Wallace's Appeal

The opinion of the court was delivered January 7th 1884, by Mr. Justice Trunkey. In Collins’ Appeal, from the Orphans’ Court of Philadelphia, 15 W. N. C. 5, the contract was construed to be “a pledge of Ilulse’s interest in the capital of a limited partnership, intended to be formed thereafter, and actually so formed, the purpose of which was, to furnish rolling chairs for the Centennial Exhibition.” And “an actual present pledge by Hulse to Collins of a partnership interest which he was to acquire in the future with the money loaned him by Collins, that Ilulse was to be in the possession of the interest until such time as Collins might demand an assignment of it, and upon such demand being made, Hulse was to make the assignment and deliver possession of the said interest to Collins.” Ilulse never transferred possession of the subject of the pledge to Collins, the fund for distribution was raised from the sale of that subject, and the question was, “ whether a valid and binding pledge can be given of the interest of the pledgor in a partnership to be subsequently created so as to secure to the pledgee a priority of lien as against the unsecured creditors,” It was ruled that from the moment the interest came into existence it was subject to the operation of the pledge, that as Hulse was bound by his contract, all, claiming under him were so bound, except purchasers for value without notice, and that the right of a general creditor is inferior and subordinate to that of the pledgee. To repeat the reasoning and exhaustive review of the authorities by Justice Green in that case, would be vain. He remarks that “ possession of the subject of the pledge is an almost universal requirement in the law of pledge to perfect [565] the pledgee’s titlealso notes the distinction between a mortgage and pledge, and puts stress upon the fact that such distinction is disregarded, where, by the agreement of the parties, the pledge is to remain with the pledgor, in which casé, as he is bound by his contract, so all are bound who claim under .him, except innocent purchasers; and adds that as that doctrine has been applied in the case of specific chattels it would apply with much greater force in case of an expectancy or intangible interest. Ilulse pledged an expectancy of an intangible interest, the pledge operated upon that interest as soon as it came into existence, the interest remained in possession of the owner who controlled it with his partners, and such possession was in accord with the agreement, for Collins did not demand an assignment. Fleming, Agnew & Co. were partners, and, on April 1st 1880, Agnew borrowed $12,500, which he put into the firm as capital. Wallace, knowing that the money borrowed was to be used to increase Agnew’s interest in the partnership, indorsed for Agnew and took a bill of sale or mortgage of said interest, to secure him from loss on account of said indorsement, with right to take possession and convert said interest to his own use and benefit upon non-payment of the note at maturity. At the date of this transaction Agnew was indebted to Sands in the sum of $9,500 of which Wallace had no knowledge. Agnew’s partners, Fleming and Hamilton, as well as Sands, had neither notice nor knowledge of the mortgage until immediately before the execution was issued by Sands, upon which Agnew’s interest in the partnership was seized and sold. The Master and court below agree that there was no intention on the part of Agnew to defraud Sands, that Wallace did not know of Agnew’s indebtedness to Sands, that the loan and bill of sale were not Intended to and could not defraud the other partners, and that on the part of Wallace there was entire good faith and absence of all actual fraud; and no other conclusion is warranted by the testimony. By the agreement, Agnew was to retain possession of the mortgaged interest until maturity of the note — a period of ten months. He had joint possession with his partners of the entire property of the partnership, and the direct implication of the agreement is, that Agnew and Wallace intended that the business of the firm, until tile end of said period, should be conducted as if the bill of sale had not been made. Both were interested in the prosperity of the business. A transfer of possession was, in fact, impossible, for Agnew had no separate possession, nor had he the right to put another man in his place as a partner in the business. “ Partners have no separate title in any aliquot part of the partnership property. Their interest is an incorporeal, intangible thing — a right to an account, and [566] to their share of the balance after all the partnership debts are paid and'all equities between the partners adjusted:” Whigham’s Appeal, 63 Pa. St. 194. When the parties say that Wallace “ may at once take possession ” in case the note shall not be paid by Agnew at maturity, they mean that the right shall then vest in Wallace to demand an account. That is the right of the purchaser of a partner’s interest either at a private or judicial sale. In the interest itself is the reason why Wallace, as mortgagee or pledgee, could not have taken actual possession, and the circumstances show good faith in the naming of a future time when he should be clothed with the right to ascertain the amount or value of his security and recover the same. Upon the authority of Collins’ Appeal, Wallace had a valid lien as against the general creditors of Agnew. Sands had full notice of the lien before he did any act for recovery of his debt. Fleming and Hamilton purchased with like notice, and they hold subject to the right in Wallace. We are of opinion that the appellant is entitled to a decree in accord with the Master’s report. The general rule that possession of the thing pledged must be taken by the pledgee to make the pledge valid against the creditors of the pledgor, was recognized in Collins’ Appeal, and the pledge of an interest in expectancy, or of an intangible interest, under certain circumstances, was considered an exception. Whether, in Pennsylvania, there can be any other exception need not now be determined. And now, January 7th 1884, upon consideration of this cause, it is ordered, adjudged and decreed that the decree be reversed ; that the bill bo dismissed as to the defendant, David Sands, with costs ; that the defendants, Edward Agnew, John Eleming and John Hamilton, pay to the plaintiff the sum of fifteen thousand three hundred and twenty-seven dollars ($15,327), with costs of suit, including the Master’s fee and the costs of this appeal; and that the record be remitted for the execution of this decree. ' April 1, 1880, . . . $12,500 Int. to Jan. 7, 1884 . 2,827 $15,327