Before DUFFY, Chief Judge, MAJOR and SWAIM, Circuit Judges.
The plaintiff, formerly Billie P. Schellenberger, widow of Ralph D. Schellenberger, Texas administratrix of his estate and a citizen of Texas, brought this suit in the Northern District of Illinois against the defendant, James A. Schellenberger, a citizen of Illinois, brother of Ralph surviving partner of an automobile retailing partnership which was dissolved by Ralph's death, for an accounting with respect to the affairs of the firm.
Ralph D. Schellenberger died July 1, 1945, and the complaint was filed October 14, 1948. Defendant's answer to said complaint was filed November 10, 1948, to which was attached a copy of the articles of co-partnership entered into between the decedent and the defendant, dated December 10, 1937.
After prolonged litigation, including two previous appeals to this court, 196 F.2d 852, and 201 F.2d 29, with numerous references to a Master, a decree was entered September 27, 1954, approving in the main the report and supplemental report of the Master, dated respectively June 10, 1953 and August 21, 1953, in which it was adjudged and decreed that the plaintiff have and recover from the defendant the sum of $268,049.13, together with certain specified interest and costs. From this decree defendant appeals.
The partnership agreement set forth in detail the rights, duties and obligations of the partners, including the following provisions:
"It is further agreed that the party of the first part and the party of the second part shall both and each of them participate and own the said business and partnership jointly as joint tenants with the right of survivorship, and upon the death of either party hereto, all right, title and interest therein shall vest immediately unto the surviving partner. * * *
"In case of the death of either partner, the whose of the assets or effects of the said partnership shall accrue immediately to the surviving partner."
(The instant controversy turns upon the effect to be given to this language, which will subsequently be referred to as the "survivorship provision.")
The sole reason urged for reversal is that by the "survivorship provision" all of the partnership property at the time of the decedent's death passed to the defendant and he became the sole owner thereof. This, so it is asserted, constitutes a bar to plaintiff's cause of action and requires a reversal with directions to dismiss the complaint. Defendant, in support of this contention, relies almost exclusively upon a decision of an Illinois Appellate Court, Lynch v. Ilg, 348 Ill.App. 545, 109 N.E.2d 362 (hereinafter referred to as the Lynch case), in which the Illinois Supreme Court, on January 15, 1953, denied leave to appeal, 413 Ill. 633. It appears that the Lynch case is the first and only decision by an Illinois court construing and sustaining a partnership "survivorship provision." Defendant has attached to his brief a copy of the Lynch decision, it being reported only in abstract form.
This court, in an opinion rendered May 26, 1955, affirmed the judgment appealed from on the basis that defendant by his acts and conduct had waived the right to invoke the defense based upon the "survivorship provision." Such being our conclusion, we thought it unnecessary to consider or determine whether the rule announced in the Lynch case was applicable. We have, on this petition for rehearing, reached the conclusion that our previous decision was erroneous.That decision, therefore, and all orders entered pursuant thereto are vacated and set aside.
While we need not offer any excuse for reaching what we now think was an erroneous conclusion, it is perhaps pertinent to note that we labored under the impression that the Lynch decision was not called to the attention of the Master or the District Court. In fact we stated, "Another indication that defendant by his then counsel recognized that the present issue had been either waived or finally adjudicated resides in the fact that the Illinois Appellate Court decision now so heavily relied upon, rendered almost two years prior to the decree appealed from, was not cited or called to the attention of the District Court." This erroneous statement, relied upon to fortify our conclusion that the defendant had waived the survivorship defense, was due to the fact that we examined only the printed record, which did not contain either the Master's report or the opinion of the District Court rendered on defendant's objections to the Master's report and upon which was predicated the decree from which the appeal comes. However, the original transcript of the record contains a copy of the Master's report and the opinion of Judge Campbell, together with the decree. Both the Master's report and the court's opinion disclose that the survivorship issue was heavily relied upon by the defendant and that it was thoroughly considered, discussed and decided adversely to the defendant. Moreover, plaintiff did not raise before the Master or the District Court the issue of waiver by defendant. As a matter of fact, no such issue was raised by the plaintiff in this court, although it was incidentally referred to in her brief.
As already noted, the defendant attached the partnership agreement to his answer to the complaint and made it a part thereof. On April 5, 1950, the District Court allowed plaintiff's motion to strike that portion of the agreement relating to the survivorship defense and in so doing stated:
"Having, therefore, established that the Act [Illinois Partnership Act] mandatorily creates a tenancy in partnership, it still remains to be determined whether or not a tenancy in partnership and a joint tenancy with right of survivorship may mutually co-exist. That proposition must be answered in the negative for the reason that the most fundamental distinguishing element of the former is that there is no right of survivorship."
After reference to and report by a Master, the matter again came before the court on objection to the Master's report, and a decree was entered September 20, 1951. This decree contains numerous findings and conclusions relative to the partnership agreement and the relation which existed between the defendant and the decedent. It recited:
"That this Court, by an order entered on to-wit: April 5, 1950, had stricken from the defendant's answer the affirmative defense relating to partnership joint tenancy and right of survivorship because, the right of joint tenancy and the right of survivorship in partnership assets and property may not mutually co-exist by reason that the most fundamental distinguishing element of the tenancy in co-partnership is that there is no right of survivorship."
"That James A. Schellenberger, defendant, be and he is hereby required to account to said Bille P. Jones, formerly Billie P. Schellenberger, as Administratrix of the Estate of Ralph D. Schellenberger, deceased, on account of the partnership existing between said Ralph D. Schellenberger, deceased, during his lifetime, and said James A. Schellenberger, to the date of said account.
"That the cause be referred to Joseph F. Elward, a Master in Chancery, for the taking of an accounting of the partnership dealings by the said parties."
In the view which we now take of the case, it appears unnecessary to make a detailed statement either of the issues or facts which gave rise to the previous appeals to this court. Briefly, it is sufficient to note that subsequent to April 5, 1950, when the District Court first expressed the view that the "survivorship provision" constituted no defense, and prior to that court's decree of September 20, 1951, in which it was held as a matter of law that its previous ruling on that point was res adjudicata, the defendant employed an attorney and through him procured the issuance of letters of administration in the Probate Court of Cook County, Illinois, upon the estate of Ralph D. Schellenberger, his deceased brother and partner. The administrator thus appointed on December 19, 1950 filed his appearance in the District Court and moved that he be substituted as a party-plaintiff. The court on the recommendation of a Master to whom the matter had been referred denied the motion for substitution, whereupon the Illinois administrator appealed to this court, which affirmed. 196 F.2d 852.
On April 29, 1952, while the appeal lastly discussed was pending in this court, plaintiff filed in the District Court a petition for the appointment of a receiver to take charge of the partnership assets and for the issuance of an injunction to restrain their disposition by the defendant. Defendant filed an answer denying petitioner was entitled to the relief sought, largely on the basis that only complete relief could be obtained by the parties, including the rights of creditors and heirs in the Probate Court of Cook County, Illinois. The matter was referred to a Master, whose report recommending that the relief be granted was approved by the District Court over defendant's objection. The decree of approval was entered August 8, 1952, and recited in detail the proceedings which had theretofore been had. Among other things the decree stated:
"That on September 20, 1951, a decree was entered by this Court, wherein and whereby it was provided that plaintiff, Billie P. Jones, formerely Billie P. Schellenberger, as administratrix of the Estate of Ralph D. Schellenberger, deceased, was entitled to an accounting from defendant, ...