Elliott v. Pontius

McCabe, J. Appellants brought suit in the court below, against appellees, to set aside a conveyance of real estate and a chattel mortgage on a stock of goods, on the ground that the deed and mortgage were fraudulent as against appellants and others, as the creditors of the appellees Rufus Pontius and James O. McElwee, partners, doing business under the firm name of Pontius & Mc-Elwee. Trial by the court, special finding of facts, and conclusions of law thereon upon which the court rendered judgment for the appellees, defendants below. It is assigned for error here: 1. That the court erred in overruling the demurrer by plaintiff to the second paragraph of answer. 2. That the court erred in overruling the motion for a venire de novo. 3. That the court erred in overruling the motion for a new trial. The special finding makes the first assignment of error unavailable, and, in addition to that, appellants have waived that and the second assignment by not discussing them in their brief. Three months after the submission of the cause here appellants, as appears by the clerk’s indorsement on the record, made, by agreement, an additional and fourth assignment of error, by which the conclusions of law are called in question. The appellees Rufus Pontius and Jacob O. McElwee, partners, in the mercantile business at Denver, Indiana, under the firm name of Pontius & McElwee, were, at the time of making the mortgage and conveyance complained of, not possessed of, and said firm did not own, property and assets enough to equal in value the amount of the firm’s indebtedness to the appellants and others. Pontius was at the time trustee of Jefferson township, Miami county, Indiana, and his co-appellees, Speck, Hoff, — 643 — Fisher, and Thomas S. McElwee, were sureties on his official bond. Pontius and McElwee conveyed to Thomas S. McElwee certain real estate in Denver, Indiana, belonging to the firm, and the transfer was made in contemplation of insolvency and while intending an assignment for the benefit of their creditors. Pontius had let the firm have and use in its business about $1,600 of the township funds. For the purpose of repaying the debt due the township, Pontius & McElwee, on March 5, 1889, borrowed of the First National Bank of Peru $1,600 on 180 days’ time, and gave their note for the same, with Speck, Hoff, Thomas S. McElwee, and Fisher as sureties, they also being sureties on the official bond of Pontius; and to secure the sureties on the note, Pontius & McElwee executed to them a chattel mortgage on their stock of goods and merchandise. The sureties knew the purpose of the loan, and the money thus borrowed was used in repaying the township funds to the successor of Pontius in the office of township trustee. On March 8, 1889, Pontius & McElwee made an assignment for the benefit of their creditors to the other appellee, William O. Piper. The object of the suit was to set aside the conveyance and mortgage above mentioned, as- a fraud on the creditors of Pontius & McElwee, and obtain a decree directing the assignee to sell the property for the benefit of the creditors regardless of said mortgage and conveyance. The conclusions of law are to the effect that the debt of $1,600, for the payment of which that sum was borrowed from the bank, was the debt of the firm to the township. There is no question made as to the conveyance of the real estate, because the court found as a fact, that Thomas S. McElwee, the grantee in the conveyance, was — 644 — a bona fide creditor of the firm, and that the value of the property conveyed to him was less than his said claim against the firm. The only question, therefore, for our consideration and decision is the correctness of the conclusions of law. It is maintained with great earnestness and ability, that, under the facts found, the debt for the payment of which the $1,600 was borrowed was the individual debt of Pontius to the township, and that the insolvent firm, had no right, as against the creditors of the firm, to apply the assets of the firm in direct payment thereof, or to-secure the payment of the same by mortgaging the assets of the firm, either directly or indirectly. If the debt for the payment of which the money was borrowed was. the debt of the firm, it is conceded that the insolvent firm had the legal right to prefer that debt by either paying or securing it, though that would defeat all the other creditors. But it is strenuously insisted that the debt was not the debt of the firm, but was the individual debt of Pontius, and that therefore it was a fraud upon the creditors to apply the assets of the insolvent firm, either in direct payment of, or security for, the individual debts and liabilities of a member of the firm so as to defeat the creditors of the partnership. It is not denied that the firm used the money of the township in its partnership business,-and the finding shows that it was all used in the payment of the debts of the partnership, and some of the very creditors now complaining were recipients of that money in the partial payment of their claims. But it is sought to work out the problem of forcing the sureties on the official bond of Pontius to let go their collateral security, by applying that line of decisions of this court which hold that the money of a township, when it passes into the hands of the trustee, ceases to be — 645 — the money of the township, and becomes the property of, and belongs to, the trustee. That being so, it is claimed that when Pontius lent the money which he had received on account of the township to the firm of which he was a member, or used the money for the benefit of the firm in its business, it was his individual money, and his firm simply became indebted to him to repay the money, and not tó the township; and he was, and is, the debtor of the township. Therefore, when the sureties' on his official bond became sureties on the note to the bank, signed by himself and partner, for borrowed money to pay the township, for the township funds used by the firm, it is insisted that this was only borrowing money to pay his individual debt to the township, and not the firm’s debt to the township. Therefore, it is insisted that the chattel mortgage executed to indemnify .such sureties against loss on account of their liability to pay such borrowed money, it is in effect the same as if the mortgage on the stock of goods had been made to secure the debt of Pontius to the township. If the law will allow these creditors of this insolvent firm to appropriate the $1,600 of the township funds, as they have, to their benefit, and then stand with sword in hand to prevent the sureties on the official bond from taking any step to secure themselves out of the poor pittance of property left, only because the township funds had gone to these creditors instead of the old shelf worn and unsalable goods, then sureties meet with no favor in the eyes of the law. But, we think, the law is subject to no such reproach. It is true that, for many purposes, the money received by a township trustee on account of his township is his own money. And when he repays it to the township, he is paying his individual debt. “But,” said this court in Rowley, Admr., v. Fair, 104 Ind. 189 (193), “The title of a township trustee in the — 646 — money for which he is held responsible is only recognized to the extent that is necessary for the better preservation of the various funds which the money represents, and is, in fact, a legal title only in a technical and very limited sense. The equitable title to, and the beneficiary interest in, such money is in the township, and in that view the money for which the trustee is liable upon his bond really belongs to the township. In that sense, section 5993, R. S. 1881, refers to all moneys coming into the hands of a township trustee, as belonging to the township.” Here the firm, finding that they were liable to fail, did a commendable thing by providing for the repayment of the debt to the township, and they treated the debt to the township as the debt of the firm, which it was in equity. Instead of being a fraudulent act on their part to so treat it, they manifested good faith and honesty in doing so. But if we even treat the title to the township money in the township trustee’s hands as vesting in him individually, and the debt to the township in this case as the individual debt of Pontius, yet the incumbering of the partnership property to secure its payment was not such a fraud on the creditors of the insolvent firm as entitled them to set aside such incumbrance. In Fisher v. Syfers, 109 Ind. 514 (516), Judge Mitchell, speaking for the court, said: ''The rule that obtains in the distribution of estates of partners, and under which partnership creditors are entitled'to priority of payment out of the partnership assets, is an equitable doctrine for the benefit and protection of the partners respectively. 'Partnership creditors have no lien upon partnership' property; their right to priority of payment out of the firm assets, over the individual creditors, is always worked — 647 — out through, the liens of the partners. ’ Warren v. Farmer, 100 Ind. 593; Trentman v. Swartzell, 85 Ind. 443. ‘ ‘Upon the death of one partner, or where the firm becomes bankrupt, or where the partnership assets are being administered by a court, the rule of equitable distribution is applicable to its fullest extent. Where, however, the partners have the possession and control of their own property, they have the right to make any honest disposition of it they see fit; each has the right to waive his equitable lien, and together they may sell, assign or mortgage the property of the firm, to pay or secure either an individual debt of one of the partners, or the debts of the firm. Where debts are fairly owing by either partner individually, the mere preference of individual over partnership creditors by the execution of a chattel mortgage, in the firm name, or by authority of the partners, upon -the property of the firm, is not of itself such a fraud upon the partnership creditors as will authorize the setting aside of the chattel mortgage at the suit of a creditor.” Citing Nat’l Bank, etc., v. Sprague, 20 N. J. Eq. 13; Kirby v. Schoonmaker, 3 Barb. Ch. 46; Kennedy v. Nat’l Union Bank, 23 Hun, 494; In re Kahley, 2 Biss. 383; Jones’ Chat. Mort., section 44. Fisher v. Syfers, supra, was cited, and the principles just quoted therefrom were reaffirmed in Goudy v. Werbe, 117 Ind. 154; and in Winslow v. Wallace, Rec., 116 Ind. 317. We are, therefore, of opinion that the court did not err in its conclusions of law. It is very earnestly contended that the finding is contrary to the law and the evidence, and hence that the court below erred in refusing a new trial for that reason. The complaint is that the evidence, without any conflict, establishes the indebtedness of the firm to the vari — 648 — ous creditors in various amounts, but that the special finding is utterly silent on that subject. Filed Nov. 28, 1893. It is insisted that said indebtedness having been put in issue by the pleadings, and the appellants having the burden of that issue, the silence of the special finding, on such issue, is equivalent to a finding that no such indebtedness existed. This is true; and the court erred in failing to find on that issue what the evidence plainly established without any conflict whatever. But the error was harmless. The finding and conclusions of law proceed upon the assumption that such indebtedness, being admitted by the partners in their testimony, is not a disputed fact in the case. But the testimony can not be looked to in aid of a special finding, however undisputed it may be. The issues joined put the matter in dispute, and the finding must respond to that issue just as much as if the evidence also put the matter in dispute. Assuming that the indebtedness of the firm to the appellants, as creditors, was conceded and undisputed, the court stated the conclusions of law correctly arising upon the facts thus assumed to be true. The law being correctly stated, there could be no recovery by appellants, even though the facts as to the matter of indebtedness had been fully and correctly found. A correct result having been reached, as much so as if the error had not occurred, it follows that the error was a harmless one. The judgment is affirmed.