Denike v. Harris

The defendant, Reeves, is the surviving member of a special-partnership in which the testator was the special partner, and Reeves was the general partner. The business of the partnership was-the sale of agricultural implements. The question on which the case depends arises upon the following provision of the testator’swill, viz.:

“ 10th. It is my will, and I do hereby order and direct my executors hereinafter named, to allow my friend, Robert O. Reeves, to retain, as a loan to him out of my personal estate, the sum of $15,000, being the amount now invested by me in the business carried on and condncted by him, and in which I am a special partner; to be used and employed by him in carrying on and conducting the-said business, and to be continued from year to year at the option of the said Robert O. Reeves, but not to exceed the term of three-years, upon his paying the interest thereon annually at the rate of five per cent, per annum. Such income, when received by my said executors to be from time to time paid over to my residuary legatees ; and at the expiration of said term, or the sooner determination thereof, at his option as aforesaid, I direct my said executors to receive from the said Robert O. Reeves the said sum of money ana interest, and to discharge him full/y from all further liability on-account or by reason of such indebtedness / and upon such payment being made to my said executors, the said sum of $15,000 is-to become a part of my residuary estate, and to be distributed according to the provisions of this, my will, with respect thereto.”

It is claimed on behalf of Reeves that the gift was an option to-purchase the testator’s share of the effects of the partnership at $15,000, and also to have credit for the payment of the purchase-money, not exceeding three years. We think the language employed does not admit of that construction. In the first place, the-direction is that the executors allow Reeves, who is one of them, to retain as a loan to him out of the testator’s personal estate, not out of his share of the partnership effects exclusively, the sum of *217$15,000. It appears that the testator’s personal estate exceeded. $140,000,»while his interest in, the partnership was estimated by the executors in the inventory, returned by them, at only the sum of $14,000. The direction, then, is to loan money, not to sell property. The source of the loan is to be the testator’s personal estate generally, not any particular part thereof. Second. Reeves was given the option of retaining $15,000 as a loan. That means that he was to be permitted to keep as a borrower, money which, but for the direction in the will, he would have been bound to pay over to the legatees. The direction to discharge him from “ such indebtedness ” on payment of the sum retained as a loan refers to the debt incurred by him as a borrower, and not that which might accrue from his liability as surviving partner. The previous statement of the testator, of the amount invested by him in the partnership, was. ■not intended to conclude his personal representatives as to the actual value of his interest in the partnership at the time of his death.

Reeves, no doubt, is entitled to wind up the partnership. In that respect he holds the partnership property and effects in trust to pay the partnership debts, and to pay over the testator’s share of the surplus (if any), that may arise to the personal representatives of the testator. (Egberts v. Wood, 3 Paige, 517 ; Wilder v. Keeler, Id., 166.) The judgment does not interfere with his rights or duties in the administration of that trust. The j’udgment, it is true, directs that in case of a failure,by Reeves to give security for the sum loaned, pursuant to the tenth clause of the will, the executors shall collect the amount due from him to the estate. The obj'ect of this was to establish the liability of the executors. If they have used money in hand to make the loan, they must get it back, and whenever any sum shall become due to the executors from Reeves as surviving partner, they must not permit him to retain it without security, but must immediately collect it, &c. Such is the proper interpretation of the j'udgment.

"We are of opinion, that executors are not authorized to loan the money of the estate which they represent, without security, under circumstances where a person of ordinary prudence would exact security for the loan, and that as to such transactions they stand on the same *218footing as ordinary trustees. They are quasi trustees in investing the funds of the estate, and the liability of trustees attaches to them. "When they threaten to violate the rule thus stated, upon a mistaken construction of the testator’s will, a court of equity may, and ought to, restrain them. (Wms. Ex’rs., 1809 ; King v. Talbot, 40 N. Y., 76, 88.)

The gift to Reeves, in substance, was one of the use of a fund for a term, with remainder to legatees. "Whether treated as a loan or as a bequest, however, the power and duty of the court to require security to be given for the protection of the ultimate beneficiaries seems to us to be equally clear. (Story Eq. Jur., §§ 845, 845, a; Vernon v. Vernon, 53 N. Y., 356-363.)

The judgment must be affirmed, with costs.

Judgment affirmed,-with costs.