Warriner v. Mitchell

Opinion, Mb. Justice Gbeen: In this case the material facts were that Warriner, the plaintiff, and J. M. Mitchell, one of the defendants, had formed and conducted a partnership manufacturing business from 1877 to 1882, at which latter date the partnership was dissolved by mutual agreement. The dissolution was effected by Mitchell purchasing the interest of Warriner and agreeing to pay all the firm debts. To secure performance of tins agreement, so far as the pajunent of debts was concerned, Mitchell gave Warriner a bond of himself and Austin Mitchell, the other defendant, in the penal sum of $5,000, which, reciting the dissolution and that James M. Mitchell had agreed to indemnify Warriner [160] “ from the payment of any and all firm debts against said partnership,” stipulated that James M. Mitchell and Austin Mitchell should at all times “ indemnify and save harmless the said F. H. Warriner, his executors, administrators, or assigns from the payment of any and all indebtedness now outstanding against the said firm of Mitchell & Warriner, and of any and all cost and damage that may arise by reason of the same.” James M. Mitchell subsequently became insolvent, after having paid all the firm debts but a balance of §544.89, due upon a certain judgment confessed by James M. Mitchell and F. H. Warriner in favor of Thomson & Kucher for §4,250. This balance of §544.89 Warriner was obliged to pay and now seeks to recover it of Austin Mitchell, surety for James. The question is whether this debt was a partnership debt of Mitchell & Warriner. If it was not, Austin Mitchell was not bound for its payment, and there could be no recovery in this case. If, on the other hand, it was a partnership debt, Austin Mitchell was bound for its payment, and the plaintiff would be entitled to recover. Whether the debt was a firm debt or not was a question of fact, and was for the determination of a jury, if there was proper testimony in the case to support a verdict to that effect. The learned court below, however, after admitting all the testimony offered upon that question, was of opinion that the plaintiff could not recover, and withdrew the case from the jury and directed them to find a verdict for the defendants, which was done. We are of opinion that this action of the court below was erroneous, and for that reason the judgment must be reversed. The reason given by the learned judge for his instruction to the jury was, not that there was no evidence to prove that the debt paid in part by Warriner was a partnership debt, but that it was incompetent to change by parol proof a debt, which apparently, on its face, was an individual debt, into a partnership debt. The debt in question was evidenced by a judgment-note for §4,250, given in 1879 by J. M. Mitchell and F. H. Warriner, to Thomson & Kucher, upon which judgment was entered. It was in evidence that this judgment-note was given to secure the payment of §4,250, part of the consideration money of a deed for a foundry property which was made by Thomson & Kucher to J. M. Mitchell and F. H. Warriner. Being named [161] as individuals in the deed, prima facie they would be regarded as tenants in common, and, so far as the rights of purchasers and lien creditors were or might be concerned, this state of the title could not be controverted and changed by parol proof. Purchasers and lien creditors dealing with the owners upon the faith of an individual title appearing upon the record, could not be deprived of their rights against the individual interests in the land, by parol proof that they were really partnership interests, and therefore mere personalty. This doctrine is exceedingly well settled, and is not at all open to question: Lefevre’s App., 69 Pa. 122; Ebbert’s App., 70 Pa. 79; Geddes’s App., 84 Pa. 482; Holt’s App., 98 Pa. 257. But it is just as true that, as between the partners themselves, land which is treated as partnership property, especially if it be purchased and paid for with partnership money, is regarded as partnership property only, although the title be taken in the name of the partners individually. It is largely a question of intention ; “that intention may be shown by parol; it may be manifested in the acts and declarations of the parties: ” Shafer’s App., 106 Pa. 49; Erwin’s App., 39 Pa. 535; Abbott’s App., 50 Pa. 234; West Hickory Mining Association v. Reed, 80 Pa. 38. The error of the learned court below consisted in the wrong application of an undoubtedly correct legal principle. If Austin Mitchell occupied the position of a purchaser of the individual title of either of the owners of the land, or if he were a lien creditor of either of them, and had no notice of any other title than that which appeared of record, his rights could not have been affected by any parol proof, the purpose of which was to show that the title was vested in the partners, and not in the individuals. But he is not in any such position. He is simply an obligor in a bond indemnifying the plaintiff against liability for firm debts. He neither purchased any title, nor loaned money upon the faith of any title in this property. He made himself liable generally for the payment of the debts of the firm. The question then, and the only question, is, was this a firm debt? That depends upon various considerations. Primarily it depends upon the question whether it was a debt owing for a partnership transaction. It happens that this particular transaction is one which may have two aspects; one of [162] them depending, not so much upon the actual facts of the case, as upon the character of ,,the persons whose rights or interests may be affected, such as purchasers and creditors, and the other depending upon the real, as distinguished from the apparent state of the title. If the rights of purchasers or lien creditors are concerned, the apparent state of the title pervails; as to all others, and even as to purchasers and creditors who have notice, the real state of the title prevails. In this case, therefore, if the debt due for the conveyance of the property made by Thomas & Kucher to J. M. MitchelL and F. H. Warriner was a debt due by the firm of Mitchell & Warriner, the defendant Austin Mitchell was liable to the plaintiff for its payment ; if it was not such a debt, he was not liable. On this question there were facts which looked in both directions. The fact of the conveyance to the two individuals without naming them as partners, and without any statement in the deed that the property was to be held as partnership property, was some evidence that the consideration of the conveyance was individual, and not partnership. The judgment bond being given by individuals, would afford some evidence also, though slight, to the same effect. On the other hand, there was evidence showing that the property was obtained and used for partnership purposes; that the down payment of |250 was partnership money; that two further payments of 1500 each were made with partnership funds; and also, that all the interest money that was paid came from the same source; that repairs were made and paid for with firm money; that the buildings were insured and the premiums were paid with the money of the firm. It was also testified by Warriner that Austin Mitchell, was presenj; at the time, before the execution of the bond of indemnity in suit, when the parties were calculating the amount due on the bond given for the property, and participated in the calculation; and at another time that it was said in Austin Mitchell’s presence that the bond in suit was to be given to secure him, Warriner, against lids debt, and that all of them understood it was a partnership debt. There was other evidence tending in the same direction. We are clearly of opinion that it was competent to prove by the foregoing, and any other testimony, that the property was treated by the members of the firm as partnership property, [163] and the consideration money for it as a partnership debt. If it was a partnership debt as between the partners, it could be recovered as such against them, and such liability would bring it directly within the terms of the bond of indemnity. In the first affidavit of defence the defendant, Austin Mitchell, alleged upon oath, that the firm of Warriner & Mitchell had purchased real estate for the purpose of carrying on their business, for about $4,200 ; and that there was unpaid on said real estate at the time Warriner’s interest was sold about $2,700, and that the indemnity bond was given to secure the judgment which was revived by amicable scire facias. The effect of all this was for the jury, and it would be at least evidence tending to show knowledge on the part of Austin Mitchell, that the debt was regarded by all the parties, including himself, as a firm debt. We sustain the first, second, and third assignments of error, and on them the judgment is reversed. The other assignments are not sustained. Judgment reversed, and new venire awarded.