Rosenstock v. Rosenstock

Parke, J., delivered the opinion of the Court. The appellant, Nettie Rosenstock, is the widow of Jacob Rosenstock, and the appellee, Samuel H. Rosenstock, is his nephew, and all were residents of Frederick, when Jacob Rosenstock died on December 9th, 1920. The testator, after minor bequests, gave all the residue of his estate to the appellant for her life, and then over to his children in equal shares. The will conferred upon the appellant full power of disposition and investment of the estate, in her ²⁵⁵ discretion, and of advancements to the children for their education, welfare or maintenance.

The testator provided that if the appellant should decide to sell his interest in the firm of Rosenstock Bros., clothiers, or the Gem Steam Laundry, or the Frederick City Packing Company, or in the farms which were owned by him and his brother, Aaron Rosenstock, or “in any other enterprise or undertaking in which” he might be associated with his brother, or his nephew, Samuel H. Rosenstock, who is the appellee, or his partner, Moses Fisher, the appellant should give the option to purchase to these associates before offering the interest to any third person; and that the appellant “as far as can be consistently and properly done” should preserve his interest in these enterprises and undertakings for the benefit of his estate. The appellant was named as the executrix in this will of February 15th, 1919, which, on the following May 1st, was modified to the extent of appointing the appellee a co-executor and, for the first time, relieving the executors of giving bond. The appellant and appellee qualified as executors and settled what was called a first and final account on February 20th, 1922. The amount of the estate accounted for was one hundred and thirty-five thousand, seven hundred and sixty-six dollars and forty-five cents and after a deduction of all credits, the executors declining all commissions, the entire residue of one hundred and fifteen thousand, two hundred and seventy-nine dollars and twenty-eight cents was distributed by the account to the appellant as life tenant, subject to the terms of the will.

In this distribution to the life tenant was an item of five thousand and two hundred dollars, which was the estimate then given by the executors of the value of certain assets of the estate that, for the purpose of convenience, were grouped and carried in the account under the designation of “Speculative Accounts, various brokers, estimated $5200.” A few days more than two years and eight months after this administration account was stated, the appellant filed ²⁵⁶ her bill of complaint against the appellee for a discovery and accounting in respect to the speculative accounts of the testator, his brother, Aaron Bosenstock, and the appellee. After issue, the parties took their testimony in open court, before a full bench, and, after a careful and exhaustive examination and consideration of the voluminous record, the lower court adjudged that the appellee, on a just and proper accounting, was indebted to the -appellant as life tenant in the sum of twenty-one thousand, two hundred and nine dollars and forty-six cents, on account of principal ($20,280.98), and interest ($928.48) for assets of the estate'remaining in his hands and embraced in the item in the account carried as “Speculative Accounts, various brokers (estimated) $5200.” The appeal does not challenge the mathematics of the decree, but the determination of the lower court with respect to the share of the appellee in the several partnership relations among the appellee, the testator, and Aaron Rosenstock. A painstaking scrutiny of the complicated accounts does not uncover any calculation of the lower court which requires correction, and so we shall address our attention to the substantial questions involved, which will require a brief statement of how the various business undertakings of the appellant, Jacob Rosenstock, and Aaron Bosenstock, assumed their ultimate definite form. Jacob Rosenstock and Aaron Rosenstock were brothers and together were the owners of all of the stock of the Frederick City Packing Company, a corporation engaged in business at Frederick, when the appellee, Samuel H. Rosenstock, their nephew and then but nineteen years of age, was employed by the company as its general manager.

After several years the appellee had an opportunity to form a connection with a financial institution in New York, but he abandoned this opportunity when his two uncles gave him sixty-six and two-thirds shares of stock, or a one-third interest, in the packing company, whose total capital stock had a par value of twenty thousand dollars. At the time ²⁵⁷ of this gift, the two mieles were experienced business men, with other important affairs, and the appellee a yonng man of twenty-one years; and Jacob Rosenstock was made the president of the packing company and Aaron Rosenstock its secretary and treasurer, both serving without salary, and Samuel H. Rosenstock its vice-president and general manager at a yearly salary of thirty-live hundred dollars. The management of the company was conducted under the supervision and control of the three stockholders, who were familiar with its corporate business, although the appellee was the one who was entrusted with its securities and principally attended to the details of the enterprise, subject to the approval and the co-operation of his uncles. The corporation prospered and the salary of the appellee was increased to ten thousand dollars but, for a long period, no dividends were declared.

However, withdrawals of parts of the profits were made for investment for speculative purposes; and other profits were invested in securities to be used for credit accommodations in the packing business. This course was the result of a considered policy of the three stockholders of the company, and these transactions were, by common consent, carried on in the name of Samuel TI. Eosenstock, but as a result of the concurrent judgment of the uncles and the nephew, and subject to their joint control. There is no dispute that a portion of these undivided profits of the business was invested in stocks and bonds in an account carried in the name of Samuel H. Eosenstock with Stein Brothers, bankers and brokers of Baltimore, with whom the securities bought were left or kept there in a safe deposit box in the name of the nephew, with the right of access by one of the members of the banking house; and that another portion of the undivided profits was similarly invested and carried, although on marginal buying for speculative purposes, with Smith, Andrews & DJarston, bankers and brokers of Baltimore.

Eor is there any question that the interest in these two accounts was one of absolute equality among the three partners, ²⁵⁸ 1. With respect to the account with Stein Brothers, later Stein Brothers & Boyce, the chancery court held this was not a speculative account, and, therefore, under the allegations of the bill of complaint, not within the scope of any relief sought. No ground has been disclosed to affect this conclusion. .The company has kept accurate books since January, 1918,’ and these show what profits have been made since that time and how they have been divided, and nothing was disclosed by the proof sufficient to charge the appellee with any of such later profits. • And, furthermore, the three shareholders had a settlement on June 24th, 1918, and the balance of the account with this particular banking house was shown by appellant’s expert accountant to have been substantially in agreement with the amount set forth in the settlement. This agreement established that the appellee owed the appellant nothing up to its date out of this account.

The securities mentioned in this settlement on June 24th, 1918, were subsequently divided among the three shareholders, with the exception of one hundred and seventy-five shares of United Railway Investment preferred stock, ten shares of common stock of the United Drug Company, five shares of second preferred stock of the United Drag Company, and one thousand shares of stock of Mother Lode Copper Mine Company, one hundred shares of common stock of Houston Oil, and fifty shares of Simms Petroleum stock. It was agreed among them that these named shares should not be divided in kind at the time on account of their speculative nature and their uncertain value, but there is no reason why this should not be done" and each interest receive its equal one-third share. 2. The account with the firm of Smith, Andrews & Marston was speculative, -as it was for the purchase and sale of stocks and bonds on margin. Before the death of Jacob Rosenstock in December, 1920, a continuing decline in value of the securities carried by this brokerage house in the name of Samuel H. Rosenstock had compelled the pledging by the three equal shareholders of additional collateral to protect their account.

Before the death of Jacob Rosenstock, they ²⁵⁹ had pledged as additional collateral over seventy-five thousand dollars in securities. If this account had been closed out by the appellee and Aaron Rosenstock upon the death of Jacob Rosenstock on December 9th, 1920, not only all the securities which had been purchased on margin, but also the additional collateral which had been pledged, would have been lost, and an indebtedness established. To prevent this financial calamity, the account was not closed out by the survivors, but, in order to protect the account, the appellee met the further calls for additional security on a continuing unfavorable market in 1921 by pledging more than twenty-five thousand dollars of collateral which was his own private property. After Jacob Rosenstock’a death no collateral belonging to his estate, or in which his estate had any interest, was pledged, but the result of this policy was to protect the estate from loss, as when Smith, Andrews & Marston went into bankruptcy on December 9th, 1921, the account, as of November 1st, 1921, showed the bankrupts to have been indebted to the appellee, in whose name the account was carried, in the sum of three hundred and two1 thousand seven hundred and fifty-eight dollars and fifty-six cents on account of securities held by said bankrupts, and the appellee to have been indebted to the bankrupts on this account in the sum of two hundred and sixteen thousand nine hundred and thirty-six dollars and six cents, which left a clear indebtedness of the bankrupts to the appellee of eighty-five thousand eight hundred and twenty-two dollars and fifty cents.

On this record, it is plain that the appellee pledged upwards of fifty-seven thousand dollars of his own private resources to protect the account, and he received about twenty-six thousand dollars in dividends from the bankrupt estate of Smith,