In re Estate of Hillowitz, 22 N.Y.2d 107 (1968)

A partnership agreement that designates a deceased partner’s widow as the recipient of the partner’s interest is a valid third-party beneficiary contract and not an invalid testamentary disposition.

Summary

The executors of Abraham Hillowitz’s estate sought to invalidate a provision in his investment club’s partnership agreement, which stipulated that upon his death, his share would transfer to his widow. The executors argued this was an invalid testamentary disposition. The court held that such partnership agreements are essentially third-party beneficiary contracts, enforceable at death, and do not need to comply with the statute of wills. This case clarifies that partnership agreements can designate a deceased partner’s interest to pass to their widow without being considered an invalid testamentary transfer, thereby facilitating business succession and estate planning.

Facts

Abraham Hillowitz was a partner in an investment club. The partnership agreement stated: “In the event of the death of any partner, his share will be transferred to his wife, with no termination of the partnership.” Upon Hillowitz’s death, the club paid his widow $2,800, representing his interest in the partnership. The executors of Hillowitz’s estate initiated a discovery proceeding, contending that the partnership agreement’s provision was an invalid attempt at a testamentary disposition, and thus the proceeds should be part of the estate.

Procedural History

The Surrogate’s Court initially agreed with the widow, upholding the agreement. The Appellate Division reversed, holding the agreement invalid as an attempted testamentary disposition. The case was remitted to Surrogate’s Court for further proceedings on another issue, and the Appellate Division again ruled against the widow. The New York Court of Appeals then reviewed the Appellate Division’s order.

Issue(s)

Whether a partnership agreement provision, stipulating that a deceased partner’s share transfers to his widow, constitutes an invalid testamentary disposition, or a valid third-party beneficiary contract enforceable without compliance with the statute of wills?

Holding

No, because such partnership agreements are effectively third-party beneficiary contracts, performable at death, and therefore do not need to conform to the requirements of the statute of wills.

Court’s Reasoning

The court reasoned that partnership agreements dictating the transfer of a partner’s interest upon death are contractual in nature and do not violate the statute of wills. It stated, “These partnership undertakings are, in effect, nothing more or less than third-party beneficiary contracts, performable at death.” The court found no difference in principle between agreements transferring interests to surviving partners and those transferring interests to a deceased partner’s widow. The court emphasized that many contractual instruments providing for property disposition after death do not need to comply with the statute of wills, citing examples like contracts to make a will, inter vivos trusts with reserved life estates, and insurance policies. The court distinguished McCarthy v. Pieret, limiting it to its facts, and noting that in that case, there was merely an intention to make a testamentary disposition, not an immediate conveyance of interest, and the beneficiaries were unaware of the agreement’s provisions. Judge Keating concurred in the result, but found it difficult to distinguish McCarthy v. Pieret, preferring to base the reversal on the widow’s right of survivorship as outlined in the Surrogate’s second opinion.