Sonneborn v. Hutzler

Burke, J., delivered the opinion of the Court. We do not find it necessary to discuss with any particularity, the testimony contained in the record of this case. There are certain outstanding and controlling facts, clearly established by the evidence, which are sufficient to enable us to dispose of the legal question presented by the appeal. Henry Sonneborn, a prominent business man of Baltimore City died on the 26th day of December, 1917.

He had been for many years engaged in the clothing manufacturing business, and was the founder of the firm of Henry 'Sonneborn and Company. He had been the senior member of that firm, and the larger part of its capital had been contributed by him. He had been twice married. He left surviving him his second wife, Augusta, and one son, Henry, a child of the second marriage, and two daughters,—Mrs. Seymour Mandelbaum and Mrs. Charles G. Hutzler,—the children of the first marriage.

Mrs. Hutzler died before the institution of these proceedings. The appraised value of tiro deceased’s estate, as appears by the inventory filed in the Orphans’ Court of Baltimore City, on the 5th day of April, 1918, was $641,480. Mr. Sonneborn left a last will and testament by which, after certain bequests, he devised and bequeathed his estate to his family, and appointed George H. Hutzler, his grandson, Seymour Mandelbaum, his son-in-law, Siegmund B. Sonneborn, his brother-in-law, Augusta Sonneborn, his wife, and Henry Sonneborn, his son, executors and trustees of his estate. There is no question in this case as. to the validity or fairness of the will, which was duly admitted to probate and letters testamentary granted to the executors above named by the Orphans’ Court of Baltimore City. ⁴²⁶ The inventory of the personal estate was signed by all the executors and was sworn to> by Mr. Mandelbaum, one of the executors as “a true and perfect inventory of all and singular the goods and chattels of the said deceased that have com© to his hands, knowledge or possession at the time of making thereof; that what has since or shall hereafter come to his hands, knowledge or possession he will return in an additional inventory; that he knows' of no concealment, nor suspects any to be; that if he should hereafter discover any concealment, or suspect any to be, he will make the Register of Wills for Baltimore City acquainted therewith, that the same may be inquired into according to. law.” In this, inventory no reference was made to any shares of common stock owned by the testator in the Henry Sonneborn & Company, Incorporated.

This controversy concerns itself primarily, and, we may say, exclusively with certain shares of this, stock which was issued under the following circumstances. In the Eall of 1914, the members of the firm of Henry Sonneborn & Company decided to incorporate the business. In consequence of the depressed trade conditions., due to the war, the business of the firm in that year as compared with the previous year, showed a loss, of a hundred thousand dollars. The firm had been a large borrower of money to carry its business, and at that time it was indebted to banks and various persons to an amount approximating one million, two hundred thousand dollars.

The financing of the firm was in the hands of Siegmund B. Sonneborn, who had become the managing partner in 1899, and under whose management the business had expanded and prospered. The financing was done largely through New York bankers., and in the fall of 1914, Siegmund B. Sonneborn was advised by his bankers, that “owing to the war it might be quite possible that when we went into the market in January and February of 1915 and would be looking for our usual million or million and a half of accommodation in the open market, that we would not be able to sell our paper in the open market, and that it would be advisable to find some other means to do the finane ⁴²⁷ ing of tlie concern.” Ft, was agreed that the best and most effective means, to take care of the outstanding indebtedness, and to provide the needed capital was, by the incorporation of the business and the sale of stock of the, corporation. Accordingly an agreement signed by all the parties, dated January 9th, 1915, was prepared by Mr. Edwin G\ Baetjer which declared that it was the desire and intention of the parties thereto “to transfer said business to a corporation to be organized by them., and to provide such corporation with additional working capital.” The agreement, provided: first, for the issue of one million dollars of first, preferred 7% cumulative stock, redeemable through a sinking fund at the expiration of twelve years. The new capital was to be represented by thisi stock; secondly, for the issue of one million dollars of second preferred 7% stock.

The invested capital of the partners, was to he repr©' sented by this stock which was to be distributed among the partners according to their capital accounts; thirdly, an issue of two, million, fire hundred thousand dollars of common stock. This, stock was not represented by any tangible assets, but had back of it only the good will and earning capacity of the business. A certain number of these shares were to be used as bonus in the sale of the preferred stock, and the remaining shares, which the evidence shows to have been nineteen thousand three hundred and seventy-one, were to be divided among the partners in accordance with the following provision of the agreement: “The common stock or such portion thereof as remains after making the provisions above set forth shall be divided among said partners in accordance with the provisions of said articles of co-partnership governing the distribution of profits, including as well such distribution during the lifetime of Henry Sonneborn as the distribution after his death, and so that during his life the said shares of common stock may be divided and held by said partners in the proportions in which they are entitled to the profits of said firm, and after his death the said division may be ⁴²⁸ changed and said common stock divided in the proportions to which said partners are entitled to the profits of said firm after his death.” It is, therefore, clear that it was the intention of Henry Sonneborn: firstthat he should hold his proportion of this stock for the term of his natural life only; and secondly, that at his death it should not constitute a.part of his estate, but should be “divided in the proportions to which said partners are entitled to the profits of said firm after his death.” By an agreement dated January 19th, 1915, signed by all the partners) and by Augyista Sonneborn, 'the wife of Henry Stonneborn, and Camilla K. Gr. Sonneborn, the wife of Siegmund B. Sonneborn, a change was made in the distribution of the common stock.

It was provided therein that: “All of the said shares of second preferred stock and common stock received by the co-partners of Henry Sonneborn & Company under and by virtue of the agreement with Henry Sonneborn & Company, Incorporated, dated February 19th, 1915, save the portion thereof sold as aforesaid to said bankers, shall be distributed, assigned and transferred by the parties hereto in the proportion and to the number following, that is to say: ⁴²⁹ “Each of said parties shall be entitled to hold the shares above provided to be distributed and transferred to them absolutely as the absolute, separate and individual property of each of said parties, respectively, and free from all claims of any character of any other party hereto; and each of the parties hereto do hereby release each of tbe other parties from any claim that he might have to said shares or otherwise by virtue of any provision of said partnership articles or any other agreement between said parties fixing or relating to any distribution of tbe partnership assets in any other proportion, or providing for a change in the interest of said partners in the event of the death of Henry Sonneborn, or in any other event, it being intended that the distribution hereby made is a final one.” Mr. Hugo Sterner, a member of the Baltimore Bar, had,' been the personal counsel of Mr. (Sonneborn for a number of years, and had drawn his will, and a few days after the testator’s death, read it to the members of his family. He was employed by all the executors as appears by a petition filed in the Orphans’ Court, to aid and advise them in the performance of their duties.. Mr. Hutzler testified that shortly after the -reading of the will he said to Siegmund B. Skmnebom that he was surprised to learn that no common stock of H'eery Sonneborn & Company, Incorporated, w'as included in a statement of the assets of tbe estate presented by him, and that he replied: “Oh, that was given to Augusta, and Henry as partners,—by that he meant his. sister and her son, Henry.” As to this conversation, Siegmund B. Sonneborn testified as follows: “Mr. Hutzler asked why did not the old gentleman have any common stock, and I told him the common stock had been distributed as provided for in the co-partnership papers, and that Mrs. Augusta Sonneborn received her share. Henry, his share and I received onei-sixteenth.” The will was admitted to probate on the 2nd day of January, 1918, and presumably tbe executors! qualified on that day.. ⁴³⁰ A day or two- after the grant of letters, Mr. Hiutzler returned to New York where he resides.

He said in his testimony that “realizing that some investigation might he- needed on my part as executor to verify the assets, I concluded it was important to appoint counsel to assist me. I called upon Blandy, Mooney and Ship-man, and discussed the matter with Mr. Edmund L. Mooney.” He. retained Mr. Mooney as counsel, and upon Mr. Mooney’s recommendation he employed Mr. Farquhar J. MaoRae> a New York expert accountant, “to investigate the books-, expecially in connection with the common stock.” Colonel Mandelbaum employed Mr. Vernon Cook, telling Mr. Steiner who represented all the executors in the settlement o-f the estate “to- go ahead and attend to the estate and everything, else connected with it. This is only in case of litigation we will have our own counsel. Just go ahead with the administration of the estate- as if nothing occurred.” Mr. MacRae came to Baltimore on two -occasions and made- an examination o-f the books of Henry Sonnebom and Company, for which he charged $751.64.

On his first visit a private ledger of the firm, which had ceased to exist for about three years, could not be found, but was subsequently found and put in his possession. He had access to and examined all the books, and partnership- agreements he called for, including the reports of Hasldn and Sells, expert accountants, of the condition of the firm for five years prior to the incorporation, and as the result of both, visits he- testified that he would not say that anything had been concealed or suppressed. The record contains certain correspondence between Mr. 'Cook and Siegmund B. Sonneborn in which Mr. Cook propounded certain questions relative to matters upon which he desired information. These questions appeared to have been fully and frankly answered and copies o-f all papers called for in the possession of Mr. Sonnebom furnished.