Greenwood v. Marvin — 19 N.Y. St. Rep. 612

Majority

p. 612

Elizabeth W. Greenwood as Executrix, etc., Resp’t, v. Elizabeth S. Marvin et al., App’lts.^[1]

(Court of Appeals,

Filed November 27, 1888.)

Headnote

.1. Pabtnees—Conteact between partners—Construction oe.

Le Grand Marvin and George L. Marvin formed a partnership under the firm name of Le Grand & George L. Marvin, to do a land agency and real estate business at Buffalo in 1838, which continued without practical change in its mode of doing business until 1864, when it was terminated by mutual consent. A written agreement of partnership was executed at the organization of the firm in 1838, by which the brothers were to become eoual partners in a business already established and which had for some time been carried on by Le Grand alone, called “Lawyer & Agency Business and Business Pertaining Thereto.” In 1842 another written agreement was made between the parties, by which it was provided, among other things, that the original firm was dissolved, but that its members should still continue the partnership and complete the business of the old firm, and that George L. should be the legal owner of the property employed and acquired in such business, but should pay Le Grand for his services and expenses, provided they did not exceed one-half the net profits of the concern, and should account to him for such net profits. In 1852 a third agreement was made between them by which, among other things, it was provided that the partnership firm should continue at the equal benefit and risk of the respective parties declaring “that the real estate and interest therein of said parties whether standing in the name of said Le Grand or George shall be and are for the equal benefit and interest of said parties share and share alike subject to all liabilities, * * * The personal property of said parties is now the equal property'of said parties .share and share alike, * * It appeared that no settlement of partnership accounts had ever been had between the members of the firm. 'That the purchase price of the real estate in question, which was mainlyacquired in 1842, was paid from partnership funds and the taxes and expenses thereon were generally paid indifferently by both members of the firm, and its rents, issues and profits had been collected, received and accounted for to the firm as firm property indifferently by each of the members. Held, that the agreement of 1852 amounted to an unqualified acknowledgement by George L. that the parties had hitherto dealt and acquired real estate, and owned such property as partners, although it nominally stood in the name of George L. Marvin, and that such property was intended to be subjected to the obligations of the last partnership agreement.

Ü. Same—Contract made to hinder creditors maybe rescinded by parties.

If the agreement of 1842 was executed with a view to hinder and delay the creditors of Le Grand, it was still competent for the parties in the absence of interference by the creditors to rescind it at any time, and to restore to each other an equal legal interest in the property acquired under such agreement.

Z. Same—Evidence—Parol evidence, when competent to explain WRITTEN CONTRACT.

The partnership agreement of 1852 was ambiguous in its language, and required extrinsic evidence to explain the nature of the business and the identity of the property referred to therein. Held, that parol evidence for this purpose was competent.

4. Same —Real estate purchased with partnership funds—When REGARDED AS PERSONAL PROPERTY—RULES AS TO.

Real estate purchased by a partnership firm for partnership purposes,

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with partnership funds, is regarded in equity, so far as the firm and its creditors are concerned, as personal property. Widows are not dowable therein. The interest of the respective members of the firm in such property is not required to be established by deed or instrument in writing under the Statute of Frauds, and the creation of trust as to such interest is not prohibited by the Statute of Uses and Trusts.

5. Same—When it becomes real property.

After the dissolution of a firm and the claims of its creditors are discharged, and the equities of the respective parties in its assests are determined and satisfied, such p- operty, so far as it is preserved in specie and is awarded and conveyed to the respective members, loses its character of personal property and again becomes subject to the rules governing the devolution of real estate, but so long as partnership affairs remain unsettled, like all other assets of the firm, its real estate is equitably pledged to creditors and liable to be absorbed and disposed of in the process of liquidating the firm debts and satisfying the claims of the respective parties as against each other.

6. Same—Assignment by one partner—Construction oe.

It appeared that Le Grand Marvin, before the commencement of this action, conveyed by an instrument in writing to S. G., his heirs and assignees forever, all the property, real, personal and mixed, owned by him in partnership with George L. That S. G., on the same day, executed and delivered to Le Grand an instrument in writing declaring in substance that lie held the property and its proceeds, after deducting therefrom payment for his disbursements and services in managing and taking care of the same, in trust to and for the use of Le Grand. Held, that the legal effect of said assignment was to vest in the assignee the power of calling the other members of the firm to account, and to enforce any rights of La Grand in any surplus in the assets which might remain after liquidation of the firm obligations and the adjustment of the partnership equity. That it gave no present interest in specific articles of property, but armed the assignee with power to procure its conversion into money by sale and the distribution of any residuum of its proceeds, in whatever form they might exist, to the respective members according to their interest therein. That the right thus transferred was a mere chose in action subject, in respect to its mode of transfer, to the rules regulating the disposition of personal property alone.

7. Same—Who could not question validity oe assignment.

The defendants, who were the executors of George L., had no such interest in the real estate as entitled them to contest the validity of said assignment; that as between Le Grand and his assignee the conveyance of such interest was valid, and transferred the legal right to demand an accounting to said assignee.

Appeal from a judgment of the supreme court, general term, fifth department, affirming an interlocutory judgment. The facts will be found more fully stated in the opinion of the general term, reported in 11 N. Y. State Rep., at page 235.

George Wadsworth and Spencer Clinton, for app’lts; Adelbert Moot, for resp’t.

This action was originally brought by Simon L. Greenwood, assignee of LeGrand Marvin, to procure a dissolution of the partnership theretofore exist-between Le Grand and George L. Marvin; a determination as to what constituted the assets of the firm; the conversion of such assets into money; the payment of the firm

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obligations, and an accounting between the respective-members in regard to all their partnership transactions and a determination of their several interests in the residue of such property.

The complaint contained express allegations that certain real property, therein specifically described, was partnership property and constituted a part of the firm assets.

The original answer of the defendants, while admitting the existence of the partnership, stated, with respect to the allegations relating to the ownership of the real property, as follows: “ And they deny that said LeGfrand and George L. Marvin, as co-partners, owned or held in the name of said George L. Marvin, as trustee or otherwise, the real estate mentioned or described in said complaint, or any part thereof, or that they were at any time co-partners in any real estate purchased with money or means charged to the respective partners; and said defendants deny that in any real estate mentioned or described in said complaint, the-legal title to which is in the said George L. Marvin, said. Le Grand Marvin had had at any time any interest whatever except such as he may have obtained under and by virtue of a certain instrument in writing executed by the-said Le Grand and George L. Marvin, of which the following is a'copy.” (Then follows, a copy of the partnership-agreement between the parties, executed m 1852, which is hereinafter recited, so far as it is material to the questions in this case.)

This answer is plainly evasive and leaves the question of the ownership of the real estate, in terms, to depend upon the construction to be given to the agreement of 1852.

Upon the trial of the action before the court without a jury, an interlocutory judgment was rendered determining that certain portions of the real estate .described in the complaint were partnership property and ordering a reference to take an account of the partnership affairs. This judgment was affirmed upon appeal to the general term, and from such judgment the defendants appeal to this court.

It is not our intention to enter into a detailed examination of the evidence in the case, inasmuch as that duty has been most fully and satisfactorily performed by Mr. Justice Smith in Ins opinion at general term, and we will, therefore, refer only to such additional facts and considerations as have been suggested upon the argument in this court.

It has already been seen that the main question in the-case is whether certain real estate, purchased during the existence of the partnership and title taken in the name of George L. Marvin, was partnership property and belonged

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to the firm, or was the individual property of George L. Marvin. As found by the trial court, the parties formed a partnership under the firm name of LeGi’and & George L. Marvin, to do a land agency and real estate business at Buffalo, in 1838, which continued without practical change in its mode of doing business until 1864, when it was terminated by mutual consent A written agreement of partnership was executed at the organization of the firm in 1838, by which the members were to become equal partners in a business already established, and which had for some timo been carried on by Le Grand alone, and called “ Law and Agency Business and business appertaining thereto.” In 1842 other written agreements were made between the parties, by which it was provided, among other things, that the original firpi was dissolved, but that its members should still continue the partnership and complete the business of the old firm, but that George L. should be the legal owner of the property employed and acquired in such business, but should pay to Le Grand for his services his expenses, provided they did not exceed one-half the net profits of the concern, and should account to him for such net profits. In 1852 a third agreement was made between them, by which, among other things, it was provided that the partnership firm should continue at the equal benefit and risk of the respective parties, and declaring that £ £ the real estate and the interest therein of said parties, whether standing in the name of said Le Grand or George, shall be and are for the equal benefit and interest of said parties, share and share alike, subject to all liabilities. * * * The personal property of said parties is now the equal property of said parties, share and share alike, with a single exception, not now important to notice.

It further appeared that no settlement of partnership accounts had ever been had between the members of the firm, and although they kept books of account, they were kept in such a manner that it was impossible to determine accurately therefrom how much either of the members of the firm had drawn from, or paid to, or for the firm, or what the respective interests of the parties were in the partnership assets. It did appear, however, that the purchase price of the real estate in question, which was mainly acquired in 1842, was paid from partnership funds, and the taxes and expenses thereon were generally paid indifferently by both members of the firm, and its rents, issues and profits had been collected, received and accounted for to the firm, as firm property, indifferently by each of the parties. Much other evidence was also given in relation to this subject upon the trial, including the making of «express and implied admissions and declarations by George

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L. Marvin, in connection with the possession, occupation and leasing of such real estate, that the same belonged to the firm.

Some declarations, written and oral, of LeGrand Marvin,, made mostly between the spring of 1812, and the year 1852, to the effect that George L. Marvin, was the owner of the property, were testified, to on the part of the defendants; but we ascribe little weight to them, inasmuch as there were obvious reasons fully disclosed in the negotiations leading to the purchase of the property, on account of which, at the time it was thought best by all the parties, that the title thereto should be vested in George L. Marvin, and the same reasons which dictated that course would continue to influence any declarations thereafter made by LeGrand in reference to the subject. The only change made in the rights of the parties by the agreement of 1812, was to place the legal title of their property and acquisitions in George L. Marvin, instead of the firm. The equitable rights of the parties were to remain the same; the legal owner was to-account to the other party for the net profits of the business, and no other mode of division is suggested than that of equality. If,therefore, that agreement effected any change in the relations of the parties, it operated as a temporary expedient to bridge over the period of LeGrand Marvin’s pecuniary embarrassment, presumably with a view of restoring the original relations of the parties at some future time when it would be safe to do so. If that agreement was executed, as seems very probable, with the view of hindering and delaying the creditors of LeGrand, it was still competent for the parties, in the absence of interference by creditors, to rescind it at any time, and to restore to each other an equal, legal interest in the property acquired under such agreement.

We think this was intended to be accomplished by the contract of 1852. That agreement amounted to an unqualified acknowledgment by George L. Marvin, that the parties, had theretofore dealt in and acquired real estate and owned such property as partners, although it nominally stood in the name of George L. Marvin, and that such property was intended to be subjected to the obligations of the last partnership agreement. It did not purport to convey any property or create any title; but it acknowledged that the property previously acquired by the parties, both real and personal, belonged in equal proportions to the respective-members of the firm.

The appellants refer to the finding of the trial court that'. LeGrand Marvin, did not acquire any interest in the real estate by the contract of 1852, and claim that the plaintiff, not having appealed from such finding, is bound thereby»

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and cannot now question it. It is undoubtedly true that he did not acquire his interest at that time inasmuch as the contention of the plaintiff is, that it was acquired at the time the property was bought, and that finding, therefore, is not inconsistent with the position that the contract of 1852, is most persuasive evidence of the secret trust, upon which the property was originally obtained by George L. Marvin. If effect be given to all of the language employed by the parties in the agreement, it is not possible to give any substantial operation to this clause of the contract without holding it to apply to the lands in controversy, standing, in the name of George L. Marvin.

The writing, like the other partnership agreements, was ambiguous in its language, and required extrinsic evidence to explain the nature of the business and the identity of the property referred to therein. Parol evidence for this purpose was entirely competent, and has been given with such fullness that nothing is left uncertain with reference to those questions. Fairchild v. Fairchild, 64 N. Y., 471 .

The question, therefore, as to whether the lands in dispute constituted partnership property was one of fact upon all of the evidence in the case, and was determined by parol evidence independent of the particular form which the transaction took, or the name in which the title was taken. Chester v. Dickerson, 54 N. Y., 1 ; Fairchild v. Fairchild, supra.

The negotiations for its purchase were mainly conducted by Le Grand, and when it was consummated by the delivery of the joint and several notes of George L., Asa and Le Grand Marvin in payment of the purchase price, Le Grand took an active part in the subsequent management and control of the property, and contributed to the payment of the obligations given upon its purchase.

Considering the equivocal character of the answer ; the evident intent of the agreement of 1842 ; the unqualified acknowledgments of the contract of 1852, and the implied as well as express admissions of George L. Marvin subsequent to that time, it is conceding to the appellants in this case, all that can fairly be claimed for them, that they have made a question of conflicting evidence as to the ownership of the property in dispute, calling for a finding of fact by the trial court.

The findings that such property was purchased for partnership purposes and paid for with partnership funds, having been affirmed by the general term, are necessarily conclusive upon us as to the ownership and character of 'the property.

Real estate purchased by a partnership firm for partner

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ship purposes with partnership funds is regarded in equity, so far as the firm and its creditors are concerned, as personal property. Widows are not dowable therein. Sage v. Sherman, 2 N. Y., 417 . The interests of the respective members of the firm in such property are not required to be established by deed or instrument, in writing, under the statute of frauds. Chester v. Dickerson, 54 N. Y., 1 ; Robbins v. Robbins, 89 N. Y., 251 . And the creation of trusts as to such interests is not prohibited by the statute-of uses and trusts. Fairchilds v. Fairchilds, 64 N. Y., 471 ; Marvin v. Marvin, Ct. of App. MSS. ; opinion by Allen, J. ; Robbins v. Robbins, supra.

After the dissolution of a firm and the claims of its creditors are discharged, and the equities of the respective-partners in its assets are determined and satisfied, such, property, so far as it is preserved in specie and is awarded or conveyed to the respective members, undoubtedly loses-its character of personal property and again becomes subject to the rules governing the devolution of real estate.

But só long as the partnership affairs remain unsettled, like all other assets of the firm its real estate is equitably pledged to creditors and liable to be absorbed and disposed of in the process of liquidating the firm debts and satisfying the claims of the respective partners as against each other. As was said by Church, Ch. J., in the Fairchild’s Case: “ The English rule gives to the real estate of a partnership-the character and qualities of personal property as to all persons; and the remainder after.paying debts and adjusting the equities of the partners, goes to the personal representatives, and not to the heir, probably on account of the great injustice which would result by the laws of inheritance in England. * * * But the American rule, that the remainder descends to the heir, does not affect the character of the property as partnership effects, except that the incidents and qualites of real estate are revived. It is divided as so much money capital would be; but it resumes its original qualities. The same evidence, however, which would make it partnership property for the purpose of paying debts and adjusting the equities between the partners, would establish it for the purpose of final division.”

In this action we are concerned only with the character, which the law ascribes to partnership property while in the hands of the firm as a legal entity having absolute power of disposition thereof for the purposes of the partnership business. When it becomes released from the trust imposed upon it as partnership property, it doubtless resumes the character of real estate; but it is quite probable that such a result may never happen in this case as one of the principal objects of the action is to secure its sale for the purpose .of paying firm debts, which appear to exist in considerable? amounts.

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It is claimed by tbe respondent that the question as to the ownership of this real estate has been previously adjudicated in an action between George H. Marvin and Le Grand Marvin in which George L. Marvin was a privy and bound by the decision of the case. We think there is much reason for this contention; but do not consider it necessary to pass upon it in view of the similar result reached upon the other brach of the case.

A further claim is made by the defendants, that the plaintiff has not such an interest in the subject of the action as entitles her to maintain it. The argument is that the conveyance from Le Grand Marvin to Simon L. Greenwood, was void as being a transfer of real estate in trust for the benefit of the grantor, and was not one of the trusts authorized to be created by the statute of uses an'd trusts.

We have already seen that such property, until discharged from the trust under which it was held as partnership property, cannot be regarded as real estate for any purpose. This action is not brought for the purpose of recovering the possession of real estate or affecting its title. The question of .the ownership of the real estate is merely incidental to the main object of the action and would have arisen in the same manner upon a partnership accounting, if the real estate had not been mentioned in the pleadings. King v. Barnes, 109 N. Y., 267 ; 15 N. Y. State Rep., 52.

It was not improper to refer in the complaint to the character of the partnership assets; but it was wholly unnecessary in order to secure an accounting as to partnership affairs. If, however, we examine the character of the transfer from Le Grand Marvin to Greenwood, it will be seen that it does not purport to create a trust in real property, and if such property does come to the hands of the assignee, it will result from the contingencies' attending the judicial settlement of the partnership estate, and not through the force of the transfers to him. The evidence shows that Le Grand Marvin, before the commencement of the action, conveyed by an instrument in writing to Simon L. Greenwood, his heirs and assigns forever, all of the property, *both real, personal and mixed, owned by him in partnership with George L. Marvin. It also appears that Greenwood, on the same date, executed and delivered to Le Grand an instrument in writing, declaring in substance, that he held the property and its proceeds, after deducting therefrom payment for his disbursements and services in managing, selling and taking care of the same, in trust to and for the use of LeGrand.

The legal effect of the assignment referred to was to vest in the assignee the power of calling the other members of the firm to account, and to enforce the rights of Le Grand in any surplus in the assets which might remain after liquidation of the firm’s obligations; and the adjustment of part

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nership equities. It gave no present interest in specific articles of property, but armed the assignee with power to procure its conversion into money by sale and distribution of any residue of the proceeds in whatever form they might exist, , to the respective members, according to their interests-therein.

The right thus transferred was a mere chose in action, subject, in respect to its mode of transfer, to the rules regulating the disposition of personal property alone. (Sec. 1910, Code of Civil Procedure).

We are not able to see any point of view from which the appellant’s contention can be supported. A large portion of the property conveyed was confessedly personal property, in respect to which the provision of the statute of uses and trusts confessedly has no application. The trust as to such property, if one was created, was undoubtedly valid, and conferred a right of action upon the assignee to enforce an accounting as to all the partnership assets. But the declaration of trust was confined to the interest passing by the assignment, and, as we have seen, that instrument conveyed no legal interest in the real estate of the firm.

It may further be said that this claim of the appellants is-in the nature of a plea in abatement, and assumes the right-of. Le Grand Marvin to recover his interest in the partnership assets; but insists that the plaintiff has not succeeded to his rights. Such a plea is styled a dilatory one, as it does not affect the merits of the action, and is not favored in law.

A proper regard for justice and the decent administration of the law, requires that a litigation which has already raged for a quarter of a century, over a question which the evidence seems to place beyond reasonable doubt, should be decided upon its merits, and not disposed of on a 'technical point, which would remand the controversy to be begun anew between parties who are all represented in this action, and whose rights can be effectually settled herein.

We are of the opinion that the defendants have no such interest in the question as entitles them to contest the validity of this assignment. Assuming that the real estate is-partnership property, as we must, their only interest in that part thereof which did not belong to their testator, was to see that it was awarded to LeGrand Marvin, or some one who legally represented him. As between LeGrand Marvin and his assignee, the conveyance of such interest was undoubtedly valid, and transferred the legal right to demand an accounting to such assignee.

LeGrand Marvin was made a party defendant to this action, and would undoubtedly be bound by any adjudication made therein.

It was said by Church, Ch. J., in Sheridan v. Mayor, etc.

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( 68 N. Y., 30 ), that “A plaintiff is the real party in interest under the Code, if he has a valid transfer as against the assignor, and holds the legal title to the demand. The defendant has no legal interest to inquire further. A payment to, or recovery by, an assignee occupying this position, is a protection to the defendant against any claim that can be made by the assignor.” See also, Seymour v. Fellows, 77 N. Y., 178 ; Sullivan v. Bonesteel, 79 id., 631.

The right of the present plaintiff to continue the action as the the executrix and legatee of Simon Greenwood, was adjudicated by the order substituting her as plaintiff in his place. Smith v. Zalinski, 94 N. Y., 519 .

We have examined the other exceptions in the case with considerable care, but find none of sufficient materiality to-lead us to believe that any error justifying a reversal of the-judgment was committed by the trial court.

The judgment is, therefore, affirmed, with costs.

All concur.