Stinson v. Andrews , 166 Ill. App. 92 ( 1911 )

Me. Justice Smith

delivered the opinion of the court.

The question presented is, does the plea set up a complete defense to the bill?

The proceedings in the County Court of Logan county, the pendency of which is set up in the plea, were instituted under sections 88 and 89 of the Administration Act. The contention of the defendants is that the citation which they caused to he issued out of that court directing the respondents to answer their petition constituted a former action pending with reference to the cause of action or controversy set forth in the hill of complaint, in a court of general and complete jurisdiction, with reference to the matter of the settlement of the copartnership. It is urged on the other hand that this position is untenable because the present existing partnership of Stinson and Hand is a partnership subsisting between complainant, Nelson T. Hand and the defendant executors of the last will and testament of Baker P. Andrews, deceased, and is not a copartnership in process of liquidation, between Stinson and Hand and the deceased, Baker P. Andrews. And a further contention is made that the County Court has power and jurisdiction only to compel an accounting by a surviving partner and the payment of the balance found due on the accounting. It is without jurisdiction to wind up and settle a partnership. The statute is for the exclusive benefit of the executors or administrators of a deceased partner and gives no remedies to the survivng partner.

The bill shows that the original partnership agreement was made January 2,1905, between Baker P. Andrews, Nelson T. Hand and the complainant, and that this partnership agreement contained a provision that in case of the death of any of the partners the business should be closed and settled up within one year thereafter by the survivor or survivors.

It appears from the hill that Baker P. Andrews died July 22,1906, leaving a will in which he nominated the defendants as executors of his will, and that the will ■jvas duly probated in the County Court of Logan county. It further appears from the bill that August 9, 1907, a contract was entered into between the complainant and the defendants, J. L. and J. D. Andrews, as executors of the will of Baker P. Andrews, and the defendant Nelson T. Hand, not for the purpose of winding up the business in accordance with the original contract but for the express purpose of continuing the business until January 15, 1908. At the time of making this agreement of August 9,1907, the year had expired in which, by the statute and the original contract of copartnership, the copartnership business was to have been closed, and the estate settled.

It further appears from the bill that subsequently on March 12,1908, J. L. Andrews, J. D. Andrews, F. j. Andrews and the defendant Hand, and the complainant Stinson, entered into a contract which recited that on January 31, 1908, the complainant Stinson and the defendant Hand had rendered an account to said executors whereby it appears that the interests in the said business of the respective parties were as follows: A. J. Stinson, $23,968.57, the estate of Baker P. Andrews, $54,115.66, Nelson T. Hand, $26,589.14, and that an accounting was had between the complainant and defendant Hand as surviving copartners, and the executors of the estate of Baker P. Andrews, the deceased partner, and that the interests of the various partners were arrived at, and the interest of the estate was also stated.

This contract then provides for a new equalized capitalization of the business, and recites in figures the interest of each of the parties, and provides for the giving to the estate of Baker P. Andrews a note for the sum of $6,178.52 by Stinson and Hand, and a note to the defendant Hand for the sum of $2,620.57, both of said notes being payable in one year, but that the same should be paid as soon as collections could be made from the bills and accounts receivable of the firm. In and by that agreement a disposition of the investment, in the Alabama lands near Citranel was made whereby the complainant and the defendant Hand were to take over the investment at the sum of $9,637.09, and were to pay to the firm of Stinson & Hand, that amount of money with interest, and providing that should any profit arise from the sale of the land it should be and become the personal -property and profit of said complainant and the defendant Hand.

The agreément further provides that on the last day of each month during which the contract was in force the complainant Stinson, the defendant Hand and the executors of the estate of Baker P. Andrews should each draw the sum of $250 per month, commencing on the 31st day of March, 1908; that this monthly payment was to be in full compensation and satisfaction of all claims and demands of each of the parties for services in conducting and carrying on the business and should be taken from the profits of the business; and at the end of the year, on. January 31, 1909, when the profits or losses arising from the business were ascertained, if the business showed a profit in excess of the said $250 per month that was to be paid to each of the parties signing the contract, the profit should be distributed to each of the partners in equal parts, and if the business showed a loss each of the said parties agreed to pay one-third of the loss, it being understood and contemplated that the complainant, Stinson, the defendant, Hand, and the executors of the estate of Baker P. Andrews were each entitled to an equal one-third of the profits and were each to share one-third of the losses, if any.

In that agreement it was provided that the declaration of trust made by Baker P. Andrews on the 10th day of August, 1905, in relation to the ownership of the real estate upon which said lumber business was conducted in Chicago, and the interests of said complainant and defendant Hand, should be subjected to the payment of the notes above mentioned given in accordance with the contract; and it was agreed that the executors of the Andrews estate should hold the title and the respective interest of each of the parties, subject to the payment of these notes; and the complainant agreed to convey to one of the executors of the Baker P. Andrews estate any real estate that might be in his name, in trust for the firm of Stinson & Hand.

In that agreement provision was also made for an indebtedness of the complainant to the firm of $4,000 with interest; and it was provided that complainant and his wife should execute a note payable to the firm and secure the same by a mortgage on certain premises, set forth in the bill. After this agreement was made according to the bill, the defendant executors participated in the management of the business for a time, and then assumed entire charge of it, excluding the complainant from the management.

It seems clear we think that this contract constituted a copartnership agreement between the parties signing it, and that in the agreement there is involved specifically a complete statement and accounting of all the interests of all the parties, including the interest of the Baker P. Andrews estate, in the copartnership, and that the effect of the agreement is a settlement and accounting by the surviving partners of the original co-partnership with the executors of Baker P. Andrews, and the turning over to the executors of Baker P. Andrews of the interest which the estate had in the old co-partnership ; and not only that, but on the basis of that accounting and restatement of the interests of the parties according to the state of the business at that time, a new copartnership was formed providing as above stated for monthly compensation for each, of the parties and a division of the profits, and also contribution for losses, if any, on the new basis.

• Where the representatives of a deceased partner join with the surviving partners in carrying on the business of the firm, the weight of authority is that a new partnership is created between them and the old copartnership ceases. In Woerner on the American Law of Administration, (2nd Edition) 281, the learned author says:

“The death of any member of a firm operates its dissolution as to all, unless hv the articles of copartnership or other agreement between the partners it is otherwise stipulated. These agreements are however to he looked upon as bargains for the creation of a new partnership when the old one ceases to exist, since the partner who has died cannot possibly continue a member of the firm, and though his executors or children become members yet it cannot be the same firm as that of which he was a member. ’ ’

McGrath v. Cowen, 57 Ohio State, 385, was an action brought by Owen McGrath against Catherine Cowen individually and as executrix of the will of her deceased husband, to dissolve a partnership existing between the parties and for the appointment of a receiver to take charge of the assets and wind up its affairs. At page 401, of the opinion, the court say:

“There can be no doubt that upon the death of James Cowen the partnership between him and Mc-Grath was immediately dissolved and the exclusive possession and control of its entire assets became vested in the survivor for the purpose of closing up its affairs; so that if no partnership relation was thereafter entered into by McGrath there was none to be dissolved, nor any occasion for an application by him for a receiver. # * * As a partner cannot possibly continue to be a member of a firm after his death any agreement with his executor or other person having a beneficial interest in the share of the estate which belonged to Mm, for the continuation of the business thereafter with the surviving partner, is necessarily the formation of another partnership. * * # And as to all arrangements or contracts which may he made between the surviving partners and the representatives or appointees of the deceased have for their effect only the formation of a new partnership, which upon some terms or other takes the stock and carries on the business of the old one. Parsons on Partnership, Sec. 343.”

In Insley v. Shire, 54 Kans. 793, there was involved the question as to whether a new partnersMp had been formed between the surving partners of the firm of Insley, Shire & Co. and the executors of Shire, a deceased member of the firm. The court say at page 801:

“The death of Shire operated to dissolve the partnership, but it appears that by mutual arrangement and in accordance with the provisions of the will the business was conducted by the executors upon the same terms as it was during the lifetime of Daniel Shire. This arrangement had the effect ■ of creating a new partnership composed of the executors on one side and Insley on the other. ’ ’

To the same effect are, the Exchange Bank v. Tracy, 77 Mo. 594, and Sternberg v. Larkin, 58 Kans. 201.

We have reached the conclusion that the agreement of March 12, 1908, was a copartnership agreement, with some hesitation, because of a contrary holding by the Appellate Court of the Third District in J. J. Andrews and others, Executors v. A. J. Stinson and others. It appears from the opinion of that court (164 Ill. App. 25) that the proceedings alleged to have been pending in the Logan County Court, set up in the plea in this case, were by the Logan County Court dismissed for want of jurisdiction and thereupon an appeal was taken to the Circuit Court of that county, and the ruling of the County Court was reversed, and on appeal to the Appellate Court of the Third District the ruling of the Circuit Court was affirmed.

In the opinion of the Appellate Court in that case it is held that the contract of March 12, 1908, did not form a new copartnership distinct from the old firm, and therefore that the County Court had jurisdiction to compel an accounting.

With all due deference to the holding of the Appellate Court of the Third District we are compelled to reach a different conclusion, holding that by the agreement of March 12, 1908, a new copartnership was formed for the purpose of continuing the business between the surviving partners and the executors of Andrews, deceased, and that for that reason the County Court of Logan county had no jurisdiction to compel the complainant to render an account in a partnership where there was no deceased member, and, therefore, the plea does not set up a defense to the bill of complaint.

This holding as to the agreement of March 12, 1908, is entirely apart from the provision in the fourth paragraph of Andrews’ will, which does not appear in the record now before us, but, in the opinion of the Appellate Court for the Third District it appears that the record before the court in that case contained a copy of Andrews ’ will, and in the fourth paragraph thereof the deceased expressed “the desire and direction that his executors should continue the lumber business for five years, and gave them power to discontinue old and form new partnerships.” If the will of Andrews authorized the executors to continue the lumber business and to form new partnerships there can be no question as to the authority and power of the executors to enter into the agreement of March 12, 1908.

If, however, the agreement in question is not to be construed as a copartnership agreement it must be held to be a full statement and accounting, between the surviving partners and the executors, and a settlement of the affairs of the old firm, and that such settlement is conclusive upon the defendant executors. Sage v. Woodin, 66 N. T. 578; Sternberg v. Larkin, supra.

The defendant executors, having thus received and approved the statement and settlement of the interest of the deceased in the copartnership, of which their' testator was a member, cannot after accepting such a statement and acting upon it, and taking possession practically of all of the property of the copartnership, as shown by the averments of the bill, go into the County Court and ask for and compel the surviving partners to make a further accounting to that court.

A further objection to the plea as a defense to the bill of complaint is that the statute under which the proceedings therein set up were instituted, gives no power to the County Court to wind up a partnership. It simply authorizes county courts to require an accounting from the surviving partners to the representatives of the deceased partner as to the latter’s interest in the firm for the purpose of administering his estate. It provides a direct and speedy remedy to the executors or administrators of a deceased partner to compel the surviving partner to honestly and speedily account for and pay over the interest of the deceased in the firm to the executors; and while the County Court has general equity powers for the purpose of compelling the accounting, it has no general equity jurisdiction to fully settle the copartnership and adjust the differences between the surviving partners and the interests of the estate. It affords no remedy and confers no right upon anyone except the executors or administrators of deceased members of the firm. The surviving partners can claim no equities as between themselves, nor secure any remedies in that proceeding except in the mere matter of settling the interest of the deceased member of the firm in the partnership assets.

The second section of the act under which the proceedings set up in the plea were instituted provides that in case of the committal of waste by the surviving partner or partners the court may upon a verified application by the executor or administrator protect the estate of the deceased partner by citing the survivor to give security for the faithful settlement of the affairs of the copartnership, and for an accounting and payment of whatever may he found due thereon after the payment of all partnership debts and costs of settlement ; and in case the survivor refuses to give such security the court may appoint a receiver with like powers as receivers in chancery; hut we see nothing in this section that clothes the County Court with concurrent equity jurisdiction with the general jurisdiction of the Circuit Court. The whole provision is conditional and applies in case waste has been committed by the surviving partner. In case the surviving partner has not committed waste this section gives no right of proceeding or remedy; and assuming that waste has been committed by the surviving partner the statute merely requires the giving of a bond by the survivor to faithfully account and settle the affairs of the partnership. Upon the giving of such bond the power of the court ceases and a halt in the proceedings occurs.

It is contended with much zeal, on behalf of the ap-pellees that the County Court is the court of concurrent jurisdiction with a court of equity for the settlement of copartnership affairs, and that the County Court having first obtained jurisdiction of the subject-matter of the settlement of this copartnership the Circuit Court would not' interfere; and many authorities are cited upon a proposition to which it is idle to cite authorities, as neither the rule of law invoked nor the authorities are applicable to this case as we view it.

We think therefore that upon the ground that thé County Court of Logan county has not the general equity jurisdiction necessary to settle matters and issues set forth in the hill of complaint, involving among other things the setting aside of the arrangement made with reference to the Alabama lands on the gronnd of fraud and.misrepresentation, and other issues which are presented hy the bill, and need not again he stated, the plea of the defendants to the hill does not set up a defense and should have been overruled.

With the consequences of the action of the executors in entering into the agreements with the surviving partners which they appear hy the hill to have entered into, or with their accounts as executors in the Probate Court, we have nothing to do and are in nowise concerned. If they have exceeded their authority as executors in making the contract set up in the hill, and have made themselves liable to the heirs or the estate, those questions are beside and apart from the questions presented in this case and are not involved herein.

The decree of the Circuit Court is therefore reversed and the cause is remanded.

Reversed and remanded.