In re Hearns

• Decision Date: 13 April 1915
• Parties: In re HEARNS et al. In re BARR'S WILL.
• Court: New York Court of Appeals Court of Appeals

214 N.Y. 426

108 N.E. 816

In re HEARNS et al.

In re BARR'S WILL.

Court of Appeals of New York.

April 13, 1915.

Appeal from Supreme Court, Appellate Division, Second Department.

Judicial settlement of the account of proceedings of Joseph J. Hearns and Charles Martin Camp, as executors of Stewart Barr, deceased. From an order of the Appellate Division (163 App. Div . 897,147 N. Y. Supp. 447) reversing a decree of the Surrogate's Court of the County of Kings in so far as it purports to deal with the membership of the testator in the New York Stock Exchange, and also from the order and decree of the Surrogate's Court entered on the order of the Appellate Division, Beatrix H. Barr, an infant, by Frannie B. Barr-Still, her general guardian, appeals. Order of Appellate Division reversed; Appeals. Order of appellante Division reversed;

Alexander S. Bacon, of New York City, for appellant.

I. M. Dittenhoefer, of New York City, for respondents.

CHASE, J.

This appeal is in a proceeding commenced in the Surrogate's Court for an accounting by the executors of the decedent. The testator whose estate is the subject of the accounting was at the time of his death one of the partners composing the firm of Barr & Hearns, engaged in the stock brokerage business. The testator, Stewart Barr, and Joseph J. Hearns entered into a partnership agreement on the 12th day of January, 1905, which was rewritten and restated on the 13th day of February, 1906, and was in force when Barr died. The agreement, as restated, provides that the membership in the New York Stock Exchange standing in the name of Stewart Barr was purchased out of partnership assets at a cost of $79,010, and is part of the common capital of the partnership. The agreement also, among other things, provides:

‘If the said Stewart Barr, of the first part, shall die before the expiration of said copartnership term, the said membership in the New York Stock Exchange shall at once be sold by his legal representatives, and the proceeds shall at once be paid in full to the party of the second part as liquidating partner, and the party of the second part shall thereupon, as rapidly as in his discretion he may deem it advisable, wind up the business of said corporation and pay to the representatives of the party of the first part the share of profits and of capital to which the estate of the party of the first part is entitled as shown by the copartnership books, and the legal representatives of the party of the first part, for the purpose only of verifying the accuracy of said liquidation, shall have free access to the said copartnership books. * * *’

The testator's interest in the partnership was four-ninths thereof, and Joseph J. Hearns' interest therein was five-ninths thereof, but each agreed to share equally with the other in any profit of loss arising from the purchase and sale of the Stock Exchange membership.

The said Stewart Barr, after entering into said partnership agreement, made his will, and he therein provided:

‘The membership in the New York Stock Exchange standing in my name was purchased with funds taken from the capital of the firm of Barr & Hearns, which firm is composed of Joseph J. Hearns and myself, the cost of said membership was $79,010, as will appear on the copartnership books of said firm, and the dues and assessments relating to said membership have been and are being paid by the said firm. Under the partnership agreements into which I have entered with the said Joseph J. Hearns I have agreed to share equally with said Hearns in any profit or loss accruing or incurred from the sale of said membership, and that in the event of my death prior to the expiration of the term of said copartnership there shall be paid to said Hearns from my estate one-half of any gratuity paid to my widow or next of kin by the said Stock Exchange. I do hereby direct my executors to sell the said membership in said Stock Exchange as soon after my death as possible, and if my partnership agreement with said Hearns or any renewal thereof is then in force to at once pay the entire proceeds of such sale to my said partner to the end that while liquidating the said corpartnership business he may have custody of the entire capital of said firm and accrued profits, and thereafter account to my executors for my share therein according to the terms of the copartnership agreement then in force. * * *’

By his will Barr made his partner, Hearns, and Charles Martin Camp, his attorney, and also the attorney of the partnership, executors of his will.

The legal title to the membership in the Stock Exchange was in Barr, and after his death in his legal representatives,and the equitable title thereto in the partnership and after such death in Hearns, as the surviving member thereof. Under the partnership agreement, and pursuant to the terms of the will, it was the duty of the executors as Barr's legal representatives to sell the membership in the Stock Exchange without delay, and to pay and dispose of the proceeds thereof as provided by the terms of said partnership agreement and said will. The duty devolving upon the executors was not a mere nominal one, but a well-defined, positive, and active duty. They are responsible, not alone to the surviving and liquidating partner, but, under the circumstances disclosed upon this appeal, to those interested in the estate of Stewart Barr for the faithful discharge of their duties under the will inconnection with their duties under the will in connection with

Stewart Barr died December 20, 1909, and his will was admitted to probate and letters testamentary were issued to Hearns, his surviving partner, and Camp, his attorney, as executors, on the 11th day of January, 1910. Hearns decided to continue in the business that had theretofore been conducted by the partnership of Barr & Hearns, and for that purpose it was necessary, or at least desirable, for him to obtain a membership in the Stock Exchange. He consulted the secretary of the Exchange in regard to the purchase of a membership and of transferring to himself individually the membership that had theretofore been held for the partnership in the individual name of the deceased partner, Barr. He was told by the secretary of the Exchange that the rules of the Exchange would not permit the transfer of a membership from an executor as such to himself individually, and that he would have to purchase a membership of a stranger; whereupon, and on December 24, 1909, he agreed to purchase a membership of a stranger, and two days after the probate of said will the seat so purchased was transferred to Hearns, and he paid therefor $93,000. On the same day he and Camp, as executors, gave to the secretary of the Exchange a written order to sell a membership at $95,000. The price fixed by them for the membership was $1,000 more than any membership had ever sold during the history of the exchange, and $2,000 more than the sum at which he (Hearns) purchased the membership for himself that was transferred to him that day.

The membership in Barr's name has not been sold. There was never a sale of a membership after January 11, 1910, for an amount exceeding $93,000, and sales for that amount did not continue except for a few days, and the price thereafter continued to decline with but slight variations. A sale was made for $82,000 within less than 60 days after the probate of testator's will, and for $59,000 in March, 1912, and the market value for such membership at the time of the trial herein was much less than any of the amounts stated. The surrogate found:

‘(3) Said executors took no adequate steps to dispose of said stock exchange membership within 60 days after January 11, 1910 (the date on which letters testamentary were issued to them), and said Stock Exchange membership has not yet been sold.

‘(4) That the value of said Stock Exchange membership at all times within the said period of 60 days after January 11, 1910, and the sum for which it should and could have been sold during that period was $80,000.’

The decree...