Lefevre's Appeal

The opinion of the court was delivered, May 25th 1871, by Sharswood, J. The subject of partnership in real estate was before this court in the early ease of McDermat v. Lawrence, 7 S. & R. 438, and the principles of law in relation to 'it, enunciated and explained by Chief Justice Tilghman in a luminous and exhaustive opinion. He examined all the authorities in England and this country, and the conclusion at which he arrived was, that as to strangers, — purchasers, mortgagees and creditors, — the agreement of partners to make real estate part of the common stock, must be evidenced by writing, and that it ought to be put on record, so as to give notice to the world; otherwise, where the deed is in their individual names, they will hold as tenants in common. The decision in this case was affirmed and applied in Hale v. Henrie, 2 Watts 153; Lancaster Bank v. Myley, 1 Harris 544; Ridgway, Budd & Co.’s Appeal, 3 Id. 177; Kramer v. Arthurs, 7 Barr 170. In Lacy v. Hall, 1 Wright 360, and Erwin’s Appeal, 3 Id. 535, the land was bought by one partner in his own name with partnership funds; and it was held that the equitable interest was in the firm, and in the latter case, the proceeds of a sheriff’s sale were distributed accordingly. “ Had the title,” said Mr. Justice Strong, in Erwin’s Appeal, “ been taken to both Imhoff and Myers without any assertion on its face that it was treated by them as partnership property, under the ruling in Hale v. Henrie, 2 Watts 143, and several subsequent cases, they would have been but tenants in common; the absence of such an assertion would have been evidential that the parties did not intend to bring the property into partnership stock, but that they intended to take separate interests.” The principle of these cases was, that such a purchase by one partner raised a resulting trust which was within the exception of the Statute of Frauds, and that the former cases grounded upon the provisions of that statute did not apply. It would, of course, follow logically, that when a partnership consisted of three or more, a purchase with partnership funds in the names of two or any less number than all, would on the same reason enure beneficially to the firm. It is to be remarked, however, that in these cases there was nothing from which it was to be inferred that the other member of the firm acquiesced in the appropriation of the common funds to the [126] purchase in the name of the individual member. For him to claim to hold it as his private property, without the consent of his associate, was in fact a fraud. Partners have an unquestionable right to deal with the funds of the firm as they please; and, if, with their consent or knowledge and acquiescence, a portion of their funds is applied to the purchase of real estate in the name of an individual member, and as his private property, there is in such case no resulting trust. The partners may agree among themselves, that any one member may withdraw any part of the common stock, and such part will then become his own; and it matters not how he invests it, even though it be in real estate to be used for the purposes of the firm. He is charged or chargeable with what is so withdrawn and appropriated in account. So if, with the knowledge and consent of all the partners, partnership funds are applied to the improvement of the real estate of one or more members of the fu’m. The equity of the joint creditors can only be worked out through the equities of the respective partners. It is because each partner has an equity to insist upon the application of the partnership property in the first instance to the payment of the firm debts, for which each is liable in solido, that the joint creditors have any preference or priority over the separate creditors of each. When the partners, during the continuance of the firm, have all agreed to the appropriation of the funds to the purchase or improvement of real estate in the private name or names of one or more of the partners, no one of them has any equity to have such property applied to the joint debts; and it follows that the joint creditors have no such equity. It is contended, however, that in McCormick’s Appeal, 7 P. F. Smith 54, a different principle is laid down, and that in all cases, when during the existence of the partnership the funds of the .firm are applied to the purchase or improvement of real estate, there is a resulting trust for the firm. If such be the doctrine of that case, it would overrule Hale v. Henrie, and the subsequent cases cited, which it not only does not profess to controvert or even doubt, but on the contrary expressly approves and affirms them. In Hale v. Henrie the purchase was by the two partners during the partnership with the partnership funds; and Mr. Justice Sergeant said: “ No averment of any right by parol, or by, what is still less, the nature of the fund which pays, or the uses or purposes the property is applied to, can be allowed to stamp a character on the title inconsistent with that appearing on the deed and record to the prejudice of third persons.” And again he uses this language, which is directly applicable to the present contention: “The money with which Capp and Henrie purchased the property was their own. They could appropriate it as they pleased, and they chose to appropriate it to a purchase for thems'elves individually, and not as partners. Having done so, it cannot be [127] defeated by proving otherwise than by deed or writing, that they held as partners.” In Ridgway, Budd & Co.’s Appeal, the deed was to the partners in the firm name, but expressly as tenants in common; it was bought during the partnership, and with the partnership funds, and it was nevertheless held, that when partners intend to bring real estate into partnership, their intention must be manifested by deed or writing placed on record; and it is not competent to show by parol evidence, that real estate conveyed to two persons as tenants in common was purchased and paid for by them as partners, and was partnership property. “ This is finally settled,” said Mr. Justice Rogers. “ In all such cases, parol testimony is totally disregarded.” In McCormick’s Appeal, Mr. Justice Strong indeed said: “ Undoubtedly a partnership may hold real estate, and they may have a resulting trust when the partnership funds have paid for land. Such was the case of Erwin’s Appeal, 8 Wright 535. So there may be a constructive trust in favor of a firm, as was held in Lacy v. Hall, 1 Wright 360; but these come within the exceptions to the Statute of Frauds. In both these cases, the lands were acquired after the partnership had been formed, and while the joint business was in progress. But here there is no resulting or constructive trust. The agreement, if there was any, to put the land into the joint stock, was made before the firm had any being, and the partnership funds did not pay for it. A parol agreement to put land into a firm, or to consider it as firm property, made before the firm exists, is wholly ineffectual to pass a title either in law or equity.” Itis clear that he did not mean to hold, that when without fraud, but with the knowledge and consent of all, partnership funds are applied to the purchase or improvement of the private property of one or more of the individual members of the firm, there would be a resulting trust for the firm, of which the joint creditors could avail themselves. According to the facts of this case, as reported by the auditor in the court below, the real estate, the proceeds of which were in court for distribution, was purchased by Gilson Smith and John Gribble in their individual names, before the formation of the firm of Gilson Smith & Co. The cash payment on account of the purchase-money, and. the first instalment, were paid by them before John Smith became a partner. He acquiesced in the subsequent appropriation of the firm funds to the payment of the balance, and to the expenditures made in improvements, knowing that it stood in the individual names of Gilson Smith and John Gribble. The money so taken and applied, if not actually charged, would be chargeable against them on final settlement. It was expressly agreed that John Smith was to have one-third of the property as soon as there was a final settlement, and he had paid for it. This parol agreement gave him no title, and if [128] it did, it would be as an individual. There was certainly nothing in this which would create a resulting trust for the partnership; and the distribution reported by the auditor, and decreed by the court below, was therefore perfectly right. Decree affirmed, and appeal dismissed at the costs of the appellant.