« PreviousContinue »
(289 F.) out the other legatee and continued the business alone, notice of which was also published. He subsequently became bankrupt. Held that, in the absence of any act by the executors which induced creditors to extend credit to bankrupt in the belief that the property of the original partnership was not liable for its debts, the fact that they took no action to subject it to such liability did not estop them from asserting the testa
tor's equitable right to have it so applied in the bankruptcy proceedings. 12. Bankruptcy Om 354—Court may marshal assets as between personal and
Under Bankruptcy Act, $8 58, 5g (Comp. St. & 9589), a court of bank
ruptcy may marshal assets between personal and partnership creditors. 13. Partnership On 183(3)-Mortgage to part owner subject to partnership debts.
Where a legatee of an interest in a partnership subject to the firm indebtedness sold his interest to the owner of the remaining interest, taking a mortgage on partnership property for the purchase price, such mortgage is subject to his testator's equity to have the firm debts first
paid from the property. 14. Partnership w247-Note given after death of partner held subject to part.
A note of a partnership to a bank, executed by one partner after dissolution by death of his copartner, which fact was known to the bank, held subject to payment of debts contracted prior to the dissolution from the
partnership property, 15. Novation 5-Renewal of partnership notes after death of partner held not
The execution of notes in the name of a partnership by a surviving partner, who had succeeded to the ownership of the firm business, in renewal of notes given during the lifetime of his partner, held not to constitute a "novation," and such notes held entitled to share in partnership assets.
[Ed. Note.--For other definitions, see Words and Phrases, First and
Second Series, Novation.] 16. Partnership Om68(2)-Real estate of partnership treated as personalty in
administration of estate.
Real estate bought with partnership funds for partnership purposes is to be considered as partnership property, and like personalty subject to all the equitable rights of the partners as between themselves.'
In Bankruptcy. In the matter of H. E. Brewer, bankrupt. review of order of referee fixing classification of claims and priority of debts.
Kemp D. Battle, F. E. Winslow, and L. V. Bassett, all of Rocky Mount, N. C., for executors of R. H. Ricks.
W. A. Lucas, of Wilson, N. C., for trustee.
Hugh W. Davis, of Norfolk, Va., for Norfolk Nat. Bank.
CONNOR, District Judge. This cause comes on for hearing upon the findings of fact and conclusions of law made by the referee, classifying the debts proven against the estate of H. E. Brewer, bankrupt, and the petition of R. L. Huffines, trustee, and the several petiFor other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes tions for review, 'filed by creditors of H. E. Brewer. The referee, in his certificate, finds and reports the following facts:
During the year 1900, H. E. Brewer and R. H. Ricks, both of Rocky Mount, N. C., formed a partnership for the purpose of conducting a general mercantile business under the name and style of H. E. Brewer & Co. Each partner contributed, on account of the capital of the firm, $2,500. Brewer was to be, and was in fact, the active manager of the business; Ricks taking no part therein. His name appeared on the stationery of the firm. The capital was increased during the year 1914, each partner at that time contributing $7,500 additional, to cover some building operations on the property of the firm used for the partnership business.
On February 20, 1920, R. H. Ricks died, leaving a last will and testament, duly admitted to probate in the superior court of Nash county. He bequeathed to H. E. Brewer one-half of his one-half interest in the property, good will, etc., of the partnership, and to his nephew, W. W. Ricks, the remaining one-half, "subject to the payment of the debts of the said partnership.” He left, as his executors, Thomas H. Battle, H. E. Brewer, and several others. The executors named in the will duly qualified and entered upon the discharge of the duties and trusts imposed upon them. H. E. Brewer acted in concert with the other executors. The estate of Ricks was of large value and is amply solvent.
(1) No new inventory or statement of the condition of the partnership business was made after the death of Ricks, but Brewer exhibited to the executors the inventory taken January 1, 1920, with financial statement of same date. The inventory was accepted by the executors, showing the financial condition of the partnership at the date upon which it was taken. This statement showed, and it was true, that on February 19, 1920, the partnership was amply solvent, so considered by H. E. Brewer and the other executors of Ricks. The business conditions in Eastern North Carolina, at that time, were very prosperous.
(2) After the death of Ricks the business of H. E. Brewer & Co. was continued and operated in the same way and place as before his death. No change whatever was made in the name or manner of conducting the business after, or by reason of, the death of Ricks. Orders were taken; goods and merchandise bought and sold on credit and for cash. No change was made in bookkeeping. Negotiable paper was made, and notes executed prior to the death of Ricks were renewed, in the firm name. This was done by H. E. Brewer, or under his immediate direction.
The business of the partnership was conducted by Brewer, after the death of Ricks, with no idea or purpose of liquidation, but for the purpose of profit. On February 19, 1920, a large number of the customers of the firm had not paid in full their accounts contracted during the year 1919, amounting to approximately $90,000. By carrying on the business another year and furnishing them-customers, farmers in the surrounding section—there may have been a better chance of collecting these 1919 accounts. There was no necessity for (289 F.) continuing the business during the year 1920, in order to save the assets of the partnership.
Prior to the death of Ricks, the partnership had entered into certain contracts with various farmers and others, about 75 in number, to sell and furnish them goods, merchandise, food, and feedstuffs, supplies, and fertilizers, during the year 1920. The partnership, prior to February 19, 1920, had purchased goods and merchandise which had not been delivered at said date. The stock of merchandise on hand and purchased, but not delivered, was not sufficient to supply the persons whom it had contracted to furnish during the year 1920.
The course pursued by H. E. Brewer, after the death of Ricks, as found and stated by the referee, was with the knowledge of the other executors of R. H. Ricks, and without any protest or dissent on their part, until the early part of 1921. Brewer was not required, nor did he give any bond, as surviving partner, as provided by the North Carolina statutes. Consol. Statutes, § 3277.
With the knowledge and consent of the executors of R. H. Ricks on March 6-22, 1920, a notice of the dissolution of the partnership of H. E. Brewer & Co. and notice to creditors to file their claims with the surviving partner was published by H. E. Brewer in the Telegram, a daily paper published at Rocky Mount, N. C. Said notice also contained the statement that the business would be conducted as theretofore, under the same name, by H. E. Brewer and W. W. Ricks as copartners. No specific notice was mailed to each creditor. Many of the larger creditors, Norfolk National Bank, Southern Cotton Oil Company, and F. S. Royster Guano Company, had actual notice of the death of R. H. Ricks.
On May 28, 1920, H. E. Brewer bought the interest of Wilson W. Ricks in the partnership assets, and notice of such purchase was published, and thereafter Brewer conducted the business under the same name and in exactly the same manner as formerly. No specific. notice of this change was sent to creditors, and there is no evidence that creditors generally had knowledge of such change.
During the late fall of 1920, and early spring of 1921, H. E. Brewer began to experience financial difficulties, and on February 16, 1921, by his consent, but through the initiation of the other executors of R. H. Ricks, L. B. Aycock, his former bookkeeper, was appointed collector of the assets of the partnership by an order of the superior court of Nash county, N. C. On said date, H. E. Brewer & Co. as a partnership and H. E. Brewer individually were insolvent. April 23, 1921, an involuntary petition in bankruptcy was filed against H. E. Brewer, and after a hearing upon said petition he was on September 7, 1921, adjudged a bankrupt and the cause referred to Joseph B. Cheshire, Jr., referee.
The property of H. E. Brewer, at the date of his adjudication, consisted of real estate purchased and paid for by the partnership and conveyed to the partners, trading as H. E. Brewer & Co. This property was owned by the partnership prior to, and at the death of, Ricks (a list of which is made by the referee). This property was sold by the trustee for approximately $106,000. The stock of goods and mer
chandise, consisting of stock on hand at the time of the death of Ricks, was sold by the trustee for approximately $13,000. The amount in the hands of L. B. Aycock, collector, consisting of the proceeds of goods sold and collections made prior to the adjudication, approximated $20,000. The trustee has collected from book accounts, bills receivable, etc., approximately $35,000. The stock of goods consisted of goods, etc., on hand at the date of the death of Ricks, which had not been sold prior to the bankruptcy, and the goods purchased by Brewer subsequent to the death of Ricks. It is impracticable to ascertain what portion of the stock represents either of the classes.
The total indebtedness of H. E. Brewer & Co. and H. E. Brewer, at the date of the adjudication, is approximately $500,000, a large portion of which was contracted by the partnership prior to February, 1920. The proceeds of the sale of the property owned by the partnership and collections made from the accounts and notes, which vested in H. E. Brewer and Wilson W. Ricks as legatees of R. H. Ricks, will not be sufficient to pay the indebtedness outstanding against the partnership on February 20, 1920.
For the purpose of distribution of the assets derived from the sales of the property, and collections made from the notes and accounts belonging to the partnership on February 20, 1920, the referee made the following classification of the indebtedness, as shown by proof of claims :
(1) Debts contacted by the partnership prior to February 20, 1920, including debts represented by notes signed by H. E. Brewer, in name of H. E. Brewer & Co., for renewal of notes executed by the partnership prior to February 20, 1920.
(2) The debts of the Southern Cotton Oil Company. (3) Debts contracted by H. E. Brewer after February 20, 1920.
A list of the indebtedness, showing date upon which each debt was contracted and renewal notes executed, was filed by the referee. The purpose of the classification was to direct the trustee of the order in which the proceeds of the partnership property should be applied in payment of the indebtedness of H. E. Brewer & Co., prior to the death of R. H. Ricks, and of H. E. Brewer subsequent thereto. To this classification R. L. Huffines, trustee of the Norfolk National Bank, the Southern Cotton Oil Company, and Wilson W. Ricks, filed petitions for review, and, pursuant thereto, the referee certified his findings of fact and conclusions of law to the judge.
The foregoing findings of fact are applicable to the debts of all of the creditors. Specific findings of fact, which will be dealt with later, were made as to the debts of the Southern Cotton Oil Company, Wilson W. Ricks, and the renewal of notes of the partnership. The petitions were argued before me and the contentions of the trustee, the creditors of H. E. Brewer, and the executors of R. H. Ricks clearly set forth in the oral arguments and briefs.
Petitioners for review concur in making the contention that, by the death of Ricks and the probate of his will, and course pursued by the executors, the title of R. H. Ricks in the partnership assets vested in H. E. Brewer and Wilson W. Ricks, free from any lien or (289 F.) trust for the partnership creditors or the executors of R. H. Ricks; that by the purchase by Brewer of the one-fourth interest of Wilson W, Ricks the title to the entire property vested in H. E. Brewer, free from any lien or trust; and that by his adjudication as a bankrupt, and the election of the trustee, his title vested in his trustee, to be applied to the payment of his debts pro rata.
The executors of R. H. Ricks contend: (1) That upon the death of Ricks the title to the partnership property vested in H. E. Brewer, as surviving partner, with the powers and duties incident thereto. (2) That the legatees, H. E. Brewer and Wilson W. Ricks, took the legacies under the will, with a trust imposed for the payment of the debts of the partnership, and they are entitled to have this trust executed by the trustee of H. E. Brewer in this proceeding.
The petitioners for review contend: That, upon the death of Ricks and the probate of his will, followed by the qualification of the executors and the course pursued by them in regard to the partnership property, the executors assented to the legacy, vesting in Brewer and Wilson W. Ricks the complete legal title and actual possession of the partnership property. That the executors had no further interest in, or control over, the property. That the creditors of the partnership had no lien upon, or right to subject, the partnership property to the payment of their debts. That the estate of R. H. Ricks continued to be liable for the payment of the debts as it was prior to his death.
It is elementary law that by the death of R. H. Ricks the partnership was dissolved, and, unless the bequest of his interest in the partnership property operated to vest the title of Ricks' interest in Brewer and W. W. Ricks, as' legatees. Brewer took and held the title as surviving partner. Bank v. Hollingsworth, 135 N. C. 556, 47 S. E. 618, and authorities cited.
"It is common learning that the death of a partner, in the absence of any stipulation in the articles of copartnership to the contrary, works an immediate dissolution; that the title to the assets vests in the surviving partner, impressed with a trust to close up the partnership business, pay the debts, and turn over to his personal representative the share of the deceased partner.” Walker v. Miller, 139 N. C. 448, 52 S. E. 125, 1 L. R. A. (N. S.) 157, 111 Am. St. Rep. 805, 4 Ann. Cas. 601 ; Consol. Stat. N. C. $ 1735.
So it is provided by the statute (Consol. Stat. N. C. $ 3277) that, upon the death of any member of the partnership, the surviving partner shall, within 30 days, execute before the clerk of the superior court of the county, where the partnership business was conducted, a bond payable to the state of North Carolina, with sufficient surety, conditioned for the faithful performance of his duties in the settlement of the partnership affairs, etc. And, upon failure of the surviving partner to execute the bond so provided for, the clerk shall, upon the application of any person interested in the estate of the deceased partner, appoint a collector, who shall be governed by the same law governing administrators, etc. Section 3278. The surviving partner, together with the personal representative of the deceased partner, shall, within 60 days after the death of the deceased partner, make