A. and B., having arranged the terms on which the partnership
between them should be dissolved, stipulated that their clerk
should examine their books, ascertain the amount which each had put
into the firm, and each had drawn out, and report the same as the
basis of their agreed settlement, and that if any error was made,
it should be corrected when discovered. The clerk made the
examination and reported that the sum of $47,039.54 was due from B.
to A. Thereupon, supposing the report to be correct, each made,
executed, and delivered to the other all the papers necessary to
perfect and complete the terms and conditions of the dissolution of
the partnership. On the same day, the clerk discovered that he had
made an error of $4,036.12 against A. B. having refused to correct
it, A. filed his bill praying for an account, the correction,
amendment, and cancellation of the papers so executed by them, and
for a decree for the payment of the $4,036.12 due him. The bill was
dismissed, on the ground that A.'s remedy was at law.
Held
that the decree was erroneous.
The facts are stated in the opinion of the Court.
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
Except in an action of account, which is almost obsolete, it is
a general rule that between partners, whether they are so in
general or for a particular transaction only, no account can be
taken at law.
Worrall v. Grayson, 1 Mee. & W. 168; 1
Collyer, Partnership (6th ed.) 339.
Owing to the ability of courts of equity not only to
investigate
Page 98 U. S. 80
complicated accounts, but also to compel the specific
performance of agreements and to reform or rescind the same in case
of fraud or mistake and to restrain breaches of duty for the
future, it is to them rather than courts of law that partners
usually have recourse for the settlement of controversies among
themselves. 2 Lindley, Partnership (3d ed.) 933.
Sufficient appears to show that the parties to the present
controversy on the 6th of September, 1872, entered into a
co-partnership for the purpose of raising cattle in the county
where they resided; that their business transactions and accounts
were large; that the complainant put into the co-partnership the
sum of $51,075.66, and that he had drawn out from the same the sum
of $7,257; that on the 11th of April, 1874, the partnership was
dissolved by mutual consent upon the terms following:
1. That the respondent should pay the complainant $5,000 and all
the money the complainant had put into the partnership, less the
amount he had drawn out, and that the respondent should pay or
secure all debts and liabilities due and owing by the firm.
2. That the complainant should release, assign, and convey to
the respondent all the interest of every description which he, the
retiring partner, had in the partnership property when the
partnership was dissolved.
Neither party knew what amount the complainant had put into the
firm nor what amount he had drawn out, but they mutually agreed
that their clerk should examine the partnership books, ascertain
the amount, and report the same as the basis of their agreed
settlement, and that if any error was made, that it should be
corrected when discovered.
Pursuant to that arrangement, the clerk examined the books and
reported to the parties that the sum shown to be due from the
respondent to the complainant was $47,039.54. By the record it also
appears that both parties supposed that the sum reported was
correct, and that they made, executed, and delivered each to the
other all the papers necessary to perfect and complete the terms
and conditions of the dissolution of the co-partnership; that in
the course of the same day, the clerk discovered that he had made
an error of $4,036.12 against the complainant in making the
computation.
Page 98 U. S. 81
Prompt notice of the error was given to the parties, and the
complainant alleged in the original bill of complaint that the
respondent then and there promised and agreed to reexamine the
accounts, and that he would rectify the error or errors if any were
found to have been made, which he subsequently refused to do.
Service was made and the respondent appeared and demurred to the
bill of complaint.
Leave of the court having been first obtained, the complainant
amended the bill of complaint by striking out the words containing
the promise to rectify the error or errors, and the respondent
demurred to the amended bill of complaint. Responsive to the same
demurrer, the complainant filed a motion to strike it from the
files as irregular; but the court denied the motion, overruled the
demurrer, and directed the respondent to file an answer to the
amended bill of complaint.
These preliminary matters being settled, the respondent filed an
answer denying the jurisdiction of the court and setting up several
defenses. Hearing was had upon the bill of complaint and answer,
and the court sent the cause to a special master to take the proofs
and report the same to the court. Due report was accordingly made
by the master, with his findings of fact, which substantially
support all the material allegations of the amended bill of
complaint. Exceptions to the report of the master were filed by the
respondent, all of which were overruled by the court.
Before making that order, the parties were again heard, and the
court confirmed the report of the master and entered a decree that
all the papers, instruments, agreements, notes of hand, and
mortgages made and executed by the parties in effecting the
dissolution of their co-partnership be reformed and corrected in
accordance with the findings of the master. From which decree the
respondent appealed to the territorial supreme court, where, the
parties having been again heard, the appellate court reversed the
decree of the court of original jurisdiction and dismissed the bill
of complaint, holding that the complainant had a plain, adequate,
and complete remedy at law, and from that decree the complainant
appealed to this Court.
Since the appeal was entered here, the complainant assigns for
error that the court erred in holding that the case was not
Page 98 U. S. 82
one of equitable jurisdiction, that the complainant's remedy was
at law and not in equity, and in dismissing the bill of complaint
on that ground.
Courts of equity have jurisdiction of controversies arising out
of transactions evidenced by written instruments which are lost, or
if through mistake or accident the instrument has been incorrectly
framed, or if the transaction is vitiated by illegality or fraud,
or if the instrument was executed in ignorance or mistake of facts
material to its operation, the error may be corrected or the
erroneous transaction may be rescinded.
Equities of the kind, whether it be for the reexecution, reform,
or rescission of the instrument, like the equity for specific
performance of a contract, are incapable of enforcement at common
law, and therefore necessarily fall within the peculiar province of
the courts invested with equitable jurisdiction.
Power to reform written contracts for fraud or mistake is
everywhere conceded to courts of equity, and it is equally clear
that it is a power which cannot be exercised by common law courts.
Hearne v. Marine Insurance
Company, 20 Wall. 490.
Relief in such a case can only be granted in a court of equity,
and Judge Story says if the mistake is made out of proofs entirely
satisfactory, equity will reform the contract so as to make it
conform to the precise intent of the parties; but if the proofs are
doubtful and unsatisfactory and the mistake is not made entirely
plain, equity will withhold relief upon the ground that the written
paper ought to be treated as a full and correct expression of the
intent until the contrary is established beyond reasonable
controversy. 1 Story, Eq.Jur. (9th ed.), sec. 152;
Gillespie v.
Moon, 2 Johns. (N.Y.) Ch. 585;
Rhode
Island v. Massachusetts, 15 Pet. 271;
Daniel v.
Mitchell, 1 Story 172.
Authorities which support that proposition are quite too
numerous for citation, and the rule is equally well established
that parol proof is admissible to prove the alleged accident or
mistake which is set up as the ground of relief.
Hunt v.
Rousmanier, 8 Wheat. 174; 1 Story, Eq.Jur. (9th
ed.), sec. 156; 3 Greenl.Evid. (8th ed.), sec. 360; Adams, Eq. (6th
ed.) 171.
Support to the latter proposition is also found in all the
Page 98 U. S. 83
standard writers upon the law of evidence. Courts of equity,
says Taylor, will also admit parol evidence to contradict or vary a
writing where, by some mistake in fact, it speaks a different
language from what the parties intended, and where consequently it
would be unconscionable or unjust to enforce it against either
party according to its terms. 2 Taylor, Evid. (6th ed.) 1041.
Viewed in the light of these suggestions, it is evident that the
ruling of the court below that the complainant had a plain,
adequate, and complete remedy at law was erroneous and utterly
subversive of the complainant's rights, as it is clear that the
common law courts could not give him adequate relief.
Hipp v.
Babin, 19 How. 274;
Insurance Company v.
Bailey, 13 Wall. 621.
Reported cases of the highest authority decide that courts of
equity possess the power to correct mistakes in written
instruments, even to the extent of changing the most material
stipulations they contain and which are the subjects of special
agreement; but the settled rule of practice is that the power
should always be exercised with great caution, and only in cases
where the proof is entirely satisfactory.
Finley
v. Lynn, 6 Cranch 249;
Oliver v. Insurance
Company, 2 Curt. 295.
Where an instrument is drawn and executed which professes or is
intended to carry a prior agreement into execution, whether in
writing or by parol, which by mistake violates or fails to fulfill
the manifest intention of the parties, equity, if the proof is
clear, will correct the mistakes so as to produce a conformity of
the written instrument to the antecedent agreement of the parties.
Hunt v.
Rousmanier, 8 Wheat. 211;
S.C.
26 U. S. 1 Pet.
13.
Proof of the most unquestionable character is exhibited in the
record that the understanding of the parties was that the
respondent was to pay to the complainant the whole amount the
latter paid into the firm, less the sums he had drawn out, and that
the clerk designated by the parties to examine the books and
compute the amount made the mistake alleged in the bill of
complaint. Clear proof is also exhibited that corresponding
mistakes were made in the writings executed between the parties to
effect the agreed dissolution of the co-partnership.
Page 98 U. S. 84
Under such circumstances, equity, if the proof is clear, will
reform the agreements and correct the mistakes, as appears by many
standard authorities in addition to those to which reference has
already been made.
Henkle v. Insurance Company, 1 Ves.
314;
Moteux v. Insurance Company, 1 Atk. 545;
Collett
v. Morrison, 12 Eng.L. & Eq. 171;
Andrews v. Essex
Co., 3 Mason 10.
Controversies of the kind often arise in respect to policies of
insurance, and the rule is when once the contract is agreed to, the
underwriters are bound to insert it in the policy, and if they omit
to do it, the insured have a right to insist upon a perfect
conformity to the original agreement.
Canedy v. Morey, 13
Gray (Mass.) 377;
Wake v. Harrow, 1 Hurlst. & Colt.
202.
Concede that and still it is suggested by the respondent that
errors in matters of practice were committed by the court of
original jurisdiction. Suppose that is so, still it cannot afford
any justification for the appellate court in dismissing the bill of
complaint, as the errors, if any, were amendable and might have
been corrected if the appellate court had reversed the decree of
the court of original jurisdiction and remanded the cause for
further proceedings. Instead of that, the appellate court dismissed
the bill of complaint without qualification, the effect of which,
if not corrected, will be that the complainant will be barred of
relief.
Irregularity in the proceedings may frequently justify a
reversal of the decree and a remanding of the case, but it will
seldom or never present just cause for dismissing the bill of
complaint. By a reversal in such a case, the right of the
complainant is not barred, and when the cause goes down, he may, if
he can, correct the errors and preserve his rights. Even if the
alleged errors of practice were material, the decree could not be
justified, as, if not reversed, it would for ever bar the right of
the complainant; but upon a careful examination of the supposed
errors, it is clear that they presented no just obstacle to the
rightful determination of the controversy. Nor is it correct to
suppose that the alleged errors of practice constituted the cause
of dismissal in this case. On the contrary, the opinion of the
court shows that the bill was dismissed solely
Page 98 U. S. 85
upon the ground that the complainant had a plain, adequate, and
complete remedy at law, which is a manifest error, as fully shown
by the authorities previously cited.
The decree will be reversed and the cause remanded with
directions to enter a decree affirming the decree of the court of
original jurisdiction, and it is
So ordered.