Hatchett v. Blanton

BBICKELL, O. J. By the assignment to Stone and Warrren, the debts secured are divided into three classes. The first enumerated are the debts of the partnership of Phillips & Fariss, of which firm the assignor, Cyrus Phillips, is the survivor. The second are the debts of the partnership of Phillips, Fariss & Co., of which firm, Phillips, and the assignor, Bobert C. Fariss, are the survivors. The third are Phillips’ separate debts. Becit-ing that the assignors intend the property assigned and granted shall be appropriated to the payment of the secured debts as a court of equity would marshal and appropriate it, the assignment distinguishes and denominates the property as of three kinds, referring to its ownership. The first is the property of the partnership of Phillips & Fariss, consisting of real estate which is particularly described; and thereof and therein Phillips grants and assigns an undivided one-half, to be sold, and the proceeds of the sale applied to pay one-half, or his proportion, of the debts of that partnership. The second is the property of the partnership of Phillips, Fariss & Co., consisting of real estate particularly described; and thereof and therein Fhil-lips grants and assigns an undivided two-fifths, to be sold, and the proceeds of sale applied, in like proportion, to pay the debts of that partnership; and the assignor, Fariss, grants and assigns one undivided one-fifth to be sold, and of the proceeds of sale like application must be made. The third is the separate property of Phillips,'consisting of real estate, in parts of which it is — 433 — recited that lie lias the entire estate, and in parts it is recited that he lias an undivided interest, the quantity of which is specified; and the whole is granted and assigned, to be sold, and the proceeds of sale applied to pay Phillips’ separate debts. The apjiellee, a .creditor of the iirtn of Phillips, Fariss efe Co., and not otherwise having any rights under the assignment, or in its subject-matter, filed this bill for a two-fold purpose; the first of which is, the enforcement of the trusts of the assignment for the benefit of the creditors of Phillips, Fariss & Co., and, as auxiliary thereto, the subjection of the undivided two-fifths of the real estate, the legal title to which had descended to the heirs of the deceased partner, William B. Fariss. The second purpose is the subjection of the real estate in which Phillips assigned, for the security of his separate debts, an undivided share or interest, to the payment of the partnership debts of Phillips, Fariss & Co., upon the ground that it was the property of that partnership, and primarily liable for the payment of its debts. In its first aspect, to enforce the trusts of the assignment as to the real estate of the partnership of Phillips, Fariss & Co., and, as auxiliary and incidental, the subjection to the payment of partnership debts of the undivided two-fifths, the legal title to which had descended to the heirs of the deceased partner, William B. Fariss, it is not necessary to consider the équity of the bill, as it has not been questioned. The controversy is directed specially to the second aspect of the bill; and in this aspect we are of opinion the bill is not maintainable. It can not be doubted, that when a debtor voluntarily assigns property for the security and benefit of creditors, if the creditors choose to accept the assignment, they must abide by its terms and provisions; they must take it as an entirety; they can not accept in part, and repudiate in part. — Perry on Trusts, § 596; Burrill on Assignments (3d ed.), § 479. The creditor may have rights with which the assignment, so far it confers rights upon others, is inconsistent. The assignment may derogate from, instead of extending to him the measure of right to which he is entitled. If that be true, he must elect, whether he will accept the assignment, or whether he will reject it, and stand upon the right he may have independent of it. He can not elect to claim under the assignment the rights given by it,, and repudiate it so far as it passes rights to others which are inconsistent with independent, distinct rights to which he may be entitled. If it were true that the real estate in controversy is the property of the partnership of Phillips, Fariss & Co., primarily liable for the payment of partnership debts, the fact remains, that in it Phillips assigns and grants a specific interest for the security and payment of his separate creditors; in effect — 434 — declaring, that it is separate, not partnership property. The transfer and grant is as explicit, the use is as distinctly declared, as are the transfer and grant, and the use, under which the ap-pellee deduces her right and claim. The assignor could create liis own trustee, declare the quantity of estate or interest he would grant and assign, and the uses to which it should be appropriated. The creditors were as free to accept or reject the assignment. An accepting creditor must be content to abide by the uses declared for his benefit — he can not take them, and at the same time claim, in opposition to the assignment, property devoted to the use and benefit of other creditors. In Pratt v. Adams (7 Paige, 615), said Chancellor Walworth : “In the case of a voluntary assignment, where the assignor creates his own trastee, a creditor who comes in to claim a share of the fund under it, must take such share of it as the assignor intended to give him, and can not claim that which was intended to be given to the assignee in trust for others. A creditor of the assignor, whether provided for by the assignment or not, who wishes to repudiate the trusts of the assignment, on the ground that they are illegal, and a fraud upon the honest creditors of the assignor, must apply to set aside the assignment as fraudulent and void against him as a creditor, instead of coming in under the assignment as a preferred creditor or otherwise.” Nor can the general recital, that it is the purpose of the assignor to appropriate the property assigned as a court of equity would marshal assets, authorize the change or subversion of any use expressly declared by the assignment. The recital indicates, that it was the intention of the assignors to apply partnership property first to pay partnership debts, and separate property to pay separate debts. The significance and comprehensiveness of* the recital is limited and qualified — a definite application is given to it, by the particular and express grants of the assignment. These indicate and declare the property which was deemed partnership, and that which was deemed separate property; the uses are all expressed in reference to the declaration; and the property is devoted to the payment of debts in the •order a court of equity would apply it, if, in case of insolvency, the court was marshalling separate and partnership assets. If, upon the theory that the assignors were mistaken in point of fact, or of law, in deeming property which is expressly granted and declared as of one class, the court should intervene, pronounce it of another class, nullify the uses declared, and appropriate tile property to other uses, the assignment would not be carried into effect, but would, pro tanto, be set aside. There may be cases in which creditors have a.n equity to vacate the uses of an assignment, and to obtain a decree appropriating the property assigned to other and different uses. In all these — 435 — cases, the equity is independent of the assignment, and can not be claimed by a creditor who has accepted the rights and benefits the assignment confers. Beal estate, acquired with partnership funds, or on partnership credit, and for partnership purposes, in -a court of equity is esteemed partnership property, subject to the payment of partnership debts, in priority of the separate debts of the several partners; and it is not material whether the legal title resides in the partnership, or in the several partners as tenants in common, or in the name of one partner only.—Pugh v. Currie, 5 Ala. 446; Lang v. Waring, 17 Ala. 145; Andrews v. Brown, 21 Ala. 437; Little v. Snedicor, 52 Ala. 167. Steering clear of all cases of fraud, or of the use by one partner, without the approbation of his associates,- of partnership funds in the acquisition of real estate, the two facts must concur to constitute real estate partnership property — acquisition with partnership funds, or on partnership credit, and for the uses of the partnership. Ware v. Owens, 42 Ala. 212; Owens v. Collins, 23 Ala. 837; Hoxie v. Carr, 1 Sumner, 198; Parsons on Partnership, 365. The real estate now in controversy was purchased before the formation of the partnership of Phillips, Fariss & Co., and was not paid for with the funds of that partnership, but was paid for with the funds of the preceding partnership of Phillips & Fariss. It is possibly inferrible from the averments of the bill, and from the evidence, that upon a part of the real estate, the business of the partnership of Phillips, Fariss & Co. was carried on, as had been the business of the preceding partnership of Phillips & Fariss. The mere use of the property by the partnership, did not impress upon it the character of partnership property. It is not of uncommon occurrence, that a partnership uses the property of its several members, or of a preceding partnership. In the absence of an agreement that the property shall become joint property, its title and character is unchanged.—Ware v. Owens, supra; McCrary v. Slaughter, 58 Ala. 230. The existence of such an agreement, in this case, is not alleged or proved. The identity of the partnership of Phillips & Fariss, with that of Phillips, Fariss & Co., a proposition the bill seems to assert, is not true, either as matter of law, or as matter of fact. The introduction or incoming of a new member into an existing partnership, in contemplation of law, works its dissolution, and the creation of a new partnership. — Parsons on Partnership, 34. The incoming partner is not liable for the debts or engagements of the former partnership, save so far as by express agreement he may assume liability; and in the property of the former partnership he acquires no other or greater interest thaq such as is by express agreement conferred. — Parsons on Partnership, — 436 — 434. If the property is carried into the new partnership, it becomes .the property of that partnership — ceases to be, and is freed from all the liabilities to which it might have been subjected, as the property of the preceding partnership. The termination of the partnership of Phillips & Eariss, and the creation of a new partnership, having a new style or firm name, with an additional member, the partners sharing in the profits and losses in differing proportions, was the intention of the parties by the introduction of Robert 0. Fariss as a member. Into the new partnership, as a part of its property, tire real estate in contention was not carried ; and of it the partnership had no ownership, nor in it any interest, legal or equitable. The chancellor decreed the real estate in controversy was the-property of the partnership of Phillips & Fariss, and not the property of the several partners as tenants in common; ordered its sale, and appropriated the proceeds of sale to the payment of partnership debts, in exclusion of the separate debts of the assignor, Phillips, for the security and payment of which, by the assignment, he had appropriated his undivided interest, the quantity of which is specified particularly. A decree of a court of equity can not be supported, when assailed on error, unless it is founded upon, and conforms to the pleadings and proof in the cause.—Maury v. Mason, 8 Porter, 211; Langdon v. Roane, 6 Ala. 518. If it were conceded, that it is shown by the evidence the real estate is the property of the partnership of Phillips & Fariss, and not of the partners as tenants in common,, it is obvious, without vacating the uses declared by the assignment, it could not be appropriated to the payment of the partnership debts, in exclusion of the separate debts to which Phillips had appropriated his undivided share or interest. There was no party before the court claiming in opposition to the assignment, or the vacation of any use declared by it. There was no pleading assailing it, except so far as it may be regarded as assailed by the original bill; and in that respect, as we have said, the original bifl is not maintainable. ' The hearing, it is true, was had upon an agreement that the answers of several of the defendants should be taken as cross-bills, and that severally they should be entitled to the relief which they could have obtained upon a cross-bill disclosing their respective interests. If a cross-bill, seeking the vacation of the assignment in respect to this property only, could be entertained in the present suit, —a question we do not consider, — Bugbee, the sole creditor of the partnership of Phillips & Fariss, is the only party who could have maintained the cross-bill, if it would have been germane and appropriate to the subject-matter of the original bill. The assignment confers upon him the primary security from the proceeds of the sale of a part of the property which is assigned — 437 — only by Phillips, and assigned as the property of the partnership of Phillips & Fariss. The answer found in the record •does not repudiate, while it does not expressly accept the assignment, so far as it confers upon him this peculiar, exclusive right. If he intends the acceptance of this particular right, shutting out all inquiry by the other creditors secured by the assignment, whether he is entitled to it, there ought to have been in the answer a direct, open disclaimer of all rights under the assignment, and an assertion of the superior equity upon which he relies. There is not, in his answer, any such disclaimer, nor any indication of a purpose to claim in opposition to the assignment. There is no repudiation of the security proffered by the assignment, accompanied by the assertion of a superior and independent equity. If he had hied a cross-bill (and we are, in respect to the agreement found in the record, considering the case as if it had been filed), the facts upon which it was founded must have been averred in the answer. The answer is general, brief, and in it there is introduced no averment assailing the assignment, negativing its validity and operation as it is expressed, repudiating it, or asserting that it ought to be vacated. A cross-bill, departing from, and inconsistent with the answer, could not have been well entertained.—Dill v. Shahan, 25 Ala. 694; Graham v. Tankersly, 15 Ala. 634. In any aspect of the case, the decree in this respect is not founded upon, or in conformity to appropriate pleading, and can not be sustained. Whether this specific property is partnership property, or the property of the several partners as tenants in common, is not a question now presented for decision; and if it were, there would be much of difficulty in reaching a satisfactory conclusion. Beal estate may be acquired with partnership funds, abd employed for the use or convenience of the partnership, without becoming necessarily partnership property. The partners may intend to hold it separately as tenants in common, and not jointly, as partners. They may intend to withdraw from the joint stock the funds invested in its acquisition, and a new investment, in which each partner will hold in severalty his share or interest. Prima facie, the condition of land is precisely that which is indicated by the muniment of title. The mere use of partnership funds, with the knowledge and approbation of the partners, in its acquisition, will not, of itself, repel the presumption arising from the muniment of title, or impress upon the' land the character of partnership property. ■ The inquiry is, what was the intention of the partners; and it must be solved from a consideration of all the circumstances attending the transaction.—1 Am. Lead. Cases (5th ed.), 602; Parsons on Partnership, 363; Fall River v. Borden, 10 Cushing, — 438 — 458; Tillinghast v. Champlin, 4 R. I. 205; Coder v. Huling, 27 Penn. St. 84; Hoxie v. Carr, 1 Sumner, 174. It is not necessary to pass upon other questions raised by the assignment of errors, which may not be presented in the further progress of the cause.' The decree of the chancellor must be reversed, and the cause remanded. StoNE, J., not sitting.