The opinion of the court was delivered by: BYERS
This controversy in which the plaintiff seeks an accounting from the defendant, has to do with his stewardship concerning his handling of a reserve fund originally stated at $ 50,000, which existed on the books of a partnership of which the defendant and Alfred E. Whitehouse (who died in February of 1946) were the members; it terminated on May 31, 1944, as its terms recite.
The defendant was the general partner and the said Whitehouse a special partner.
The partnership agreement constitutes Exhibit B attached to the complaint, and the portion which is material to this controversy is found is Subdivision VI-A-3:
'The establishment of a reserve fund in the sum of $ 50,000, of which 'Whitehouse' and 'Pine' shall each have a one-half interest, to be established specifically for the purpose of meeting any contingent claims which may arise from or through the dissolution of the corporation known as Whitehouse & Pine, Inc. Upon dissolution, termination or expiration of the partnership, the balance in this fund herein established shall be divided equally between 'Whitehouse' and 'Pine'.'
The partnership purpose was to effectuate the distribution of the corporate assets of the said corporation, of which these partners had been equal owners of the entire capital stock.
The corporate business was to act as commission broker in the foreign and domestic sale of products manufactured by others. The corporation was organized January 1, 1940, and its earnings were commissions on sales of the said products which averaged 10%; the company prospered for about two years, at the end of which time dissolution was decided upon as the result of differences of opinion between Whitehouse and Pine.
It is of importance that the corporation assets then consisted almost entirely of commissions receivable arising from sales made during the said two years. There was no tangible property, such as plant or merchandise inventory, and the evidence that there was such a thing as corporate capital, was found in books and records.
The distribution of the corporate assets obviously meant the collection of commissions receivable, and such distribution was to be contrived through the operations of the said partnership.
This reserve account was identified as such upon the books of the partnership. As to this, Pine has testified as follows:
'Q. But there did come a time when that fund was established?
'A. Yes. The fund was established in the books of the partnership.'
The foregoing means that the reserve account was identified as such in the financial records of the partnership; it never existed in the form of, for instance, funds separately invested, but of course its legal existence was as complete as though a special bank account had been established for the deposit of the reserve, or other steps had been taken to segregate it.
This is a convenient place to note that by the agreement of counsel the balance in the capital account as to which the plaintiff demands an accounting, is most recently agreed to be the sum of $ 38,621.49.
One reason for the formation of the partnership was to lend credence to the theory that the receivables of the corporation being distributed by the partnership, were by that process transmuted from income into ...