Opinion
October 6, 1950.
November 13, 1950.
Partnership — Dissolution — Date — Decree, nisi — Ownership of surplus — Accounting — Share of profits — Compensation to partner for surplus after dissolution — Amount for which business could have been sold.
In a proceeding in equity for dissolution of a partnership, it was Held that (1) the decree nisi of the chancellor, approved by the court en banc, and affirmed by the Supreme Court on appeal, had dissolved the partnership and established at that time the ownership of the surplus; (2) the defendant partner in possession thereafter was not entitled to any remuneration above that of plaintiff, his co-partner, for services performed; (3) defendant's account during the time he was in sole possession was inaccurate and there was due plaintiff a share of the profits in a specified sum; and (4) plaintiff was entitled to one half the amount for which the business could have been sold at the time the receiver would have taken possession had not defendant interfered.
Before DREW, C. J., STERN, STEARNE, JONES, LADNER and CHIDSEY, JJ.
Appeal, No. 151. March T., 1950, from decree of Court of Common Pleas of Allegheny County, Jan. T., 1946, in Equity, No. 86, in case of Joseph R. Lacey v. Raymond T. Rutter. Decree affirmed.
Proceeding in equity for dissolution of partnership.
The facts are stated in the amended adjudication, by WEISS, J., of the court below, THOMPSON, SMART and WEISS, JJ., as follows:
The parties under the decree nisi, which decree was affirmed by the Supreme Court at No. 51 March Term, 1948 ( 358 Pa. 502) were to account to each other for profits of the business during the time that either partner had been in control of the business. Counsel stipulated before your chancellor that the contributions to capital and the withdrawals from capital and profits were equal by each partner up to and including December 31, 1944.
Plaintiff's exceptions to the defendant's account raises the following general question of law: "Did the decree nisi dissolve the partnership and establish at that time the ownership of the surplus?"
Your chancellor firmly believes it does, and our Supreme Court in the case of Scheckter v. Rubin, 349 Pa. 102, in a somewhat similar proceeding held: "The decree was of course subject to exception but the exceptions were dismissed. There can be no serious objection, on the dismissal of the exceptions, to adopting, in the final decree, the date stated in the decree nisi as the dissolution date. In such circumstances, a party whose contention is rejected should gain nothing by the lapse of time between the dates of the nisi and final decrees. It is necessary in dissolution proceedings to fix the date of dissolution. . . . When, therefore, it was decreed nisi that the partnership on May 16, 1941, 'is hereby dissolved' the dissolution was effective as of that date unless the court subsequently found that the wrong date had been specified and that the facts required the selection of a different date. The court found there was no error to correct."
The record is clear that the court en banc in the instant case by its order on November 6, 1947 made no change whatsoever in the decree but on the contrary adopted it "in toto", and our Supreme Court affirmed this order.
The second general question of law raised by the plaintiff follows: "Did the partner remaining in possession after January 1, 1945, become entitled to set off against the absent partner wages paid to others in the operation of the business?"
The testimony clearly discloses that Rutter knew early in June, 1945 that his partner sought dissolution and did institute proceedings in October, 1945. Your chancellor believes that the Uniform Partnership Act (59 Pa.C.S.A. § 51) controls this situation in clear and precise language (Act follows): "No partner is entitled to remuneration for acting in the partnership business, except that a surviving partner is entitled to reasonable compensation for his services in winding up the partnership affairs."
The defendant vigorously fought every step to prevent dissolution, and in the absence of a specific contract or agreement between him and the plaintiff, he would not be entitled to any remuneration over and above that of his co-partner (plaintiff) for services performed.
This is basic and fundamental under partnership law and has been sustained by our Supreme Court in the case of Rolshouse v. Wally reported in 272 Pa. 506.
We now review the accounts. Following a long and careful review, your chancellor believes that the defendant's account was incomplete, inaccurate, and while not conclusive, there appears to be evidence of fraud.
Defendant's account only covers a period from January 31, 1947 to March 26, 1948, a period during which defendant was in sole operation of the business following the decree nisi. While it purports to show profits accruing to the plaintiff during a period imperfectly accounted for, the profits are offset by wages, defendant charges on page 5 of his account. The testimony of the defendant in the final hearing on the Bill, a part of this proceeding, he stated that: "He had no cash assets with which to purchase plaintiff's partnership interest; that an effort was made by him to secure a loan of $2,500.00 from the Monongahela Trust Company, Homestead, now known as Peoples Pittsburgh Trust Company." Defendant had no other employment, and devoted long hours to the business. Your chancellor recognizes that the sale of whiskey and beer is a cash business, and if one does not ring up in the cash register every sale, no account can check the gross receipts of this type of business. However, the Circuit Court of Appeals have upheld tax assessments on sales based upon the purchases of beer and whiskey, and this is considered quite accurate.
At the hearing before the late Judge McDonald in August, 1947, the defendant testified he was withdrawing cash each week in the amount of $75.00, and that he did so throughout 1945 and 1946. In addition, the defendant had drawn $8,000.00 from the business during 1946, during which year he purchased a home, and paid $3,000.00 hand money. And he further testified that he did not have a bank account after October, 1946. He further testified that during the years 1945, 1946 and 1947 he hired a bus to take a crowd of friends to Philadelphia; he attended a convention of Elks in Allentown; he spent the month of October, 1946 in Florida; he travelled through Oregon, California and Arizona in July, 1947 — all these events during a period, as the defendant states, the partnership business was unprofitable.
Under such circumstances your Chancellor is in disagreement with the defendant, and it is evident — clearly so — that the defendant was deriving substantial income from the business, but he was not recording all his whiskey and beer sales in the cash register, and therefore his accounts or those prepared by Mr. Robert J. Baxter, his accountant do not reflect a true and accurate account of the partnership business by defendant. Throughout this entire proceeding the defendant, knowing plaintiff could not participate in the operation of the business due to his physical disability, nevertheless made every determined effort to resist receivership and dissolution, and your chancellor cannot reconcile this effort by the defendant to operate a business that defendant termed unprofitable — unless he could siphon off partnership cash without accounting therefor. On the other hand, plaintiff engaged A. L. Schneider, a certified public accountant who testified that he made a complete breakdown of partnerships' business in an audit report identified as plaintiff's exhibit No. 1. Schneider determined the wine and beer purchased, and the actual prices paid by the defendant. The accountant then, under plaintiff's exhibit No. 2, prepared summary statements of constructed income and expenses as supported by invoices, receipted bills and cancelled checks, said exhibit No. 2 being composed of exhibits "D", "E", "F" and "G". Exhibits 2"D", 2"F" and 2"G" are statements of constructed income — these statements varying so that in 2"G" the expenses shown as granting the highest possible expenses chargeable to the business — so that the plaintiff's partnership share is $13,777.13. In 2"G" his partnership share is $13,084.26. In 2"F" his share is $14,889.92. In 2"E", plaintiff's accountant based his exhibit on an examination of the records in Rutter's custody and the records of cash receipts and disbursements. Based upon these records without constructing the income, the amount due the plaintiff would be $6,194.76.
Your chancellor desires to apply every equitable principle fully realizing that every sale did not find its way into the cash register, yet recognizing that the defendant was the sole operator in control of said business, and hereby directs the payment to the plaintiff of the sum of $6,194.76, the lowest sum submitted by plaintiff's accountant, to which sum plaintiff is entitled as his partnership interest up to the time that the receiver took possession of the business.
Under the decree nisi the receiver would have taken possession July 7, 1947, and had not the defendant interfered, the receiver would have been in position to consider several legitimate bids for the sale of the Seventh Avenue Grill. The evidence conclusively established that the law firm of Brennan Brennan bid the sum of $10,500.00 in behalf of a client, Attorney E. A. Keizler of Homestead, Pennsylvania submitted a bid of $11,500.00. Attorney Maurice Parker wrote a letter to the receiver offering $12,000.00 for the Seventh Avenue Grill, as per Exhibit No. 3.
It is clear to your chancellor that the partnership business could have been sold to purchasers ready, willing and able to pay the receiver, prices varying from $10,500.00 to $12,000.00.
Your chancellor fully realizes that the post-war inflationary boom reached its peak in 1947, and the receiver unquestionably could have sold the business for $12,000.00 — as per Parkers' letter, exhibit No. 3, but in the interest of equity, your chancellor will assume that the receiver did sell the business for the sum of $10,500.00, to which sum the plaintiff would be entitled to one-half or $5,250.00.
Your chancellor further directs that the sum of $1,100.00 for the receiver and his counsel is a fair and reasonable charge for the services rendered in this receivership.
Exceptions involving these matters are hereby sustained.
All other exceptions are hereby dismissed.
Defendant appealed.
Edmund K. Trent, with him Reed, Smith, Shaw McClay, for appellant.
James H. Brennan, with him T. Robert Brennan, Brennan Brennan, Robert M. Dale and Maurice L. Kessler, for appellee.
The decree is affirmed on the amended adjudication of the learned chancellor as confirmed by the court en banc.
Decree affirmed at appellant's cost.