App. Div.] First Department, May, 1906. FERDINAND S. M. BLUN, Respondent, v. REBECCA MAYER and Others, Appellants. (No. 2.) First Department, May 11, 1906. Partnership accounting — when accommodation note is chargeable against former partnership and not against an individual partner — when costs of litigation chargeable against firm-allowance of interest on balances due partners of old firm. When a former partnership had been accustomed to exchange accommodation notes with another firm and the liability on such notes has been charged to the partnership, on the formation of a new firm taking over the business of the old, such notes are properly treated as a partnership debt although issued at the instance of one partner against the objection of another. Legal expenses incurred by the old firm in a litigation continued by the new firm which took over the assets should be charged proportionately to the partners of the old firm. When the new firm takes over all the assets of the old firm and the sum due a member of the old firm who then retires is used by the new firm for its own benefit, the new firm is chargeable with interest thereon. APPEAL by the defendants, Rebecca Mayer and others, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 3d day of July, 1905, pursuant to an order made at the New York Special Term and entered in said clerk's office on the 29th day of June, 1905, overruling exceptions to the report of a referee and confirming the said report, and also from such order directing the entry of the said judgment, with notice of an intention to bring up for review upon such appeal certain interlocutory orders entered in said clerk's office. M. H. Regensburger, for the appellants. Charles Edward Souther, for the respondent. INGRAHAM, J.: Upon this appeal from a final judgment the plaintiff asks to review certain interlocutory orders appointing a referee to take and state an account of the dealings and transactions of the copartner First Department, May, 1906. [Vol. 113. ship between the parties to this action. This question is determined by another appeal between the same parties, decided herewith (Blun v. Mayer, No. 1, 113 App. Div. 242). The only question that will be considered on this appeal is as to the statement of the accounts between the parties. The copartnership in question was formed by a written agreement dated December 4, 1875, and by it the parties agreed "to contribute to the capital of the firm all monies standing to their credit on the books of the firm of Jacobs, Strouse & Co. on the 25th day of December, 1875." It appeared that there was, on the books of the old firm on the 24th day of December, 1875, standing to the credit of Rebecca Mayer $48,272.71; Solomon L. Jacobs, the original plaintiff in this action, $44,823.55; Abraham Strouse, $21,857.18; and of Max Adler, $26,816.78; and these several amounts were thus contributed by the various parties to this action as their capital of the new firm that commenced business on the 25th day of December, 1875. Pursuant to said articles of copartnership the new firm took over all the assets and property of the old firm and continued the business of such old firm until the 25th day of December, 1876, when the new copartnership came to an end by limitation. Upon the books of the new firm when it expired there was credited to the former plaintiff in this action, Solomon L. Jacobs, the sum of $56,097.34. At the time this new firm expired there was deducted from the amount which appeared to be due to Jacobs $5,568.29 which represented a note which had been made by S. Schiffer & Nephews which the old firm had been compelled to pay, together with the sum of $530.51, the accrued interest thereon. After the termination of this second copartnership the business was continued by the defendants under the firm name of Mayer, Strouse & Co., Jacobs, the former plaintiff in this action, having no interest therein, and these defendants thus took possession of and became possessed of all the stock of goods, machinery, appliances, books of account, good will and other assets belonging to the second copartnership of Jacobs, Strouse & Co., and used and employed the same for the purposes and in the prosecution of their business. Under the copartnership agreement Jacobs was entitled to thirty per cent of the net profits of the business, and this thirty per cent of such profits has been credited to his account which produced the balance in his favor upon the books of the copartnership. The first question presented App. Div.] First Department, May, 1906. is whether the defendants were justified in charging to Jacobs' account the amount of this note inade by S. Schiffer & Nephews and the accrued interest thereon. The referee found that "The said note and interest, together amounting to $6,098.80, were not an indebtedness or liability of the said Jacobs, nor was he personally liable to the copartnership therefor, nor was either the said note or the said interest properly chargeable to his personal account; but the loss of the said note and interest was a loss of the copartnership and properly chargeable against the several copartners proportionately, as provided in the copartnership agreement. Therefore, the said Jacobs should have had to his credit on said 24th of December, 1876, the sum of $62,196.14, subject to be reduced by his proportionate share of said note and interest." With this conclusion of the referee we concur. It seems that this Schiffer note was dated April 20, 1875. This was during the existence of the first firm and prior to the organization of the second firm. It became due on August 20, 1875, and was then paid by the first firm. It would seem that this was one of four accommodation notes that had been given by the first copartnership for the accommodation of Schiffer & Nephews, the aggregate amount being $18,743.35; that the first firm and S. Schiffer & Nephews had "exchanged notes for mutual interests," with the firm of Jacobs, Strouse & Co., receiving Schiffer & Nephews' notes for its accommodation, and Schiffer & Nephews receiving notes of Jacobs, Strouse & Co. for its accommodation. The firm of S. Schiffer & Nephews failed in 1875, and these notes which had been given by the first firm for the accommodation of Schiffer & Nephews firm were subsequently paid by the first firm and charged to the account of Schiffer & Nephews. One of the defendants, who was a bookkeeper of the first firm, testified: "They (S. Schiffer & Nephews) asked for as much accommodation as we asked of them. I know that, because for their own advantage, we gave them what they asked for and they gave us what we asked for, and for every note which they wanted we took one from them." When this note was given, Jacobs, the original plaintiff, came to the bookkeeper and requested him to make out a note for that amount. The bookkeeper testified that he told Jacobs, "Uncle Leopold, you know you and Uncle Alec agreed not to give the Schiffers any more notes.' Whereupon he said to me, 'Well, I can't help myself. I First Department, May, 1906. [Vol. 113. must give it to them;"" that the Uncle Alec referred to was Alexander J. Mayer. Alexander J. Mayer was called as a witness and testified that after this note was given, the bookkeeper called his attention to it and said that it had been issued by direction of Mr. Jacobs; that on the following day he saw Jacobs and told him that that note would not be issued for account of the firm; that it had to be his own individual matter; that Jacobs said that he knew the witness had previously objected to it, but he repeated the story that he had told to the bookkeeper; that when the note matured, Schiffer & Nephews having failed, the witness asked Jacobs what was to be done about charging up that note; that the witness said that it was to be charged to him, but Jacobs said: "No, don't charge it to me, keep it in the name of the firm on account of his personal relations with his brother-in-law, the elder Mr. Schiffer; that he preferred to have it that way." That was all that appeared to have been said about that note during the continuance of that copartnership. In the month of December, 1895, the first firm being about to expire, Jacobs had an interview with the witness and said he wanted the copartnership continued and asked the witness if he could not succeed in inducing Mr. Strouse and Mr. Adler to continue it; that the witness told Jacobs that the relation between him and Mr. Strouse was so bitter that he could not tell, but that he would try and see what could be done. The witness then said: "You know that that Schiffer note is there and that wants to be settled." Jacobs said: "Yes, I know, but it is all right, Schiffer has a great deal of property in the city here, and it will come out all right, and besides that I have some property belonging to Schiffer standing in my name." They then spoke about the control of the business and Jacobs said he would be satisfied to leave everything in the witness' hands; that the witness could decide at the end of the year anything that came up and that he would be guided by it, and it was in pursuance of that arrangement that the copartnership agreement in the firm No. 2 was executed. This is the only evidence in relation to this note. It was issued in accordance with the custom that had existed between these two firms in regard to issuing notes for their mutual accommodation. It was issued by one member of the firm against the protest of Alexander J. Mayer who it appeared represented his wife, a mem App. Div.] First Depar.ment, May, 1906. ber of the firm, but it was still a firm obligation, and there was no understanding or arrangement by which it was to be charged to Jacobs. After it had been issued Alexander J. Mayer claimed that it should be. Jacobs objected and it was never charged to him during the existence of the firm. When the new firm was organized the amount to the credit of Jacobs was contributed by him as his capital to the new firm, and that amount was fixed without charging against him the Schiffer & Nephews note, and so continued during the continuance of the second firm. If there was any question about the right of the parties to have this Schiffer note charged to Jacobs personally, that question should have been settled before the commencement of the new firm; and all the parties to the firm having acquiesced in the contribution by Jacobs of the amount to his credit in the old firm as his capital in the new firm, there was no justification for charging him with the amount of this note upon the liquidation of the affairs of the second firm. The defendant also claims that the referee erred in refusing to charge Jacobs with his proportion of certain payments made between April 24, 1877, and December 30, 1879, amounting to $3,656.70. These amounts appear in Schedule A annexed to the referee's report. From the way these amounts are entered it is almost impossible to ascertain the purpose for which these payments were made, and I cannot find that the testimony explains them. Nor can I find any evidence in the record that the amounts entered in this account were actually paid by any one. It was proved, however, that all of the merchandise of Jacobs, Strouse & Co. No. 2 went over to Mayer, Strouse & Co. at an agreed price, and that there was also taken over all the machinery of Jacobs, Strouse & Co. No. 2, together with the building at New Haven, which was used by that firm. I think that on this testimony as it stands the referee was justified in refusing to charge against the plaintiff the balance appearing in this account. In stating the accounts, however, it is quite clear that the referee allowed to the defendants certain of the payments which appear in this schedule. Thus in Schedule A there are charges for insurance paid to Kleinberger. The referee charges against the defendants the balance of Jacobs' share of the proceeds of the Kleinberger policy, after deducting premiums and |