Parker v. Bowles , 1876 N.H. LEXIS 122 ( 1876 )

FROM GRAFTON CIRCUIT COURT. There is no evidence in this case that the affairs of the Lisbon Manufacturing Company are unadjusted. No creditors of that company appear here claiming to have this real estate applied in payment of their claims. There is no suggestion that there are any such creditors. It would seem clear, then, that Bowles and Fisk were tenants in common of these premises, April 21, 1866, divested of any trust on account of their previous partnership affairs.

On that day Fisk conveyed his undivided half of the premises to Atwood for $2,450, a portion of which sum Atwood paid in cash out of his own funds, and gave his own notes for the balance, secured by a mortgage upon the premises. He thereupon became tenant in common with Bowles of the premises, the interest of each being an undivided half. The title stands, then, precisely as though Atwood and Bowles, April 21, 1866, took a conveyance of the premises, each in his own name, of an undivided half, and paid for the same with his own means. This was in fact what Atwood did on that day; and Bowles, whose title had undergone various changed between April 4, 1859, and April 21, 1866, on the latter date stood in the same position as his co-tenant, Atwood. As the property, then, was not conveyed to Bowles and Atwood as partners, and was not paid for out of partnership funds, there is no ground for claiming that it was then partnership property. Have they so conducted since its purchase as to give either an equitable lien upon it as against the other for the payment of partnership debts? Has it become clothed with a trust so as to secure a beneficial interest in the owners for the benefit of their partnership creditors until the purposes of their partnership shall be accomplished?

It is well settled, that, where real estate is purchased for partnership purposes and on partnership account, it is wholly immaterial, in the view of a court of equity, in whose name or names the purchase is made — whether of one partner, or of all; whether in the name of a stranger, or of one of the firm. In either case, let the legal title be vested in whom it may, it is in equity deemed partnership property, and the partners are the cestuis que trust. Jarvis v. Brooks, 27 N.H. 37, 67; Cilley v. Huse, 40 N.H. 358. Real estate so acquired is considered at law as the several property of the partners, as tenants in common; yet that is so held subject to a trust arising by implication of law, by which it is liable to be sold, and the proceeds brought into the partnership fund, so far as is necessary to pay the debts of the firm and to pay any balance which may be due to the other partners on a final settlement, and cannot be held by the separate owner except to the extent of his interest in such final balance; and when a firm is insolvent, the whole of the property so held must be brought into the partnership fund in order to satisfy the partnership creditors. Burnside v. Merrick, 4 Met. 537, 541.

The referee has found that there was no actual notice, and no written agreement, and of course no record by which any conversion of property from separate to partnership estate was effected. He has also found that Atwood purchased half of the mill property with the expectation of going into partnership in the lumbering business with Bowles, and did go into partnership with him, and that they considered and agreed between themselves to treat the real estate which they occupied in transacting their partnership business as partnership property. This agreement was not in writing signed by them, and it therefore seems clear that no trust concerning this land could be created so as to secure a beneficial interest in the owners for the payment of their partnership liabilities by their parol agreement. Indeed, our statute expressly forbids it. Gen. Stats., ch. 121, sec. 13. When land is purchased with partnership funds and for partnership purposes, there is an implication of law that the land is held for the partnership. But where it is purchased with the separate funds of the partners, it cannot, by a verbal agreement between themselves, be converted into co-partnership property, because no trust in lands can be created unless by writing, except such as arises or results by implication of law; and parol evidence is not admissible to prove any declaration of trust, or agreement of the parties for a trust, although it is received to establish a fact from which the law will raise or imply a trust. Farmington v. Barr, 36 N.H. 86; Moore v. Moore, 38 N.H. 382.

I do not understand that the partnership creditors in this respect stand any differently from the partners themselves. The equities of such creditors are to be worked out through the medium of that of the partners. Story's Part., sec. 93, note to 6th ed.

The next question arises as to the effect of the improvement of these premises from funds withdrawn from the partnership assets. Do Bowles and Atwood hold the estate so improved, to the extent of such improvements, as partnership property, and for the benefit of the partnership creditors? The referee reports that such improvements were made to the amount of some $3,300, thereby doubling the original value of the land remaining after the conveyance to Martin and Howe of a portion of the premises. The withdrawal of partnership funds to any amount from the partnership business, and the permanent investment of them in the improvement of real estate, which they did not own as partners, although belonging to them as tenants in common, has the same effect, practically, as though Bowles and Atwood had taken an equal amount of their assets for division between themselves. It is a well-known rule, governing the relation of partners, that neither can have an ultimate and beneficial interest in the capital, against the consent of the other, until the debts are paid and the account settled; and this rule extends to real estate held in partnership, so that it cannot be conveyed away by one of the partners alone, and against the consent of the other, without a breach of the trust with which the land is clothed. But that rule does not apply to this case.

The defendants' counsel contends that all the additions ought to be considered as partnership property, — at least, everything which can be separated from the realty without too much injury. It appears from the report, that Bowles and Atwood had frequent settlements of all matters between them as partners, the last occurring February 1, 1869, which was after the improvements had been made. As between the partners, it is quite immaterial whether each partner must be considered as having taking out of the common stock the amount used in repairs and added it to his separate property, or otherwise. They were equal owners of the partnership, so that each one would have contributed his just share towards the improvements upon the real estate; and the only question would be, whether the abstraction of that amount of property from the partnership funds would be in law a fraud upon the creditors, — for the report must be taken to have established the fact that there was no actual fraud.

I think it would be going a great way to hold that every material withdrawal or any portion of the partnership funds to the separate use of the partners would be a fraud in law, when no actual fraud was intended; and that in every case funds so withdrawn, if they could be identified, might be followed into the hands of innocent parties, and applied for the benefit of partnership creditors. I have seen no authority which leads to this conclusion. On the contrary, it seems to be well settled, as I understand the cases, that such withdrawal of assets may be done, provided there is no mala fides in fact. Story's Part., sec. 360, and authorities cited; ex parte Ruffin, 6 Ves. 119; ex parte Sprague, 4 De G. M. G. 866; — see, also, Story's Part., sec. 377 et seq.

A conveyance by one partner of real estate belonging to the partnership to one who had no notice, actual or constructive, of the trust, must probably be held valid. But if a person knows that a particular real estate is the partnership property of two or more, and he attempts to acquire a title to any part of it from one alone without the knowledge or consent of the other, there is no hardship in holding that he takes such title at his peril, and on the responsibility of the person with whom he deals. Dyer v. Clark, 5 Met. 562, 580. But it appears, from the facts before us, that the plaintiffs, when they took the mortgage from Atwood, had no knowledge or information that Bowles and Atwood between themselves considered the mill property as belonging to the partnership, but, on the contrary, they always regarded that property as owned by Bowles and Atwood as tenants in common, and gave credit to Atwood on the strength of his ownership of an undivided half of it, so far as their claim accrued after Atwood's purchase of it. This being so, even if the property were partnership property, the plaintiffs, having no notice of the trust, are not to be postponed until the partnership creditors have been satisfied.

The only question remaining is, whether knowledge by the plaintiffs that this property was occupied and used by the partnership was constructive notice that it was owned by the partnership. This would depend upon the fact, whether, under all the circumstances which were known to the plaintiffs, such occupation by the partnership was so inconsistent with ownership separately by the partners, that the plaintiffs, in the exercise of reasonable care and judgment, ought to have taken notice and made inquiry, and if the result of such inquiry would have been knowledge that the property had been converted from separate to partnership. This is a mixed question of law and fact, which the referee has found in favor of the plaintiffs, and I do not see in the case anything from which I can find that the referee has mistaken the law in so finding the fact.

I think the referee was right in the conclusion reached by him from the facts reported, and that the plaintiffs are entitled to judgment on the report.

CUSHING, C. J., and LADD, J., concurred.

Judgment on the report for the plaintiffs.