On the 4th day of December, 1935, Mohmad Rasheed filed his bill
against Margaret Ferreira and The Children’s Shop, Limited, an
Hawaiian corporation. It alleged in substance: Page 612
that on the 15th day of July, 1935, petitioner and Margaret
Ferreira entered into an agreement of partnership under the terms
of which petitioner advanced merchandise of the value of $1910
and that Margaret Ferreira advanced merchandise of the value of
$1320, all for the purpose of operating in Honolulu a business
known as Kay’s Dress Shop; that on or about the 24th day of
October, 1935, petitioner gave written notice to Margaret
Ferreira of the termination of said partnership agreement in
accordance with the terms of said agreement and requested a
division of the assets and profits of the business of said
partnership and for an accounting of the business affairs of said
partnership, which was refused; at the trial this allegation was
amended by substituting “oral” for “written”; that Margaret
Ferreira is the principal stockholder in The Children’s Shop,
Limited, and is in fact the owner and manager of said
corporation; that on the 19th day of November, 1935, petitioner
and The Children’s Shop, Limited, entered into an agreement under
the terms of which petitioner transferred all of his interest in
and to all of the goods, wares and merchandise belonging to Kay’s
Dress Shop to The Children’s Shop, Limited, and that The
Children’s Shop, Limited, agreed to pay the sum of $377.96 to one
S. Goldsmith, to whom petitioner was indebted, and further agreed
to sell the merchandise so transferred to it by petitioner and
after deducting said $377.96 to account and pay to petitioner the
net proceeds realized from said sale; that said $377.96 has been
paid but, although requested by him so to do, said The Children’s
Shop, Limited, has refused to make an accounting to petitioner of
the balance of the proceeds received from the sale of the goods
which he transferred to it; that Margaret Ferreira has
transferred all of the Kay’s Dress Shop partnership assets to The
Children’s Shop, Limited, and has intermingled the partnership
goods with the goods of
Page 613
The Children’s Shop, Limited, for the purpose of preventing
petitioner from knowing or determining what part of the
partnership goods has been sold or otherwise disposed of. The
prayer was for a dissolution of the partnership between
petitioner and Margaret Ferreira and that respondent (evidently
meaning The Children’s Shop, Limited), be required to account for
and concerning all sales of goods, wares and merchandise
constituting the partnership assets of Kay’s Dress Shop and that
upon such accounting this court require respondents to pay to
petitioner all moneys that may be found due and owing to him and
that there be a division of any partnership assets that may yet
remain unsold in the hands of the respondents or either of them.
Copies of both the agreement of July 15, 1935, between Margaret
Ferreira and petitioner and the agreement of November 19, 1935,
between The Children’s Shop, Limited, and petitioner are attached
to said bill as exhibits.
From the agreement of July 15, 1935, it appears that Margaret
Ferreira and petitioner agreed to operate the business known as
Kay’s Dress Shop, located at 69 South Hotel Street, Honolulu,
T.H.; Margaret Ferreira agreed to advance merchandise to the
value of $1320, in addition to furniture and fixtures; no
valuation was placed on the furniture and fixtures in said
agreement; petitioner agreed to advance merchandise of the value
of $1910; after certain other provisions not relevant to this
controversy it was agreed that profits resulting from the
business would be divided equally between the parties and that
the agreement might be terminated “by mutual consent upon which
either party will give to the other sixty (60) days notice in
writing of such termination,” and any division of assets and
profits will be made on the basis of one-half to each of the
parties hereto at the time of the termination.
By the agreement of November 19, 1935, between the
Page 614
petitioner and The Children’s Shop, Limited, petitioner sold,
transferred and set over to The Children’s Shop, Limited, all of
his right, title and interest in and to all the goods, wares and
merchandise, assets, good will, trademark and other property of
every kind and nature in said Kay’s Dress Shop, together with all
debts and things in action due or owing or to become due and
owing by any person or corporation to said Kay’s Dress Shop. It
is recited in said agreement that petitioner was, prior to July
15, 1935, indebted to S. Goldsmith in the sum of $377.96, which
he was unable to pay; that The Children’s Shop, Limited, is
willing to take over all of the property and interest of said
Rasheed in and to the goods, wares and merchandise belonging to
Kay’s Dress Shop, located at 69 South Hotel Street, Honolulu,
being the entire interest of said Rasheed in and to the business
being carried on as Kay’s Dress Shop by said Rasheed and Margaret
Ferreira. Said agreement further recites that Margaret Ferreira
and Mohmad Rasheed did on July 15, 1935, enter into an agreement
with respect to the carrying on of said Kay’s Dress Shop, not as
partners except to the limited extent set forth in said
agreement, and that Margaret Ferreira has consented that said
Rasheed sell, assign and transfer all of his interest in and to
the goods, wares and merchandise forming the stock in trade of
Kay’s Dress Shop to The Children’s Shop, Limited.
In consideration of the sale and assignment of the said stock
in trade, The Children’s Shop, Limited, agreed to forthwith pay
to S. Goldsmith for the account of Mohmad Rasheed the sum of $100
and to sell at retail the goods, wares and merchandise
transferred to it and after reimbursing itself for all reasonable
expenses and charges to apply the net proceeds realized from the
sale of said goods as follows: To pay S. Goldsmith the sum of $25
per week, the first payment to be made November 30, 1935, and $25
Page 615
on each Saturday thereafter until the remainder of the
indebtedness of Rasheed to said Goldsmith in the sum of $277.96
is paid in full and after said Goldsmith has been paid in full
and after The Children’s Shop, Limited, has reimbursed itself for
all moneys advanced by it to or for or on account of any
indebtedness of said Rasheed then to account to said Rasheed for
the balance of money so realized from the sale of said wares and
merchandise. It was further agreed that The Children’s Shop,
Limited, would incur no indebtedness for or in the name of Mohmad
Rasheed or Kay’s Dress Shop without the consent of Mohmad Rasheed
and Margaret Ferreira. Said agreement was executed in behalf of
said corporation by Margaret Ferreira as manager.
On December 14, 1935, Margaret Ferreira filed her answer to
said bill, in which she admitted the execution of the two
documents of July 15, 1935, and November 19, 1935, denied all
other allegations of the bill and for further answer alleged that
petitioner had not given her sixty days’ notice of the
termination of said agreement of July 15, 1935, prior to the
filing of his bill. On the same day The Children’s Shop, Limited,
filed its demurrer, the principal grounds of which are that it
appears that said petition is exhibited against it and Margaret
Ferreira for several and distinct matters and causes which have
no relation to or dependence upon each other and in which this
respondent is not in any manner interested or concerned; that
said petition shows on its face that petitioner is not entitled
to an accounting for the reason that the agreement in writing
dated July 15, 1935, provides that said agreement may be
terminated only at the expiration of sixty days’ written notice
of such termination whereas petitioner has alleged that
petitioner gave notice on or about the 24th day of October, 1935,
of the termination of said agreement. The demurrer having been
overruled,
Page 616
the respondent The Children’s Shop, Limited, filed its answer in
which it admitted the execution of the agreement of November 19,
1935, and either denied or alleged want of sufficient knowledge
to admit or deny all other allegations of the bill.
On June 10, 1936, counsel stipulated that a statement of
account covering the period from November 19, 1935, to June 10,
1936, would be prepared by respondents and submitted to
petitioner for an examination by June 25, 1936.
On August 14, 1936, the respondent having submitted an account
in accordance with the foregoing stipulation the same was
introduced in evidence and made part of the record. Thereupon an
order of reference to a master was entered which recites that the
parties stipulated, subject to their respective rights to make
objections and take exceptions and “preserving such objections
and exceptions as have already been made,” that the accounts of
the parties herein and an accounting may properly be referred to
a master for that purpose and Harold C. Hill was appointed master
to examine and make a statement of and report upon the accounts
of said Kay’s Dress Shop and of Mohmad Rasheed and Margaret
Ferreira, copartners therein, from July 15, 1935, to November 19,
1935, and to examine, make a statement of and report upon the
accounts of and between said Kay’s Dress Shop and the said The
Children’s Shop, Limited, and the interest therein of the said
Mohmad Rasheed from November 19, 1935, to August 14, 1936.
Neither on June 10 nor on August 19 was any issue of prematurity
of the bill raised on the ground of nonpayment of Goldsmith prior
to filing of the bill.
The master, on September 8, 1936, filed his report in which he
analyzed the statement of operations of Kay’s Dress Shop covering
two periods, the first from July 15, 1935, to November 19, 1935,
and the other from November
Page 617
20, 1935, to August 14, 1936. This analysis showed that on
November 19, 1935, Kay’s Dress Shop had an inventory of
merchandise, the cost value of which was $1919.29. It further
showed that during the period from November 20, 1935, to August
14, 1936, goods which cost $894.58 had been sold, for which
$1248.81 was received, or $354.23 more than the cost of the goods
sold. It, however, showed that The Children’s Shop, Limited, had
charged operating expenses incurred in the sale of said
merchandise, including wages, salaries, rents, taxes,
advertising, general expenses and commissions amounting to
$3823.99, resulting in an operating loss of $3469.76. The
master’s report contained no recommendation. It was, however, a
full statement of the accounts contained in the books of account
kept by the parties. The court, not being satisfied with the
report of the master, without objection re-referred said accounts
to him by supplemental order dated September 11, 1936, wherein
the master was instructed to re-examine said accounts and report
to the court his findings upon the accuracy thereof, the
reasonableness of the charges and debits and of the credits
therein and to make a full investigation and report to the court
upon his findings and recommendations and advise the court what,
in his opinion, is a true and reasonable statement of the account
between the parties, with his reasons therefor.
On November 25, 1936, the master filed his supplemental report
in which he showed a balance sheet as of November 19, 1935, which
showed assets of Kay’s Dress Shop as follows: Stock of
merchandise, $1919.79; cash, $110.04; accounts receivable,
$360.20; owing by partners, $803.67; total, $3193.70. The
liabilities on this balance sheet show: Accounts payable for
merchandise, $407; for rent, $337.97, and a net worth of the
business of Kay’s Dress Shop as of November 19, 1935, of
$2348.87. This is a mistake of $100 in subtraction. It should be
$2448.87.
Page 618
He assumed that one-half of this net worth belonged to
petitioner. However, the petitioner owed the partnership for
advances amounting to $498, which, deducted from one-half of the
net worth, reduced his interest in the assets to $676.43. In
neither of the reports of the master was any account taken of the
value of the furniture and fixtures referred to in the agreement
of July 15, 1935. Upon re-examination the master concluded that
the expenses charged by The Children’s Shop, Limited, during the
period from November 20, 1935, to August 14, 1936, amounting to
$3823.99, were not proper charges as expenses of sale for which
it was entitled to reimbursement and substituted for said charges
a percentage of the sale price of goods. The percentage used by
the master was arrived at by determining what percentage it had
cost Kay’s Dress Shop during the period from July 15, 1935, to
November 19, 1935, to sell its goods, without taking into
consideration any salary for the three Ferreiras. That percentage
he found to be 25.84% and applied that percentage to the sale
price of goods made by The Children’s Shop, Limited, as proper
compensation to it for its services in selling said goods. By
this method he found that The Children’s Shop, Limited, had,
during the period from November 19, 1935, to August 14, 1936,
sold at retail merchandise belonging to Kay’s Dress Shop having a
book or inventory value of $849.58 for $1248.81. He assumed that
one-half of these goods belonged to The Children’s Shop, Limited,
having found that Mrs. Ferreira had also conveyed her interest in
Kay’s Dress Shop to said corporation. The Children’s Shop,
Limited, had therefore received $624.41 for goods conveyed to it
by petitioner. He then deducted 25.84% of this sum as
compensation to The Children’s Shop, Limited, for its services,
leaving $463.06 to be accounted for. He then found that The
Children’s Shop, Limited, had disposed of said money as follows:
Paid S. Goldsmith
Page 619
$377.96; reimbursed itself for legal fees advanced for
petitioner, $10, or a total of $387.96, from which he concluded
that The Children’s Shop, Limited, had cash on hand belonging to
petitioner in the sum of $85.10 (a mistake of $10 in subtraction;
it should be $75.10) and was still accountable for goods
remaining unsold amounting to $229.14. No recommendation for
disposition of accounts receivable was made by the master.
Both the petitioner and respondents filed exceptions to the
report of the master. The petitioner excepted to said report on
the ground, among others, that the master did not take into
consideration the inequality of the contributions of the partners
to the assets of Kay’s Dress Shop and contended that Mr. Rasheed
had $590 more coming to him than Mrs. Ferreira by reason of his
greater original investment and reached the conclusion that The
Children’s Shop, Limited, should account to petitioner for
$695.78 instead of the $85.10 reported by the master. The
respondents excepted to the report on the ground, among others,
that the master did not allow the expenses incurred by The
Children’s Shop, Limited, in carrying out its duties under its
contract with petitioner. In his original report the master had
set up these expenses as part of the account between petitioner
and The Children’s Shop, Limited. In his supplemental report in
lieu of these expenses he substituted the percentage of the sale
price of goods which he found it had cost Kay’s Dress Shop to do
business and recommended that The Children’s Shop, Limited, be
allowed that percentage of sales to compensate it for the sale of
said goods, this percentage to be in lieu of all other
compensation and expenses. Respondents took issue with the master
on this finding as being contrary to the provisions of the
agreement of November 19, 1935, between petitioner and The
Children’s Shop, Limited.
After a hearing on the exceptions the circuit judge
Page 620
filed his decision in writing, finding that the sale by
petitioner of his interest in the partnership assets of Kay’s
Dress Shop, with the consent of Mrs. Ferreira, constituted a
dissolution of the partnership and that the filing of an account
by respondents and the stipulation of the parties to submit the
accounts to a master constituted a waiver of the grounds of the
demurrer. The circuit judge further found that at the time the
bill was filed the payments to S. Goldsmith had not been fully
made but, being advised by counsel for petitioner that the
question of prematurity was decided upon the argument of the
demurrer, declined to re-examine the question. He ruled, however,
that in any event respondents waived their right to raise the
objection that the bill was prematurely filed by submitting an
account at the prior hearing and stipulating that it should be
referred to a master, and even if they had not waived their
rights to now object, no prejudice or harm is shown by refusing
to dismiss the cause at this time. He further found from the
evidence, and cited it as a reason for refusing to dismiss the
cause as prematurely filed, that prior to the filing of suit
petitioner called upon the respondents and questioned them
concerning the status of the business and was told by both Mr.
and Mrs. Ferreira (Mrs. Ferreira being admittedly the manager of
The Children’s Shop, Limited), that he had not a cent coming to
him and that he in fact owed The Children’s Shop, Limited, 85¢
and that in view of this statement the petitioner was entitled to
immediately resort to a court of equity to protect and enforce
his rights. The court thereupon adopted the plan of settlement
recommended by the master but found clerical errors in it which
he corrected. He found that the net worth, instead of being
$2348.87, was $2448.73 and that $85.10, which the master found to
be the amount of cash on hand due to petitioner, should be
$75.10. To this sum the court added $150, which he found upon
conflicting
Page 621
evidence to be one-half of the value of the furniture and
fixtures referred to in the agreement of July 15, 1935, and which
he found were sold to The Children’s Shop, Limited. He thereupon
found that the amount due petitioner was $75.10, plus the $150
above mentioned, or a total of $225.10.
As to the goods remaining unsold, the court ordered that they
be divided equally between the petitioner and the respondent The
Children’s Shop, Limited. As to the accounts receivable, “now
outstanding and collected,” it was ordered that they be sold or
assigned and the proceeds divided. A decree having been entered
in conformity with said decision, the respondents have appealed.
Respondents in their opening brief have grouped their nine
assignments of error under three heads, as follows: (1) that the
suit was prematurely brought; (2) that there is want of equity in
the petition; and (3) that the sum equal to 25.84% of the gross
sales is not a fair and reasonable sum to compensate The
Children’s Shop, Limited, for its services, advances and expenses
in connection with the November 19, 1935, contract.
We think it is clear that the bill in this case was prematurely
filed, under the November 19, 1935, agreement. The accounting
which The Children’s Shop, Limited, agreed to make was to be made
after Goldsmith had been paid and after The Children’s Shop,
Limited, had reimbursed itself. The undisputed evidence is that
on December 4, 1935, when the bill was filed, Goldsmith had not
been paid and that he was not fully paid until February 15, 1936.
The circuit judge, however, concluded that the voluntary
accounting made by the respondents after Goldsmith was paid and
stipulating that it be referred to a master constituted a waiver
of their right to raise the objection that the bill was
prematurely filed. The fact that Goldsmith had not been paid when
the bill was filed
Page 622
was peculiarly within the knowledge of respondents. They should
therefore have filed a plea in abatement before answering,
setting up that the time for an accounting had not arrived for
the reasons now urged and had a ruling on that plea. Had they
done so they would be in a position to insist in this court that
the bill was prematurely filed. (Olson v. Harvey,
188 P. 751.) Instead of presenting such a plea they filed an answer
denying in very general terms the allegations of the bill and
some four months after Goldsmith had been paid they entered into
a stipulation in open court whereby they undertook to make an
accounting as of June 10, 1936, and submit it to petitioner by
June 25, 1936. There was no reservation of former objections in
this stipulation nor present issue raised as to the bill being
premature under the November 19 agreement. The accounting was
made and furnished to petitioner and when the parties next
appeared before the court in August, 1936, the stipulation of
reference was made and contained merely the reservations set out
above.
The premature commencement of the action was not, as argued by
counsel for the respondents, a jurisdictional matter but one
which might be waived by failure to seasonably interpose an
objection on that ground. (1 C.J. 1152.)
The ruling of the circuit judge that respondents had, by the
conduct herein set forth, waived their right to raise the
objection that the bill was prematurely filed, is amply supported
by the authorities. (Lake v. Anderson, 78 N.Y.S. 444; Olson
v. Harvey, supra; Butler v. Cornell, 35 N.E. 767; 53 C.J.
681.)
On the question of whether or not the court was justified in
fixing the compensation of The Children’s Shop, Limited, at
25.84% of the sales made by it, we first look to the contract or
agreement of November 19, 1935, to ascertain what the parties
agreed on this subject. The only
Page 623
language in said agreement having the remotest bearing on this
issue is as follows: “It is agreed by said Children’s Shop,
Limited, that it will * * * sell at retail the goods, wares and
merchandise hereby transferred to said corporation, and after
reimbursing itself for all reasonable expenses and charges, will
apply the net proceeds realized from the sale of said goods as
follows.” The application to be made of the net proceeds is not
pertinent to the present inquiry. From the foregoing we see that
The Children’s Shop, Limited, was to reimburse itself for all
“reasonable expenses and charges.” That is, its expenses and
charges must be reasonable.
The master’s report and the evidence show that The Children’s
Shop, Limited, had charged expenses amounting to more than three
times the amount received from the merchandise sold which it
claimed to have incurred in the sale of about one-half of said
merchandise. These charges exceed the value of the assets of
Kay’s Dress Shop, made up of merchandise, accounts receivable and
cash on hand on the date of the transfer to The Children’s Shop,
Limited.
It does not require the wisdom of a Solomon to determine that
the accounting which the respondents were willing to make and
which they exhibited to petitioner was not based on “reasonable
expenses and charges.” If evidence of the unreasonableness of the
accounts submitted by the respondents was necessary the testimony
of the master supplied it. His testimony in support of his
recommendations also supports the court’s finding that the
percentage of sales adopted by the master was sufficient to cover
the reasonable charges and expenses of The Children’s Shop,
Limited, in the sale of said merchandise. The other figures used
by the court in arriving at its decision and decree, with the
exception of the allowance for the furniture and fixtures
referred to in the agreement of July 15, 1935, are not disputed.
The court decided that
Page 624
the furniture and fixtures referred to became a partnership asset
and that petitioner’s interest therein was worth $150 and had
been conveyed to The Children’s Shop, Limited. He therefore
ordered that The Children’s Shop, Limited, account for that
value. The determination of the status of said furniture and
fixtures is not free from difficulty. The partnership agreement
of July 15, 1935, to which we must look for a determination of
that question, is very poorly drawn. By the terms of said
agreement Margaret Ferreira was to “make advances in stock of
merchandise to the value of One Thousand Three Hundred Twenty
($1320.00) Dollars, in addition to furniture and fixtures.” The
petitioner was, by the terms of the same agreement, to “make
advances in stock of merchandise to the value of One Thousand
Nine Hundred Ten ($1910.00) Dollars.” Upon termination of the
agreement, a division of assets and profits was to be made,
one-half to each of the parties. The agreement undoubtedly
created a partnership between the parties and the merchandise
“advanced” by the parties undoubtedly became a partnership asset.
The parties have so treated it. We conclude that the most
reasonable construction of the language used is that the
furniture and fixtures were to be a part of Mrs. Ferreira’s
contribution to the assets of the partnership and that the
circuit judge did not err in requiring the respondent to account
for one-half of the value thereof.
The decree appealed from is affirmed.