Rankin v. Newman

Garoutte, J.

William J. Newman, Benjamin Newman, and the deceased, John Levinson, were partners in the merchandise business, and held interests therein in proportion to the amount of capital invested by each. The last articles of copartnership between these parties were entered into January 24, 1889, and, among other things, they provided in detail the manner in which an inventory and appraisement of the partnership business should be taken annually, which inventory and appraisement should form the basis in estimating the net profit going to each partner.

The articles further provided as follows:

“In the event of the death of one of the copartners, the inventory provided for herein shall be taken as expeditiously as possible, and without unnecessary delay; the surviving partners, if requested . so to do, shall admit to the place of business of the firm at least one person selected, designated, and empowered by the heirs or legal representatives of the deceased partner to represent the interest of his estate in the copartnership. Such person so representing the interests of the estate of the deceased partner shall have accorded to him access to all the books, papers, and accounts of the firm, and may at his election remain and continue at the place of business thereof until all matters relating to the interests of the deceased partner shall have been fairly and satisfactorily arranged and settled and adjusted, and the total amount due to the estate of the deceased partner shall have been ascertained and determined.

“ The total amount ascertained and determined to be due the estate of the deceased partner on account of his interest in the copartnership shall be paid to the heirs or legal representatives of the deceased partner in twelve successive and equal monthly installments, commencing within one month from the time the amount due has been ascertained and determined; for the amount of which installments the surviving partners shall execute and deliver to such heirs or legal representatives their promissory notes, payable as aforesaid, without interest, and satisfactorily secured by indorsement or otherwise; provided, however, that the surviving partners shall have the option to continue the said copartnership; the estate of the deceased partner taking the place of the decedent on such terms and conditions as may be agreed upon between the surviving partners and the legal representatives of the deceased partner, but it shall not be obligatory upon the surviving partners so to do. The surviving partners and their successors shall also have the right and privilege of continuing the business under the said designation and name of Newman & Levinson.”

Levinson died February 25, 1890, and forthwith the Newmans made an inventory and appraisement of the partnership business, as provided by the articles of partnership, by which inventory and appraisement it was determined that the net amount of Levinson’s interest in the assets of the firm was the sum of twenty thousand seven hundred and ninety dollars and eighty-eight cents. For this amount defendants prepared and procured to be properly indorsed their notes, twelve in number, for the sum of seventeen hundred and thirty-two dollars and fifty-seven and one-third cents, each bearing date February 26, 1890, payable at successive monthly intervals following that date, and within one month after Levinson’s death tendered them to Raveley, the executor of the will of said deceased, who had then received letters testamentary from the superior court. In July, 1890, the Newmans filed a petition in the court alleging that they were ready and willing to purchase the interest of the deceased in the partnership upon the terms stated in the articles, and had requested the executor to allow them to do so; that he had refused, and praying an order directing him to convey that interest to them. The court sustained a demurrer to such petition, on the ground that it had no-jurisdiction to grant the order prayed for. Thereafter, on September 6, 1890, Raveley, the executor, being of the opinion that he had the power to accept the terms proposed by the Newmans, received the said notes, and on that day executed to them two certain papers, the first of which acknowledged the delivery of the notes “in pursuance of the provisions of the articles of partnership .... for the interest of the estate of said Levinson in said partnership.” The other paper set out the transaction more in detail, and stated that the amount of such notes was the amount of Levinson’s interest in the assets of the firm, as determined by the said inventory and appraisement, and that the notes were received by the executor “in full payment and satisfaction of the amount due the estate of John Levinson, deceased, for the interest of said deceased and of his said estate in the copartnership firm as the same has been ascertained, as above stated.”

Levinson’s residuary legatees were his mother and two sisters, all of full age. They in writing notified the Newmans on March 5, 1890, that they did not desire to employ any person to assist in taking the inventory of the assets of the late firm, then in progress, and the estate of the deceased had no representative in that undertaking, though. the executor was often about the place of business, and both he and the legatees knew what was being done. No account of the goodwill of the firm was taken in the inventory made by the defendants, nor was it in the inventory and appraisement of the estate1 returned to the court by the executor. In the inventory and appraisement returned by the executor the value of the interest of Levinson in the partnership assets was stated at the same sum as that fixed by the appraisement of the defendants, to wit, twenty thousand, seven hundred and ninety dollars and eighty-eight cents, and was adopted by the appraisers on the strength of that appraisement. The omission to value the goodwill as part of the estate by the executor was resented by the legatees, and on this ground they petitioned the court to remove Raveley from his office of executor. He thereupon resigned, his accounts were settled, successive administrators with the will annexed carried on the administration, until finally H. W. Phil-brook was appointed, and he has been substituted as plaintiff of record herein. This action is essentially one in equity sounding largely in fraud, and asking for an accounting of the partnership affairs. The case has been before us in the past upon an appeal from the judgment (Rankin v. Newman, 107 Cal. 602), where may be found an outline of the purposes of the action and the general framework of the pleadings.

Fraud is charged in the body of plaintiff’s bill, and upon that ground relief in a great measure is sought. But in the opinion of the trial judge, Hon. W. T. Wallace, which opinion is set forth in the record, it is stated that there is no evidence whatever to support such a charge. And, after a careful examination of the evidence, we find nothing therein even tending to show the practice of any fraud upon the heirs and legatees of the dead partner. It follows that all question of fraud is out of the case, and the only important question remaining is, Had the executor under the articles of co-partnership the right to consummate the transfer of the deceased partner’s interest in the business to the surviving partners for the consideration specified in said articles? Although this interrogatory presents a clear-cut proposition of law, still it is well to say that, if this transfer of the partnership interest should be set aside, as is here sought by appellant, and all parties be placed in statu quo, as of the day the transaction was had, no substantial results favorable to appellant’s interests would ensue. It would be a valueless victory, for, as said by the trial judge, upon an accounting the sum realized by the legatees would fall far short of the amount actually paid by the surviving partners to them.

In appellant’s brief the law is conceded to be: Where the copartners in the partnership contract— articles of partnership—do actually contract that on the death of a partner the partnership property and business belongs to the survivor or survivors, fixing the price at which it is to be taken by the survivor or survivors, such contract is binding according to its terms.” Upon such concession we are brought face to face with the articles of copartnership for the purpose of weighing and testing them by the formula furnished by appellant; and at the threshold of the investigation we are met by the objection that, at the date when those articles were entered into, the deceased partner, Levinson, was incapable, by reason of mental incapacity, of entering into ■any contract whatever. The mental incapacity of Levinson at the time was not even suggested in plaintiff’s bill, and his mental status does not appear to be an element of the case that attracted serious attention at the trial. But some evidence came before the court upon the question without objection, which, even in the absence of direct issues raised by the pleadings, should be considered as bearing upon the question. (Crowley v. City R. R. Co., 60 Cal. 628.) There are various good reasons why this evidence should not be held sufficient to invalidate the articles of copartnership, and as an all-sufficient reason we suggest that the implied finding of the court was against any such contention. Appellant’s principal witness to the point testified that if Levinson had read the articles of copartnership he would have understood them, and there is no evidence in the record that he did not read them. As a salient circumstance bearing upon Levinson’s mental capacity at that particular time, it may be noticed that some few days thereafter he executed his last will and testament, the will under which this administrator is now acting in prosecuting this litigation. It further appears that» upon his return from Europe after the execution of these articles, for several months and up to the time of his death, he gave his personal attention to the business of the firm as he had always done in the past. We are satisfied there is nothing in the point.

We have quoted in detail that portion of the partnership contract which declares what shall be done with the business in case of the death of one of the partners. In this respect the provision of the contract is not well drawn. It is not clear, but, upon the contrary, somewhat vague and indefinite. At the same time, when carefully read and considered, but one conclusion can be arrived at; and that is that, upon the death of one of the partners, the surviving members of the firm had at least the privilege and option of buying the interest of the deceased partner in the business upon certain terms. It is claimed upon the part of the Newmans that under the contract they were bound to do so. But to support the validity of the contract in this regard they are not compelled to go to such length; for, if they had an option by the articles of copartnership to purchase upon stated terms, then they had the undoubted right to exercise that option and take the interest of the deceased partner, if they were so disposed. (Harbster’s Appeal, 125 Pa. St. 3.) In that case it is said: “It requires no argument to show that the interest of the deceased partner ended when the firm gave notice that they would take it in accordance with the terms of the agreement.” And in the ease at bar, if the Newmans simply held an option to purchase the interest, there can be no question but that they exercised that option in favor of purchasing. If it should be held that the copartnership articles did not giye the surviving partners a right to purchase, then the presence of all that portion of the contract providing for the mode and manner of payment by the Newmans for the deceased partner’s interest would be inexplicable. It is provided in great detail that they should give their equal monthly installment notes, ruñniúg over a period of twelve months, in payment of the interest of the deceased partner. Such provision beyond question contemplated a sale, and that a sale to the surviving partners in case of the death of one of the firm was in the minds of all parties when the contract was made, does not admit of doubt. There can be no other reasonable construction of the instrument. '

It is insisted that the language here used provides no fixed and definite amount of money to be paid by the surviving partner for the interest of the deceased partner, and it is claimed that for such reason there is no contract, at least no contract sufficiently clear and explicit, to be capable of enforcement. There is no case cited by appellant that goes to the lengths here insisted upon. But, upon the contrary, that is certain which may be made certain, .and many of the cases bearing upon this question rest upon this principle. Numberless cases might be cited where courts have recognized the right of the partners to stipulate in the copartnership articles that the purchase price for the interest of a -deceased partner shall be fixed by an inventory and appraisement to be taken after the death of such partner. In the very nature of things, a fair purchase price of an interest in the firm at an indefinite future time would be incapable of ascertainment. To fix the amount in advance would be simply a speculative gamble upon the ■ part of all parties concerned, and hardly justifiable either in morals or law.

It is further contended that there is no mode whatever provided in the articles by which to ascertain the value of the interest of the deceased partner; and it may well be conceded that the provisions of the contract in this regard are not what they should be. In this particular the instrument is unhappily drawn, and well serves the purpose of being an invitation for litigation. As we have already seen, the articles provide for an annual inventory and appraisement in order that the actual financial status of the concern may be determined. This inventory and appraisement was provided for in order that the annual ‘profit or loss of each partner might be known. A succeeding subdivision of the contract, which we have heretofore quoted in full, then in part declares: “In the event of the death of one of the copartners, the inventory provided for herein shall be taken as expeditiously as possible, and without unnecessary delay. The surviving partners, if requested so to do, shall admit to the place of business of the firm at least one person selected .... by the heirs or legal representatives of the deceased partner, to represent the interest of his estate in the copartnership .... and may-at his election remain and continue at the place of business thereof until all matters relating to the interest of the-deceased partner and his estate shall have been fairly and satisfactorily arranged and settled and adjusted, and the total amount due to the estate of the deceased partner shall have been so determined. The total amount ascertained and determined to be due the estate of the deceased partner, on account of his interest in the co-partnership, shall be paid to the heirs or legal representatives of the deceased partner, in twelve successive and equal monthly installments.” If the language of the contract had included the words “and appraisement” after the word “inventory,” there wrould have been no question of indefiniteness, and no possible technical objection as to the matter of construction. But the absence of those two words should not nullify the contract. It would be carrying the doctrine of technicality too far, if we should so hold, The true intent of the parties is plainly apparent from the language used. And that intent was that an inventory and appraisement, as provided for in the articles, should furnish the basis for fixing the purchase price of the deceased partner’s interest. Such is the fair construction of the language, taking it altogether, and, indeed, the only construction which can be given it. To say that the parties to the contract, while providing for a sale and also providing for the manner and time for payment, never intended to provide as to the amount which should be paid, or to fix any mode by which the amount could be determined, would be going to lengths entirely unauthorized by the instrument itself. We hold that the mode and manner of fixing the amount of the purchase price is found within the language of the instrument itself, and that mode and manner is the inventory and appraisement provided for in a previous portion of the contract.

Conceding that the inventory and appraisement mentioned in the articles of copartnership were intended by the partners to be used as the basis for fixing the value of a deceased partner’s interest, then appellant contends that the contract was void as placing it in the power of the surviving partners to fix their own purchase price. There is no force in this contention. The contract contemplates the presence of a representative of the deceased partner during all these times, and incidentally it may be suggested that the executor was present, during the time, more or less, and that both he and the legatees had full knowledge of what was being done, and ample opportunity to be present at all times and upon all occasions to assist, either personally or by agent.

Again, as to the store and office fixtures, the value is fixed at a certain and definite amount. As to the stock of merchandise on hand, it is to be appraised at its actual value, but not to exceed its original cost. All solvent debts are to be taken at their face value. We see nothing so indefinite in these facts as to nullify the contract. The actual value of a piece of merchandise can be determined; and likewise it can be determined what is and what is not a solvent account. They are matters capable of ascertainment, and every partnership in the country is constantly engaged in determining them. There is certainly nothing so indefinite and uncertain as to the valuation to be fixed upon these assets as to in any way render the contract nugatory. In Harbster’s Appeal, cited by appellant, the purchase price was fixed at the previous annual appraisement, with the proportion of profit or loss for the present year added or deducted, as the case might be. It certainly in that case was no easier to fix the amount of the profit or loss than it was in this case to fix the actual value of the stock, or determine what debt was a solvent account. Indeed, both of those factors of the business were necessary . elements to be determined before the profit or loss could be fixed. In another of appellant’s cases, Blake v. Barnes, 26 Abb. N. C. 208, the purchase price by the surviving partners upon the death of a member of the firm was to be determined by an inventory and appraisement, to be made as follows: “(b) Accounts overdue at a fair estimate, to be determined, if necessary, by arbitration; (c) Rejected machinery, or any other property or merchandise for which the firm is not willing to allow the valuation inventoried, or hereinbefore provided for,'at the price offered by the highest bidder; (d) For the stereo and electrotype plates, engravings .... a sum equal to the gross profits of the firm for the last two complete business years preceding the time of settlement.” It was not suggested that such a character of valuation avoided the contract, although the case was bitterly contested on other grounds. The case of Simmons v. Leonard, 3 Hare, 581, goes away beyond the cases just cited. It was there provided that the surviving partners should take the interest of the deceased partner at a valuation shown by the last annual accounting, the articles having provided for annual accounts. A partner died, and no annual accounts had been taken. The representative of the deceased partner, as in this case, contended that there could be no sale, as the purchase price was not fixed. The vice-chancellor said: “ The rule which justice and common sense would apply in such a case is, I think, too clear for serious argument. The proviso for sale in one event, that of the term running out, and the proviso for paying off a deceased partner’s share (dying during the term) by installments, ■is conclusive evidence of an intention and agreement that the death of a partner during the term should not work a dissolution of the whole partnership, but that the survivors should have a right to carry it on, with the accommodation of paying off the executors of a deceased partner by installments.” And, in conclusion, he held the contract for a sale good, and that the purchase price should be determined by an accounting.

In Dinham v. Bradford, L. R. 5 Ch. App. 519, it is held in effect that the articles of copartnership might provide that the purchase price of a deceased partner’s interest in the business should be fixed by three disinterested parties. In Quinlivan v. English, 44 Mo. 46, the value of the interest of a deceased partner was to be fixed by an appraisement made after his death, and, in case of a dispute as to the valuation of the stock, the matter was to be submitted to three arbitrators.. The court held such an agreement valid and binding. Indeed, it .may be suggested that the authorities are practically unanimous that any question of indefiniteness or uncertainty as to the amount of the purchase price, or the manner or mode in which such price is to be arrived at, in no way affects the right of the surviving partners under the partnership contract to buy. And it is held in many cases that such conditions only result in casting the burden upon the trial court to take an accounting and fix the price. We conclude that the contract is valid and binding in all respects; that the amount of the purchase price for the deceased partner’s interest in the business was fixed by the articles with such sufficient certainty as to deny the'court the right to hold a general accounting. And, in the absence of a showing of fraud, to some extent at least, in the making of the inventory and appraisement which formed the basic element in fixing the purchase price, the transaction should be upheld.

While this litigation, judging by the size of the transcript and briefs before us, has now assumed somewhat mammoth proportions, there was a time in its early history when but a single matter was involved. And that matter arose upon the contention of the administrator that the goodwill of the business was not included in the inventory and appraisement of the property of the deceased returned by the executor to the probate court. Owing to the views we entertain as to the validity of the contract, this contention may be disposed of in a few words. The contract of partnership provided: “The surviving partners and their successors shall also have the right and privilege of continuing the said business under the said designation and name of Newman & Levinson.” We have no doubt that the goodwill of the business passed to the surviving partners under this provision of the contract, and in no sense formed an asset of the estate. Much could be said upon this question showing the instability of appellant’s claims in this regard, but we deem it unnecessary.

The order appealed from is affirmed.

McFarland, J., and Van Fleet, J., concurred.