This case is before us on appeal by the complainants, Frank R. Rubel and Lotta R. Lehmann, Executors of the will of Jacob H. Rubel, deceased, from a decree of the Chancery Court of Alcorn County dismissing with prejudice their bill of complaint against the defendant, Simon
Jacob H. Rubel died on January 4, 1946. At the time of his death he and his brother, Simon H. Rubel, were the owners in equal parts of a large mercantile business in the City of Corinth, Mississippi, which was conducted and carried on under the firm name of Abe Rubel & Company. The business had been established by their father, Abe Rubel, during his lifetime. Abe Rubel was the owner of a 60 per cent interest in the business at the time of his death in 1931, and Jacob and Simon were the owners each of a 20 per cent interest in the business. After the death of Abe Rubel, Jacob and Simon acquired the interest of the Abe Rubel estate in the business and continued to operate the same as a partnership until Jacob's death in 1946.
On January 16, 1943, the partners executed written articles of partnership, in which the partners agreed that they would continue to carry on the business, as theretofore, for a term of twenty-five years, sharing equally the gains and losses of the business.
In paragraph 2 of the articles of agreement it was expressly stipulated and agreed as follows:
"2. That the partnership's capital shall be all the assets of the said business of Abe Rubel & Co. as of the date of this agreement, it being understood and agreed that this agreement is not to affect in any way the business now being conducted by the parties hereto under their oral partnership agreement; but said business is to be conducted as heretofore as this agreement is not to have any effect whatever upon the character and conduct of the said business."
"4. It is agreed and understood by and between the parties hereto that the death of either party to this agreement shall not work a dissolution of this partnership.
"5. If, upon the death of either party to this agreement, the other should wish to purchase his deceased partner's interest in the said partnership, he shall have the right to do so, and the price of said interest is hereby fixed at seventy-five (75%) per cent. of the book value thereof. Not only is this price deemed to be fair and equitable, but it is in line with a custom followed by members of all the old partnerships conducted under said partnership name over a period of many years."
On January 1, 1943, Jacob H. Rubel executed his last will and testament, and in paragraph 15 thereof the testator expressly provided as follows:
"15. The firm of Abe Rubel & Company, a mercantile partnership, located in the City of Corinth, Alcorn County, Mississippi, shall have six years from and after my death, if they so desire, in which to liquidate my interest in said partnership, provided the said firm will amortize my said interest, paying one-sixth (1/6) thereof each year to my executors and trustees, the first payment to be made upon receipt of firm insurance on my life. Abe Rubel & Company is to pay no interest upon the unamortized amount to my executors and trustees.
"My executors and trustees are expressly authorized, empowered and directed to carry into effect the provisions of this section of my will when and as soon as said firm indicated to them its desire to take advantage of the proposed scheme, and shall deliver to them a satisfactory statement of my interest in the said firm. In the event the said firm does not wish to take advantage of the amortization plan here proposed, or should fail and refuse to carry it into effect as herein provided, then and
After Jake Rubel's death Simon notified the executors that he desired to purchase the interest of the deceased in the firm of Abe Rubel & Company and to amortize the purchase price over a period of six years as provided for in paragraph 15 of Jake's will; and Simon thereafter continued to operate the business as his own. On February 27, 1946, Simon, as surviving partner, collected the proceeds of a life insurance policy in the sum of $50,000, which was carried by the firm on Jake Rubel's life, and paid the same over to the executors to be credited upon the purchase price which Simon was to pay for Jake's interest in the firm. Simon made other payments to the executors during the year which were to be credited upon the purchase price of Jake's interest in the firm. But the parties were unable to agree upon the amount which Simon should be required to pay for that interest; and on April 26, 1949, the executors filed their bill of complaint in this cause for the purpose of having the court determine the value of Jake's interest in the firm and the balance to be paid by Simon for that interest.
The complainants alleged in their bill that the defendant had notified them soon after Jake's death of his desire to purchase the interest of the deceased partner in the firm and to take advantage of the provisions of the will relating to the payment of the purchase price, but that the defendant had never furnished them a satisfactory statement of the assets of the firm as required by the will; that the defendant claimed that he was entitled to purchase the interest of the deceased at 75 per cent of its book value under the terms of the partnership agreement; and that the defendant had indicated to the complainants that the amount that he should be required to pay for the interest of the deceased partner was $107,026.73. The complainants further alleged that the actual
The defendant in his answer admitted that the firm of Abe Rubel & Company carried life insurance in the sum of $50,000 on the life of each of the partners, and that the proceeds of the policies were payable to the firm; but the defendant averred that the life insurance policies were not carried as assets on the books of the
The defendant averred in his answer that the book value of Jake Rubel's interest in the firm at the time of his death as shown by his investment account on the partnership books, was $162,861.02, and that 75 per cent of that amount was $122,145.77, which represented the full amount of purchase price that he should be required to pay for the deceased partner's interest.
The defendant alleged in his answer that he had paid $82,889.63 of the above mentioned purchase price; that since the death of Jake Rubel errors had been discovered in the accounts of Jacob H. Rubel and Simon H. Rubel, executors of the Abe Rubel estate, and that certain items of income belonging to the Abe Rubel estate had been credited to the partnership, for which Jake Rubel and the defendant were liable to the Abe Rubel estate; that the defendant had accounted to the estate for those items amounting to $22,064.94; and that the defendant was entitled to a credit of $11,032.74 on account of said payments. The defendant admitted that there remained an
After the filing of the above mentioned answer, no further action was taken in the case until June 11, 1952, when the complainants filed an amendment to their original bill, in which they averred that the six years allowed in paragraph 15 of Jake Rubel's will for the payment of the purchase price of Jake Rubel's interest in the firm had expired, and the complainants demanded interest on the installments still remaining unpaid. The defendant then withdrew his original answer and filed an amended answer, in which he reaffirmed the defenses set up in his original answer and set forth his claims for credits with more clarity and accuracy. The defendant alleged in his amended answer that the unpaid balance still due and owing by him to the complainants was $28,002.35, which he offered to pay into court; and the defendant made his answer a cross bill and asked that the complainants and cross defendants be required to execute and deliver to him such instruments of writing as might be necessary to convey to him the Jacob H. Rubel interest in the firm assets on payment to them of the said sum of $28,002.35.
The defendant attached to his answer a copy of the balance sheet of the firm as of January 4, 1946, in which
ASSETS Cash on hand and in banks ___________________________ $129,920.94 Accounts receivable _________________________________ 21,928.57 Notes receivable ____________________________________ 31,500.00 Inventory of merchandise ____________________________ 33,897.17 Real estate _________________________________________ 27,858.22 Stocks and bonds ____________________________________ 72,087.33 Amounts due from heirs of Abe Rubel's estate ________ 14,336.64 ___________ TOTAL ASSETS __________________________________ $331,528.87 LIABILITIES Due to the heirs of Abe Rubel Estate ________________ $ 53,258.42 Net Worth — Partnership: Investment, J.H. Rubel, January 4, 1946 ___________ 162,861.02 Investment, S.H. Rubel, January 4, 1946 ___________ 115,409.43 ___________ TOTAL LIABILITIES AND NET WORTH ___________________________________ $331,528.87
Separate schedules of the notes receivable, real estate owned by the partnership, and stocks and bonds, aggregating the several amounts shown above, were attached to the balance sheet.
The case was tried at the December 1952 term of the court. Before the trial was begun the defendant paid into court the above mentioned sum of $28,002.35, which he admitted that he still owed; and during the progress of the trial the defendant paid into court the additional sum of $1,631.00, making a total of $29,633.35. After hearing the testimony, the chancellor held that the partnership contract was a valid and enforceable contract,
The next point argued by the appellants' attorneys is that the court erred in holding that the term "book value," as used in the partnership agreement, meant the investment account of Jake Rubel, as shown on the balance sheet as of the date of his death. The appellants contend that the words "book value" should be construed to mean the actual market value of all the assets of the firm at the time of Jake Rubel's death, less the liabilities of the firm at that time. To this contention the appellee makes the simple answer, that "book value" means what it says — value as shown on the books.
The appellants alleged and the proof tended to show that the real estate owned by the partnership at the time of Jake Rubel's death was carried on the books at a total valuation that was much less than its market value. But the stocks and bonds owned by the partnership (not including, however, the Corinth Brick Company stock owned by the partnership) were sold soon after Jake Rubel's death at a loss of $8,602.93. The notes receivable consisted of notes of the Corinth Brick Company in the sum of $31,500. Of that amount $11,100 was secured
But we think that the chancellor was in error in holding that the insurance policies on the lives of the partners should be excluded in determining the book value of Jake's interest in the firm.
The price which Simon was required to pay for Jake's interest in the firm under the terms of the partnership agreement was 75 per cent of the book value of that interest. When Simon elected to purchase Jake's interest in the firm after Jake's death, it was his duty and the duty of Jake's executors to determine the book value of that interest; and such value could be determined properly only by a full examination of the books of the company, not by a mere inspection of the balance sheet, and under the facts in this case not by a mere inspection of the general ledger. The insurance policies had not been entered upon the general ledger. But the policies were in
The partnership agreement was executed approximately three years before Jake's death. If the partners had intended that the insurance policies should become
The appellee's attorney strongly contends, however, that the term "book value," as used in the partnership agreement in referring to the value of the deceased partner's interest in the firm, meant the deceased partner's investment account, as shown on the general ledger. But this contention finds no support in the partnership agreement or the will. The investment accounts of the partners are not mentioned in the partnership agreement;
"Book value" is defined in Webster's New International Dictionary, Second Edition, p. 309, as "The value of anything shown by the books of account of the business owning it; specif. of stock, the value as indicated by the excess of assets over liabilities." In Black's Law Dictionary, Third Edition, p. 238, the term "book value" is defined as "The value of the stock as shown by the assets and liabilities as carried on the books. Lane v. Barnard, 173 N.Y.S. 714, 716, 185 App. Div. 754." In the case of In Re Reben's Will (1952), 115 N.Y.S.2d 228, 237, the Court said: "* * * the `book value' of the stock of a corporation is determined ordinarily by ascertaining the value of all the assets of the corporation as shown on its books and deducting therefrom all of its liabilities." In the case of Early v. Moor (1924), 249 Mass. 223, 144 N.E. 108, 33 A.L.R. 362, the agreement provided for the sale of the stock of a corporation for its fair book value, and the Court in its opinion said: "It is manifest that under the agreement `fair book value' of the stock of the deceased, is to be arrived at by ascertaining the value or net worth of all the assets and deducting therefrom the liabilities."
In the case of Elhard v. Rott, 36 N.D. 221, 162 N.W. 302, which is cited with approval in Early v. Moor, supra, the Court had under consideration the meaning of the term "book value," as used in a contract for the sale of bank stock, and in its opinion the Court said: "`Book value' has an established meaning in so far as the capital stock of a banking corporation is concerned. It means value as predicated on the face value of the assets of the corporation after deducting its liabilities. Steeg v. Leopold Bldg. & Imp. Co., 126 La. 101, 52 So. 232-235; Cabble v. Cabble, 111 App. Div. 426, 97 N.Y. Supp. 773-775; 1 Words and Phrases (Second Series) 479. The assets, of course, must appear upon the books of the company, and
In Corbett v. McClintic-Marshall Corporation (1930), 17 Del. Ch. 165, 151 A. 218, the Court had under consideration the meaning of the words "book value," as used in the preferred stock clause of the certificate of incorporation of the defendant corporation, wherein the company reserved the right any time to redeem the whole or any part of the preferred stock upon the payment of one hundred dollars ($100) per share, "provided that if the book value of the stock, as shown by the last annual statement of assets and liabilities of the company submitted to and approved by the board of directors, shall exceed one hundred dollars ($100) per share, the company shall pay therefor the said book value of said stock instead of said amount of one hundred dollars ($100) per share." The chancellor, in seeking to define the meaning of the words "book value" as used in the charter said: "The contract refers to a document from which book value is to be ascertained * * *. I take it that the word `book' in book value indicates that the statement is to reflect the condition of the company's books. It would appear entirely reasonable to thus allow the word book to transfer some of its modifying meaning to the statement of assets and liabilities, for when such language as this is used I think the common understanding of men is that what is meant is a value disclosed by a statement that reveals the money measure of assets and liabilities as they are shown on the books of the company. So that we come to a source back of the statement, viz., to the
In the case of Hagan v. Dundore (1947), 187 Md. 430, 50 A.2d 570, the partnership agreement gave Dundore, the active partner, an option to purchase Hagan's interest in the partnership for a sum not exceeding the book value of that interest. The chancellor, in computing the amount to which Hagan became entitled on Dundore's exercise of his right to purchase Hagan's interest, accepted the book valuation of the partnership's tangible assets, which did not include the earned proportion of expenses and profits on outstanding contracts, nor did it include the true value of assets specifically amortized for income tax purposes. The appellee contended that such a method was required by the agreement, which called for the purchase of the inactive partner's interest at "book value" and excepted good will. But the court of appeals reversed the decree of the chancellor and in its opinion said: "We think the appellant is entitled, under the agreement, to have all proper elements of value, exclusive of good will, that can be determined by audit from all the books and records, included in the computation of book value."
In Jennemann v. Bucher, 186 Mo. App. 179, 188, 171 S.W. 613, the Court held that where, in an action by one of the two stockholders of a corporation, who bought out the shares of the other, to recover an overpayment to the seller due to a mistake in adding the whole of the outstanding assets to the half share of the seller, the petition alleged that the stock was sold at its book value, the Court held that a valuation on the invoice value should be considered its "book value," no other value being given, whether formally carried on the books of the concern or not.
The amount collected by the firm on the insurance policy on Jake's life was $50,119.50. The cash surrender value of the policy on Simon's life, as stated above, was $21,468.25. These items should have been taken into account in computing the book value of Jake's interest in the firm. If they had been included, the value of that interest would have been $198,654.89, instead of $162,861.02, as averred in Simon's answer to the bill of complaint and as stated in the chancellor's decree. Simon had a right to purchase that interest at 75 per cent of its book value, which amounted to $148,991.17. After allowing proper credits for the payments made, including the two payments of $28,002.35 and $1,631.00, aggregating the sum of $29,633.35, paid into the registry of the court during the month of December 1952 there still remained unpaid at the time the hearing was concluded the sum of $26,845.40; and the appellants were entitled to a decree for that amount, with interest thereon from the time it became due and payable at the rate of six per cent per annum.
Simon had elected to pay the purchase price in six equal annual installments, without interest, as provided in paragraph 15 of Jake's will, the first payment to be made upon receipt of firm insurance on Jake's life. The record shows that Simon received the proceeds of the firm's insurance on Jake's life on February 27, 1946. A one-sixth part of the purchase price which Simon was to pay for Jake's interest in the firm became due and payable at that time, and one such equal installment became due and payable on February 27 of each succeeding year until February 27, 1951, when the last installment became due and payable.
We think that the chancellor erred in refusing to allow interest on that amount from the time it became due and payable until the date of payment into the registry of the court.
Section 36, Code of 1942, provides that, "The legal rate of interest on all notes, accounts and contracts shall be six per cent per annum; but contracts may be made, in writing, for a payment of a rate of interest as great as eight per centum per annum."
In the case of Stowell et al. v. Clark, 152 Miss. 32, 118 So. 370, the Court, in construing the above mentioned statute, said: "The statute means that the rate of interest on accounts and contracts shall be six per cent per annum where there is no agreement between the parties as to interest. The amount due under an account or contract bears six per cent interest from the time it is due and payable, unless it is otherwise provided by agreement of the parties."
In the case of United Press Associations v. McComb Broadcasting Corporation, 201 Miss. 68, 28 So.2d 575, the Court held that a news association which recovered the sum of $1,137.85, the balance alleged to be due under a contract to furnish the broadcasting station news reports, was entitled to have added legal interest thereon, computed from the date of the breach of the contract to the date of the decree. In the case of Trinidad Asphalt Mfg. Co. v. Gregory, 166 F.2d 745, the Court held that under the Mississippi law the plaintiffs were entitled to interest from the date that money sued for became due, and the defendants could not complain of the allowance of interest from the date from which the plaintiffs claimed interest where that date was subsequent to the date the money became due.
The decree of the lower court dismissing the bill of complaint filed by the appellants is therefore reversed and the cause is remanded with instructions that a decree be entered in favor of the appellants for the above stated sum of $26,845.40, being the unpaid balance of the purchase price due and owing by the appellee to the appellants for Jake Rubel's interest in the firm of Abe Rubel & Company, and interest thereon at the rate of six per cent per annum from the date said sum became due under the terms of paragraph 15 of Jake Rubel's will to the date of the rendition of such decree, and also interest on the above stated sum of $29,633.35 from the date said sum became due to the date of the payment of same into the registry of the court.
Paragraphs (b) and (c) of the decree, which provide for the cancellation of the cross-defendants' claim against the partnership assets and the execution and delivery by the cross-defendants to the cross-complainant of such bills of sale, deeds, or conveyances as may be necessary to vest in him legal title to the deceased partner's interest in the partnership and partnership assets, and paragraph (e) of the decree which provides for the cancellation of the lis pendens notice, are modified so as
Reversed in part, affirmed in part, and remanded.
McGehee, C.J., and Hall, Holmes and Gillespie, JJ., concur.