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OTERI v. SCALZO.

decided: May 16, 1892.

OTERI
v.
SCALZO.



APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE EASTERN DISTRICT OF LOUISIANA.

Author: Fuller

[ 145 U.S. Page 588]

 MR. CHIEF JUSTICE FULLER delivered the opinion of the court.

Undoubtedly equity has jurisdiction, where a person has been induced, by fraudulent representations, to enter into a partnership, to rescind the contract at his instance, and put an end to it ab initio. Newbigging v. Adam, 34 Ch. Div. 582; Smith v. Everett, 126 Mass. 304; Fogg v. Johnston, 27 Alabama, 432; Story Part. ยงยง 232, 285; 2 Lindley Part. (Wentworth's ed.) 554.

And it is contended that even though the formation of the partnership may have been free from that taint, there may be such fraud, misconduct and breach of duty in the conduct of its affairs from the inception, as to justify, upon dissolution, as between the parties, the restoration of his capital to the injured partner.

This bill alleged that complainants "are entitled to be refunded their said capital, with legal interest from 24th day of June, 1884, and they now make demand therefor;" and it prayed, among other things, that the partnership might "be decreed to be dissolved as if the same had never been made, by reason of the acts of said defendant; that an account of its business may be taken under the direction of this court, and that its legal liabilities may be paid and charged against the said Joseph Oteri, and that the capital of your orators, with interest, [may be], restored to them in the premises, or otherwise

[ 145 U.S. Page 589]

     at the discretion of the court." If the case, upon the evidence, did not entitle complainants to a return of their capital, and to be placed in the same situation, as far as practicable, as if they had never entered into the partnership, but did authorize the ordinary decree for a dissolution and accounting, we are of opinion that relief could be awarded in the latter aspect, even though the bill were not framed with precision, in the alternative, for a cancellation or for a dissolution and accounting. If the specific prayer were insufficient, such a decree could be maintained under the prayer for general relief, since it would be conformable to the case made by the bill.

It is argued that the Circuit Court erred in the rendition of a decree at variance with the conclusions of the master, because the reference was by consent, and the report amounted to a determination by the parties' own tribunal, which could not be disregarded at the mere discretion of the court.

In Kimberly v. Arms, 129 U.S. 512, 524, it was said by Mr. Justice Field, delivering the opinion of the court: "A reference by consent of parties, of an entire case for the determination of all its issues, though not strictly a submission of the controversy to arbitration -- a proceeding which is governed by special rules -- is a submission of the controversy to a tribunal of the parties' own selection, to be governed in its conduct by the ordinary rules applicable to the administration of justice in tribunals established by law. Its findings, like those of an independent tribunal, are to be taken as presumptively correct, subject, indeed, to be reviewed under the reservation contained in the consent and order of the court, when there has been manifest error in the consideration given to the evidence, or in the application of the law, but not otherwise." But here the case was referred to the master "to pass upon the accounts herein and to report thereon," and while the master considered the whole case, apparently without objection, we do not regard the rule laid down in Kimberly v. Arms as applicable. The question whether the partnership should be held void from its inception was not submitted, Richards v. Todd, 127 Mass. 167, nor whether on other

[ 145 U.S. Page 590]

     grounds the whole capital should be returned. If the decree had been in accordance with the conclusions of the master, such concurrent action would indeed have been of well-nigh controlling effect. Crawford v. Neal, 144 U.S. 585. But there was no such concurrence. The Circuit Court decreed the return of complainants' capital less two-thirds of the amount expended on the European trip in the interest of the partnership, and the decree was evidently based upon the view that defendant had been guilty of such fraud or misconduct or violation of partnership obligations as justified the relief accorded.

The evidence tended to show that proper books of account were not kept, and that monthly trial balances were not furnished, and there is some evidence that towards the last defendant refused complainants access to the books and papers of the firm, but this is denied, and the controversy seems to relate to a letter-book. By the partnership articles, Oteri was to have exclusive control and direction of the company's affairs. He was not himself conversant with the keeping of books, and Terni, who had the confidence of all parties, was entrusted with the duty of doing so, and it is a fair inference that Oteri did not question the right of his partners to examine the books and papers, but only demanded a receipt from them for whatever book or paper they wished to take away for examination. It is also objected that Oteri did not furnish his quota to the capital. He was, however, confessedly responsible, and, as the manager, all the firm's money belonged in his possession, and the record indicates that he raised large amounts upon his own collaterals for the benefit of the business. His accounts cover the entire capital, the proper proportion being credited to each partner. Whether he technically deposited with himself $5000 is not especially material. At all events, we find no adequate ...


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