Baker v. Safe Deposit & Trust Co.

Pearce, J., delivered the opinion of the Court. This is a bill filed in the Circuit Court for Baltimore City by the appellee as executor of Charles J. Baker, deceased, against the appellants, two of his sons, as surviving partners of the firm of Baker Brothers & Co., for an accounting, and for contribution by them to the losses of ⁷⁵¹ the firm in proportion to their respective interests therein. The answer to the bill, while admitting the partnership charged, set up two defenses to the relief prayed; first, that the appellants never were liable, as between themselves and their deceased partner, for any of the losses or debts of the firm, and second, that if they ever were so liable, such liability was fully discharged by certain proceedings had for that purpose, under the authority of the Orphans’ Court for Baltimore County, having jurisdiction of the settlement of the estate of their deceased partner, and constituting a full accord and satisfaction of the claim of the appellee for an accounting and contribution. It was established by the testimony that the whole of the capital of the firm was supplied by the deceased partner, and that the appellants were never required to supply any capital, but that the profits were divided between them, whenever profits were earned, in proportions varying from time to time; that all the debts of the firm had been fully paid by the appellee as executor of the deceased partner, and that upon payment of all said debts there was a loss of capital of $136,400, of which $113,400 was caused by depreciation of real estate below the figures at which it was carried on the books.

It is seen, therefore, that only the rights of the partners inter sese are concerned in this inquiry, and we shall consider first the second defense presented. We must agree with the Judge of the Circuit Court that the proceedings in the Orphans’ Court of Baltimore County by which the appellants bought certain assets and conveyed other partnership property for the uses of the will of Charles J. Baker, did not operate as an accord and satisfaction of the partnership liabilities, though it is by no means clear what was the full consideration to the appellants for the conveyances by them of their interest in the real and leasehold property theretofore belonging to the firm, and the assignment of their interest in all assets of the firm, other than those purchased by them. On the 9th of December, 1895, ⁷⁵² all the parties entered into a written agreement to submit to Mr. Chas. C. Homer and to Mr. John T. Mason, R, as arbitrators, certain questions relating to the settlement of the affairs of the firm, among which was the question of the liability of the appellants to contribute to any loss of capital. .But this arbitration, for some unexplained reason was abandoned.

On January 4th, 1896, the appellants submitted their written proposition for the purchase and conveyances mentioned above, but they did not make a condition of its acceptance, that they should be released from liability for losses. They merely declared they did not admit such liability. On receipt of that proposition, the appellee on January 5th, 1896', filed a petition in the Orphans’ Court, reciting the proposition ; stating its belief that it was for the interest of the estate it should be accepted as the only alternative to a disastrous receivership, but expressly denying the suggestion of the appellants that the appellee was solely liable for the debts of the firm, while admitting it was liable to the creditors, on demand. On January 8th, 1896, the Orphans’.

Co.urt authorized the acceptance of the proposition, and the payment by the appellee of all claims for which the estate was liable, when properly authenticated; and on January 21st, 1896, the appellants executed a conveyance and an assignment consummating the transaction, and an agreement of even date setting forth all the details of the transaction, concluding with this clause ; “ It is also understood by said executor, and by said William, Jr., and-Charles E. Baker, that the question as to whether or not the said William, Jr., and Charles E. are personally liable for the liabilities of the firm is not concluded hereby.” Whatever conclusive effect might otherwise be attributed to this, not altogether clear, transaction, we cannot say that it concluded a question which the parties themselves, in their solemn agreement carrying outthe accepted proposition, have said was not concluded. We come then to the defense first presented—that the ⁷⁵³ appellants never were liable, as between themselves and their deceased partner, for any of the losses of-the firm. This partnership was formed Sept, ist, I865, when Charles J. Baker purchased the interest of Henry J. Baker and Joseph Rogers, Jr., in the firm of Baker Bros. & Co. and gave notice by publication that he had associated with him his two sons, William Baker, Jr., and Charles E. Baker under the old firm name. Charles J. Baker died Sept. 22, 1894, but the firm was continued under the provisions of his will until January 21st, 1896, when it was dissolved by mutual consent.

There can be no question that the effect of Chas. J. Baker’s publication, made with the knowledge of the appellants, had the effect to bind them equally with him, as to third parties, in all firm transactions; but it does not follow, merely because they were so bound to third parties, that they were also bound to share all losses of the firm. Mr. Lindley in speaking of the right of contribution—vo'l. 2, star page 754, ist Am. from 4th Eng. Ed..—says : “It cannot exist if excluded by agreement, and it is so excluded, whenever those who would otherwise be contributories, have entered into any contract, express or tacit, amongst themselves„ which is inconsistent with a right on the part of one to demand contribution from the others.

This is too obvious to» require comment, but it must be borne in mind as qualifying the common saying that the right to contribution is independent of agreement.” Idem, star page 781, vol. 2. In Welsh v. Canfield, 60 Md. 473 , this Court said r “ Whilst in general, a partnership imports community of profits and losses among its several members, it cannot be doubted that whatever may be their legal liability to outside parties, as among themselves, a disproportionate interest as to profits and losses may be agreed on.” It is very plain upon principle that a deficiency of capital upon liquidation, must be considered as any other loss, according to the terms of the agreement, and hence Mr. Lindley in treating of this subject—vol. 2, star page 808—says: “The only case which practically gives rise to difficulty, is when part ⁷⁵⁴ ners have advanced or agreed to advance unequal capitals, and to share profits and losses equally. If nothing more than this is agreed, a deficiency of capital must be treated like any other loss ; * * * but if the meaning of the partners is that all debts shall be paid out of the assets, and that any surplus assets remaining after payment of debts shall be divided between the partners in proportion to their interests therein, or to their capitals, effect must be given to such agreement, and those partners who bring in most capital, must lose most.” A necessary corrollary to this reasoning would seem to be, that where one supplied all the capital, under an agreement restricting the partnership to profits, when earned, and only after payment of all debts, that if on liquidation there was an impairment of capital, he who provided it must bear the whole loss. Here the only right growing out of the partnership relation, which is asserted in the bill, or which is involved in its consideration, is the right to require the appellants to contribute out of their own pockets to reimburse the executor of their deceased father and partner, for impairment of Ms capital and the payment of firm debts out of the father’s estate.

Our inquiry therefore must be, what were the terms of their agreement of partnership in this regard. There being no written articles of agreement, and the death of Charles J. Baker preventing recourse to the evidence of any of the parties themselves upon this point, we are confined to the course of dealing between the parties as shown by the partnership books and transactions, supplemented by the other competent testimony introduced to explain the course of dealing, from which the Judge of the Circuit- Court states in his opinion he found nothing that would vary the general rule of partnership liability. Now it is admitted that Charles J. Baker always supplied all the capital of the firm, and that the sons never did supply, and were never required to supply any. The books of the firm,'confirmed by the testimony of Brauns, an expert accountant, and for over twenty years a book-keeper ⁷⁵⁵ of the firm, and by that of Myer, also an expert accountant, after full examination, show that throughout the whole period from 1865 to 1894, the sons were never credited with any share or interest in the property or capital of the firm, and that they were never credited with anything more than a certain percentage of net profits, and that when there were no net profits, none of the partners received anything.

The father received nothing for his capital and services, and the sons received nothing for their services, they having no capital. In this there was nothing unusual, it being settled that the capital of a firm may consist of the mere use of the property owned by one member of the firm. “ In such case the title remains in the individual member during the