Hotchkiss v. Brainerd Quarry Co.

• Decision Date: 30 October 1889
• Citation: 58 Conn. 120,19 A. 521
• Court: Connecticut Supreme Court
• Parties: HOTCHKISS et al. v. BRAINERD QUARRY Co. et al.

19 A. 521

58 Conn. 120

HOTCHKISS et al.

v. BRAINERD QUARRY Co. et al.

Supreme Court of Errors of Connecticut.

Oct. 30, 1889.

Appeal from superior court, New Haven county; FENN, Judge.

Suit by Henry L. Hotchkiss, as trustee for Mary W. Burrows, and by said Mary W. Burrows and her husband against the Brainerd Quarry Company, a corporation, and Eliza T. White and her husband, to determine the respective rights of said Mary W. Burrows and Eliza T. White in certain shares of stock in said corporation. From the decree determining their relative interests plaintiffs and defendants appeal. H. Stoddard and J. W. Bristol, for plaintiffs. S. E. Baldwin and J. T. Platt, for defendants.

CARPENTER, J. Frederick Hall died in 1857, the owner of two-sixteenths of the property of the Brainerd Quarry Company, a copartnership in the business of quarrying stone. His death did not dissolve the partnership. His widow, now Mrs. Burrows, under his will took one-third of his personal property in fee, and one-third of his real estate for life. His daughter, now Mrs. White, took beneficially the rest of his estate. The copartnership continued by the consent of Hall's executors, his widow and daughter, until December 31, 1883. Hall's interest in the quarry business was appraised,—the personal estate at $6,000, and the real estate at $19,000. In the distribution there was set to the widow in fee an undivided interest in the personalty, valued at $2,000, and a life-use in one-third of the realty, undivided, valued at $6,333.33. Dividends of profits were made annually, until 1871. From 1871 to 1881 no dividends were made. On the 31st of December, 1883, a corporation succeeded the partnership, the property being valued (a low estimate) at $320,000. The interest of Mr. Hall's estate was valued at $40,000. Those interested became stockholders in proportion to the value of their respective interests in the partnership. Mrs. Burrows and Mrs. White could not agree upon a division of the stock. This suit was brought to settle the matter. They together were entitled to 400 shares. The superior court gave to Mrs. White 266 2/3 shares in fee. That is not complained of. It then gave to Mrs. Burrows 32 shares in fee, representing her interest in the personal property. Of this Mrs. White in her appeal complains. It then gave 101 1/3 shares to Mrs. Burrows for life, with remainder to Mrs. White. Of this Mrs. Burrows in her appeal complains. Mrs. White claims, on the one hand, that the personal property which was distributed to Mrs. Burrows had been exhausted, so that she was entitled to no stock absolutely. Mrs. Burrows, on the other hand, claims that the stock representing the increase of the realty represents earnings or profits, and that she is en titled to that in fee.

We will first consider Mrs. Burrows' claim She assumes, and her counsel base their argument on that assumption, that the whole increase is accumulated earnings. Is this assumption warranted by the facts? For the fact must appear, expressly or by implication. Otherwise no error is apparent. It will be conceded that it does not appear in terms. If it appears by implication, it must be a necessary implication. If the evidential facts will warrant any other inference, then we can find no error, unless we first decide a question of fact; and that, under our law, we are not permitted to do.

Stating the question, then, in another form, does it appear from the record that the increase in the value of the partnership property is due to profits? Now, these facts do appear: That from 1857 to 1883 there were paid in dividends $720,000; that during that time the company paid from the earnings about $148,000 for land essential to the business; and that it paid more than $300,000 to protect the New York and Brooklyn property taken as security for stone sold. Probably some portion of the earnings was also applied in purchasing necessary personal property. The net increase of the plant was $120,000. How much of that was real and how much personal property we know not, nor is it of great importance; but, assuming that both increased in essentially the same proportion, as seems probable, and which we may assume, in the absence of anything in the finding to the contrary, the personalty increased $26,800, and the realty $93,200. Now, we are not warranted in assuming that the expenditure of $148,000 for land of itself increased the value of the plant $93,200; because the finding is: "Which lands were purchased because necessary, either immediately or remotely, for the business of the company as a continuing quarrying business." That would seem to imply that the amount thus expended was mainly required to supply the loss arising from the exhausting nature of the business. Nevertheless, perhaps in fairness we ought to assume that the lands purchased did something more than repair the loss; that in fact they added something to the value of the plant.

But there is another factor that cannot in justice be overlooked. The court below says: "But I further find that in the prosecution of said trade or business of quarrying, from the death of Frederick Hall to the formation of the defendant corporation, the volume of business, though with fluctuations, largely increased." In addition to that, it must also be borne in mind that there was a marked appreciation of all kinds of property, especially real estate, after 1861; that in 1857 the business of the country was very much depressed; and that the inflation of the currency during the war, which continued for many years after, increased values and stimulated and extended business largely, especially those departments of business that would more particularly benefit the quarrying business. These are matters of common knowledge. It is true that for the decade following 1873 there was a considerable falling off of business; nevertheless the net result must have been that there was an appreciation of values to a considerable amount aside from the increase arising directly from the increase of property. The court below has not told us how much of the increase is owing to each of these two causes, and has given us no data by which we can ascertain. While it is probable that it is due in some measure to both, yet it is legally possible that it is wholly due to one of them. If so, to which one? The court has not told us. If to both, in what proportions? Again, we are left in ignorance. Before we can find error, we must know that some portion of the stock represents income to which Mrs. Burrows is entitled. In this state of the record it is difficult for us to say that the third and fourth reasons of appeal, which are, in substance, that Mrs. Burrows is entitled to more stock absolutely than the court awarded her, are sustained.

It may be suggested that the court erred in not finding definitely to what source the accretion was due, and, if to both, in what proportion to each. The difficulty is that it does not appear that the court was asked to do so, and no such error is pointed out in the reasons of appeal. The court was asked to find the value of the book debts and bills receivable of the company at the time the corporation was formed, but that is very different from the precise question we are now considering. But aside from these difficulties, which are somewhat superficial, we think the case must turn upon other considerations, which lie deeper and touch the very vitals of the case. When Hall died, substantially all his property was invested in the quarrying business. The quarry interest distributed to his widow was in common with others, and not in severalty. She might have called for a division; that is, she might have declined to continue in the partnership. In that event, her portion would have been assigned to her in specific articles of property, or its equivalent paid to her in cash. Her income would then have been whatever she could have obtained from about $8,000, or say $500 annually, in round numbers. Instead of doing that, however, she elected to continue her interest in the business. That she acted wisely is abundantly proved; for she has not only received a net income of $30,000 in 26 years, but she has an interest in a large amount of property, valued at $75,000, which, when converted into cash, will be distributed as profits; and she also has the principal, not as she received it, but improved in value, and its income-earning capacity largely increased. She could have made nothing but loss had she terminated the partnership, and it is very clear that the bare right to terminate the partnership can give her no advantage now. The interest of Mrs. White in the estate is equally fortunate. Thus far neither is benefited at the expense of the other. Each was interested in the same enterprise, and what benefited one benefited the other. But, coming to the point of issuing stock, their interests diverge, and each claims what the other is unwilling to concede. Mrs. Burrows claims that the real estate in which she has a life-estate is entitled to its proportion of the increase, and that that increase is profits to which she is entitled absolutely. Thus, that interest was valued at $6,333.33. Sixty per cent. of that is $3,800, just the amount which she claims.

We have already attempted to show that her claim cannot be sustained, so far as the increase is owing to a rise in values. We will now consider whether it can be sustained in respect to any undivided profits,—profits which will never be divided and paid out as profits. We will consider this question in a threefold aspect: (1) Her rights as a partner; (2) her rights as a stockholder; and (3) her rights under the will.

As a partner her rights are determined by the partnership articles. We quote: "Article Third. All dividends of the rents and profits arising and accruing from the said copartnership business, and all debts and liabilities contracted for and in the said copartnership name, as is...