CHAPTER XIX

PARTNERSHIPS AND PARTNERSHIP PROPERTY

§ 149. Partnerships and Corporations

A weighty argument for corporations as organizations for the transaction of business by two or more, is the great simplicity of a settlement in case of death. If a man is doing business in corporate form, his interest is represented by a few stock certificates in a safe deposit box. As soon as his will is probated, his executor takes possession of these and they are in shape to be pledged or sold to raise money or to be handed over to legatees. Meanwhile the business is not interrupted. The organization is not changed and the value of the interest is not depreciated.

In a partnership, on the contrary, the death of a member of the firm ends the co-partnership, and necessitates a winding up of its business and a settlement of its affairs. The executor has no control of a partnership business. The surviving partner or partners have possession for the purpose of winding it up. Even if the surviving partners buy the share of the deceased partner, they virtually close the old business and organize a new one.

The process of adjusting a partnership business after a death is tedious and troublesome and may involve considerable loss. The corporation with negotiable shares of stock is in much better shape when a death occurs, as regards the disposal and settlement of the affairs of the deceased.

§ 150. Effect of Death upon a Partner's Interest

A partner's interest is usually evidenced by the partnership agreement, or, as it is commonly termed, the "articles of co

partnership." A partnership is formed by the partners mutually signing the articles and each investing to the amount agreed upon, and becoming each personally responsible for the acts of the other partner or partners. Each is an agent for the others in all transactions that pertain to the partnership business.

This relation of mutual agency is terminated at once by the death of a partner. The estate of the deceased may be held responsible for what is done up to the time of death. But death terminates the authority of anyone to bind him, and his estate is entitled to whatever interest he had in the business at the time he died. It then becomes the duty of the surviving partner or partners to close out the business to the best possible advantage, to pay all claims, and to turn over to the personal representative whatever part of the surplus belongs to the estate of the deceased.

The executor or the administrator has no interest in the partnership business. He must, in making his inventory and appraisement, estimate its value. He is entitled to receive the value of the deceased partner's share when ascertained. He may bring an action to force settlement, but interferes with its management at his risk.

§ 151. Executor's Risk in Busines

Generally, the function of an executor or an administrator is to settle the estate, not to prolong its existence. In case of a partnership, the surviving partner has sole authority and the personal representative has no call to do anything unless the surviving partner is delinquent in his duty or shows bad faith in what he does.

If the decedent has been conducting a sole business, the representative will have to conduct it to such extent as is necessary to close it up to advantage, but no further. It is obvious that a going business cannot be closed up in a day without serious

loss. If, under such circumstances, the representative keeps up the establishment, he will be justified, and will not make himself responsible for loss or for debts incurred in good faith.

In such a situation the executor could make his own position safer by obtaining permission from the court of probate to continue the business. The court would grant this if good reason were adduced.

The personal representative may also continue a going business with the consent of those interested, supposing that they are of age and competent. In such case he would incur no personal obligation in event of loss.

Another situation that may develop is when the will directs the executor or executors to continue the business for a certain period or to accomplish certain purposes. An authorization by will would relieve the representative from all liability.

If the representative continues or starts a business on his own initiative, with assets of the estate, he would be a wrongdoer and when found out he would be liable for all losses and for all debts incurred; but if he had made any profits these would all belong to the estate.

§ 152. Inventory and Appraisement

It is the duty of the personal representative to prepare an inventory and appraisement of all property belonging to the estate. One schedule of this will call for a statement of the interest of the decedent in any co-partnership or business. The name of the business should be given, the nature and location, the total capital, the gross profits, the expenses, and the net profits, for the three years preceding.

Strictly speaking, neither the personal representative nor the appraiser has authority to investigate the books or assets of a partnership business prior to the formal accounting by the surviving partner or partners; but in most cases data could

be had for the appraisement as a matter of courtesy. In event of any difficulty, the receipts from the business by the decedent in previous years and other personal data would give basis for a fairly accurate estimate, subject to correction later.

§ 153. Sale of Partnership Interest

If an interest in a partnership is one of the inventoried items of an estate, the executor or the administrator has the right to sell it as a whole if this can be done to advantage.

If a new party acceptable to the surviving partner or partners, desires to come into the business, he may be willing to pay more, as a lump sum, to come in without delay for formal settlement and accounting than would be likely to be obtained by the usual procedure. In such case the representative can probably get authority from the court to accept the offer, or if the beneficiaries are competent to consent, he can protect himself by obtaining such consent.

Also, the offer might be made by a responsible party, to buy the partnership interest of the decedent for whatever an accounting plus a certain appraisement for good-will, tradenames, etc., might amount to. In such case, it would seem to the interest of all parties that the sale should be made.

Again, an offer might be made by the surviving partner or partners to buy out the interest of the estate, and if it were a fair offer of a sum certain, or to be ascertained, it might be best that it should be accepted.

§ 154. Settlement of Business by Surviving Partner

The death of a partner of itself dissolves the partnership relation. The survivor has the legal possession of the assets and the right to close up the business-selling the assets, collecting outstanding debts, paying all claims, and turning over the deceased partner's share to the executor or the administrator.

In so closing the affairs of the partnership, the surviving partner has the right to work at his own discretion without interference or direction from the personal representative, to whom he is responsible only for the final result. It is the duty, though, of the surviving partner to be careful and skilful in all matters, and to close up in such shape as shall net the most for all concerned. The good-will and the trade-name of a going business are often of great value. In settling, this value is to be preserved and turned to account if possible. (See $157.)

Where the surviving partner plays fair, he can close out to better advantage than can anyone else, and more will be saved for the benefit of the owners of the estate than could be obtained by settlement in any other way. A man's partner should be his friend, and he should be a man of honor and square dealing. On this account it often happens that men make their partners their executors. Such an arrangement has its obvious advantages.

A partnership agreement may provide that in case of death the partnership may continue until the end of the month or to the close of a six months' period if such extension would bring it to the end of a regular accounting period.

The surviving partner is not entitled to extra compensation or to make any charge for his services in winding up the business.

§ 155. Existing Contracts

It is the general rule that, in closing a business, existing contracts are to be filled and no new contracts are to be made. In a professional partnership-law, engineering, or medicine— this would naturally be the practice. In a mercantile business, in order to close out advantageously it might be necessary to order more goods from time to time while selling out in order to keep up a due assortment.