Court Opinion

ID: 5213666
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:18:19.131316+00
Date Added: 2024-06-11T08:27:24.184317
License: Public Domain

Clarke, J.:
Appeal from an interlocutory judgment overruling demurrer to two separate and complete defenses, and, the samefacts being pleaded as partial defenses, to said partial defenses as insufficient in law upon the face thereof,
The complaint alleged that. Philip Plerzig, the decedent, and Simon, his brother, had been engaged in a copartner-ship in dealing in,'importing and exporting furs under the name of Herzig Brothers from 1871 to 1903 ; that Philip died on September 14, 1903, leaving a will under which the plaintiff was appointed executrix and the defendant executor; that the defendant Simon Herzig, as surviving partner of the said firm of Herzig Brothers, has taken no steps toward the liquidation.of its affairs, but, on the contrary, continued its business in the same manner as if the said partnership had not been terminated by the death of the said-Philip ; that on or about December 1, 1903, he entered into a copartnership agreement with his sons George B. and Leo S. for the continuance of said business, admitting Isidore Weinberg as a partner on or about December 26, 1906 ; that the said business has been continued by the said parties as partners since that time oh the same premises, under the same n.ame. of Herzig Brothers, .and under a lease madé .to the former, partnership, or a renewal thereof, and with substantially all the "property and assets of that partnership ; that they have converted such property and assets to their own use, and are now subjecting the same to the. peril and risk of what they claim to be their own business in entire disregard of the rights of the said estate and of the duties and obligations of the said. Simon Herzig as an executor thereof'and as surviving partner of the said .former partnership ; that the defendant Simon Herzig claims that the value of the assets of the said partnership at the time of the death of the said Philip Herzig, othér .than its good will and. leasehold interest, did not exceed the sum of $241,291.38 over and above all liabilities; whereas the tangible assets of the firm, excluding the good will, had a year before been in the neighborhood of $300,000, and were on December 1, 1907, in excess of $500,000 ; and he has continuously refused to' concede that the said estate has any interest in the partnership name .or good will, but wrongfully claims that the good will and right to use such name passed to himself exclusively, as surviv-. *143ing partner, and that the interest of the said estate in the good will of the said partnership is of no Yalue,' whereas such interest is worth at least $500,000. Plaintiff demands judgment. that the defendant Simon Herzig account to the plaintiff for the said partnership property, including its good will; that a receiver of the property of the said partnership be appointed ; that the defendant be restrained by in junction from interfering with the said property, and that he account to the plaintiff for all profits made by him in the said business; that the said partnership property and good will, including the right to use said firm name of Herzig Brothers, be sold, and after payment of the partnership debts, the.proceeds be divided in proportion to respective; interests therein between Simon Herzig and the estate of Philip Herzig, deceased; that the defendant be restrained by injunction from using the firm name of Herzig Brothers unless he shall duly purchase the interest of the said estate in the said name.
As I read this complaint an accounting is demanded, not of the general affairs of the- copartnership from the time of the commencement thereof to date, but an accounting is demanded by the executrix of the deceased partner from the surviving partner of the assets of the partnership which came into his hands as such surviving partner, including the good will which is (alleged to be worth $500,000, which allegation of fact, for the purposes of this controversy, is admitted by the answer, there being no denials in the separate complete or partial defe.nses.
The first defense demurred to alleges that on. or about the 1st day of December, 1902, the said Philip Herzig caused the partnership accounts of the said firm of Herzig1 Brothers, as' between the firm, and himself and as between the firm and the defendant, from the commencement of the partnership up to and including the 1st day of December, 1902, to be made and stated in the books of the firm, and caused the balance to be ascertained and struck in the account of the said partners under that date; that a balance of $188,053.72 was found due from the partnership to the said Philip Herzig and the defendant, and that the said balance was struck in the account so stated and settled, and was carried by the partners to the credit of the capital account upon the ledger for the year succeeding December 1,' 1902, as by reference to the account so stated, bah *144aiiced and settled on the ledger fully appeared; that by such statement and settlement of account the sum of $94,026.86 was found to be due to the said Philip Herzig, together with the sum of $8.1 j, being one-half of the undivided profitsthat thereto annexed and marked Exhibit A was a true copy of the account stated on the ledger and that the account so stated and balanced wa§ true and just, and that said Philip acquiesced in the justice and accuracy of said account down to the time of his death.
The position of the defendant is that the complaint asks a general accounting of the partnership and having "alleged in his answer an account stated as of a'given date, that said account was just and true and that the decedent always acquiesced in the correctness and accuracy thereof that is a complete defense to this action; the account could only be attacked for fraud or mistake which must be affirmatively alleged and proved, and in the absence of such allegation, proof could not be admitted of any matters' prior to said accounting; that while it may be that an action for an accounting would lie for transactions subsequent to the date of such stated account, it could not be had in this action without an amendment to the complaint which would start with such ascertained and stated account as a basis.
The answer to that contention seems to me to be clear. This is not ■j an action for a general accounting of the partnership affairs from the commencement thereof. Nor does.the account stated, which took effect nine months before the death of Philip Herzig,"affect the case as presented otherwise than as a matter of proof. What the executrix asks for is an accounting, by the surviving parijng^pf what- of the decedent’s estate lie received as surviving partner. . That obligation could not begin .until the death of Philip Herzig,. when a new obligation was thrown upon his partner who, by operation of law, took possession of the partnership assets with a right to hold and administer the same for a reasonable time for the purpose of liquidating the partnership affairs, with an absolute right in plaintiff to call him to account therefor after such reasonable time. Further, so long as the two partners lived and conducted their business -under the firm name at the old stand, the good will of that business was not a book asset of the partnership to be taken into, consideration in balancing their-mutual accounts, because whatever it was worth *145belonged to them both; it had no ascertainable value as between themselves, never went into the accounts and never was considered in settling their mutual affairs. The value of a firm name, and good will can only come into consideration when it is a question of transfer of the business. It is inseparable from the business itself, and when that business is transferred then it is an asset whose value must be ascertained and taken into account and its proper proportion allotted to the estate of the deceased who helped to make it. (Slater v. Slater, 175 N. Y. 143.)
I think the demurrer should have been sustained; that the allegation did not constitute a complete defense to the cause of action set up in the complaint.
In the 6th paragraph the allegations of the 5th are repeated as a partial defense. If my view of the object and scope of this complaint is right, namely, an accounting of what the defendant received and did as surviving partner, then the previous accounting is not a partial defense. Defendant is called upon to account for what he received as a surviving partner. He had a right to the possession and control of all the partnership property which' came into his. hands at the time of the death of his partner. He is asked to account for that, and I cannot see how it can be an answer to that demand that some time or other the partners inter sese, during their lifetime, had a settlement of their transactions up to that time. Here we have a case in which it stands on these pleadings: That on the 1st day of December, 1902, there was in that partnership upwards . of $94,000 belonging to Philip Herzig; that that partnership continued for nine months thereafter; that then Philip died, and that when he died, in addition to what was in that partnership of tangible assets, there was this good will valued at $500,000; that Simon not only took possession of all these tangible assets as surviving partner, but that he proceeded to deal with that good will valued.at $500,000 as his own, by making np a new firm, using the same name, appropriating the lease to the old partnership, and denying any claim whatever to said good will to his brother’s estate. That is a concrete situation which calls upon him, under the trusteeship created by the duties, rights and obligations put upón him by law as surviving partner, which he. has accepted in fact, to account to the *146estate of his deceased brother, and I think that the facts stated no more constitute a partial than they do a complete defense.
The second complete defense is an accounting in the Surrogated Court, the allegation being that in said account the defendant charged himself with all money received from the defendant' as surviving partner in the said firm to the time of the filing of said account, and with all money collected at the time of the filing of the account on the indebtedness of the defendant as surviving partner to the said estate of Philip Herzig, deceased, said moneys amounting to the sum of $120,615.99 ; and that on the 23d day of January, 1906, the decree settling' and allowing said account 'was made, leaving, a balance in his hands of $88,347.76, and in and by said decree it was adjudged that defendant had fully accounted for all the moneys and property of the said estate of the said deceased which had come into his hands as said executor, and by said decree' it was conclusively established that the money charged to the- said executor as collected, was all that was collectible at the time of the settlement on said indebtedness of the defendant as surviving partner •of the estate of said deceased.
I do not think these allegations constitute a defense. It is alleged and not denied that the interest of the estate in the good will in the said partnership is worth át - least $500,000, and it. is alleged that Simon has continuously refused to concede that the said estate has any interest in'the partnership name or good will. It is not alleged in - the answer that said good will entered . in any way into the accounting before the surrogate, which was an accounting as executor- and not as surviving partner. How the plaintiff could be barred by an accounting in the Surrogate’s Court, which did not take into consideration, did not .allude to or cover the matters in controversy, I fail to see. The effect of an accounting in the' Surrogate’s Court is established bylaw. (Code Civ. Proc. § 2742.)
' If, in such an accounting, assets' are scheduled and collections entered and the claim is made that of said assets so scheduled all has been collected that could be, and a decree is entered settling said• accounts, then a .person made a party to the proceedings is' bound by said decree and the' only way to attack said account is by direct proceedings to open it or to challenge it'in the other familiar ways in. which an accounting party may be called Upon to answer. *147But it would prove an open door to fraud,, an invitation to weak or wicked trustees to hold that they may keep out of their accounts all reference to valuable assets which they have concealed and then claim that no court may thereafter investigate .their accounts because of the finality of the decree of the Surrogate’s Court. The mere statement of such a proposition demonstrates its unsoundness. Here the defendant concedes that he did not include the good will valued at $500,000 in his accounts; that he continuously denied that Philip Herzig’s estate ever had a penny’s worth of interest in such assets, and yet, with an admission of its value, with the admission of'his denial of any fight thereto, he claims that he cannot be required to account because he has accounted for other matters admitted to have been received.
In Matter of Peck (131 App. Div. 81) the court said :• “ The books are full of cases which recognize the fact that the decree is limited in its operation to the matters actually before the court, and we are of the opinion that no matter what the particular language of this decree it does not operate to deprive the appellants of any rights, for the reason that the bonds, or any question relating to them, was not before the surrogate for determination. The law controls the effect of the decree and the surrogate could not overrule, disregard ■or change a valid statute. (Altman v. Hofeller, 152 N. Y. 498, 502, 503.) The decree is conclusive only so far as it is made so by the statute (Frethey v. Durant, 24 App. Div. 58, 62) and any rights which the appellants have in the bonds which-it is claimed the administratrix has not properly accounted for may be determined in the action now pending.”
In Van Rensselaer v. Van Rensselaer (113 N. Y. 207) the Court of Appeals, referring to a decree settling the accounts of an executor, said : “ That decree has no effect upon what was not involved in the settlement, because explicitly withheld fróm it and put outside of its operation. The Code of Civil Procedure (§ 2742) provides upon what facts the judicial settlement of an executor’s account shall be conclusive and expressly excludes all others. * * * What concerns.us now was not before the surrogate then or involved in any of the facts as to which the decree is conclusive.”
The accounting in the Surrogate’s Court is not.a defense and it is not a partial defense. It may be matter of proof when it comes *148to inquiry into, the matters which have been specifically accounted for. Where the fiduciary relation- exists a trustee may be called upon to account for a single item, a single transaction, and because he may be able to show that for a hundred items he has no liability lie is not relieved from the necessity of accounting for what he is liable for.
This is not a common-law action. It is a suit in equity, and if one thing is shown for which the defendant is accountable, it is no answer to say that there, are other matters for which he is not accountable.
The judgment appealed from should he reversed, with costs to the appellant, and the demurrer sustained, with costs, with leave to respondent to amend upon payment of said costs and within twenty days after service of notice of entry of the order to be entered hereon.
Patterson, P. J., Ingraham and Latjghlin, JJ., concurred; Scott, J., dissented, in part.