Eastwood, Bigelow and Francis. The opinion of the court was delivered by Francis, J.c.c.
[19 NJSuper Page 258] The plaintiffs here are members of a limited partnership doing business under the trade names of American Cabinet Company, American Shuffleboard Company, and American Cabinet & Billboard Company. The defendant, Paul Cusano, is their brother, and defendant, Teresa Cusano, is their mother. In July, 1950, plaintiffs instituted this action seeking a dissolution of the partnership, appointment of a receiver to wind up its affairs, an accounting
by the defendant, Paul Cusano, and certain interim restraints against him. Teresa Cusano was made a defendant only because she declined to act as a plaintiff and so that her interests as a partner could be controlled by the judgment of the court. Defendant Paul Cusano counterclaimed, seeking an injunction against plaintiffs to prevent them from interfering in the operation and management of the business.
On August 21, 1950, following the filing of an amended complaint, a custodial receiver was appointed for the partnership, and defendants were ordered to show cause one week later with respect thereto and the merits of the action. Thereafter, on August 26, 1950, on the written consent of all parties the receiver was authorized to operate the business "in all respects as the business had heretofore been conducted by the said partnership, prior to the date of his appointment."
After taking testimony for two days, September 26 and 27, 1950, on the order to show cause, and prior to the next hearing date, on proper notice to all parties, the court discharged the receiver, restored the business to the defendant, Paul Cusano, and dissolved the restraints.
At the conclusion of protracted hearings which, as indicated, began on September 26, 1950, and terminated on February 13, 1951, the trial court dismissed the complaint and the counterclaim. Thereafter the receiver was allowed $5,000 as compensation for his services, to be paid out of the partnership, and J.C. Abramson & Company, one of two accountants appointed by the court on the application of the receiver, was awarded $1,800 for its services. This fee was ordered paid in the first instance by the partnership but to be charged against the plaintiffs in the taxed costs.
By this appeal plaintiffs seek a review of the dismissal of their complaint and of the allowance of the $1,800 accountant's fee against them. Defendant Paul Cusano appeals from so much of the judgment as charges the receiver's allowance of $5,000 against the partnership.
For some years prior to December 31, 1949, the defendant Paul Cusano had been engaged in the manufacture and sale
of billiard and pool tables, shuffleboards, bar fixtures, and like articles. In December, 1943, he was about to marry. His brother, Armand, was doing defense work in a shipyard and Louis was in the Army. Their mother, undoubtedly influenced by the impending marriage, asked Paul to give her and his two brothers a 50 per cent interest in the business. For the years 1941 and 1942 the financial record of its operations shows that the sales for 1941 amounted to $47,191 and the net profit was $3,778.40; for 1942 the sales totaled $100,177.51 and the profits $9,378.56. Paul must have known at this time that business was improving because the sales for 1943 were $213,846.21 and the net profits were $45,203.29. However, it seems unlikely that any of the parties considered this as presaging the success which followed.
In any event, Paul yielded to his mother's wish and agreed to give each of the three a 16-2/3 per cent share so that they would have a combined interest of 50 per cent and he would retain a like interest. However, he imposed the condition that he would retain unqualified control over the operations, that his brothers would not interfere with his management, and that if they began to work actively in the business, they would act as, and accept treatment as, ordinary employees.
An agreement of limited partnership was drawn by attorneys representing the parties, which specifically embodied their understanding. It provided that the partnership was to continue for 30 years beginning January 1, 1944; that Paul would have the full and complete right to manage the business, without interference from the brothers or their mother; that Paul was to be considered the employer and whenever in his discretion it appeared to be for the good of the business to terminate the employment of any of the partners, such termination would be final and beyond question; and that Paul would render an accounting of the partnership business to them semi-annually and would pay to them out of the profits such sum as he deemed proper to disburse. It further provided that proper books of account would be kept by Paul, that they would be open for inspection at all reasonable
times, and that the limited partners would have the right to have them audited, at their own expense, by an accountant of their choice. Certain patents owned by Paul were to continue in his ownership, but the partnership was licensed to manufacture and sell the patented articles for the term of the agreement.
The partnership started out with capital of $18,204.03 which was allocated to it by Paul. The books noted the ostensible contributions as Louis, Armand and the mother, $3,040.67 each and Paul $9,122.02. Actually Louis and Armand made no contribution. An effort was made at the hearings to establish some pre-existing obligation running from Paul's business to them, but no substantial evidence of any legal liability was adduced. Mrs. Cusano held Paul's note for $4,500 and under the contract she not only received the financial interest as above set forth but also a further assignment of $3,000 to be withdrawn at the pleasure of the parties, when the cash was available.
Armand did not come to work for the partnership until early in 1945; Louis came toward the end of January, 1946. Armand quit around Thanksgiving, 1948, and Louis was discharged March 24, 1950.
The success of the partnership was little short of phenomenal. The books show the following:
1944 $320,914.74 $71,204.67
1945 $423,146.07 $69,237.28
1946 $762,175.79 $126,311.99
1947 $998,670.35 $199,553.23
1948 $1,883,904.16 $372,576.72
1949 $2,075,425.32 $249,199.72
These net profits were not distributed. They were retained in the business and used for its improvement and expansion. However, the share of each partner was credited to his capital account on the books of the company.
With respect to Paul's salary the agreement provided that he should be paid $100 a week so long as the volume of business approximated $170,000 annually. Then for each $10,000 increase in volume he would receive an additional $5 weekly. The manifold increase in his weekly earnings through the application of this scale to a sales volume such as that in 1949, for example, in excess of two million dollars, is readily apparent.
From the inception of the partnership the federal income tax on both the wages and accrued profits was paid for all the partners out of the business.
Success brought not peace but discord among the brothers. While the evidence is somewhat conflicting as to the origin and source of the trouble, the conclusion reached by the trial Court is inescapable that despite their solemn written compact under which they were to be employees, Armand and Louis grew to resent the need for punching the time clock and bowing to Paul's authority. They became jealous of him and demanded some executive authority for themselves. When it was not forthcoming and when the profits continued to go back into the business, the bitterness engendered eventuated in Armand's resignation, in the discharge of Louis, and in this and other litigation.
Prior to Armand's departure, he and Louis learned that the method employed by Paul in the payment of their income tax obligations had created an unbalance in the respective capital accounts of the partners. It came about in this way: Paul had a 50 percent interest in the business. Since the net profits were not being withdrawn, the balance in his capital account at any given time should have equalled the total of his partners' balances. However, because of his 50 percent interest his income tax liability was much greater than that of any one of the other partners. When the firm paid the taxes Paul simply reduced the sum credited to his capital account ...