Buckley v. Doig

Present —' Patterson, Ingraham (dissenting in opinion), Laughlin and Clarke, JJ. ' The following is the opinion of the referee: Alton B. Parker, Referee: , Beginning with 1877 the plaintiff Buckley and the defendants’ intestate McCafferty began the purchase of lots in the city of New York, the erection of buildings thereon, their sale, the purchase of other lands with a portion of the profits, and a division of tlie rest of the profits between them, which course of business was continued until the death of McCafferty iii 1905. Baring that time the firm, which ivas - designated by the members as McCafferty & Buckley, used in the purchase of lots $1,686,189, and in the improvements • thereof the sum of $2,232,903. fn all, $3,919,092. At the time of |Mr. McCafferty’s decease, all of these lands had been disposed of except twenty-one parcels' having a value of $241,844.44. . - The defendant left him surviving no descendants, but did leave him surviving a widow, brothers, sisters, nephews and nieces as liis heirs at law arid next of kin. He was seized of other .real estate at the time of liis death of the-net value of" $294,850 and had personal property of the value of $30,684-84 and personal debts approximating $53,859.61, In his individual estate, therefore, his widow has but a dower interest in so much of tlie real estate as shall remain' after the payment of his debts, which exceed thq amount of his personal estate. And the controversy in this litigation is — 415 — between the widow and the personal representatives of the deceased and the heirs at law. The share or interest which McCafEerty had in the firm property at the time of his death, the former claim, not only for the purposes of the partnership but also for all and every purpose must be deemed to be personal property, while the latter insist that although in equity so much, of the property as may be required to pay the partnership debts will be treated as personalty, the residue of the property will pass under the Statute of Descents. The firm had personalty amounting to $30,684.84 and some debts. It is conceded on all sides that if the personalty should prove insufficient to pay the debts, which at the time of McCafferty’s death exceeded $33,000, that the real estate must be treated in equity as converted into personalty for the purpose of satisfying the firm obligations and adjusting the accounts between the partners. As to the remainder, the inquiry is whether under the evidence introduced at the trial it is to be treated as real estate for all purposes or as personalty for all purposes. Under the English rule there would be no opportunity for debate whatever, as under it partnership lands become ipso facto in the view of a court of equity converted into personalty for all purposes, as well as for the purpose of the adjustment of partnership debts and the claims of the partners inter se as for the purpose of determining the succession as between the personal representatives of a deceased partner and heirs at law. But the American rule (or at least it may be said the rule adopted by a great majority of the States) is very different. In effect it is that partnership real estate (unless otherwise expressly or impliedly agreed) retains its character as realty' between the partners themselves and also between the surviving partner and the personal representatives of the deceased partner, except to the extent that it may be' required to pay.partnership obligations or to pay any balance found due from one partner to another. To the extent that partnership real estate is required for these purposes the share of each is embraced in a trust implied by law, which equity in enforcing treats as converted into personalty. The reason for the difference in the rule of the two countries is pointed out in a most interesting way by Chief Judge Andrews in Darrow v. Calkins (154 N. Y. 503) who, in that case, foiuidEn a deed and surrounding circumstances evidence of an intentidH have an “ out and out ” — 416 — conversion of the partnership realty into personalty for all purposes. In the course of the opinion the exception to the general rule was referred to as follows:.. “ 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 thémselves, and that where by such agreeinenf 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.” This is the latest utterance of the Court of Appeals on .this subject and upon it was rested the decision of the court. It, therefore, states the rule as it is in this State. In that case the partners did not agree in terms- that the deed should operate to convert the partnership lands into a personalty '“ out and out”- for all purposes, but the court found 'from, the language employed in the deed, as construed in the. light of the circum-stances surrounding the transaction, an intention on the part of the partners to substitute in the place of Darrow’s prior interest in the lands an interest in him and his representatives in any surplus which would remain after the sale by his partner-and the adjustment of the partnership affairs. The question, therefore, in this case is whether under the terms of the partnership as construed, not only in the light' of the circumstances surrounding it, but also aided by the construction placed upon it by the partners themselves, it is clear that the parties intended that their dealings in real estate should be treated as personalty for all purposes. If that intention be found, then it must follow that McCafferty’s interest in the real estate, as well as that of • Buckley, must"be treated as personalty for all purposes; for. distribution as well as.for adjustment of tlié partnership equities. Since the decision in the Darrow Case (supra) the Appellate Division of this departin' has had before it a case in which it has held certain valuable p-"- JÜfe, hip real - estate to have been, by the — 417 — intention of the parties, converted into personalty for all. purposes, and hence decreed its distribution to the next of kin. (Barney v. Pike, 94 App. Div. 199.) The facts of that case are so nearly on all fours with the facts of this one that it should, in my judgment, be treated as a controlling authority. But were I not commanded by that authority to hold that the parties intended that these lands should be treated as personalty for all purposes, the facts of this case would seem to me to require the inference that it was the intention of the parties that the lands which they were to hold should be treated as personalty. Now it is true that Buckley and M'cCafíerty did not say in so many words that the lands which they should buy and improve and sell, and then divide such of the profits as they did not see fit to use in the purchase of more lots for improvement and sale, should be at all times treated as personalty. But that they so intended seems to me a necessary conclusion from the agreement which they made and their after conduct. The agreement was not in. writing, but was oral. It was made in the latter part of October or the beginning of November, 1877. One of the parties to it, Hr. Buckley, was an architect, skilled in the preparation of plans for buildings and the supervision of construction; Hr. McCafferty was a financier in a moderate way, and they were brothers-in-law, with confidence in each other, which apparently never abated during the nearly twenty-eight years that their business relations with each other- continued. The conversation which created the partnership and its boundaries took place in the immediate vicinity of the four lots situated on Fifty-fifth street, which constituted their first purchase. In passing it may be said that neither party ever contributed a dollar either for payment of the lots or the erection of the buildings thereon. The cash required for the purpose was raised on a building loan, and the profits which resulted from the sale (amounting to over $30,000) formed the nucleus of the capital with which they continued their business, each of the partners thereafter contributing cash to the firm as it became necessary, and withdrawing profits as they needed them or desired.. Mr. Buckley undertook to give the conversation between them by which the partnership was created. He said: “We were to form a — 418 — copartnership and each share half and half. I was to make the plans and supervise the construction of the buildings, and lie would attend to the financial affairs, and we were to divide the. profits at the end of the job, or if we felt like it, take the money and reinvest it.in more land, which we did, and have been doing for the last thirty years. I said to Mr. McCafferty, or Robert (he was my brother-indaw), ‘Row, what if any disagreement occurs between us? We ought to have some distinct understanding what to do.’ ‘ Well,’ he says, ‘ we Will sell everything and divide the money between us.’ ’’ And it was-further agreed that upon the dissolution of the partnership the partners should sell all their holdings and divide the proceeds of the property between them in proportion to their respective interests as partners, which was half and half. Briefly, then, the agreement between them was for the purchase of lots, improving them by the erection, of building's, their subsequent sale as favorable opportunity offered, the division of the profits, taking such of the profits as they thought, best to purchase more lots for improvement and sale, and in the event, of a disagreement between the partners or dissolution of the partnership sell all the partnership holdings, convert the proceeds.into cash and divide the money. Thus it appears that their purpose was. to deal with the lands as the manufacturer does with raw materials, put them into condition for use and sell them. They purchased a lot, not'to hold it as an. investment, but to improve it and sell it for a. reasonable profit as speedily as possible and with the proceeds buy more lots and erect more buildings. This process resulted in the acquisition of property and its improvement during the-existence of the partnership to an extent equalling nearly $4,000,000. And yet at the time of the dissolution .of the partnership by "the death" of McCafferty the part-. nership property remaining unsold was of the value of less than $242,000. Thus the. agreement that their profits should be divided wrent on for many years until, the dissolution of the partnership by the death of one of" them left nothing to do under their agreement except to sell the comparatively small amount of property remaining and divide the money after adjusting the partnership equities. Row, it. is suggested by the learned counsel- for the heirs at law that this partnership agreement had to do with the purchase of the — 419 — first four lots only and that the subsequent transactions, aggregating several million dollars, were not under that agreement. The facts do not seem to me to justify that plea. The eviáence of the plaintiff Buckley, considered as a whole, requires the conclusion that the conversation was intended by the parties to cover not only the purchase of those lots, but any further dealings in real estate that they might engage in. The answers of the witness on direct and cross-examination show that at times he was either confused in his answers or did not clearly comprehend the question put to him, but the witness was undoubtedly a conscientious man, and the necessary inference from his whole testimony is that both parties intended that the oral agreement which-they were making should cover all their firm transactions in' real estate whether it should happen to cover only the four lots or embrace many more, and his testimony in that respect is supported by several circumstances. The plaintiff’s testimony being uncontradicted as to the details of the oral agreement creating the partnership must be accepted as conclusive. (Hull v. Littauer, 162 N. Y. 569; Second Nat. Bank v. Weston, 172 id. 250.) But the plaintiff’s testimony has very substantial support in the conduct of the parties during all the twenty-eight.years which follow the making of the oral agreement, and closed with the death of McCafferty. The parties adopted the firm name of McCafferty & Buckley, and at once a set of books was opened under Mr. McCafferty’s instructions containing a profit and loss account, which continued uninterruptedly from that day until now. Correspondence was at once opened with other parties by the firm under the name of McCafferty & Buckley, and has so continued front that day until the death of McCafferty. About four months after the first transaction was concluded, Avhich resulted in a profit of over $30,000 to the firm, without the contribution of a dollar of personal capital by "either, the purchase of the lots constituting a second transaction took place, which in turn was followed by another purchase, and still others, until the aggregate purchase price of the lots and the cost of the buildings erected thereon were about $4,000,000. Again, the manner in which they kept their books supports Mr. Buckley’s testimony. When a parcel of land was purchased a — 420 — separate account of that land was opened in a book by itself, and in that account was entered on one side the purchase price, the cost of improvement, interest on mortgage and expenses of maintenance, while on the other side was entered the amount raised by the mortgage, if any, rents collected and selling price; balance represented by profit or loss. . if either partner was ever charged with the purchase price of any .lands, nor with the expense of improvement or maintenance, or with any portion of the proceeds of land sold. Their respective personal- accounts contained simply credits for cash contributed and charges for cash drawn from the firm account or personal bills paid by the firm for -their rise. The respective interests of the partners in the several parcels of land were never fixed and never appeared on the books in any account whatever. Even the profits upon sales were not credited to them as individuals, but went ■into the profit and loss account, so that losses on one .transactioh were offset proportionately by profits on another. So, too, in the annual trial balance, submitted to each of the partners, the real and personal properties .were set forth together as if they were so many items of cash, none of them being credited- in whole or in part to the respective partners. In this connection it should be observed that in Barney v. Pike (supra) the court said : “ 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 totliat 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.” . The value off the inference of intention is not different in' this case from that of Barney v. Pike, for in that case the purchase price of the lands was $262,576.25, and for improvements $444,948.42, while in this case the purchase price of the lots was $1,686,189, and the amount expended for improvements was $2,232,903. That is, McOafferty & Buckley invested $2,232,903 in the purchase of lumber, stone, iron, plaster, brick and other materials, all of which — 421 — were used in the erection of houses upon the lots purchased, and thus became so attached to the land itself as to be of small value when separated, a situation which would seem to be covered by the language of the court in Darrow v. Calkins (supra), in which the court said (at p. 516): “The investment of partnership funds in lands and chattels for the purpose of a partnership business, * * * 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 lahds 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 puqioses.”- While in my judgment the-inference to be deduced from the fact of the expenditure of so much larger a sum in improvements than is paid for the land is not of sufficient forcé, standing, alone, to authorize a determination that it was the intention of the parties that the land should be treated as personalty, nevertheless, it is a. circumstance to be considered in connection with other facts tending to support the view that such an intention is to be found in the oral agreement of the partners. On the other hand, there is a circumstance which it is strongly urged tends to show that on November 12, 1902, McCafferty . regarded their respective interests as real estate not personalty. On that date parcels Nos. 1, 3, 7, 8, 9 and 20, as described in the complaint, stood in the names of Robert McCafferty and Richard W. Buckley as grantees, while parcels Nos. 4, 5 and 6 stood in the name of Richard W. Buckley as grantee, and the property described in the complaint as parcels Nos. 2, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 and 21 stood in the name of Robert McCafferty as grantee. Some time prior to that date McCafferty requested the bookkeeper . to prepare deeds from Buckley and his wife to himself for an undivided half interest in the parcels, the title to which was on the record in Buckley’s name, and 'also deeds from McCafferty and wife to Buckley for an undivided half interest in each of the parcels, the title to which stood in McCafferty’s name. And on the twelfth day of November all of those deeds were executed. After that date the title to all the real property which had been purchased and improved by the firm stood on. the record in the names of Buckley and McCafferty as tenants in common, with the exception of parcels — 422 — 15 and 16, of which McCafferty and his wife conveyed to the plaintiff an undivided half interest on May 23, 1903. It does not appear that McCafferty consulted any lawyer upon the subject, but the bookkeeper does testify that McCafferty said that his object- was to divide the property and give to each party a half interest in each parcel, and further that, he said: “ I am in very poor health indeed and can’t tell what will happen and would like to have these titles straightened So that each will have a-half interest on the records.” Now, it seems that in the course of the firm dealings, title was occasionally taken by Buckley and on other occasions by McCafferty, but they were at all times treated as purchases by the firm. The account as to each purchase was opened in a separate book and the profit or loss- after a sale was carried to the profit and loss account of the firm, dt may well be that Mr. McCafferty thought that the execution of these deeds wrould prevent possible controversy after his death, inasmuch as they would show that on the record eacli had a one-half interest ill all-the properties, for that was practically the situation. The record does not show exactly the state of the accounts at that date, but it is clear from the.evidence that the partners had drawn from the - profit and loss,account in substantially equal amounts. At the time of the death of McCafferty he had drawn about $11,000 more than his partner Buckley. ■ His purpose could not have been to have brought about a settlement of their affairs and the division of the property, because no- such suggestion was made by either to the other. ' There was no attempt to divide the mortgages held by the firm, nor were similar deeds made of all the firm realty on November twelfth, for, as we have seen, Mr. McCafferty still retained title in a large tract of laud known as parcels Nos. 15 and 16 until May 23, 1903. And on still another occasion, after November 12, 1902, .Mr. McCafferty conveyed his title to the Eighty-second street house to his partner Buckley for* the purpose of enabling him to effect a sale, which was one of the objects of the partnership. Not only was no adjustment of the interest of the respective partners made or attempted, but none could have been made conveniently at that time, for the- reason that. building operations were still in progress and uncompleted, and the firm debts exceeded the personal property, for which excess the — 423 — lands were still chargeable in any event. No attempt was made to adjust the profit and loss account, and thereafter the business of the firm continued as before, the firm holdings being carried on the firm books, the rents being collected by the firm and expenses of administration paid. Indeed, no change whatever in the conduct of the partnership affairs occurred, each of the partners continuing to transact the business of the firm as before. All of the facts considered together incline me to the view that McCafferty had no other purpose in bringing about these conveyances than to cause it to appear upon the records that each party had an undivided half interest in the properties to prevent future controversy. If he had any other purpose the plaintiff Buckley did not know of it. They entered into no agreement between themselves which operated to modify in any degree whatever the original partnership agreement, and that oral partnership agreement provided, as we have already seen, that all lands should be sold and the moneys divided between the partners. Nor did they make any attempt to settle up the firm business or adjust their accounts, and it necessarily follows that the original agreement stood unaffected. The conveyances, therefore, of November twelfth did not affect in anywise the original agreement of the parties, and as a circumstance it has no value except in so far as it bears upon the question whether it was the original intention of the parties that the lands should be treated as personalty for all purposes, never to be held as a permanent investment, but to be disposed of as soon as a reasonable profit could be obtained and the proceeds in the lands divided between the partners. • And it has not in my judgment sufficient probative force to overcome the evidence to be found in the agreement of the parties and the practical construction of that, agreement placed upon it by a long course of dealing, together with the other circumstances to which I have referred, all of which taken together satisfy me that it was the intention of the parties to the agreement 'that the lots to be purchased' and improved by them should be treated as personalty for all purposes.