Bauchle v. Smylie , 93 N.Y.S. 709 ( 1905 )

-McLaughlin, J.:

On the 18th day of December, 1901, Thomas H. Bauchle, the - husband of the plaintiff, died.', He left a will in which the plaintiff was named as executrix and the defendant Hopkins as executor. She was also the residuary .legatee. The will was admitted to .probate in January following and letters testamentary issued to-Hopkins, he alone- at that time.qualifying. In the following June,, however, the plaintiff qualified and letters testamentary were then issued to her. 1

At the time of Mr. Ban chib’s-death he was a member'of the firm of Ydung ■& Smylie — composed of himself, Adolphe, E. and Charles A. Smylie-—each owning a one-third interest ■ therein.. Shortly after the admission of., the will to probate, - negotiations Were commenced between the surviving partners, - the widow and Hopkins as exécutor, for the purchase by the surviving partners of . the interest which Mr. Bauchle had. in the firm at the time of his. death and which under the residuary, clause in his will. passed to-the plaintiff. These negotiations finally culminated on the 11th of April,, 1902, .when Hopkins,.as executor, and the plaintiff, individually,by an instrument in writing sold and transferred' such interest to the surviving partners for $42,500. This action was. thereafter, brought to set aside such- instrument, the plaintiff having offered... to return the consideration. The complaint was dismissed1 and the plaintiff " appeals. -

, The conclusion at which I have arrived renders it unnecessary to review at length the evidence offered at the trial, or determine • - whether it shows that the surviving partners; in acquiring the interest which the deceased partner had, were guilty of either actual or constructive fraud. The action was tried upon an erroneous theory., viz., that the burden was upon the plaintiff to establish that the transaction was unfair, whéreas the burden was in fact upon the surviving partners to. show that it was -in all respects fair and such as a court of equity would sanction and approve. .

The relation which a surviving partner holds to the representative of a deceased partner has been clearly defined and is generally understood. It is a fiduciary relation, involving trust and confidence of the highest character, which absolutely prohibits, the surviving partner acquiring any benefit from the deceased partner’s interest at the expense of his representative. (King v. Leighton, 100 N. Y. 392 ; Case v. Abeel, 1 Paige, 393; Murray v. Mumford, 6 Cow. 441; Sigourney v. Munn, 7 Conn. 11; Jones v. Dexter, 130 Mass. 380.) It is a relation stronger and more exacting than that which exists between partners themselves, inasmuch as the law commits to them, to the exclusion of others, the care and management of the deceased partner’s interest for the payment of debts and distribution. He is not a mere agent, but a trustee, and by reason of such relationship the same remedy exists on behalf of the representative of the deceased partner against the surviving partner as exists against a trustee strictly so called in behalf of a cestici que trust. (Holmes v. Gilman,. 138 N. Y. 369; Matter of Hallett's Estate, 13 Ch. Div. 712.) Even between partners the utmost good faith is required in their dealings with each other and with the partnership interests, and their duties comprehend in a great measure those of both trustees and agents. (Mitchell v. Reed, 61 N. Y. 123.) In Butler v. Prentiss (158 N. Y. 49) it was said that each partner owes to the other the most scrupulous good faith, each has a right to know all the other knows about the partnership business, and' that “ the uberrima fides of a fiduciary relation will be the standard of fidelity exacted from them.”

Here' the Smylies were not only surviving partners, and by reason thereof plaintiff’s trustees to the extent of her deceased husband’s interest in the firm, but she had no personal knowledge thereof and necessarily had to rely on what she was told. Hopkins also held a close relation to all of the parties ; he had been the personal attorney for each of the surviving partners for several years, and he was paid by them at least a part of his charges for bringing about the sale, though he testified that it was paid with the plaintiff’s consent, and he was also sole executor named in Charles A. Smylie’s will, which appears to have been made only a short time after the Sale in question. These facts are referred to, not for the purpose of showing there was any fraud, actual or constructive, on the part of the surAtiving partners in acquiring the interest of the deceased partner,' .but simply to show the relations which existed between the parties.

I -think, in view of this relation, thé same rule should be applied to the transaction iii question that would be applied tó a similar one) between attorney and client, guardian and ward or trustee and cestui que trust, and if-1 am correct in this, then the burden of proof was upon the surviving partners to show, by satisfactory evidence, that it was in all respects fair;. that the plaintiff received what the property was worthy that she fully understood the nature and effect of the transaction, and that the same was not brought about by fraud or deception'of any kind upon the part of the sun viving partners or either of them. (Pom.. Eq. Juris. §§ 956, 960; Story Eq. Juris. §§ 311, 312; Nesbit v. Lockman, 34 N. Y. 167; Barnard v. Gantz, 140 id. 249 ; Snook v. Sullivan, 53 App. Div. 602; Brock v. Barnes, 40 Barb. 521; Sears v. Shafer, 6 N. Y. 268; Hatch v. Hatch, 9 Ves. 292.)

- - The trial, as already indicated, Avas not conducted upon this theory; on the contrary, it seems to have been assumed that the burden Was upon the plaintiff to prove that the surviving partners were guil'ty of either actual or constructive fraud, and she having failed to establish- that the complaint must be dismissed. This, it seems to me, in vieiv of the relations existing between the parties, requires that there should be a new trial.

It follows, therefore, that the judgment appéaled from must be reversed and a neiv trial ordered, with costs to appellant to abide the event.

O’Brien, Ingraham and Hatch, JJ., concurred;' Van. Brunt,. P. J., concurred in result.

Judgment revérsed, new trial'ordered, costs to appellant to abide event.