Rose v. Izard ( 1876 )

The opinion of the Court was delivered by

Willard, A. J.

The complainants in the respective bills above entitled seek to foreclose mortgages respectively given by Joseph A. Huger and Arthur M. Huger on a tract of land and plantation called Clydesdale; A. S. Izard, defendant, claiming that complainants have a mere equity, subject to a superior equity in himself.

Izard, in behalf of himself and Joseph and Arthur Huger, bid in Clydesdale plantation at an executor’s sale and it was struck off to him.

The sale was for part cash and part credit. Immediately after the bid was made an agreement was made between the three to plant Clydesdale as a rice plantation. This agreement was carried into operation. On the completion of the purchase a deed was executed by the executors to Izard for the joint use of Izard and Joseph and Arthur Huger.

The title continued to stand in this form at the time the present suits were commenced. Izard and the Hugers incurred in connection with this joint business two debts, which Izard has been compelled to pay. Izard conteuds that whatever rights the complainants may have acquired under the mortgages they were subject to the liability of the property for partnership debts.

The first question to be considered is, what right it was competent for Joseph and Arthur to convey to third parties as it respects their interest in Clydesdale during the existence of the joint agreement and previous to the payment of the business debts. If it should appear that they Could convey no more than an equity, subject to the payment of partnership debts, then the defendant, Izard, will be entitled to have preference over any demand that the complainants may be entitled to make to Clydesdale. This question depends upon the force and effect of the joint agreement, viewed in connection with the nature and situation of the property, the character of the joint business and the effect of the conveyance of the legal title to Izard, subject to trusts in favor of Joseph and Arthur. The purchase of the property by Izard, and the formation of the joint business, must be considered as concurrent events, embodying different parts of the same intention. The agreement was as follows :

“ Articles of agreement between Allen S. Izard, Joseph A. Huger and Arthur M. Huger, joint owners of Clydesdale plantation and negroes, Savannah Back River, Beaufort District, South Carolina: Joseph A. Huger to be charged with management of the plantation. Messrs. Win. C. Bee & Co., factors, of Charleston, under the advisement of Arthur M. Huger, to be charged with management of the accounts and supplies. All connection with the city of Savannah, Ga., to be avoided as far as practicable; if resorted to from necessity, the transactions to be always on the cash basis. On all points involving the management or general interests of the concern Allen S. Izard will be required to act as adviser, and, in ease of difference between the other parties, to be umpire.

“Charleston, 9th January, 1856.”

The proof of this agreement is questioned on the ground of the uncertainty of the secondary evidence offered in regard to it, but it is conceded that there was an agreement, and the testimony does not show any conflict of memory as to its provisions. It must therefore be regarded as sufficiently proven. The agreement sets forth the plan of conducting the business and does not assume to define the relations of the parties any further than to fix their relative duties as it regards the conduct of the business.

It is of little importance to examine critically the force of particular words used in this instrument in order to discover the intention of the parties as to their general relations to the business. It was not in the mind of the parties to set forth any such general definition, and their selection of words and phrases was not made with any such view. The question as to whether a partnership was intended must be indirectly arrived at from the nature of the intended business and the mode in which it was to be carried on.

It is correctly argued that the question of partnership is one of intention. That does not mean, however, that the parties must have directly and distinctly in mind the various legal consequences attending the existence of partnerships relations; but having adopted the means fitted to carry on their business, the law will look to the nature of those means as an expression of the general intention of the parties and declare accordingly whether the relalation of partners exists between them.

The question of the existence of a partnership is complicated by the fact that a scheme of business sometimes omits one or.the other of the fixed characteristics of a partnership.

But when all are present, as in the case under consideration, no difficulty exists requiring anyelaborate examination of the cases.

The ordinary elements of a partnership are a common stock, an intention to prosecute, unitedly, one or more branches of industry, and authority, power, mutually interchanged or specially delegated, to manage and control the common stock for the common benefit. The last named feature may be regarded.as the leading characteristic of a partnership. Where property passes into a common stock by the consent of its owner, the power of control over it is necessarily modified, in order to secure the purposes of a common stock.

Something must be taken away from the power of independent control that each of the several owners possessed previous to its passing into the condition of a common stock. Either the parties must interchange as among themselves equal powers over the common stock, or they must place that power of control in some specialized hand or hands. In either case the power resulting from such an arrangement is representative, its peculiar characteristic being in the nature of a power of attorney of all to each or of all to some definite managing agency. A partnership in this respect closely resembles a corporation, but differs from it in another important respect, namely, that the power of control over the common stock of a partnership flows directly from the owners of such common stock, whether regarded as contributed to or created by the corporation; the powers over the common stock flow from the law of the corporation and indirectly from the corporators by the acceptance of that law. When these elements are all brought into distinct existence by the agreement, there can be no doubt of the intentions of the parties to unite as partners. Sometimes, however, the last named of these elements can only be made out by implication. This happens when the agreement develops the object of the partnership rather than the means of their attainment. In such cases it is very common to look into the intention of the parties as it regards community of profit and loss for the means of supplying such intention. The abstruse learning of the eases elaborately discussed by counsel is of importance where the intention of the parties is left -to inference, but 'inapplicable to the present case, where that intention is covered by definite expressions. In the present case a common stock was created, which, leaving out of view any intent to impress that character upon the real estate, consisted of personal property, such as slaves, implements, &e. A business was indicated, namely, planting. Rice planting is known to have been intended from the nature of the plantation and the business subsequently pursued by the parties under agreement. The agreement expressly communicated to the several parties power over the common stock different from what each as an individual owner could have possessed. One was clothed with authority to manage the agricultural department of the business, which implied power to manage and control the whole common stock so far as might be required to carry out that branch of the business. Another was clothed with authority to control the mercantile part of the business and a corresponding authority over the common stock. The third was to fill the important post of adviser to the others and of umpire between them in case of difference. More complete evidence of an intent to confer on the several parties representative powers, although of different kinds and classes as affecting the whole common stock, could not be afforded by any partnership agreement. We must conclude that the parties intended copartnership in planting Clydesdale by the use of the property purchased in the name of Izard, and such as should be otherwise contributed or produced, and by means of the credit of the copartnership. The last conclusion is necessarily implied from the clause prohibiting the use of credit in Savannah, clearly implying that credit was intended to be employed elsewhere; the motive for the exclusion of Savannah being, doubtless, local merely.

That which existed as common stock at the making of the agreement was the bid of Izard, in behalf of himself and his partners, for the real and personal estate constituting Clydesdale. The parties took possession, looking to the completion of title under the bid. It will not be necessary to go into the details of the proceedings to make title under the bid of Izard. A deed was made by the executors to Izard for the use of himself and his partners. It is said that Izard never in form accepted this deed; but it was executed and delivered for Izard’s benefit, was in conformity to the terms of the purchase as far as appears, and possession was had of the property conveyed in conformity with it. At all events, assuming Izard’s title to be derived through the deed presents the question in as favorable a light for the complainants as any other view that can be taken of the transaction, and conforms to their view of the ease. In any case, if Joseph and Arthur ever obtained legal title, it was through either a use existing in their favor or under the operation of an estoppel, and in either case the result would be the same as it regarded the question to be considered.

It must be concluded that Joseph and Arthur considered the deed to Izard as a conveyance of the property and mortgaged accordingly, They do not appear to have made any effort to obtain from Izard a conveyance of the property, or such an instrument as would put them in possession of clear evidence of their occupying the position of tenants in common with Izard.

The fact just mentioned ought to be considered in connection with the fact that Clydesdale was not merely land and its appurtenances, but land and personalty united for the purpose of a particular business, and that it possessed in itself the means and appliances, hydraulic and mechanical, for rice culture, the value of which would be materially impaired by a partition. For the purpose of the business intended, it must remain a unit. Alienation by either of the partners of a part of the plantation would, we must assume, have broken up the basis of the business and defeated the object of the partnership agreement. A mortgage by one of them was placing-power in the hands of a third person that might destroy the partnership business, without regard to the sufficiency of the partnership property to pay partnership debts. While the title was in Izard, as trustee for himself and his partners, the objects of the partnership were comparatively secure. No motive can be assigned for leaving it in his hands in such complete harmony with the conduct and known motives of the parties as that of maintaining a trust impressed with the objects and purposes of the copartnership.

It is true that the primary motive in making the deed one of trust in the name of Izard was probably this fact: that the names of Joseph and Arthur appeared in the deed as executors conveying to Izard, occasioning a seeming impropriety in making them grantees, so that they would appear to convey to themselves directly as individuals; but still the fact that the title was allowed to remain in Izard, without his being called upon to transfer it to them, is unexplained, except in the manner already pointed out.

The facts and circumstances manifest an unmistakable intention to leave the trust in existence to subserve the uses of the partnership. This being the case, the trust would continue to subsist while the partnership continued, and cannot be regarded as a naked trust liable to become executed under the statute.

Under this view of the case, Joseph and Arthur never had more than an equity, and could not convey by way of mortgage more than the equity so held, and the mortgage could only take the equity as it was in the hands of the mortgagor, impressed with the characteristics established by the agreement of the parties. In other words, the mortgagees could not claim to stand in the position of purchasers of the legal title without notice of an equity affecting it, but, with or without notice, would take such equity only as it stood in the hands of the mortgagor.

It remains, then, only to consider whether, according to the intention of the parties to the agreement, the equities of Joseph and Arthur were subject to partnership debts.

Much learning and ability has been displayed by counsel in presenting the law as applied to cases .where land is sought to have impressed upon it the equitable character of assets for the payment of partnership debts; that doctrine is applicable to the present case. Its difficulties arise from the fact that it is an attempt to raise an equity against the clear right of dominion conferred by law on him who has the legal title to land. To create such an equity requires the presence of certain distinct elements that are not requisite where the parties have created the equity by their own act and a Court of equity is called upon to declare what characteristics and incidents were impressed upon it by such act of creation.

The whole question here is simply one of the intention of the parties, and is to be solved by keeping in mind the principles applied by equity in drawing such conclusions, prominent among which is the invariable assumption that parties intended to do that which was equitable. It was manifestly right and agreeable to equity that the interests of the partners should, in the first instance, stand as a fund to pay partnership debts, and that neither should, by any form of alienation, diminish the common fund for the payment of the common debts.

It is manifest, taking the whole evidence together, that the parties taking the securities set forth at the time when the obligations were incurred for which .such securities were given did not intend to occupy the position of withdrawing from the common stock anything applicable to the payment of its debts.

That the planting interest was then prosperous and the individual interests of the partners in the common stock, over and above all partnership liabilities, was considered adequate security.

The evidence does not establish the claim that the consideration of the mortgages in either case was either an advance for the benefit of the partnership or for the payment of the land.

The creditors whose demand Izard satisfied were in equity entitled to go upon the whole common stock, embracing the equitable rights of Joseph and Arthur, and the mortgagees were subject to that right. Izard having advanced his own funds to pay the creditors is clothed with their equity.

The judgment must be set aside and the case remanded for an account of the partnership debts remaining unsatisfied, embracing the amounts actually paid by Izard in the settlement of the copartnership debts set forth in his answers and for a decree establishing priority in Izard and all other partnership creditors to the assets of the copartnership.

Moses, C. J., and Wright, A. J., concurred in the result.