Stewart v. North

Factual and Procedural Background

A joint-adventure was formed in 1877 between the Defendant and another party for acquiring and working a concession to supply a seaport in Peru with water by laying pipes. One joint-adventurer with local management, instead of continuing the original pipe scheme, negotiated a lease of an existing water company’s business supplying water to several towns, using his control over the concession to obtain the contract. He operated this business until the town was destroyed in 1879 during wartime. In 1881, he purchased the water company’s plant and business and continued operations until selling it to a new company in 1887.

In 1887, the assignee of another joint-adventurer who had contributed capital to the original joint-adventure but had not participated in the later enterprises, brought an action seeking an account of profits made under the contracts relating to the lease, purchase, and resale of the water company’s business.

The court considered whether the assignee was entitled to an accounting for profits derived from these transactions, and whether the joint-adventure had lapsed prior to the lease contract. The court also examined whether the claim was barred by delay in enforcement.

Legal Issues Presented

1. Whether the assignee of a joint-adventurer is entitled to an account of profits arising from contracts entered into by the managing partner using the joint-adventure’s concession.
2. Whether the joint-adventure had lapsed prior to the lease (location) contract of 1878.
3. Whether the assignee’s claim to profits from the lease and subsequent purchase of the water company business was barred by delay in asserting the claim.
4. Whether the managing partner was justified in treating the joint-adventure as ended when entering into contracts for the water company’s business.

Arguments of the Parties

Appellant's Arguments

• The assignee, as successor to the joint-adventurer, was entitled to an accounting for profits derived from contracts related to the lease, purchase, and resale of the water company’s business.
• The contracts fell within the scope of the original joint-adventure or competed with it, thus requiring profit sharing under partnership principles.
• There was no evidence that the joint-adventure had lapsed before the lease contract; the concession was never challenged by the municipality.
• The delay in claiming profits should not bar the claim because no demand for further capital was made beyond what was paid.

Respondent's Arguments

• The lease and purchase contracts were outside the scope of the original joint-adventure and were entered into by the managing partner for his own benefit.
• The joint-adventure had lapsed prior to the lease contract due to failure to raise necessary capital and abandonment of the pipe scheme.
• The assignee was barred from claiming profits due to a nine-year delay in asserting any claim.
• Joint-adventure being a limited partnership, the rules regarding sharing benefits from competing enterprises did not apply as joint-adventurers often pursued overlapping but separate schemes.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analyzed the nature and scope of the joint-adventure agreements, finding that the assignee’s predecessor had a contractual right to contribute capital and share profits and losses in the joint scheme to supply water to Pisagua. The Defendant, managing partner, entered into a lease contract with an existing water company and later purchased its business, using the joint-adventure’s concession as leverage.

The court held that if the joint-adventure had not lapsed, the Defendant was obliged to account for profits derived from these contracts because they fell within the scope or competed with the joint-adventure’s business. However, the court found that the joint-adventure had not formally ended by May 1878 when the lease contract was made, as there was no demand made on the assignee’s predecessor to pay further capital and no clear abandonment of the original pipe scheme.

Nonetheless, the court emphasized the assignee’s predecessor’s long delay—approximately nine years—in asserting any claim after being informed of the change in business arrangements. This delay was deemed fatal to the claim for profits from the lease and purchase contracts. The court reasoned that partnership and joint-adventure claims for profits must be asserted within reasonable time, especially when the partner was informed of the transactions and had opportunity to act.

The court distinguished between the original joint-adventure and the subsequent contracts, holding that while the Defendant was accountable for intromissions with joint-adventure funds, he was not liable to account for profits arising from the lease and purchase contracts due to the delay in enforcement. The court also recognized that the joint-adventure had effectively lapsed prior to the purchase in 1881, given the destruction of the town and expiration of the concession.

Holding and Implications

The court held that the assignee was entitled to an accounting for all dealings with the joint-adventure’s funds and estate related to the original joint-adventure capital contributions. However, the court reversed the lower court’s finding that the joint-adventure had lapsed before the lease contract and concluded that the assignee’s claim to profits from the lease and purchase contracts was barred by the long delay in asserting the claim.

The court ordered that the Defendant must account for intromissions with the joint-adventure’s funds but was not required to account for profits made under the lease and purchase contracts with the water company. The case was remitted to the lower court to proceed accordingly.

The decision clarifies that joint-adventure or partnership rights to profits derived from subsequent contracts using partnership property require timely assertion; delay can bar such claims even if the partner was entitled to share profits. The ruling does not establish new precedent but applies established partnership principles to the facts.