1. A party coming into the right of a partner, whether by
purchase from such partner (no matter how broad the language of the
conveyance may be) or as his personal representative, or under an
execution or commission of bankruptcy, comes into nothing more than
an interest in the partnership, which cannot be tangible, made
available, or be delivered but under an account between the
partnership and the partner.
2. Where a complainant's right is thus only an equity to share
in the surplus, if any, of the firm property, after settlement of
the partnership accounts, the proper bill is a bill for such a
settlement. Such bill will not lie unless all the partners are made
parties defendant.
3. Although in general a bill in chancery will not be dismissed
for want of proper parties, the rule resting as it does upon the
supposition that the fault may be remedied and the necessary
parties supplied, does not apply when this is impossible and
whenever a decree cannot be made without prejudice to one not a
party. In such a case, the bill must be dismissed. Hence, in a case
where if all the partners were made parties to the bill, the court
in which the bill was filed would, from the character of its
jurisdiction (which was confined to persons resident within
particular districts, which one of the partners here was not), be
without any jurisdiction of the controversy, the bill must be
dismissed.
4. A bill for a settlement of partnership accounts which,
without charging fraudulent confederacy, shows that it is filed not
against all the original partners, but against one of them (yet
remaining in the administration of the firm concerns), and persons
who have succeeded to the rights
Page 78 U. S. 625
(not to the obligations) of one or more of the others, presents
not only a want of indispensable parties but a misjoinder of the
defendants -- a misjoinder apparent upon the face of the bill. It
must be dismissed.
The Fourth national Bank of New York filed a bill in December,
1867, in the court below against the New Orleans & Carrollton
Railroad Company, Beauregard, Hernandez, Binder, and Bonneval. The
court dismissed the bill and this case was an appeal by the bank.
The case was thus:
The railroad company just mentioned was a corporation in
Louisiana, which had made a railroad from New Orleans to
Carrollton. On the 12th April, 1866, this corporation made a lease
to the defendant, Beauregard, of the road for twenty-five years,
from the 16th of that month, at a rent of $20,000 a year, under
covenants to make large improvements and changes in its condition
and operation. The lease contained this provision:
"The said lessee (Beauregard) shall not have the right of
transferring this lease or of underletting the premises leased
without the consent of the directors of the said railroad
company."
A certain May and one Graham signed the lease as sureties for
Beauregard, the lessee. Immediately after the execution of this
lease -- that is to say on the 18th April, Beauregard, May, and
Graham entered into an agreement for the equipment of the road for
their common advantage. Beauregard was to have charge and direction
of the road, appointing his own assistants, to have for himself an
annual salary of $5,000. All was to be in his name, but for the
common benefit. The arrangement was to continue for twenty-five
years. The whole amount of the money necessary to carry out the
enterprise was to be furnished by May and Graham -- $20,000 by each
immediately after the lease was obtained and $20,000 by each every
month after for
Page 78 U. S. 626
four months, and then $10,000 each per month for five months.
The money advanced, with 8 percent interest, was to be repaid from
the annual net profits and the remainder of the profits was to be
divided between the partners, all losses being borne equally. Books
were to be kept showing the moneys received and expended and the
purchases made on account of the co-partnership, and monthly
statements of the amounts received and expended were to be
furnished by Beauregard to May and Graham. On the 8th May, 1867,
Graham, in consideration of one dollar, assigned all his estate,
right, and title to the lease which he derived from the partnership
articles, and all his right and interest in any property and
effects of the partnership, and all debts due to him by the said
partnership or any partner, to the complainant, and it was in
virtue of this assignment that the bill was filed. It will be
observed that neither May nor Graham, the partners, were parties to
the bill. The purpose of the bill, which did not charge any
fraudulent confederacy, was to enforce the transfer made by Graham.
The bill charged that the defendants had taken possession of the
lease and partnership, and would not recognize the partnership or
the interest of the plaintiff; that they claim under the
co-partner, May, and claim independently of the plaintiff. In point
of fact, they claimed two-thirds of the partnership in virtue of an
assignment from May, made on the 14th and 16th of May, 1867, and
denied that when Graham assigned to the bank he had any interest to
assign, asserting that he was but a trustee for May. The prayer of
the bill was that the defendants might be ordered to recognize the
interest of the complainant, the bank, in the co-partnership and in
the business carried on under the lease, and to pay them the
capital advanced by Graham and his share of profits.
Issue being joined and evidence being taken, the question as to
the true interest of Graham in the partnership, whether indeed he
had any as against May, and how far he had a right to make the
assignment which he did, to the bank, were matters to which
testimony was largely directed.
Page 78 U. S. 627
The court below dismissed the bill, with leave to the
complainant to bring a suit against Beauregard, Graham, and May,
for a settlement of whatever partnership existed between them prior
to the transfer of May, on the 14th and 16th of May, 1867.
Graham, at the time when the lease was made, was a resident of
New Orleans, but in 1866 removed to New York, and was a citizen of
that place when the bill was filed in 1867.
Page 78 U. S. 628
MR. JUSTICE STRONG delivered the opinion of the Court.
The effect of Graham's assignment to the complainant was
undoubtedly to dissolve the partnership which had existed between
Beauregard, May, and himself, but it did not make his assignee a
tenant in common with the other two partners in the property of the
firm. It seems to be assumed on behalf of the complainant that, in
succeeding to Graham's rights, the bank acquired an ownership of
the effects of the firm jointly with Beauregard and May, and that,
as Graham had been an equal partner with them, his assignee of
course became the owner of one undivided third of the railroad
lease and other property of the firm. But this assumption is based
upon a misapprehension of the effect of the assignment. It has
repeatedly been determined both in the British and American courts
that the property or effects of a partnership belong to the firm,
and not to the partners, each of whom is entitled only to a share
of what may remain after payment of the partnership debts and after
a settlement of the accounts between the partners; consequently
that no greater interest can be derived from a voluntary sale of
his interest by one partner or by a sale of it under execution.
[
Footnote 1] In
Taylor v.
Fields, [
Footnote 2] it
was said that "a party coming into the right of a partner" (in any
mode, either by purchase from such partner, or as a personal
representative
Page 78 U. S. 629
or under an execution or commission of bankruptcy)
"comes into nothing more than an interest in the partnership,
which cannot be tangible, cannot be made available, or be delivered
but under an account between the partnership and the partner, and
it is an item in the account that enough must be left for the
partnership debts."
When, therefore, the bank obtained from Graham the assignment
which is the foundation of its claim in this suit, it obtained
thereby no ownership of the lease made by the railroad company to
Beauregard, and which he agreed to hold for the benefit of the
firm, nor did it obtain any aliquot part of it or of any of the
effects of the firm. The utmost extent of its acquisition was an
interest in the surplus, if any, which might remain after all debts
of the firm should be paid, and after the liabilities of Graham to
his co-partners, as such, should be discharged. It was not in the
power of Graham, by retiring from the firm in violation of the
articles of co-partnership, either to introduce another partner or
to deprive the partners who remained of their right to have all the
partnership property held for partnership purposes. Incident to the
rights of the bank to share in the surplus was a right to enforce a
settlement of the partnership accounts in order to ascertain
whether there was any surplus. It is true the words of the
assignment were very broad. It purported to transfer all the
estate, right, title, and interest in the lease made by the New
Orleans & Carrollton Railroad Company to Beauregard, to which
the assignor might be entitled by virtue of the articles of
co-partnership, and also all his right and interest in any property
and effects of the partnership, and all debts due to him from the
partnership or any member thereof. But no matter what its language,
it is clear no more could pass under it than the right of the
assignor, and if, as we have said, that was not a right to the
specific articles of property belonging to the firm, the bank
obtained no such right. We are not now speaking of the fact that
under his contract with the railroad company, Beauregard had no
right to transfer the lease either to the partnership or its
members. The case does not require us
Page 78 U. S. 630
to consider that inability. It is sufficient that the
complainant's right was only an equity to share in the surplus, if
any, of the firm property after settlement of the partnership
accounts, and that this is a bill for such a settlement.
Manifestly, then, it is incurably defective, because neither Graham
nor May are made parties defendant. It is too plain for discussion
that to such a bill all the members of the firm are indispensable
parties, for they are all directly affected by any decree that can
be made. How utterly impossible it is to ascertain what the equity
of the complainant is, with the present state of the record, will
appear more distinctly if the provisions of the articles of
co-partnership be considered. When it was formed, Beauregard had
obtained from the New Orleans & Carrollton Railroad Company a
lease of its railroad, with all its rolling stock, and with its
corporate privileges, for the term of twenty-five years. Though the
sole lessee, and prohibited by his contract from assigning or
underletting, it was nevertheless agreed between him and his
co-partners that the lease should be for their common benefit; that
May and Graham should each advance one hundred and fifty thousand
dollars to carry on the enterprise of running the road, and that
Beauregard should take charge of, manage, and direct the
undertaking for the mutual advantage of the parties at a fixed
annual salary, selecting and appointing his own assistants. It was
agreed that the money advanced, with eight percent interest, should
be repaid from the annual profits of the enterprise, and that the
remainder of the net profit should be equally divided between the
partners, and that all losses should be equally borne by them. The
contract evidently contemplated that the property of the firm and
the management of its affairs should be in the hands of Beauregard.
Books were to be kept showing not only all money received and
expended, but also all purchases made on account of the
co-partnership, and monthly statements of amounts received and
expended were required to be furnished by Beauregard to May and
Graham. It was also agreed that the partnership should continue
twenty-five years from the date
Page 78 U. S. 631
of the lease, which was April 12, 1866. Now it is quite possible
that, on settlement of the accounts, Graham may be found indebted
to the firm or to his co-partners, and that the court would be
required thus to decree. How can such a decree be made when he is
no party to the record? Or it might appear that May is a large
debtor to the firm. How can any decree be made against him? How can
any decree be made that will not prejudice one or the other of
these partners? And yet whether the bank complainant has any
interest or not -- whether it acquired anything under Graham's
assignment -- can be determined only by a final and conclusive
settlement of the partnership accounts between all the partners,
two of whom are not parties to this suit.
It is argued, however, on behalf of the appellant that even if
May and Graham were necessary parties, the bill should not have
been dismissed, but that the complainant should have been allowed
to bring in new parties by a supplemental bill. It is doubtless the
general rule that a bill in chancery will not be dismissed for want
of proper parties, but the rule is not universally true. It rests
upon the supposition that the fault may be remedied and the
necessary parties supplied. When this is impossible, and whenever a
decree cannot be made without prejudice to one not a party, the
bill must be dismissed. Nothing is to be gained by retaining it
when it is certain that the complainant can never be entitled to a
decree in his favor. [
Footnote
3] In the present case, we have seen that no decree for an
account can be made until all the partners are made parties. But if
both May and Graham had been made parties defendant, the circuit
court would have had no jurisdiction of the case. It is said Graham
might have been made a co-plaintiff. Perhaps he might, and had
application been made in due season for such an amendment of the
bill, it might have been the duty of the circuit court to grant it.
But no such application was made. The complainants chose to stand
upon their case as they presented it. Possibly they never would
have
Page 78 U. S. 632
sought to bring in the necessary parties. The defendants could
not bring them in. New parties cannot be brought into a cause by a
cross-bill, [
Footnote 4] and
had the bill not been dismissed, it must have been left at the
option of the complainants whether the case should ever be brought
to a final decree. Under these circumstances, there was no reason
for retaining the bill.
It is insisted, however, that the court erred in dismissing the
bill, reserving only a right to sue Beauregard, May, and Graham,
for a settlement of the partnership between them prior to the 14th
and 16th of May, 1867. Yet if the right acquired by Graham's
assignment was, as the authorities show, not an ownership of the
specific effects of the partnership, but only a right to share in
the surplus remaining after the settlement of the partnership
accounts and the payment of all its debts, as well as the just
claims of the several partners, it is clear there can be in the
complainant no equity against the railroad company or against
Hernandez, Binder, or Bonneval, who have succeeded to May's rights
(not his obligations), if they have not to Graham's. No fraudulent
confederacy is charged in the bill. At most, according to the
complainant's own showing, they are purchasers of property that
belonged to the firm. There was therefore not only a want of
indispensable parties, a want which cannot be supplied without
ousting the jurisdiction of the court, but a misjoinder of the
defendants, a misjoinder apparent upon the face of the bill. Hence
the decree of the circuit court was correct.
Affirmed.
[
Footnote 1]
West v. Skip, 1 Vesey 239;
Nicoll v. Mumford,
4 Johnson's Chancery 522;
Doner v. Stauffer, 1 Pa.
198.
[
Footnote 2]
4 Vesey Jr. 396.
[
Footnote 3]
Note 5, ยง 541, Story's Equity Pleadings;
Shields v.
Barrow, 17 How. 130.
[
Footnote 4]
Shields v. Barrow, supra.
