Opinion
May, 1904.
Charles H. Luscomb, for the plaintiffs.
Charles H. Otis, for the defendant.
Upon the agreed statement from which we have, in the foregoing summary, extracted only such facts as we deem the more important and essential for the determination of the questions involved, the plaintiffs contend that the share of the estate of Samuel N. Pike in the proceeds of sale of the said partnership land passed under his will to his trustees as real estate and not as personal property; while on the other hand, the defendant contends that the proceeds of sale of said copartnership lands passed under the will of Samuel N. Pike as personal property. Differently stated, therefore, the question is as to whether the estate or interest which Samuel N. Pike had in the copartnership lands at the date of his death was real or personal property.
Few questions have received more extensive discussion both in this country and in England than the one relating to the interest which a partner has in real estate owned by the partnership at the time of his death. To discuss it here would serve no useful purpose in view of the clear and forcible way in which the rules have been formulated and the doctrine established, so far as this State is concerned, in the two leading cases of Fairchild v. Fairchild ( 64 N.Y. 471) and Darrow v. Calkins (154 id. 503).
In the former the rule is thus given: "In this country real estate belonging to a partnership for the purpose of paying the debts and adjusting the equities between the members of the firm, is treated as personal property, and what remains is considered and treated as real estate which would go to the heirs of the partners according to their interests."
In the case of Darrow v. Calkins ( supra) the doctrine is thus ably stated by Chief Judge ANDREWS: "The clear current of the American decisions supports the rule that in the absence of any agreement, express or implied, between the partners to the contrary, partnership real estate retains its character as realty with all the incidents of that species of property between the partners themselves and also between a surviving partner and the real and personal representatives of a deceased partner, except that each share is impressed with a trust implied by law in favor of the other partner, that, so far as is necessary, it shall be first applied to the adjustment of partnership obligations, and the payment of any balance found to be due from the one partner to the other on winding up the partnership affairs. To the extent necessary for these purposes the character of the property is in equity deemed to be changed into personalty. On the death of either partner where the title is vested in both, the share of the land standing in the name of the deceased partner descends as real estate to his heirs, subject to the equity of the surviving partner to have it appropriated to accomplish the trust to which it was primarily subjected. The working out of the mutual rights which grew out of the partnership relation does not seem to require that the character of the property should be changed until the occasion arises for a conversion and then only to the extent required. * * * But the general principles to which we have adverted are those applied by courts of equity in determining the character and incidents of partnership real estate in the absence of any agreement, express or implied, between the partners on the subject. It is, however, generally conceded that the question whether partnership real estate shall be deemed absolutely converted into personalty for all purposes or only converted pro tanto for the purpose of partnership equities may be controlled by the express or implied agreement of the partners themselves and that where by such agreement it appears that it was the intention of the partners that the lands should be treated and administered as personalty for all purposes, effect will be given thereto. In respect to real estate purchased for partnership purposes with partnership funds and used in the prosecution of the partnership business, the English rule of `out and out' conversion may be regarded as properly applied on the ground of intention, even in jurisdictions which have not adopted that rule as applied to partnership real estate acquired under different circumstances, and where no specific intention appeared. The investment of partnership funds in lands and chattels for the purpose of a partnership business, the fact that the two species of property are in most cases of this kind so commingled that they cannot be separated without impairing the value of each, has been deemed to justify the inference that, under such circumstances, the lands as well as the chattels were intended by the partners to constitute a part of the partnership stock, and that both together should take the character of personalty for all purposes; and Judge DENIO in Collumb v. Read ( supra) expressed the opinion that to this extent the English rule of conversion prevailed here. That paramount consideration should be given to the intention of the partners when ascertained is conceded by most of the cases. (See Hoxie v. Carr, 1 Sumner, 183; Fall River Whaling Co. v. Borden, 10 Cush. 462; Collumb v. Read, supra; Parsons on Partnership, § 267.)"
The authorities in this State, therefore, go to the extent of holding that the question of whether partnership real estate shall be deemed absolutely converted into personalty for all purposes, or only converted pro tanto, may be controlled by the express or implied agreement of the partners themselves, and it remains for us to determine whether, upon the submitted facts, an agreement, express or implied, has been shown under which the lands purchased by the partners were to be deemed personal property, because, in the absence of such an agreement under the general rule, they would preserve their incidents and characteristics — except for partnership purposes — of real estate.
It appears that Samuel N. Pike, a year after the making of his will and the disposition of his personal estate, entered into the partnership agreement which involved a large investment of his personal property, the copartnership having paid for the land $262,576.25, and for improvement $444,948.42, of which the share contributed by him was over one-half. The investment for improvement, it will be noticed, was vastly greater than the investment in the land itself, and there is force in the suggestion that an intention to convert might be implied even in the absence of an express agreement to that effect. It is unnecessary, however, for us to have the decision of the case turn upon an intention to be implied from the fact of the larger investment made in the improvements, because we think the facts establish the existence of an express agreement between the parties that the lands should be held and treated for all purposes as personal property.
It was agreed between the parties that the lands were to be purchased in the name of Samuel N. Pike, and sold for their joint account, and "the profits and proceeds of the sales thereof" divided. The lands were "to be reclaimed and sold and converted into money, and the proceeds therefrom and profits or losses" were to "be divided among said partners in proportion to their several interests therein" — that is, in proportion to their contributions of capital. The terms of the agreement under which the lands were held were also expressly adjudicated in the chancery suit in New Jersey, to which all the parties in this action were parties. And, as indicative of the view entertained by one of the partners, we have, in the allegations of the bill of complaint filed in that suit by George W. Kidd, statements which, if regarded as true, show clearly that there was an express agreement that the lands, the title to which were taken by Pike, were to be deemed personal property.
Such an agreement when established, under all the authorities, would equitably convert the lands so purchased into personal property "out and out" for all purposes, including its devolution to the personal representatives of the deceased partner. The bill of complaint in the chancery suit alleges that "it was also further agreed * * * that the lands so to be purchased and reclaimed should always be personal property, and should be sold and converted into money, and the proceeds thereof divided * * * among the surviving partners and the legal representatives of the deceased partner or partners." And the decree in that suit adjudges that the residue of the partnership lands held in the name of Samuel N. Pike at the time of his death "are and have been the capital, assets and stock of the said partnership; * * * that the said partnership was dissolved by the death of the said Samuel N. Pike, and that thereupon the right and duty of * * * disposing of said partnership assets, converting the same into money and dividing the proceeds, * * * devolved upon the said surviving partners." And it was also adjudged therein that the lands in question descended to Lawrence Pike, the oldest son, as heir at law of Samuel N. Pike, free and clear of any dower right of Ellen M. Pike, "and is now held by the said Lawrence Pike in trust for the said partnership," and that the surviving partners "are entitled to have the legal estate in said lands conveyed to them to enable them to settle up the said partnership affairs, sell and convert the said lands into money, and divide the proceeds among the parties interested in said partnership, according to their several and respective interests therein."
Pursuant to the terms of that decree the deeds and releases were executed, and in July, 1901, the lands were sold and converted into money and the proceeds divided as personal estate.
We think that this disposition was right, because, taking the facts as expressly stipulated, it follows, as in effect it was adjudged by the Court of Chancery of the State of New Jersey, that under the agreement it was the evident intention of the parties that the lands purchased and improved should for all purposes be deemed to be personal property.
The question which has been presented for our determination should, therefore, be answered in favor of the view contended for by the defendant.
Judgment ordered for the defendant, with costs.
PATTERSON, HATCH and LAUGHLIN, JJ., concurred.
Judgment ordered for defendant, with costs.