MacFadden v. Jenkins

• Citation: 169 N.W. 151,40 N.D. 422
• Decision Date: 06 March 1918
• Docket Number: 1915
• Court: United States State Supreme Court of North Dakota

169 N.W. 151

40 N.D. 422

W. C. MACFADDEN, Petitioner and Appellant, v. EVA M. JENKINS et al., Respondents

No. 1915

Supreme Court of North Dakota

March 6, 1918

Petition for rehearing denied September 9, 1918.

Appeal from the judgment of the District Court of Cass County Honorable Chas. A. Pollock, Judge.

Appeal from an order and decision of the district court of Cass county.

Affirmed.

Order and decision affirmed, with costs.

Engerud Divet, Holt & Frame, and Fowler & Greene, for appellant.

One partner cannot sue his copartner on an overdraft of the nature here presented, until their mutual accounts are settled by liquidation of the partnership. Devore v Woodruff, 1 N.D. 143; Gleason v. White, 34 Cal 258; Parsons, Partn. 3d ed. p. 293; Painter v. Painter (Cal.) 9 P. 450.

"A partnership interest is one owned by several in partnership for partnership purposes."

"The ownership of property by several persons is either of joint interests, or partnership interests, or of interests in common." Comp. Laws 1913, §§ 5261, 5263; Civ. Code, art. 2, chap. 74, Comp. Laws 1913, §§ 6389 et seq.

On the death of a partner the surviving partner succeeds to all the partnership property, whether real or personal, in trust for the purposes of liquidation, even though the deceased was appointed by agreement sole liquidator; and the interest of the deceased in the ultimate distribution of the partnership assets passes to those who succeed to his other personal property. Comp. Laws 1913, § 6425.

These statutes form a departure from the American common law on the subject prevailing in most states, and are an adoption of the English rule, which embodies the rule recognized and applied in courts of equity. Woodward v. Nudd, 27 L.R.A. 340, and notes.

The surviving partner takes the title to partnership personalty for the purposes of liquidation and has the right to conduct such liquidation. If, in the process of liquidation, he finds it necessary to sell the lands to pay debts, or to recover his own claims on the partnership, he can resort to equity to compel the heirs to execute conveyance of the legal title. 27 L.R.A. p. 349, note, II. C.

A district legal estate is created termed a "partnership interest," which is neither a joint tenancy nor a tenancy in common. Comp. Laws, §§ 8711, 8717, 8768.

In such cases the administrator of the estate of a deceased partner acquires only the right to receive whatever balance, in money or other property, that may ultimately be found to be due to the decedent, when the partnership affairs are settled. Thompson v. Weeks, 26 Cal. 51; Theller v. Pioche, 57 Cal. 447; Andrade v. Court (Cal.) 17 P. 531; Gleason v. White, 34 Cal. 258; Painter v. Painter, 68 Cal. 395; McPherson v. Swift (S.D.) 116 N.W. 76; Re Amerbach (Utah) 65 P. 488.

The probate court has no jurisdiction whatsoever of the settlement or accounting of the partnership liquidation, because such a settlement or accounting can only be litigated in an action in the district court, between the administrator of the estate and the surviving partner or his representative. Tompkins v. Weeks, 26 Cal. 51; Theller v. Pioche, 57 Cal. 447; Andrade v. Court (Cal.) 17 P. 531, 532; Re Amerbach (Utah) 65 P. 488.

The transactions of the administrator in his conduct of the estate do not violate any of the rules which govern all trustees, including administrators. Comp. Laws 1913, §§ 6281-6287.

The purchase of Ellsworth's share in the partnership by the corporation personally did not violate any trust relation. The former was not a beneficiary of the latter's trust. Comp. Laws 1913, §§ 6281-6284, 6286; Hall's Appeal, 40 Pa. 409.

The copartnership affairs were outside of the trust relationship. Moses v. Moses, 50 Ga. 9; Barker v. Barker, 14 Wis. 142; (see especially opinion on rehearing); Haight v. Pearson (Utah) 39 P. 479; Lombard v. Carter (Ore.) 59 P. 473; Peyton v. Smith, 22 N.C. 325; Allen v. Gillette, 127 U.S. 589; Fleming v. McCutcheon (Minn.) 88 N.W. 434; Bush v. Webster (Ky.) 72 S.W. 364; Mark well v. Markwell (Mo.) 57 S.W. 1078; Hollingsworth v. Spaulding (N.Y.) 54 N.Y. 636; Rickey v. Hillman, 7 N.J.L. 180; Earl v. Halsey, 14 N.J.Eq. 332; Jones v. Novies, 22 N.J.Eq. 102; Stark v. Brown, 101 Ill. 395.

But even if appellant himself were precluded from buying out Ellsworth's interest, his disability in this respect would not extend to the corporation, of which he chanced to be president. Cook, Corp. 6th ed. §§ 663, 664.

"A corporation is in law a person or entity, entirely distinct from its stockholders and officers." Cook, Corp. § 663; Owen v. Potter (Mich.) 73 N.W. 976.

The claim purchased in this instance was a valid claim; the estate was not injured nor was there culpability in sharing as a stockholder. Houghteling v. Stockridge (Mich.) 99 N.W. 759; Copsey v. Bank (Cal.) 66 P. 8; Clark v. Eaton, 100 U.S. 146; Gray v. Mining Co., 68 F. 677-682; Davis & Co. v. Wagon Co., 20 F. 699; Monongahela Bridge Co. v. Traction Co. (Pa.) 46 A. 99.

The shares of the capital stock of a corporation are essentially distinct and different from the corporate property, and the owner of all the stock of a corporation does not own the corporate property or become entitled to manage or control it. Central Trust Co. v. Bridges, 57 F. 753; Richmond & Co. v. Co., 68 F. 105, 108; United Mines Co. v. Hatcher, 79 F. 517; United States v. Refrigerator Co., 145 F. 1007; Halls Safe Co. v. H. H. M. Safe Co., 146 F. 37; Victor & Co. v. Am. Graphophone Co., 189 F. 359; United States v. D. & H. Ry. 213 U.S. 366; Pullman Co. v. Ry. Co., 115 U.S. 588; Conley v. Alkali Works, 190 U.S. 406; Peterson v. Chicago & Co., 205 U.S. 362.

The purchase by the corporation of the Ellsworth interest is not in law a purchase by appellant himself, merely because he happened to be an officer and stockholder of the corporation. Int. Tel. Co. v. Ry. Co., 51 F. 49; LePage Co. v. Cement Co., 51 F. 941; Am. Nat. Bank v. Paper Co., 77 F. 85; Young & Co. v. Lock Co., 72 F. 62; Nat. & Co. v. Conn. & Co., 73 F. 491; Electric Ry. Co. v. Co., 61 F. 655; Re Horgan, 97 F. 319; Re Reiger, 157 F. 609; Re Watertown Paper Co., 169 F. 252; Re Berkowitz, 173 F. 1013; Gelders v. Haygood, 182 F. 109.

The "good will" of a deceased partner in the former business cannot be said to be an asset of his estate. It was only personal to himself. It cannot survive him. Sheldon v. Houghton, Fed. Cas. No. 12,748; Read v. Mackey, 95 N.Y.S. 935; Slack v. Suddoth (Tenn.) 45 L.R.A. 589; Rice v. Angell (Tex.) 3 L.R.A. 769; Masters v. Brooks, 117 N.Y.S. 585.

The good will of a business--not personal reputation--is property. Read v. Mackay, 95 N.Y.S. 935; Code, § 5466.

The business of the copartnership was a losing business. Such a business has no salable "good will." This is true because the value of the "good will" is measured by the surplus profits which the business yields over and above expenses, losses, interest on the investment, and reasonable compensation for the proprietor's own services and labor. F. & M. Schaefer Brewing Co. v. Moebs (Mass.) 73 N.E. 858; Long v. Evening News (Mich.) 71 N.W. 492; Whittle v. Davie (Va.) 82 S.E. 724; Nelson v. Hiatt (Neb.) 56 N.W. 1029; Carey v. Gunnison (Iowa) 17 N.W. 881; Re Sullivan, 105 N.Y.S. 872; Von An v. Magenheimer, 100 N.Y.S. 659; Re Ball, 146 N.Y.S. 499.

The administrator had the legal right to employ an agent or broker to find a purchaser of the land. Willard's Estate (Cal.) 73 P. 240; Lewis v. Reed, 11 Ind. 239; Armstrong v. O'Brien (Tex.) 15 S.W. 682; Dey v. Codman, 39 N.J.Eq. 258, 268.

Watson, Young, & Conmy, and L. L. Twichell, for respondent.

In this state, upon the death of a member of a copartnership, the realty belonging to the firm does not become converted into personal property. Personal property and real property descend to the heirs. Comp. Laws 1913, § 5742.

A surviving partner is a trustee of the firm property for the purpose of liquidation of the partnership affairs, and cannot assign his trust. Needham v. Wright (Ind.) 39 N.W. 510; Killifer v. McLean (Mich.) 44 N.W. 405; Valentine v. Wysong, 23 N.E. 1076; Porter v. Long, 98 N.W. 990; Andrews v. Stinson (Ill.) 98 N.E. 222; Nelson v. Hayner, 66 Ill. 487; Vetterlein v. Barnes, 6 F. 693; Comp. Laws 1913, § 6395; Woerner, Administration p. 283; Lay v. Emery, 8 N.D. 515; McPherson v. Swift (S.D.) 116 N.W. 76; Heath v. Waters, 40 Mich. 457; Drucke v. Boylon (Mich.) 125 N.W. 416; Miller v. Berry (S.D.) 104 N.W. 311.

A surviving partner has the right to sell out his interest in the partnership, but the purchaser obtains nothing but the right to take his interest in the assets after the partnership affairs have been liquidated. Tillinghast v. Champlin, 4 R. I. 173, 67 Am. Dec. 510; 30 Cyc. 605; 22 Am. & Eng. Enc. Law, 104, 105; Reece v. Hoyt, 4 Ind. 169; Chase v. Scott, 33 Iowa 309; Reinheim v. Hemingway, 35 Pa. 432; Horton's Appeal, 1 Harris, 67; Armor v. Frey (Mo.) 161 S.W. 829.

An administrator can sell, on a proper showing, the interest of the decedent in a partnership. Comp. Laws 1913, § 8768.

He can also make a settlement with the surviving partner, and purchase the interest of the surviving partner in behalf of the estate. Comp. Laws 1913, § 8814; Boyd's Sureties v. Oglesby, 23 Gratt. 674; Roys v. Niles, 18 Wis. 169; Hamilton v. Wells, 55 N.E. 143; Valentine v. Wysor, 23 N.E. 1076.

No executor or administrator can legally purchase any claims against the estate; and if he pay any claim at less than its nominal value, he is only entitled to charge in his account the amount he actually pays, nor must he be interested in the sale of any property of the estate. Comp. Laws 1913 §§ 6282, 6283, 8789, 8819; 11 Am. & Eng. Enc. Law, 982, 983; 1 Perry, Trusts, pp. 198, 199; O'Connor v. Flynn, 57 Cal. 293; Boyd v....