Certainly I find no express clause prohibiting such a course, nor is there any express obligation to divide as dividends the residue of actual profits, even after setting apart that reserve fund (which it is admitted beyond dispute that the company was authorized to do under the 32d clause of their deed) to answer any extraordinary expenses that might be sustained through accident or emergency of any kind in carrying on the It would be strange if they did not divide the resi due of the profits, because it would, in fact, amount to putting by another reserve fund; but there is nothing in the deed to prevent their so doing.

concern.

But, then, no fund could properly be set apart, either for reserve or for division among the members of the company, unless it consisted of net profits strictly so called; and in the course of the argument upon this present case I think that we have arrived at a very clear perception of the principle upon which the directors and the company were bound to act in ascertaining such net profits. The first step would be to make good the capital by taking stock and putting a value upon all the assets of the company, of whatever nature, and deducting therefrom all the liabilities (including amongst those liabilities the amount of contributed capital,) and the surplus, if any, then remaining of the gross receipts would be net profits. Now, assuming for the present that this sum, which the company have thought it necessary to keep back from division among its members and to apply, not as a reserve fund, but toward the liquidation of the share capital, represented part of the stock or capital of the concern, I do not see how it could be to the prejudice of Mr. Lancaster, in contradistinction to the other shareholders, to apply that money in reducing the capital, which was, in fact, a debt of the company. The only suggestion that I have heard tending that way was made by Mr. Osborne in reply, namely, that it is for the interest of all the shareholders to have sufficient working capital. No doubt it is. But it would be extremely detrimental to the shareholders if they were compelled to keep up a larger capital than they wanted to work with, or than they could safely employ; and I can not find in this deed anything which precludes that general right of the company to determine by a majority what shall be their course of management in this re

spect. The anomalous position of Mr. Lancaster does not seem to me in the smallest degree to put him in a different situation from the other shareholders with regard to the advantage or disadvantage of applying a part of the capital (that is, of the money which has been kept back representing capital) in discharge of the share capital, because he is obliged to contribute his quota toward the annual payment of the interest on that share capital, and he will be liable ultimately to contribute his proportionate share toward the repayment of the principal at the dissolution of the company. It must be recollected that I am for the present taking the case, not of money which might be divided as profit, but of money which represented capital and which must be set apart before the profit could be ascertained.

But now comes the question, what is it that the company is intending to do? I can not lay my finger on any evidence, nor has any been furnished, which enables me to say that they were proposing merely to apply capital, or what ought to be kept back as capital, in discharge of the contributed share capital. Yet there is no evidence, on the other hand, to show that they were meaning to confine themselves to that. My impression is that the company passed this resolution without keeping in their minds that clear view, which I think I am justified in saying we have all now arrived at, as to what is really the mode in which this company ought to be worked with respect to the present question. I have no means before me of knowing whether this £10,101 was money which might be treated as profit, that is, what would remain after setting apart sufficient to satisfy the whole amount of capital, including the value of the assets, or whether it was not. I believe, in fact, tha it has never been considered by the directors whether it was so or not. In this state of things the only course I can take is to ascertain what is the fact. One mode of doing that would be for the directors or their secretary to make an affidavit; but then, I think there ought to be an opportunity given to the plaintiff, who does not belong to the company, of seeing how the inquiry is conducted; and therefore I shall direct an inquiry for the purpose of ascertaining what was the amount of net profit for the half year preceding the date of the resolution; and I think the

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inquiry should be prefaced by a declaration that the company are not authorized to apply any part of the net gains and profits (specifying the principle upon which those gains and profits are to be ascertained) toward the liquidation of any part of the share capital.

I now come to consider the plaintiff's position. It has been contended that he has no right to come here at all; and I have been referred to the 142d clause of the deed, upon which it has been argued, in effect, that the company may repudiate the plaintiff and say he has no right to bring them into a court of equity for any relief against them at all. But it appears to me that such a contention really can not be maintained, because the effect of that clause is not that the company is not to be affected by a trust, or that no trust is to be created on any share, but that the company shall not be affected by any notice of any trust; that is to say, although they may have notice that A is a shareholder, and B is a cestni que trust, payment of dividend to the person standing on the books shall, notwithstanding the notice of the trust, be a good dis. charge. That is the whole effect of this clause. But it does not preclude a cestui que trust of A's shares from coming and saying, "Do not pay my trustee the moneys as if they bclonged to him, but pay them to me." Nor does it preclude the plaintiff from coming to the company and saying, "You are injuring these shares in respect of a right which attaches to them; you have no right to make this application of the profits against Mr. Lancaster, my trustee, and therefore you have no right as against me." It appears to me that there is nothing in this deed to prove any such right on the part of the company; in fact, it would be enabling a company to take upon themselves to say, "We will by our deed make a provision that whatever injustice we choose to perpetrate there shall be no remedy against that injustice in any court of equity." I am not saying that the company is doing anything of that kind; I am only putting it at the extreme. Therefore I think that the plaintiff has a full right, first, as between himself and Mr. Lancaster against the company, to say, "You must not pay Mr. Lancaster any portion of dividend, but must pay it to me instead." And, if necessary, a receiver must be appointed not to receive anything belonging to the company,

but only to receive from the company, and intercept from Mr. Lancaster, that which would otherwise be paid to Mr. Lancaster. And then the plaintiff has, I conceive, a right to say, "If the company is taking any part of the profits which belong to these shares of Mr. Lancaster, and is appropriating them in a manner in which it has no right to appropriate them in paying off capital to the detriment of Mr. Lancaster's shares, I shall go into a court of equity and seek to restrain the company from doing that."

Now then, the only other thing I have to advert to is the position of Mr. Baily's client, the first mortgagee. It seems to me that he was really not a necessary party to this suit at all, because no relief can be had against him in respect of that mortgage which he holds, and even if he were a necessary party for the purpose of enabling the plaintiff to work out his remedy, still the plaintiff must pay his costs. It may be said that it was important that the court should be informed of the existence of the prior mortgage; but it being clear that I can make no decree in respect of it, I must dismiss the bill with costs as against the first mortgagee. The injunction must be continued until further order, and a receiver appointed of the dividends payable in respect of Lancaster's shares, without prejudice to the rights of the first mortgagee. Declaration and inquiry as above directed.

PHILLIPS V. REEDER ET AL.

(18 New Jersey Equity, 95.

Court of Chancery, 1866.)

1 1 Partner holding lease with privilege of renewal. Where two entered into partnership to continue for three years, and so much longer as one of them, holding a certain lease of stone quarries, should continue lessee of such quarries: Held, that the partner holding such lease was not bound to exercise the option of renewal which such lease gave him, and that the partnership expired with the lease.

If articles of copartnership provide for its continuance during the exist ence of a lease, renewable at the option of one of the partners, it is at the option of such partner to continue the partnership by renewing the lease, or to end it by refusing to renew. He has a right to refuse to renew--for the purpose of ending the partnership.

1 Burdon v. Barkus, 11 M. R. 357.

'Statement of intention no estoppel. That a partner, having the option to renew such lease and continue the partnership, may have talked and acted as if he intended to do so, will not bind him to renew if he made no contract to do it.

Division of property after dissolution. Upon the dissolution of a partnership, in which the articles provided that the effects, on dissolution, were to be equally divided among the partners, the property and effects of the firm belong to the individuals who composed it, as tenants in common; part of the former members of the firm can not dispose of. the property of any other member, without his consent.

Idem. If some of the members of a dissolved partnership dispose of the property of one of the partners, without his consent, he may, at his option, call on them to account for its value.

2

Rights of retiring partner. In many cases, if some of the partners, after dissolution, continue the business with the property of the late firm, the retiring partner will be entitled to call on them for a share of the profits, as well as for his capital.

Idem Continued use of retiring partner's effects. But this principle will not be applied to a case where the chief contribution to the business was personal skill and labor and a new partnership was formed with strangers, merely because some of the property of the retiring partner was used in the new business, after being sold to the new firm by the continuing partners, without authority.

Idem Accounting to retired partner. A majority of the partners of a firm that is dissolved have no right, without judicial proceedings, to compel another partner to sell or divide the property, or to choose an appraiser for the purpose of valuation, or, if he refuses, to choose appraisers themselves, and purchase or sell his share at such valuation. But if they have appropriated or sold the property they must account to him for the real value of his share and interest therein.

AITKIN and WILSON, for complainant.

RICHEY, for defendants.

THE CHANCELLOR (ZABRISKIE).

The complainant, Benjamin D. Phillips, entered into partnership with the defendants, Charles Reeder and Samuel Prior, by written articles, under the hands and seals of the parties, dated the 15th day of December, 1860. The partnership was to commence from the date and to continue for three years, and so much longer as the defendants should continue lessees, under the lease then existing, of three stone quarries leased to them by Cornelius V. Moore. That lease

Maye v. Yappen, 10 M. R. 101.

2 Nerot v. Burnand, 4 Russ. 247; Payne v. Hornby, 25 Beav. 280.