McRae v. McKenzie, 22 N.C. 232, 2 Dev. & Bat. Eq. 232 (1839)

June 1839 · Supreme Court of North Carolina

22 N.C. 232, 2 Dev. & Bat. Eq. 232

ABRAM C. McRAE vs. ROBERT McKENZIE, Ad’mr. of JOHN F. PHIFER.

One partner cannot be charged with all the debts of the firm, simply upon the ground that the books were in his possession, and without any evidence of any special undertaking that he would collect the debts. He should be charged with only What he collected.

Where no settlement or statement of company accounts between the partners appears, the intetest of each patmer in the funds is only an equal share after'all debts are paid, and after each has accounted for what he has already received. This, therefore, involves the taking all the accounts of the partnership, as well of the debts it owed as of those ow- ' ing to it, and every thing else material to stating a proper profit and loss account — for it is only such balance as may appear upon that account, that is to be divided-between the partners, and carried to their respective accounts in the books, and thereby show how they stand towards each other. Therefore, the report of the master, upon a reference to him to state an account of the partnership, merely ascertaining the debts due to the firm, and dividing them equally between the partners, will be erroneous.

The bill charged that a mercantile co-partnership existed from 1818 to 1821, between the plaintiff and.the defendant’s intestate; and that upon the dissolution, debts were owing to the firm from various persons to the amount of $1380:83, according to a list annexed to the bill: That the books of accounts and other evidences of debts were taken by Phifer into his possession, upon an agreement that he would collect 'those balances and account with, and pay over to, the plaintiff one half of the said debts, as they should be collected; and that Phifer did collect the whole, or might have done so with ordinary diligence, before he died, in 1828. The prayer was, that an account might be rendered by the defendant of such sums as the intestate collected, or ought to have collected; and that the plaintiff should have a decree for the payment to him of the one half thereof.

The answer admitted the partnership; but denied all knowledge of the debts owing by or to the firm, or of the capital stock, or of the profits made, br of the possession of the books and evidences of debt by the intestate, as alleged in the bill, or what sums the intestate collected; or of any agreementthat the intestate should collect-the debts, or that the money that might be collected on the debts should be equally divided between the partners. It said, on the contrary, that the defendant had reason to believe that his intestate owed the plaintiff nothing, as, at his death, he held the plaintiff’s note for f>350, dated January 27th, 1823, and received payments thereon in 1827 and 1828; and that if he did collect any money, it was applied to the debts of the firm, or accounted for to the pláin-tiff. The defendant stated that such papers as he found amongst his intestate’s, in the name of the firm, he delivered to the plaintiff.

Upon references to the Master, he, by his reports, found an pccount of good debts owing to the firm at the dissolution; that there was no proof of any agreement that Phifer should collect the debts, except that he had the books, nor that each partner should have one half of the debts; but upon the facts that the books were in Phifer’s possession, and that the two were equally interested in the store, the Master charged him with all the sums due from solvent debtors, and then divided the amount equally between the partners.

Barringer for the plaintiff.

D. F. Caldwell for the defendant.

Ruffik, Chief Justice,

having stated the case as above, proceeded as follows: The defendant hath taken several exceptions to the reports, which need not be particularly passed on, as one or two of them are founded on principles fatal to the whole report.

The Master has erred in holding Phifer liable for all the-debts, simply upon the ground that the books were in his pos-,. session, and without evidence of any special undertaking that he would collect the debts. The books must necessarily be . , under the immediate care of one of the partners;, but that ^063 n0|. confer on that partner peculiar powers on this subject, nor make it more his duty than the other’s to collect. Phifer could, therefore, properly be charged with only what he collected.

It is also erroneous to divide the funds, in whosoever hands they may be, into two equal parts, without talcing further accounts. Such a division assumes that the partners themselves owed nothing to the firm, or sums precisely equal; that there were no debts owing by the firm; and that the debts owing to the partnership, when the business was stopped, were all profits. Those assumptions are manifestly unfounded. As the plaintiff has not proved any settlement or statement of company accounts between him and his partner, the interest of each partner in the funds is only an equal share, after all debts are paid, and after accounting for what he had already received. This, therefore, involves the taking all the accounts of the partnership, as well of the debts it owed, as of those owing to it, and every thing else material to stating a proper profit and loss account — for it is only such balance as may appear upon that account, that is to be divided between the partners and carried to their respective accounts in the books, and thereby shew how they stand towards each other. The Master says, indeed, that there is no proof that there were debts outstanding against the firm. But, it does not appear that he examined the books with this view, or, even interrogated the plaintiff on the point. Besides, there is evidence which renders it highly probable that the firm did owe money. Mrs. Young says that Phifer borrowed of her $700, on the 27th of January, 1823, and proposed to give for it the note of Phifer and McRae, but she preferred his own note, and he gave it. Now, on that very day, the .plaintiff gave his bond to Phifer for half that sum. These circumstances render it highly probable, that the money borrowed was for the use of the firm; and hence, it is also probable, that the credits on the plaintiff’s note were, in whole or in part, for his share of the moneys collected by Phifer. However that may turn out, it is manifest that justice cannot be done, until all the accounts of the partnership and between the partners themselves be taken, instead of taking merely a list of balances due to the firm. The reports proceed, therefore, upon wrong principles throughout, and must be set aside; and a new reference ordered, to take all the necessafy accounts, as herein indicated.

Pjsr Curiam. Order accordingly.