Rammelsberg v. Mitchell

29 Ohio St. 22 | Ohio | 1875

Lead Opinion

McIlvaine, J.

After a careful examination of all the testimony in this case, we are satisfied that there has been no actual or intentional fraud or bad faith on the part of the defendants or either of them, in the management of the trusts reposed in them by the last will and testament of Frederick Rammelsberg, or on the part of Robert Mitchell as surviving partner of the firm of Mitchell & Rammelsberg. But, however just this conclusion may be, it does not follow that their administration of these trusts must, in every particular, be approved. The administration of a trust may be vicious, notwithstanding it is free from bad faith. The dealings of a trustee with strangers should be such as to make the good faith of the transaction manifest; but in his dealings with the beneficiary, tKe general rule is that an advantage secured to himself can non -be retained by showing good faith in the transaction.

The whole controversy in this case grows out of the fact that trust property, under the administration of the defendants as trustees, has been transferred to Mitchell, one of the ■trustees, who claims to hold and own it as his absolute estate and property. The main object of the original action was to compel the defendants to administer the property .alleged to have been so transferred and converted, as trust .assets still remaining in their hands as trustees, and to account for the proceeds and profits thereof. Such transfer ¡and conversion, as to part of the property described in the ■petition, are denied by the defendants; and as to the balance, they seek to justify the transfer under the legislation of this state, and the order and approval of the probate court made in pursuance of such' legislation. The conversion of the property at Memphis and St. Louis is denied, while the transfer of the assets in the Cincinnati house is sought to be justified.

We will first consider the matters relating to the sale of Rammelsberg’s interest in the Memphis house. This sale was made within a year from the death of Rammelsberg. In our opinion, however, the business of this branch house was not within the contemplation of the parties at the time of making of the partnership articles, and was not a part of the business to be carried on, as therein provided, by the surviving partner for a year after the death of either partner. Nor was it within tbe direction contained in Rammelsberg’s will in respect to the continuance of the business for a year after his death. ' Mitchell, as surviving partner, therefore, was under no obligation to continue that house, for any period of time, for the joint benefit of himself and the estate, and having determined to discontinue it’ before the expiration of the year, we think the defendants, as executors and trustees under the will, had ample time to dispose of it. Nor is there any reasonable suspicion, under the circumstances, that the power was not ■fairly and prudently exercised.

While it is true that Mitchell, at the time of the sale, arranged with the purchasers for a continuance of the business, under the proprietorship of a new firm, it is not true that he succeeded, as a member of the new firm, to any part of the interest sold ; but, on the other hand, he disposed of a part of his own interest to the same purchasers, so that his interest in the new firm was one-third, instead of one-half, as in the old concern.

The only question of doubt on this branch of the case, which has been entertained by any member of the court, is, whether it was competent for the trustees to dispose of Rammelsberg’s interest as an entirety. We are all inclined to think, however, that this matter was within the discretion of the trustees, under the very ample powers, of sale as conferred by the will, and, the discretion being exercised in good faith, there is no valid objection to the sale. We are not clear, on the testimony, that the trust estate has been properly credited with the proceeds of this sale; but if not there can be no difficulty in correcting, in future accounts,, any mistake or omission which-may have occurred in the former accounts of the trustees in relation thereto. But, however this matter of accounting may turn out, we are strongly impressed with the conviction, from the whole testimony, that the' transaction was made in good faith, without any personal benefit, or hope of such benefit, to either of the defendants from- the sale of the Rammelsberg interest.

In regard to the sale of Rammelsberg’s interest.in the St. Louis house, the court has taken the -same view as above expressed in relation, to the Memphis house.

It is true that shortly after the sale of the interest of Rammelsberg, in St. Louis, Mitchell bought of the purchaser, the former partner, such interest in the house as made them equal owners. We think, however, that the testimony does not show that at the time of the sale of Rammelsberg’s interest there was an intention on the part of Mitchell to repurchase any part of the.interest sold. If this sale was free from fraud, and we think it was, Mitchell might well buy in, even from the purchaser, so as to make them equal partners in the future busiuess of the house. In such, ease, he was not in any sense dealing with trust property, for the reason that the trust had been lifted from the property by the previous sale. On the whole case, we think this transaction, like the former, should be sustained.

The transfer of Rammelsberg’s interest in the firm property belonging to the Cincinnati house to the surviving partner presents several questions of greater difficulty. This transfer was made under the supervision of the probate court, which assumed to act in pursuance of the provision of an act of the general assembly, passed March 21, 1861 (58 Ohio Laws, 36). The provisions of this statute are as follows:

“ Seo. 1. Be it enacted, etc., That when any person in the State of Ohio shall die, who at the time of his death was a member of any partnership in the State of Ohio, it shall be the duty of the surviving partner or partners within thirty days from the death of such deceased partner, to make application to the probate judge of the county in which said partnership shall have existed, and upon first giving notice, to the administrator or executor-of such deceased partner, of such application, for the appointment of three appraisers, whose duty it shall be to make out, under oath, a full and complete inventory and appraisement of the entire assets and liabilities of such partnership,- and forthwith deliver the same to the said probate judge, to be by him filed, but not recorded in his office.

“ Sec. 2. That if the said surviving partner or partners shall neglect or refuse to have an inventory and appraisement made of the partnership assets and liabilities as provided for in the first section of this act, it shall be the duty of the administrator or executor of such deceased partner to have said inventory and appraisement made in accordance v?ith the provisions of the first section of this act.

“ Sec. 3. It shall be lawful for the surviving partner or partners, with the consent of the administrator or executor, and the approval of the probate court by which such administrator or executor may have been appointed or qualified, to take the assets of such partnership at the appraised value thereof, first deducting therefrom the debts and liabilities of such partnership, and upon his or their giving to the administrator or executor of such deceased partner his or their promissory note, with good and approved security, for the payment of the interest of such deceased partner in said partnership assets, in nine months from the time .he or they shall so elect to take said partnership assets; and provided, further, that said surviving partner or partners shall give bond and security to the administrator or executor of such deceased partner for the payment of the debts and liabilities of such partnership.”

1. The first question arising under this act is, do its provisions apply in a case where the surviving partner is one of the personal representatives of the estate of the deceased partner ? Whether they would or not, where the survivor is the solo representative, we need not now inquire. It would seem, however, that the statute only contemplates a case where a person, other than the surviving partner, represents the estate. But we think, nevertheless, that the terms as well as the purpose of the act may be fully satisfied and accomplished by its application, if the case be one in which the estate is represented by an executor or administrator who is not the surviving partner, although the survivor may also stand in the relation of personal representative to the estate. Under our system of administering estates, where the trust is confided to two or more persons, any one of them may bind the estate without the concurrence of his co-representatives.

We see no good reason, therefore, for holding that the statute may not have an operation according to its terms where the surviving partner, although an executor also, deals with a co-executor who assumes, in good faith, to act in thepremises as sole representative of the estate. Whileit may be, and doubtless is, true that the double character of the survivor would in such case invite close scrutiny into his conduct, and would render the transaction void for fraud if any unfairness or undue personal advantage were obtained by him, still the. scope of jurisdiction under the statute can not be contracted by a mere apprehension that undue advantage might be fraudulently obtained by giving to the statute an operation according to the plain meaning of its terms.

The duty of making application to the probate court for the appointment of appraisers within thirty days from the death of a partner is imposed upon the surviving partner. After that period, in ease of his neglect, the like duty is imposed upon the personal representative. And under the third section of the act, whenever an inventory and appraisement shall have been made, the surviving partner may, with the assent of the executor or administrator, and the approval of the probate court, take the partnership assets, so inventoried and appraised, at the appraised value, by complying with the conditions named in the statute.

It was for the benefit of deceased partner’s estates, rather than of the surviving partner, that this act was passed, and assuming that the legislature had knowledge of the frequency of instances where the surviving partner becomes one of the personal representatives of a deceased partner, we think it highly improbable, from the language used, that the legislature intended to exclude such estates from the benefits of this statute.

2. Were the proceedings before the probate court vitiated by the fact that the appraisers, in making up their inventory and appraisement, adopted as the basis of their report an invoice of the partnership assets previously made by them under the direction of the executors, in taking an account of stock? We think not. The invoice had been taken immediately before the appointment of the appraisers, and there is no showing that the assets had materially changed. If such showing had been made, it might have affected the bona fides of the transaction, but would not have reached the jurisdiction of the court. The fact that the invoice was made by the same persons did not affect their competency as appraisers. The bona fides and fairness of the appraisement not being successfully assailed, we can not see how the title of the surviving partner, under his election to take the assets at the appraisement, can be avoided on the ground here made the matter of objection.

3. Can partnership real estate be transferred to a surviving partner as assets of the firm, under this statute?

In so far as the proceedings authorized by the act are adversary in character, it is the personal representative, and not the heir, of the deceased partner who stands in the relation of adverse party to the surviving partner. From this fact it may be fairly assumed that the assets thus transferable are such only as are by law subject to the administration and control of the personal representative, and do not include those of which the beneficial interest descends to the heir. The foundation question, therefore, would seem to be: Under what conditions and circumstances, if any, does real estate become personal assets, to all intents, in the hands of a copartnership.

It must be conceded that a copartnership is incapable of taking or holding the legal title to real estate, yet it is equally certain that it may acquire an equitable estate therein. It is well settled that whenever real estate is purchased with partnership funds, an equitable estate accrues to the partnership, whether the legal title be 'conveyed to the partners as individuals, or to either of them, or to a stranger; and in such case, upon the death of the person holding the legal title, it descends to his heir at law in trust for the benefit of the partnership — at least to the extent that it may be needed to satisfy demands against the partnership, whether such demands exist in favor of a stranger or a member of the copartnership. This doctrine is quite familiar, as is also the doctrine that in such case the realty is regarded and treated as personal property in the hands of the partnership to the extent it may be needed for partnership liabilities.

And we may go a step further. There is no doubt that if, by the terms of the partnership articles, real estate be purchased with partnership funds, or be put otherwise into the partnership stock, to he used and held solely for partnership purposes, it is to be regarded as converted out and out into personalty, so that the heir at law takes no beneficial interest therein in any event, but the proceeds not needed for partnership purposes passes to the personal representatives of the copartners.

A question, however, is made, and concerning which some doeibt arises from the conflict in decided cases. Will anything short of an express covenant in the partnership articles have the effect in equity of converting realty into personalty to all intents ?

We see no good reason for holding that an agreement in writing is necessary for such conversion. Undoubtedly the intention to convert out and out should bo made to appear clearly; but such intention may be inferred from circumstances with sufficient clearness. While, therefore, we think that the mere fact that real estate has been bought with partnership means is not sufficient to impress upon it the character of personalty for all purposes, even though the rents and profits thereof may have gone into the partnership business, still, we are of opinion that such conversion is sufficiently shown where real estate is purchased for partnership purposes, paid for with partnership means, and used solely for the conducting of the partnership business. The line of demarcation between an absolute conversion and a conversion sub modo, is this; in the former it must be needed and actually used in the partnership business; in the latter it is enough that it was purchased with partnership means.

We conclude, therefore, that the equitable title to partnership real estate which has been appropriated and exclusively devoted to the partnership business, may he transferred to the surviving partner by proceedings in the probate court, had in pursuance of this statute. On the other hand, such proceedings are ineffectual to transfer any interest in real estate not so devoted. Real estate of the latter description not being assets of the firm within the meaning of the aet? such proceedings in relation thereto are void for want of jurisdiction over the subject-matter, and the equities of the heir, who is not a party to the proceeding, are in no. wise affected. In the case before us, this class of property remained in the hands of the trustees, subject to the same trust after the proceedings in the probate court as before them.

The good will. It is claimed that the defendant, Mitchell, appropriated to his own use the good will of the firm of Mitchell & Rammelsberg without making compensation therefor to the estate of Rammelsberg, and that, if he can not be disturbed in his title to the tangible assets, he should, nevertheless be compelled to account to the estate for its value.

The good will of the partnership, at the death of Rammelsberg, was not cast upon Mitchell as surviving partner for his own benefit. The estate of the deceased partner is entitled to a moiety of its value to the full extent that it was or might have been realized.

The value of the good will of such copartnership is the estimate of advantage secured by succeeding to its business, without i-eference to the exclusion of any person from engaging in the like business. There is no implied agreement between partners, that upon the dissolution of the firm by the death of a member, that the survivor will not engage in and carry on a like business on his own account. The value of such good will is based on the mere probability that the customers of the firm, and others induced by its reputation, will deal and trade with its successor; the advantage of succeeding to an established business. Such good will is not properly an item of assets for distinct and independent valuation, but it is an element in the value of the tangible property of the partnership, and should have been considered by the appraisers in making the appraisement of the partnership assets.

In the inventory and appraisement of the assets, under which Mitchell succeeded to the interest of Rammelsberg, it seems that, the good will was not considered either as a separate item or as an element in the value of a portion of the tangible property.

By the terms of the partnership articles, the good will of the concern, in the event of the death of either partner, was secured to his estate for the period of one year from such death. To this extent the estate of Rammelsberg realized the benefit of the good will by a continuance of the business for that period on joint account. And it appears from the testimony that the appraisers, in making the appraisement of the furniture manufactured and on hand ready for sale, took as the basis of their estimates of value the current price-lists of the firm, and deducted therefrom a reasonable percentage for the costs and expenses of making sales. By so doing the value of the good will was secured to the estate in respect to such assets.

But it appears from the testimony of the appraisers themselves that they were of opinion that they had nothing to do with the good will. Through this misapprehension of duty it would seem that the buildings, machinery, etc., were valued as though the business had been or must of necessity be discontinued. If this were so, the estate of Rammelsberg was wronged. The difference between the value of the assets when the good will is considered as an element, and the valuation returned by the appraisers to the probate court, if there was any difference, is the measure of an advantage obtained by Mitchell over the estate of the deceased partner, which, in equity, he ought not to retain. The appraisement was made with the view of transferring to the surviving partner the whole property and business of the firm, and should have been made as of a going and not of a dead concern. If Mitchell had not elected to take the property at the appraisement, it would have been the right of those interested in Rammelsberg’s estate to have insisted upon a sale of the property as an entirety and as a going concern to the highest bidder, with the benefit of the good will.

Under such circumstances, the appraisement ought to have been set aside. This, however, was not done, and the question now is, should the sale and transfer to Mitchell be declared void, or should he be held to account for the good will ?

The proceedings under which he took being authorized by statute, and being free from fraud or bad faith, we think his title ought not to be disturbed; yet, when his relation to this property as trustee under the will is considered, we think he should be required to account for the value of the good will.

As to the bar of former adjudications in the Superior Court of Cincinnati, in cases Nos. 18,518 and 18,654.

All the present plaintiffs, except Mrs. Shultz and her husband, were infants at the date of those adjudications, and may, therefore, in this ease show cause against those judgments to the full extent that the subject-matter of this suit was adjudicated in those cases.

The objection that infant defendants may not show cause against a judgment wrongfully taken against them until they arrive at full age, can not be maintained. The supposed ground for such ohjeetion does not exist, as we understand the rule, to wit, that the judgment herein would be no more binding on them than the judgment against which they seek to show cause. Having voluntarily preferred their suit in the action showing cause, demanding that their rights as infants shall he determined now, they will be bound by the judgment herein, as if they were adults.

As to Mrs. Shultz, whose only disability at the date of those proceedings was coverture, different questions arise, which make it necessary to inquire to what extent those cases adjudged matters involved in the original suit, and, if at all, to what extent she is concluded by them.

In No. 18,518, the executors and trustees invoked the court to construe Rammelsberg’s will as to allowances to be paid to the heirs pending the trust, and also to examine their accounts as trustees under the will. The construction placed upon the will in that case does not affect the matters involved here. It is true that in that ease the court has examined and approved accounts wherein matters involved here were entered; but inasmuch as that case is still pending for further accounting, we think there has been no such judgment as ought to conclude Mrs. Shultz in this action.

The decree rendered in favor of the plaintiff, Mitchell, in No. 18,654, placed in him the legal title to all the real estate in controversy in the original action. It was for this purpose the suit was prosecuted. The allegation, in substance, was that the plaintiff, before that, had secured the entire equitable estate to himself; and no one disputed the plaintiff’s allegation. If there had been no relation of trust between the plaintiff and Mrs. Shultz at the time that decree wras entered, she would certainly be concluded both as to the legal and equitable estate in the property, the legal title to which was decreed to Mitchell. But, waiving all question as to her coverture, we think, upon the sole ground that he was at the time trustee of this property for her benefit, he can not protect himself under the decree when it is shown that it ought not to have been rendered. To the extent that the equitable estate did not pass to Mitchell under the proceedings in the probate court, he must be regarded as trustee of the property for her benefit as well since the decree as before it. MrsShultz at the time believed that all the real estate had, in equity at least, passed to the plaintiff. He is responsible for that belief. It was his duty as her trustee to have informed her correctly in the premises. It is no answer to this to say that he did not act toward her in bad faith. He was dealing with trust property, and was seeking to divest himself of the trust for his own benefit. If he also had a mistaken belief, why should the mistake inure to his benefit and her injury? Mrs. Shultz did not resist the decree, because she was ignorant of her rights. Mitchell, as her trustee, was bound to protect her rights. By appealing to the court for a decree, he did not put her at arm’s length. The decree did not sever the relation. It operated only on the legal title. It was not intended to change the equitable rights of the parties. The court was not called upon to transfer or ascertain equities, nor did. it do so either in terms or in fact. The decree was based on a mistake of facts, innocently stated it is true, but stated nevertheless by a trustee for his own benefit. The decree would operate as a fraud if it were now held to have extinguished the trust.

As to the finding and decree of the court in case No. 18,654, upon the matter and issue arising on the cross-petition of Mrs. Shultz and her husband, she is concluded by them. These were of her own seeking, and were, in every sense, adversary. The judgment of the court was invoked by herself, and her cause was not in the keeping of her adversary.

Upon the whole case, we think the judgments below should be reversed, and the cause remanded for a new trial as to all matters and issues in relation to the good will of the firm, and also as to those parcels of the real estate of the firm, which, under the rules herein stated, did not pass to Mitchell under the proceedings in the probate court.

Judgments reversed.

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Concurrence Opinion

White, J.

I concur in the judgment in this case. I also agree that the plaintiffs, under the circumstances of the case, are not concluded by the decree which undertakes to invest the surviving partner with the title to the real estate, of which the probate court had no jurisdiction. The object of the suit in which the decree was rendered was to clothe the surviving partner with the legal title to the property, the equitable title to which he had already acquirecl by virtue of the proceedings in the probate court. His right to the property was based exclusively on that proceeding, no other claim or title being asserted for adjudication. In so far, therefore, as the probate court had no jurisdiction or authority under the statute to transfer the real estate of the plaintiffs, I think the decree of the superior court may be impeached, as well by the adult plaintiff as by the minors, toward all of whom the defendant stood in the relation of trustee.

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Dissenting Opinion

Welch, C.J.,

dissenting, said: I differ with my brethren on the two main questions involved in the ease: 1. I think Mitchell is not bound to account for the good will of the business, the partnership having been dissolved, and being in no sense a “ going concern.” 2. The real estate should be regarded in equity as partnership assets, and Mitchell’s title thereto sustained. I think, therefore, that the judgment of the court below should be affirmed.