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Englestein v. Mackie

APRIL 30, 1962.

LOUIS ENGLESTEIN, APPELLEE,

v.

ROBERT W. MACKIE, ORRIN L. BERNSTEIN AND CITY NATIONAL BANK AND TRUST COMPANY OF CHICAGO, AS EXECUTORS OF THE ESTATE OF HARRY M. ENGLESTEIN, DECEASED, ET AL., APPELLANTS.



Appeal from the Superior Court of Cook County; the Hon. GROVER C. NIEMEYER, Judge, presiding. Decree affirmed and cause remanded with directions.

MR. PRESIDING JUSTICE MURPHY DELIVERED THE OPINION OF THE COURT.

Rehearing denied May 28, 1962.

This is a suit in equity, primarily for a general partnership accounting between two brothers. The complaint was filed in 1944 by plaintiff, Louis Englestein, and his brother, Harry M. Englestein, was the principal defendant. A final decree, entered in 1960, found that the partnership began in 1912 and continued until 1959, when it was dissolved by the death of Harry. The decree directed liquidation of all of the remaining partnership assets by Louis, as the surviving partner. The decree also declared that the partnership owned shares of Chillo Corporation stock claimed by defendant Robert W. Mackie. Defendant executors of the estate of Harry M. Englestein, deceased, and defendant Mackie prosecute separate appeals.

The principal questions are the duration of the partnership, and the ownership of the residue of its assets, claimed by Harry as the sole owner.

In 1912, Harry and Louis, pursuant to an oral agreement, entered the real estate brokerage business, including management, insurance, and real estate investments. Harry was to receive 60% of the profits and Louis to receive 40%. Subsequently, the partnership engaged in many ventures and beneficially owned a wide variety of assets, including a number of buildings, real estate mortgages, bonds, and stocks.

In 1931, the partners executed an agreement entitled "Partnership dissolution agreement," to be effective May 15, 1931. Legal title to various parcels of real estate was conveyed to 22 separate Illinois corporations organized by Harry and Louis for title holding purposes. Legal title to other partnership assets was transferred to Louis, as trustee. Because of the depression, their subsequent activities were devoted primarily to managing and salvaging their real estate investments.

In 1942, a controversy arose between them. In April, 1944, Louis filed his 8-count complaint in chancery, to which a ninth count was added in 1949. The defendants were Harry, Mackie, a number of individuals, and seven corporations organized by Harry and Louis. Each count of the complaint is a separate demand for recovery of specified shares of corporate stock alleged to be partnership assets wrongfully detained by the record holder thereof, and of which Louis is alleged to be owner, in whole or in part. The prayer of each count is for the assignment to plaintiff of a specified number of shares of the named corporation and an accounting to plaintiff for all dividends received upon the stock.

The answers of the defendants, except Mackie, allege in substance that the stocks standing in the name of each defendant are held as nominees of Harry. The answer of Mackie alleges 208 shares of Chillo Corporation were issued to him "as compensation for services rendered."

The answer of Harry alleges that in 1912 it was orally agreed by the partners that the net operating income to be derived from real estate and insurance brokerage, also from property management, should be divided 40% to plaintiff Louis and 60% to defendant Harry, but the net profits derived from the real estate investments were to be apportioned 50% to defendant Harry, the remaining 50% to be dealt with as operating income of the brokerage business (and thereby to become subject to the 60-40 agreement to divide net operating income). He denies that the partnership at any time owned any of the properties or corporate shares described in the complaint.

Harry further alleges that the ownership of the properties described in the complaint was vested in him alone at all times; that "the entire amount paid for the capital stock of said corporations was paid by the defendant solely. Regardless of the manner in which the shares of capital stock of said corporations were issued, the defendant was in truth the beneficial owner of all said shares and all other persons to whom any of said shares were issued in 1931 (including the plaintiff) were merely the nominees of the defendant and had no beneficial interest in any of said shares." As to the Chillo shares, Harry answered that they were issued to Mackie for services rendered.

In 1945, the case was referred to a master in chancery for a hearing on the issues. In 1952, a very extensive master's report, dated March 21, 1951, was heard by Judge John J. Haas, to whom the case was then assigned. The master's report concluded that the real estate investments were partnership assets and belonged to the parties on a 60-40 ratio; that the partnership was dissolved May 15, 1931, and Louis was entitled to a "40% interest" in the remaining partnership assets. The master also reported that, in his opinion, Harry was entitled to 30% of the properties for extraordinary services rendered by Harry since 1931, "which 30% should be a first charge upon the properties before division on the basis of 60-40, as recommended."

On December 11, 1952, Judge Haas entered an order confirming and adopting the report, but entered no decree. Instead, he filed a written opinion on the issues of the case, which concludes as follows:

"The report of the master is predicated upon nearly 5000 pages of testimony, exhibits and briefs of counsel. I have read his report, the briefs and the salient portions of the record and confirm the report in all respects except that I will not approve any decree until after counsel for the defendant signify their intention as to the disposition of their client's claim.

"The cause will be re-referred to the master to proceed in the accounting and the hearing of the matters that he concludes should be considered in conjunction with the accounting. All of the exceptions to his report will be denied."

Pursuant to leave granted by the order of December 11, 1952, Harry filed a counterclaim on February 10, 1953. It alleges that all of the shares of stock demanded by Louis were attributable solely to the accomplishments of Harry since May 15, 1931, and asks for an equitable reward for those services. The answer of Louis to the counterclaim denies that the partnership was, in fact, dissolved on May 15, 1931; alleges that the partnership continued to exist after May 15, 1931; asserts that the services of Harry were rendered during a continuing partnership, and that Harry "is entitled to no greater compensation than is provided for by the partnership agreement."

In 1954, Judge James R. Bryant, to whom the case was then assigned, entered an order granting leave to the plaintiff to file a "second amendment to the complaint as amended" and to add additional defendants. The order referred the case back to the master, with instructions to render a report on the legal relationship of Harry and Louis from May 15, 1931.

On April 3, 1958, a general report on the various issues of the case was submitted by the original master, then serving as commissioner. The report is primarily concerned with the actions and attitudes of the parties since 1931, and their effect on the counterclaim of Harry. It refers to, but does not restate, the conclusions and findings set forth in the original report of March 21, 1951, and its supplements. It states that when the second amendment to the complaint was filed by Louis on September 23, 1954, Louis changed from his position of seeking the return of 40% of the stock in the various corporations, to the position that the partnership continued to the date thereof and it owned all of the stock in the various corporations; also, that he [Louis] claimed he had a 40% interest in the partnership, and prayed for a general partnership accounting and the appointment of a receiver to sell all of the assets and make distribution of the proceeds.

The findings of the special commissioner include: that the partnership was dissolved on May 15, 1931, and its assets distributed to the various corporations, and each partner "became entitled to his share of the stock therein in a 40-60 ratio as provided by the dissolution agreement of May 15, 1931"; that "as no partnership continues the parties are each entitled to their proportionate share of the stock in said corporation"; that although Harry did perform many services since 1931 in salvaging the assets, Louis "also did considerable work in this regard"; and as Harry, an officer and director of the various corporations, received compensation for his work therein, "no allowance can be made in this proceeding for such extraordinary services claimed to have been rendered by Harry"; that the counterclaim of Harry should be dismissed for want of equity; that Louis is not entitled to any general partnership accounting in this matter; that any accounting to be made must be made by the various corporations; and that he should have free access to examine the books and records of said corporations.

On September 3, 1959, the death of Harry on June 24, 1959, was suggested to the court, and his executors were substituted as defendants in his stead.

On September 10, 1959, the case was then assigned to Judge Grover C. Niemeyer, and he proceeded to a hearing on the special commissioner's report, the exceptions thereto, and all matters in controversy between the parties.

On April 11, 1960, with leave of court, a supplemental complaint was filed, which relates the death of Harry and alleges that the continuing partnership between plaintiff Louis and defendant Harry was dissolved by Harry's death on June 24, 1959, and that plaintiff Louis "as surviving partner has the right to wind up the partnership pursuant to the Uniform Partnership Act." It concludes with a prayer for an order directing Louis to wind up the partnership in accordance with the Uniform Partnership Act.

On April 14, 1960, a decree was entered granting the relief prayed for in the supplemental complaint filed April 11, 1960, and referring the cause to a master in chancery to take a general partnership accounting pursuant to the principles of partnership law and the provisions of the decree. The decree stated that the matter had been heard for three days on the complaint and answer, other pleadings on file, upon the master's report of 1951 and its supplements, the objections thereto, the supplemental complaint and extensive briefs filed by all parties.

The decretal findings include: that in 1912, Louis and Harry entered into an oral partnership agreement to engage in business and to share profits, losses, assets, and liabilities in the proportion of 40% to Louis and 60% to Harry; that the partnership engaged in many ventures and beneficially owned a wide variety of assets, including real estate, mortgages, bonds and stocks; that legal title to partnership assets, including real estate, was in Harry's name, and when partnership real estate was mortgaged, Harry signed the mortgage; that pursuant to a written instrument dated May 15, 1931, the partners caused legal title to various parcels of real estate owned by the partnership to be conveyed to 22 separate Illinois corporations and caused legal title to certain other partnership assets to be formally transferred to Louis, as trustee, and "thereafter said partnership beneficially owned all the shares of the various corporations and all the assets of the trust"; that "said partnership continued until it was dissolved by the death of defendant, Harry M. Englestein, on June 24, 1959"; that "the special commissioner's finding that the partnership was dissolved May 15, 1931 is overruled"; that "the assets of said partnership at the time of said dissolution include but are not limited to all the shares of the following corporations: . . ."; that "all services performed by defendant, Harry M. Englestein, to the time of his death on June 24, 1959, were performed pursuant to the continuing 40-60 partnership arrangement between plaintiff and defendant and said defendant is not entitled to any additional compensation as prayed in defendant's counterclaim. The counterclaim of defendant, Harry M. Englestein, is dismissed for want of equity."

The decree further finds that "An accounting shall be had pursuant to the principles of partnership law. Among other things plaintiff shall account for all salaries credited to his account (including all salaries paid) and defendant executors shall account for all salaries credited to the account of defendant, Harry M. Englestein (including all salaries paid) from all corporations, all of whose shares are beneficially owned by said partnership as listed in paragraph 9 hereof, including all corporations which have been merged in the corporations listed in paragraph 9 and including all corporations which have been dissolved since May 16, 1931, all of whose shares were beneficially owned by said partnership during their corporate existence. Said accounting shall be for the period from 1912 to the date of this decree."

The decree further finds that the partnership owns all of the outstanding shares of Chillo Corporation, and that "all shares of said corporation issued in the name of defendant, Robert W. Mackie, were issued without consideration and said shares are void and should be cancelled. . . ."

The decree ordered the defendant executors of the estate of Harry to transfer and deliver all partnership assets to plaintiff Louis, "as surviving partner," and directed him as surviving partner to wind up the partnership affairs "by selling all the partnership assets at public or private sale . . . and the proceeds shall be used to discharge all partnership liabilities and the excess shall be used to pay in cash the net amount owing to plaintiff and the net amount owing to the defendants, as executors of the estate of Harry M. Englestein, deceased." The decree referred the cause to a ...


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