OTERI V. SCALZO. 517.26, after deducting an outstanding liability The-e statements showed cash on hand $3,of $140, and uncollected assets to the amount of $5,029.39, including the note of one Zuccas for $2,320.75; expenses, $3,542.98, and other items of profit and loss, resulting in a loss of $2,658.74. Oteri was credited with $5,000 and a cash item of $74 61, and debited with cash drawn, $1,465.07; one third of loss, $886.24; one third of assets uncollected, $1,676.46; and a balance of cash due him of $1,046.84. ing and refusing to carry on the contract of co-ship funds were invested, and alleged that 578-593 partnership. Complainants further set up books of accounts were kept which were always misconduct as to a cargo, in respect of which open to the examination of complainants, and defendant declined to attend to the interests of be aunexed the last trial balance from the the firm, and involved complainants in loss and books; a statement of the assets and liabilities damage to the consignors in a large sum, as of the firm; a statement of the profit and loss they were obliged to protect the consignment account; and a statement of what was due to and save themselves from further loss. the pro- each partner, all as of the first day of June, ceeds being paid over to Oteri for the benefit of 1885. the consignor. Complainants charged that 1885, and for a long time prior thereto, he had Defendant averred that since June 1, they were ignorant as to the partnership affairs; transacted no business for the firm on account that defendant declined to give any knowledge of complainants having sued for a dissolution of or concerning the same; that defendant had February 4, 1885; and he alleged that the stateconverted the funds of complainants to his own ments annexed correctly exhibited the state of use, and had not held the same to the credit of the affairs of the firm at their date. the partnership; and that the capital should be deemed to be taken as a part of the assets of the partnership liable to the claims of the creditors thereof, if any existed, or be refunded to complainants with interest, if there were no creditors Complainants then prayed as follows: 1. That a receiver may be appointed to take charge of all partnership books and papers and accounts, goods and effects, and to collect the debts due thereto, and to preserve and dispose of the same under the direction of the court. 2. That said Joseph Oteri may be required to bring into this court, to be deposited to the credit of this cause, the aforesaid sum of fifteen thousand dollars and such other sum as may be in his hands arising from profits thereof or thereon, either in the business of said copartnership (if any) or from the use thereof by said Joseph Oteri. 3. That the said Joseph Oteri may by injunction be restrained from using the name of said copartnership, negotiating any bill or note in said copartnership name, or contracting any debt whatsoever on account thereof, or in any manner intermed-signed by the parties and stating that they ap The act of copartnership was annexed, dling therewith. 4. That said partnership peared before a notary public, and "declared may be decreed to be dissolved as if the same that they hereby agree to enter into a coparthad never been made, by reason of the acts of nership for the purpose of carrying on a a gensaid defendant; that an account of its business eral commission business and the importation may be taken under the direction of this court, of fruit from Europe and for all matters and and that its legal liabilities may be paid and things thereto appertaining under the followcharged against the said Joseph Oteri, and that ing stipulations and conditions, to wit: the capital of your orators, with interest, restored to them in the premises or otherwise at the discretion of the court;" and for general relief. Defendant filed a general demurrer, which was overruled by the court, and thereupon filed [582] his answer, to which was attached a certified copy of the partnership act. Defendant admitted that Scalzo, Di Christina and himself went to Europe in furtherance of the partnership business, but denied that Scalzo was authorized to make contracts, and averred that if he made any they were unauthorized by the firm, and not binding upon it or the defendant. He denied refusing to accept consignments coming to the firm, except that he refused to recognize or to be bound by a contract made by Scalzo with his brother in Sicily to ship fruit to the firm, which contract Scalzo had no right or authority to make; and denied that he wrote to Italy as alleged, or that monthly balances had not been furnished, or that he had vilified and traduced complainants, or converted their money, or involved them in loss and damage in respect of the sale of a particular cargo. Defendant also denied that complainants were not aware of how the partner145 U. S. $1,026.93; and charged with cash drawn, $2,- with $5,000 and a cash item of $15; and under the firm name of Joseph Oteri & Co., is partnership consists of a sum of fifteen thous- and Scalzo, and the remaining five thousand capital should be needed at any time during that said Oteri shall be the manager of said firm and as such have the exclusive control and | direction of its affairs, as also of signing all documents of whatsoever nature or kind, with [584] out any exception or reservation whatsoever, pertaining to the business of the said firm and be, as he is, alone entitled to sign the name of said firm on all checks, bills of exchange, acceptances, bills of lading, promissory notes or other obligations of said firm; aud that in the event of any other partner or partners infringing or violating this agreement by sending any orders to Europe or elsewhere or by signing any other documents whatsoever, then, and in such an event, the interest of the defaulting partner or partners shall at once cease and determine. "Fourth. That said Oteri shall, or he is hereby empowered to, delegate all or part of his powers herein by power of attorney to one or more persons wherever in his judgment he shall deem the same expedient. "Fifth. Books of accounts shall be kept in which all the dealings and transactions of said firm shall be entered from day to day and fairly written, from which trial balances shall be taken monthly and a final balance at the end of each year, which books shall be kept at all times open to the inspection of all parties in interest. "Sixth. All profits, gains, and increases arising or accruing from said business and all losses, charges, and expenses whatsoever incidental thereto shall be shared and divided and borne out and paid by the parties hereto in the proportions of one third to each of said Otero and Scalzo and the remaining one third to said firm of Randazzo and Di Christina. "It is furthermore hereby agreed that neither the capital invested in said partnership nor the profits arising therefrom shall be withdrawn by said copartners during the continuance of this contract, save and except that each of said partners shall have the right of withdrawing at the end of each business year one half of his share in the profits of the concern. "It is furthermore agreed that in addition to the interest of said Antonio Di Christina as a member of said firm of Randazzo and Di Christina herein he shall be entitled to and receive out of the net profits of the business of said firm of Joseph Öteri & Co., at the end of each of its business years two per cent as an extra compensation for services to be rendered [585] by him to the business of said firm. "Seventh. In the event of the death of either of said Oteri and Scalzo or both said Randazzo and Di Christina the partnership shall by the fact at once be dissolved, and the remaining partner or partners allowed four months from the time of such dissolution to liquidate the affairs of the concern." lating to the partnership, those arising in ref- The master further found that the evidence tinuing uninterrupted from 1st July, 1884, to the 2d Feb'y, 1885, at which date Oteri was called to answer in the state court the suit of his copartners for its dissolution; that from the 20 Feb'y, 1885, Oteri had no authority to enter into any new engagements for, or on behalf of his copartners, but it remained his duty to conduct to conclusion all obligations and contracts made or commenced before that date." [587] The master was satisfied from the evidence that no amicable adjustment of the partnership could or would have been made by the partners, but that a suit was necessary to settle their affairs, and recommended that the costs be equally divided between the three. To this report elaborate exceptions were filed, which were considered by the master and overruled. Randazzo and Di Christina subsequently assigned to Scalzo all their right and interest in the suit. The case having been heard on the exceptions to the master's report, it was decreed "that the complainant Vincenzo Scalzo, for himself and as subrogee of the other complainants, the firm of Randazzo & Di Christina, do have and recover of and from the defendant, Joseph Oteri, the sum of ten thousand dollars ($10,000), the amount put in the partnership by said complainants, less of $2,538 32, expended in the interest of the partnership, with legal interest, to wit, 5% per annum, thereon from the date of judicial demand, June 11, 1885, until paid; that the other exceptions be overruled, and in other respects that the master's report be approved and confirmed. It is further ordered, adjudged, and decreed that the complainants' bill of complaint be dismissed without prejudice to their right in some other form of action, as they may be advised, to prosecute the matter of defamation of charac ter set forth in the bill of complaint. It is further ordered, adjudged, and decreed that the costs be paid by the defendant." A motion for rehearing was made and argued and a rehearing refused, and the case brought up on appeal. Messrs. Joseph P. Hornor and Guy M. Hornor, for appellant: Plaintiffs have their action at law, "for money had and received," or damages for the non fulfillment of the contract of partnership by the defendant. Scott v. Rayment, L. R. 7 Eq. 114; Hercy v. Birch, 9 Ves. Jr. 357, Sumn. ed. note p. 360; Downs v. Collins, 6 Hare, 418; Gale v. Leckie, 2 Stark. 107; Morrow v. Saunders, 1 Brod. & B 318; Vivers v. Tuck, 1 Moore P. C. N. S. 525. A reference by consent of parties, of an entire case for the determination of all its issues, is to be governed by the ordinary rules applicable to the administration of justice. The findings, are to be taken as presumptively correct, subject, to be reviewed when there has been manifest error in the consideration given to the evidence, or in the application of the law, but not otherwise. Kimberly v. Arms, 129 U. S. 524 (32: 769); Keep v. Fuller, 42 Fed. Rep. 897. The conclusions of the master, depending upon the weighing of conflicting testimony, have every reasonable presumption in their favor, and are not to be set aside or modified | unless there clearly appears to have been error or mistake on his part. Callaghan v. Myers, 128 U. S. 617 (32: 547). The decree is erroneous, in that the court has failed to give any reasons for se ting aside the master's report, and finding defendant liable in so large a sum of money without referring to any mistake or error committed by the master. Harding v. Handy, 24 U. S. 11 Wheat. 126 (6: 436); Stanton v. Alabama & C. R. Co. 2 Woods, 507. Following the order of this court in the case of Kimberly v. Arms, 129 U. S. 530 (32: 770); the decree in this cause should be reversed, and the cause remanded, with directions to confirm the report of the special master. Messrs. Charles W. Hornor and George A. King, for appellee: This series of frauds by Oteri on his partners gave rise to this suit for a rescission of the contract of partnership. Complainants have a right to a rescission. Mycock v. Beatson, L. R. 13 Ch. Div. 384; Stoughton v. Lynch, 1 Johns. Ch. 467, 1 L. ed. 211; Gridley v. Conner, 2 La. Ann. 87; 3 Keut, Com. 41-44; Story, Parin. (7th ed.) § 173, 233; Collyer, Partn. § 240, and cases cited and commented; Pilians v. Harkness, Colles, Parl. Cases, 442. If one partner withdraws or uses the partnership funds in his own private trade or speculations, he must account not only for the interests on the moneys so withdrawn, but for the profits of that trade. Stoughton v. Lynch, 1 Johns. Ch. 467, 1 L. ed. 211. The liability in such a case is as for money converted to his own use. Reis v. Hellman, 25 Ohio St. 180. When a partner takes possession of all the stock. books, etc., and in a settlement furnishes no evidence of the insolvency of the debtors or unsuccessful diligence in collecting the claims, they will be regarded as cash in his hands. Bush v. Guion, 6 La. Ann. 798; 2 Lindley, Partn. 482. Mr. Chief Justice Fuller delivered the opinion of the court: Undoubtedly equity has jurisdiction, where a person has been induced, by fraudulent representations, to enter into a partnership, to rescind the contract at his ins ance, and put an end to it ab initio. Newbigging v. Adam, L. R. 34 Cb. Div. 582; Smith v. Everett, 126 Mass. 304; Fogg v. Johnston, 27 Ala. 432; Story, Partn. 232, 285; 2 Lindley, Partn. (Wentworth's ed.) 554. And it is contended that even though the formation of the partnership may have been free from that taint, there may be such fraud, mis conduct, and breach of duty in the conduct of its affairs from the inception, as to justify, upon dissolution, as between the parties, the restora tion of his capital to the injured partner. This bill alleged that complicants "are entitled to be refunded their said capital, with legal interest from 24th day of June, 1884, and they now make demand therefore;" and it prayed, among other things, that the partnership might "be decreed to be dissolved as if the same had never been made, by reason of the [588] acts of said defendant; that an account of its monthly trial balances were not furnished, and business may be taken under the direction of there is some evidence that towards the last this court, and that its legal liabilities may be defendant refused complainants access to the paid and charged against the said Joseph Oteri, books and papers of the firm, but this is deand that the capital of your orators, with in- nied, and the controversy seems to relate to a terest, [may be] restored to them in the prem-letter-book. By the partnership articles, Oteri [589] ises, or otherwise, at the discretion of the was to have exclusive control and direction of court." If the case, upon the evidence, did the company's affairs. He was not himself not entitle complainants to a return of their conversant with the keeping of books, and capital, and to be placed in the same situation, Terni, who had the confidence of all parties. as far as practicable, as if they had never en- was entrusted with the duty of doing so, and tered into the partnership but did authorize it is a fair inference that Oteri did not question the ordinary decree for a dissolution and ac- the right of his partners to examine the books counting, we are of opinion that relief could and papers, but only demanded a receipt from be awarded in the latter aspect, even though them for whatever book or paper they wished the bill were not framed with precision, in to take away for examination. It is also ob the alternative, for a cancellation or for a dis- jected that Öteri did not furnish his quota to solution and accounting. If the specific prayer the capital. He was, however, confessedly were insufficient, such a decree could be main-responsible, and as the manager all the firm's tained under the prayer for general relief, since it would be conformable to the case made by the bill. It is argued that the Circuit Court erred in the rendition of a decree at variance with the conclusions of the master, because the reference was by consent, and the report amounted to a determination by the parties' own tribunal, which could not be disregarded at the mere discretion of the court. In Kimberly v. Arms, 129 U. S. 512, 524 [32: 764, 768], it was said by Mr. Justice Field, delivering the opinion of the court: "A reference by consent of parties, of an entire case for the determination of all its issues, though not strictly a submission of the controversy to arbitration-a proceeding which is governed by special rules-is a submission of the controversy to a tribunal of the parties' own selection, to be governed in its conduct by the ordinary rules applicable to the administration of justice in tribunals established by law. Its fiudings, like those of an independent tribunal, are to be taken as presumptively correct, subject indeed, to be reviewed under the reservation contained in the consent and order of the court, when there has been manifest error in the consideration given to the evidence, or in the application of the law, but not otherwise." But here the case was referred to the master "to pass upon the accounts herein and to report thereon, "and while the master considered the whole case, apparently without objection, we do not regard the rule laid down in Kimberly v. Arms, as applicable. The question whether the partnership should be held void from its [590] inception was not submitted, Richards v. Todd, 127 Mass. 167, nor whether on other grounds the whole capital should be returned. If the decree had been in accordance with the conclusions of the master, such concurrent action would indeed have been of well-nigh controlling effect. Crawford v. Neal, 144 U. S. 585 [36: 552] But there was no such concurrence. The Circuit Court decreed the return of complainants' capital less two thirds of the amount expended on the European trip in the interest of the partnership, and the decree was evidently based upon the view that defendant had been guilty of such fraud or misconduct or violation of partnership obligations as justify the relief accorded. The evidence tended to show that proper books of account were not kept, and that money belonged in his possession, and the record indicates that he raised large amounts upon his own collaterals for the benefit of the business. His accounts cover the entire capital, the proper proportion being credited to each partner. Whether he technically deposited with himself $5,000 is not especially material. At all events, we find no adequate support to the conclusion that the complainants suffered any loss by reason of the alleged dereliction of duty in these regards, and we do not think that of themselves they furnish sufficient ground for decreeing that complainants are entitled to the return of their capital, within the principle of the rule which has sometimes been applied in such cases. The real gist of [591] the controversy, in this view, lies in the conduct of Oteri after his return from Sicily. It appeared that early in October, 1884, he wrote to European correspondents that the business would be continued in his name; that he had dissolved the partnership; that he had decided to withdraw; that he was awaiting the arrival of Scalzo in order to withdraw; and as reasons for these announcements assigned having learned that one of his partners did not have a good reputation, and that the capital bad not been paid in in full, as was indeed the fact. But it also appeared that the firm continued to do business, and that on the 14th of November, 1884, letters were written that the capital had been paid in; that the business would go on under the firm name; and that all had been ar ranged, etc. These letters were written by Terni, the bookkeeper, and by Di Christina, one of the partners, and perhaps by others, for Oteri, who, as we understand, could neither read nor write Italian. Exactly when the balance of capital to be paid by Scalzo and Randazzo and Di Christina was made up is not clear, but Randazzo testifies that he paid in the balance of his share in November, and Scalzo seems to have done so at about that time. Without discussing the evidence in detail, we think the master was correct in holding that the preponderance of evidence was to the effect that Oteri's action early in October, in regard to continuing the business in his own name, was condoned, and the difficulties between the parties adjusted for the time being. And what. ever business had been transacted in his indi vidual name was treated as if there had been no interruption. It may be that complainants were ignorant of Oteri's action in sending the PANY, Pl. in Err., v. IDA MAY COX. (See S. C. Reporter's ed. 593-608.) October letters, but they can hardly be per-disposed of), and should be dissolved as of that mitted to say that they did not know how the date; and that an accounting should be had. business was being conducted, particularly in The decree is reversed with costs and the cause view of the fact that Di Christina was em remanded for further proceedings in conformity ployed in the business and allowed by the con- with this opinion. tract two per cent as extract compensation for services. Scalzo resided in St. Louis, and Randazzo was unable to read or write; but THE TEXAS & PACIFIC RAILWAY COMnevertheless, through their own observations, and certainly through Di Christina, they ought [592] to have had knowledge of what was going on. It is said that Di Christina was young and not of strong mind and easily influenced, but there is no issue of that kind made in the pleadings, and we are not satisfied with that excuse for ignorance. Upon the whole record, we regard the case as one for an accounting rather than necessarily for a return of capital. No fraudulent representations as inducements to the formation of the partnership are alleged to have been made, and whatever objectionable features may have characterized Oteri's conduct and management, a scheme to defraud his copartners is not shown to have existed. In the absence of satisfactory proof that losses were occasioned by his misconduct or that the want of success which attended the business is traceable to that cause, complainants should not be reinstated at his expense in the same position as if they had not entered upon an enterprise which turned out to be unfortunate. The We cannot, however, accept the correctness der was entered and complied with. No rea- We are of opinion that the partnership con- Actions against receiver—jurisdiction of suit against receiver-place of suit, when right to waired-amendment of complaint-right arising in one State, when may be enforced in another-action for causing death-when case should be submitted to the jury-bill of excep tions-error of law. 1. Actions against the receiver are in law actions against the receivership, or the funds in the hands of the receiver, and his contracts, misfeasances, negligences, and liabilities are official and not personal, and judgments against him as receiver are payable only from the funds in his bands. 2. The Act of March 3, 1887, as amended in 1888, which provides that a receiver may be sued without the previous leave of the court applies to a suit which was commenced September 3, 1887, for an injury inflicted January 6, 1887. 3. The proviso in Section 6, of the Act of January 15, 1887, does not have the effect to require previous leave of the court to suc a receiver in a suit commenced before and pen ag at the time of 4. A suit against a receiver of a railroad company the passage of the Act. appointed by the U. S. Circuit Court to recover damages for the death of a person resulting from his negligence while operating such railroad, is one ausing under the Constitution and laws of the United States, where jurisdiction to sue without leave of the court is maintainable through the Act of Congress. 5. The right of a receiver to be sued in the United States court in a certain district, is a personal privilege which may be waived by an appearance and answer. 6. The statutory limitation of one year for the commencement of an action for damages for the 8. A right given by the statutes of one State such note to Davis v. Gray, 21: 447. NOTE. As to powers and duties of receivers, see ligence, necessary to entitle him to recover, see note As to freedom of plaintiff from contributory neg to Stokes v. Saltonstall, 10: 115. As to damages for personal injury from negligence, see note to Pennsylvania Co. v. Roy, 26: 141. 52 829 |