Miller v. Robinson Bank

Phillips, J.

A partnership may exist by verbal agreement; written articles are not necessary to constitute it.

It is a general rule that when a partnership and its members are insolvent, the creditors of the firm have a superior equity over the creditors of the individual members of the co-partnership, in the marshaling and distribution of the partnership property.

The reason of the rule is based on the theory that the partnership fund is contributed to. by the creditors of the firm, and such contributions are equitably entitled to a superior claim over those who have not aided in the creation of the fund.

But, as was held by the Supreme Court in Beeves, Stevens & Co. et al. v. Mark Ayres et al., 38 Ill. 418, “ Cases may and do arise where an equal or superior equity may be created in favor of a creditor of a member of the firm, as, in this case, by furnishing the capital upon which the business was commenced. Mason’s money contributed largely to the means with which these farms were purchased. Eor aught that appears Mason’s money contributed alone to their purchase, and, if so, natural justice would say that his claim was superior to that of plaintiff in error.

“ If Mason’s money purchased these lands, and plaintiffs in error afterward gave credit to the firm, we are unable to see that they should be preferred in payment of this fund.”

The purchase by John S. Emmons, at the master’s sale, of property to constitute and create a part of the partnership fund, was, by the execution of a note for $1,500 on which Willis Emmons was surety, which note was afterward sued on and collected from Willis Emmons and was the creation pro tcmto of partnership assets and the promise to indemnify the surety by executing a mortgage on the interest of that partner in the firm property, afterward carried out by the execution of a mortgage; and placing the same on record before any other lien attached, would give a superior lien to the mortgagee.

And the maxim, “Where there are equal equities the first in order of time shall prevail,” is applicable.

The equity of one who aids in creating the partnership fund at the commencement of the partnership, is not less than one who, by becoming a creditor of the firm, has contributed to its creation. Reeves, Stevens & Co. et al. v. Ayres et al., supra. It was error to decree the cancellation of the mortgage to Willis Emmons and dismiss his cross-bill.

The $5,400 advanced by the bank to the firm to pay for improvements in the mill created a partnership liability from the firm to the bank, and the execution of a note to the bank by one of the partners, and the giving of personal security on that note did not destroy the equitable character of the debt.

Wiley Emmons and William W. Walter, by becoming security on that note, became security for a debt that was equitable, owing by the firm.

The execution of a mortgage by one member of the firm to indemnify the sureties on that note, would not make the equity of such sureties inferior to the equity of creditors of the firm.

It was error to decree the cancellation of the mortgage to Wiley Emmons and William W. Walter. The title acquired by the bank was by the execution of the deeds made by Rewton and Hiller, and by Emmons. At the time of the execution of those deeds the bank had knowledge of the existence of the mortgages.

The bank accepted a deed from Miller with full knowledge of the existence of the mortgage from Miller to Lamport, and accepted that deed with a recital therein—“ The grantee takes subject to incumbrances on the interest conveyed.” By that acceptance of the deed, reciting that the grantee should take, subject to incumbrance, the land conveyed, it is as effectually charged with the incumbrance of the mortgage debt as if the purchaser had expressly assumed the payment of the debt, or had himself made the mortgage on the land to secure it. Sweetzer v. Jones, 85 Vt. 317; Cobb v. Dyer, 69 Maine, 494; Fuller v. Hunt, 48 Ia. 163; Manwarring v. Powell, 40 Mich. 371; Berry v. Whitney, 40 Mich. 65; Briscoe et al. v. Power, 47 Ill. 447.

The amount of an existing mortgage having been deducted from the purchase money of the incumbered property, the grantee in effect undertakes to pay the amount of the purchase money represented by the mortgage to the holder of it, and is estopped to deny its validity as if he had agreed to pay it. Johnson v. Thompson, 129 Mass. 398; Tuite v. Stevens, 98 Mass. 305; Freeman v. Auld, 44 N. Y. 50.

The claim' of the bank against Newton, Emmons & Miller being §21,585.23, when the bank received the conveyance made by Newton and Miller, and then took a confession of judgment by Newton and Miller for §16,252, it is apparent that they credited Newton, Emmons & Miller with the difference between the amount of their debt and the amount for which they took a confession of judgment, and that difference would be §5,333.23.

The evidence shows that the price agreed on for the mill was §16,000 at the time that conveyance was made. And however the property was regarded, as being held as firm property, or held by the partners as joint tenants or tenants in common at the time the deed was executed, it is apparent the bank at that time treated the mortgage as an incumbrance on the interest of Miller, and credited the firm with the amount of the incumbered interest of Newton, which was §5,333.33, although the consideration expressed in the deed was §5,333; and we can not escape the conclusion that the bank dealt with the property as though it was held by the members of the firm as joint tenants or tenants in common.

By the testimony of Miller and Lamport, it is claimed that the money so advanced by Lamport to Miller was used by Miller in purchasing the one-third interest in the mill, and in paying for improvements made on the mill property.

If such be the fact, then what is said with reference to the mortgage of Willis Emmons, would be equally applicable to the Lamport mortgage.

The good faith of the Lamport mortgage is denied in the, bill and is in issue. Lamport refused to answer questions as to the source from which he derived the money advanced to Miller, it being insisted that he had derived the money from Miller or Miller’s wife. We do not, from the evidence in this record, express any opinion on the good faith of the Lamport mortgage.

The decree, however, does not find it fraudulent in fact, but proceeds solely on the theory that it was an individual debt, and therefore cancels the mortgage and dismisses the cross-bill of Lamport.

From the nature of the conveyance, the recital in the deed made by Newton and Miller to the bank, the proof in this record, and the finding as made by the court with the relief decrees, we hold the court erred in canceling the Lam-port mortgage and dismissing the cross-bill of Thomas Y. Lamport. If, however, that mortgage was fraudulent and Lamport did not loan the money to Miller, the bank has such an equity that the recital in the deed could not be held to preclude the bank from having the mortgage canceled, as the position of the bank with reference to the property conveyed would be different from a grantee taking without any equitable interest other than that derived solely from the conveyance and the recitals therein.

The title acquired by the bank by the conveyance made by Newton and Miller, and that of Emmons, vested in the bank all of the interest of the firm and the respective members thereof, except as to incumbrances with equal equities.

If the Lamport mortgage was fraudulent, and the note was without consideration, the hank’s equities being such that for fraud, in fact, it may have the Lamport mortgage canceled, it would take the title to the mill subject only to the mortgage of Willis Emmons, and that of Wiley Emmons and William W. Walter, the good faith of which last two mortgages is not in issue. The title thus acquired by the bank was prior to the liens of the intervening judgment creditors.

The claims on which the intervcnors recovered judgment were in their nature of equal equity with that of the bank.

The conveyance to the bank, whether made by the members of the firm as a firm as tenants in common, or as joint tenants, can not change the equities of the bank, that title being acquired before the lien of the judgment in favor of the intervenors attached. The right acquired by the bank with reference to the mill property is superior to the lien of the judgment creditors, it having been more vigilant than they.

The maxim that “Equity aids the vigilant and not those who slumber on their rights,” may be invoked by the bank for its protection.

There was no error in dismissing the cross-bill of the judgment creditors.

The decree is in part affirmed and in part reversed, and the cause is remanded.

Affirmed in fart and reversed in fart.