Where three persons form a partnership and agree to bear the
losses and share the profits of the partnership venture in
proportion to their contribution to its capital, and two of the
partners furnish all the money and do all the work, they are
entitled to be repaid their advances out of its assets before
payment of the individual creditors of the partner who paid nothing
and did nothing to promote the partnership business.
When a contract is open to two constructions, the one lawful and
the other unlawful, the former must be adopted.
When many persons have a common interest in a trust fund and
one, for the benefit of all, at his own cost and expense, brings
suit for its preservation or administration, a court of equity will
order that the plaintiff be reimbursed his outlay from the property
of the trust, or by proportional contribution from those who accept
the benefit of his efforts.
When one brings adversary proceedings to take trust property
from the possession of those entitled to it in order that he may
distribute it to those entitled adversely, and fails in his
purpose, he cannot demand reimbursement of his expenses from the
trust fund, or contribution from those whose property he has sought
to misappropriate.
A, having contracted with the United States to furnish supplies
of wood and hay to troops in Montana, entered into partnership with
B and C for the purpose of executing the contract. A was to furnish
half the capital, B and C one-fourth each, and profits and losses
were to be divided on that basis, but in fact the capital was
furnished by B and C. A delivered the wood according to the
contract, but failed to deliver the hay, and, payment being
refused, he brought suit in his own name in the Court of Claims
against the United States to recover the contract price of the
wood. In this suit, B and C each was a witness on behalf of A, and
each testified that he had "no interest direct or indirect in the
claim" except as a creditor of A, holding his note. Pending the
suit, A became bankrupt, and then died. His administratrix was
admitted to prosecute the suit, but before entry of final judgment,
his assignee in bankruptcy was substituted in her place. Final
judgment was then rendered in favor of the assignee, and the amount
of the judgment was paid to him. B and C, as surviving partners,
then filed a bill in equity against the assignee and the attorneys
and counsel to recover their shares in the partnership
property.
Held:
(1) That the interests of B and C in the partnership property
were not affected by the fact that the contract under which they
claimed was not made and
Page 117 U. S. 568
attested by witnesses after the issue of a warrant for payment,
as required by Rev.Stat. § 3477.
(2) That they were not affected by the provisions of Rev.Stat. §
3737 that a transfer of a contract with the United States shall
cause an annulment of the contract so far as the United States are
concerned.
(3) That the cause of action to recover of the assignee their
proportionate shares of the partnership fund in his hands accrued
to B and C on the receipt of the money by the assignee.
(4) That B and C were not subject in this suit to the
disabilities as witnesses imposed by Rev.Stat. § 858 upon parties
to suits by or against executors, administrators, or guardians.
(5) That B and C were not estopped by their declarations in the
Court of Claims as to their interest in the claim there in
controversy, from setting up the interest in it which they seek to
enforce in this suit.
(6) That the assignee was entitled to no allowance for
compensation for services, expenses, and attorney's fees in
recovering the fund in the Court of Claims from the United
States.
The appellees were the plaintiffs in the circuit court. The
record showed the following facts:
On August 19, 1876, Major Card, a quartermaster in the army of
the United States, advertised for bids for furnishing 6,000 cords
of wood and 800 tons of hay at the Tongue River Military Station in
Montana Territory. Campbell K. Peck, whose assignee in bankruptcy
is the appellant, put in a bid, and, believing that the contract
would be awarded to him, on August 19, 1876, entered into articles
of co-partnership with the plaintiffs, McLean and Harmon, for the
purpose of carrying out the contract with the United States which
he expected to make. These articles provided that Peck should
furnish one-half the capital necessary to carry on the partnership
business and McLean and Harmon each one-fourth, and that the
profits and losses of the partnership should be divided in like
proportions. Harmon agreed to take charge of the office of this
partnership, which was to be at Fort Lincoln, and superintend the
business at that place, and McLean agreed to go to the place of
delivery on the Yellowstone and superintend the business there, but
neither was to make any charges for his services. The articles of
partnership further provided that when the contract with the
government was completed, a settlement of profits and losses should
be made "on the basis of the above terms of
Page 117 U. S. 569
partnership," and "if a dissolution is decided on, first all
debts shall be paid and then all profits divided in the proportions
heretofore mentioned." After the signing of these partnership
articles, the bid of Peck was accepted, and on August 25, the
contract between him and the United States was signed and
delivered.
The partners did not deliver the hay required by the contract
because, as they claimed, they were prevented from so doing by the
officers of the army of the United States, but did cut and deliver
the wood. McLean and Harmon did all the work that was done and
advanced all the money that was expected in performing the contract
except about $100, which was furnished by Peck.
The wood delivered under the contract amounted in value at the
contract price to $51,900, but the United States refused to pay
that sum, claiming damages for the failure to deliver the hay, but
consented to pay, and did pay, $10,919.37. McLean and Harmon
received $10,000 of this sum, and Peck $919.37, which was over $800
more than he advanced for the performance of the contract. The
parties interested being dissatisfied with the action of the
government in refusing payment in full for the wood delivered,
Peck, who was the only person to whom the government was bound,
filed, on November 7, 1877, his petition in the Court of Claims
against the United States, demanding $55,003.63 damages for the
breach of the contract. The United States traversed the petition
and, upon final hearing in the Court of Claims, judgment was
rendered for Peck, the claimant, for $43,113.63. From this judgment
both parties appealed to this Court, which, in February, 1880,
affirmed the judgment of the Court of Claims, and allowed the
claimant, in addition to the amount already awarded him, the
further sum of $2,660, making the entire judgment in favor of the
claimant $45,773.63.
While the case was pending in the Court of Claims, to-wit on
August 31, 1878, Peck was on his own petition adjudicated a
bankrupt in the District Court of the United States for the
District of Iowa, and Hobbs, the appellant in the present case, was
appointed assignee. While the case was pending in this
Page 117 U. S. 570
Court, Peck, on December 2, 1879, died, and his widow, Helen A.
Peck, was afterwards appointed his administratrix, and in January,
1880, was substituted in the place of her intestate as the
plaintiff in the cause. The case still being in this Court, and
after Mrs. Peck had, as administratrix, been made party plaintiff,
Hobbs, as assignee, moved the Court to be substituted as plaintiff
in her stead, which motion was denied. The cause having been
remanded to the Court of Claims, Hobbs, the assignee in bankruptcy,
moved that court to substitute him as plaintiff in place of the
administratrix, which motion was, on May 10, 1880, granted, and the
money recovered from the United States was, after deducting about
$10,000 attorney's fees, paid over to Hobbs, the assignee.
McLean and Harmon, fearing that Hobbs would distribute the fund
thus recovered among the general creditors of Peck, and believing
that the fund belonged to them, filed in the Circuit Court for the
Southern District of Iowa the bill in the present case, to which
they made Hobbs, as assignee in bankruptcy of Peck, and John B.
Sanborn and Charles King, lately partners as Sanborn & King,
and Edward F. Brownell, defendants, and in which they set out in
detail the facts above recited, set up their claim to the fund as
surviving partners and prayed that the balance found due them from
the partnership on an accounting might be paid them out of the
fund, so far as it should be sufficient to pay the same.
The defendant Hobbs, as assignee, answered the bill, and the
plaintiffs filed the general replication. Upon final hearing upon
pleadings and proofs, the circuit court adjudged and decreed as
follows:
After reciting the making of the partnership between the
plaintiffs and Peck and the performance by the partnership of the
contract made by Peck with the United States, it found that after
charging to the partners all the moneys received by them
respectively, it appeared that Peck had received more money than he
had paid out in performing the contract, and that the plaintiffs
had expended for the same purpose $41,032.31 more than they had
received; that Hobbs, the assignee, had collected and received on
the judgment against the United States recovered by Peck's
administratrix
Page 117 U. S. 571
$35,773.63, and it was therefore adjudged and decreed that said
sum was the money and property of the plaintiffs, and that they
recover it of the defendant, Hobbs, who was ordered to pay it to
the plaintiffs, with interest on the investment thereof, and that
the plaintiffs also recover of Hobbs, as assignee, their costs and
disbursements in the suit, to be paid by him out of any money in
his hands as assignee. The appeal of Hobbs, as assignee, brings
this decree under review.
Page 117 U. S. 573
MR. JUSTICE WOODS, after stating the case as above reported,
delivered the opinion of the Court.
The findings of fact made by the circuit court in its final
decree are in our opinion amply sustained by the evidence. These
findings, and other facts not disputed, establish
prima
facie the justice and equity of the decree.
Upon the facts of the case, the decree of the court is simply to
this effect -- that where three persons form a partnership and
agree to bear the losses and share the profits of the partnership
venture in proportion to their contributions to its capital, and
two of the partners furnish all the money and do all the work, they
are entitled to be repaid their advances out of its assets before
payment of the individual creditors of the partner who paid nothing
and did nothing to promote the partnership business. The decree may
stand on even stronger grounds. There is no evidence in the record
to show that there were any unpaid debts outstanding against the
partnership of which Peck and the plaintiffs were the members. The
decree of the court is based on the assumption that there were no
such debts. The money, therefore, collected on the judgment
recovered by Peck's administratrix was assets of the partnership,
to which the partners were entitled in proportion to the amount
paid in by them, and the record clearly shows that the money so
collected was the only assets of the partnership. As McLean and
Harmon had paid in all the money, they were entitled to all the
money collected on the judgment, not by reason of any right to
priority of payment, nor by reason of any lien, but because it was
their property, and no other person had any claim to it. The
plaintiffs' right to the fund was not at all impaired by the
bankruptcy or death of Peck. Their claim was just as strong as if
Peck were still living and had received and collected the judgment
in his own name, and the money had been taken
Page 117 U. S. 574
from his hands and impounded in the registry of the court. The
decree might therefore stand on the ground, which it in fact
asserts, that the money in controversy was the absolute property of
the plaintiffs.
The defendant, however, assails the decree on several grounds,
which we shall proceed to notice.
It was shown by the evidence that on July 20, 1877, Peck
executed and delivered to Harmon a paper, of which the following is
a copy:
"FORT ABRAHAM LINCOLN, July 20, 1877"
"For value received, I promise to pay to William Harmon, or
order, twenty-three thousand dollars, out of moneys I may hereafter
receive on account of my claim against the United States government
for contract for wood at Tongue River cantonment, on the
Yellowstone river."
"C. K. PECK"
On the same day, He executed and delivered to McLean a paper
similar in terms for the payment to him of $17,000 out of the same
fund. The appellant insists that the contract of partnership
between Peck and the plaintiffs, and the promises of Peck above
mentioned, were forbidden by the statutes of the United States, and
were therefore illegal and void and gave no rights to the
plaintiffs to the fund in controversy. The statutes relied on are
§§ 3477 and 3737 of the Revised Statutes, which read as
follows:
"SEC. 3477. All transfers and assignments made of any claim upon
the United States or of any part or share thereof or interest
therein, whether absolute or conditional, and whatever may be the
consideration therefor, and all powers of attorney, orders, or
other authorities for receiving payment of any such claim or of any
part or share thereof shall be absolutely null and void unless they
are freely made and executed in the presence of at least two
attesting witnesses after the allowance of such a claim, the
ascertainment of the amount due, and the issuing of a warrant for
the payment thereof."
"SEC. 3737. No contract or order or any interest therein shall
be transferred by the party to whom such contract or
Page 117 U. S. 575
order is given to any other party, and any such transfer shall
cause the annulment of the contract or order transferred, so far as
the United States are concerned. All rights of action, however, for
any breach of such contract by the contracting parties are reserved
to the United States."
We shall first consider these two sections in their bearing upon
the contract of partnership between Peck and the plaintiffs. It is
obvious that § 3477, which forbids assignments of claims against
the United States or any interest therein unless under the
circumstances therein stated, can have no reference to such a
contract as the partnership articles between Peck and the
plaintiffs. When those articles were signed, there was no claim
against the United States to be transferred. Peck had at that time
no contract even with the United States, and there was no certainty
that he would have one. What is a claim against the United States
is well understood. It is a right to demand money from the United
States. Peck acquired no claim in any sense until after he had made
and performed wholly or in part his contract with the United
States. Section 3477, it is clear, only refers to claims against
the United States which can be presented by the claimant to some
department or officer of the United States for payment, or may be
prosecuted in the Court of Claims. The section simply forbids the
assignment of such claims before their allowance, the ascertainment
of the amount due thereon, and the issue of a warrant for their
payment. When the contract of partnership was made, Peck had no
claim which he could present for payment or on which he could have
brought suit. He therefore had no claim the assignment of which the
statute forbids. It is so clear that the articles of partnership do
not constitute such an assignment as is forbidden by the section
under consideration that it would be a waste of words further to
discuss the point. Nor are the articles of partnership forbidden by
§ 3737. They do not transfer the contract or any interest therein
to the plaintiffs, and cannot fairly be construed to do so. But if
the articles of partnership were fairly open to two constructions,
the presumption is that they were made in subordination
Page 117 U. S. 576
to, and not in violation of, § 3737, and if they can be
construed consistently with the prohibitions of the section, they
should be so construed, for it is a rule of interpretation that
where a contract is fairly open to two constructions, by one of
which it would be lawful and the other unlawful, the former must be
adopted. Whart. on Ev. § 654; Best's Evidence, 6 Eng.Ed., 1st
Am.Ed., §§ 346, 347;
Shore v. Wilson, 9 Cl. & F. 397;
Moss v. Bainbrigge, 18 Beav. 478;
Lorillard v.
Clyde, 86 N.Y. 384;
Mandal v. Mandal, 28 La.Ann. 556.
Interpreting the articles in the light of the statute, as it is the
duty of the Court to do, they were not intended to transfer and do
not transfer to the plaintiffs any claim or demand, legal or
equitable, against the United States or any right to exact payment
from the government by suit or otherwise. They may be fairly
construed to be the personal contract of Peck by which, in
consideration of money to be advanced and services to be performed
by the plaintiffs, he agreed to divide with them a fund which he
expected to receive from the United States on a contract which he
had not yet entered into. This is the plainly expressed meaning of
the partnership contract, and it is only by a strained and forced
construction that it can be held to effect a transfer of Peck's
contract with the United States and to be a violation of the
statute.
We are of opinion that the partnership contract was not opposed
to the policy of the statute. The sections under consideration were
passed for the protection of the government.
Goodman v.
Niblack, 102 U. S. 556.
They were passed in order that the government might not be harassed
by multiplying the number of persons with whom it had to deal, and
might always know with whom it was dealing until the contract was
completed and a settlement made. Their purpose was not to dictate
to the contractor what he should do with the money received on his
contract after the contract had been performed. One or both of the
sections of the statute which we are now considering have been
under the review of this Court in the following cases:
United
States v. Gillis, 95 U. S. 407;
Erwin v. United States, 97 U. S. 392;
Spofford v. Kirk, 97 U. S. 484;
Page 117 U. S. 577
Goodman v. Niblack, 102 U. S. 556;
Bailey v. United States, 109 U. S. 432;
St. Paul & Duluth Railroad Co. v. United States,
112 U. S. 733. In
none of them is any opinion expressed in conflict with the views we
have announced in this case.
Our conclusion therefore is that the articles of partnership
were not forbidden by the letter or policy of this statute.
In respect to the papers executed by Peck on July 20, 1877, by
which he agreed to pay $23,000 to Harmon and $17,000 to McLean,
respectively, "out of moneys" he might "thereafter receive on
account of" his "claim against the United States government for
contract for wood," etc., it is plain they confer no new rights on
the plaintiffs and taken away no old ones. The evidence shows that
Harmon and McLean were entitled under the partnership articles to
the money specified in these memoranda. Peck was therefore only
promising to do what, on a good consideration, he had already by
the articles of partnership promised to do. There was no new
consideration for these new promises. The only office, therefore,
which the memoranda performed was to show the amount then due the
plaintiffs, respectively, under the articles of partnership. It
would be a strange conclusion to hold that by accepting these
papers, the plaintiffs lost their right, which they had already
acquired under the articles of partnership, to have the money
therein mentioned paid over to them when it should be collected by
Peck, their co-partner. If the obligation assumed by Peck in his
articles of partnership was valid and binding, it was not impaired
or annulled by the giving and the acceptance of these memoranda.
From what we have already said in discussing the articles of
partnership, it is clear that they were not forbidden by the
language or policy of the sections prohibiting the transfer of
claims and contracts.
It is next assigned for error that the circuit court did not
give effect to the defense of the statute of limitation of two
years, prescribed by § 5057 of the Revised Statutes, which was set
up in the answer of the defendant.
The section mentioned forms a part of § 2 of the Bankrupt Act of
March 2, 1867, c. 176, 14 Stat. 517, and provides that
Page 117 U. S. 578
no suit at law or in equity shall be maintained in any court
between an assignee in bankruptcy and a person claiming an adverse
interest touching any property or rights of property transferable
to or vested in such assignee unless brought within two years from
the time when the cause of action accrued for or against such
assignee.
It is plain that the facts shown by the record do not sustain
this defense. This suit is for the recovery as assets of a
partnership of the money collected on the contract between Peck and
the United States and its distribution among the partners on a
settlement of the partnership affairs. If Peck had lived and had
not been adjudicated bankrupt, the plaintiffs could not have
maintained this suit against him until the money which is the
subject of this controversy had been collected from the United
States. They had no right under this contract with Peck to demand
their share of the money until the money had come to his hands. The
bankruptcy and death of Peck did not change the terms of the
contract. They could not sue his assignee for a distribution of the
fund until the fund had been received. The judgment against the
United States in favor of Peck's administratrix was not affirmed by
this Court until February 10, 1880, and the money was not received
by the defendant until after he had been substituted as claimant in
the case in place of Helen A. Peck, administratrix, by order of the
Court of Claims, on May 10, 1880. This suit was begun September 22,
1880.
A bill like the present, for the settlement of the affairs of
the partnership and the distribution of its assets among the
partners, would have been premature until the final determination
of the suit of Peck against the United States, for that suit
involved all the assets of the partnership, and until it was
decided, there could be no adjustment of the partnership concerns
and no distribution of its assets; in fact, it was uncertain
whether there would be any assets to distribute. As, therefore, the
plaintiffs were not entitled to the relief prayed in the bill until
final judgment in the suit of Peck against the United States, and
especially had no demand against the defendant until the fund,
which they assert was assets of the partnership, came to
Page 117 U. S. 579
his hands, it is plain that the statute of limitation was not
well pleaded.
It is next assigned for error that the circuit court admitted
the testimony of McLean and Harmon, the plaintiffs, offered in
their own behalf, in regard to transactions with and statements by
Peck, he being dead, and the suit being against his assignee in
bankruptcy. It is insisted that the testimony of these witnesses
was incompetent under § 858 of the Revised Statutes, which provides
as follows:
"In the courts of the United States, no witness shall be
excluded . . . in any action because he is a party to or interested
in the issue tried,
provided that in actions by or against
executors, administrators, or guardians in which judgment may be
rendered for or against them, neither party shall be allowed to
testify against the other as to any transaction with, or statement
by, testator, intestate, or ward unless called to testify thereto
by the opposite party or required to testify thereto by the court.
In all other respects, the laws of the state in which the court is
held shall be the rules of decision as to the competency of the
witnesses in the courts of the United States in trials at common
law and in equity and admiralty."
The witnesses admitted by the circuit court were not excluded by
the terms of this statute. The suit in which they testified was not
an action by or against an executor, administrator, or guardian.
But the counsel for the plaintiffs insists that the policy of the
act applies to suits by or against assignees as well as to suits by
or against executors, administrators, or guardians, and that we
ought to construe the act so as to include such suits. We cannot
concur in this view. The purpose of the act was to remove generally
the old incapacity to testify imposed on parties or persons
interested in the suit. This was done by a sweeping provision,
subject to certain well defined exceptions, but the exceptions did
not include suits by or against assignees in bankruptcy. We cannot
insert the exception. When a provision is left out of a statute,
either by design or mistake of the legislature, the courts have no
power to supply it. To do so would be to legislate, and not to
construe. "We are bound," says Mr. Justice Buller in
Jones v.
Smart, 1 T.R.
Page 117 U. S. 580
44, "to take the act of Parliament as they have made it," and
Mr. Justice Story, in
Smith v. Rines, 2 Sumner 354, 355,
observes: "It is not for courts of justice
proprio marte
to provide for all the defects or mischiefs of imperfect
legislation."
See also King v. Burrell, 12 A. & E.
460;
Lamond v. Eiffe, 3 Q.B. 910;
Bloxam v.
Elsee, 6 B. & C. 169;
Bartlett v. Morris, 9 Port.
(Ala.) 266. The objection made to the admission of the testimony of
the plaintiffs was properly overruled.
The next ground of complaint against the decree of the circuit
court is that the court did not hold the plaintiffs estopped from
asserting title to the fund in controversy by the fact that they
each testified in the suit of Peck against the United States, in
which the fund was recovered, that he had no interest, direct or
indirect, in the claim of Peck, except that he held one of the
notes or memoranda made by Peck, a copy of one of which has already
been given.
It must be conceded that this testimony was evasive and
disingenuous, but it was not false. But admitting that the
testimony was untrue, it is difficult to see how any estoppel is
raised which the defendant can set up against a recovery in this
case by the plaintiffs. An equitable estoppel is raised when there
is some intended deception in the conduct or declarations of the
party to be estopped, or such gross negligence on his part as to
amount to a constructive fraud, by which another has been misled to
his injury.
Brant v. Virginia Coal & Iron Co.,
93 U. S. 326. If
any estoppel could be set up in this case by reason of the
testimony of the plaintiffs, it would be one in favor of the United
States, who alone could have been injured by that testimony.
It is clear that the estoppel could not be set up by the
defendant, for the evidence was given on his side of the
controversy, and he is now in possession of and claims the fund
which that testimony aided Peck, whose assignee he is, to recover.
There was therefore no injury to the defendant, and no estoppel
which he could set up against these plaintiffs.
See Cushing v.
Laird, 107 U. S. 69.
It is true, his counsel say that, by reason of the denial by the
plaintiffs that they had any interest in Peck's claim, the
defendant
Page 117 U. S. 581
was induced to employ counsel, and move both this Court and the
Court of Claims that he be made, as assignee of Peck, the party
plaintiff in the suit against the United States, and to expend a
large sum of money in prosecuting his motions. As we have already
found that the plaintiffs were entitled to the fund in controversy,
and the defendant was not, this contention amounts to this, that
the plaintiffs should be precluded from a recovery of their own
property, and it ought to be turned over to the defendant, because
the defendant, misled by the testimony of the plaintiffs given in a
case to which he was not at the time either a party or privy, was
induced to expend money in a proceeding to get possession of the
subject matter of the controversy, to which, as it turned out, he
had no title whatever. Upon such a state of facts no estoppel is
raised. But there is no proof in the record that the defendant was
misled by the testimony of the plaintiffs, or that he did not know
the exact truth when he took the proceedings referred to. In no
point of view, therefore, can the defendant assert that the
plaintiffs are estopped to claim the fund in controversy.
Lastly, the defendant insists that the circuit court erred in
not allowing him compensation for his services, expenses, and
attorneys' fees in recovering the fund in the Court of Claims from
the United States. In reply to this contention, it is sufficient to
say that the defendant rendered no services whatever in the
recovery of the fund. Judgment had been rendered in the Court of
Claims in favor of the administratrix of Peck, and had been
affirmed by this Court, and the mandate of this Court had been sent
to the Court of Claims before the defendant was admitted as
plaintiff in the suit for the recovery of the fund. All he did was
to get the fund into his possession. As in our view the fund
belongs to the plaintiffs in this suit, all that comes out of it
for the compensation of the defendant comes out of their pockets.
We see no reason why they should pay the defendant, who, instead of
aiding them in securing their rights, has been an obstacle and
obstruction to their enforcement. The services for which the
defendant seeks pay from the plaintiffs were not rendered in their
behalf, but in hostility to their interest.
Page 117 U. S. 582
When many persons have a common interest in a trust property or
fund, and one of them, for the benefit of all and at his own cost
and expense, brings a suit for its preservation or administration,
the court of equity in which the suit is brought will order that
the plaintiff be reimbursed his outlay from the property of the
trust, or by proportional contribution from those who accept the
benefits of his efforts.
See Trustees v. Greenough,
105 U. S. 527,
where the subject is discussed by MR. JUSTICE BRADLEY and the cases
cited, and
Central Railroad Co. v. Pettus, 113 U.
S. 116. But where one brings adversary proceedings to
take the possession of trust property from those entitled to it, in
order that he may distribute it to those who claim adversely, and
fails in his purpose, it has never been held in any case brought to
our notice that such person had any right to demand reimbursement
of his expenses out of the trust fund or contribution from those
whose property he sought to misappropriate.
The circuit court was right in not compelling the plaintiffs to
pay for services rendered and expenses incurred in a proceeding
adversary to their interest and carried on for the benefit of
others.
There is no error in the record.
Decree affirmed.
