Stewart v. Robinson

The defendants are brought before the court as trustees and executors of the estate of Joseph Colwell, deceased. It appears that Colwell, in his lifetime, and one Samuel S. Hepworth, carried on business as co-partners under the name of S. S. Hepworth & Co., for the manufacture and sale of centrifugal machines and some other machinery, under articles of agreement, one of which was entered into February 22,1877, and provided for the continuance of the partnership for five years from January 1, 1877, and for a capital in cash, not exceeding $4,000, to be furnished by Colwell, and be represented “ by the good will of the business, its shops, fixtures, tools, machinery and materials for manufacture, all of which should belong to and be his individual property,” profits to be shared equally, and all losses of the business, including loss of capital, borne equally. Hepworth was to devote his time and personal attention to the business, but Colwell was not required to do so further than might be convenient for himself.

The seventh clause of the articles declared that, “ should either partner die, during the term of said co-partnership, the firm shall not be deemed dissolved thereupon, but the wife and children of the decedent shall immediately succeed to his interest in the business, which thenceforward shall be prosecuted for the remainder of the term, for the benefit of them, and the surviving partner. Either partner may designate by will what interest his wife and children, as between themselves, shall have in his said co-partnership interest in the event of his death as aforesaid.”

Before the expiration of the stipulated time, and on the 18th of October, 1881, a further agreement was made that the co-partnership should continue until dissolved by mutual consent or terminated by six months notice in writing by one party to the other, and that “in the event of the death of either, the business shall be continued by the survivor until the expiration of five years from the first day of February next succeeding such death, the estate of the deceased partner to have the same share and interests in the profits, and to bear the same share of the losses of the business as would have been received and borne by the deceased partner had he lived, provided, however, that if the survivor shall think it necessary ■ to employ an additional clerk in consequence of the death of the deceased partner, in such case the expense shall be charged to and shall be borne by the share in the profits of the deceased partner.”

On the 4th of October, 1887, Hepworth individually and as surviving partner was insolvent to the extent of about $500,000, and on that day made an assignment in both capacities for the benefit of his creditors. The individual debts of Colwell have been paid and property remains in the hands of his executors. The plaintiffs, either as original creditors or by assignment, are the owners of the debts contracted by Hepworth and set out in the complaint, amounting in the aggregate to about $15,000, and they seek to recover the amount from the individual estate of Col-well, and in the meantime ask for the appointment of a receiver of his property, assets and estate, and an account thereof from the defendants as his representatives.

Various defenses were interposed by them, but so far as material upon this appeal their effect depends upon the single question whether the general estate of Colwell was by virtue of the above agreements rendered liable for debts contracted by Hepworth in the firm name after the death of Colwell. The trial court and the general term have held against the plaintiffs, and the defendants had judgment accordingly.

It is a general rule that a contract of partnership is dissolved by the death of one of the parties, whether entered into for a fixed time or not, and that after his death the former partner cannot bind the estate of the decedent by new contracts, and although the partnership be expressly extended to executors, they could not be compelled to carry it on and would be entitled to a dissolution and an account of the assets, subject to the liabilities of the firm incurred up to the time of dissolution. These are familiar and well settled principles. Here the representatives of the deceased partner were not to be partners with the survivors, nor were they to have anything to do with the conduct of the business or its management. On the contrary, the business is “to be continued by the survivor.’’ We have only to inquire, therefore, whether the partnership agreements take the case out of the general rule.

The frame of the. last articles shows that the parties contem

We do not need to ascertain whether this clause could have any effect without the assent of the parties named, for it never came into operation, being suspended by that of the agreement of October thirteenth, which provides for the continuance of the business “ by the survivor,” and the distribution of profits or losses “to the estate of the deceased partner, as would have been received and borne by him had he lived." It is to be seen, therefore, that the capital invested was to remain the same; it was not to exceed $4,000; it belonged to Colwell, but was to continue in the business notwithstanding his death, and could not be withdrawn until the expiration of five years from that event. So much the surviving partner might insist upon. I do not see that he could rightfully exact more, and if he could not, how could third persons ? There is in fact no partnership, for there are no partners. There is a surviving partner. Under the first article it might be said that if the wife and children assented, they would have become partners. The executors cannot be deemed partners, for that capacity has not been put upon them, nor have they assumed it directly or indirectly by taking any part of the management of the business. They knew of its continuance and loaned Hepworth money upon security. Nothing more. A new partnership was not formed; nor can one be implied. But it is said the “estate” of the deceased partner is to share in profits or bear a portion of the losses— of what? Not a partnership, but a business conducted by a surviving partner. An estate cannot be a partner. I think the provision in the agreement means nothing more than that the capital actually invested in the business before or at the death of the partner, shall continue to be so subject or liable.

The general rule already adverted to does, upon the’death of a partner, terminate the power of his associate or co-partner to contract new debts on the credit of the firm. Assuming with the appellant that this general result of law may be varied by an express agreement, it will then depend upon the particular terms of that agreement to what extent the estate of a deceased

But it is said in Burwell v. Mandeville's Ex'r, 2 How. U., S., 560, “ nothing, however, but the clearest and most unambiguous language, showing in the most positive manner an intention on the part of the testator to render his general assets liable for debts contracted after his death, will justify a court in extending the liability of his estate beyond the actual fund employed therein at the time of his death.” In that case, Burwell v. Mandeville's Bx'r, it appeared that the testator died while in partnership with one Gawood, leaving a will by which he distributed his estate, and a codicil made during the existence' of the firm, by which, in substance, he directed that the business of the co-partnership existing between Gawood and himself should be carried on by Gawood, and his, the testator’s, interest therein continued until the expiration of the term limited by the co-partnership articles, ana the profit and loss distributed as those articles provided. Gawood carried on the business and before the time limited for the partnership expired, failed, and an action was brought against him and the executors of the deceased partner, by a creditor of the firm, upon debts contracted with him by Gawood on account of and in the name of the firm after the death of the testator. The executor denied that the assets were liable. The answer was demurred to, but the defense was held good and so the action failed, the court holding that the general assets of the testator were not bound for debts contracted after his death in behalf of the partnership, and that the rights of any creditor in respect .to such death were exclusively restricted to the funds actually embarked by the testator in the business, and to the personal responsibility of the surviving partner, the court saying: “ the interest ” of the partner dying, “in the firm was his share of the capital stock and profits, after the payment of all debts and liabilities of the firm. It is this interest and not any new capital which he authorizes to be embarked in the firm. He does not propose to add anything to his existing interest, but simply to continue it as it then was.”

“ How then,” the learned judge continues, “can the court say that he meant to embark all his personal assets in the hands of his executors as a pledge for the future debts or future responsibilities, or future capital of the firm ? That would be to enlarge the meaning of the words beyond their ordinary and reasonable signification,” and he says, “no court of justice ought, upon principle, favor, much less adopt it;” and adds, “ there is no authority to support it.” On the other hand, several cases are cited by the learned court- as reasoned out and sustained upon the broad and general principle that only the partnership fund was involved and the new creditor confined in pursuing his remedy to so much of the estate of the decedent as was embarked in the trade, and to the personal responsibility of the party who continued the business,

The same doctrine was established in the courts of Connecticut at an earlier time (1829) in Pitkin's Case, 7 Conn., 307 , also cited with approval by Judge Story in Burwell v. Mandeville's Ex'r, supra.

The general subject of the construction of language giving power or authority for the continuance- of a trade after the death of one member of a firm, has also been under consideration in this court, and its conclusion expressed in the decision of Willis v. Sharp, 113 N. Y., 586 ; 23 N. Y. St. Rep, 670 . Among other cases, referred to was Burwell v. Mandeville's Ex’r, supra, and the general proposition there laid down re-stated. It was assumed that the courts, with reasonable unanimity, sustained as valid a direction in the will of a testator that his trade should be continued, whether his business was that of a sole trader or of a firm of which he was a member, but it was held that a mere power to carry on the testator’s trade, or to continue his business in a firm of which he was a partner, without anything more, will be construed as am authority simply to carry on the trade or business with the fund already invested in it at the time of the testator’s death, and to subject that fund only to the hazards of the trade and not the general assets of the estate; and, also, that the property already embarked in the business is the trade fund, unless it appears from the will that the executor was authorized to use the general assets in the business.

These views were sustained upon authority. They require us to search for the intention of the deceased partner, in the language used by him in giving his directions. In the case then before us, Willis v. Sharp, supra, the testatrix, at the time of her death, was engaged in the “ merchant tailoring business,” and, by will, directed that after her death “ some legitimate business should be carried on by her executors for the benefit of her son Harry, and that her husband, the defendant, should be retained as manager thereof at, a salary of SI,500 a year, and this was followed by a provision empowering her executors “ to sell or make such other disposition of my real and personal estate as the safe conduct of such business shall seem to require,” and in favor of a creditor who became such in the business so carried on, we held that this provision indicated an intention to subject her general assets to the debts of that, business, and that her general estate was bound by the debt contracted; but we also said “if, in this case, there was in the will simply an authority or direction to the executors to carry on a trade, and, in pursuance of the power, the executor continued the existing business, we think, under the authorities cited, the plaintiffs could have no remedy, except to pursue the assets embarked in the trade at the death of the testatrix."

In the case now before us the directions or authority are sucn as we said in the former case would be insufficient to enable a. creditor to reach the general assets of an estate. They are almost literally, in every "sense substantially the same as those actually

First. The “ capital ” is fixed at $4,000, the sole property of Colwell.

Second. It is with that capital that “the business of the co-partnership is to be conducted.”-

Third. The profits of the business are to be divided between the parties at convenient periods.

Fourth. At the dissolution of the partnership and the liquidation of its business, the cash capital is to be repaid before any division of surplus earnings.

These terms and conditions are by reference incorporated into the new agreement on which the appellants rely. The second agreement repeats the same general language. In the event of death “ the business ” shall be continued, i. e., the business already described as employing a certain capital, not an additional capital, and the profits and losses of the same “ business ” are tobe shared in the same manner as if the deceased partner were alive; with only one addition, the survivor may if he thinks necessary in consequence of his partner’s death, employ an additional clerk, the expense of whose employment shall be borne by “ the share of the profits of the deceased partner.” Here are no words from which can be implied an intention to bring into the concern other capital, or make new debts a charge upon any assets outside of those already pledged to the business of the firm. It is nothing more than an authority to the surviving partner to continue an existing business, and- therefore, within the authorities cited, and upon reason and common sense, the plaintiffs cannot have the relief they seek in this action. The respondents assail the validity of the agreement for any purpose. I do not think it necessary to determine the question so raised. It is enough to dispose of the present case that we find no language on the part of the deceased which indicates any intention on his part to put in hazard his general estate, or which by fair construction furnishes any ground for the present action.

It follows that the judgment appealed from should be affirmed, with costs.

All concur, except Earl, J., not voting.