Gianakos, Ex'r v. Magiros

OppBnheimbr, J., delivered the opinion of the Court. This is the second case which has come before us involving the affairs of the late George Magiros (George), of Elkton. ¹⁸¹ George was born in Greece and emigrated to the United States in 1910. In 1916, he married his first wife by whom he had three children, Thomas, John and Peter. George’s first wife died in 1931.

In 1933, he settled in Elkton with Thomas and John and engaged in the restaurant business on Route 40. In January, 1951, he married his second wife, Sophie. George died intestate on April 6, 1961. Sophie died on September 9, 1962, leaving a will under which John C. Gianakos was named Executor.

In November, 1950, when he was fifty-nine years of age, and a few months before his second marriage, George had executed deeds of real estate to his sons. By one of these deeds, he conveyed the real estate on which the restaurant property in Elkton was located to Thomas and Peter, reserving unto himself a life estate with general power of disposition. Sophie, George’s second wife, brought a Bill which sought to set the deeds aside. On Sophie’s death, her Executor was substituted in her place as plaintiff.

In Gianakos, Executor v. Magiros, 234 Md. 14 , 197 A. 2d 897 (1964), this Court affirmed the order of the lower court holding that there was no basis upon which George’s deeds to his sons should be set aside. At the time of George’s death, he and Thomas were partners in the restaurant business in Elkton. Thomas was appointed administrator of George’s estate in the Orphans’ Court of Cecil County several days after George’s death. Neither George’s widow nor Mr. Gianakos, who was then her lawyer, had any knowledge of the extent of George’s interest in the partnership, or the value of the partnership; Mr. Gianakos inquired of William G. Kemp, Esq., attorney for Thomas, as to these and other matters and was advised by Mr. Kemp that the partnership was under an oral agreement with each party having a fifty per cent interest.

There was some delay in filing the formal appraisal in the Orphans’ Court because of problems in evaluating certain assets, but in June, 1962, Mr. Kemp wrote Mr. Gianakos, giving the appraised value of the restaurant assets. A one-half interest in these partnership assets, at the values set by the Orphans’ Court appraisers, which were the same valuations sent by Mr. Kemp to Mr. Gianakos, were filed in the inventory of the assets of George’s estate in the Orphans’ Court. Upon George’s death, Thomas closed the books of the part ¹⁸² nership and has since conducted the restaurant as an individual proprietorship. He has at all times admitted his obligation to account to George’s estate as a creditor for the amount of George’s one-half interest in the partnership.

Pursuant to the advice of his counsel, Mr. Kemp, Thomas made renovations and repairs, at his own expense, after George’s death, without seeking the prior consent of or ratification from Sophie or her Executor. Exceptions to the Orphans’ Court appraisals were filed but neither the Orphans’ Court appraisals nor the exceptions have been made part of the record in this case. Shortly after George’s death, Thomas made various withdrawals and replacements in connection with the interest of George’s estate in the partnership account. These transactions were all made upon the advice of Mr. Kemp and will be referred to hereafter.

In January, 1963, Mr. Gianakos, as Sophie’s Executor (the Executor) filed suit against Thomas individually and in September, 1963 amended the Bill to include Thomas as George’s administrator. In his amended Bill, the Executor asked that he have an accounting of the partnership assets; that he be permitted to elect between the profits of the partnership earned after George’s death or the interest on George’s capital account from his death; that a receiver be appointed to take over the partnership assets for purposes of final disposition; that an order be passed ordering the sale of all partnership assets by such receiver; and for other relief. Thomas answered the amended Bill and denied that the Executor was entitled to any of the relief prayed. Testimony was duly taken.

During the proceedings below, the Executor testified that Mr. Kemp, as counsel for Thomas, had never refused to give the Executor anything he asked for in the nature of records or copies of the partnership affairs. Counsel for the Executor stated to the court below that he was not asking for the removal of Thomas as administrator of George’s estate. During the discussion, the Executor’s counsel also stated that he did not maintain that there was any criminality, intentional wrongdoing or any malice in Thomas’ conduct in any respect, although, in his brief, the Executor contends that this statement was only made in connection with the discussion as to the removal of Thomas as administrator. The court ¹⁸³ found that the Executor was not entitled to any relief and dismissed the Bill.

It is from the order of dismissal that this appeal was taken. I The court below found that it was entirely proper, under the circumstances, for Thomas to operate the restaurant as an individual proprietorship after George’s death, subject only to the admitted obligation to account to George’s estate as a creditor for George’s interest. The Executor contends that this conclusion was incorrect on the grounds that under The Uniform Partnership Act, Code (1957), Art. 73A (the Act), Thomas as sole surviving partner was under the duty to wind up the affairs of the partnership, and that Thomas, acting as legal representative of the deceased partner, was without legal capacity to elect to stand as an ordinary creditor. Under the Act, one of the causes of dissolution oí a partnership is the death of a partner. § 31.

On dissolution, the partnership is not terminated but continues until the winding up of partnership affairs is completed. § 30. On the death of a partner (when he is not the last surviving partner) his right in the specific partnership property vests in the surviving partner. § 25 (2) (d). Under § 37 unless otherwise agreed, the surviving partner has the right to wind up the partnership affairs, provided, however, that any partner or his legal representative, upon cause shown, may obtain winding up by the court. Under § 41 (1), (2) and (3), the surviving partner may continue the business without liquidation of the partnership affairs if he has the consent of the representative of the deceased partner and if there is no agreement to the contrary.

The rights of the legal representatives of the deceased partner, in such case, are to have the value of the deceased partner’s interest ascertained as of the date of dissolution, which was the date of death of the deceased partner; and to receive that amount as an ordinary creditor. There was no agreement between the partners, George and Thomas, as to what should happen upon the death of either partner. Thomas, as administrator of George’s estate, therefore, by reason of his appointment, had to make the election as to whether the business should be continued by himself in his individual capacity as surviving partner with the interest of ¹⁸⁴ George’s estate therein valued as of the date of dissolution; or whether to ask the court to wind up the partnership affairs, in which case, George’s estate would receive one-half of the net proceeds of the eventual liquidation. Absent any breach of fiduciary relationship, it is clear under the Act that Thomas, as surviving partner, had the right to continue the business without liquidation of the partnership affairs, under Section 41 (2) of the Act, 1 with his. own consent as representative of the deceased partner (George’s estate of which Thomas was administrator); that such consent was given, although not in formal terms, by Thomas as administrator to Thomas as surviving partner; that by virtue thereof, under § 41 (3), 2 Thomas, as surviving partner, had the same rights as if a formal assignment had been made; and that, there being no agreement to the contrary, under § 42 of the Act, 3 Thomas’ ¹⁸⁵ rights as George’s administrator were to receive as an ordinary creditor the value of George’s interest in the dissolved partnership, with legal interest, or at Thomas’ option, as George’s representative, instead of interest on the claim, the profits attributable to the use of the right of George’s estate in the property of the dissolved partnership.

Sykes, Probate Law & Practice (1956), § 553. The Executor contends that the provisions of the Act to which reference has been made do not apply because they are predicated upon the continuance of the business. He argues that Thomas did not continue the partnership business because he closed out the partnership books and operated the business as an individual proprietorship subject to the obligation as surviving partner to account to George’s estate as creditor for George’s one-half interest in the dissolved partnership. However, the Act does not require that the business be continued as a partnership.

The statutory reference to continuation of the business, under the circumstances, clearly refers to continuation of the business by the survivor in his own right. Under the provisions of the Act, Thomas, as administrator of George’s estate, consented to the continuation of the business of the dissolved partnership and, therefore, Thomas, as the legal representative of George’s estate, had the right to have the value of George’s one-half interest ascertained at the date of dissolution, and to receive the amount thereof as an ordinary creditor, unless he was precluded from exercising the choice which the statute gives because of his dual relationship as administrator and surviving partner. It is this choice which Thomas made as administrator of his father’s estate which the Executor claims he did not have the right to make. Apart from the provisions of the Act which by its terms, as has been seen, gives the administrator of an estate the right to make the election here considered, the Executor claims that under general equitable principles Thomas was precluded from taking any action in which the interest of the beneficiaries under his position as administrator and his own personal interest as surviving partner may conflict.

There is no equitable principle more firmly established in our jurisprudence than that a fiduciary is under a duty of loyalty ¹⁸⁶ to his beneficiaries and cannot use the property of a beneficiary for his own purposes. Maryland Credit v. Hagerty, 216 Md. 83, 90-91 , 139 A. 2d 230 (1958); McLaughlin v. Barnum, 31 Md. 425, 451 (1869); Restatement, Trusts, Second, §§ 26, 170; Clapp, A Fiduciary’s Duty of Loyalty, 3 Md. E. Rev. 221, 227-28 (1939). As to matters within the scope of the relation, he is under a duty not to profit at the expense of the other and not to enter into competition with him without his consent, unless authorized to do so by a proper court or by the provisions under which the relations arise. Restatement, Trusts, Second, § 2, Comment b.

In this case, under the Act, it was inherent in Thomas’ position as administrator that he elect, for the estate, either to receive the value of George’s interest in the dissolved partnership as an ordinary creditor, or under Section 30, to have the partnership continue until the winding up of partnership affairs is completed, with the right to an accounting for the deceased partner’s interest, under Section 43. If an administrator is properly appointed by the court having jurisdiction, he is not disqualified by the filing of a personal claim against the estate; nor, as administrator, is he required to avail himself of a defense of limitations against such a claim. Talbert v. Reeves, 211 Md. 275 , 127 A. 2d 533 (1956) and cases therein cited. By reason of his court appointment, in the