[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 444
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 445
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 446 In Stewart v. Robinson (115 N.Y. 328), an action in which was involved the effect of the partnership agreements between Colwell and Hepworth upon the right of Hepworth to continue as survivor the partnership business after the death of Colwell, and upon the liability of the assets of his estate outside of the firm business to be charged with the debts created by the survivor after Colwell's death, this court passed upon several questions material to the decision of the present appeal. It was held in that case that the partnership ended with the death of Colwell; that Hepworth as survivor could not thereafter bind Colwell's estate outside of his interest in the assets of the late firm; that the will of Colwell did not by its terms authorize his executors and trustees to embark in the partnership business with Hepworth, and they had not done so, and, therefore, no new partnership was created; that whether the agreement between Colwell and Hepworth for the continuance of the business of the firm for five years after the death of either partner was or was not binding upon the estate of Colwell, if the estate had chosen to resist it at the outset, it was not unlawful for the executors and trustees to acquiesce in it, and await for five years the winding up of its affairs; that in such case only the capital and property which the deceased partner had put into the firm business could be compulsorily continued in it after his death; that the survivor from the moment of Colwell's death became the sole and absolute owner of the assets of the late firm, and was charged with the duty of winding up the firm estate and doing all the acts relating to it, and thereupon accounting to Colwell's estate for its proper share of the net proceeds. The court then said "the estate of Colwell had a pecuniary interest in the winding up of the concern, and so that period did not exceed the limitation of five years from their testator's death they (the executors and trustees) were not required to interfere. *Page 447 They might do what they could to promote its successful business."
Nothing appears in the present case tending to impeach the soundness of these conclusions. It follows that the acts of Hepworth as survivor in continuance of the firm business after the death of Colwell, done with the consent of the executors and trustees with the view to promote the success of the business were not unlawful, and that the mortgage in question being one of such acts of the survivor, executed for the purpose and with the consent mentioned, was as between the plaintiff who loaned his money upon it and Colwell's estate, whose representatives approved it, valid and binding according to its terms, and not subject to any defense based upon a repudiation of the consent expressly written in it by such representatives.
As between the parties to the mortgage it was the act of the survivor of the firm holding the title to the property and charged with the administration of the business and assets of the late firm, and, therefore, binding the mortgaged property, and that any lien of Colwell's estate upon the firm property, was thereby postponed to the lien of the mortgage. (Hoyt v.Sprague, 103 U.S. 613.) Equity requires that the debt thus contracted should be satisfied from the mortgaged property before recourse be had to the individual property of Hepworth, also at the same time mortgaged for the same debt.
The discussion would rest here, except that we think it proper to notice some of the positions taken by the appellants. They assail the validity of the provision of the partnership agreement between Colwell and Hepworth, which authorized the surviving partner to continue the partnership business for five years after the death of either partner. They claim that this is in effect a testamentary provision without the statutory formalities of execution, and if that objection is invalid, that its effect is to suspend unlawfully the alienability and absolute ownership of personal property of the estate continued for five years in the business of the survivor. The general question thus presented is an open one in this court. (National Bank of Newburgh v.Bigler, 83 N.Y. 51.) *Page 448
It may, however, be remarked with respect to this partnership agreement, that, if valid, its effect would be, as held inStewart's case, to leave in the partnership business for five years the amount which Colwell had in it at the time of his death. That would practically be a loan of that amount to the survivor for five years, subject to the gain or loss of the business. The survivor would be the sole owner and manager of the business and property, and Colwell's estate would not, beyond the amount thus continued in the business, be liable for new debts. Thus the estate would have an investment in the business, and, as in the case of other investments having five years in which to mature, the executors could sell, or otherwise dispose of it, in the course of due administration whenever opportunity offered. The value of the asset, but not its disposability, would be affected by the conditions of its investment.
But the case does not require us to hold that the contract for the continuance of the partnership business was valid. It was not necessary in Stewart's case, and is not necessary now. The court, in Stewart's case, assumed that a provision for the continuance of the partnership business, if made in the will of the deceased partner, would be valid, and held that if the like provision in the contract of partnership was also valid, its terms must necessarily be construed as strictly as in case of a will, and the court ascertained the measure of that strictness of construction with respect to a will, and applied the same measure to this contract, and thus found that if the contract were valid, its terms did not give creditors, in respect of debts incurred by the survivor after Colwell's death, any recourse against his estate other than the part thereof continued in the firm business, and gave them none against the executors and trustees, for they were not partners in any new firm.
But the court was clear in its expression that, although the executors and trustees might not have been bound by the contract, and might have taken instant steps to compel Hepworth as survivor to wind up the partnership business, they were not bound to do so. *Page 449
This was said in respect of the rights of general creditors, who became such after the death of Colwell, and with the view of showing why their recourse was limited to the firm property and that acquired by the survivor. It was based upon the assumption that the continuance of the business was lawful as to those interested in it, either as lienors or actors, so long as they assented to it.
While the strict duty of the survivor is to wind up the firm business and not to continue it any further than is necessary for that purpose, it is obvious that its continuance is not unlawful as to those who consent to it. It may be beneficial to all parties in interest that it should be continued. But, of course, there are hazards, and the most hopeful prospect of gain may result in loss. In the present case the survivor apparently had the right to continue the business under the firm articles. The executors and trustees apparently thought so. They were vested by the will with the title to the lien of the estate upon the firm business and property. They were authorized by the will to retain without change the testator's investments as they existed at his death. They knew that the business had been prosperous. They were not simply executors charged with administering Colwell's estate, but were trustees holding title to the lien upon the firm assets, and were acting with the view of increasing its value. They were not limited by the restrictions imposed upon executors (Schmittler v. Simon, 101 N.Y. 554), but they had the larger powers of owners of the lien. For their own personal protection they needed to act with prudence and discretion, and the facts just referred to would be pertinent to the consideration of that question, but as between themselves and the other parties to the mortgage they had the legal right as trustees and owners of the lien upon the firm assets to give or withhold their consent to the mortgage. Hepworth held the title to the real estate as survivor, and had the power to mortgage it in aid of the proper business of the survivorship. (Williams v. Whedon, 109 N.Y. 333; Durant v. Pierson, 124 id. 444.) Whether the continuance of the business for a time before *Page 450 winding it up was a proper business, was, so far as the plaintiff's rights were involved, to be determined by the survivor and the trustees. By executing the mortgage they determined it in plaintiff's favor, and as between Hepworth and Colwell's estate they determined it in favor of Hepworth.
The effect of the transaction was that the mortgage became a lien upon the mortgaged property in preference to the lien of Colwell's estate, and to the extent of the moneys to be realized upon it in exoneration of Hepworth's individual property.
The judgment should be affirmed, with costs.
All concur.
Judgment affirmed.