Goodburn v. Stevens , 5 Gill 1 ( 1847 )

Martin, J.,

delivered the opinion of this court.

This is an appeal from the order of the Chancellor of the 19th of January, 1846, instructing the auditor as to the principles upon which he was to state the account between the parties.

By this order, the Chancellor has determined:

First, That the partnership, in which Samuel Hayes was concerned, was to be treated, as subsisting until the 31st of August, 1841, when it was dissolved by the decree passed in the case of the creditor’s bill; and that the accounts of the partnership were to be brought down to that period.

Secondly, That the entire estate of the partnership, comprising both its real and personal property, was to be regarded as a fund applicable exclusively, and in the first place, to the payment of the debts of the partnership in preference to all other claimants.

And Thirdly, That the real estate held and owned by the partners, and used by them in the business of the partnership, was to be considered, as converted for all purposes into personalty—as possessing in all respects, the qualities and incidents of personal property, and therefore, not subject to the claim of dower.

The appeal has been prosecuted, at this stage of the cause, in pursuance of the act of Assembly of 1S45, ch. 367, enlarging the right of appeal in cases where decrees or orders to account have been passed by the Chancery Courts; and a preliminary point was raised by the counsel, with respect to the questions which were properly open for adjudication on this appeal.

The first section of the act provides:—“ That an appeal may be taken from any decree or order of the Court of Chancery or County Court, sitting as a Court of Equity, determining a question of right between the parties, and directing an account to be stated on the principle of each determination and it is clear, that in our examination of the order, we can only inquire into the correctness of the principles announced by the Chancellor, as the basis of the auditor’s report. The right of appeal from these interlocutory orders, has been conferred only where a question of right has been determined between the parties, and an account directed to be stated on the principle of such determination;—and it must be evident, that we could not consider any other questions, than those determined by the court below, for the government of the auditor, without exercising original jurisdiction. A power incompatible with the character and attributes of this tribunal, and, certainly not intended to be communicated by the statute, under which this appeal has been taken.

With respect then, to the first question decided by the Chancellor, we think he erred, in regarding this partnership as subsisting until the 31st of August, 1841.

The doctrine upon this subject has been stated with clearness and accuracy, by Judge Story, in his late work on partnership. He says, “ although the partnership be fixed for a particular term or period, yet it is always understood as an implied condition or reservation, unless the contrary is expressly stipulated, that it is dissolved by the death of either of the partners, at any time within the period. This doctrine is founded in equitable principles, and is the natural result of the peculiar objects of the contract. Every partnership is founded in a delectus personae, which implies confidence and knowledge of the character, skill, and ability of the other associates ; and their personal co-operation, advice, and aid in the management of the business. The death of any one partner, necessarily puts an end to such aid and co-operation. If, therefore, the partnership were not put an end to, by the death of any one of the partners, one of two things must follow; either that the whole business of the partnership must be carried on by the surviving partners exclusively, at the hazard of the estate and interests of the deceased partners, or else, that the personal representative of the deceased, toties quotics, who may be a mere stranger, wholly unfit for and unacquainted with the business, must be admitted into the management. The law will not force either of these alternatives upon the parties; but it presumes in the absence of all contrary stipulations, that by a tacit consent, death is to dissolve the partnership, because it dissolves the power of a personal choice, confidence, and management of the concern.”

In Crawshay against Maulé, 1 Swans. 508, Lord Eldon said, “ The doctrine that death ends a partnership, has been called unreasonable. Much remains to be considered before this objection can be approved. If men will enter into a partnership, as into a marriage, for better and for worse, they must abide by it; but if they enter into it, without saying how long it shall endure, they are understood to take that course in the expectation, that circumstances may arise from which a dissolution will be the only means of saving them from ruin; and considering what persons death may introduce into a partnership, there is strong reason for saying, that such should be its effect. Is the surviving partner to receive into the partnership at all hazards, the executor or administrator of the deceased, his next of kin, or possibly a creditor taking administration?” And the Supreme Court, have declared in Scholefield against Eichelberger, 7 Pet., 594, “ That, although the liability of a deceased partner, as well as his interest in the profit of a concern, may by contract, be extended beyond his death; yet without such stipulation, death dissolves the concern.” The same doctrine is announced in Vulliamy vs. Noble, 3 Mer. 614. Crawford vs. Hamilton, 3 Mer. 136. Gratz vs. Bayard, 11 S. & Raw. 41. Dyer vs. Clark, 5 Metcalf, 575, and in other cases to which it is unnecessary to refer. It must therefore be regarded as an established principle, resulting from the nature of the contract, and necessary for the protection both of the rights of the surviving partners, and the estate of the deceased, that the deatli of either of the partners produces ipso facto a dissolution of the concern; unless there is inserted in the contract, some provision imposing upon the surviving partners, and the representative of the decedent, an imperative obligation to continue it. There is to be found in this contract of partnership no such stipulation, and, we think that the death of Samuel Hayes, on the 20th of May, 1825, is to be treated as the true period of its dissolution.

The counsel for the appellee have however contended, that if this partnership was continued from the death of Samuel Hayes to the 31st of August, 1841, with the express or implied consent of Mrs. Hayes, the order of the Chancellor in this respect was correct, and that the consent of the widow and administratrix to its continuation, is to be inferred from her conduct, and especially from the character of her bill, in which she claims a right to participate in the profits earned by the partners, between the death of her husband and the period of the institution of her suit.

Samuel Hayes died on the 25th of May, 1825. On the 26th of September of the same year, Mrs. Goodburn obtained letters of administration upon his estate, and on the 15th of January, 1830, she filed her bill, in which she charges, “That the personal property of her husband had been employed in the business of the partnership by the defendants, and prays that they may be compelled to account for the profits made since his death, out of the personal property, and that she may have a reasonable and just allowance for her dower in the lands.” And assuming the facts slated in the bill to be true, it was the unquestionable right of the administratrix at her election, to demand either the actual profits made by the survivors from the use of her husband’s share of the partnership property, or interest upon the capital thus employed.

In Story on Part., sec. 343, it is stated,—“That dissolution by death puts an end to the partnership from the time of the occurrence of that event. It completely puts an end to the power and authority of the surviving partners, to carry on for the future the partnership trade or business. It is therefore the duty of the surviving partners to cease altogether from carrying on the trade or business thereof; and if they act otherwise, and continue the trade or business, it is at their own risk, and they will be liable at the option of the representatives of the deceased partner, to account for the profits made thereby, or to be charged with the interest upon the deceased partner’s share of the surplus, besides bearing all the losses.” The rule is also correctly given in a late treatise on this subject. Cary, 117.

The author says, “ where the surviving partners continue the business, employing in it the share belonging to the representative of the deceased partner, and no express direction has been given by the deceased, relative to the continuance of the business, the party entitled to the share of the deceased is at liberty to choose either to receive the legal interest on the capital so employed, or to take the profits that have arisen from the use of such capital; and in order to enable a party so interested to determine his choice, a decree will be passed directing an inquiry, whether the account of interest or profits will be most advantageous; but unless under particular circumstances, the party having the choice cannot elect the interest for one period, and the profits for another, but must elect to take one or the other for the whole period.”

In Crawshay against Collins, 15 Ves. 227, Lord Eldon said,—

“If the surviving partners do not think proper to settle with the executor, and put an end to the concern, but to make that, which is in equity, the joint property of the deceased and them, the foundation of increased profit, they must be understood to proceed on the principle which regulated the property before the death of their partner.”

The same doctrine is declared and illustrated: In the cases of Brown vs. Brown, 1 P. Will. 140. Hammond vs. Douglas, 5 Ves. 539. Exparte Ruffin, 6 Ves. 119. Brown vs. De Tasht, 1 Jacob, 295. Heathcote vs. Hulme, 1 Jac. & Walk. 122, and is too firmly established to be questioned.

As therefore it was the undoubted privilege of the appellant on the case made by her bill, to demand the profits produced by the employment of her husband’s share of the property, from his death to the institution of her suit; the assertion of this claim cannot be justly regarded as evidence of an assent on her part to the continuation of the partnership, so as to implicate her as a partner;—or as a ratification of the acts of the surviving partners.

We cannot perceive any thing in the conduct of the appellant, evincive of her assent to the continuation of this partnership; and this question is placed beyond controversy by the commanding fact, that in her bill, she expressly prays that the defendants may be restrained from using, in the business of the concern, her husband’s proportion of the personal estate.

There is another objection to the position taken by the counsel of the appellees, that cannot be overcome; and that is, that it is manifest from the answers of the surviving partners, that they never consented to receive the administratrix into the firm, as a continuing partner. While they acknowledge their liability to account to her for the partnership property as it existed at the death of Samuel Hayes, they reject the idea, that she possessed any authority to interfere in the management of the affairs of the company, subsequent to that period. We have already seen that a contract of this description, is one of personal confidence, in which the ability, skill and character of each partner is supposed to enter into the consideration of his associates, in the formation of the connexion, and that therefore, there can be no legal continuance of a partnership dissolved by death, in the absence of a new assent on the part of the survivors. You cannot impose upon the surviving partner the obligation to introduce into the partnership the representative of his former associate. Thornton vs. Dixon, 3 Bro. C. R. 200. Marquand vs. New York Manufacturing Company, 17 John. 535. Pearce vs. Chamberlain, 2 Ves. Sr. 33.

We think therefore, that the death of Samuel Hayes on the 20th of May, 1825, is to be treated as the period of the dissolution of this partnership, and that the accounts are to be taken at that time, for the purpose of ascertaining the condition of the partnership, and the rights of the respective partners to the joint property.

The second and third propositions determined by the Chancellor, relate to the question, as to what extent and what purposes the real estate of this partnership was to be treated as converted into personalty? We consider it as now established by at least a preponderance of authority, and upon proper and just grounds, that the whole partnership estate, whether consisting of real or personal property, is to be regarded in the view of a court of equity, as a consolidated fund, to be appropriated primarily and exclusively to the satisfaction of all the partnership engagements. In Fereday vs. Whightwick, 4 Con. C. R. 319, the master of the rolls said,—

“ The general principle is, that all property acquired for the purpose of a trading concern, whether it be of a personal or real nature, is to be considered as partnership property, and to be first applied accordingly, in satisfaction of the demands of the partnership.”

In Hoxie vs. Carr, 1 Sum. 183, Mr. Justice Story, in delivering the opinion of the court, says,—

“ A question often arises, whether real estate purchased for a partnership, is to be deemed for all purposes personal estate like other effects. That it is so, as to the payment of the partnership ■ debts, and the adjustment of partnership rights, and winding up the partnership concerns is clear, at least in the view of a court of equity.” And again, he says,—

“ The question, however, in the present case, is not whether real estate, when it is partnership property, becomes to all intents and purposes, in cases of intestacy and wills, personalty, but whether it is to be so treated in equity, as between the partners themselves and the creditors of the partnership. It seems to be the established doctrine of courts of equity, that it is to be treated as personalty, as between the partners and their creditors, in whosoever name it may stand on the face of the conveyance.” This principle is sustained by the cases of Dyer vs. Clark, 5 Medf. 562. Howard vs. Priest, 5 Medf. 582, and is to be received we think, as the correct doctrine upon this subject.

But the true question presented for our consideration on this branch of the case, and that to which the argument of the counsel has been addressed is: whether, assuming the partnership to have been solvent, on the 20th of May, 1825, the period of its dissolution, the interest of Samuel Hayes in the partnership-lands, is to be treated as real estate, descendible to his heirs, and chargeable with dower; or as changed for all purposes into personal estate, and distributable as such among his personal representatives ?

It cannot be denied, that upon this question there has been both in England and in the courts of the United States, great diversity of judicial opinion and decision. But the case before us is clear of any agreement between the partners, direct or implied, impressing upon their real estate, the character of personalty, and under such circumstances, we consider the true rule to be, that the interest of the deceased partner in the partnership lands, is to be treated as real estate, and that the appellant is entitled to a suitable allowance out of the proceeds of the sale of these lands, as an equivalent for her dower; provided of course, the partnership shall be found to have been solvent at the period of its dissolution.

The doctrine that real estate purchased with the partnership funds for its use, and on its account, is to be regarded in a court of equity, as the personal estate of the company for all the purposes of the partnership, stands upon a familiar and just principle. It is the clear case of an implied or constructive trust, resulting from the relation which the partners bear to each other, and from the fact, that the estate was brought into the firm, or purchased with the funds of the partnership, for the convenience and accommodation of the trade. For this reason, in whosoever name the legal title may reside, the estate is held in the eye of a court of equity, for the use of the partners as the cestui que trusts, and if a partner dies, the legal estate of which he was seized as a tenant in common, passes to his heirs or devisees, clothed with a similar trust, in favor of the surviving partners, until the purposes for which it was acquired have been accomplished.

But when all the claims against the partnership have been satisfied, the partnership account adjusted, and the object of the trust fulfilled, in a case, where the partners have not either by an express or implied agreement, indicated an intention to convert their lands into personal estate; no solid reason can be assigned, why the real estate should not be treated in a court of equity, as at law, according to its real nature, and consequently chargeable with the widow’s dower.

The proposition thus announced, will be found to be sustained among other cases; by Thornton vs. Dixon, 3 Bro. C. R. 200. Bell vs. Phyn, 7 Ves. 456. Balmain vs. Shore, 9 Ves. 508. Cookson vs. Cookson, 8 Simons, C. R. 529, and by a very elaborate and able opinion, delivered by Chief Justice Shaw, in Dyer vs. Clark, 5 Medf. 562. In this' case it appeared, that the real estate in controversy, was purchased by the partners, with the partnership funds, for the use and convenience of the trade. On the death of Burleigh, one of the partners, his administrator sóld his undivided moiety of the lands for the sum of fifteen hundred dollars. The firm was represented to be insolvent, unless the proceeds of the real estate so sold by the administrator, should be applied to the liquidation of the partnership accounts. The prayer of the bill was, that the plaintiff might be allowed to retain the rents which had accrued since the decease of Burleigh, to be applied to the adjustment of the partnership accounts, and that the defendant might be restrained from paying the proceeds of the real estate to the individual creditors of Burleigh. The widow and heirs of the deceased partner, also asserted their claims upon the fund.

In this case, in reference to the rights of the widow, the court say:

“ That the right of the widow is not distinguishable from that of the creditors, and heirs of the deceased partner. That as far as this estate was held in trust by her deceased husband for the purposes of the partnership, she was not entitled to dower. For all beyond that she was entitled, because he held it as legal estate, unless she is barred by her release.”

It follows from the views thus expressed, that we consider the partnership as dissolved on the 20th of May, 1825, and that, that is the period at which the partnership accounts are to be stated.

That the whole estate of the partnership, consisting both of its real and personal property, is to be applied exclusively, and in the first place, to the payment of all the partnership engagements, as they existed on the 20th of May, 1825.

That if the partnership was solvent at the period of its dissolution, the widow of Samuel Hayes is entitled to a proper allowance out of the proceeds of the sale of the partnership lands, as an equivalent for her dower. But as to what sum is to he regarded as a fair equivalent for her dower, under the circumstances of the case, and whether she has a lien for her dower, on the proceeds of the sale, are questions upon which we express no opinion, as they are not open for adjudication on this appeal.

The order of the Chancellor is reversed, and the case remanded to the Court of Chancery for further proceedings.

decree reversed without costs and cause remanded.