Foster's Appeal , 74 Pa. 391 ( 1874 )

The opinion of the court was delivered, January 5th 1874, hy

Sharswood, J. —

The question raised upon this record may be thus concisely stated: When real estate has been held as partnership stock — the firm dissolved by the death of one of the members —-a settlement and balance ascertained to be due by the surviving partner to the estate of the deceased, is such balance as far as derived from the sale of the realty to he distributed as real or personal estate ? The appellant, who is the widow of John Foster, deceased, who was a copartner of Samuel M. Kier in the firm of Kier & Foster, claims that she is entitled to one-third of the'interest of the said Foster, as ascertained by the settlement, absolutely as personal estate; the decree of the court below awards it to her for life only as realty. The firm property at the time of Foster’s death was composed both of lands and movables. They were engaged in the mining and selling of coal. The appellant, as administratrix, and William W. Young, as guardian of the minor children of John Foster, presented a petition to the Orphans’ Court of Allegheny county, setting forth 1£ that at the time of his death, the said John Foster was an equal partner with Samuel M. Kier, in the firm of Kier & Foster, engaged in the mining and selling of coal, the property of the said firm being situated in the county of Allegheny; that while in many instances the real estate belonging to the said firm was conveyed to them as tenants in common, yet the same was really held by and purchased with the money of the firm as partnership property ; that the said firm of Kier & Foster were largely indebted; that Kier, the surviving partner, had proposed to purchase the interest of Foster for the sum of twenty-five thousand five hundred and eight dollars and thirty cents, he, the said Kier, assuming all the debts and liabilities of the firm; that it would be greatly to the advantage of all interested that the interest of Foster should be sold at private instead of public sale, and the proposition of Kier accepted; that they unite in the petition for the purpose of removing any question which may arise from the fact that several of the said properties have been conveyed to the said John Foster and Samuel M. Kier as tenants in common, and not expressly as partners.” Upon this petition the Orphans’ Court decreed a private sale to Samuel M. Kier, for the sum named, and that the proceeds of sale be treated and considered as the proceeds of real estate, and accordingly distributing and applying the purchase-money between the widow and heirs of decedent. It is from this latter part of the decree that this appeal is taken.

It has not been and cannot be denied, upon the appraisement and settlement of the partnership debts and assets which accompanies the petition, that after discharging all the liabilities of the firm, the interest of Foster in the lands and real estate which formed the most considerable portion of the stock was fairly represented by the sum agreed to be paid for his entire interest. It is the well-settled rule in marshalling the assets of a decedent, that the personal property is to be first applied in the payment of debts. The general principle is that the personal estate is the proper fund for that purpose, and shall be first applied even to the payment of debts with which the real estate is charged: Keysey’s Case, 9 S. & R. 71; Walker’s Estate, 3 Rawle 237; Cadbury v. Duval, 10 Barr 273. This is indeed the unbending rule of our statute law, for no order can be made by the Orphans’ Court authorizing an executor or administrator to make sale of real estate for the payment of debts unless it shall appear that the personal assets are insufficient for the purpose : Act of February 4th 1834, sect. 20, Pamph. L. 80; Act of March 29th 1832, sect. 31, Pamph. L. 198. It is true that it may often happen that where personal property is used in connection with a colliery or manufacturing establishment, it is very much for the interest of all parties that it should be sold together. That is a difficulty which seems inherent in the subject ■ — equally applicable to the property of any decedent — not peculiar to one whose property is an interest in partnership stock. It seems to be considered as well settled, that where land is a part of partnership stock, it at no time — not even during the continuance of the partnership — becomes personalty in such an unqualified sense as to give one partner an implied power to dispose of the whole partnership interest in it. As regards the power of disposition, land held as partnership stock is not subject to the rule which makes each partner the agent of the firm. Neither can sell more than his own undivided interest, unless he have from the other a sufficient special authority for the purpose. This seems to be the inevitable result of the Statute of Frauds, both as to legal and equitable interests or estates: Murphy v. Hubert, 7 Barr 423; Anderson v. Tompkins, 1 Brock. 457; Tapley v. Butterfield, 1 Metc. 515. It follows that the surviving partner could not sell the real estate in conjunction with the personalty. When such a difficulty presents itself, it must be met either by a separate sale of the personalty, or in the mode resorted to in this case. Here we have practically no difficulty growing out of the necessary intermixture of realty and personalty.

For all the purposes of the question before us, this case must thbrefore be considered the same as if after dissolution by the death of one partner, and payment of all partnership debts, and any balance due the surviving partner, there had remained in specie, unconverted, land, the interest of the deceased partner in which is ascertained to be worth $25,508.30. Is the land thus remaining unconverted and in specie to be regarded for the purposes of distribution under the intestate laws, as real or personal ?

This is an entirely new question in this state. It was supposed to arise in Meily v. Wood, 21 P. F. Smith 488, but this court thought otherwise, and distinctly declined to express any opinion upon it. A careful examination of all our determinations has failed to discover either decision or even dictum bearing upon the point. Even Abbott’s Appeal, 14 Wright 234, which has been pressed upon us as an authority, is inapplicable. In that case, although the balance of a fund in court arising from the sale of partnership real estate on an execution against the firm, was awarded to the surviving partners as against the claim of one of them in his own right, and as the executor of a deceased partner, to aliquot shares ; yet as stated in the decree, these surviving partners were “settling the business of the firm,” and it is said in the opinion by Mr. Justice Read, that “ the business of the firm, dissolved by the death of Greorge Abbott, has never been finally settled, and it is alleged by the appellees that the firm is still largely indebted.” We approach the determination of the question, therefore, untrammelled by any authority. Nor will it be necessary to pass in review the fluctuating and discordant opinions in England and our sister states. We are saved this labor by the learned and exhaustive opinion of Chancellor Walworth, in Buchan v. Sumner, 2 Barb. Ch. 165. We are at entire liberty to resolve this important and interesting problem on principle and reason.

Conversion is altogether a doctrine of equity. In law it has no being. It is admitted only for the accomplishment of equitable results. It may be termed an equitable fiction, and the legal maxim in fictione juris semper sulsistit equitas has redoubled force in application to it. It follows of necessity, that it is limited to its end. Lord Eldon advanced this idea while his mind was evidently laboring and in suspense on the general subject. In Ripley v. Waterworth, 7 Ves. 425, he said: “There is an obvious difference from all the cases, which establish this general principle, that where a person dealing upon his own property only, has directed a conversion for a particular special purpose, or out and out, but the produce to be applied to a particular purpose, when the purpose fails, the intention fails; and this court regards him as not having directed the conversion.” There must be some purpose recognised as lawful to be accomplished by a conversion before equity will permit it to have place. Surely it will not be pretended that a man could by a mere declaration of record convert his land into personalty, so as to defeat the lien of mortgages, judgments and other encumbrances, elude the provisions of the Statute of Frauds, and change the course of distribution in case of intestacy. If, however, a trust is created, either by deed or will, with an absolute direction to sell and distribute the proceeds either among creditors or others,- equity considers that as actually done which has been directed to be done, in order to accomplish the lawful intent of the grantor or testator. If it continued land, subject as such to sale, mortgage and encumbrance by the eventual distributees — the present cestuis que trust — the result aimed at might be defeated, and the intention frustrated. So where land is, by the agreement of the partners, made partnership stock, it is. an out-and-out conversion only, because otherwise the objects of the partnership would be defeated, if the sale, mortgage or encumbrance of his separate interest by one partner could prevent the equity of the other partners to have the partnership property applied to the payment of the partnership debts, and the balances which might be due to them respectively. When the purpose of conversion is attained, conversion ends, or more accurately, re-conversion takes place. Thus when the sale under the trust is made, the character of personalty does not follow the land into the hands of the purchaser. The proceeds are personalty and are distributed as such among the cestuis que trust, because that was the very object of the conversion. So with land in partnership when sold by the firm, the land becomes land again in the hands of the. purchaser, and the proceeds personalty, but personalty to what extent ? Only to the extent of accomplishing the purposes of the conversion, namely, the equity of the partners to have the joint debts and their own advances paid before any part goes to the other partners or their separate creditors. In Dyer v. Cornell, 4 Barr 359, where, by order of the Orphans’ 'Court, the land of minors was sold for their maintenance and education, it was held that the proceeds, supposing them to retain the'character of land, lose that and become personalty on the first transmission, though to an infant. The administrator of the minor was decided to be entitled to the money as money. The court, indeed, were of opinion that the sale ipso facto worked a transmutation, but they added, by Coulter, J., “But even admitting that the money in this case bore the impress of real estate, and the inheritable qualities peculiar to lands and houses, in analogy to the case of Lloyd v. Hart, 2 Barr 473, for how many generations or descents shall it wear that complexion ? It must cease as it mingles with other moneys of the distributee, otherwise uncertainty, confusion and litigation will indelibly mark its character. This court is of opinion that it cannot be carried further than the first descent in any case.” The same question is pertinent in regard to the land in the present case. If land, remaining in specie after the partnership is dissolved and wound up, and all the purposes of its conversion answered, is still personal estate, how long is it to remain so ? Certainly all the forms of the law as to realty must be observed in its transmission from hand to hand, and shall it not be subject to the lien of judgments in the lifetime, and debts upon the decease of its owner ? If not, uncertainty, confusion ajid litigation will indelibly mark its character. But it may be asked, when is the precise moment of its reconversion ? The answer is, the moment the partnership is wound up, either by decree, judgment or agreement, and it is determined that it no longer forms a part of the partnership stock, and is not required for its purposes. In Burr v. Sim, 1 Whart. 252, where land was ordered to be converted by will, and the proceeds to be paid to a legatee, it was held that the election by the legatee before any sale, to take the land as land, operated as a new acquisition. It was a purchase of it as land by a surrender of the right which he undoubtedly had to consider it as money. Where, then, a partnership is dissolved, wound up, and completely ended, what can it be but an election of- the land as land, and the reconversion of it ?

It must be remarked, also, that without the order of the Orphans’ Court in this case, the legal title of John Foster to an undivided moiety of the lands could1 not have been conveyed to Samuel M. Kier. We have seen that this is a well-settled point. If it were not so, the appellant as administratrix might have assigned it. She joined in the application to the court with the guardian. The decree for the private 'sale was under the provision of the Act of April 18th 1853, sect. 4, Pamph. L. 505; and the fifth section of that act has declared that, in all cases of sale according to its provisions, “The purchase-money * * * shall in all respects be substituted for the real estate sold * * as regards the enjoyment and ownership-thereof, after the payment of liens, and shall be held for or applied to the use and benefit of the same persons, and for the same estate and interest * * * as the real estate sold had been held.” Under the express provision of the statute, the proceeds of the real estate sold under this order must be considered as of the same character as the land remaining in specie after discharging its liabilities as partnership stock. -On the whole, then, we are of the opinion that the appellant was only-entitled to an interest for her life, and that the decree of the court below was right.

Decree affirmed, and appeal dismissed at the costs of the appellant.