Mares v. Mares

199 P. 267, 60 Mont. 36, 1921 Mont. LEXIS 107

• Court: Montana Supreme Court
• Decided: June 27, 1921
• Docket: No. 4,329
• Status: Published

Opinions

■MR. JUSTICE GALEN

delivered the opinion, of the court.

This action was brought by the plaintiff for a partnership accounting. The defendants are the widow and minor daughter of Frank Mares, deceased, the former being made a party individually, and as executrix of the last will and testament of the decedent. Judgment is sought against the executrix of the estate for moneys alleged to be due to the plaintiff, on a claim against the deceased partner, for cash advanced by the plaintiff over and above the amount of contribution made to the co-partnership by the deceased, and for money drawn by the decedent in excess of his portion of the profits. A general demurrer was interposed to the amended complaint and sustained by the lower court, and judgment was entered for the defendants. This appeal is from the judgment.

Four specifications of error are made by the plaintiff, all of which are summarized in but one question, vis.: Does the complaint state facts sufficient to constitute a cause of action? The amended complaint alleges, in substance, as follows:

Paragraph 1 alleges that, on or about May 1, 1892, plaintiff and Frank Mares, deceased, formed and entered into a copartnership, by the terms of which they agreed to contribute an equal amount of money to the funds of the partnership, and they further agreed to become equal partners in the management of the business of the firm, and that this relation and copartnership were actively carried on by them until December 11, 1916, when Frank Mares died. Paragraph 2 alleges the appointment and qualification of Emma Mares as executrix; that she is the widow of deceased; that Blanche is fourteen years of age, and is the only child of the deceased, and that they are his only heirs. Paragraph 3 alleges the contribution to the business of the copartnership by the plaintiff of more than $118,925; that Frank Mares contributed merely a nominal sum thereto, the exact amount thereof being unknown to plaintiff; that Frank Mares from time to time took and used for his individual use and benefit large sums of money of firm assets, the sums so taken largely exceeding the proportion to which he was entitled of the partnership assets, the amount thereof being unknown to plaintiff, and which can only be ascertained by an accounting of the affairs of the partnership,- that during the same time the amounts drawn out of such business by plaintiff were less than what he was entitled to under the partnership agreement; that Frank Mares used large sums of firm moneys, for his private use, over and above what he was entitled to; in many instances failed to keep an account or record thereof on the books of the firm; that he invested partnership moneys in real and personal property the title to which he took in his own name, and which now so remains (the real property being described) ; that because of the fact that plaintiff contributed to the partnership sums so far in excess of those contributed by Frank Mares, and drew out so much less than Frank Mares, the plaintiff, on an accounting being had, is entitled, under the partnership agreement, to be reimbursed for the difference between the amounts contributed and received by him and those contributed and received by the deceased, which difference can only be ascertained after an examination of the books and papers of the firm and an accounting of its business and affairs. Paragraph 4 alleges that all debts of the firm have been paid, all of its affairs have been adjusted except the difference between the parties growing out of the partnership, and that plaintiff is not possessed of any of the assets of the firm save, constructively, as to certain parcels of real estate which aro held in their joint names, but which in value are much less than what plaintiff is entitled to on an accounting of the affairs of the partnership. Paragraph 5 alleges a demand for an accounting and adjustment of the affairs of the partnership, made upon Frank Mares during the last year of his life, and upon his executrix, and a refusal thereof on the part of each of them.

The prayer is for an accounting; that the described real estate and personal property purchased with partnership funds be declared partnership property and assets; that all property of the partnership be sold and the proceeds applied toward the sum found due plaintiff on an accounting; that plaintiff have judgment for any balance that may be found due against the defendant executrix; that such judgment be ordered paid out of any individual property of deceased in her hands as such executrix; and for general relief.

The complaint was filed August 6, 1918, one year and eight months after the date alleged of the death of Frank Mares, the deceased partner. As noticed from the allegations of the complaint, the plaintiff seeks an accounting of the business and affairs of the partnership of Mares Bros., covering over twenty-four and a half years, alleging that in the last year of his brother’s life he demanded an accounting, and that Emma Mares, executrix of his brother’s estate, although demand has been made upon her, has refused to account. There is no allegation in the amended complaint that the defendants, or either of them, know anything about the alleged advancements made to the partnership by the plaintiff, or of the appropriation of moneys belonging to the partnership by the deceased, or that they have in their possession knowledge of any facts connected with the partnership affairs, or that they are for any reason or at all, in position to make an accounting to the plaintiff touching the affairs of the partnership. It is alleged that the deceased used the partnership funds, and “in many instances failed to make or keep an account or record thereof on the books of the firm,” and that “the aggregate amount of said sums is to the plaintiff unknown.” There being no entries in the books, the plaintiff being ignorant of the items, it would appear impossible to exact from the executrix, the surviving widow of the deceased, and of her minor daughter, an accounting of the partnership business extending for a period of nearly twenty-five years. And more particularly so, since it is not alleged that they, or either of them, have knowledge of the partnership affairs, or are in any position to make an accounting.

And as showing that all the partnership affairs have not been settled, appellant sets forth in his amended complaint that there is an indebtedness due him from the partnership assets of $118,925, which he wants paid out of the partnership assets; that large sums have been invested in real estate and mining claims, and he wants the partnership adjusted in that pai*ticular. He also wants the partnership adjusted as to the amount contributed by him and the amount contributed by Frank Mares, the deceased partner. According to these allegations in plaintiff’s amended complaint the partnership was far from being settled, and “all of its affairs adjusted, terminated, and wound up.”

[1] A general partnership is dissolved by the death of one of the partners (sec. 5494, Rev. Codes), and it is the duty of the surviving partner to make account to the personal representative of the deceased partner. (Sec. 7607, Rev. Codes.) The law imposes this duty upon the surviving partner, and not upon the representative of the estate; so that it is the plain duty of the surviving partner to make such accounting, rather than exact the same from the personal representative of the deceased partner. The surviving member of the copartnership is presumed to have the possession of, and knowledge concerning, the books of account, property, and assets of the firm; and he is given express statutory authority to continue in the possession of the partnership property, and to settle up its business after the dissolution of the partnership by death of one of its members, irrespective of the appointment and qualification of a personal representative of the deceased partner’s estate. The statute (sec. 7607, Rev. Codes), reads as follows:

“When a partnership exists between the decedent, at the time of his death, and any other person, the surviving partner has the right to continue in possession of the partnership, and to settle its business, but the interest of the decedent in the partnership must be included in the inventory and be appraised as other property. The surviving partner must give a bond with sufficient sureties in favor of the executor or administrator in a sum at least equal to the value of the interest of the deceased partner in the property of the partnership. The amount of said bond must be fixed and the bond approved by the judge. In ease he fails to give such bond, the court or judge may compel its execution by attachment or other proper order. The surviving partner must settle the affairs of the partnership without delay, and account with the executor or administrator, and pay over such balances as may from time to time be payable to him, in right of the decedent. Upon the application of the executor or administrator, the court or judge may, whenever it appears necessary, order the surviving partner to render an account, and in ease of neglect or refusal may, after notice, compel it by attachment; and the executor or administrator may maintain against him any action which the decedent could have maintained. The surviving partner is a trustee of the estate or interest of the deceased partner in the property of the partnership for every purpose and the court or judge may require the surviving partner to account at any time.”

[2] Under the provisions of the statute (Id., sec. 7607), the surviving partner has the right (1) to continue in the possession of the partnership; (2) and to settle the business. And he must (1) settle the affairs of the partnership without delay; (’2) account to the executor or administrator; and (3) pay over to him such balances from time to time as are due in right of the decedent. The surviving partner is made the trustee of the estate or interest of the deceased partner in the property of the partnership for every purpose, and he may be compelled to account. This law is plain, and requires the surviving partner to account to the executrix, not that she shall account to him. This statute was copied from California, which was there first adopted in 1850, as section 199 of the Probate Act (Laws 1850, p. 393), and was thereafter re-enacted as section 198 of Chapter 124 of the Laws of 1851, and re-enacted March 11, 1872, and again April 16, 1880, carried forward as section 1585 of the Code of Civil Procedure. (Kerr’s Cyc. Codes, see. 1585.) In the territory of Montana it was first enacted as section 229 of the laws of 1877, page 301, and again re-enacted as section 229 of the Second Division of the Revised Statutes of 1879, and again re-enacted as section 229 of the Second Division of the Compiled Statutes of 1887, and by section 1, page 146, Laws of 1889, it was amended slightly by the following addition, to-wit: “The surviving partner must give a bond with sufficient sureties in favor of the executor or administrator in a sum at least equal to the value of the interest of the deceased partner in the property of the partnership. The amount of said bond must be fixed and the bond approved by the judge. In case he fails to give such bond, the court or judge may compel its execution by attachment or other proper order.” And as amended it was carried forward as section 2734 of the Civil Code of Procedure of 1895 of the state, "with additional amendment at the end thereof by inclusion of the following language: “The surviving partner is a trustee of the estate or interest of the deceased partner in the property of the partnership, for every purpose, and the court or judge may require the surviving partner to account at any time.” And it was carried forward in this amended form as section 7607 of the Revised Codes of 1907. In all material substance as applicable to the question, the Act before us was copied from California, and it is settled by the decisions in this court that its adoption carries with it the construction placed thereon by the courts of that state. (State ex rel. Rankin, Attorney General, v. Board of Examiners, 59 Mont. 557, 197 Pac. 988, and cases there collected.) However, it appears that the supreme court of California did not construe its statute with reference to the question here involved, until subsequent to our adoption thereof. On August 31, 1886, the supreme court of California, in construing its statute upon this subject, held, in the case of McKay v. Joy, 70 Cal. 581, 11 Pac. 832, that a surviving partner cannot maintain an action against the personal represéntative of his deceased partner for an accounting of the partnersMp affairs. TMs case was first decided in an opinion rendered February 19, 1886, by the supreme court commission of California, adopted by the court (2 Cal. Unrep. 639, 9 Pac. 940), wherein it was held that under the statutes of California the surviving partner cannot successfully maintain an action against the administrator of a deceased partner’s estate for an interest in the assets thereof without first presenting a claim to the personal representative, as required by the statutes. The case, as stated by the commissioners, showed that McKay and one Joy were partners. Joy died, and the defendant Joy was appointed administrator’. The partnership property, which was in the hands of McKay, was taken from him by writ of replevin, and delivered by the sheriff to Joy, the administrator. McKay then brought suit against Joy as administrator for an accounting of the partnership property. It appeared on the trial that no claim had ever been presented to the administrator, and the commissioners held that the court below rightfully granted a nonsuit because of the failure to file such claim. The commissioners held that McKay, as a surviving partner, had a right to continue in possession of the partnership property, and could have successfully defended the action in replevin by which the property was taken from him, or could have maintained an action to recover it back; but that the accounting asked for was based upon a claim made against the estate of the decedent arising on a contract, and as such the claim should have been first filed as required by the statute.

These are the only decisions called to our attention construing this statute, with respect to the obligation to make accounting after the termination of a copartnership by the death of one of its members; and, aside from the persuasive influence upon us to accept California’s interpretation of this statute in this respect, we feel the correct rule is expressed in these decisions.

In applying our statute in the ease of Krueger v. Speith, 8 Mont., at page 488, 3 L. R. A. 291, 20 Pac. 664, Mr. Justice He Wolfe, said: “The representatives of the deceased partner have a right to the balance that will be found to belong to the decedent; they also have a right to compel the surviving partner to apply the assets to the debts, and not waste it or delay settlement. This is obviously not a tenancy in common, even in equitable contemplation; and though the representatives of the deceased have been called cestuis que trustent, and the survivor a trustee for them, this doctrine is at most but partially true, and is distinctly repudiated by some great courts. (See, also, Bush v. Clark, 127 Mass. 111.)

“In Theller v. Such, 57 Cal. 447, in construing a statute like ours, the court says: ‘The probate court has no more jurisdiction to provide for a partnership account, and decree a balance where a partnership has been dissolved by the death of a partner, than when it has been dissolved by any other cause. ’ The assets which pass to the executor or administrator consist of the individual estate of the deceased; partnership assets, as such, form no part of such individual estate. The residuum only, after satisfying liabilities and advances, if any, made by the survivor, becomes the property of the estate. (So, also, Andrade v. Superior Court of San Francisco, 75 Cal. 459, 17 Pac. 531.)

“If it was otherwise, immediately on the death of one of the members of a partnership, the partnership estate would be in custodia legis, and would have to be administered and settled like any private or individual estate. Our statute does not contemplate a proceeding like this, and while it requires the inventory to include the interest of the decedent in a partnership, it also gives to the surviving partner full power over the partnership estate and property for the purpose of settling and accounting, and subjects him to legal proceedings only when he fails to perform his duty within a reasonable time. He gives no bond such as is required to be given by an administrator, nor do accounts against the partnership require the formal proofs or allowance which the law requires in the ease of claims against an estate. None of the requirements with which the law surrounds an administrator are required of a surviving partner in the settlement of a partnership estate, but all such matters are left to the judgment and presumed knowledge of the surviving partner, and his acts, if done in good faith, bind alike his own and the interest of the representatives of the deceased partner in the partnership property. (Story on Partnership, sec. 328.)

“The authorities to which we have referred settle the question that it is only in a qualified sense that a surviving partner is a trustee of the representatives of a deceased partner. He takes, or rather retains, the partnership property, jure proprio ; and the only trust which attaches to his possession and disposition of the property is his duty to settle up the affairs of the partnership and account to the representatives of the deceased partner, a duty as we have seen, which he may be compelled to perform if he neglects or unreasonably defers.”

In the case of Silver v. Eakins, 55 Mont. 210, 175 Pac. 876, it appears that Eakins and Silver were copartners; that Silver was sole surviving partner; that the sum of $1,920.80 was paid to Eakins in his lifetime on account of money due the copartnership of Silver & Eakins, and that claim was presented for such amount by Silver, acting as the sole surviving partner, against the estate of Eakins, and disallowed by the executrix of the estate of John Eakins, deceased. Mr. Justice Holloway, speaking for this court, said:

“Briefly, the complaint charges that Eakins & Silver were copartners, engaged in completing the work under the MeCune contracts; that Silver is sole surviving partner; that the $1,920.80 was and is partnership money; that it was received by Eakins and retained as a part of the assets of his estate; that plaintiff presented a claim for the amount; and that the claim was rejected. The answer admits the death of Eakins, the qualification of defendant as executrix, the rejection of plaintiff’s claim, and denies all the other material allegations of the complaint. By way of affirmative defense it was alleged that Silver had failed to give the surviving partner bond required by section 7607, Revised Codes. On motion of plaintiff this defense was stricken from the answer. The trial resulted in a judgment for plaintiff, and from that judgment, and from an order denying a new trial, defendant appealed.

“Does the complaint state a cause of action? Section 7607 defines the rights, duties, and liabilities of a surviving partner. It authorizes him to continue in possession of the partnership, to settle its affairs, and to account and pay over to the personal representative of the deceased partner any balance due in right of the decedent. Apparently the complaint was drawn upon the theory that the surviving partner is entitled as of right to the possession of all the firm assets until the partnership affairs are finally settled. If the partnership assets in the possession of Silver, as surviving partner, were sufficient to pay the partnership debts, then any balance due him in right of his partnership interest could be recovered only on a settlement of the firm account. (Franklin v. Tonjours, 1 White & W. Civ. Cas. (Tex.), sec. 506.) If the partnership assets in his possession exceeded the debts and Silver’s interest, then manifestly it would be an idle ceremony to require the estate to deliver this $1,920.80 to the surviving partner, only to require hini to redeliver it to the estate upon final settlement. These observations suffice to disclose the reasonableness of the rule which requires the surviving partner to make known the amount of partnership debts and the amount of firm assets in his possession, to the end that the court may determine whether possession of firm property held by the estate of the deceased partner is necessary, in order that the surviving partner may discharge the duties imposed upon him by statute. The complaint does not disclose the amount of firm debts, if any, nor the amount or value of firm assets in the possession of the surviving partner, and for this reason it does not state a cause of action. (Painter v. Painter’s Estate, 68 Cal. 395, 9 Pac. 450.)

“We do not agree with appellant however, that if the complaint contained these essential ¿negations it would still not state a cause of action. It is true that one partner cannot maintain an action at law against his copartner, at least until an accounting is had and a balance determined, and the reason for this rule is apparent. The interest of each partner extends to every portion of the firm property (sec. 5469, Rev. Codes), and therefore neither partner is entitled, as against the other, to the exclusive possession of the whole or any specific part of the partnership assets. (Boehme v. Fitzgerald, 43 Mont. 226, 115 Pac. 413.) But whenever the reason for that rule ceases, so does the rule itself, and the reason ceases immediately upon the death of one partner. The partnership is thereupon dissolved (sec. 5494), and the surviving partner becomes at once entitled to the possession of sufficient firm property to enable him to discharge the duties imposed by section 7607. (First Nat. Bank v. Silver, 45 Mont. 231, 122 Pac. 584.) If, then, it was made- to appear by this complaint that possession of this $1,920.80 was necessary to settle the firm debts, an action for money had and received would lie to recover it. (Conger v. Atwood, 28 Ohio St. 134, 22 Am. Rep. 462; 20 R. C. L., p. 1010.)”

A fortiori, the complaint in the instant ease, by the surviving partner against the executrix, seeking an accounting from the personal representative of the deceased partner, does not state a cause of action, as it appears therefrom that the partnership affairs have not been settled, and that there is an indebtedness due the plaintiff from the copartnership of $118,925. All of its affairs have not been terminated and settled as alleged in the complaint, and until the surviving partner has accounted to the executrix and performed his trust, he has nothing more than a contingent claim against the estate of the deceased partner.

[3] After dissolution, by death or from any other cause, a partnership still has a limited existence for the purpose of closing up the affairs of the partnership. The firm is to this extent not completely dissolved until its affairs are closed. Up to that time the joint interest of the partners continues in the partnership property, and the mutual agency continues for the purpose of winding up its business. (Kinder v. McCants, 4 Rich. (S. C.) 46, 53 Am. Dec. 711; Maynard v. Richards, 166 Ill. 466, 57 Am. St. Rep. 145, 46 N. E. 1138; Brown v. Higginbotham, 5 Leigh (Va.), 583, 27 Am. Dec. 618). So far as is necessary for the purpose of closing the concerns of the partnership it continues with all its incidents of interest, powers and obligations. (Davis v. Megroz, 55 N. J. L. 427, 26 Atl. 1009.) , In legal contemplation the partnership continues for the purpose of making good all outstanding engagements, of taking and settling all accounts, and collecting all the property, means and assets of the partnership existing at the time of its dissolution, for the benefit of all interested. (Western Stage Co. v. Walker, 2 Iowa, 504, 65 Am. Dec. 789; Johnson v. Totten, 3 Cal. 343, 58 Am. Dec. 412.)

“The property of the partnership, until the affairs of such partnership be settled and his share paid over to his administrator, is in no sense property of the decedent, or property to be administered as a part of his estate. Indeed, except for the circumstances of this ease, namely, the death of both partners before the partnership was wound up, the administrator, as such administrator, would have no right to the partnership assets, but the surviving partner would have the right to posses-, sion.” (Franklin v. Trickey, 9 Ariz. 282, 11 Ann. Cas. 1105, 80 Pac. 352.)

The personal representative of the deceased partner, not being entitled to the property, assets and books of the partnership, may exact an accounting from the surviving partner. (Franklin v. Trickey, supra.) The same rule, however, does not apply with respect to the surviving partner. Had Frank Mares lived, an action for an accounting could have been maintained against him, and at any time during the period of nearly a quarter of a century of the continuance of the partnership business, the plaintiff, Joseph Mares, was entitled to an accounting as against his partner, Frank Mares; but after the dissolution of the partnership by death of one of its members, he is in no position to exact such accounting, being himself in position to obtain all desired information respecting the books, property and assets of the copartnership, and in contemplation of law, in actual possession of the partnership property and estate. Upon the death of Frank Mares, Joseph Mares, the surviving partner, at once became entitled to the exclusive possession of the partnership assets, and there at once devolved upon him the duty of. winding up the partnership affairs and of making an account to Emma Mares, as executrix of the last will and testament of the deceased partner. Clothed with these rights and resting under these obligations, the surviving partner is left with the sole duty of making the accounting. The death of one of the partners and the continued possession of the partnership property by the other changes the rule of mutuality of obligation to account one to the other.

For the reasons stated the judgment is affirmed.

Affirmed.

Mr. Chief Justice Brantly and Associate Justices Reynolds, Cooper and Holloway concur.