(202 N.Y.S.)

We think that the respondent Sweetland has concealed his true connection with this situation, and that, even if he took no active part in getting this collusive testimony, and was uninformed as to the manner in which it was obtained, he had reason to know that he had made himself the agent of the defendant to have her husband watched by her husband's own attorney, either with the son's consent or without it. In one case he was a party to a collusive divorce, and in the other to a betrayal of a client. His attempted explanation that he did not obtain the testimony until the day of the trial, and thus did not have the time for reflection which would permit him to appreciate that the date of the act proved was subsequent to his talk with Gilbert, is unavailing. He must have known that the arrangement with Gilbert was well designed to produce the very collusive case which has been imposed upon the court, and which is frowned upon by the divorce law. He used the proofs furnished to him. He prepared his findings, setting up a finding that on March 27th this act of adultery was committed. He presented. these findings to the court. If he presented them at the time of the trial, it is clear that he came there expecting to prove an act of adultery committed on March 27th. If he prepared them later, and forwarded them to the court after he had had time for reflection, he deliberately availed himself of the forbidden proofs. He made no attempt to explain his conduct to Justice McCann. When given an opportunity to make a voluntary statement to this court, no such theory of justification was advanced by him, as has been presented by him before the official referee.

We think that both respondents have been guilty of conduct prejudicial to the administration of justice, which requires the exercise of the disciplinary powers of this court. See Judiciary Law, § 88, subd. 2. as amended by Laws 1913, c. 720. Upon the whole case, we feel called upon to severely censure each respondent, and to expose their conduct in its true light, as a punishment to them and as a warning to others. Taking into consideration the fact that respondents have been subjected to severe publicity and suffering for a considerable period during the pendency of these proceedings, we have concluded to order the suspension of each of the respondents from the office of attorney and counselor at law for a period of six months from the date of the entry and service of an order to that effect.

The respondents, F. Newell Gilbert and Monroe M. Sweetland, are suspended from practice as attorneys and counselors at law of the state of New York for the period of six months from the date of the entry and service of a certified copy of the order to that effect to be entered herein. And the said respondents, F. Newell Gilbert and Monroe M. Sweetland, are each hereby commanded, during the said period of six months, to desist and refrain from the practice of law in any form, either as principal or as agent, clerk, or employee of another, and are each hereby forbidden, during said period of six months, to perform any of the following acts for compensation or reward, to wit: (1) To appear as an attorney or counselor at law before any court, judge, justice, board, commission, or other public authority; (2) to give to another an opinion as to the law or its application, or any advice in relation thereto.

The court disapproves of the conclusions of the referee herein, and finds that the respondent F. Newell Gilbert and the respondent Monroe M. Sweetland are guilty of professional misconduct, collusion, malpractice, and conduct prejudicial to the administration of justice. All

concur.

(122 Misc. Rep. 7)

BAYER et al. v. BAYER.

(Supreme Court, Special Term, New York County. December, 1923.)

1. Partnership 92-Partner, buying stock in corporation in which partnership was interested, held to hold it as trustee for partnership.

A partnership carried on a successful business in buying cotton goods and having them finished for resale into dress goods by a corporation in which the partners owned a majority of the stock. The partners quarreled and decided to terminate the partnership, but the business was to continue, with defendant excluded from the partnership. Before the terms of the, dissolution were settled, defendant, without the knowledge of plaintiffs, his partners, purchased sufficient outstanding stock in the finishing corporation, which, together with the stock received on dissolution of the partnership, gave him a majority interest therein. Held that, on plaintiffs paying their proportionate share of the purchase price, defendant will hold that stock as trustee for himself and plaintiffs in the proportion that the stock owned by the partnership was divided. 2. Partnership 70-Partner owes duty of absolute good faith to copartners. The rule that a partner owes a duty of absolute good faith to his copartners, and may not act for himself in a manner affecting their common interest, is based on sound common sense and the ordinary rules of fair dealing.

3. Partnership

300-Contracts with salesmen for continuation of services not firm assets on dissolution.

Where the dissolution agreement provided that, after defendant partner was excluded from the partnership, the other partners would continue the business, contracts made with salesmen for continuation of their services after dissolution were not partnership assets on the dissolution.

4. Partnership 296(1)-Sellers of stock not necessary parties to action to declare buyer trustee for partnership though buyer agreed to offer stock to sellers before disposing of it.

Where sellers of stock to a member of a partnership which was interested in the corporation knew that a dissolution of the partnership was imminent, and that the other partners knew nothing of the purchase, neld, that they were not necessary parties, under Civil Practice Act, § 193, to an action to have buyer declared a trustee of the stock for the benefit of the partnership, notwithstanding an agreement that buyer would not dispose of the stock until he had first offered it to sellers. Action by Samuel Bayer and others against Nathan Bayer, to obtain a decree declaring defendant a purchaser for a partnership of stock of a corporation which he purchased. Judgment for plaintiffs.

Guggenheimer, Untermyer & Marshall, of New York City (Louis Marshall and James Marshall, both of New York City, of counsel), for plaintiffs.

Podell, Ansorge & Podell, of New York City (David L. Podell, I. Maurice Wormser, and Susan Brandeis, all of New York City, of counsel), for defendant.

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

(202 N.Y.S.)

LEHMAN, J. The plaintiffs and the defendant are members of one family, and prior to June, 1919, they were partners in a successful business in the city of New York. The principal part of their business seems to have been the purchase of cotton goods "in the grey" and then having these goods finished or "converted" into dress goods for resale. They employed a number of mills or factories for this work, but a very large proportion of the goods was converted by the Montville Finishing Company, a corporation.formed by themselves, together with one William R. Booth and John J. Healion, who were active officers in the corporation. This company had $24,000 capital stock, of which 160 shares were owned by the parties hereto and 40 shares each by Booth and Healion. The parties hereto had, prior to June, 1919, also advanced to the corporation the sum of about $205,000, for which the corporation was still indebted to them. In June, 1919, the parties hereto had a bitter quarrel, and it was agreed expressly or impliedly that their copartnership must be promptly terminated, and it was apparently understood from the start that after the dissolution of the partnership the plaintiffs would continue to do business together, probably under the old firm name, and that the defendant would be excluded from the new copartnership. Undoubtedly from the time of the quarrel the copartnership was carried on with a view of facilitating the dissolution. and for months no new cotton goods were bought in the grey to be converted into dress goods. During the summer and early autumn there were many conferences held to determine the exact basis for a dissolution, and on October 25th and 27th the parties entered into agreements which together provide all the terms for an immediate dissolution of the copartnership, and after that date the plaintiffs in accordance with the terms of these agreements have carried on the business under the old firm name.

[1] One of the points that was discussed at length during the negotiations leading up to the making of the formal agreements was the disposition of the shares of stock of the Montville Finishing Corporation, and it was agreed that this stock should be divided among the parties in the proportion of their interest in the copartnership, viz. 71 per cent. and 29 per cent., so that the plaintiffs received 113 shares of stock and the defendant 47 shares. The indebtedness of the corporation to the copartnership was divided in the same proportion, and it was further agreed that for seven years the plaintiffs were to be entitled to two-thirds and the defendant to one-third of the production of the mill of the company, and after the expiration of the seven years the agreement was to be renewed for a like period, upon the same terms and conditions, except that the share of the production of the mill to which the plaintiffs and the defendant respectively were to be entitled was to be of the same proportion to the entire production of the mill "as the number of shares of the common stock of said corporation owned by" the plaintiffs and the defendant, respectively, is to the entire amount of common stock held by both. Between the date of the quarrel and the date when these formal agreements were made, the defendant had bought from Booth and Healion 76 shares of stock, so that, together with the 47 shares received upon the dissolution of the copartnership, the defendant owned a clear majority of the stock. He did not disclose

this purchase to the others, who entered into the agreement referred to above without knowledge of that purchase. As soon as they learned of it, they brought this action to obtain a decree to declare the defendant a trustee for the copartnership of the stock he purchased from Healion and Booth, and to compel the defendant to transfer to the plaintiff 71 per cent. thereof, upon payment to him of a proportional share of the purchase price.

[2] These facts are substantially undisputed, and in the absence of other circumstances which might show a consent, express or implied, by the plaintiffs to the purchase made by the defendant, or which might exempt the defendant from the ordinary duty of one copartner to disclose to his copartner any matter which concerns the partnership, and which precludes one partner from acting for himself individually without the consent of his copartners in any matter within the scope of the copartnership or materially affecting it, these facts lead, in my opinion, necessarily to the conclusion that equity should regard the defendant as merely a trustee, even though against his will for the copartnership. The rule that partner owes a duty of absolute good faith to his copartners, and may not act individually for himself in a manner affecting their common interest, is not merely a technical rule of partnership, but is based upon sound common sense and the ordinary rules of fair dealing. I am of the opinion that technically the copartnership was not dissolved at the time of the quarrel, but continued in existence until the formal agreement of dissolution, but I cannot see that the plaintiffs' rights or the defendant's duty would be affected by a decision of this technical point. The interest of the parties in the Montville Finishing Corporation was still owned in common; all the parties regarded that interest, not merely as an investment, but as an important item of copartnership property, useful in the carrying on of the business, and the question of the disposition of this interest was one of the points of difference between the parties, which was settled only by the formal agreement of dissolution. There can be no doubt that it was a matter of very material importance whether, after the dissolution, the defendant would be in control of the capital stock of the corporation, and even if I should hold that the defendant would have had a right to obtain the additional shares of stock after the dissolution, yet, unless the plaintiffs had by their own acts justified the defendant in obtaining a secret advantage in advance, they were entitled in common fairness to know, when they made the contract of dissolution, that the defendant had already obtained additional stock sufficient, with the stock then delivered to him, to give him a majority control of the corporation. The defendant, before the dissolution agreement was made, had obtained stock which materially affected the value to the plaintiffs of the shares which they agreed to accept upon the dissolution. He obtained that stock because he was a member of the copartnership, and to increase the value of his minority interest, and in the absence of other circumstances equity must compel him to do what he should have done before the dissolution, viz. to give his copartners the opportunity to share in the advantage obtained by the ownership of this additional stock.

The defendant urges that he did not purchase the stock to obtain an advantage over his copartners, but merely to protect himself against a

(202 N.Y.S.)

justified apprehension that they would take advantage of him. I am unwilling to hold that the defendant has been guilty of any intention of bad faith, for he impressed me as an honest man. Family partnership quarrels may engender bitterness, which blind men to what they would otherwise recognize as fair dealing; but whatever may have been the apprehensions of the defendant, or the basis for such apprehension, he could not accept on dissolution a pro rata share of one of the assets of the partnership, and retain property which he had bought without the plaintiffs' knowledge, and which rendered the partnership property as a whole more valuable, and rendered the part which the plaintiffs received less valuable.

So far I have considered only the question as if the undisputed facts stood alone, but the defendant asserts and the plaintiffs deny that, prior to the purchase of the additional shares of stock by the defendant, the plaintiffs had refused to place all the stock owned by the copartnership into a voting trust, so that the defendant's minority interest might be protected, and that they had told the defendant that he should buy the outstanding stock if he could get it, and the defendant further claims that the plaintiffs themselves tried secretly to purchase this stock from Booth and Healion, shortly after he made his purchase. It is not easy to determine where the truth lies, when men of reputation and apparent honesty testify to entirely contradictory facts, and the difficulty is immeasurably increased in a case like this, where family dissension and bitterness has warped the views of both sides. I have reluctantly come to the conclusion that the version of neither side can be accepted in whole, and I have determined that the probability is there was a discussion in regard to placing the copartnership stock in a voting trust, August 13th, when the defendant purchased the additional stock. The defendant's suggestion for such a voting trust was declined, but I cannot believe that any of the plaintiffs told the defendant in words or effect that he was free to purchase the outstanding stock. It may perhaps be conjectured that there was some talk about the impossibility of buying that stock, which the defendant now believes included a suggestion to buy it, if he could; but I cannot find that such a suggestion was actually made. In view of all the circumstances, I have also come to the conclusion that none of the plaintiffs made any attempt to purchase Booth and Healion's stock for themselves, and it follows from these considerations that the defendant has not proved justification or consent.

[3] The defendant further urges that the plaintiffs made agreements with salesmen before the dissolution contracts were agreed upon by which they retained the services of such salesmen after dissolution. While the plaintiffs deny the making of these contracts, the defendant's contention is strongly supported by various circumstances, and I am ready to find that such contracts were made. I do not think, however, that the making of such contracts in behalf of the plaintiffs constitutes either a defense or counterclaim to the action. The contracts were personal in their nature. They were to take effect only on the dissolution, and even if they had been disclosed to the defendant they could not by their very nature have become partnership assets upon the dissolution. It was understood from the date of the quarrel that these