Brooks v. Martin - 69 U.S. 70 (1864)
U.S. Supreme Court
Brooks v. Martin, 69 U.S. 2 Wall. 70 70 (1864)
Brooks v. Martin
69 U.S. (2 Wall.) 70
1. After a partnership contract confessedly against public policy has been carried out, and money contributed by one of the partners has passed into other forms -- the results of the contemplated operation completed -- a partner in whose hands the profits are cannot refuse to account for and divide them on the ground of the illegal character of the original contract.
2. Where one partner who is in sound health is made sole agent of the partnership by another who is not, and who relies on him wholly for true accounts, and the party thus made agent manages the business at a distance from the other, communicating to him no information, the relation of partners, whatever it may be in general, becomes fiduciary, and the law governing such relations applies.
Martin filed a bill in equity in the Federal Court of Wisconsin to set aside a contract of sale which he had made to Brooks of his interest in a partnership venture and for an account and division of the profits, the ground of the prayer being his own alleged embarrassed condition at the time of the sale, his ignorance of the partnership business, fraud on the part of the defendant, Brooks, concealment by Brooks of what he knew, misrepresentation in what he
professed to tell, and want of consideration proportioned to the real value of the interest which the complainant had in the concern. The answer admitted the purchase by Brooks but denied the fraud. The court gave the relief prayed, and from its decree herein an appeal, the present suit, came here.
The case, as proved by the evidence and as shown and assumed by this Court after a very careful examination of an immense mass of testimony -- twelve hundred pages closely printed -- set forth in part in the opinion, but, as involving very voluminously controverted issues of fact, not necessary nor indeed possible to be presented here, [Footnote 1] was in substance this.
On the 11th February, 1847, the United States, being then at war with Mexico, Congress passed a law by which warrants were directed to be issued to soldiers for a certain quantity of land each; but in order to protect the soldier entitled to the warrant against the rapacity of land brokers and others who would profit of his improvidence, the statute provided, by a ninth section, that any sale or contract going to affect the title or claim to any such bounty made prior to the issue of such warrant, should be "null and void to all intents and purposes whatsoever." [Footnote 2] Just after the passage of this statute -- that is to say in June, 1847 -- the complainant, Martin (who was a banker in New Orleans), Brooks, the defendant, and a certain Field entered into a partnership at New Orleans, the ostensible object of the firm being "the purchase and sale of bounty land warrants that may have been or may be issued under the law of Congress" &c. The purchases and sales were to be conducted by Brooks and Field, and the money was to be furnished by Martin. Brooks was the brother-in-law of Martin, and had been a clerk in his banking house. Field was a stranger. It was therefore agreed that Brooks should, in the actual management of affairs, represent
Martin and have full and exclusive control of the business -- an agreement, of course, by which he obtained a preponderating influence in the management of the partnership over Field. The bill indeed alleged that Brooks had a power of attorney from Martin authorizing him on all occasions to represent him in the partnership business. This fact was denied in the answer, but the answer admitted that Brooks was authorized by Martin to control the business. Martin advanced in cash over $57,000, and large purchases having been made of soldiers' claims, the parties closed their operations in New Orleans, where little was done after a few months in the way of purchasing warrants. Brooks then came to Washington to attend to the issue of warrants. Field, with two brothers of his, went to Wisconsin to locate the warrants and sell the lands. Martin still remained in New Orleans, carrying on his business of banker. From the time that Brooks and Field left New Orleans, the management of the entire business fell, apparently, under the direction of Brooks. None of it was conducted in New Orleans, nor, except five or six which Brooks bought at the suggestion of Martin, were any further warrants bought there. The accounts were kept in Wisconsin, two thousand miles from where Martin was, and who had no opportunity of hearing anything about the partnership except as it was communicated to him by Brooks or Field, or one of the brothers Field, who were employed as clerks or agents in the business. No reports of the business were made to Martin, and as the testimony showed, Brooks and Field managed it entirely without consulting him, irrespectively of his interest. The firm was known indifferently as Brooks & Field and as Brooks, Field & Co.
In the winter of 1847-1848, Martin failed in business, and his health, including specially, it seemed, his nervous condition, became considerably prostrated. During the winter just named and when much embarrassed and absorbed about his business, he applied for information to Brooks, who was then in New Orleans and who gave him a very discouraging account of everything -- one, the court assumed,
which might naturally make Martin "glad to escape with a few thousand dollars which it owed him as a creditor," an account which the court considered that it was impossible to regard as true.
In June, 1848, Martin at the invitation of Brooks, went to Pittsburgh, in Pennsylvania, to meet Brooks, who then and there, on the 28th June, 1848, bought out his interest in the partnership. Martin at this time had never been in the West, and in fact knew little or nothing as to the particulars of what had been done there. There was no evidence, indeed, except the answer of the defendant, which was discredited by facts, that Martin ever had a remote conception of the condition of the business. On the contrary, there were letters in the record begging for statements on that subject.
On the other hand, when Brooks and Martin met in Pittsburgh, Brooks had just come from Wisconsin, where he saw Field and his brothers and where he had the partnership books for examination, and spent several days in examining them. That he knew the real condition of the concern and was fully and minutely informed as to every item of its business was considered by the court as "beyond dispute."
It appeared in addition, by letters from Brooks to one George Field, a brother of Field, the partner, written before the sale was made, that Martin had directed that all remittances should be made to him at Washington, showing by allusions in them to a remittance which George Field had proposed to make to Martin and to certain friends and correspondents of his named Lake & Co., in New York, that Brooks specifically, and apparently with an interested motive, desired that no remittance should thus be made. In one letter, written June 20, 1848 -- that is to say eight days before the sale and after he had invited and was expecting Martin to meet him at Pittsburgh in contemplation of the purchase which he there made -- Brooks says:
"I can hardly express to you how much I feel obliged to you for the soundness of the judgment that dictated to you to remit directly to me, rather than to New York or any other place, without my direction. I had been rendered somewhat unamiable
the day before by a letter from George Field in which he suggested the propriety of remitting directly to New York. I feared he had so directed you. It would have greatly embarrassed my operation. I want all advice, as well as all remittances, to pass through myself. If Mr. Lake OR ANYONE ELSE ask information in relation to our matters, refer him to me, advising me of the circumstance."
The partnership at this date -- as the court,
after a computation made by it on an analysis of
the evidence, showed and assumed -- presented
clear cash profits . . . . . . . . . . . . . . . . . $15,000
It had also, as the court showed, and assumed it
to be proved, 45,000 acres of land, which,
estimated at Government rates -- a low rate of
estimate in view of the fact that they had been
carefully selected by Field and his two brothers,
one of whom had been sent to examine the land
personally before the warrants were located, and
who was early in the field and made judicious
selections -- gave about . . . . . . . . . . . . . . 57,000
Or a total profit of $72,000 . . . . . . . . . . . . . $72,000
of which Martin's share, for the partnership, by its terms, was not an equal one, came to $30,000.
The consideration of Brooks' purchase was an agreement by him to pay all debts of the partnership, about $45,000, and a payment, as he alleged, of $3,000 to Martin though, as Martin asserted, a payment of about one-half a balance due him on another account, which balance it was evident that Brooks was bound for. Brooks gave no security for his performance of his agreement to pay these debts.
At the time when this bill was filed, to-wit, on the 3d of August, 1857, which was apparently so soon as Martin had examined into the facts of the case, all the claims purchased by the firm had been turned into land warrants, and the warrants had been sold or located. Where the purchase had been made prior to the date of the warrant granted, assignments were subsequently made by the soldier. A portion of the lands thus located had been sold, part for cash, partly on mortgage, and the assets of the partnership consisted now almost wholly of cash securities or of land.
Besides a full denial of the offensive allegations, as made by the bill, the defendant set up as follows:
That notwithstanding the statement in the articles of partnership that the business of the firm related to the purchase and sale of bounty land warrants and scrip, such was not the true purpose of its formation, nor the business which it really transacted; but that the partners intended, and really did engage in buying up the claims of the soldiers, who were then returning from Mexico by way of New Orleans, for bounty land or scrip, long before any scrip or land warrants were issued by the Government [a fact of which there appeared, indeed, by the evidence, to be no great doubt]; that this was an illegal traffic, forbidden by the act of Congress of February, 1847, above referred to, and against public policy; that accordingly, the plaintiff could have no relief in a court of equity against his co-partner, even if it were made to appear that the latter realized a large sum out of the venture, and defrauded the former of his share of the amount so realized.
2. That no such fiduciary relation existed between the parties, from the mere fact of partnership, or from anything shown in the case, as entitled the complainant to relief.