Bull v. Harris , 57 Ky. 195 ( 1857 )

Judge Stites

delivered the opinion of the court.

These cases arise upon the same record, and present the same- questions, viz: 1. The validity of the mortgage executed by C. L. Harris to Newland and others; and, 2. The propriety of the order of the circuit court in vacating the attachments of appellants.

1. It is not controverted that Harris and Stapp were partners at the date and execution of the mortgage in question, nor that the effects attempted to be mortgaged, except the realty, belonged to the firm. Nor can it be questioned that Stapp, upon the first application of Stirman, and up to the drafting of the mortgage signed by Harris, assented to the arrangement proposed by Stirman. After, however, Morris, the agent of Merrit, Field & Co., assented to let their debt go in the mortgage, and before its execution. by Harris, it seems that Stapp, from some cause or influence, changed his mind, and concluded not to mortgage, and before Harris signed made known to him his unwillingness to convey. That he was unwilling to convey, and requested Harris not to execute the mortgage is proved by the latter; ■who also states, “that he has no doubt that he told ‘ Mr. Stirman that Dr. Stapp had requested him not ‘ to sign the mortgage until his (Stapp’s) return from ' the country.” And that Stirman was apprised of Stapp’s opposition to the execution of the conveyance at that time, may be reasonably assumed, not only from Harris’ testimony, but likewise from the failure of Stirman to disclaim such notice.

Upon this state of fact the question arises, whethone partner, in opposition to another’s will, made known to him and the agent of a creditor, can notwithstanding such opposition and notice, effectually convey, transfer, or assign, by general assignment, to such creditor, the goods and effects of the firm, to secure the payment of his debt?

1. One of two partners cannot, in opposition to the will of another, make a deed of trust or mortgage preferring creditors, when that opposition, is made known to the preferred, crsditorsor-their agent.

It is true, as a general proposition, that each partner, in virtue of his relation as partner, possesses an equal and general power and authority in behalf of the firm, to transfer, pledge, or dispose -of the partnership effects and property for any and all purposes within the scope of the partnership, and in course of its trade and business; and any restriction imposed by agreement between the partners upon such power, is only operative between the partners themselves, and does not affect third persons acquiring rights by its exercise, unless they have notice of such restriction.

This power extends to assignments of the firm property, as security for antecedent debts, as well as for liabilities thereafter to be incurred by the firm; nor does it matter whether it be made for one, or several, or all, of the firm creditors. (Story on Partnership, 162.)

But it has been seriously doubted whether this general power extends to general assignments of all the proporty of the firm by one partner for the benefit of creditors, for the reason that such transfer would seem to terminate and dissolve the partnership. (Ibid, 163.)

However this may be, and it is not now necessary to say, it seems to have been well settled upon principle and authority, that one partner cannot, against the opposition of another, make a general assignment of the effects and property of the firm for the benefit of a portion of the firm creditors, when the beneficiaries of such assignment, or their agent procuring it, has notice of such opposition prior to its execution. (Egberts vs. Wood, 3rd Paige, 517; Hitchcock vs. St. John, 1st Hoffman, 511.)

In the former case the chancellor, Walworth, says:. “Upon the most deliberate examination of the ques- ‘ tion I am satisfied that the decision of the vice ‘ chancellor is correct; that such an assignment is ‘ both illegal and inequitable, and cannot be sustain- ‘ ed.” * * * “It is no part of the ordi- £ nary business of a co-partnership to appoint a trus- £ tee of all the partnership effects, for the purpose of ‘ selling and distributing the proceeds among the £ creditors in unequal proportions; and no such au- * thority can be implied.”

2. A beneficiary in such deed or mortgagecannot rely upon the ground that such deed or mortgage was fraudulent, whereon to ground an attachment. It g“ebto Secure creditors, and fraudulent per se'

The same doctrine is ably maintained by the vice chancellor in the latter case, and we perceive no reason for questioning its correctness.

It follows, therefore, that inasmuch as the agent of the mortgagees had notice of Stapp’s opposition to the execution of the mortgage by his partner, and the effort was to prefer the debts mentioned, to other firm liabilities, the principle already stated applies to the mortgage in question, and fully sustains the judgment of the circuit court in vacating it, so far as it purported to convey partnership property.

The previous behavior of Stapp did not deprive him of the right to withhold his assent, and oppose the execution of the mortgage, provided such opposition was made known to his partner and the agent of the mortgagees before its execution.

2. It is insisted, however, that notwithstanding the mortgage may be invalid, the conduct of Stapp and Harris was such as to uphold the attachments of Bull & Alrich, sued out on the 18th July, and those of the mortgagees of the 24th of the same month, and that the circuit court erred in vacating the attachments, and refusing to give priority to appellants claims, as prior attaching creditors.

The appellants, except Bull & Alrich, were parties, through their agent, to the mortgage executed by Harris, and they cannot complain of that as a fraudulent act; and the utmost that can he said, either of that mortgage or of the other executed to to Smith on the same day, is that they were efforts to secure creditors. It does not appear that the individual debts of Stapp, secured or attempted tobe secured by the Smith mortgage, exceeded the value of his interest in the realty mentioned therein, nor is it otherwise shown that he attempted, or was attempting, to appropriate firm assets to his individual uses, to the prejudice of the firm creditors.

His sudden change of determination in regard to the execution of the mortgage made by Harris, and his duplicity towards Stirman, are reprehensible, but, considering they resulted only in an efiort to secure other creditors to whom the firm was indebted, do not furnish sufficient grounds for the attachments that were vacated. A conveyance to one creditor, in preference of another, is not, per se, proof of fraud in the debtor.

We perceive no error in the orders of the court complained of, and the judgments are therefore affirmed.