Oteri v. Scalzo - 145 U.S. 578 (1892)
U.S. Supreme Court
Oteri v. Scalzo, 145 U.S. 578 (1892)
Oteri v. Scalzo
Argued April 8, 1892
Decided May 16, 1892
145 U.S. 578
A bill in equity set forth the making of a partnership between the plaintiffs S. and R. and the defendant O., each to contribute $5,000. It charged fraud, misappropriation of money and mismanagement on the part of O.; that he had vilified and traduced them, for which they reserved their right of action, and it prayed (1) for a receiver; (2) that the $15,000 capital so contributed should be paid into court; (3) for an injunction restraining O. from using the partnership name, etc.; (4) for a dissolution. The cause was referred to a master to take proof and report. The master found that there had been violations of the partnership agreement by the plaintiffs in not paying up their contributions to the capital at the times agreed upon and by 0. in various ways set forth,
but that these had been condoned in November, 1884, the plaintiffs paying up their capital in full; that the partnership therefore was to be regarded as continuing uninterruptedly from July 1, 1884, to February 2, 1885, when O. was called to answer in the state court the suit of his co-partners for its dissolution, from which time it was to be regarded as dissolved, and that the plaintiffs had incurred expenses on behalf of the firm amounting to $2.538.52. On the coming in of this report, it appearing that R. had assigned all his interest in the suit to S., the court decreed that S. for himself, and as subrogee of R., recover from O. $10,000, with interest; that in other respects the report be confirmed, and
"that the complainants' bill of complaint be dismissed without prejudice to their right in some other form of action, as they may he advised, to prosecute the matter of defamation of character set forth in the bill of complaint."
(1) That equity has jurisdiction, where a person has been induced, by fraudulent representations, to enter into a partnership, to rescind the contract at his instance, and put an end to it ab initio.
(2) That if the case, upon the evidence, did not entitle complainants to a return of their capital and to be placed in the same situation, as far as practicable, as if they had never entered into the partnership, but did authorize the ordinary decree for a dissolution and accounting, relief could be awarded in the latter aspect, even though the bill were not framed with precision, in the alternative, for a cancellation or for a dissolution and accounting; and that if the specific prayer were insufficient, such a decree could be maintained under the prayer for general relief, since it would be conformable to the case made by the bill.
(3) That the circuit court did not err in rendering a decree at variance with the conclusions of the master (Kimberly v. Arms, 129 U. S. 512, distinguished).
(4) That the evidence did not 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.
(5) That the master was correct in holding that the preponderance of evidence was to the effect that O.'s action early in October in regard to continuing the business in his own name was condoned, and the difficulties between the partners adjusted for the time being.
(6) That the case was one for an accounting, rather than necessarily for a return of capital, and that complainants should not be reinstated at defendant's expense in the same position as if they had not entered upon an enterprise which turned out to be unfortunate.
The Court stated the case as follows:
Vincenzo Scalzo and he firm of Randazzo & Di Christina
composed of Vincenzo Randazzo and Antonio Di Christina, aliens, filed their bill of complaint against Joseph Oteri, a citizen of the State of Louisiana, in the United States Circuit Court for the Eastern District of Louisiana, June 11, 1885, alleging that on June 24, 1884, complainants entered into a contract of co-partnership with defendant to carry on a general commission business and import fruits from Europe, as set forth, under the firm name of Joseph Oteri & Co.; that Scalzo, Di Christina, and Oteri went to Europe thereafter in the summer of 1884 to make arrangements for such co-partnership, and, after various contracts had been made in the firm name, Scalzo was authorized by his co-partners to remain a longer time to make additional contracts, which he did, and that thereafter consignments under said contracts coming to Joseph Oteri & Co. were declined by Oteri against the protest of complainants, who were obliged to care for and protect the same. It was further averred that on October 7, 1884, defendant, in violation of the contract of co-partnership ("and with malice, without cause, probable or otherwise, and in bad faith, for which orators reserve their action for damages"), after said contracts had been made in good faith for the firm, and before any partnership assets or capital had been used, wrote to various parties in Italy that all contracts made for the firm should inure to his private benefit, and he would not recognize his firm therein; that Oteri had refused to make or cause to be made, as the general manager of the affairs of the firm, monthly trial balances as agreed upon, notwithstanding complainants' demand; that defendant had vilified and traduced their character and injured their credit and business reputation, and refused to carry out contracts for the firm, made with his knowledge and consent; that he held in his hands complainants' money amounting to $10,000, and refused to return the same, although duly demanded, and that "they are entitled to be refunded their said capital, with legal interest from the 24th day of June, 1884."
The bill further alleged that, apart from the acts of the defendant in refusing various consignments made to the firm under their contracts in Europe, they were not aware until
a short time since of his fraudulent act in declining and refusing to carry on the contract of co-partnership. Complainants further set up misconduct as to a cargo in respect of which defendant declined to attend to the interests of the firm, and involved complainants in loss and damage to the consignors in a large sum, as they were obliged to protect the consignment and save themselves from further loss, the proceeds being paid over to Oteri for the benefit of the consignor. Complainants charged that they were ignorant as to the partnership affairs; that defendant declined to give any knowledge of or concerning the same; that defendant had converted the funds of complainants to his own use, and had not held the same to the credit of 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 co-partnership (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 co-partnership, negotiating any bill or note in said co-partnership name, or contracting any debt whatsoever on account thereof, or in any manner intermeddling therewith. (4) That said partnership may be decreed to be dissolved as if the same had never been made, by reason of the acts of said defendant; that an account of its business may be taken under the direction of this Court, and that its legal liabilities may be paid and charged against the said Joseph Oteri, and that the capital of your orators, with interest, be 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 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 partnership funds were invested, and alleged that books of account were kept which were always open to the examination of complainants, and he annexed the last trial balance from the books, a statement of the assets and liabilities of the firm, a statement of the profit and loss account, and a statement of what was due to each partner, all as of the 1st day of June, 1885. Defendant averred that since June 1, 1885, and for a long time prior thereto, he had transacted no business for the firm, on account of complainants' having sued for a dissolution February 4, 1885, and he alleged that the statements annexed correctly exhibited the state of the affairs of the firm at their date.
These statements showed cash on hand $3,517.26, after deducting an outstanding liability 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.
Scalzo was credited with $5,000, and cash, $1,026.93, and charged with cash drawn, $2,197.33; one-third loss, $886.24; one-third uncollected assets, $1,676.47, and a balance of cash due him of $1,266.88.
Randazzo and Di Christina were credited with $5,000 and a cash item of $15, and charged with cash drawn, $1,248.75; one-third loss, $886.25; one-third assets uncollected, $1,676.46, and a balance of cash due him of $1,203.54.
The act of co-partnership was annexed, signed by the parties, and stating that they appeared before a notary public, and declared that they hereby agree to enter into a co-partnership for the purpose of carrying on a general commission business and the importation of fruit from Europe, and for all matters and things thereto appertaining, under the following stipulations and conditions, to-wit:
"First. The partnership is to be carried on under the firm name of Joseph Oteri & Co., is to be domiciled in the City of New Orleans, and is to exist and continue for the space of two years, to be computed as commencing on and from the first day of July, eighteen hundred and eighty-four. unless sooner dissolved by mutual consent."
"Second. The capital invested in this co-partnership consists of a sum of fifteen thousand dollars ($15,000.00) in United States currency, and has been contributed by the parties hereto in the manner following, to-wit:"
"Five thousand dollars each by said Oteri and Scalzo, and the remaining five thousand dollars by said firm of Randazzo and Di Christina."
"It is hereby agreed that, in the event more capital should be needed at any time during the existence of the contract to carry on said business, the said Joseph Oteri shall, if he deems proper and not otherwise, furnish same surplus capital thus needed, and shall be entitled to and charge interest thereon at the rate of eight percent per annum."
"Third. It is hereby furthermore agreed 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, without 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, and 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, as 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 Oteri 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 co-partners 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 Oteri & Co. at the end of each of its business years two percent as an extra compensation for services to be rendered 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."
The cause being at issue, an examiner was appointed to take testimony and report the same to the court, and the cause thereafterwards came on to be heard on the pleadings and proofs, and
"was thereupon argued by counsel for the respective parties and referred by consent to J. W. Gurley, Esq., as master, to pass upon the accounts herein, and to report thereon at as early a day as possible."
This was on March 4, 1887, and on the 18th of the following May, the master filed his report. This report dealt only with the questions relating to the partnership, those arising in reference to damages for defamation of character having been reserved. He found that sometime after the formation of the partnership, Oteri, Scalzo, Di Christina, and their bookkeeper, Terni, went to Europe in the business interests of the firm, and that the charge made in the cash book of the firm of $2,538.32 for the expenses of the trip, which complainants contended was an overcharge, was correct, and should be allowed; that at the time of the departure for Europe, Scalzo had paid into the capital $2,000, and Randazzo & Di Christina $2,500.
"3. That Oteri, while in Europe, made business arrangements in the interest of the firm. 4. That Vincenzo Scalzo remained in Europe for some time after the departure of Oteri for home,"
but "had no right to make contracts for the firm."
"5. That sometime after Scalzo's return from Europe, near the middle of September, as near as the master can determine, Scalzo and Randazzo & Di Christina paid the balance due by them on the capital of the firm, viz., Scalzo $3,000, and Randazzo & Di Christina $2,500. 6. That the books of the firm were not kept in strictly mercantile manner. 7. That Oteri did for a time after the formation of the partnership, and before the 14th of November, 1884, drop the name of the firm, and carry on the business in his own name. 8. That Oteri did not furnish his co-partners monthly trial balances. 9. That on the 14th November, 1884, both
Terni, the bookkeeper, and A. di Christina, the partner of Randazzo, wrote, with the approval of Oteri, to their correspondents in Europe that all the troubles between the members of the firm of Joseph Oteri & Co. had been adjusted; that Vincenzo, Scalzo, and Randazzo & Di Christina had paid in their share of the capital, and that the business would thereafter be conducted in the firm's name."
He held that Oteri had violated the act of partnership in the particulars named, and also that there was a violation on the part of the other partners in not completing, until November, the payment of their share of the capital, which was due in July, but that on November 14, 1884,
"all the acts theretofore committed or omitted by any of the partners in violation of the partnership agreement were mutually condoned, and that harmony was restored between the members of the firm, A. di Christina himself actively aiding in making the announcement."
The report discussed the evidence bearing upon the contention of complainants in avoidance of that adjustment, but concluded that all matters in controversy prior to November 14, 1884, "were amicably adjusted on that day, and should be considered settled."
The master further found that the evidence did not show
"that Oteri ever profited to the exclusion of his partners, nor an instance in which a loss of money to the firm resulted from an unauthorized act of any of the partners,"
and was of opinion that all the losses were attributable "to the depressed condition of the fruit market at the time of the arrival of the consignments, and not to the acts of any of the partners." He recommended that the results from the books, as stated by witnesses, should be accepted as correct, and held that
"the partnership should be considered as continuing uninterrupted from 1st July, 1884, to the second February, 1885, at which date Oteri was called to answer in the state court the suit of his co-partners for its dissolution; that from the second February, 1885, Oteri had no authority to enter into any new engagements for or on behalf of his co-partners, but it remained his duty to conduct to conclusion all obligations and contracts made or commenced before that date. "
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 among 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 2/3 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 character 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.