Tarbell v. . West , 1881 N.Y. LEXIS 209 ( 1881 )

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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The plaintiff, when he took his mortgage, had notice that the mortgaged property, was partnership assets, of West, Bradley Cary. The mortgage recites, that the real estate, fixtures, machinery and personal property, embraced in the mortgage, together, make up the manufactories of the firm, and the mortgage purports to convey only Bradley's interest individually, and as a member of the firm, therein. The record title to the real estate mortgaged, was in West, one of the partners; but the proofs and the findings establish, that it was partnership property, bought for partnership uses, paid for out of partnership funds, and used in the partnership business. The members of the firm, other than the mortgagor, had no actual notice of the mortgage until 1877, nearly ten years after the mortgage was executed, and more than nine years after the organization of the "West, Bradley Cary Manufacturing Company," and its purchase of the property. But it is claimed that the other partners, and the corporation defendant, had constructive notice of the mortgage, by the record, and by its having been filed, as a mortgage of chattels. The mortgage was recorded as a mortgage of real estate, and was also filed as a chattel mortgage soon after its execution.

We cannot assent to the proposition of the learned counsel for the plaintiff, that the recording of the mortgage, was notice under the recording acts, to the other partners, or to the corporation defendant, of its existence. The mortgagor, Bradley, had no legal title to the land, nor any legal estate therein, when the mortgage was executed. His interest, was an interest in the land as part of the partnership assets, of West, Bradley Cary. The legal title, as has been stated, was in West, and whatever Bradley's interest was, it was equitable merely. It was an interest which he could sell, or mortgage, but he had nothing separately in the land, or in the corpus of the partnership assets. It is now well settled, that a purchaser from one partner, of his interest in the partnership, acquires no title to any share of the partnership effects, but only his share of the surplus, after an accounting, and the adjustment of the partnership affairs. (Menagh v. Whitwell, 52 N.Y. 147, and cases cited.) But where the legal title to partnership lands, is vested in one partner, his bona fide grantee, or mortgagee, takes his title, free from the equities, of the other partners, or of copartnership creditors. But if he have notice that the land is partnership assets, he takes subject to their equities. (Buchan v. Sumner, 2 Barb. Ch. 167; Hoxie v. Carr, 1 Sumn. 183; Hiscock v. Phelps, 49 N.Y. 97; Cavander v.Bulteel, L.R., 9 Ch. App. Cas. 79.) The equitable interest of Bradley in the land, which was, as we have said, to have it applied to partnership uses, and to have paid over to him his share of the surplus, was, as between him and the plaintiff, charged by the mortgage as security for the plaintiff's debt; and we shall assume, for the purpose of determining the question of notice under the recording acts, that the mortgage, although it did not attach to the legal title, was an instrument, within thethirty-eighth section, by which the title to the real estate described therein, might be affected in law or equity, and therefore the subject of record. (1 R.S. 762, § 38.) It is now the prevailing doctrine that conveyances of equitable interests in land, are within the recording acts (Parkist v. Alexander, 1 Johns. Ch. 394; Johnson v. Stagg, 2 Johns. 509; Hunt v.Johnson, 19 N.Y. 281; Stoddard v. Whiting, 46 id. 627;U.S. Ins. Co. v. Shriver, 3 Md. Ch. 381; Bellas v.McCarty, 10 Watts, 13; Neligh v. Michenor, 3 Stockt. 539; Wilder v. Brooks, 10 Minn. 50); although the contrary has been held in some cases, and in others, judges have, by their language, seemed to assume, that the recording acts only apply to conveyances of the legal estate. (Doswell v.Buchanan's Ex'rs, 3 Leigh, 365; Lewis v. Baird, 3 McLean, 56; Grimstone v. Carter, 3 Pai. 421.)

The recording acts, however, do not declare what effect shall be given to the recording of conveyances, upon the point of notice. They declare that unless recorded, they shall be void as against subsequent purchasers in good faith, and for value, whose conveyances shall be first recorded. But the courts, by construction, make the record of a conveyance, notice to subsequent purchasers; but this doctrine is subject to the limitation, that it is notice only, to those claiming under the same grantor, or through one who is the common source of title. (La Neve v. La Neve, 2 L.C. in Eq. 208, note; Murray v.Ballou, 1 Johns. Ch. 565; Stuyvesant v. Hall, 2 Barb. Ch. 151; Raynor v. Wilson, 6 Hill, 469; Cook v. Travis,20 N.Y. 400; Lightner v. Mooney, 10 Watts, 407; Leiby v.Wolf, 10 Ohio, 83; Bates v. Norcross, 14 Pick. 224;Whittington v. Wright, 9 Ga. 23; Fenno v. Sayre, 3 Ala. (N.S.) 458; Losey v. Simpson, 3 Stockt. 246.) I think the rule as to notice from the registry of conveyances, so far as relates to the question before us, is, that the registry of a conveyance of an equitable title, is notice to a subsequent purchaser of the same interest or title, from the same grantor, but that it is not notice to a purchaser of the legal title, from a person who appears by the record to be the real owner. It follows, that the recording of the plaintiff's mortgage, was not notice to the "West, Bradley Cary Manufacturing Company" when it took its conveyance from West. West had the legal title of record. The mortgagor had no record title. The registry of the mortgage, would have been notice to a subsequent purchaser, or mortgagee, of Bradley's interest by conveyance directly from him, but was not notice to a purchaser of the West title, with which, so far as appeared by the record, Bradley had no connection. Nor was the filing of the mortgage as a chattel mortgage, notice of its existence. The unliquidated interest of Bradley in the assets of the firm, did not make him the owner of specific goods and chattels, of the firm, so as to make the filing of a mortgage thereof, notice. In Bentley v. Bates, (4 Young Coll. 190), Baron ABINGER said: "If you look to the constitution of a mercantile partnership, what is the meaning of a partner mortgaging his share? Nothing more than that he covenants to pay the amount borrowed. The mortgage is nothing more than a personal covenant; it conveys no interest in the partnership effects." We conclude, therefore, that neither the recording, nor filing, of the plaintiff's mortgage, was notice to the corporation defendant.

But it is insisted that the "West, Bradley Cary Manufacturing Company," had notice of the plaintiff's mortgage, when it purchased and took the conveyance of the land and other partnership assets, by reason of the fact, that Bradley, when the purchase and transfer was made, was a director of the company, and as such took part in the transaction. It is claimed, that the general principle applies, that notice to the agent is notice to the principal, and that as Bradley knew of the mortgage, his knowledge is imputed to the company.

Without considering whether, under the circumstances of this case, the company is chargeable with Bradley's knowledge of the mortgage; but, assuming that it was, we are, nevertheless, of opinion, that mere notice to a purchaser from a firm, of partnership assets, that one of the partners had mortgaged his interest, does not affect the purchaser's title, but that he takes it, free from the mortgage, provided the purchase was made in good faith, either during the existence of the partnership, or in the process of winding up, and that payment to the firm, or to the individual members, of their separate share of the purchase-price, in money, stock, or property, is a good payment in discharge of the purchaser; or (if this should be deemed too broad a proposition), that under the circumstances of this case, notice of the Bradley mortgage, did not invalidate the transaction, or create any equity against the defendants, or against the firm assets, transferred to the corporation.

We need not determine what the plaintiff's rights would have been, if he had intervened, and prohibited the sale of the property except for cash, or had demanded that Bradley's share of the proceeds, should be paid to him. The plaintiff, in fact, never took any legal proceedings to enforce his claim against Bradley; never gave any notice to the other members of the firm of the Bradley mortgage, and never, in any way, attempted to interfere with Bradley's exercise of his powers as partner, and did not bring his suit to foreclose his mortgage, until nine years after the conveyance to the defendant corporation, and after the stock had been issued to Bradley, for his interest. In the meantime Bradley has become insolvent, and has sold, and transferred his stock, which is now an outstanding liability in favor of the several transferees, against the company. The dissolution of the firm of West, Bradley Cary, which occurred after the mortgage was given, did not destroy the quasi joint tenancy of the partners in the firm assets, or create a tenancy in common. The partnership, with its incidents, continued for the purpose of winding up. (Murray v. Mumford, 6 Cow. 441;Delmonico v. Guillaume, 2 Sandf. Ch. 366.) In general, on dissolution, each partner has a right to insist on a sale of the partnership property, as the proper mode of ascertaining its value. (Lindley on Part. 102; Story on Part., § 207.) It must, I think, be a clear proposition, that the firm could have sold the firm assets to the company for cash, for the purposes of conversion, and conveyed a title free from the mortgage, although the purchaser had notice. The firm could also have received payment. In fact, however, the scheme of the conversion was, to organize a corporation to take the property, issuing to each partner (except Henderson, the special partner, whose interest was paid in money) stock, in proportion to his interest in the assets. It is quite obvious, in view of the character and condition of the property, that this may have been the most advantageous method of realizing its value. By the transfer to the corporation, the plaintiff was not deprived of his equity. His lien attached to the stock issued to Bradley, whose share in the partnership assets was by that act, for the first time severed, and separated, from that of the other partners. This lien, the plaintiff could doubtless have enforced while the stock was in Bradley's hands. But the sale, was an execution of the legitimate rights of the firm as such, and we are of opinion that neither the other partners, nor the purchaser, was bound to see to the application of the stock, or to take affirmative measures to protect the plaintiff's lien.

If necessary, it might reasonably be held, in view of the fact that the plaintiff, when he took his mortgage, knew that the property was firm assets, and kept entire silence for nine years, although he must have known that the property was subject to disposition by the firm, that Bradley was his agent in dealing with the partnership assets. (See Kelly v. Hutton, L.R., 3 Ch. App. 704; McCreight v. Foster, 5 id. 604; Crabtree v.Poole, L.R., 12 Eq. Cas. 13; 1 Lindley on Part. 718.)

But we think that the sale to the corporation was an act within the scope of the powers of the firm in liquidation; that the defendant corporation, acquired a good title free from the lien of the plaintiff's mortgage; that it violated no legal or equitable right of the plaintiff in issuing to Bradley stock to represent his interest, although it had notice of the mortgage; and, consequently, that this action cannot be maintained.

The judgment should, therefore, be affirmed.

All concur, except FOLGER, Ch. J., absent at argument; and RAPALLO, J., taking no part; DANFORTH J., concurring in result.

Judgment affirmed.