GEORGE W. WHITE, Plaintiff and Respondent, v. ALBERT C. COLFAX, CHARLES B. OVERTON and NATHANIEL WHITMAN, Defendants and Appellants.
I. PABTNEBSHIP.
1. Partners, rights of, after dissolution.; how affected by agreement of dissolution. a. When a firm, composed of A., B. and 0., as general partners, *298and D. as special partner, sells out its entire stock and fixtures to D., on an agreement that the purchase money should be paid by applying it to the payment of the outstanding indebtedness of the firm, at such times as they should mature; that all loans to the firm, and open accounts due, should be paid immediately; that all interest on said accounts and loans should cease, and that the whole purchase money should be paid in said manner, on or before July 1,1870; and thereupon, the firm is dissolved, and a new firm composed of B. and C. as general partners, and D. as a special partner, is formed for the carrying on of the same business as the old one; and an agreement is made between the old and new firms, by which the new firm undertakes to wind up the affairs of the old one, and to pay all its debts, on or before July 1, 1870, and to make distribution among the members of the old firm, and by which it was agreed that both firms, and each of the individuals composing them should at all times have free access to, and supervision of the accounts, collections, and business of liquidation; the sale, agreement, dissolution of the old, and formation of the new firm, being simultaneous acts;
Meld, —1. The stock and fixtures ceased to be the property of the old firm.
2. The purchase money for the stock and fixtures became a debt due the old firm.
3. A. stood in the position of a retiring partner, retaining his interest as partner in the assets of the old firm.
4. A. had a right to supervise the business of liquidation, to receive all information respecting collections, to ask for, and be informed of, the reason why collections are not received, and to have access to the books of the firm.
5. A. has an interest in having the debts due the firm collected, and the collections applied to the payment of its debts, according to the terms of the agreement.
H. Receiver, oe Partnership Assets.
1. When appointed after dissolution, although its articles of dissolution vests the right of winding up the partnership in some one or more of the partners.
a. At the instance of any one of the other partners, when those charged with winding up the partnership violate the agreement entered into in respect thereto, i. At the instance of a partner who is denied the rights secured *299to him by the articles of dissolution, such as, access to the books.
c. When the state of feeling between the partners is such that the rights of supervision, of one or more, cannot be exercised without great unpleasantness and embarrassment.
2. When continued, although defendant has removed the original causes for which he was appointed.
a. When those original causes have produced others sufficient to call for a receiver, which have not -been, and cannot be removed.
Before Monell, McCunn and Freedman, JJ.
Decided April 1, 1871.
Appeal from order sustaining- receiver and injunction.
On February 1, 1870, there existed at the city of New York, a firm under the firm name of George W. White & Co. The members of this firm were George W. White, Albert B. Colfax and Charles B. Overton as general partners, and Nathaniel Whitman as special partner. On that day a copartnership was formed between said Colfax and Overton and Whitman, under the firm name of Colfax and Overton (Colfax and Over-ton being general partners and Whitman special partners), for carrying on the same business as the firm of George W.. White & Co., at the same place of business. On that day the general partners of the firm of George W. White & Co., sold and by bill of sale dated that day, transferred to said Whitman, the special partner, the entire stock of goods and merchandise of the firm of George W. White & Co., for the consideration of sixty-one thousand and seventy-eight dollars and twenty-five cents.
By an instrument bearing even date with and executed simultaneously with said bill of sale, by and between the said general partners of the firm of George W. White and Co., and said Whitman, the special *300partner of said firm, he the said Whitman, in consideration of said sale, agreed “to well and truly devote the said sum of sixty-one thousand and seventy-eight dollars and twenty-five cents, to the liquidation and payment of the outstanding indebtedness of said firm of George W. White & Co., at such times as the same shall mature and become due, and all loans to the said George W. White & Go., and open accounts now or past due to be paid immediately, and all interest on such accounts and loans to cease from the date of the instrument, and the whole of said sum of sixty-one thousand and seventy-eight dollars and twenty-five cents to be paid in the manner herein before stated on or before July 1, 1870.”
On the same day and simultaneously with the execution of the above two instruments, the two firms of George W. White & Co. and Colfax & Overton executed an instrument bearing even date, therewith, which was as follows:
“Whereas, George W. White, Albert E. Colfax and Charles B. Overton have heretofore carried on the wholesale and retail clothing establishment at Nos. 234 and 235 Broadway, in the city of New York, as general partners, under the firm name and style of George W. White and Company;
“And, whereas, the said firm has been and is hereby declared to be dissolved ;
“And, whereas, the said George W. White has retired from said firm, and the said Albert E. Colfax and Charles B. Overton have formed a copartnership for the carrying on the same business at the same place under the firm name and style of Colfax and Overton;
“Now, therefore, this agreement made this first day of February, A. D. 1870, between the said firm, Colfax and Overton, parties of the first part, of the said city, and the said George W. White and Company of the *301same place, parties of the second part, for the purpose of liquidation,
“ Witnesseth,
“That, in consideration of the premises, the parties of the first part hereto do hereby assume the collection of all outstanding accounts and bills due to the said parties of the second part, and also all rents due or to become due the parties of the second part from real estate or otherwise during the period of this agreement, and do hereby agree well and truly to collect the same so far as collectable, without any charge or expense to the parties of the second part, and to apply the entire proceeds thereby derived to the liquidation and payment of the indebtedness of the party of the second part at such time or times as the same or any part thereof matures and becomes due, until such indebtedness shall be fully paid, not to exceed however beyond July 1, 1870.
“After such indebtedness shall have been paid as aforesaid, the proceeds of such collections shall be divided between and paid to the said George W. White, Albert E. Colfax, Charles B. Overton and Nathaniel Whitman, the members of the firm of George W. White and Company, in the same proportions to which they are severally entitled under their agreement of copartnership forming said firm, dated February 1, 1869, monthly on the first day of every month thereafter, the said Colfax, Overton and Whitman to first receive such sum or sums necessary to balance and equalize, or make up any amount that the George W. White may have received since February 1, 1870.
“ It is further agreed that both parties hereto, and each of the individuals composing said firm, shall at all times have free access to and supervision of the accounts, collections and business of said process of liquidation.
*302“ And that "on the first day of February, A. D. 1871, a complete and true account shall be made up and rendered as to the amounts collected, realized and paid, when, to whom paid, and of the assets still uncollected, if any, and at that time all assets, accounts, bills or property, of whatever kind, which may remain, shall be divided among the several partners of the late firm of George W. White & Co., according to their respective interests therein, and their several interests therein entirely separated.
“ It is further agreed that, until the entire indebtedness of the said firm of George W. White & Co. shall be paid, neither of the parties or partners shall draw, take or receive any sum or sums of money whatever from the property, assets, collections or proceeds, for their, or either of their individual purposes.
“In witness whereof, the said parties have hereunto set their hands and seals, the day and year first above written.
“ Cole ax & Ovebtow. [l. s.]
“ Geo. W. White & Co. [l. s.]”
After the execution and delivery of these several instruments, the firm of Colfax & Overton (in which firm said Whitman was a special partner), commenced to carry on, at the place of business theretofore occupied by the firm of George W. White & Co., the same business carried on by that firm, the said Whitman bringing into the firm of Colfax & Overton the stock and merchandise purchased by him as above stated, from the general partners of George, W. White & Co.
The business thus commenced by Colfax & Overton, is still prosecuted by them.
At the time of the execution of the said several instruments, the firm of Geo. W. White & Co. was indebted to Abernethy & Co., in the sum of four thousand five hundred and fifty-two dollars and ninety-seven cents ; and to John Whitman & Co. in the *303sum of thirty-four thousand eight hundred and forty-seven dollars and fifty-seven cents.
The firm of Colfax & Overton procured an extension of time for the payment of the debt to Abernethy & Co., by giving them four promissory notes, at four, five, five and a half, and six months, amounting in the aggregate to four thousand eight hundred and seventy-four dollars and forty-two cents, being the amount of said indebtedness, with three hundred and twenty-one dollars, and seventy-seven cents accruing interest added thereto, and indorsed said notes with the name - of the firm of Geo. W. White in liquidation. Three of said notes, by their terms, would not mature until after July 1, 1870.
The defendants, Colfax & Overton, not having collected sufficient of the debt due by Whitman for the stock and merchandise sold to him by the general partners of George W. White & Co., to pay the debts due by George W. White & Co. to Abernethy & Co. and John Whitman & Co., and applied such collections to the extinguishment of these debts, the plaintiff commenced this action, charging above matters, and demanding judgment:
“1. That a receiver be appointed, to take, hold, receive and collect the assets and property of said firm of George W. White & Co., under the orders and directions bf this court, invested with the usual powers and duties of receivers in such cases, and to pay and discharge all the indebtedness of said firm, and to divide the surplus, if any there be, among the several copartners of the firm of George W. White & Co., according to their respective rights and interests therein, under the orders and directions of this court; that, in the mean time, until the further order and direction of this court, the defendants, and each of them, and their and each of them agents, attorneys, servants or employees be enjoined and restrained from receiving, col*304lecting, discharging, or in any manner interfering with the debts or assets owing to or belonging to the said firm of George W. White & Co., and for snch other and further relief as the court may grant, with the costs of this action.”
On the complaint and an affidavit of the plaintiff the following order of receivership and injunction was made éx parte:
“It is ordered, that Francis M. Bixby, of New York city, be and he hereby is appointed receiver of all the co-partnership business, assets, property real and personal, effects, books of account, choses in action and every other matter and thing of or in any way belonging to the said copartnership of George W. White and Company, on executing within ten days from the entry of this order a bond in the sum of twenty thousand dollars with two or more sufficient sureties to be approved by a justice of this court, for the due and faithful performance of the trust, and that upon such execution and approval the said receiver be and he hereby is vested with the usual powers of receivers, and with power to sue for, collect and recover the debts and demands that may be due to and the property that may belong to said copartnership, and to sell and convert into cash all the personal estate of the said copart»nership, and as receiver to pay off, liquidate and settle the debts of the said firm as they respectively mature as far as may be out of the funds of said copartnership in his hands, and after having paid all of said debts, to pay and turn over the balance or surplus if any there be, under the direction and orders of this court.
“It is further ordered that the plaintiff and defendants, and each of them, turn over and transfer to the said receiver at once, all and every part of the property and assets of the said copartnership of George W. White and Company, now in their or either of their possession or control.
*305“ It is further ordered that the said defendants and each of them, and their and either of their attorneys, agents, servants and employees, be and they and each of them hereby are enjoined and restrained from collecting, receiving or holding or discharging any of the assets, debts or property of the said firm of George W. White and Company, or any of the notes, accounts or assets due or to become due to said copartnership, or in any manner obstructing or interfering with the liquidation or settlement of the affairs of said copartnership or said receiver in the proper discharge of his duties.
“ And it is further ordered that the plaintiff or defendants and said receiver, be at liberty to apply to this court from time to time for further directions in the premises.”
Defendants moved to vacate the order of receivership and injunction, and among other matters showed by their papers that defendant Whitman, since the commencement of the action, had procured the indorse,ment of the name of the firm of George W. White & Co. to be erased from the notes given to Abernethy & Co., and his individual indorsement to be substituted instead, and said defendant Whitman on the argument of the motion offered through bis counsel, to give to George W. White & Co. a discharge of the debt due Lester Whitman & Co.
The plaintiff, in opposition to the motion, showed among other things, that since the commencement of this suit he had been denied access to the books of the firm of George W. White & Co., and that the defendants in this action had commenced an action against him in the supreme court, among other things charging him with various derelictions of duty as a copartner in the firm of George W. White & Co., one of which was the purchasing a house and lot on Third street, Brooklyn, and furnishing it, with the funds of the firm and then *306conveying the same to his wife Charlotte, without consideration, for the purpose of defrauding and injuring the other partners in the firm of George W. White & Co., and demanding judgment “that an account be taken between the said copartners of all its transactions, assets, debits and doings, and of the said real estate; that the said house and lot on Third street, Brooklyn, as well as the other real estate held and owned by the said firm may be sold and the proceeds applied to the liabilities of the partnership.
“That the defendant, Charlotte A., may be adjudged to convey the same upon a sale to be made under the order or decree of this court.
“That the defendant, George W. White, be charged with the rent of the said house and lot on Third street, and the said two thousand dollars paid him since the 17th of. February, 1870, and also the said sums collected by him since that date.
“That the furniture purchased by him with cash or merchandise, from.the stock of the copartnership, may be sold and applied to the payment of its debts, or applied to the equalization of the accounts of the plaintiffs as members of said partnership with the said George W. White.
“ That an injunction issue, restraining the said George W. White from collecting any of the debts to the said copartnership, or any of the rents of the said real estate belonging to the said partnership.
“That the said defendant, Charlotte A. White, be restrained by an injunction order, from selling, conveying, or in any manner incumbering the said house and lot in Third-street, Brooklyn.
“And that the defendant, George W. White, pay the costs of this action ; and that the plaintiff have such other relief as to the court may seem proper.”
The motion to vacate the order of receivership and *307injunction was denied, and an order made, modifying that order, as follows:
“ It is ordered, that the said motion to dscharge the receiver and dissolve the injunction, herein be denied ; but the order appointing receiver a herein, is so far modified as to,
“1. Appoint the said Bixby receiver of the foliowingjjroperty only, to wit: .debts due, and those owing, but not yet due the firm of George W. White & Co., and the real estate of the firm of George W. White & Co., (not including therein the leasehold premises 234 and 235 Broadway,) and the rents due, and to become due therefrom.
“2. To limit the receiver to the collection of the debts due, and those owing, but not yet due to the firm of George W. White & Co., including rents of real estate.
“3. To authorize and direct the said receiver to sell the real estate belonging to the firm at public sale, for cash, at the sales room in Trinity Buildings, in the city of New York, on giving three weeks’ public notice thereof, in two newspapers published ia the city of New York, twice in each week, and to execute deeds of conveyance to the purchaser.
“4. To authorize and direct said receiver to apply the money realized from the collection of debts, and from the sales of real estate belonging to the said partnership of George W. White & Co., to the payment of debts now due, and those that may hereafter become of due by the firm George W. White & Co.
“5. To authorize and direct said receiver to distribute the surplus under the further order and direction of the court, according to the rights of the said parties respectively.
“6. To direct the defendants to surrender to the receiver the account books and evidences of debt, be*308longing to the said late firm of George W. White & Co.
“7. To direct the receiver not to sell the leasehold premises known as Nos. 234 and 235 Broadway, in the city of New York, nor interfere with the possession of Colfax & Overton in the said leasehold premises.
“ The injunction order is modified and limited so as to restrain the defendants only from the collection of the debts and rents due or to become due to the said late firm of George W. White & Co., and from interfering with the real estate of said firm, (not including in said term real estate the leasehold premises 234 and 235 Broadway,) and from interfering with or obstructing the receiver in the collection of said debts or rents.
“And it is further ordered that all parts of and all provisions and directions contained in said order, made the 18th March, 1870, appointing said Bixby receiver, and enjoining these defendants, which are inconsistent with the above modifications, be, and the same are hereby vacated and set aside.
“ And it is further ordered that the stay of proceedings contained in the order made by Justice Jokes, March 21, 1870, and the order of modification made by said Justice Jokes on the 24th of March, 1870, so far as they are inconsistent with the above provisions of this order, be, and the same are hereby vacated and set aside.
1 ‘ And it is further ordered, that at any sale of the real estate of said firm of George W. White & Co., or of any part thereof, made by the said receiver under the provisions of this order, either of the parties to this action shall be at liberty to bid and become purchasers.”
The following opinion was delivered at special term:
Jokes, J.—By the bill of sale and the cotem*309poraneous agreement respecting the mode of the payment of the consideration therefor, the plaintiff divested himself of all interest in the stock and fixtures of the firm of George W. White & Co., but the consideration mentioned became a debt due to that firm to be applied to the payment of debts due by it.
Plaintiff’s rights, as copartner in the firm of George W. White & Co., attached to that debt.
The two instruments above referred to did not affect the debts due to that firm, nor the real estate belonging to it.
As regards this real estate and these debts, including the one due for the purchase of the stock and fixtures, the partnership still continues for the purpose of liquidation, and each member of the firm has all the rights, privileges and remedies in respect thereto which the law accords to partners.
One of these remedies is, that if the partners cannot agree as to the mode of liquidation, or one of them becomes dissatisfied with the doings of the others, the court will, as a matter of course, appoint a receiver.
Has the plaintiff done any act which will deprive him of the remedies he would otherwise have %
It is claimed that the agreement entered into by him in relation to the collection of the debts due the firm has such an effect.
It is clear that by the agreement he does not part with his interest as a partner in those debts or in its real estate; therefore, if it interferes with rights which he would otherwise have, it must be on some ground other than that of his having parted with his interest therein.
It is then suggested as a proposition of law, that upon the dissolution of a solvent firm, the partners can make such arrangements for winding up the affairs of the concern as seem to them meet; and in the exercise of this right may select one or more of the mem*310bers of the firm to wind up the partnership affairs, to call in the debts due, and convert into cash the assets belonging to the firm, to pay therewith the debts due by the firm, and distribute the surplus among its members, and if they do make such a selection, a court of equity will not interfere and appoint a receiver, unless the parties prove recreant to the trust reposed in them; and upon this proposition it is argued that whatever cause of complaint existed against those selected in this case arose from mere inattention, and have been, or are ready to be, removed, and therefore the receiver should not be continued.
I think that the proposition of law is not strictly accurate. I am inclined to think that all the members of the firm are entitled to have a supervision over the acts of those selected, to receive all information from them respecting the collections made, to ask for and have imparted the reasons why collections are not pressed, and to have access to the books of the firm ; and if those selected deny this right or unreasonably interfere with its exercise, or, even, if the relations of the parties have so changed that the exercise of this right would reasonably be expected to be attended with unpleasantness and embarrasment, the court will appoint a receiver. It is unnecessary to determine whether this right of supervision attaches unless it is expressly reserved in the agreement, for in this case it is expressly reserved.
The litigation between these parties, already, shows that there has been a great change in the relations of thesé parties. A feeling of great friendliness has changed into one of bitter enmity. Indeed this is asserted in the affidavits on both sides.
It would be unreasonable to anticipate that the plaintiff’s right of supervision, &c., could any longer be exercised without great unpleasantness and embarrasment, if indeed it could be exercised at all.
*311The fact that he has already been refused access to the books is a strong indication that such denial will continue.
For these reasons I think the receivership should be Continued.
1 am aware that the complaint does not ask for a receiver on these grounds, and it could not well do so, for they did not exist at the time the action was commenced. I should not therefore continue the receiver were it not for the reasons I am now about to advert to.
At the time of the commencement of this action defendants had undeniably broke their agreement in two respects, viz: they had procured the extension of the time for the payment of a debt due Abernethy, oí about four thousand dollars, beyond July 1, 1870, giving the note of George W. White & Co. on such extension, instead of applying sufficient of the sum of sixty-one thousand dollars agreed to be paid for the stock to that purpose; and they had not extinguished the debt of about' thirty-four thousand dollars due from George W. White & Co. to Lester White-man & Co., by applying thereto sufficient of said sum of sixty-one thousand dollars.
The non-compliance in these particulars afforded a sufficient ground for the appointment of a receiver. After the action was commenced and a receiver appointed, the defendants took up the notes of George W. White & Co., which had been given to Abernethy, and substituted other paper, thereby relieving the firm of George W. White & "Co. from any liability for that debt; they also offered, on the argument of the motion to discharge the receiver, to give to George W. White & Co. a discharge of the debt due Lester Whitman & Co. Upon this action of theirs done since the commencement of this suit and the appointment *312of the receiver, they ask that the receivership should not be continued.
The appointment and continuance of a receiver pendente lite, rests in the sound legal discretion of the court.
In the exercise of this discretion, I have no doubt that if since the commencement of the action, the causes for which the receiver was appointed have been obviated so as to place the parties in the same attitude with regard tó each other, and to the subject of the action, as they occupied before, then the receiver should be withdrawn ; per contra, when a defendant by his acts has given rise to causes for the appointment of a receiver, and an action has been commenced, based on such causes, and a receiver appointed therein, and the effect of the commencement of such action and such appointment has been, either to give rise to other causes calling for a receiver, then such subsequent causes are to be regarded as the effects of the original causes, and unless the obviating of the original causes also destroys the effects of them, the party plaintiff should be entitled to retain the receivership. The defendant cannot be heard to say: “ True, I committed a wrong upon you which justified you in obtaining a receiver; and because you did obtain a receiver, I committed further violation of your rights which also justify a receiver; now I will, under your compulsion, remove the first wrongs, thereby throw you out of court, and compel you to bring another action for the appointment of a receiver, in consequence of the subsequent wrongs, which are the effect and result of the first ones.” This will not be permitted.
Although, if after the appointment of a receiver, the defendant removes the causes for which he was appointed, the court may discharge the receiver, yet it is not bound to do so, and will not do so if it is apparent *313that these original canses have been productive of others which have not been, or cannot be removed.
In this case, the breach of their agreement by the defendants, led to the institution of this action by the plaintiff for the protection of his rights; the suit thus incited by the acts of the defendants, together with other causes, has led to an exceedingly hostile feeling between the parties, and under its influence the defendants have further violated the rights of the plaintiff, by refusing him access to the books.
A suggestion has been made, that the plaintiff has so far overdrawn his individual account, as that he not only has no interest in the surplus to be derived from the collection of the debts due to the firm and the sale of the real estate, but on the contrary, to be indebted to the firm. I have not deemed it necessary to decide how the facts may be, for even if such be the case, still he has an interest in having the agreement concerning the collection of the debts due to the firm, and the application of such collections to the payment of debts due by the firm, carried out according to its spirit and tenor, so that he may be relieved from his liability for the debts due by the firm.
A great portion of the papers used on the motion before me, consists of criminations and recriminations, concerning matters in relation to the sale of the stock of George W. White & Co. to defendant, Whitman, and the dissolution of the firm of George W. White & Co. ; but as neither side seeks to have that sale and dissolution rescinded, those matters, as far as they can have any bearing in this action, relate only to an accounting, and in the view above expressed, do not affect the question of a receivership.
It is proper to state, in conclusion, that there is nothing in the papers indicating in the slightest degree that the present firm of Colfax & Overton is not perfectly solvent, and fully worthy of trust and credit.
*314The receiver is retained solely for the purpose of collecting the debts due to the firm of George W. White & Co.; converting into money the-real estate belonging to that firm; applying the collections and money realized to the payment of the debts due by that firm, and distributiiig the surplus among the partners of that firm according to their respective rights. And this has become necessary.solely by reason of contentions and hostile feelings arising since Colfax & Over-ton were selected by the firm of George W. White & Co. to wind up its affairs.
Motion to vacate the injunction and discharge the receiver denied ; but if the order of injunction and the order appointing the receiver do not conform with the above views, they must be modified in accordance therewith.”
From, the order denying the motion to vacate the order of receivership and injunction, and modifying the same, defendant appealed to the general term.
Wm. H. Leonard, of counsel for appellants.
John B. Panner, attorney for respondents
G. A. C. Barnett, counsel for respondents.