite and uncertain that the plaintiffs, did not understand the same, and were imposed upon and deceived thereby; that Oliver demanded that plaintiffs should pay him $50,000 for his partnership interest in the business, which demand was accompanied by a threat that, if the same was pot paid, immediate application would be made to the court for the appointment of a receiver; that as a part of the assets of the business the firm owned and held a majority of the stock of the First National Bank of Platts- ■ mouth, and that plaintiffs believed that if a receiver was appointed for the business it would produce a run upon the bank, which would ruin both the banking and the mercantile business, and bring disaster to the depositors; that plaintiffs were placed in great mental distress and agony by the threat, were deprived of their free will and judgment, and in order to prevent the appointment of a receiver they, solely by reason of the duress, paid Oliver $7,500 in cash, and gave him their notes and other assets, amounting in all to $50,000.

The answer alleged that after the death of E. G. Dovey the assets were taken over by a new firm composed of Oliver, George and Horatio as equal partners; that, in addition to one-half interest in the firm, E. G. Dovey left about $50,000 worth of other property which was taken over by the partnership and treated as personal property. Positive denial is made that the selection of the accountant was made by Oliver or his attorney; that he was partial or unfair ; or that any threats were mhde or duress suffered. It was also alleged that Oliver’s interest which he offered to sell for $50,000 was conceded to be worth $52,276.76, when taking good-will into account, and that this offer was a fair compromise of the firm affairs; that Oliver had determined, on failure of an amicable adjustment, to. bring suit for dissolution and receivership, and so told plaintiffs, but this was not intended or understood as a threat, but as a matter of prudence and good judgment, and that the settlement was reached by the plaintiffs after a thorough investigation and conference with their attorneys; that plaintiffs took possession of the business on December 22, 1909, and have been in control thereof ever since; that defendant has incurred other obligations and liabilities on the assumption that the notes would be paid, and that plaintiffs have been guilty of laches, and are now estopped from disputing the validity of the settlement.

On the trial, after both parties had rested, the court rendered a tentative or interlocutory opinion, finding that the evidence showed that an agreement was made about July 22,1885, between the parties that they should become equal partners in the business; that Mrs. Dovey was at no time regarded as a partner in the firm, but that the money and property which went into the business belonged to her as an interest-bearing loan; that the peculiar situation with respect to the bank placed plaintiffs’ minds in such a condition that the threatened appointment of a receiver amounted to duress, in order to be relieved from which they executed the settlement. Having found that the partnership was actually formed in 1885, and not in 1881 as alleged, the court gave the parties leave to amend their pleadings to correspond .with the facts. Plaintiffs asked, and were given, leave to file an amended reply settixxg forth the assets as they claimed them to be on July 22, 1885. Additional evidence was taken with respect to the condition of the books and the assets, and at the conclusion of the testimony the district court handed down a further- opixiion, in which he held substantially that it was the duty of plaintiffs to put the bank and tlxe depositors out of the reach of danger which might arise from the affairs of E. G. Dovey & Son, and that a r-escission would have the effect to place defendant as he was before the transaction took place, and the plaintiffs would find themselves in the same predicament as to the bank, with the same right on the part of Oliver .to proceed. Plaintiffs were also held to be estopped from opening up the transaction, and the actioxx was dismissed for want of equity.

While the pleadings are based upon the idea that the firm was dissolved upon the death of E. G. Dovey, the evidence is clear that what actually took place was that the business was carried on in the same manner as before, uxxtil July, 1885. At the time that E. G. Dovey died, Oliver was about 20 years old, and had been working in the store several years, and Horatio was about 17 years of age. He had been attending school at Nebraska C'ity, had come home, and a short time afterwards in 1881, or early in 1882, he went into the First National Bank as a clerk. At that time the firm hall only a few shares in the bank, which was practically owned and controlled by other parties. Horatio continued to work in the bank as a clerk until about the time he became of age, which seems to have been early in 1885. According to the testimony of Oliver and Horatio, in July, 1885, Horatio was dissatisfied and was about to go away, and it was then agreed between the three brothers that, if Horatio would not leave, but would take part in the business, the three brothers should become equal partners. Oliver surrendered or gave up his claim to the portion of his salary as a clerk, not withdrawn by him, which at that time would, as he testified, amount to about $8,200. This agreement is denied by George, but the circumstances surrounding the transaction seem to establish the story told by Oliver and Horatio.

It appears that from the date of E. G. Dovey’s death until 1885 the business was conducted by George and Oliver, and, as. far as the evidence shows, it was carried on identically as before, except for the lack of the father’s services. Plaintiffs contend that George’s five-eighths interest in the business became profit-sharing pro rata on the death of E. G. Dovey, and we are of the same opinion. They also contend that this continued until the settlement of 1909, while we take .the view that, under the contract or agreement of 1885, the profits were thereafter to be equally divided by the three brothers1; that, while George owned an excess of -capital, Oliver and Horatio contributed the services of two men against his; and that the withdrawal of one-fourth of the capital, then In the business, and the payment of one-half of the amount due upon the stock account which these brothers would be entitled. to demand and receive had they insisted on withdrawing their capital, would probably have dealt such a blow to the business that George would have been left seriously crippled. Can it therefore be said that his offer to divide the profits equally was not dictated by sound business judgment? The half interest of George, then, was profit-sharing, so also was the fha.lf interest belonging to the estate. Oliver testified that he was receiving a salary of $50 a month (George says $40' or $50) before his father’s death. When the new arrangement was made it would seem his salary ceased, and no charge was made for his services thereafter. The testimony shows that Mrs. Dovey’s capital was treated as an interest-bearing investment from that time on, and, since no one is objecting, it will be so considered. A peculiar feature of the firm’s transactions was that before the death of E. G. Dovey the proceeds of the sale of real and personal property which he owned, aside from his interest in the business, was paid into the firm and used by it in its business. It further appears that an account was kept, called the “stock account,” in which all such sums were credited. At the time of Mr. Dovey’s death, in 1881, there Ava,s a credit of $27,979.19 in that account. In one part of his testimony George claimed that about $10,000 of this account belonged to him. But he afterwards testified that the whole stock account belonged to the firm and was so credited, one-fourth to each of the heirs of his father’s estate. This $27',979.19 was ¡therefore a debt owing by the partnership to the estate of which George was the administrator. But it is not shown that he ever accounted for any property received by him as administrator from the time of his father’s death. Property of the estate, both real and personal, continued to be sold, and the proceeds placed in the stock account. It appears that two expert accountants have attempted to ascertain what the books of the firm shoAV, and they have submitted six different statements, which are utterly confusing and irreconcilable; and in the estimates following exact accuracy is not sought for, but the figures are taken from data made by George, or under his direction, before any confroArersy arose between the members of the firm.

• It appears that ,in 1885, when the new arrangement was made, the assets of the firm, were $241,667.02, with liabilities amounting to $89,728.63. This left a net balance of $151,938.39, which was the amount of capital then invested in the concern, and of this capital the estate had a credit of $61,042.48; while the remainder of the capital, less the original amount contributed by Oliver, belonged to George. From 1885 to tbe time of the settlement in 1909 the firm was very prosperous. It made large profits., and from those profits George had withdrawn $119,271.35, Horatio had withdrawn $76,859.88, while Oliver had only withdrawn $63,419.96. Each of the brothers had invested in a home and paid for the same out of the proceeds of the business. George had so invested $10,463.14, Horatio $6,076, and Oliver had invested $7,471.64. These amounts, added to the other withdrawals of the members of the firm, left the withdrawal account as follows: George $129,734.49, Horatio $82,935.88, and Oliver $70,891.60. It thus appears that George had benefited by withdrawals of all kinds, including the payment for his house, to the amount of $58,-842.89 more than his brother Oliver; and the only way in which George ever accounted to his brothers for the assets, of all kinds that came into his hands, of the estate of their deceased father was to turn them over to the partnership for the use in the business from 1881 to 1909, without allowing any interest on the amounts or any .share in the profits at the end of the period. By his own ¡act, without the request or agreement of his brother, George assumed to dispose of all of that interest by crediting his mother and brothers each a one-fourth interest of that accumulation. If the business grew from 1881 to 1885, and from 1885 to 1909, a large part of its growth was due to the fact that its assets were augmented by the proceeds of the estate of E. G. Dovey. It will not do to say that the three brothers and their mother were making withdrawals from the partnership, and that those withdrawals in time exceeded the amount of the assets in the hands of the firm belonging to the estate. It is George’s claim that if he be allowed interest at 7 per cent, on the amount of his investment for 24 years, or if it is to be treated as profit-sharing to the extent of his entire five-eighths interest, in either case he has absorbed the entire business, leaving nothing to Oliver. He does not explain in these statements that his method of accounting would produce the same fatal result as to his brother Horatio, would likewise extinguish his interest, and make George the exclusive and sole owner of all of the assets as they existed on September 22, 1909:

We think it fairly appears that on the death of E. G. Dovey in July, 1881, the firm of E. G. Dovey & Son was thereby dissolved; that the control of the assets of the firm passed into the hands of the surviving partner, whose sole duty would have been to wind up the business and pay over to a representative of the estate, for distribution among- the distributees, the share belonging to E. G. Dovey in his lifetime. It appears, however, that this winding up process did not take place, but the business was. in fact conducted for 37 years thereafter by the surviving partner and two of the heirs of the estate. The business must have been so conducted under a new partnership agreement made after the death of the former partner, either express between the parties, or implied by their actions. It follows that the three partners were to share equally in the profits and losses, and that neither the excess contribution of capital by the one, nor the greater contribution of skill or services by another, would justify any change in the rule of equal participation in profits and losses. The rule thus announced is supported by the following authorities: 30 Cyc. 451, note 63; Collier, Partnership, secs. 308-313; Lindley, Partnership, p. 857; Paul v. Cullum, 132 U. S. 539; Jacobson v. McCullough, 113 Minn. 332. Partners are not entitled to interest on their respective capital unless there is some agreement to that effect. Such, an agreement may be inferred if they have been in the habit of charging such interest in their accounts; but, in the absence of any evidence on that question, they are not entitled to interest. Even when one partner has brought in his stipulated capital, and the other has not, the former will not be entitled to interest on the winding up of the partnership, if it has not been previously allowed and charged in the accounts of the firm; and, where a person has been paid for services by a share of the profits, interest on capital cannot be charged against him unless there is some agreement to that effect. Lindley, Partnership, p. 423. The same rule is laid down in 2 Bates, Partnership', sec. 781, and in the following cases: Griggs v. Clark, 23 Cal. 427; Taylor v. Coffing, 18 Ill. 422; Whitcomb v. Converse, 119 Mass. 38; Caldwell v. Leiber, 7 Paige Ch. (N. Y.) 483; Ratzer v. Ratzer, 28 N. J. Eq. 136. In the case last cited, it was said: “In the absence of any agreement as to the interests of the partners, a partnership' is presumed to have been carried on for the joint interest of the partners, and each is entitled to an equal share of the profits with the others.” In Miller v. Hale, 96 Mo. App. 427, it was said: “The law is that .as between themselves, the contract of partnership being silent, partners are entitled to share equally in the compensation for their labor. The courts decline to look into the question of which performed the more onerous duties, and whether one was more skilful or more industrious than the other. An adjustment of that nature is not demanded by the nature of the contractual association and would often prove to be impractical.” In Robinson v. Simmons, 146 Mass. 167, the following rule was announced: “As a general rule, where a surviving partner continues to use the capital of a deceased partner in the business, the representatives of the latter, in the absence of any agreement to the contrary, have the election to demand either interest on the capital used or the profits earned by its use, the latter being accretions to the fund owned by them. There is, however, no inflexible rule gov-' erning all cases, but each case depends upon its own circumstances and equities.” '

As we view the evidence, Oliver C. Dovey, at the time when the dissolution took place in 1909, had an interest in the firm amounting to at least $45,000, and, taking into consideration the good-will of the business which had been successfully conducted for more than 30 years, the consideration of $50,000 for his withdrawal from the firm cannot be said to be unjust or unreasonable.

Again, the plaintiffs have wholly failed to rescind or seek a rescission of the settlement of September 22, 1909, and have neglected and refused, and still neglect- and refuse, to surrender or offer to surrender any part of the consideration which they have received for the cash and notes given by them to Oliver in the settlement. Under such circumstances it is evident that the lower court found no serious difficulty in applying to this case the well-known rule of law that before a party dissatisfied with a transaction on account of alleged fraud or duress can institute a proceeding to rescind his contract, he must promptly disclaim the benefits of the transaction whenever he discovers the fraud, or when duress has been withdrawn. He must abide by that attitude throughout, and refuse to take any benefit from the consideration moving to him, and a failure to do so bars him from' the equitable remedy of rescission.

The evidence in this case shows that, at the time the plaintiff Horatio Dovey signed the notes, he believed Oliver to be a one-third partner in the business, and he knew that Oliver’s interests must be the same as his own, except as they might have differed in their withdrawals, and Horatio’s withdrawals were the greater. In the negotiations relating to the settlement, he made no claim of any different status. As a result of the settlement Horatio became the owner of four-tenths of the assets of the partnership, and he admitted frankly on the witness-stand that if'he does not pay the notes in question he will be getting that four-tenths for nothing. George Dovey claims that Oliver had no interest in the business at the time of the settlement; that he never had more than one-eighth of an interest in the business, and never had acquired any more, and never was a third partner in the profits. The evidence also shows that at the moment George Dovey signed the notes in question he intended to repudiate them, and also intended to keep the profits of the transaction. It is well settled that in case of fraud the plaintiff, on the discovery of it, must move promptly, and any unreasonable delay in declaring a rescission, any equivocal attitude, any use or enjoyment of the fruits of the contract, settlement or deed which he challenges, would bar his right of action. Gallagher v. O’Neill, 78 Neb. 671; American Building & Loan Ass’n v. Rainbolt, 48 Neb. 434; Building & Loan Ass’n v. Cameron, 48 Neb. 124; Hawley v. Von Lanken, 75 Neb. 597.

•In tbe case at bar we have seen that tbe plaintiffs received from Oliver Dovey tbe formal conveyance of a legal title of real estate, which legal title unquestionably rested in him by the statute of descent, and could only be taken from him without his consent by a formal suit for a dissolution of the firm, by a decree therein finding that upon a full' settlement of the accounts of the partnership he was entitled to no interest therein, and that he was bound in equity to convey the property. Moreover, plaintiffs received a bill of sale transferring to them all the interest of Oliver Dovey in the partnership other than the real estate, consisting of a stock of merchandise and a large list of' book accounts, and necessarily including an interest in the good-will of a profitable business firm which had been in existence in Plattsmouth for more than a third of a century. The plaintiffs retained these things, and not only do they retain and enjoy the property which they got for the notes in question but they also retain an equally valuable right which they never offered to restore to the defendant, to wit, his agreement for a dissolution of the partnership and a surrender of all interest therein, including his right to bring an action for a dissolution and an accounting. All these matters were taken into account by the trial court and considered by him when he rendered his decree dismissing the plaintiffs’ action.

After a careful examination of the record, we are not convinced that the finding and judgment of the district court was wrong, and it is therefore

Affirmed.

Reese, C. J., not sitting.