Case Name: COMSTOCK v. McDONALD
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1904-05-17
Citations: 136 Mich. 489
Docket Number: Docket No. 77
Parties: COMSTOCK v. McDONALD.
Judges: Grant and Montgomery, JJ., concurred with Hooker, J.
Reporter: Michigan Reports
Volume: 136
Pages: 489–503

Head Matter:
COMSTOCK v. McDONALD.
Partnership — Sale of Partnership Realty — Secret Bonus for Assent" to Sale — Firm Assets.
Where the administrator and widow of a deceased partner refused to consent to a sale of partnership real estate at a price agreed to by the surviving partners, but later entered into a secret agreement with the prospective purchaser whereby he was to pay the agreed price for the property, and an additional sum to the administrator and widow in consideration of their assent, and the sale was completed accordingly, held, that the sum paid to the administrator and widow must be treated as, an asset of the copartnership, and accounted for by the administrator to the surviving partners. Moore, Q. J., dissenting.
Appeal from Wayne; Carpenter,. J.
Submitted November 18, 1903.
(Docket No. 77.)
Decided May 17, 1904.
Bill by Andrew W. Comstock and William B. Com-stock, surviving partners of the firm of Comstock Brothers, against George R. McDonald, administrator of the estate of Joseph B. Comstock, deceased, and others, for an accounting. From the decree rendered, complainants appeal.
Modified.
Frank Fmerick, for complainants.
McDonell & Hall and Elliott G. Stevenson, for defendants.
Rehearing denied October 27, 1904.

Opinion:
Hooker, J.
The complainants and a brother were co-partners in a lumber business, the latter having a ninth interest. The copartnership was dissolved by the death of-the brother, and the bill in this cause was filed by the surviving partners for an accounting and some other relief unnecessary to further mention. During the pendency of the cause, one Ryan sought to purchase certain timber limits in Canada belonging to the firm, and had negotiations whereby it was ascertained and agreed that the complainants would consent to an option upon said property for $500,000 if the widow and administrator of the deceased brother would do so. An interview was had with them, and they refused to consent, expressing the opinion that the property was worth much more, and the complainants informed Ryan that the deal could not be made. A day or two later, Ryan and the administrator made a written contract whereby it was agreed that the representative of the deceased brother would consent to a sale of said property for $500,000, in consideration of the payment to the administrator by said Ryan of the sum of $44,444.45 upon the consummation of said sale. The contract is as follows:
" Articles of agreement, made and entered into this 18th day of September, 1899, by and between M. Louise Com-stock, of Alpena, Michigan, widow of Joseph B. Com-stock, deceased, and guardian of his infant children, and George R. McDonald, administrator of said estate, parties of the first part, and Peter Ryan, of the city of Toronto, Ontario, party of the second part, witnesseth:
" Whereas, the party of the second part represents to the parties of the first part that he is the owner and holder of an option from Andrew W. Comstock and William B. Comstock, of said city of Alpena, survivors of the firm of Comstock Brothers, of said city, to purchase the property known as the 'Canadian Limits,' situated in and comprising the townships of Trill, Poster, Nairn, and Ermatinger, in the Dominion of Canada, for the sum of five hundred thousand dollars, according to and under the conditions named in said option; and
" Whereas, the said estate of Joseph B. Comstock is interested in, and the owner of an undivided one-ninth interest in, said property and limits, and is desirous of and willing to sell the same for what the parties of the first part deem a suitable price for such interest, which suitable price the said parties deem to be one hundred thousand dollars ($100,000) for such one-ninth interest:
" Now, therefore, the parties of the first part hereby agree that in consideration of the sum of forty-four thous- and four hundred and forty-four and forty-five one hundredths dollars ($44,444.45), to be paid to them by the party of the second part, in addition to the sum of five hundred thousand dollars ($500,000) to be paid the said Andrew W. Comstock and William B. Comstock under such option, the same to be paid at the time and in the manner hereinafter set forth, they will and do hereby assent to such sale, and will use reasonable and speedy endeavor to secure, from the circuit court in chancery for the county of Alpena, an order permitting the said Andrew W. Comstock and William B. Comstock and said estate to sell the said property and limits.
"The party of the second part hereby agrees that, in consideration of the premises, he will pay to and into the Bank of Montreal, of the city of Toronto, Ontario, to the credit of said M. Louise Comstock, guardian and widow, the said sum of forty-four thousand four hundred and forty-four and forty-five hundredths dollars ($44,444.45) concurrent with the transfer of said property, limits, and the licenses therefor, and will pay to said Andrew W. Comstock and William B. Comstock the further sum of fivehundred thousand dollars ($500,000) in addition thereto, according to the terms and in the manner provided in such option; the said money so paid into such bank to be and become the property of said M. Louise Comstock, as widow and guardian, at once upon the transfer of the title of such property and limits to the said party of the second part.
" In witness whereof,' the parties have hereunto set their seals and signed this agreement the day and year aforesaid.
"Mrs. M. Louise Comstock,
" Widow and Guardian.
"George R. McDonald,
" Administrator.
" McDonell & Hall,
' ' His Attorneys.
" Peter Ryan."
The option was thereupon given, and read as follows:
"Articles of agreement, made this first day of September, 1899, by and between Comstock Brothers, of Alpena, Michigan, of the first part, and Peter Ryan, of the city of Toronto, Province of Ontario, party of the second part, as Eollows:
" Said first parties agree to sell the timber berths numbers 94, 98, 99, and 102, known as the townships of Nairn, Foster, Trill, and Ermatinger, north shore of. Lake Huron district, Province of Ontario, for the sum of five hundred thousand dollars ($500,000) in lawful money of the Dominion of Canada, with New York exchange, payable as follows: The sum of ten thousand dollars ($10,000) cash in hand, the receipt of which is hereby confessed and acknowledged, and the balance, four hundred and ninety thous- and dollars ($490,000), in New York exchange aforesaid, on or before the first day of November, 1899, at the office of the Crown Land Department, in the Parliament Buildings, in the city of Toronto. Said parties of the first part further agree that they will transfer said licenses for the above timber berths at the time and place and concurrent with the payment of said four hundred and ninety thous- and dollars ($490,000).
" Said party of the second part agrees to purchase said property, and pay therefor the sum of five hundred thous- and dollars ($500,000) at the time and in the manner above stated.
' ' It is, however, further agreed that said second party may,' at any time before said first day of November, 1899, surrender to said parties of the first part this contract, by delivering the same, canceled, at the office aforesaid, and, in the event of said contract being surrendered, said parties of the first part shall keep and retain the said sum of ten thousand dollars ($10,000) as their own money, in consideration of their releasing said party of the second part from his obligations under this contract.
" If said party of the second part shall fail to pay said sum of four hundred and ninety thousand dollars ($490,-000) at the time, place, and manner herein agreed, then said failure shall be regarded by both parties hereto as an irrevocable election on the part of the party of the second part to surrender and abandon this contract, and this contract shall, upon said failure, become ipso facto void, and said ten thousand dollars ($10,000) shall be retained by the first parties for and as the consideration above stated.
"In witness whereof, the parties hereto have signed this contract, on the year and day first above written, in duplicate.
"Comstock Bros.
" Peter Ryan.
" Witnesses: De Yere Hall.
"Geo. Wm. Moore."
The following order was. entered in this cause, then pending, by consent, viz.:
"At a session of said court held at the court-house in the city of Alpena, in said county, on the 2d day of October, A. D. 1899.
"Present: Hon. R. J. Kelley, Circuit Judge.
"On reading and filing of a petition in this cause by the complainants, defendants consenting thereto, praying for leave to sell and transfer so much of the copartnership, assets in said cause as are known and described as the timber berths or limits numbers 94, 98, 99, and 102, comprising the townships of Trill, Ermatinger, Foster, and Nairn, on the Spanish river and tributaries, in the Province of Ontario, to Peter Ryan, of the city of Toronto, Ontario, for the sum of $500,000, after consideration thereof, it appearing to the court that the complainants, under the name of Comstock Bros., by and with the consent of said defendants and their counsel, have entered into a contract and agreement, with the said Peter Ryan to sell and dispose of such berths and limits for said sum, and that the title to the same stands in the name of. Com-stock Bros., and that said Comstock Bros, consists of the complainants herein and of Joseph B. Comstock, deceased, who is represented by the defendants herein, it is hereby ordered and decreed that the parties hereto be, and they are hereby, authorized to make a sale thereof for an amount not less than said sum, and that said complainants and defendants join in the execution of the papers and documents transferring and selling said berths and limits.
" It is further ordered and decreed that the interest of the said complainants in and to said limits is eight-ninths part thereof, and that they are entitled and authorized to receive such proportionate sum of the amount for which the same shall be sold to the said Peter Ryan, and that the interest of the defendant M. Louise Comstock, in her individual right and as guardian of said minors, in and to said limits, is one-ninth part thereof, and that she, in her individual right and as such guardian, is entitled and au-. thorized to receive such proportionate sum of the amount for which the same shall be sold, under this order, to the said Peter Ryan; and that upon the payment to the complainants by the said Peter Ryan of eight-ninths of the amount for which the said limits shall be sold to him, and the payment to the said M. Louise Comstock, in her individual right and as such guardian, of one-ninth of the amount for which said berths and limits shall be sold to the said Peter Ryan, and not less than the sum of ($55,-555.55) fifty-five thousand five hundred fifty-five dollars and fifty-five cents, that the complainants and defendants herein are hereby authorized to convey and transfer the said berths and limits.
" It is further ordered and decreed that of the said sum of ($55,555.55) fifty-five thousand five hundred and fifty-five dollars and fifty-five cents the said M. Louise Comstock is hereby required and ordered to deposit in her name, individually and as such guardian, the sum of ($20,000) twenty thousand dollars in the Bay City Bank, of Bay City, Michigan, and the further sum of ($20,000) twenty thous- and dollars in the Wayne County Savings Bank, of Detroit, Michigan, and the further sum of ($15,555.55) fifteen thousand five hundred fifty-five dollars and fifty-five cents in the First National Bank of said city of Detroit, there to remain until the further order of this court: Provided, that so much of this order as relates to the payment of said sum to the said M. Louise Comstock shall, as against the said Peter Ryan, be satisfied by the payment to her of the sum of ($55,555.55) fifty-five thousand five hundred fifty-five dollars and fifty-five cents to the said M. Louise Comstock at the office of the Crown Lands Department, in the Parliament Building, in the city of Toronto, Ontario.
"It is further ordered and decreed that the aforesaid described copartnership asset, involved in this cause, be, and the same is hereby, eliminated from the other assets in controversy in said cause, and by this order and decree the same shall be treated as if a partition thereof were made of the same before sale thereof. This consent order and decree is in no wise to affect the further accounting and determination of the rights of the parties as to the remainder of the property and assets involved in this suit."
The purchase was made by Ryan, and the defendant •administrator was paid the one-ninth share of the purchase price, and also the sum of $44,444.45, provided for in his contract with Ryan. It seems to be admitted that the arrangement between Ryan and defendant, whereby this one-ninth interest was made to produce $44,444.45 more than an equal share of the purchase price, was kept secret, and did not come to the knowledge of the complainants until some time after the transaction was closed and the sale confirmed. Upon the hearing of this cause, the matter was brought to the attention of the circuit court, which, acting under direction of this court (see 126 Mich. 155 [85 N. W. 579]), considered the question of the accounting; and a claim was made by complainants that this sum of $44,444.45 should be treated as an asset belonging to the copartnership. The circuit court held otherwise, and the complainants have appealed.
Counsel for the defendants say that a dissolution of a copartnership by death makes the surviving partners trustees for the representatives of the deceased, but that there is not a similar reciprocal relation, and that the representative, having none of the authority of a copartner, has none of the obligations of such. If it be admitted that the representative has no active share in the settling of the partnership business, we think that it does not follow that he owes no duty toward his intestate's copartners, but is at liberty to seek the furtherance of his own interests to the injury of theirs. If it is true that he may sell his interest in each individual piece of property owned by the firm (which we do not affirm), and captiously insist on a bonus over and above his share of the proceeds of each piece of property that the surviving partners may seek to sell, enforcing the claim by a denial of their authority to sell, and threats to prevent it by litigation, it is not difficult to see that serious embarrassment, if not loss, to the others would result.
In the present case the defendants appear to have been correct in the opinion that the complainants were offering this property at too small a price, and no fault can be found on account of their objection to the sale. The sequel has proved that the property was worth much more. Their opinion was confirmed by Ryan's willingness to pay a large additional sum. Had this been communicated to the complainants, it is not improbable that it would have resulted in their selling the property for a sum mpre nearly approximating its value; but, instead of this, defendant acted upon the assumption that he might sell his assent to the contract to sell for $500,000, and thus keep all of the additional price offered, to the exclusion of the other interested parties, who were allowed to complete the sale in the honest belief that the price was $500,000, whereas in fact it was $544,444.45.
The theory that this was a sale of the defendant's interest is fallacious. It is plain that it could not have been sold to Ryan, who wanted the entire property or none; and the agreement shows that the consent was to the sale of all, and payment of the $44,444.45 was conditional upon it. It is not difficult to see that the defendant might not have been able to realize as much out of the property in any other way; for it is shown that Ryan would not have given $900,000 for the property, and a sale for anything less than that sum would have made defendant's legitimate share less than $100,000. There was, therefore, a premium upon secrecy, both for Ryan and the defendant. Ryan bought the property for a low price, while defendant got the benefit of a high price; and this was accomplished by leading the complainants to believe the property was going for $44,444.45 less than the real price. If we are to say that the defendant in this case had the right to make such a contract as this, it is not easy to see why any copartner, not actively engaged in settling the partnership affairs, or his representatives or assigns, may not do the same; and that would mean that it is legitimate for copartners and their representatives to speculate out of co-partnership assets at the expense of their copartners, and the consequences can readily be imagined.
We must treat this property as sold for the full amount received for it, and the bonus received by defendant as an asset of the firm, to be accounted for by defendant. In other respects the decree is affirmed. The complainants will recover costs of this court. The balance due complainants is a matter of computation, and will be fixed in the decree.
Grant and Montgomery, JJ., concurred with Hooker, J.