1. The last will and testament of A. directs that his interest
in a firm whereof he was a member at the time of his death "be
continued therein, and be chargeable for its debts and
liabilities," but that his "other property shall not be so
chargeable."
Held that the general assets of his estate
are not bound for the debts of the firm which were contracted
subsequently to his death.
2. The profits arising from that interest were, pursuant to the
will, paid from time to time, the firm being then free from debt,
and its capital undiminished. It afterwards became bankrupt.
Held that the legatees receiving them were not liable to
the assignee in bankruptcy therefor.
The facts are stated in the opinion of the Court.
MR. JUSTICE MILLER delivered the opinion of the Court.
W. H. Walker, who was a large dealer in liquors in partnership
with his son Frederick, made his will in July, 1870. One of the
clauses of the will provided for the continuance of the partnership
and the conduct of this business after his death.
It is in this language:
"It is my wish that my son Frederick carry on the business of W.
H. Walker & Co. in that name and style, and in my storehouse
where it is now carried on, giving him power to change the place
until my youngest child living to be twenty-one years of age
arrives at that age, or for a shorter time if he does not find it
profitable. To that end, all my capital and interest in said
concern shall be continued therein, and shall be chargeable for its
debts and liabilities; but my other property shall not be so
chargeable while Frederick carries on said business; my share shall
pay the salary of an efficient man to aid him therein, or he shall
have compensation for his services as to and from my share. Agents
and employees of the concern are to be paid by it. Frederick is not
to be charged with five thousand dollars advanced by me to him on
his coming of age,
Page 103 U. S. 445
and he is to have the privilege to purchase, at a fair valuation
and upon reasonable time, such portion of my share in said concern
and its goodwill as will make his share equal to one-half. What he
may so pay is to be divided as profits of the concern. While my
storehouse is occupied by the concern, it shall pay rent therefor.
The profits of said concern, which shall be ascertained and
declared in the first of January after my death and annually
thereafter, shall be divided between my wife and children, or their
descendants, and others. As my personalty is to be divided among
them when my youngest child living to be twenty-one years of age
arrives at that age, or at the death of my son Frederick before
that time, or when he discontinues the business, my interest in the
concern and its goodwill shall be sold as my executors may direct,
and the proceeds divided, as the profits thereof are to be divided,
with an obligation, if possible, that the business may be carried
on under the old name and style."
The testator died in 1872, and the business was conducted as
directed in the will until Feb. 27, 1877, when the firm, on the
petition of its members, was declared bankrupt by the proper
court.
The appellant Jones was made assignee, and very shortly
afterwards filed the bill in the present case against the devisees
of W. H. Walker's will.
The object of the bill is twofold -- namely to subject the
property of the deceased, which had not been embarked in the
partnership enterprise, in the hands of the devisees, to the
payment of the partnership debts, and to recover from the
defendants money which they had received as dividends out of the
profits of the business after the death of the testator.
In the recent case of
Smith v. Ayres, 101 U.
S. 320, the legal principle lying at the foundation of
the first of these grounds of relief was fully discussed and
determined. It was there held that a testator might authorize the
continuance of a partnership, in which he was engaged at the time
of his death, without subjecting any more of his property to the
vicissitudes of the business than what was then embarked in it, and
that unless he had expressly placed the whole or some other part of
his estate under the operation of the partnership, it would not
Page 103 U. S. 446
be presumed that he had so intended.
See also Burwell v. Mandeville's
Executor, 2 How. 560;
Ex parte Garland, 10
Ves.Jr. 109. In the case before us, the testator declares in
express terms that his capital and interest in said concern shall
be continued therein and shall be chargeable for its debts and
liabilities, but his other property shall not be so chargeable.
We see no reason in the present case for departing from the
principle adopted in
Smith v. Ayres after much
consideration.
If dividends of profits out of the partnership business were
honestly and fairly made, and when paid did not diminish the
capital nor withdraw what was necessary to pay the indebtedness of
the concern, we see no reason why the persons receiving them should
now be called on to refund them.
The will of the testator has a clause authorizing these
dividends. The partnership had a long time to run, and a large part
of his capital was engaged in the business. There were children to
be reared and educated, and it would have been very unreasonable
that all the profits should be continually converted into capital
and that neither these children nor Frederick, the other partner,
should be permitted to receive dividends of profits except on the
condition of a liability to that extent for any future transactions
of the partnership through a period of fifteen or twenty years.
If these dividends had not been declared in good faith nor
really earned, if they had diminished the capital, or if, when they
were made, debts existed which would have been left without means
of payment, the persons sharing in the dividends would probably
have been liable to these creditors to the extent of the money so
received.
But we are satisfied that none of these conditions existed.
The case is mainly one of fact, and the testimony is very full.
We do not think its discussion here profitable or useful. We are
satisfied that at the time the last divided was made the capital of
the company was undiminished, and the firm amply able to pay its
debts. Its misfortunes followed after this.
It very fully appears that the insolvency was brought about
Page 103 U. S. 447
by accommodation endorsements for others, made after the last
dividend was paid; that the firm, but for this, would have remained
solvent, and that in regard to this none of the defendants were to
blame except Frederick, who, being a full partner, is liable
personally for all the debts of the firm.
An important matter in the case is a stipulation of the parties
to the suit that all the debts owing by the firm were contracted
subsequently to the declaration and payment of all the dividends,
and none of the debts of the firm was in existence at the time
these profits were declared and paid.
No creditor whose debt was in existence when these dividends
were made was injured. All the debts then existing have been paid.
What right had subsequent creditors to reclaim these dividends who
had no interest in the matter when they were paid? These
defendants, except Frederick, were not partners. Their money was in
the concern, and they received dividends instead of interest.
We repeat that there is no evidence of fraud or intentional
wrong.
Decree affirmed.