Denholm v. McKay

19 N.E. 551, 148 Mass. 434, 1889 Mass. LEXIS 287

Opinion

C. Allen, J.

The appeal is taken by the widow and minor children of William C. McKay; but it is apparent upon an examination of the will that it is the children who are chiefly, if not solely, interested.

The first question to be determined is whether, in view of the fact that the surviving partner was one of the executors of the deceased partner, the contract of partnership by its true construction authorized the executors, as the legal representatives of the deceased, to make a final agreement with the surviving partner as to the price and terms upon which he should be at liberty to take the partnership assets. In the opinion of a majority of the court, the contract should not receive this construction. Three modes are mentioned for the adjustment of the partnership affairs, in case of the death of a partner. 1. The survivor shall have the option of taking the assets himself, at such price and terms as may be agreed upon by the legal representatives of the deceased and himself. 2. He may put the business into liquidation for the benefit of both parties. 3‘. If agreed upon by the survivor and the representatives of the deceased, the business may be carried on until the expiration of the agreement, provided always that the party so carrying it on shall at all times disclose his acts, the affairs of the firm, the books, and the account of stock to the representatives of the party so deceased. By these provisions an intention is shown to preserve and realize in full the interest of the deceased partner, and not to give an option to the survivor to sacrifice it. If Denholm, the surviving partner, had been the sole executor, the agreement would not have the effect of allowing him to take the assets at a price fixed by himself alone; and it makes no difference in this respect that others are joined with him as executors. The transaction contemplated in the method first specified was virtually a sale, and the relation between the legal representatives of the deceased and the surviving partner was virtually that of vendor and purchaser. Although in point of fact by successive wills McKay appointed Denholm either sole or associate executor, the agreement must still be held to call for the existence of executors who should be able to act with sole reference to the interests of the estate, and independently of the interest of the surviving partner; and Denholm could not properly act on both sides of the same transaction, although there were two other executors. Whichcote v. Lawrence, 3 Ves. 740. Morse v. Royal, 12 Ves. 355, 374. Boynton v. Brastow, 53 Maine, 362.

It does not necessarily follow from this, that the surviving partner would not be entitled under the agreement to take the assets at a fair valuation. Although it is sometimes declared that, if the mode of arriving at a valuation of a deceased partner’s share which is provided in the articles of agreement cannot be strictly carried out, the whole thing fails, and a settlement must be made independently of the agreement, yet it is said in 2 Lindl. Part. (4th ed.) 850, that the above rule must be taken with considerable qualification. See Simmons v. Leonard, 3 Hare, 581; Dinham v. Bradford, L. R. 5 Ch. 519. The great object of this provision in the agreement apparently was to avoid the necessity of putting the business into liquidation by a sale, and thus of stopping the whole concern. Of course the executors, if competent to act in the matter, might sell the assets to the surviving partner, provided they could agree on the price and terms. There was no need of a special provision in the contract to say that. It seems reasonable to suppose that the parties meant to give to the surviving partner an option of taking the assets himself, as an independent right; and in the event of his electing to take them, the price and terms were to be agreed upon. But the mode of ascertaining the value is not necessarily of the essence of the contract; and it was said by Lord Hatherley, in Dinham v. Bradford, above cited, where the prescribed mode of arriving at a valuation could not be carried out, “ If the valuation cannot be made modo et forma, the court will substitute itself for the arbitrators. It is not the very essence and substance of the contract.”

But however this may be, and whether the contract should be deemed to be thus severable or not, since the executors assumed without due authority to fix the price at which Denholm might take the partnership assets, their agreement as to the price was not final, but might be avoided by those interested in the estate of McKay within a reasonable time. But such a transaction, though avoidable, will stand, unless within a reasonable time steps are taken to avoid it. This rule is of genéral application, whenever a sale is made by any one occupying a position of trust, if he is also interested directly or indirectly as purchaser. Jones v. Dexter, 130 Mass. 380, 383. Morse v. Hill, 136 Mass. 60, 65. Learned v. Foster, 117 Mass. 365. Ives v. Ashley, 97 Mass. 198. Yeackel v. Litchfield, 13 Allen, 417. Wyman v. Hooper, 2 Gray, 141. Twin-Lick Oil Co. v. Marbury, 91 U. S. 587. Lewin on Trusts, (7th ed.) 448.

Two questions remain. One is, whether there has been any such delay or acquiescence on the part of the appellants as to cut them off from their right to hold the executors thus responsible. It is contended that the facts show such acquiescence on the part of the mother, and that, as she was guardian of the children, they also are bound thereby. The discussion of this question by counsel has been but slight. The rights of infants are sedulously protected by courts of law and of equity, as well as by statute. Illustrations of this may be found in the limited power of guardians to bind their infant wards by express contract : Oliver v. Houdlet, 13 Mass. 237; Massachusetts Greneral Hospital v. Fairbanks, 132 Mass. 414, 421; Rollins v. Marsh, 128 Mass. 116; Thacher v. Dinsmore, 5 Mass. 299; in the statutes of limitation, which do not run against infants: Pub. Sts. c. 196, § 5; c. 197, § 9; in the doctrine of estoppel, which ordinarily is not applicable to infants or other persons incapable of contracting for themselves: Pells v. Webquish, 129 Mass. 469, 472; Merriam v. Boston, Clinton & Fitchburg Railroad, 117 Mass. 241, 244; Pierce v. Chace, 108 Mass. 254, 258; Bemis v. Call, 10 Allen, 512; Lowell v. Daniels, 2 Gray, 161; and in the rules of practice in courts of equity, as to the effect of answers by guardians: Mills v. Dennis, 3 Johns. Ch. 367; James v. James, 4 Paige, 115, 119; Stephenson v. Stephenson, 6 Paige, 353; Tucker v. Bean, 65 Maine, 352; Turner v. Jenkins, 79 Ill. 228, 232; Berrett v. Oliver, 7 Gill & J. 191; Holden v. Hearn, 1 Beav. 445, 455; 2 Kent Com. (12th ed.) 245; 1 Dan. Ch. Pract. (5th ed.) 169. The practice in Massachusetts is shown in Walsh v. Walsh, 116 Mass. 377. The assent of a guardian ad litem of a minor cestui que trust to an account rendered by a trustee, is no bar to a revision and correction of the account when reopened. Blake v. Pegram, 101 Mass. 592. The court say, “ The fact that a guardian ad litem was appointed in order to give validity to the former decree does not protect the accounts from revision. The right to have errors corrected is recognized, even when the party interested was under no disability. And the assent of such a party to the account as settled in the Probate Court, or of a guardian ad litem in his behalf, does not preclude him.” p. 598. The doctrine is usually declared in general terms, that loches is not to be imputed to an infant; and no exception is made of infants under guardianship. Thus in Lewin on Trusts, (7th ed.) 449, it is said, “ Persons not sui juris, as femes covert and infants, cannot be precluded from relief on the ground of acquiescence during the continuance of the disability.” See also 1 Perry on Trusts, (3d ed.) § 467; Burns v. Thayer, 115 Mass. 89; March v. Russell, 3 Myl. & Cr. 31, 44; Blandford v. Marlborough, 2 Atk. 542, 545; Campbell v. Walker, 5 Ves. 678; Allen v. Sayer, 2 Vern. 368; Meanor v. Hamilton, 27 Penn St. 137; Piatt v. Smith, 12 Ohio St. 561, 571, 572. On the whole, in view of these authorities and considerations, we are of opinion that, even if it be assumed that the conduct and delay of the mother showed such acquiescence as to bar her personally, respecting which it is unnecessary for us to give an opinion, the minor children are not affected thereby; and that under Pub. Sts. c. 144, § 9, it is their right to have the former accounts of the executors opened so far as to correct any errors therein.

It now appears that, although the executors were guilty of no actual fraud, and intended to act fairly, and thought the price fixed a reasonable one at which to sell, yet the share of the deceased was worth a little more than the sum at which it was appraised, and that unintentionally and unconsciously Denholm was influenced in his judgment by his personal interest. The children are entitled to have the executors account for the full value of the share of the deceased. If this were not so, and they were cut off by the delay and acquiescence of their mother, it would be difficult to escape from the conclusion that she herself would be responsible, in the settlement of her accounts as guardian, for any loss thereby resulting to the children. Pierce v. Prescott, 128 Mass. 140, 146, 147.

The final question is, what is the measure of the liability of the executors? If the agreement is severable, so that Denholm was entitled as of right to take the assets at a fair valuation, it follows that it is now only necessary to ascertain and fix upon such fair valuation, and substitute it for the price actually agreed upon. But the same result would also be arrived at if the whole provision which was acted on in the agreement is treated as inoperative. Each case must depend on its own circumstances. Robinson v. Simmons, 146 Mass. 167. In the present case, the executors entered into this method of adjustment, believing that they had a right to do so, and they received and have accounted for a price which they thought reasonable, but which in fact was not quite enough. New partners entered the firm. The amount of capital belonging to McKay’s estate, over and above the amount accounted for, which remained in the new business, was small. It would not be practicable, even if just, to follow it specifically, and ascer tain how much it has earned in the subsequent business. What the executors ought to have accounted for was the full value of McKay’s share at the time of the stock-taking; and we think it sufficient if they account for that value now, with interest, instead of the amount they actually accounted for.

The case must therefore be sent to a master to ascertain and report what was the fair value of the interest of the deceased in the assets and business of the partnership at the time of the stock-taking. Ordered accordingly.