Falconer v. Kirby

Page, J., dissented and delivered the following opinion. With great respect for the opinion of my brothers, I find myself unable to concur in the conclusions they have reached in this case. I shall give the reasons that seem to me should control, with as much brevity as I can. The main questions involved may be stated as follows, viz.:—1st.

Was Alexander Falconer indebted to James Hodges at the time of the latter’s death, and if so to what extent? and 2nd. Was it an indebtedness of such a character as to be within the seventh article of Mr. Hodges’ will, according to the true intent and meaning of the testator ? In order to solve these questions properly, a recapitula ⁶⁰² tion of the facts of the case as they appear in the record becomes necessary. The testator was possessed of a large personal estate, the larger part of which was invested in his business.

He was also seized of considerable real estate. He died on the fifteenth day of February 1895. He left surviving him four children,—three daughters, Mary Ellen, wife of George-A. Kirby; Ida Virginia, wife of St. George W. Teakle; and Lily Hanson, wife of Alexander Falconer; and one son, William Ringgold Hodges. The executors of his estate, George A. Kirby and Alexander Falconer, and all the, children of the deceased were made defendants.

By the seventh clause of his will, which will be more particularly referred to later on, Mr. Hodges directed that “all sums of money or indebtedness”, which might be due t© him from his sons-in-law, should be deducted from the shares of their respective wives in the distribution and settlement of his estáte. At the time of his death and for several years prior thereto he had been engaged in business with his son - in-law, Falconer, under the name of Hodges Brothers ; and by the ninth clause of his will he directs that his sole surviving partner, Falconer, shall close up the business “with all possible dispatch without too great a sacrifice of all the goods in stock.” The entire capital of the business, amounting to nearly three hundred thousand dollars, was the property of Mr. Hodges. There were no written articles of copartnership ; only a verbal understanding between the co-partners ; but it is conceded that of the profits the testator was to receive ninety per cent and Falconer ten. The questions as to the alleged indebtedness of Mr. Falconer, grow out of the settlement of this business, whether or not he is to be charged with any of the losses of the firm.

The parties interested have agreed in writing that if the share of Mrs. Falconer in the settlement of the estate “is to be charged with not only the overdrafts of her husband, but also with any proportion of the losses of said firm, that then- and in that event, the sum of $14,589,13 shall be taken and ⁶⁰³ agreed to be the limit and extent of the total liability of her share of the estate for all indebtedness of her husband ; if on the other hand, it be determined by the Court that her share of the estate is to be charged with only the overdrafts made by her husband as a member of the late firm, and not with any portion of the losses thereof, then and in that event, the sum of $3,409,16 shall be taken and considered as the limit and extent of the total liability of her share of the estate for the indebtedness of her husband to her father, and shall be the sum deducted therefrom in the distribution and settlement of the estate.” This agreement seems to concede that all sums due on account of “overdrafts” constitutes an “indebtedness” within the meaning of the seventh clause of the will, and therefore it is'incumbent upon us to inquire now whether in addition to the overdrafts, Mrs. Falconer’s share is to be further charged with any proportion of the losses of the firm. Aside from the testimony of Mr. Falconer, to which fuller reference will hereafter be made, the proof as to the verbal agreement between the copartners is meagre and unsatisfactory. The witness, William R. Hodges, on being asked as to the “ status ” of Falconer in the firm, said that he had heard his father, in “ three conversations ” with him say that he looked upon Mr. Falconer as a “ salaried partner,” that he had no capital in the business and that “ he (the deceased) had made him a partner to act with power of attorney,” in case of his illness or absence from home, but the witness knew nothing whatever of the agreement of copartnership or as to whether it was in writing or not. He could not say “ positively,” but thought he had heard Mr. Hodges say that Falconer was to receive “ about ten per cent of the profits,” and, in his next reply, that Mr. Hodges told him that Mr. Falconer was to receive $3,000 “ salary.” As to what disposition was to made of the “ losses,” the witness testified that he never heard Mr. Hodges “ mention a word.” What Mr. Hodges meant ⁶⁰⁴ when he used the words “salaried partner ,p is not clear.

The words need some explanation before it is possible to understand what idea was intended to be conveyed by their use. It is as easy to understand that he meant that Falconer -was to receive a share of the profits, “ as profits,” as that he was to receive a salary of $3,000. Indeed he told the witness at one time that Falconer’s share of tha “ profits ” was ten per cent, and át another that he was to receive a “ salary ” of $3,000. If these rather inconsistent statements are to be accepted, it is clear, that in order to reconcile them, it would be necessary to understand that his meaning was that Falconer was to receive ten per cent of the profits, not to exceed $3,000 and if that explanation be correct, it was possible when the profits were not large for him to receive less than that sum; and if the profits were nothing, that he would receive nothing.

The evidence of this witness, when considered in its entirety, seems to prove or tend to prove,'no more than that Falconer was a partner entitled to receive ten per centum of the profits, to the extent of $3,000, and that the last mentioned sum was liable to be diminished by diminishing profits; but there is nothing whatever that tends directly to show, except remotely, what disposition was to be made of losses in a year where they exceeded the profits. As far as it goes it rather tends to show, if there is any tendency at all, that the partners were to share the losses in proportion as they were entitled to profits. The testimony of the witnesses Start and Pender support that of Hodges, to the extent only of showing that there was a limit to the authority of Falconer, in respect to the amount he might draw. Each of those witnesses states that the decedent in the years .1893 and 1894 frequently “ deprecated the fact that Falconer had overdrawn his account without authority.” The balance-sheets for those years show that in 1893, he had overdrawn his account to the extent of $3,902, and'in 1894, his debits mounted up to $7,718.81; and this, too, after he had been credited by ⁶⁰⁵ ten per cent of the profits and charged with the same percentage of losses.

They testify that Mr. Hodges told his clerks not to allow Falconer to draw “ more than $3,000;” that was the limit. A year or two prior to his death, he directed Start, the book-keeper and cashier, to keep the account down to $3,000 a year, and frequently “ during the year” would ask if he was keeping the “account within bounds.” He must on those occasions have had reference to the business of 1892 or of 1893, and if we turn to the accounts of those years, we find that though the profits of those years amounted for ■ Mr. Falconer’s share of ten per centum, to $3,478.37 for 1892, and $2,521,54 for 1893, or a total for the two years of $5,999.91, yet Mr. Falconer in Dec. 1893 had overdrawn to the extent of $7,718,81. In the light of these facts we may easily understand the “deprecations” of Mr. Hodges and his frequent caution to his clerks to keep Falconer’s account “within bounds.” It also becomes clear that such cautions can have no tendency to prove what the agreement was between the copartners as to the disposition of the losses in a year when from untoward -or unforeseen causes there were no net profits, but only net losses. In the dearth of direct evidence ás to this matter, we are compelled to turn to the examination of the accounts and statements to ascertain from them, if we may, how the co-partners themselves regarded the matter.

They are material and competent evidence for that purpose, because the intentions of the parties may be gathered from their acts, in connection with the facts and circumstances of the case ; (Bull v. Schuberth, 2 Md. 55 ); and where there is no express contract of partnership proved, “ the entries in the books” are as conclusive of the rights of the parties, as if they had been found prescribed in a regular contract.” Fleishman v. Gottschalk, 70 Md. 535 ; Stewart v. Forbes, 1 McM. & G. 137; Sangston et al. v. Hack and wife, 52 Md, 192. Among the exhibits found with the testimony appear six ⁶⁰⁶ of the balance-sheets of the firm, made up as of the thirty-first day of December of each year, for the years respectively from 1889 to 1894 inclusive. Each one of these shows a credit or debit, or both, as the case may be, opposite the name of Mr. Falconer. Up to and including the year 1891, the account was in his favor ; after that year it was against him.

In 1892 there was a debit against him of $2,230.37, in 1893 of $3,902.11, and in 1894 of $7,718.81. It is in evidence that shortly after Mr. Hodges’ death Mr. Kirby, one of the executors, requested Mr. Falconer to furnish a statement showing the condition of the business. In compliance with this request, Falconer handed to him a paper which included the capital account of Mr. Hodges, and a general balance-sheet for the year 1894. The latter showed two debits, as follows : Alexander Falconer, private account. . . . $3,000 00 Alexander Falconer ..........7,718 81 The first item, it is shown in the testimony, represents the amount of Falconer’s “ drawings” for the year 1894.

As to the second item, Falconer was asked for a statement which would show how that amount was made up; and in compliance therewith, he supplied the paper which appears in the record as “ Defendants’ Exhibit Examiner G. A. K., No. 3.” In that the account begins with 31st December, 1888, and shows a credit in his favor as of that date of.......... . . $1,889 93 An d proceeds in substance as follows : Cr. By 10 per cent profits 31 Dec., 1889 . . . 2,417 33 $4,307 26 Deduct his private acct. (being his drawings during 1889)...........3,220 69 To his credit 31 Dec., 1889......'. $1,086 57 In 1890, 31 Dec., his share of profits were. . 4,154 67 $5.,241 24 ⁶⁰⁷ To be charged with his drawings up to 31 Dec. 1890............. 3,285 04 To his credit 31 Dec., 1890.......$1,956 20 Add thereto his share of profits for 1891 . . 1,375 79 Also 10 per cent of collections of suspended accounts............ 92 37 $3,424 36 To be charged with his drawings up to Dec., 1891.....$4,227 95 Also with 10 per cent losses in susp. acct........1,426 78 $5,654 73 At debit 31 Dec., 1891 .... $2,23o 37 To be credited with profits up to 31 Dec., 1892......$3,47$ 37 Also with 10 per cent collections susp. accts....... 5 58 $3,483 95 To be charged with drawings of 1892 . $4,292 54 Also with 10 per cent losses susp. acct. . 863 04 $5,155 58 $1,671 63 At debit 31 Dec. 1892 .... $3,902 00 To be credited with profits up to 31 Dec., 1893......$2,521 54 And charged with his drawings for 1893.........5,521 00 Also with 10 per cent losses susp. accts......... 817 35 $6,338 35 $3,816 81 At debit 31 Dec., 1893 . . $7,718 81 This account shows very clearly how the several items on the several balance-sheets opposite the name of Mr. Fal ⁶⁰⁸ coner were obtained; and that was by charging him each year with the amount-he'drew from the business and ten per cent of the losses if there were any, and crediting him with ten per cent of the profits. This method shows also that Falconer’s right to profits depended each year upon what might remain after the losses were accounted for.

For instance the balance-sheet of 1891 shows a debit against him of $2,230.37, and this item was reached by crediting him with the amount in his favor at the close of the year 1890.....$1,956.20 His share of the profits of 1891 were.........• $1,375 79 And of collections of susp. accts . 92 37 $1,468 16 His total credits for 1891 were. . $3,424 36 But he drew that year .... $4,227 95 And his share of losses in the accounts not collected was. . . 1,426 78 $5,654 73 Which left him indebted at the end of the year....... $2,230 37 And this amount was charged against him in the balance-sheet of the year; and was carried forward to the next year, at the end of which a balance-sheet was made up in the same manner. Mr. Kirby states that Mr. Falconer admitted that these balance-sheets correctly represented his indebtedness to the firm, but Falconer himself denies having made such admissions. However that may be, the absolute correctness of the figures that appear on them is not denied, nor that they were obtained from the books of the firm. Falconer, however, does admit that Kirby asked him to show the “