U.S. Supreme Court Nixdorff v. Smith, 41 U.S. 16 Pet. 132 132 (1842)
Nixdorff v. Smith
41 U.S. (16 Pet.) 132
APPEAL FROM THE CIRCUIT COURT OF THE UNITED
STATES FOR THE DISTRICT OF COLUMBIA
A decree of a perpetual injunction on suits instituted on the common law side of the Circuit Court of the District of Columbia reversed and the bill dismissed, the as counts between the parties having been erroneously adjusted in the circuit court.
McKINLEY, JUSTICE, delivered the opinion of the Court.
This is an appeal to this court from the Circuit Court of the District of Columbia for the County of Washington, sitting in chancery. Smith, the appellee, filed a bill in chancery against Nixdorff stating that he had purchased of Nixdorff all his right and interest in the stock in trade and commercial business then carried on in the City of Baltimore by Nixdorff & Hager and agreed to pay to Nixdorff, in hand, the sum of $5,000, and at the expiration of two years thereafter such further sum as would be sufficient to reimburse to Nixdorff the balance of his interest, for investment of capital and interest thereon, after deducting the payment of the $5,000. And in contemplation of the agreement and after the terms had been fully settled among the parties but before it was written, Smith entered into partnership with Hager and agreed with him to continue the same business under the name and firm of Hager & Smith. And in anticipation of the new partnership it was agreed that the firm of Hager & Smith should assume the whole of the debts of Nixdorff & Hager and provide for their payment, and that all the debts owing to Nixdorff & Hager should be collected by Hager & Smith, and it was further agreed that Smith should sustain no loss by the collection of the debts due to Nixdorff & Hager.
It is further charged that Nixdorff's half of the goods in the store of Nixdorff & Hager was sold to Smith at twelve and a half percent discount on the cost price; that an inventory was
taken of the goods, and after making the stipulated deduction, Nixdorff's half amounted to $5,975.32. The agreement, dated 9 August 1833, and signed by the parties, was made part of the bill. It is there charged that the amount of debts paid by Hager & Smith, for Nixdorff & Hager, including interest to the first of November 1837, was $45,992.52, and the amount collected for them, with interest to the same period, amounted to $39,611.09, showing a balance against Nixdorff & Hager of $6,381.43. It is further stated in the bill that the firm of Hager & Smith afterwards purchased of Nixdorff, who was then doing business on his own account, goods and merchandise to the amount of $4,500, for which they gave their promissory notes; that Hager & Smith afterwards failed in business, and Hager removed to the western country, leaving Smith to pay the debts of the firm; that Nixdorff has brought suit against him on the common law side of the court upon the promissory notes, and refuses to permit him to set off the above balance of accounts in that suit. He therefore prayed that Nixdorff might be enjoined from proceeding further at law and that by decree of the court, this equitable offset should be allowed. The prayer for the injunction was granted.
Nixdorff, in his answer, denied that any balance was due from Nixdorff & Hager to Hager & Smith, and he also denied that he had ever refused to go into a settlement of the accounts between the two firms.
By order of the court below, the accounts between the parties, as set up in the bill and answer, were referred to an auditor, with many special instructions. By his report, it appears, that the amount of debts collected by Hager & Smith, for Nixdorff & Hager, under the contract between the parties, amounted to $42,026, including interest, to which he added the amount of goods contained in the inventory, after deducting twelve and a half percent from Nixdorff's half, making in all $54,830.26,
to the credit of Nixdorff & Hager, and he charged them with debts paid under the contract, including interest, the sum of $45,992.52, to which he added the sum of $5,000 paid by Smith to Nixdorff, making in all the amount of debts $50,992.52, showing a balance in favor of Nixdorff & Hager, of $3,837.74. To this report, the complainant filed the following exception:
"The auditor has erred in this, that he has charged the complainant with the amount of the whole inventory of the goods of Nixdorff & Hager, whereas the complainant was purchaser of onehalf of the goods only, and should have been charged with no more, the other half being the private property of Hager, and as such brought into the capital stock of Hager & Smith."
The court sustained this exception and directed the auditor to restate the accounts between the parties.
In the reformed report, the auditor charges Nixdorff with $45,992.52 for debts paid by Hager & Smith for Nixdorff & Hager, and adds the $5,000 paid by Smith to Nixdorff, making Nixdorff's debt to Hager & Smith $50,992.52, and he credits Nixdorff by $40,376.60 for debts collected for Nixdorff & Hager, to which he added $5,975,32 for Nixdorff's half of the goods, making the whole amount of credits $46,351.92, leaving a balance due from Nixdorff & Hager to Hager & Smith of $4,640.60. The amount of the debt due from Hager & Smith to Nixdorff, for which Smith was sued, being $4,874.45, the auditor deducted the balance found due from Nixdorff & Hager from that sum, and reports a balance finally due to Nixdorff of $233.85, and excludes Hager's half of the goods, included in the inventory, entirely
from the account, on the ground that they were not subject to the debts of Nixdorff & Hager. To this part of the report the defendant excepted. But the court overruled the exception, confirmed the reformed report of the auditor, and decreed that the injunction should be made perpetual except for the sum of $233.85, as reported by the auditor.
A very brief examination of the case will test the correctness of this decree. The equity set up in the complainant's bill rests entirely on the assumption that upon a full and fair settlement of accounts under the contract referred to, a large balance would be found against Nixdorff, and upon the apparent establishment of this fact is the decree founded. If, however, it be shown that instead of Nixdorff's being indebted to Hager & Smith, on such settlement, they are largely indebted to him, the bill will be without equity, and the decree, of course, erroneous. By bringing into the accounts all the effects of Nixdorff & Hager, the auditor's first report shows very satisfactorily a considerable balance in favor of Nixdorff.
But the complainant's counsel seems to have taken up the idea that the $5,000 paid by Smith to Nixdorff applied exclusively to the payment of Nixdorff's half of the goods, and that the legal effect of the payment was to release Hager's half of the goods from liability to the debts of Nixdorff & Hager, and this principle was recognized by the auditor in his reformed report and by the court in its decree, notwithstanding the allegations in the complainant's bill and the stipulations of the contract, show clearly that the $5,000 was paid upon the purchase of the whole of Nixdorff's interest. Whether the payment was special or general is not material to the merits of the case, but it is very material in considering the effect ascribed to it in the court below. For if the payment had the power to release Hager's part of the goods from liability because Nixdorff had sold to Smith his part of them and received part of the purchase money, it must necessarily have the same effect if it applied to the sale and purchase of the whole of Nixdorff's interest. The fact being that Nixdorff did sell the whole of his interest to Smith, and received the $5,000 in part payment of the whole to carry out the principle assumed, the
whole of Hager's interest in the firm of Nixdorff & Hager was thereby discharged from liability to the payment of their debts, and the burden of paying them devolved upon Nixdorff. A course of reasoning leading to conclusions so much at variance with law and justice is answered by merely stating it.
This singular error originated in charging Nixdorff with the $5,000 paid by Smith on account of the whole purchase and then refusing to charge Hager & Smith with the whole amount of the partnership effects in their hands, originally belonging to Nixdorff & Hager. The very moment that Nixdorff was charged with this sum of $5,000, the payment of it by Smith was neutralized and the transaction between the parties stood as though no payment had been made. The only consideration left, therefore, to support the sale by Nixdorff to Smith was the undertaking of Hager & Smith in the written contract to pay the debts of Nixdorff & Hager. In this aspect of the case, the liability of all their effects in the hands of the former to the payment of the debts of the latter cannot be doubted. By the first report of the auditor, it appears that he settled the accounts between the parties upon the principles here suggested -- that is, by charging Hager & Smith with the whole inventory of the goods and the money collected for Nixdorff & Hager and by charging Nixdorff with the money paid by Hager & Smith in discharge of the debts of Nixdorff & Hager, and also with the $5,000 paid to him by Smith. And upon this statement of the accounts, as already shown, a considerable balance appears in favor of Nixdorff & Hager.
But the auditor afterwards, it appears, became a convert to the doctrine of the complainant's counsel, and in his reformed report excluded Hager's part of the goods from the settlement altogether, and thereby created a seeming balance in favor of Hager & Smith to nearly the amount of their debt to Nixdorff, on which the suit at law was brought. This statement of the accounts by the auditor in his first report, as far as it has been here examined, is perfectly correct, and ought to have been confirmed by the court. The equity set up in the bill, depending entirely on the truth of the allegation that the balance would be in favor of Hager & Smith, upon such settlement of the accounts,
the balance being clearly established against them and in favor of Nixdorff, extinguishes, therefore, all pretence to any equitable setoff in favor of Smith. The decree of the circuit court is therefore reversed, the injunction dissolved, and the bill dismissed.