Ringo v. Wing , 49 Ark. 457 ( 1887 )

Cockrill, C. J.

This suit was instituted by D. R. Wing & Co. to foreclose a mortgage upon’a lot of machinery, executed by P. Flowers, who was doing business under the style of the “Furniture Works,” .to secure a debt due by him to Wing & Co., which was contracted with reference to his furniture manufacturing business. The mortgage was executed in the autumn of 1883, and was filed for record in December, 1884. The acknowledgment does not declare that the mortgage was executed for the “ purposes ” therein set forth. After its execution, John M. Walker purchased a half interest in the business of the Furniture Works and formed a co-partnership with blowers. They continued the business, as before, under the same style. In June, 1884, Walker sold his interest in the concern to Chapman, Yonley & Ringo, and they, in co-partnership with Flowers, continued the business without change in the firm name. The mortgaged machinery which Wing & Co. are seeking to pursue, was successively the property of each of the firms doing business as the Furniture Works. Wing & Co. made all of the parties above named defendants to their complaint. They alleged that each of the purchases of the machinery had been made subject to the mortgage, and that Walker, as a part of the consideration of the purchase by him of the assets of the Furniture Works, had assumed to pay off and discharge the mortgage, together with an unsecured book account contracted before that time by Flowers on behalf of the concern. They prayed for a decree in personam against Flowers and Walker for the full amount of their claims, and ask that the machinery be subjected to the payment of the mortgaged debt.

Walker answered, denying that he had bought subject to the mortgage, or assumed any liability with-reference to it, but admitted that he had agreed with Flowers that he would assume and pay off a portion of the indebtedness of the Furniture Works existing at the time he bought.

The other defendants filed a joint answer and cross-complaint, denying the validity of the mortgage, because it had not been acknowledged and filed for record when they purchased ; and sought to dissolve the partnership and close up its affairs. The Chancellor appointed a receiver to take charge of and sell the effects of the firm; paid off the firm debts; retained in court the fund arising from a sale of the mortgaged, property ; adjudged that the firm was indebted to Ringo, one of the partners, for money advanced to it in the sum of $2000, and to Chapman, another partner, in the sum of $600; declared the mortgage a lien upon a one-half undivided interest of the property described in it, superior to the partners’ right of reimbursement out of the firm assets; and directed one-half of the proceeds of the sale of the property to be paid to Wing & Co. as a credit on their mortgage debt, and the other half to Ringo to repay him in part for advances made to the firm, over and above the sum due his co-partner, Chapman; and rendered a personal judgment against Flowers for the mortgage debt and one-half of the open account, and against Walker for the other moiety of the latter debt.

Ringo appealed from so much of the decree as gave Wing & Co.’s mortgage a preference over his claim against assets of the concern ; Wing & Co. appealed, because they did not get a decree in personam against Walker and Flowers together for the whole amount of the indebtedness contracted by Flowers for the Furniture Works before Walker became a partner; and Walker appealed because of a decree against him for any amount. Other parties were drawn into the litigation and other interests were adjudicated by the court, but the facts stated present the questions raised by the appeals.

L mortcagV' l Failure to reSmhi'p10 part" I. Ringo’s appeal relates solely to that part of the decree which makes Wing & Co.’s mortgage debt paramount to his claim to the assets described in the mortgage.

That the mortgage executed by Flowers to Wing & Co. is binding as between the parties to it; and that Ringo is entitled in equity to reimbursement out of the partnership assets for advances made by him to the firm in preference to the unsecured individual creditors of his co-partner, Flowers, are propositions that need only to be stated to be conceded. The question is, is Ringo’s equity superior to the unrecorded mortgage executed by the partner before the partnership was formed ?

Under our system of registration, a mortgage is not a lien against a title, right or interest acquired by a stranger before the mortgage has been acknowledged or proved as required by the statute, and filed in the office of the recorder. The first case in our Reports construing the statute is Main v. Alexander, 9th Ark., where the lien of an attachment was declared to be superior to an unregistered mortgage; and a purchaser of mortgaged property, even with actual notice of the mortgage, has been frequently adjudged to take free of the mortgage lien.

The Chancellor in this case held that the sale of the property by Flowers to Walker, and by Walker to Ringo and the others, was merely the sale of an undivided half interest, and that the other moiety still remained in Flowers, and was therefore subject to the lien.

But neither of the sales can be regarded simply as the transfer of an undivided moiety of the property owned by the persons operating the Furniture Works. When the co-partnership between Flowers and Walker was formed, with the property in controversy as a part of the capital stock, Flowers must be regarding as selling the whole property to the concern, in consideration of the price paid and promises made him by Walker. Flowers did not thereafter own an undivided one-half of the property of the firm. His interest was only the right to share in the sui'plus remaining after the debts were paid and the partnership affairs adjusted between him and Walker. To the extent that his rights as a partner reached, Walker stood to the mortgage in the attitude of a purchaser, and to that extent the mortgage lien was of no force. It could only be enforced against the share that might be set aside to Flowers after the partnership affairs should be settled. When the partnership of Flowers & Walker was dissolved, and the new partnership of Flowers, Chapman, Yonley & Ringo was formed, the same rights and relations existed as in the first sale and partnership. The mortgage was not paramount therefore to the interest acquired by the successive partners who entered the firms.

After these transactions the mortgage was recorded, and if the defective acknowledgment was cured by the healing act of April 1, 1885, the instrument had no greater effect than a mortgage executed and acknowledged by Flowers, and filed for record as of that date. But he was then a member of the firm of Flowers, Chapman, Yonley & Ringo, and the debt he attempted to secure was not a liability of that co-partnership. All that the mortgagees can claim, under the circumstances, is that the mortgage binds whatever interest the mortgagor may have in the property assigned by the mortgage after a settlement of the partnership affairs. Nichol v. Stewart, 36 Ark., 612; 1 Jones on Mort., secs. 119, 120; Norwalk Nat. Bank v. Sawyer, 38 Ohio St., 339; Tarbell v. West, 86 N. Y., 280.

In this case it turns out that the mortgaging partner had no interest in the assets upon a settlement of the firm business, and there is therefore nothing for the mortgage to bind. The Chancellor erred in decreeing it a lien upon any part of the assets.

2’Par™rrs : Liab ility of incoming part-II. The appeals of Wing & Co. and Walker go to one 1 A 0 0 and the same question — that is, did Walker become liable to Wing & Co. for the debts due .them by the Furniture Works, contracted by Flowers before the formation of their co-partnership ?

There is no presumption that an incoming partner of an existing business or partnership, assumes liability for the previous debts of the concern. He is not bound for such debts unless he makes himself so by express agreement or by such conduct as will raise the presumption of a special promise. 1 Ewell’s Lindley on Part., *392 and notes.

8. SAME: Promise to pay partner's private debt: Action on There was no evidence showing that Flowers and Walker agreed to be jointly liable for the claims due Wing & Co., which had been contracted by Flowers alone. No express promise to Wing & Co. to assume the payment of these debts was shown to have been made by Walker. Stephens, a member of the firm of Wing & Co., testifies that Walker promised to settle the matters. But this was after the dissolution of the firm of Flowers & Walker, and if Walker was not bound prior to that time, he could not be held by that promise, because it was without consideration and an agreement to pay the debt of another not in writing. But in Walker’s answer we have this admission, to-wit: that “ he does not deny assuming, or agreeing to pay his proportion of the amount due Wing & Co., with Flowers.” This must be taken in connection with the allegation of the complaint to which it is responsive, to the effect that he had assumed the payment of this indebtedness as a part consideration of his purchase into the concern with Flowers. But, his proportion of the amount due Wing & Co. is only what he agreed to pay, inasmuch as it is by his promise alone that he can be held for any part of it. This proportion was one-half of the indebtedness. But it is argued for Walker that the agreement to pay half of the indebtedness was made with Flowers, and that, as Wing & Co. were not parties to it, they cannot have-judgment against Walker by reason of anything it contains. The proof shows that Walker assured Wing & Co., about the time of his purchase, that he had taken charge of the assets of the Furniture Works for the purpose of seeing that the proceeds of sales were applied in part to the discharge of their claims. We may take this as the statement of the terms in part of his contract with Flowers. The latter had transferred to Walker an interest in assets to which Wing & Co. had a right to look for the satisfaction of their claims, and hence the promise of Walker to Flowers to pay one-half of these claims was a promise for their benefit. It was, in effect, a promise by Walker to pay Flowers by paying Wing & Co., and it enures by an equitable subrogation to Wing & Co. The objection that they could not sue Walker upon it is not tenable. Hecht & Imboden v. Caughron, 46 Ark., 132; Arnold v. Nichols, 64 N. Y., 117; Townsend v. Long, 27 P. F. Smith [Pa.], 143.

Wing & Co., sometime before the suit, got possession of an engine and boiler, the property of Flowers & Walker, and a part of that described in the mortgage, and after putting it in repair sold it for a sum srifficient, perhaps, to extinguish the demands against them. But it was proved that Wing & Co. purchased the property from Flowers for $225, and credited that amount on the mortgage debt, before making the sale. Walker at that time had retired from the firm, and left Flowers to settle their affairs. The sale by him, in part payment of Wing & Co.’s claim, was an act within the scope of his powers and bound Walker.

It follows that Wing & Co. should have judgment against Walker for one-half of the mortgage debt and book account,, and against Flowers for the full amount of both, but they can have only one satisfaction of their debts; that they can take no part of the fund arising from the sale of the effects of the firm of Flowers, Chapman,*Yonley & Ringo through the mortgage executed by Flowers, and that Ringo is entitled to be reimbursed from the whole instead of the half of that fund.

The decree is reversed, and the cause will be remanded with instructions to enter a decree in accordance with these directions.