Hibernian Bank v. Everman

Chalmers, J., delivered the opinion of the court. Cox and Everman were partners in merchandise in the town of Greenville. Their connection was terminated in 1869 by a sale of the partnership stock and business to Nelson for $18,300. It was agreed between them that Cox should take all the assets of the firm, including the money and notes to be paid and executed by Nelson, and with them extinguish all the partnership liabilities, from which Everman was to be released and protected by him. Everman received $1,000 for the relinquishment of his interest in the assets. After this agreement, and without the knowledge of Everman, Cox procured Nelson to execute the notes to Mrs. Ellen M. Cox, his mother,’instead of to himself, and then transferred them to Hoy & Co., of New Orleans, [504] at first as collateral security for, and subsequently in absolute extinguishment of, a debt due by Mrs. Cox to Hoy & Co. This seems to have been done not only in fraud of the agreement with his former partner, but with the express intention of defeating the right of the firm creditors to subject said notes to the payment of their claims. We think that Hoy & Co. must have known that the notes were assets of the firm, and must have suspected that they were being intentionally placed beyond the reach of its creditors. Hoy & Co. subsequently transferred, for value, one of the notes to Richard White, and the other two to the Hibernian Bank. The assignees had no notice of the character of the notes, nor of the perversion of them from their legitimate destination. Before they had been recieved by White and the bank, and while they were held by Hoy & Co., sundry creditors of Cox & Everman filed their bill in the chancery court of Washington county against said firm and against Mrs. Ellen M. Cox and Nelson, alleging the personal insolvency of both members of the firm, charging the fraudulent purpose and acts of Cox, and praying to subject the amount due by Nelson on the notes to the payment of their claims. To this bill Hoy & Co. were admitted as defendants, upon their own petition. Everman answered, admitting substantially all the allegations of the bill, uniting in the charges of fraud against his former partner, and averring his own innocence. Pro confesso was taken as to Cox and mother. Hoy & Co. answered, denying all fraudulent collusion or knowledge, and claiming to be bona fide purchasers for value. While this suit was pending and undetermined, Everman filed a separate bill against the Coxes, Nelson, Hoy & Co., Richard White, and the Hibernian Bank. He alleges that he has paid off most of the claims embraced in the creditors’ bills since the filing thereof, besides various other debts due by his old firm. He reiterates the charges of fraud against Cox and his mother which were contained in the creditors’ [505] "bill and in bis answer thereto ; alleges, upon information, that "White and the bank are now the holders of the notes, by ■assignment from Hoy & Co., and charges that they all had notice of the trust character of the notes. White and the bank answered,. admitting their ownership of the notes, but ■denying all knowledge or suspicion of anything improper in .“them or in the disposition which had been made of them. After the taking of some proof the two causes were consoli■dated, and, upon final hearing, there was decree in favor of Everman, subjecting the notes to the payment of the debt of “the firm, and to the reimbtirsement to him of such as he had paid. From this decree the bank appeals. We have purposely omitted in this recapitulation some matters not necessary to be considered, under the view which we take of the merits of the controversy. In saying that we think that Ploy & Co. had knowledge that the notes were partnership assets, and should at least have •suspected, in view of their intimate connection with all the parties, that they were being fraudulently perverted, we state “the case in its strongest possible aspect for complainant. Under this view, was the decree correct? So far as the "bank was concerned, it being certain that it had no knowledge •of these facts, what is complainant’s claim? He seeks as a •former partner, in his own right and in that of the partnership creditors, to subject these notes in the hands of innocent holders to the satisfaction of partnership debts. This is a mere attempt to enforce an equity. • The notes did not belong to him nor the creditors, legally- or nominally. They were payable on their face to Ellen M. Cox. They should have been payable to J. B,. Cox. The firm had ceased to exist. By the terms of dissolution all the assets passed to Cox and became legally his property. True, they stood charged by the agreement with Everman, as well as bylaw, with the payment of the firm debts. If he violates this trust, and the notes come by successive [506] legal transfers, into the hands of an innocent holder, for value-,, can the former partner or the creditor subject them to the firm liabilities to the prejudice of such holder? This question is wholly unaffected by the fact that the notes-were transferred in New Orleans. The result would be the same if the transfer had taken place in Mississippi. The notes should, have been, taken payable to J. B.. Cox.- Suppose, for illustration, that they had been so taken. This invests him with the perfect-legal title, burdened with a secret equity. . Ho transfers them to Hoy & Co., who we will suppose had knowledge of the trust. They then hold them subject to the-trust. In turn they assign them to the bank, an innocent purchaser of the legal title. • It seems clear that this-last holder cannot be affected by an unknown equity. The notes, considered as assets of the firm, but with no oar-marks to distinguish them as such, certainly could not stand upon a higher footing than the goods of the concern. If, after the agreement between the parties, Cox had clandestinely run the stock of goods off and sold them either within or without the state, it will not be pretended that they could be reclaimed from an innocent, purchaser by the former partner or by the m*editors. It is not perceived how such a right can be asserted against the notes— the representatives of the goods. . It is said, however, that the bank was a purchaser of the-notes after maturity, and cannot therefore claim to be a purchaser for value without notice. ■ - - - If this were true it would not alter the result. The principle which requires the pui’chase to be made before maturity only applies in favor of a-party connected with the legal-title, or at most to an equitable interest of which the purchaser had actual, or implied notice. A purchaser of negotiable paper, even after maturity, cannot be bound by a secret equity in favor of an entire stranger to the paper, of which he neither-had, knowledge nor anything to put him upon inquiry. But it is not true that the bank was a purchaser after maturity. The notes as drawn were indeed part due, but had been [507] extended, before maturity, by agreement between Hoy & Co. and the maker, Nelson, which extension was indorsed upon them. The case is not affected in any way, as is supposed by solicitors for appellees, by the anti-commercial character of our laws. Our statutes apply only to defenses between maker and payee, or subsequent endorsers or endorsees of the paper — in other words, to parties who in some form are connected with the legal title. They have no reference to parties claiming to assert an equity in the paper, as was decided in Commercial Bank of Manchester v. Lewis, 13 S. & M., 226, a case strikingly analogous in its important features to the case at bar. It is further urged that the bank bought pendente lite since her purchase was after the institution of the original suit by the creditors, though before the one by Everman, to which alone she was a party. The doctrine of lis pendens cannot apply to a party purchasing negotiable paper beyond the jurisdiction, even if it applies to a purchase of said paper within the state. It is a more representative of value, having no situs nor place of registration, and unless impounded in the, hands, of .a receiver, or otherwise placed under the control of the court, it is difficult to see how an innocent purchaser can be affected by notice of the litigation. In Alabama and Pennsylvania a pending .suit is held to be no bar to the purchase of such instruments within the state. Wo think it certainly would not .be as to purchasers in good faith outside the state. Winston v. Westfeldt, 22 Ala., 760 ; Story’s Eq. Jur., § 405 ; Adams’ Eq., 157 ; Hill v. Kroft, 29 Penn. St., 187. The decree of the court below is reversed and the bill dismissed, so far as the Hibernian Bank is concerned.. The other defendants not having appealed, the decree below must stand as to them. . . '