MacFadden v. Jenkins

• Decision Date: 09 September 1918
• Citation: MacFadden v. Jenkins, 40 N.D. 422, 169 N.W. 151 (N.D. 1918)
• Parties: MACFADDEN v. JENKINS et al.
• Court: North Dakota Supreme Court

40 N.D. 422

169 N.W. 151

MACFADDEN

v.JENKINS et al.

Supreme Court of North Dakota.

March 6, 1918.

On Rehearing, Sept. 9, 1918.

Syllabus by the Court.

Where there existed a partnership between two parties which was dissolved by mutual consent, one of the partners continuing and succeeding to the business of the firm, including the firm name, and the partner who continues the business before the liquidation of the partnership is completed dies, and one who was not theretofore connected with the partnership was appointed administrator of the estate of the deceased partner, and after his appointment and qualification as administrator, and his entry upon the discharge of his duties as such administrator, forms a corporation, the incorporators consisting of himself and two others, one being the wife of the deceased, for the purpose of continuing the business of the deceased, and the following entry is made on the corporate books, “Paid for good will of company fifteen shares of stock to E. M. Jenkins, fifteen shares to Macfadden, and fifteen shares to B. Simonitsch,” each share being for $100, the total of such shares being $4,500, it is held, under all the testimony, circumstances, and facts of this case, that the corporation took over the business of the deceased, and the notation made upon the books of the company with reference to the good will is an agreement to pay $4,500 for the good will of such business.

Where a partnership existed and was dissolved by mutual consent, and one of the partners continues the business and succeeds thereto, and the name of the partnership, and the continuing partner undertakes to liquidate the partnership and is doing so, but has not completed such liquidation at the time of his death, the equitable title to all property, both real and personal, vests in the surviving partner in trust, and in trust only, for the purpose of liquidation, and the heirs or representatives of the deceased are entitled to any balance remaining after the partnership liabilities have been satisfied.

Where a partnership existed which has been dissolved by mutual consent of the partners, and one of the partners continues the business and succeeds to the name and becomes the liquidating partner, and is engaged in the continuance of the business and liquidation of the partnership at the time of his death, and one, a stranger to the partnership, is appointed administrator of the estate of the deceased, and duly qualifies and enters upon his duties, such administrator, immediately upon his qualification, assumes a trust in relation to all the property of the deceased, and all such property of the deceased in the hands of the administrator is impressed by a trust which the administrator is in law bound to faithfully execute; and where such administrator, after his qualification organizes a corporation of which he is president, to which is sold the property of the deceased by the administrator through the probate court, and such corporation comes into possession and control of the property of such deceased, and sells and disposes of the same, it is held that, under these facts and circumstances there is a direct conflict between the trust relations of such administrator of the estate of the deceased and his self-interest represented by the corporation of which he was president. In such case it is apparent that it would be to the interest of the administrator, as a part owner of the stock of the corporation, to purchase the property from the estate as cheaply as it could be purchased, and as administrator, under these circumstances, it would be to his personal interest and individual gain to sell the land and property of the estate to the corporation at as low a price as he could.

Where, as in this case, the administrator of the estate of a deceased person sells and disposes of the trust property to a corporation of which he is the president, or of which he is a member, and permits such corporation to receive and take possession of the personal property and control and dispose of it, it is held that the purchase of the property by the corporation is in such case a purchase by the administrator, and that the value of such property, and any gain or profit made by the corporation, shall accrue, not to the corporation, but to the cestui que trust or the legal representatives of the deceased, and the administrator is accountable for all the value of the property of the intestate which came into his hands and under his control, and is held accountable therefor.

Where a trustee violates his trust relations, and wrongfully and fraudulently converts the trust property, either directly himself or by and through other agencies, such as corporations or other agencies formed, of which the administrator is a member, the administrator is liable in equitable conversion for the value of all such property so converted, and the profits and gains thereof, if any.

A corporation may be considered a legal entity when used for the accomplishment of a legal purpose. Corporations, however, cannot be used as a cover under which wrongs may be committed and fraud perpetrated. In such case the court will look through the form of the corporation to ascertain its actual purpose and intent. If the purpose and intent of the corporation are bad, its corporate entity will be no cover for wrong, fraud, and bad faith.

Administrators may not purchase claims against the estate at discount, and in their accounting charge up such claims for the full amount of the face of such claims. The administrator may not thus make an individual profit for himself and for his own personal benefit, either in dealing with or settling the claims against the estate, or in dealing with any of the property of the estate of which he is administrator.

Where the administrator has been held liable, as in this case, for equitable conversion, it was proper for the trial court to restate the account in the manner in which it did in this case, and to order the county court from which the appeal was taken to correct the final account of the administrator in accordance with the finding and judgment of the trial court, the district court having appellate jurisdiction to try and determine the correctness or incorrectness of an order allowing or disallowing the final account.

Additional Syllabus by Editorial Staff.

“Good will” of a partnership, business, etc., includes the established business, patronage, or clientage, and all advantages accruing therefrom, whether connected with the premises, name, or other matter. (Citing Words and Phrases, First and Second Series, Good Will.)

In a special proceeding involving an accounting, the trial court's finding of fact, while not conclusive, should be given great weight, and not disregarded unless it is plainly erroneous.

A profitable business is not necessarily accompanied by a good will and an unprofitable business may have a good will consisting in desire of patrons to continue accustomed business relations.

The administrator of a deceased partner who had carried on the business after a dissolution and the surviving partner were not tenants in common, in view of Comp. Laws 1913, § 6425, vesting partnership property in surviving partner in trust for liquidation.

Generally an action at law by one partner against his copartner will not lie on a claim growing out of the partnership transactions until the business is would up and the account is finally settled.

Appeal from District Court, Cass County; Chas. A. Pollock, Judge.

Action for accounting by W. C. Macfadden against Eva M. Jenkins and others. From judgment for defendants and order denying new trial, plaintiff appeals. Affirmed.

Christianson, J., dissenting.

Engerud, Divet, Holt & Frame and Fowler & Green, all of Fargo, for appellant. Watson, Young & Conmy and L. L. Twichell, all of Fargo, for respondents.

GRACE, J.

Appeal from an order and decision of the district court of Cass county. The substantial facts in the case are as follows: Hallett H. Jenkins died intestate August 20, 1908. Until about four years prior to the time of his death he was in partnership in the real estate and loan business with one Ellsworth, under the firm name and style of Ellsworth & Jenkins. About four years prior to the time of Jenkins' death he and Ellsworth agreed to dissolve the partnership theretofore existing between them, since which time the partnership did no further business other than that which related to the liquidation of the partnership business, which liquidation matters were being conducted by Jenkins, and were not completed at the time of his death. After the partnership went into liquidation, Jenkins continued the real estate and loan business at Fargo, N. D., and was the owner of such business at the time of his death. At the time Jenkins died there survived him his widow, Eva M. Jenkins, and a posthumous child, Hallett H. Jenkins, Jr., who were his sole heirs. Jenkins died August 20, 1908. W. C. Macfadden was appointed administrator September 5, 1908, and duly qualified. E. A. Engebretson was duly appointed guardian of Hallett H. Jenkins, Jr., resigning from such position in May, 1910, when L. L. Twichell was appointed to succeed him.

Macfadden, as administrator, filed his first annual account March, 1910, and his final account was filed about the time of his resignation as administrator, which was in the latter part of October, 1910. M. W. Murphy was then appointed administrator, and later, in the month of February, 1915, resigned, after which Alexander Bruce, the present administrator, was appointed.

Part of the decedent's estate was in Minnesota and part in North Dakota. The appellant was appointed administrator of the decedent's estate in Minnesota by the probate court of Clay county, Minn. His administration of the estate in Minnesota was ancillary to the probating of the decedent's estate in North Dakota. Throughout appellant's administration of the decedent's...