Baker v. Safe Deposit & Trust Co.

Page, J., delivered the opinion of the Court. The five appeals in this record were taken respectively by five of the distributees of the estate of the late Charles J. Baker, from the pro forma order of the Court below overruling exceptions to the Auditor’s Report A, and finally ratifying and confirming that account. Mr. Báker died on the 22nd day of September, 1894, leaving a last will and testament, executed on the 23rd of April, 1894, whereby the appellee was appointed the executor and also trustee for the purposes therein mentioned. The parties to these appeals, have been twice before this Court; once in 90 Md. 74s , and again in 91 Md. 297 . ■ The opinions of the Court and the records in these cases are now referred to for a fuller statement of the facts relating to the subject-matters with which we are now concerned, than will be set forth in this opinion.

After the cause had been remanded to the lower Court by the decree of this Court, bearing date the 14th of June, 1900, the proceedings were referred to the auditor to state an account between the appellee and the decedent’s estate ; and the distributees (or any of them) were authorized to introduce such testimony as, to any of. them should seem desirable in sustaining their respective contentions. Three days after the passage of the order so referring the case, Richard J. Baker filed a petition to rescind the same. There was no error in the refusal of the Court to grant this petition. The ³⁷² jurisdiction of the Court to direct the administration of the estate was unquestionably conferred by the allegations of the bill; and it was a convenient method of determining upon the respective contentions of the parties as to their several interests in the estate that accounts should first be stated in which it would clearly appear what their respective claims were.

The auditor, having taken the testimony which appears in the record, stated two accounts, marked respectively “Account A” and “Account B,” of which the former was confirmed by the Court, and the latter rejected. Without setting out here the several exceptions in the form Jn which they appear in the record, the objections to the order of the Court made by the exceptants may be grouped as follows, viz.: ist. That William and Charles Baker are not allowed out of the estate of the testator the several amounts due them for their shares of the net profits, as they appear upon the books of the late firm of Baker Brothers & Co. 2nd. That “advances” made by the testator in his lifetime ought not to be charged against the shares of the recipients; and if this be erroneous and such advances must be so charged, yet they do not bear interest; and 3rd.

That it was error in this proceeding to charge the shares of seven of the distributees, each with one-seventh of the sum of $6,104.38, being the amount of the advances to Charles E. Baker, in excess of his distributive share. These objections will be considered in the order in which they are stated. It is requisite to understand the nature of the claim of Wm. and Charles Baker to be allowed for a share of the net profits of the late firm, to state facts upon which it arises. At the time of the death of Charles J. Baker, he was engaged in business, as a partner, with his two sons, Charles E. and William Baker.

The whole capital of the firm was supplied by him, and his sons owned no part of the assets, and were not liable to contribute to the payment of the losses. Their entire interest in the business was a right to participate in the ³⁷³ net profits, whenever there were any, and when there were none, they received nothing for their services. 90 Md. 756 . The record in the present case shows that at the time of Mr. Baker’s death there were standing on the books of the firm as their respective shares of the net profits, to the credit of Charles E. Baker, $3,607.42, and to William Baker, $3,052.32. Also there was to the credit of the profit and loss account, representing undivided netprofits, the further sum of $3,701.23, of which the respective shares of William and Charles would have been, if the partnership had continued, the sum of $1,110.23 each.

These distributions of net profits were made each year, and when it was definitely ascertained, “the individual account of each member was credited with their percentages of the net-profits, and the profit and loss account was debited with aggregate amount.” 90 Md., {supra.) Now when it is borne in mind that the sons were not liable for the debts of the firm, it is clear that the percentage of the net profits for each year, when ascertained, became and was a valid subsisting claim against the firm, which the sons could at any time draw upon, and which could not thereafter be diminished by subsequent losses of the firm. So also, if for any year there were net profits, but their shares thereof had not been actually carried to their account, they would no less be entitled to have it regarded as a debt of the firm, to the extent of their respective percentages. In such case their right to the amount would have become definitely and finally fixed, as much so as if the ascertained sum had been actually passed to their credit. The question therefore comes to this, has anything occurred since the death of Mr. Baker, that has the effect of depriving them of the right of claiming their shares of the net profits ?

For sometime after Mr. Baker’s death the appellee under authority conferred by the will continued the business. On the 21st of January, 1896, William and Charles Baker purchased of the appellee a certain portion of the assets (particularly described in the agreement of sale), for the sum of $40,500, which has been fully paid. The agreement of sale provides ³⁷⁴ among other things that William and Charles Baker shall “give up and assign to said executor all money standing to their credit on the books of said firm of Baker Bros. & Co., and also assign to it any interest, that they may have, or be entitled to, out of the assets of said firm after the payment of the liabilities of said firm.” It is contended that the effect of this provision is to deprive William and Charles of all rights they may otherwise have had to claim any proportion of the net profits. To settle this question, we must examine, into the purposes for which this agreement was entered into, the scheme it established, and interpret the provision, after an examination of the entire instrument.

It is clear that its purpose was to effect thereby a settlement of the partnership affairs without the intervention of a “disastrous receivership.” 90 Md. It left open for future determination what the rights of the partners were inter sese, with respect to liabilities for the payment of the obligations of the firm. The appellee contended that the sons were liable to contribute for that purpose ; and for the purpose of securing a decree so declaring instituted the case reported in 90 Md. The scheme devised for effecting a liquidation of the firm’s business was for the sons to take a portion of the assets and pay over therefor to the appellee $40,500, and all the rest and residue of the firm’s property was to be handed over to the executor, whose duty it would then be to adjust all its affairs in such manner as was just and legal. The terms of the agreement and the “proposal” make this plain. It is stated in the preamble, that the appellee has power conferred by the will to make a settlement as it may deem advantageous ; and that it and the surviving partners being desirous “of liquidating its affairs,” had made an agreemect for doing the same, whereby the “surviving partners should convey to the executor all assets, including real and personal property, except such as the surviving partners had agreed to purchase,” See.

It was an entirely proper thing that all the assets should pass into the hands of the executor, for the reason that the sons had never contended that all the assets of the firm were not the property of the dece ³⁷⁵ dent. The only contention between them was, whether the sons could be called to contribute to the payment of the liabilities of the firm. The object of the parties therefore seems to be clear, that what was to pass into the hands of the executor was to be either an asset of the firm or that which could be made available for the payment of its liabilities. It was quite outside the scheme to transfer to the executor any other property.

To this, the sons agreed without limitations. They agreed to pay to the appellees the $40,500, to hand over all the assets other than those purchased by them, and (upon the hypothesis, they were liable for debts), to assign “all money standing to their credit. ” But at the same time, they were careful to protect their claim to net profits, in case it should be held they were not liable to contribute. The language of clause having this purpose in view, is as follows : “It is also understood by said executors and by said William, Jr., and Charles E. Baker, that the question as to whether or not the said William, Jr., and Charles E. are personally liable for the liabilities of said firm is not concluded hereby.” We will not discuss the matter further than to point out that it is difficult to assign a satisfactory reason for the insertion of this clause into this agreement unless it be held that it was to protect the individual property of the sons from liability in case it should thereafter be settled that they were not liable to contribute to the firm’s debts ; and if that was the purpose, it would be unreasonable to hold that such protection would not extend to all their individual property, whether it existed in the form of x'eal or personal estate, or was a credit for their share of net profits on the books of the firm. This Court having decided that the sons were not liable for the firm’s obligations, it follows that they are now entitled to be allowed out of the estate of their father such amounts respectively as may be due them on account of their shai-e of the net profits of the business.

The next question is, should interest be charged upon the “advances” made by the testator in his lifetime? It is clear that these should be put on the footing of “advancements.” ³⁷⁶ Technically they are not advancements, because there is no intestacy. But the testator had power to require that they should be so regarded: (Manning v. Thruston, 59 Md. 224 ;) and that he did so intend, is fully shown not only by what he did in his lifetime, but also by the terms of his will. With respect to some of his children he expressly released them from the payment of his “advances” to them, but directed that they should be “considered an advance to him to be deducted from what may be coming to him out of my estate.” Such an entry was made at the end of the account of Mary K. Baker and of Frank M. Baker.

By the will, the testator refers to these “advances” in contradistinction to “debts” due him. In estimating his estate, he refers to his “personal estate, (including debts and also advances made to several of my children), &c.” These “advances” he does not regard as being indebtednesses, but something other than that. And again in the fourth paragraph, he directs all the rest of his estate, real and personal (including therein as above said, any advances heretofore made to any of my children), shall be divided equally among his children, &c. In the same paragraph the testator requires, that the share of William Baker shall include the country place Tremont, “of which the estimated value is charged on my books,” &c.

This Court in 91 Md. 310 , held that this transaction, with reference to Tremont, was to be treated as an advancement, but that the terms of the will left it uncertain whether it was to be “treated as advancement in real estate or is now personalty.” We may add also, that the desire of the testator to preserve equality among his several children is apparent throughout his will ; and, therefore, in making distribution such equality must be preserved as far as possible. Possibly it may have been that the advances