Cleveland Trust Co. v. Ingalls

91 Ohio Law. Abs. 70, 23 Ohio Op. 2d 124, 1963 Ohio Misc. LEXIS 251
CourtCuyahoga County Probate Court
DecidedFebruary 27, 1963
DocketNo. 626680
StatusPublished

This text of 91 Ohio Law. Abs. 70 (Cleveland Trust Co. v. Ingalls) is published on Counsel Stack Legal Research, covering Cuyahoga County Probate Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Cleveland Trust Co. v. Ingalls, 91 Ohio Law. Abs. 70, 23 Ohio Op. 2d 124, 1963 Ohio Misc. LEXIS 251 (Ohio Super. Ct. 1963).

Opinion

Andrews, Chief Referee.

This ease concerns the right of a corporate trustee of a testamentary trust to retain as part of the trust estate an interest in a limited partnership assigned to it by the executors of the testator’s estate.

By Item Y of his will, Albert S. Ingalls, Jr., left his residuary estate in trust, designating The Cleveland Trust Company as trustee. The interest in the limited partnership was assigned to The Cleveland Trust Company as part.of the residuary estate distributed to the trustee by the executors.

The action is brought by The Cleveland Trust Company as trustee, seeking a determination of the following questions:

1. Does a corporate trustee have the capacity and power under Ohio law to join a limited partnership as a limited partner?

2. If the answer to the foregoing question is “yes,” does The Cleveland Trust Company have the power under the terms and provisions of the will to join the limited partnership as a limited partner and hold the limited partnership interest as an investment?

Albert S. Ingalls, Jr., died on May 4, 1955, leaving Eileen B. Ingalls, his surviving spouse, and three children, Albert S. Ingalls, III, Evelyn T. Ingalls, and John T. Ingalls, the latter a minor. The Cleveland Trust Company is guardian of the minor son’s estate. Eileen B. Ingalls and James C. Weir were appointed executors of the decedent’s estate, and they have made final distribution of the residuary estate to the trustee.

The defendants in the action are the widow, the three children, and The Cleveland Trust Company as guardian of John’s estate. Mr. Paul B. Roesch was appointed guardian ad [72]*72litem for John, and trustee for suit for the unknown, undetermined, and unborn beneficiaries under the will.

In a joint answer, Eileen B. Ingalls and Evelyn T. Ingalls urge the court to give an affirmative answer to the questions propounded by the plaintiff. Mr. Roesch, in Ms answer, asks the court to protect the interests of the minor son and the unknown, undetermined, and unborn beneficiaries. Albert S. In-galls, III, has entered his appearance, but has not filed an answer.

Thus, no one is objecting to an affirmative answer to the questions contained in the prayer of plaintiff’s petition, but the parties want to be certain that The Cleveland Trust Company has the authority under the law and under the will to retain the limited partnership interest as an investment.

Because the prudence of retaining the investment is not in issue, there is no need to go into detail about the creation or financial status of the limited partnersMp. It is enough to mention that the executors of Mr. Ingalls’ estate were in possession of certain corporate shares of the Taft-Ingalls Corporation, and that pursuant to a reorganization, in which the corporation was dissolved, they surrendered their shares, and received in return a 6.67 per cent interest in Taft, Ingalls & Company, a limited partnership, in which the estate of Albert S. Ingalls, Jr., was one of the limited partners. It is this interest which the executors assigned to the trustee.

The partnership was formed for the purpose of holding and operating certain buildings in Cincinnati, Ohio, and collecting the rentals thereon, and also of holding certain promissory notes and collecting the payments of interest and principal.

The partnership agreement was made on August 1, 1959, and, by Article 5, the partnership is to exist for ten years from that date. Article 2 provides that as assets become liquid and are no longer needed, they will be liquidated and distributed to the limited partners.

There are four general partners, who manage the business, and a considerable number of limited partners, including some trust estates and estates of deceased persons.

From the uncontroverted allegations of the petition, plus the testimony, it appears to be in the best interest of the bene[73]*73ficiaries to retain the share in the limited partnership, and to do so will not present the trustee with any extraordinary administrative burden.

We come, then, to a consideration of the legal problems. The plaintiff is justifiably concerned about whether, as a corporation, it may be a limited partner in a limited partnership.

It appears to be well settled that in the absence of statutory or charter authority, a corporation may not ordinarily become a member of a partnership. Crane, Partnership, Sec. 9 (2d ed., 1952); 6 Fletcher, Private Corporations, Sec. 2520 (1950); 1 Rowley, Partnership, Sec. 6.4 (H) 1 (2d ed., 1960). There is an excellent annotation on the subject in 60 A. L. R. (2d), 917 (1958). See also 55 Mich. L. Rev., 588 (1957); 9 Minn. L. Rev., 381 (1925); 35 Tex. L. Rev., 265 (1956); 25 Tulane L. Rev., 272 (1951).

Ohio subscribes to this rule. Geurinck v. Alcott, 66 Ohio St., 94, 63 N. E., 714 (1902); Merchants’ Nat. Bank v. Wehrmann, 69 Ohio St., 160, 68 N. E., 1004 (1903), reversed on other grounds, 202 U. S., 295 (1906); Merchants’ Nat. Bank v. Standard Wagon Co., 6 Ohio N. P., 264, 9 Ohio Dec. (N. P.), 380 (Super Ct. of Cincinnati, 1899), aff’d, 7 Ohio N. P., 539, 10 Ohio Dec. (N. P.), 81 (1900) (on ground that no partnership existed), aff’d without opinion, 65 Ohio St., 559, 63 N. E., 1124 (1901); Steed v. Baker Wood Preserving Co., 15 Ohio Law Abs., 644, 648 (App., 1933) (dictum); Fechteler v. Palm Bros. Co., 133 Fed., 462 (6th Cir., 1904). Contra: Trivision v. Steiner, 41 Ohio App., 35, 45, 179 N. E., 208 (1931), citing no authority, but mating a vague reference to some mysterious cases.

The chief reasons for the rule are well stated in 60 A. L. R. (2d), 917, 919 (1958), as follows:

The prohibition against corporate partners has usually been justified by stating that the entry of the corporation into a relationship in which each of the members acts as a general agent for the others is inconsistent with the traditonal form of corporate management by directors or officers chosen by the stockholders and that to permit such an arrangement might result in subjecting the corporate assets to risks not contemplated by the investors at the time they acquired their stock.

gee also the same annotation at pages 927 and 930, And see [74]*74tbe citations given above in stating the general rule, including the Ohio cases.

The objection to corporate partnership is dramatically expressed in Butler v. American Toy Co., 46 Conn., 136 (1878), in which both the majority and minority opinions agreed on the rule, but differed as to whether the charter impliedly authorized the corporation to enter into a partnership. In commenting on the rule, the dissenting opinion stated, at page 155:

* # * I oail scarceiy imagine anything more objectionable or hostile to chartered privileges, or more dangerous to the interests of stockholders and creditors, than to allow a corporation to be launched on the uncertain, dangerous, and limitless sea of partnership responsibility.

In Merchants’ National Bank v. Standard Wagon Co., supra, the Ohio court pointed out:

* # * the formation of a partnership implies the giving of control over the affairs of the corporation to others than their regularly constituted officers and boards of directors.

* # # #

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Bluebook (online)
91 Ohio Law. Abs. 70, 23 Ohio Op. 2d 124, 1963 Ohio Misc. LEXIS 251, Counsel Stack Legal Research, https://law.counselstack.com/opinion/cleveland-trust-co-v-ingalls-ohprobctcuyahog-1963.