Bell v. Hepworth — 22 N.Y. St. Rep. 114

Majority

p. 114

James C. Bell, Resp’t, v. Samuel S. Hepworth et al., App’lts.

(Supreme Court, General Term, Second Department,

Filed February 11, 1889.)

Headnote

1. Partnership—Copartners—When representatives of deceased

PARTNER MAT HAVE RELIEF AGAINST SURVIVOR.

The representatives of a deceased partner may require from the surviving partner, an account of his doings, as such survivor, in closing the business. They may also compel payment by the survivor, of such amount as shall be found due to the estate of the deceased partner, and where it is made to appear that by mal-administration, the rights of the estate are imperilled, equity will protect them. Per Pratt, J.

3. Same—Title to assets of co-partnership—In whom: vested.

The title to the assets of a co-partnership vests in the survivor, and he can s-.ll the property and give a clear title; he may even make an assignment with preferences, and so long as sueli acts are in good faith, the executors of a deceased partner cannot interfere. Per Pratt, J.

S. Same—Mortgage—Power of surviving partner to execute mortgage.

Where the surviving partner executed a mortgage on property of the

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firm, to secure a loan made in good faith, and for value which the partnership received and retained, Held, that the execution of such mortgage is-within his powers, and the rights of the mortgagee thereunder are superior to the claim of the executors of a deceased partner, and they are bound by it.

4. Same—Mortgages—Priority.

On the contention that the plaintiff should be compelled to resort to his mortgage upon the individual property of Hepworth, before coming to the: property held by him as surviving partner, Held, that the individual property is the pecuniary fund for the payment of individual debts, and must be regarded as a surety upon the loan made to the firm.

Appeal from a judgment at special term.

In 1877 Samuel S. Hepworth and one Joseph Colwell were co-partners doing business under the firm name of S.

5. Hepworth & Co. By a certain instrument bearing date the 13th day of October, 1881, in the event of the death of either one of them, it was agreed that the co-partnership business should be continued by the survivor until the expiration of five years from the 1st day of February next succeeding such death. Joseph Colwell died in May, 1882, leaving a will, and appointed thereunder George H. Robinson, George W. Skelton and Frank W. Colwell executors and trustees. Hepworth assumed the management of the prior business, and for the purpose of securing the payment to the plaintiff of a loan of $23,000 for the uses and. purposes of the prior business on the 26th day of June, 1884, executed and delivered a mortgage to the plaintiff on the* real estate and property belonging to the firm, with the consent of the executors and trustees. On the same day Hepworth executed and delivered to the plaintiff as further and additional security, and as collateral to the aforesaid mortgage, a certain mortgage on property which he held in his own right as his individual property.

This action being brought to foreclose the first mortgage given on the former property—the defendant’s,—the executors claim that the plaintiff should be compelled to resort to the mortgage given by Hepworth on his individual property, and exhaust that security prior to realizing upon the mortgage executed upon the firm property, and that-the estate of Joseph Colwell is entitled to a lien for the-value of Colwell’s interest at the time of his death on the-property, both real and personal, of the firm of S. S. Hep-worth & Co., which lien should be preferred to that of the plaintiff’s mortgage.

John W. Alexander, for pl’ff-resp’t; R. E. & A. J. Prime & Burns, for def’t Quick, as assignee, etc., resp’tr William B. Ellison, for Skelton and Colwell, ex’rs, etc., and Frank W. Colwell, receiver, etc., def’t-app’lts; Thomas Darlington, for Garfield Nat. Bank, and C. H. Delamater def’ts-app’lts.

—The mortgage is good by virtue of the power of the surviving partner to execute the same without regard to the consent of the deceased partner given in his will that the business shall be continued for five years after his death.

The surviving partner took the legal title, with the right to determine the manner of the management of the firm business, subject to the equitable rights of the survivor. Williams v. Whedon, 109 N. Y., 333 : 15 N. Y. State Rep., 265.

Whatever may finally be adjudged to be in the power of a testator as to continuance of a partnership business after death, as between the debts existing at his death and "those subsequently contracted in the business in respect to ■the estate as it was at the decease of the partner, the mortgage, as between the executors of Colwell and the plaintiff, is good. Colwell authorized the continuance of the business.

The land was purchased in the life-time of Colwell, and the deed was taken after his death. The mortgage was, therefore, based upon the business of the partnership and was given on partnership lands, and under a power expressly given in his will. The parties are, therefore, bound by it, it being given in good faith and for value which the partnership received and retained.

The mortgage on the individual property of the surviving partner, given at the same time the mortgage described in the complaint was given, was a collateral security to the partnership loan.'

The decree which directed the sale of the partnership mortgage first was equitable. The surviving partner had lights to be considered. It is true that he is liable for the partnership debts as an individual, and that the plaintiff ■could have resorted to the collateral security first, but the plaintiff seeks to apply first the partnership property to the payment of the debt, and this right cannot be objected to by any subsequent lienor.

The rights of these lienors must be determined in respect to the individual property of Hepworth, the surviving partner, after the agreement in respect to the partnership mortgage is carried out.

The judgment should, therefore, be affirmed, with costs.

—The representatives of a deceased partner may require from the surviving partner an account of his •doings as such survivor in closing the business. They may also compel payment by the survivor of such amount as shall be found due to the estate of the deceased partner. And when it is made to appear that by maladministration

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the rights of the estate are imperilled, equity will find means for their protection.

In some cases the courts have spoken of these rights as constituting a “lien” on the property of the firm. The strict propriety of that term may perhaps be doubted. _ If they can be said to constitute a “lien” it must be in a qualified sense. For the title to the assets vests in the survivor. He may sell the property and give a clear title. He may even make an assignment with preferences.

The appellants are, therefore, in error in claiming that such lien existed in favor of the estate of Joseph Colwell as would prevent Hepworth from making a valid disposition of the property. He could sell the assets or could make use of them as security for a loan, and so long as such acts were in good faith, the executors of Colwell could not effectually interfere.

The execution by the surviving partner of the mortgage sued upon was within his powers, and the right of the mortgagee thereunder is superior to the claims of the executors.

Counsel for appellant insist that plaintiff should be compelled to resort to his mortgage upon the individual property of Hepworth, and exhaust that security before coming •upon the property held by him as surviving partner. But the individual creditors object with good reason that the individual property is the primary fund for the payment of their debts. They argue that as the loan now being enforced was contracted in aid of the partnership business,' the individual estate must be regarded as a surety upon the loan. That contention appears to be well founded.

It follows that the disposition of the cause at special term was correct, and the judgment must be affirmed, with costs. _