Story Case

Henry Folsome, George Miller, and Edward Mal-aney were partners in the florist business. Title to the real estate used by the firm was in the names of Fol-som and Miller. Miller died, leaving a wife and two children. After his death, Folsom and Malaney sold the firm property, including the real estate, to Homer Beal. After this sale was made the widow and children of Miller claimed an interest in the real estate, on the ground that they were the heirs of Miller and were entitled to his interest. Beal defended, on the ground that Folsom had complete power, in himself, to convey the firm real estate, and the consent of Miller 's heirs was not required. Is this a correct defense?

Ruling Court Case. Steinhurg Vs. Larkin, Volume 58 Kansas Reports, Page 201; Same Case, Volume 37 Lawyers' Reports Annotated, Page 195

John Getty and Arthur Larkin were partners engaged in business. A part of the firm property consisted of real estate which became the subject of the present suit. During the continuance of the partnership relation, Getty died, leaving a widow and certain minor children. Mrs. Getty, his widow, was appointed administratrix of his estate. Larkin, as surviving partner, gave bond to close up the partnership business. Soon thereafter, Mrs. Getty, as administratrix, and Mr. Larkin, as surviving partner, adjusted the affairs of the firm. To enable Larkin to pay the partnership debts, Mrs. Getty agreed that the partnership realty should be sold. Larkin sold the real estate to Steinburg and gave him a warranty deed. Steinburg, then, brought this action on the warranty deed, that he had a defective title. He contended that a surviving partner cannot sell and pass good title to the partnership property. He claimed, that the minor children of the deceased partner have an interest in the partnership property which cannot be cut off by such a conveyance, and that the real estate should have been sold, and the proceeds divided.

Decision

All partnership real property, for the purpose of the firm, is treated like personal property.

The wife gets no dower in the real property, nor do the children or heirs of the deceased partner get any interest therein. Title to it passes to the surviving partner, who may dispose of it in settling up the affairs of the firm.

Mr. Justice Doster stated the principles governing firm real estate after the death of a partner. "In conformity with the great weight of authority, we must hold partnership real estate to be of the same character as personal property owned by the partnership, so far as its disposition for partnership purposes is concerned. It is now held with practical unanimity by the American Courts, that if partnership capital be invested in land for the benefit of the company, it will be treated as personal estate until it has performed all its functions to the partnership, and thereby ceases to be any longer partnership property, and until then it is not subject to either dower or inheritance."

Accordingly, it was held that the conveyance by Larkin to Steinburg passed a good title, and judgment was given for the defendant.

Ruling Law. Story Case Answer

It has been seen, heretofore, that a partnership is not recognized as a legal entity to the extent that real property can be held in the firm name. Title to all partnership realty must be held by one or more or all of the partners. Though they have the legal title in equity, they hold it for the purposes of the partnership and for its benefit.

It is generally said that for the purpose of winding up the partnership affairs after the death of a partner, all firm realty is treated as personal property. By this is meant, that all firm realty must first be used for the purpose of paying the debts and obligations of the firm. However, legal title, thereto, passes to the heirs of the deceased, to the extent that he had an interest in the same. But these heirs hold the property for the benefit of the firm, until all obligations have been met. As, for instance, it may be supposed that the firm of A & B Co., composed of A, B, and C owns certain real property, title to which is vested in A and B. If B and C die, title to the real property will descend to A and heirs of B. No legal title goes to C's heirs, for C never had any legal title thereto. But the heirs of B can claim no beneficial interest in the realty until all the debts of the firm have been paid.

In the case above supposed, if title had been vested exclusively in A during the continuance of the partnership, at the death of the two partners, the legal title would have descended to A; he would hold the property first for the benefit of the firm obligations; and when they were met, he would have to account to the heirs of B and C for their interest therein. In the Story Case, Folsom had complete power to dispose of the firm real estate, although it was in the name of both himself and Miller. Beal received good title and, therefore, his defense is correct.