Goldthwaite v. Janney , 102 Ala. 431 ( 1893 )

HARALSON, J.

The sole question for decision in this case, as respects the rights of the Abraham petitioners is, whether the property in question belonged to the individuals composing the firm of Moses Brothers, or to the firm itself; and Goldthwaite, receiver, has, also, an equal interest in the determination of that question. If it was individual property, it must be distributed among the individual creditors of that insolvent firm; but if in equity it belonged to the partnership, it is to be distributed, with the other property belonging to the firm, to its creditors. There was real estate, the title to which stood in the names of the individual members,and stocks standing on the books in the'names of one or another of the individuals, schedules of which real estate and stocks are attached to the petitions. These lands and stocks were included in the general assignment of Moses Brothers, and came into the possession of the appellees, as assignees, and they claim them as the property of the said firm, subject to distribution among it creditors, and not to the creditors of the individuals composing the said firm, whereas the petitioners claim said property as belonging to the individuals in whose name the bills appear, and not to the firm of which they were members.

It is a rule of universal recognition, that real estate acquired with partnership funds, or on partnership credit and for partnership purposes, is regarded in a court of equity as partnership property, and is subject to the payment of partnership debts, in preference and priority to the separate debts of the several parties ; and it is wholly immaterial, says Judge Story, £<in the view of a court of equity, in whose name or names the purchase is made, and the conveyance is taken ; whether in the name of one partner, or of all the partners, whether in the name of a stranger alone, or of a stranger jointly with one partner. In all these cases, let the legal title be vested in whom it may, it is in equity deemed partnership property, not subject to survivorship ; and the partners are deemed the cestuis que trust therefor.” — 2 Story’s Eq., § 1207; Hatchett v. Blanton, 72 Ala. 423; Little v. Snedecor, 52 Ala. 167; Offutt v. Scott, 47 Ala. 104; Coles v. Coles, and Dyer v. Clarke, 1 Am. Lead. Cases. (H. & W. notes) 592 and 595.

Whether the land belongs to a firm or to one of the individuals composing it, — when the title is in his name, and not in that of his firm, — must be solved by what appears to have been the intention of the parties. Prima facie, ownership is where the muniment of title places it, but if by all the circumstances attending the transaction, — which may be shown by parol, if there is no written evidence, — it is made to appear, that in the intention of the parties, it was purchased for and was treated as partnership property, that presumption of ownership arising from the face of the deed will be overcome, and the property will be treated as belonging to the partnership. Authorities supra.

It had been insisted, that when a partner buys real estate for his firm with its money, and takes the title in his own name, which title is spread upon the records of the county, those who have financial dealing with him are presumed to have done so on the faith and credit of that property, and the partnership is estopped after-wards to claim the property against the claims of the creditors of such partner. This doctrine is true, certainly in cases of bona fide purchasers of such property for value, and without notice that it belonged to the partnership . But it can not be extended further, without overthrowing all our adjudications on the subject, as well as the general current of authorities everywhere. No man has a lien on the property of another with whom he deals, whether he is a member of a partnership or not, unless it is conferred by contract or by some rule of law. A creditor of one who is a member of a partnership can never put his hand on such a partner’s interest in the firm, until the assets of the firm have been applied to the full payment and discharge of all debts and liabilities of the partnership, and after discharging these, the residuum is still held in trust for distribution among the several partners, according to their several interests. Alien exists in favor of each partner on the partnership effects to secure these results and for the one as well as the other. This lien, as a general thing, exists only in favor of the several partners. They may sell the firm's proper: ty, may convey it to one of their own number, may partition or divide, and the lien will thereby be destroyed.

Creditors as such can not be said to have any lien on the partnership effects. There are conditions in which a creditor has been allowed to avail himself of this quasi lien of a partner, but it is derivative only, arid not of original existence. But in no event can a creditor of ah individual partner acquire any greater interest in the assets of the firm of which the partner is a member than the partner himself is entitled to, which is nothing if the partnership is insolvent. The stream in law can not, any more than in nature, rise higher than its source.

Lindley, in his work on partnerships, states the principles so aptly, we quote what he says on the subjects. Subject to certain exceptions, within which this case does not fall, he says : “ It .is an established rule that a partner in a bankrupt firm shall not prove in competition with the creditors of the firm. They are, in fact, his own creditors, and he can not be permitted to diminish the partnership assets to the prejudice of those who are not only creditors of the -firm, but also of himself. If, therefore, a partner is a creditor of a firm, neither he nor his separate creditors (for they are in no better position than himself) can compete with the joint creditors as against the joint estate. Lord Hardwicke, it is true, in Ex parte Hunter, (1 Atk. 223), allowed this to be done; but that case has not, in this respect, been followed, and has long been considered as overruled.” — 2 Lindley on Partn., (Repalje Ed.), * 721, and authorities cited; Hart v. Clark, 54 Ala. 490; Warren v. Taylor, 60 Ala. 218; Farley v. Moog, 79 Ala. 153; Goldsmith v. Eichold, 94 Ala. 116; Buchan v. Sumner, 2 Barb Ch. R. 167; Jones v. Fletcher, 42 Ark. 422; Paige v. Paige, 71 Iowa 318; Story on Partn., §§ 97, 360, 361; 13 Amer. & Eng. Encyc. of Law, 611; 17 Ib. 1195.

The written agreement executed between the partners on the 17th May, 1879, recites, that in the course of their business, the three brothers composing the firm of Moses Brothers had acquired titles to real estate in the individual names of one or the other of said parties, and it was provided by that agreement, that all real estate or interest therein then held by either of the members of that firm, in his individual name, was the property of the partnership, having been brought into the firm, or bought with its funds for partnership purposes.

The testimony of M. C., H. C., and A. PI. Moses, taken before the register, shows that the acquisition of real estate after that agreement was signed continued as before, viz., that in many instances the title was taken in the names of the partner effecting the transaction, but all real estate, whether the title was so taken, or in the name of the firm, was bought for the firm, paid for out of its funds and was taken and treated as its property, and not as the property of the member in whose name the title stood, excepting the residences of H. C. and A. H. Moses in Montgomery, and the residence of said A. H. Moses in Sheffield, and a lot given to him in Sheffield by the Sheffield Iron & Coal Company. A careful review of all the evidence satisfies us that the decree of the chancery court on this question was correct.

Let us now refer specially to the petition of Robert Goldthwaite, as receiver in the case of Paul v. Knox, in which it is stated that petitioner’s claim had been adjudicated and allowed in this case, for $18,108. 11, as a claim against the estate of H. C. Moses ; that said claim arose on account of trust funds in said Mpses’ hands as a receiver in the case of Paul v. Knox, which he advanced to the firm of Moses Brothers, of which he was a member, without taking the security required by the court; that Moses Bros, were indebted to said PL 0. Moses for said advances at the time of the general assignment ‘made by them and the members of said firm, and are still indebted to him for the same, and at the time of said assignment, “besides the property belonging to H. 0. Moses individually and to which he had the legal title, he also held the legal title to some real estate, which in equity belonged, after the adjustment and payment of the claims of said H. 0. Moses against said firm, to said firm of Moses Bros.; that as between said PI. 0. Moses as an individual and the said firm of Moses Bros., the said H. C. was, at most, the trustee of the legal title of the property so held by him for said firm after the adjustment and payment of the said.debt due by said firm to him, on account of said funds so advanced by him for the use of said firm, and that said property to which he, said H. 0. Moses, thus held the .legal title individually, was the individual property of said Henry Moses in equity, to the amount and extent of said advances for said firm, and being so, petitioner, as the creditor of said Henry C. Moses and the holder of said debt, is entitled to have said property regarded as the individual property of said Henry C. Moses, and to be paid out of the proceeds thereof, if the same is sufficient therefor.” We have quoted this language of the petition to show the more plainly the position and contention of the petitioner. In short, this is the statement of the proposition, that real estate belonging to a partnership, but standing in the name of one of the partners at the time of the insolvency of the firm, is the individual property of such partner to the extent of his claim against the firm, so that, to such extent, such property must be distributed among his individual creditors rather than among the creditors of the partnership.

When H. C. Moses lent the money in his hands, as receiver, to Moses Brothers he was guilty of a breach of trust, in which his firm participated, if they knew the character of the fund that was lent them. By so doing he incurred a personal liability on himself to account for the money, and the borrowers, if chargeable with a knowledge of the violated duty, incurred a similar pecuniary liability; but, in contracting the debt, even if they participated in the breach of duty, — as we before now, in reference to this same matter, decided, — that fact did not change the nature of the obligation, so as to fasten a lien on their property for its payment. A lien, as we have said, is never an incident of a contract or money obligation, unless made so by the contract or by some rule of law.

The proposition submitted does not differ materially from the same question presented and decided in cases heretofore before us on appeal. It can not be sustained without overruling these and many other cases in this and other courts. — Goldthwaite v. Ellison, 99 Ala. 497; Ellison v. Moses, 95 Ala. 221; 17 Amer. & Eng. Encyc. of Law, 1195, and notes 2 and 3.

What we have said is equally applicable to each of the cases set forth in the transcript, — that of Robert Goldthwaite, Receiver, v. Janney & Cheney, tnustees, etc., and of Adolph Abraham and others against same parties.

There was no error in the rulings of the court below, and the decrees in each case must in all respects be affirmed. Let the appellants, each, pay one half of the costs of this appeal.

Affirmed.