author: Bartley, C. J.

text:
    Andrew D. Rodgers, Assignee of Peter Murray, v. John Meranda, Assignee of Dever & Murray, et al.
    It is a rule of equity, in the distribution of the joint and separate assets of insolvent partners, that the individual assets of a partner be first applied to-the debts of his individual creditors, and the partnership assets first to the-partnership debts; the preference of the separate creditors in the individual property resulting, as a necessary correlative, from the priority of the joint creditors in the joint effects, inseparable from the nature of the-relation of the partners to each other.
    This rule does not apply when there is no joint estate for distribution, and no-living solvent partner. But, where there are joint and separate effects for-distribution, the joint creditors can, in equity, only look to the surplus of the separate estate of a partner, after the payment of his individual debts..
    *And the individual creditors can, in equity, only seek distribution from the partnership effects, out of the surplus of the joint fund, after payment of the partnership debts.
    The individual creditors of a partner are not entitled to an equal distribution' with the partnership creditors out of the joint effects, on account of an-indebtedness of the firm to such partner, for money loaned by him to the-firm, unless the money loaned was obtained by the firm fraudulently, or advanced by the partner with an improper design to augment the joint, estate by a reduction of the separate estate.
    This is a petition in error to reverse the judgment of the common; pleas of Clark county.
    The original proceeding was a petition for an order of distribution of the separate or individual assets of an insolvent debtor, as between separate and partnership creditors.
    It appears from the record, that about the 13th of June, 1854, Peter Murray, an insolvent debtor, made an assignment of all his. estate, real and personal, to the plaintiff, in trust for the payment, of his individual creditors, in proportion to the amount of their respective demands. Though possessed of a large and valuable estate* it had been found insufficient to pay his separate debts and liabilities in full. At the date of his failure and assignment, he was a partner with John ~W. Dever, in a mercantile firm, under the name and style of Dever & Murray, which firm had also become insolvent, and likewise Dever; and the firm had made an assignment of the partnership property and assets, about the same time, to John Meranda, one of the defendants, in trust for the payment of the joint ■debts or liabilities of the firm.
    In this condition of affairs, the partnership creditors, although they have 'filed their claims with the assignee of the firm for their distributive shares out of the partnership property, claim the right to be admitted to a participation in the dividends of the separate estate of Murray, pari passu with his individual creditors; while the latter deny the right, and insist that his separate estate shall be applied to the satisfaction of his individual debts in preference to his partnership debts.
    It appears further, that Murray, besides advancing his part of *the capital of the firm, also loaned money to the firm to a large amount, for which he held the obligations of the firm; which obligations, by the assignment of Murray, came into the hands of the plaintiff, who has presented the same to the assignee of the firm, and claims to have the same paid out of the assets of the firm, pari passu with the other partnership debts. The other creditors resist this, and plaintiff asks an order of distribution to that effect, out of •the partnership assets.
    Defendants demurred to the petition. The court below sustained -the demurrer, and gave judgment in favor of the defendants. And this petition in error is filed to review and reverse that judgment.

      W. White, and 8. & B. Mason, for plaintiff.

      Anthony & Goode, for defendant Meranda.

      Conover & Craighead, for defendants Tracy, Irwin & Co.
   Bartley, C. J.

Two questions are presented for determination in this case. The first is, whether in the distribution of the assets •of insolvent partners, where there are both individual and partnership assets, the individual creditors of a partner are entitled to be ■first paid out of the individual effects of their debtor, before the partnership creditors are entitled to any distribution therefrom. It is well settled that, in the distribution of the assets of insolvent partners, the partnership creditors are entitled to a priority in the partnership effects; so that the partnership debts must be settled before any division of the partnership funds can be made among -the individual creditors of the several partners. This is incident to the nature of partnership property. It is the right of a partner to have the partnership property applied to the purposes of the firm; and the separate interest of each partner in the partneship property, is his share of the surplus after the payment of the partnership debts. And this rule, which gives the partnership creditors a preference in the partnership effects, would seem to produce, in equity, a corresponding and correlative rule, giving a preference to the individual creditors of a partner *in his separate property ; so that partnership creditors can, in equity, only look to the surplus of the separate property of a partner, after the payment of his individual debts; and, on the other hand, the individual creditors of a party can, in like manner, only claim distribution from the debtor’s interest in the surplus of the joint fund, after the satisfaction of the partnership creditors. The correctness of this rule, however, has been much controverted; and there has not been always a perfect concurrence in the reasons assigned for it by those courts which have adhered to it. By some, it has been said to be an arbitrary rule, established from considerations of convenience; by others, that it rests on the basis that a primary liability attaches to the fund on which the credit was given — that in contracts with a partnership, credit is given on the supposed responsibility cf the firm; while in contracts with a partner as an individual, reliance is supposed to be placed on his separate responsibility. ■3 Kent Com. 65. And again, others have assigned as a reason for the rule, that the joint estate is supposed to be benefited to the extent of every credit which is given to the firm, and that the .separate estate is, in like manner, presumed to be enlarged by the debts contracted by the individual partner; and that there is consequently a clear equity in confining the creditors, as to preferences, to each estate respectively, which has been thus benefited by their transactions. 1 Har. & Grill, 96. But these reasons are not entirely satisfactory. So important a rule must have a better foundation to stand .upon than mere considerations of convenience; and practically it is ixndeniable, that those who give credit to a partnership, look to the individual responsibility of the partners, ■as well as that of the firm; and also, those who contract with a partner in his separate capacity, place reliance on his various resources or means, whether individual or joint. And inasmuch as individual debts are often contracted to raise means which are put into the business of a partnership, and also partnership effects often withdrawn from the firm and appropriated to the separate ■use of the partners, it can not be practically true, that the separate estate has been benefited to the extent of every credit given to each individual partner, nor that the joint estate *has retained from the separate estate of each partner, the benefit of every credit given to the firm. Unsatisfactory reasons may weaken confidence in a rule which is well founded.

What then is the true foundation of the rule, which gives the individual creditor a preference over the partnership creditor, in the distribution of the separate estate of a partner ? To say that it is a rule of general equity, as has been sometimes said, is not a satisfactory solution of the difficulty; for the very question is, whether it be a rule of equity or not. In the distribution of the assets of insolvents, equality is equity; and to say that the rule which gives the individual creditor a preference over the partnership creditor in the separate estate of a partner, is a rule of equality, does not still rid the subject of difficulty. Eor, leaving the rule to stand, which gives the preference to the joint creditors in the partnership property, and perfect equality between the joint and individual creditors, is, perhaps, rarely attainable. That it is, however, more equal and just, as a general rule, than any other which can be devised, consistently with the preference to the partnership creditors in the joint estate, can not be successfully controverted. It originated as a consequence of the rule of priority of partnership creditors in the joint estate, and for the purposes of justice, became necessary as a correlative rule. With what semblance of equity could one class of creditors, in preference to-the rest, be exclusively entitled to the partnership fund, and, concurrently with the rest, entitled to the separate estate of each partner? The joint creditors are no more meritorious than the separate creditors; and it frequently happens, that the separate debts are contracted to raise means to carry on the partnership business. Independent of this rule, the joint creditors have, as a general thing, a great advantage over the separate creditors. Besides being exclusively entitled to the partnership fund, they take their distributive share in the surplus of the separate estate of each of the several partners, after the payment of the separate creditors of each. It is a rule of equity, that where one creditor is in a situation to have two or more distinct securities or funds to rely on, the court will not allow him, neglecting his other funds, to attach himself to one of the funds to the prejudice *of those who have a claim -upon that, and no other to depend on. And besides the advantage, which the joint creditors have, arising from the fact that the partnership fund is usually much the largest, as men in trade, in a great majority of cases, embark their all, or the chief part of their property, in it; and besides their distributive rights in the surplus of the separate estate of the other partners, the joint .creditors have a degree of security for their debts and facilities for recovering them, which the separate creditors have not; they can •sell both the joint and the separate estate on an execution, while the separate creditor can sell only the separate property and the interest in the joint effects that may remain to the partners, after the accounts of the debts and effects of the firm are taken, as between the firm and its creditors, and also as between the partners themselves. With all these advantages in favor of partnership •creditors, it would be grossly inequitable to allow them the exclusive benefit of the joint fund, and then a concurrent right with individual creditors to an equal distribution in the separate estate of each partner. What equality and justice is there in allowing partnership creditors, who have been paid eighty per cent, on their ■debts, out of the joint fund, to ‘come in pari passu with the individual creditors of one of the partners, whose separate property will not pay twenty per cent, to his separate creditors ? How ■could that be said to be an equal distribution of the assets of insolvents among their creditors ? It is true, that an occasional case may arise where the joint effects are proportionably less than the separate assets of an insolvent partner. But, as a general thing, a very decided advantage is given to the partnership creditors, notwithstanding this preference of the individual creditors in the separate property. And that advantage, arising out of the nature of a parnership contract, is unavoidable. Some general rule is necessary; and that must rest on the basis of the unalterable preference of the partnership creditors in the joint effects, and their further right to some claim in the separate property of each of the several partners. The' preference, therefore, of the individual creditors of a partner in the distribution of his separate estate, results, as a principle of equity, from the preference of ^partnership creditors in the partnership funds, and their advantages in having different funds to resort to, while the individual creditors have but the one.

It has been argued that partnership contracts are several as well as joint, and consequently have an equal legal right with separate creditors upon the individual property of a partner. But the right of partnership creditors against the separate property of individual partners in proceedings at law, is not in controversy. The question here relates to the relative equitable rights of two classes of creditors in the distribution of the estates of insolvents. Much of the confusion upon this subject has probably arisen from confounding the abstract rights of creditors in proceedings at law, with their relative rights to an equitable adjustment in marshaling the assets of insolvents in chancery.

The rule here adopted appears to have been followed in England for near a century and a half. We find it distinctly recognized in the case of Ex parte Crowder, 2 Vern. 706, decided in 1715. And in Ex parte Cook, 2 Peer Williams, 500, Lord Chancellor King declared it settled as a rule of convenience in bankruptcy, that joint creditors should be first paid out of the partnership estate, and the separate creditors out of the separate estate of each partner; and if there be a surplus of the joint estate after paying the joint creditors, the share of each partner should be distributed to his separate creditors; and if, on the other hand, there should be a surplus of the separate estate of a partner after the satisfaction of his individual creditors, it should be applied to any deficiency of the joint funds in the satisfaction of the partnership debts. Lord Hardwicke followed the same rule, in Ex parte Hunter, 1 Atkins, 228. But it. appears that in Ex parte Hodgson, 2 Bro. ch. c., decided in 1785, Lord Thurlow made an innovation on the rule in bankruptcy, declaring that there was no distinction between joint and separate creditors; that they ought to be paid out of the bankrupt’s estate, and his moiety of the joint estate; and that the joint creditors ought to come in pari passu with the separate creditors. This ruling of Lord Thurlow appears to have had reference to proceedings at law *and in bankruptcy, for it is said that, consistently therewith, it was competent for the assignees to confine the joint creditors, where there was a joint estate, to that fund exclusively, by filing a bill in equity against the other partners, and obtaining an injunction on the order in bankruptcy. But how far this innovation went, in practice, to affect the ultimate rights of the parties, is wholly immaterial, inasmuch as Lord Loughborough, in Ex parte Elton, 3 Y es. Jr. 238, in the year 1796, restored the rule which previously prevailed, holding that the rule introduced by the case if Hodgson, was inconvenient, inasmuch as every order which he passed in bankruptcy, giving a joint creditor a dividend out of the separate estate of a partner, would give rise to a bill in equity, on the part of the separate creditors, to restrain the order, and secure the application of the separate estate to the satisfaction of the separate debts; and although it was adjudged, that a joint creditor might prove his claim under a separate commission, yet he could not receive any dividend therefrom, until the amount of his distribution in the joint fund could be ascertained, and the claims of the separate creditors satisfied. And the opinion of the lord chancellor, in this case, puts an end to the assertion, which has been sometimes made, that this rule was peculiar to proceedings in bankruptcy. Touching this, he said: “ If it stands as a rule of law, we must consider, what I have always understood to be settled by a vast variety of cases, not only in bankruptcy, but upon general equity, that the joint estate is applicable to partnership debts, and the separate estate to the separate debts.” Again, in speaking of the inconvenience of Lord Tkurlow’s rule, he said : “What I order here to-day, sitting in bankruptcy, I shall forbid to-morrow, sitting in chancery for it is quite of course to stop the dividend on 'a bill filed. The plain rule of distribution is, that each estate shall bear its own debts. The equity is so plain, that it is of course upon a bill filed.

Lord Eldon, with some characteristic doubts and misgivings, consistently followed this rule of his immediate predecessor. Chiswell v. Gray, 9 Ves. 126; Dutton v. Morrison, 17 Ves. 207. And it has ever since remained the settled law of England, applicable, not simply to proceedings in bankruptcy, but as a ^general rule of equity, in the distribution of the assets of insolvents.

The supposition that this rule arose from any provision of the statutes concerning bankruptcy, in England, is a mistake; it washing and well settled as a rule of equity before any statute was enacted touching this subject. It does not aj>pear to have been sanctioned by any positive enactment until the statute of 6 Geo. IV., c. 16, sec. 16.

It is not a little remarkable that this rale of equity, so long settled and acted on in England, should have encountered so much opposition as it has in the courts of the several states in this country.

In Pennsylvania, the yule was discarded, by a majority of the court, in the case of Bell v. Newman, 5 Serg. & R. 78, decided in. 1819. And the rule adopted in that case was, that where a surviving partner dies indebted to partnership and also to individual creditors, and leaving joint assets and also separate assets, the separate creditors should receive as much out of the separate property as the joint creditors could receive from the separate portion or share of such partner in the joint property; and that, then, the the balance of the separate property should be divided pro rata among both classes of creditors. This was placed partly on the ground of equity, and partly on the ground of a statute directing equality of distribution of the assets of deceased persons. Judge Gibson, however, dissented, insisting forcibly on the rule adopted in England as a general principle founded in equity.

And it has been insisted that this case did not strictly fall within the application of the principle, inasmuch as the estate to be distributed in that case was the estate of a surviving partner, against which the claims of the joint creditors were as purely legal as those of the separate creditors. And Chief Justice Tilghman remarked, in the opinion in the case, that “ no rule was intended to be laid down which may affect cases differently circumstanced.”

The case of Sperry’s estate, 1 Ashmead, did not directly affect the question, inasmuch as it came fully within the exception that where there is no joint fund, and no solvent partner, the separate *and joint creditors should be paid ratably out of the separate estate. The question was again brought to the attention of the court in that state, in Walker v. Eyth, 25 Penn. St. 216, where the court express the opinion that it is a rule of equity: “that, where there are'partnership and separate creditors, each estate should be applied exclusively to the payment of its own creditors, the joint estate to the joint creditors, and the separate estate to the separate creditors.” But the question was not directly decided, the decision of the case being put upon another ground. So that the general principle, in a case proper for its application, is said to remain still an open question in Pennsylvania. 1 Amer. Law Cases, 483.

In Yirginia the question was presented in 1848, in the case of Morris’ Adm’r v. Morris’ Adm’r, 4 Grattan, 293, and was elaborately discussed on both sides, but the court was equally divided on the question of the adoption of the rule as a general rule of equity, and the decision of the case was put on other grounds.

In New Jersey, in the case of Wisham v. Lippincott, 1 Stockton’s Ch. 353, the rule was doubted as a general principle of equity, ^although not decided.

In Vermont, in the case of Bardwell v. Perry et al., 19 Vt. 292, rthe rule was discarded as a principle of equity, with this qualification, that the separate creditors could require, in equity, that the joint creditors should first exhaust the partnership funds before -coming in with the separate creditors of a partner for a pro rata ■distribution out of his separate estate.

It does not appear that the doctrine of the English courts on ■this subject was ever adopted as a rule of equity by the courts in Massachusetts; but it is said that a statute was enacted in that state, in 1838, providing, as a rule for the distribution of insolvents’ ■estates, that the net proceeds of the separate estate shall go to the separate creditors, and that of the partnership estate to the joint •creditors.

The rule appears to have been discarded in Connecticut, in the ■case of Camp v. Grant et al., 21 Conn. 41; and also in Mississippi, in the case of Dahlgran, Adm’r, v. Duncan, 7 Sm. *& Mar. 280; but adopted in Alabama, in Bridge v. McCullough, 27 Ala. 661.

In New York, it has been adjudged, that “the rule of equity was uniform and stringent, that the partnership property of a firm shall all be applied to the partnership debts, to the exclusion of the creditors of the individual members of the firm; and that the creditors of the latter are to be first paid out of the separate effects of then* debtor, before the partnership creditors can claim anything therefrom.” Jackson v. Cornell, 1 Sandf. Ch. 348. The history of the English rule was somewhat reviewed by Chancellor Kent, in Murray v. Murray, 5 Johns. Ch. 60, and, upon full consideration, adopted as a rule of equity, by Chancellor Walworth, in Wilder v. Keeler, 3 Paige, 517; Payne v. Matthews, 6 Paige, 19; Hutchinson v. Smith, 7 Ib. 26.

The same doctrine was adopted by Chancellor Desaussure, in South Carolina, as early as 1811, in Woddrop v. Ward, 3 Des. Eq. 203; and also by the Supreme Court of New Hampshire, in Jarvis v. Brooks, 3 Foster, 136.

The subject was very fully reviewed in the court of appeals of Maryland, in McCulloh v. Dashiell’s Adm’r, 1 Harr. & Gill, 96, wherein it was settled, in that state, that in equity, the individual creditors of a partner were entitled to a preference over the joint creditors in the distribution of the separate estate of their debtor.

• And the same doctrine was settled hy the Supreme Court of the United States, on full consideration, in- Murrill et al. v. Neill et al., 8 How. 414.

And it has been laid down, generally, by the elementary writers, both in England and in this country, as a settled rule of equity. Story, in his work on partnership, chap. 15, sections 365, 366, says:

“ This principle of equity jurisprudence, that the joint creditors shall be entitled to a priority of payment out of the joint effects, and the separate creditors to a like priority out of the separate effects, before the other class of creditors shall be entitled to any portion of the surplus, is not, perhaps, under all its aspects, so purely artificial, as it has sometimes been suggested to be; at least, it has been often relied upon, as the dictate of natural justice.”

It is true, the same author, in section 377, of his same work, qualifies this opinion as follows:

*“ ‘ This rule, although now firmly estalished,’ ‘ stands as much, if not more, upon the general ground of authority, and the maxim, stare decisis, than upon the ground of any equitable reasoning,’ and further, that1 after the repeated doubts which have been expressed upon the subject by the most eminent judges, it is not, perhaps, too much to say, that it rests on a foundation as questionable and as unsatisfactory as any rule in the whole system of our jurisprudence,’ ”

And he adds':

“ Such as it is, however, it is for the public repose that it should be left undisturbed, as it may not be easy to substitute any other rule, which would uniformly work with perfect equality and equity in the mass of intricate transactions connected with commercial operations.”

Kent, in his Commentaries, 3 vol. p. 65, says:

“ The joint creditors have the primary claim upon the joint fund, in the distribution of the assets of bankrupts or insolvent partners, and the partnership debts are to be settled before any division of the funds takes place. • So far as partnership property has been acquired by means of partnership debts, those debts have, in equity, a priority of claim to be discharged; and the separate creditors are only entitled in equity to seek payment from the surplus of the joint fund after satisfaction of the joint debts. The equity .of the rule, on the other hand, equally requires that the joint creditors should only la ok to the surplus of the separate estates of the partners, afterpayment of the separate debts. It was a principle of the Eoman law, and it has been acknowledged in the equity jurisprudence of Spain, England, and the United States, that partnership debts must be paid out of the partnership estate, and private and separate debts out of the private and separate estate of the individual partner. If the partnership creditors can not obtain payment out of the partnership estate, they can not in equity resort to the private and separate estate, until private and separate creditors are satisfied; nor have the creditors of the individual partners any claim upon the partnership property, until all the partnership creditors are satisfied.”

It is argued, however, that this doctrine was overruled in Ohio, in the case of Grosvenor v. Austin, 6 Ohio, 104. It is true, that the reasoning of the court in the opinion, is to that effect; but the case decided falls within one of the acknowledged exceptions to the rule. Where the partnership has become insolvent, and there are no partnership assets for distribution, and no living solvent partner, it has been uniformly conceded, that the principle of the rule does not apply. The case of G-rosvenor v. Austin, was a bill in equity by the creditors of the firm of Seymour Austin & Calvin Austin, for a distributive share with the individual creditors of Sey mour Austin out of the assets of his separate estate in the hands of his administrator. There were no partnership assets, and both parties had died insolvent. This was not a case, therefore, for the application of the principle under consideration. And Judge Lane, in delivering the opinion, says, as to this rule: “ This court are of opinion that if any such rule exist, it must have been of frequent application, and thus have become familiar to the profession. Xet no case is found in the books, except the one in 9 Vesey, and the South Carolina case, that touches such a doctrine, unless cases founded on the statutes of bankruptcy. A claim so novel, in a case necessarily of such common occurrence, must be listened to with caution amounting to jealousy,!’ etc. Touching the subject of this obiter opinion, the following remarks of the Supreme Court of the United States, in Murrill v. Neill, are in point:

“ The rule in equity governing the administration of insolvent partnerships is one of familiar acceptation and practice ; it is one which will be found to have been in practice in this country from the beginning of our judicial history, and to have been generally, •if not universally, received. This rule, with one or two eccentric variations in the English practice, which may be noted hereafter, is believed to be identical with that prevailing in England, and is ■this: that partnership creditors shall, in the first instance, be satis•■fied from the partnership estate ; and separate or private creditors ■of the individual partners from the separate and private estate of the partners with whom they have made private and individual contracts; and that the private and individual property of the partners shall not be applied in extinguishment of partnership ••debts, until the separate and individual creditors of the respective partners shall be paid. The reason and foundation of this rule, or its equality and fairness, the court is not called on to justify. "Were -these less obvious than they are, it were enough to show the early ■adoption and general prevalence of this rule, to stay the hand of innovation at this day; at least, under any motive less strong than •the most urgent propriety.”

It has been argued that the statute in this state, relative to *the equal distribution of the estates of deceased persons, .•and also the statute providing that all assignments of property in •contemplation of insolvency, giving preferences to creditors, had established, in this state, a policy inconsistent with the rule in •question. These statutes were certainly never intended to have •such an effect. The equality required by them is subordinate to -the settled equities and priorities of different grades and classes of ■creditors. It was manifestly not the design of these statutes to •change the nature of partnership contracts, and abrogate the pref•erence of partnership creditors in the distribution of the partner■ship assets. And as this was not done, the rule of equality adopted in equity, requires the corresponding preference to be given to the ■individual creditors of each partner in his separate estate. '

The remaining matter for determination, in this case, involves the inquiry, whether, in case of an indebtedness for money lent to -the partnership by a partner who afterward becomes insolvent, the .separate creditors of the latter shall be entitled therefor to a pro .rata distribution with the partnership creditors, out of the joint fund. It is claimed that the liability of the firm to a partner for money loaned is a partnership debt, and that the individual ci editors of that partner are, in equity, entitled to an equal distribution therefor, out of the partnership property. On the other hand, it is claimed, that as each partner is individually liable for the debts of the firm, and as no partner can be allowed to participate with1* his own creditors in the distribution of a fund, the separate creditors of a partner, as they can only claim through the rights of their debtor, can not be allowed such participation with the joint creditors.

It was at onetime held to be the law, on the authority of adjudications by Lord Talbot and Lord Hardwicke, that if a partner has-loaned money to the partnership, or the partnership has loaned money to the separate estate of one of the partners, according to-the equitable rule of distribution of the assets after insolvency, in the former case, the separate creditors of the partner would be entitled to an equal share out of the joint assets to ^the extent of the debt created for the money lent; and that, in the latter case, the partnership creditors would be entitled to payment to the same extent, out of the individual estate of the partner. Ex parte Hunter, 1 Atk. 223; Story on Part., sec. 390. But this doctrine has long since been overruled ; and the contrary appears now to be well settled. In Ex parte Lodge, 1 Ves. Jr. 166, Lord Thurlow held, that the assignees on behalf of the joint estate could not be entitled to distribution out of the separate estate of Lodge, for money which he had abstracted from the partnership, unless he had taken it with a fraudulent intent to augment his separate estate. And in Ex parte Harris (2 Ves. & Bea. 210, 212), Lord Eldon said : 11 There has long been an end of the law which prevailed in the time of Lord Hardwicke, whose opinion appears to have been, that if the joint estate lent money to the separate estate of one partner, or if one partner lent to the joint estate, proof might be made by the one or the other, in each case. That has been put an end to, among other principles, upon this certainly, that a partner can not come in competition with separate creditors of his own, nor as to the joint estate with the joint creditors. The consequence is, that if one partner lends £1,000 to the partnership, and they become insolvent in a week, he can not be a creditor of the partnership, though the money was supplied to the joint estate ; so, if the partnership lends to an individual partner, there can be no proof for the joint against the separate estate; that is, in each case no proof to affect the creditors, though the individual partners may certainly have the right against each other.”

This doctrine proceeds upon the principle, that, in the distribution of the assets of insolvents, the equities of the creditors, whether joint or separate, must be worked out through the medium of th6 ■partners; that creditors can only step into the shoes of their immediate debtors in reaching their effects where there are conflicting ■claims; and that, inasmuch as an individual partner could not him-' self come in and compete with the partnership creditors, who are in fact his own creditors, in the distribution of the fund, and thereby prejudice those who were not only creditors of the partnership but also of himself; therefore the ^separate creditors of a partner ■could not enforce any claim to a distributive share of the joint effects against the partnership creditors, which could not have been ■enforced by the partner himself for his own benefit. Story on Partnership, sec. 390. The rule, however, that these several funds .are to be thus administered as they stood at the time of the insolvency, is to be received with this important limitation, that it does not apply in case either where the effects obtained, creating the •debt, were taken from the separate estate to augment the joint estate, or from the joint estate to augment the separate estate, fraudulently, or under circumstances from which fraud may be inferred, ■or under which it would be implied.

In the case before us, however, it is not pretended that the firm ■obtained the borrowed money from Murray improperly. The ■separate creditors of Murray, therefore, are not, on account of this ■claim for money lent by Murray to the firm, entitled to participate with the partnership creditors in the distribution of the joint effects.

Judgment of the common pleas reversed; and ordered that the separate effects of Peter Murray be distributed pro rata first among his individual creditors, before any application thereof be made to the payment of the partnership debts of Dever & Murray; and that the partnership effects be applied first to the payment of the partnership debts, irrespective of the claim of the partner, Peter Murray, for money loaned by him to the firm.

Swan, Brinkerhopp, Scott, and Sutlifp, JJ., concurred.


source: Caselaw Access Project

author: J. R. Swan, J.

license: Public Domain

text:
    David M. Lawrence v. Evarts & Cooper.
    The description of a machine in a chattel mortgage^ by the name by which it is usually known, and as being in a certain place, is sufficient, although the machine is in an unfinished state. If the article named is in such a condition that, from its appearance, persons acquainted with like machines would know it by the designation given to it in the mortgage, the description is sufficient, although other and material parts are necessary to be added to make it complete.
    *In error to the district court of Hamilton county.
    On the 12th of April, 1850, Evarts mortgaged to Lawrence certain goods described as follows :
    “The following property, now situated in Walter & Meader’s bureau factory, so called, on Smith street, near Front, Cincinnati, viz: three 12-feet planing-machines, Nos. 3, 4, and 5.” • • • “ Said ^articles being now in my shop, in said Walter & Meader’s bureau factory building.”
    It was recorded on the same day. At the June term, 1850, of the Superior Court of Cincinnati, Benjamin D. Wheeler obtained a judgment against Evarts for $1,006.50, damages and costs; and on "the 26th day of June, 1850, an execution issued upon said judgment, and was the same day levied by Cooper, as sheriff, upon the goods (among others) described in the levy, as “ three unfinished large planing-machines.”
    On the 6th of July, 1850, Lawrence replevied them; and on the trial a verdict was given for the plaintiff. The case was then appealed ; and on the trial in the district court, the court found for the defendant, as to these machines, and assessed Cooper’s damages at $1,328.45. A motion was made for a new trial, because the finding was against the law and the evidence, which was overruled, and a bill of exceptions taken.
    It appears from the testimony, made a part of the bill of exceptions, that Evarts was engaged in manufacturing planing-machines; that he only attempted to make six; and of these six, he only completed one. Lane, one of the witnesses, says, that at the time the three planing-machines, numbered 3, 4, and 5, were mortgaged to Lawarenee, he was in the employ of Evarts, and that Lawrence a,nd Evarts, about the time the mortgage was made, pointed them. out to him, and told him they were mortgaged; that they were in, the same place as described in the mortgage, from that time up to-the date of the seizure by the coroner. The same machines that had been pointed out to him, at the time the mortgage was given, were pointed out by him to the coroner at the time of the replevin. These machines were in the shop at the time of making the mortgage. This witness ^states also, that after the replevin, he-finished two of them, one of which sold for $1,300, and one for $1,000.
    The machines, as far as made when the mortgage was executed, were put together ; but two of them lacked bed-pieces, and other-constituents necessary to complete them. They were not one-third, completed when levied upon.
    A small amount of work and materials was added after the mortgage, and before the levy, but the precise amount does not appear.
    Machinists testified that a planing-machine, unfinished and incomplete, or lacking parts necessary to make it operate and work, was not considered by them a “ planing-machine.”
    The unfinished machines, at the time the mortgage was made, were worth about three or four hundred dollars each.
    The plaintiff in error claims that the description in the mortgage-was sufficient to enable all interested to identify the property, aided by such inquiries as the subject would suggest, and therefore good; and that the court below erred in overruling his motion, for a new trial/

      Alex. H. Me Guffey, and Mills & Hoadly, for plaintiff in error.

      Wrn. Phillips, Jun., and F. Collins, for Cooper.
   J. R. Swan, J.

The question made below and here, is whether the description of the articles mentioned in the mortgage is so uncertain and defective that they can not pass under the mortgage.

A mortgage of “ all the stock, tools, and chattels, belonging to ” the mortgagor, “ in and about the wheelright-shop occupied by him,” is not void as against creditors; and the mortgagee may show, by parol evidence, what articles were in and about the shop when the mortgage was made. Harding v. Colburn, 12 Met. 333. And to the same effect is Morse v. Pike, 15 N. H. 529; Burdett v. Hunt, 25 Maine, 419; Wolfe v. Dorr, 24 Maine, 104; Winslow et al. v. Merchants’ Ins. Co., 4 Met. 306.

*The principle to be deduced from these cases is, that any description which will enable third persons to identify the property,, aided by inquiries which the mortgage itself indicates and directs,, is sufficient. The identity of the property is not, in such cases,, ascertained by any specific description which distinguishes it from other property of the same kind of species, but by its locality.

The planing-machines in controversy in this case were sufficiently described in respect to their locality; and the only question remaining in the case, is, whether the unfinished machines could be denominated planing-machines.

Machinists in the purchase of a planing-maehine, or the manufacturer, undertaking to furnish one for his customers, would of course be dealing about a complete working machine, and would not recognize as a planing-maehine one that was incomplete and unfinished. The machinists who were examined as witnesses in this case seem to have been impressed with this idea, in testifying that unfinished planing-machines were not in fact planing-machines.. That they were not planing-machines in this sense, is very clear; but it does not touch the question in the case. If it does, then every tool or implement mortgaged, if not perfect in its constituent parts, so as to be in working order, could not be covered by a mortgage or bill of sale, unless described as out of order or unfinished.

The real question is, whether so much of the machine was put-together, as that it could be denominated a planing-maehine in a mortgage or sale without misleading those who know what a planing-machine is. A watch without mainspring or hands-might, •very properly, be described in a mortgage as a watch; and it is-clear that some of the material constituents of an article may be wanting, and yet the article be sufficiently designated by its usual name. All that seems necessary in such case of an unfinished or incomplete article is, that so much of it is put together or exists as-to make it capable of identity as belonging to the description 'of article designated. To require more than this, would unnecessarily defeat a mortgage or other conveyance; loss than this would mislead third persons. The court below seem to have adopted the rule that a mortgage describing an article as a *planing-machine was void for uncertainty of description, because the planing-machine was unfinished. In this, a majority of the court are of the opinion that the district court erred. If sufficient of the materials which usually compose a planing-machine were put together, bo that, from its appearance, persons acquainted with planing-machines would not be misled by that designation, it is sufficient, although ■other and material parts were necessary'to be added to make it complete. And the test of its answering the description does not depend so much upon the expense of the work and materials necessary to complete the machine, as upon the materials which have been put together indicating, from its appearance, that it is the kind •of machine named in the mortgage.

Some materials and labor were added to the planing-machines, by the mortgagor, after the mortgage was made. The amount of these is too vaguely proved to raise any question as to their effect upon the rights of the mortgagee or the creditors of the mortgagor.

' Judgment reversed.

Brinkerhoee, Scott, and Sutlief, JJ., concurred.

Bartley, C. J., dissented.


author: Brinkerhoff, J.

text:
    Paine, Kendall & Co. et al. v. Orville L. Mason et al.
    A mortgage of a leasehold for the term of ten years, accompanied by possession held under an instrument in writing not witnessed or recorded, comes within the terms and policy of the act of February 22, 1831, ‘‘ to provide for the proof, acknowledgment, and recording of deeds and other instruments of writing,” and, when executed and recorded in conformity with the provisions of that act, takes precedence over a prior mortgage not thus executed or recorded.
    Under the act of February 24, 1846, “ to require mortgages or bills of sale of personal property to be deposited with township clerks,” a refiling of the original mortgage, with the proper and requisite indorsements, within thirty days preceding the expiration of a year from the original filing thereof, is' a substantial and valid compliance with the fourth section of said act.
    ®Where the year from the original filing of the chattel mortgage expires on Sunday, such Sunday is not excluded from the computation of the thirty days preceding the expiration of the year.
    .Actual notice of a prior mortgage is, per se, conclusive evidence of mala fdes in a subsequent mortgagee; but constructive notice merely is not such evidence. ■

      This cause was reserved from the district court of Cuyahoga county, for the purpose of settling the priority of lien between the plaintiffs and defendant, Mason. The other liens on the property were not contested.
    On the 1st of January, 1853, Lewis C. Butts, a defendant, as trustee for Louise M. Butts, leased of I. L. Hewitt a lot of land, in the city of Cleveland, for ten years, the lease not being witnessed nor acknowledged. The lessee took possession, erected permanent buildings, put in a steam-engine, two planing-machines, and various other machinery; a large portion of the machinery being movable property.
    On the 11th of July, 1853, the trustee, Lewis C. Butts, with the cestui que trust, Louise M. Butts and her husband, executed and delivered to John A. Warner a mortgage for §5,000 on said leasehold property, machinery, fixtures, etc. The mortgage being executed to pass real estate, was entered for record as a real-estate mortgage, July 12, 1853, and when so recorded was filed in the proper office as a chattel mortgage; to wit, on the 25th of July, 1853.
    On the 10th of July, 1854, Warner filed in the proper office a copy of his mortgage, with a statement of his interest therein. This mortgage has been duly assigned to the plaintiffs, and they now claim under it. The petition was filed within a year after said renewal.
    The defendant Mason claims under a mortgage given by the trustee, Lewis C. Butts, for $3,000, to S. B. Bliss, dated May 10, 1853. This mortgage also embraced the leasehold, machinery, and fixtures, but was not witnessed nor acknowledged as a real estate mortgage. The original mortgage was filed in the proper office as a chattel mortgage, on the 21st day of May, *1853. There is no evidence that Warner had actual notice of this mortgage, when he took his, in July after.
    On the 22d day of May, 1854, Bliss, in order to keep his lien good, made, or procured to be made, on his original mortgage, which had been filed as above stated, the following indorsements, to wit:

      “May 22, 1854.
    “ 1 hereby consent that the within chattel mortgage shall bo refiled as of the 20th of May. Lewis C. 13'utts, Trustee.

      “ Witness, C. W. Crumb.

      “ 1 also assent to the above. ' O. L. Mason.
    “ Filed May 22.1854, 2¿ p m. Lee Lord, Recorder.

      “ My interest to the whole of the within property remains in full force, and to the same extent as when the same was first executed. S. B. Bliss.
    “ Cleveland, May 20, 1854.”
    Lee Lord was the recorder of the county, and his office was the proper place to file a chattel mortgage executed by L. O. Butts. And the above indorsements, which were all made on the 22d of May, 1854, show all that was done by said Bliss to preserve his-lien, until August 3,1854, when he filed in said office a copy of his mortgage, with the proper statement of his interest therein.
    This mortgage has been assigned to said Mason, and there is no question as to the consideration or amount of either mortgage.
    The 21st of May, 1854, was Sunday.

      G. Stetson, for plaintiffs:
    1. The mortgage given to Warner, and by him assigned to-plaintiffs, if considered only as a chattel mortgage, must take precedence of that given to Bliss and assigned to Mason, on account of the failure of Bliss to renew his mortgage according to law, before the expiration of one year from the time the mortgage was was originally filed. Swan’.s Rev. Stat. 316, sec. 4.
    The courts have no power to dispense with the express provisions of a statute limiting or prescribing the time for performing any act, and such has been the decision of other courts as well as our own. Ex parte Dodge, 7 Cow. 147; Moot v. Parkhurst, 2 Hill, 372; Alderman v. Phelps, 15 Mass. *225; Bissell v. Bissell, 11 Barb. 96; Burr v. Lewis, 6 Texas, 76 (13 U. S. Dig. 608).
    But even if the time had not elapsed, and the 22d of May were the proper time to renew the mortgage of Bliss so as to preserve the priority of his lien, wo insist that there was on that day no substantial compliance with the statute.
    2. The leasehold interest, including the buildings and such fixtures as were annexed to the land, must be considered as within the operation of the laws governing the sale or incumbrance of real estate, and never passed by the mortgage' to Bliss, which was not witnessed, acknowledged, nor recorded as a real estate mortgage. Swan’s Rev. Stat. 309, sec. 1; 310, sec. 9.

      Prentiss, Prentiss & Newton, for defendant Mason.

      I. The lease from Hewitt to Butts not having been witnessed or .acknowledged, vested him with nothing but an equitable estate. ■Such an estate is not land within the meaning of the statute, which prescribes the manner of executing a mortgage upon a legal estate •only.
    These mortgages, incumbering nothing more than the equity Butts acquired under the lease, it was not necessary to have them witnessed, acknowledged, or recorded.
    If they were not required under our statute to be recorded, in order to create valid lions, there is nothing requiring them to be witnessed, or acknowledged. And such instruments do not come within the purview of recording acts similar to our statute. Wing v. McDowell, Walker’s (Mich.) Ch. 175; Bank of Kentucky v. Vance’s Adm’rs, 4 Littell, 169; Halstead v. President, Directors & Co. of Bank of Kentucky, 4 J. J. Marsh. 555; Lewis et al. v. Baird et al., 3 McLean, 56.
    If the equity of Butts in the lot is to be treated as real estate simply, we insist that the fact that Butts was suffered to remain in possession, furnishes no ground for the plaintiffs to claim a priority, so long as neither Warner nor they ever procured, or endeavored to procure, the legal title. And if the interest is to be treated as a ohattel, and within the statute providing that mortgages and bills of sale of goods and chattels shall be filed, *ete., then we say that the defendant’s mortgage was first filed, and that Warner had constructive notice when he took his mortgage, that the interest was incumbered, and the defendant’s mortgage as well protected the leasehold interest, as the steam-engine and machinery.
    II. Defendant claims that to preserve the priority of lien under his mortgage, Bliss was not by law bound to refile his mortgage, or to renew it, because:
    1. Warner, when he took his mortgage, and upon whose title the plaintiffs stand, was not and could not be a mortgagee in good faith.
    He had constructive notice of the mortgage to Bliss, and occupies the position he would, if it were found as a fact that he had actual notice and no other. Sawyer v. Eastwood, 19 Wend. 514; Gregory v. Thomas, 20 Ib. 17; Paine v. French, 4 Harr. 318; Irvin’s Lessee v. Smith, 17 Ohio, 226; 4 Kent’s Com. (8 ed.) 183; Hicks v. Williams, 17 Barb. (S. C.) 527; Plumb v. Fluitt, 2 Anst. 438; 2 White & Tudor’s Eq. Cas. (pt. 1,) 132; 2 Story’s Eq. Jur., sec. 399; Leiby v. Wolf, 10 Ohio, 83; Lessee of Jennings v. Wood, 20 Ohio, 261; Bullock v. Williams, 16 Pick. 33; Lessee of Billington v. Welch, 5 Bin. 129; Moreland v. Lemasters, 4 Blackf. 383; Chesterman v. Gardner, 5 Johns. Ch. 29; Governeur v. Lynch, 2 Paige, 300; Knox v. Thompson, 1 Litt. 350; Kelley v. Stanbery, 13 Ohio, 408; Johnson v. Stagg, 2 Johns. 509; Scutt v. Large, 6 Barb. (S. C.) 374. The plaintiffs occupy no better position than Warner.
    Refiling the original mortgage, with the required statement, is a substantial compliance with the statute. Fitch v. Humphrey, 1 Denio, 163; 12 Barb. (S. C.) 530.
    2. Warner is by force of the statute bound to show that he became a mortgagee in good faith after the expiration of one year from the original filing of defendant’s mortgage.
    We think the statute, by its terms, embraces only purchasers and mortgagees who become such after the expiration of one year,, and that those who do not become such after the expiration of one *year, can not take advantage of the want of refiling or renewing a prior mortgage.
   Brinkerhoff, J.

It will be seen from the foregoing statement of facts, that the mortgagor in this case was a tenant in possession of a leasehold estate for the term of ten years; the instrument, under which he held possession not being witnessed or acknowledged. And the first question presented is, whether the tenant, Butts, had such an estate as required a mortgage of it to be executed in conformity with the act of February 22,1831, “to provide for the proof, acknowledgment, and recording of deeds and other instruments of writing.”

The first section of this act provides, “ that when any man, etc.,, shall execute, within this state, any deed, mortgage, or other instrument of writing, by which any land, tenement, or hereditament shall be conveyed, or otherwise affected, or incumbered in law, such deed, mortgage, or other instrument of writing,” shall' be signed, witnessed, and acknowledged in the manner therein prescribed. The Seventh section provides that mortgages, executed agreeably to the provisions of the first section, “ shall take effect from the-time when the same are recorded.”

The terms, “land, tenement, or hereditament,” in their strict legal acceptation, do not, it would seem, embrace any less or lower estate than one of freehold; an estate for years being but a chattel real. If, therefore, the first section of the act above referred to had provided for nothing but the conveyance of lands, tenements, or hereditaments, the leasehold estate of Butts would not, perhaps, have come within its provisions. This, however, is not clear. Johnson v. Stagg, 2 Johns. 521. But the terms of the statute are broader than this. The' language is, any deed, mortgage, or other instrument of writing, by which any land, tenement, or hereditament, shall be conveyed, or otherwise affected, or incumbered in law.” This language, it will be perceived, is very comprehensive. Where a party holding a freehold estate, carves out of it, by deed, an estate for ten years, he certainly thereby affects to that extent his lands, tenements, or hereditaments; and so, whenever the leasehold for years, thus carved out *of the freehold, is transferred or incumbered, the freehold out of which it is carved, is, it seems to us, to some extent, “affected.”

Now, the tenant, Butts, was in possession of the premises mortgaged, under a lease good in equity for the term of ten years, and had made extensive improvements thereon.. The possession itself was a species, though the lowest species, of legal title; and we think its voluntary assignment by him would carry with it the equities under which it was held. We are of opinion that the estate of Butts in the premises mortgaged comes fairly within the terms of the act to which reference has been made, and is also within the scope of its policy. The policy of the act is to prevent frauds and protect innocent purchasers. Terms for years, which, by common law, are but chattels real, are often of greater value in fact than estates for life, which belong, technically, to the higher cjass of freehold estates ; and to hold that the former may legally be conveyed or incumbered without the formalties prescribed for the conveyance or incumbrance of the latter, would open a wide door to the admission of evils against which the statute was intended to guard.

If our conclusions thus far are correct, it follows that the leasehold estate, with its permanent fixtures, passed to Warner, and, by assignment from him, to the plaintiffs; and, as to that estate and those fixtures, the plaintiffs are entitled to priority; for Warner was the only creditor who took a mortgage upon the premises which was executed and recorded in conformity with the provisions of the statute referred to.

Having thus disposed of everything in controversy between the parties which savors of the realty, we are next to inquire, which of the two mortgagees, Bliss or Warner, is entitled to priority in the proceeds of the personalty. No charge of actual fraud or ill-faith is made by either party against the other, and, so far as appears, it is a fair contest on the part of both, for priority under the act of February 24, 1846, in relation to mortgages and bills of sale of personal property. The portions of this act which bear on the question before us are as follows. Swan’s Stat. 815.

“ Sec. 1. That every mortgage or conveyance, intended to opcrate *as a mortgage of goods and chattels, hereafter made, which shall not be accompmnied by an immediate delivery, and be followed by an actual and continued change of possession of the things mortgaged, shall be absolutely void, as against the creditors of the mortgagor, and as against subsequent purchasers and mortgagees in good faith, unless the mortgage, or a true copy thereof, shall be forthwith deposited as directed in the succeeding section of this act.

“Sec. 2. The instruments mentioned in the preceding section, shall be deposited with the clerk of the township in this state where the mortgagor therein, if a resident of this state, shall reside at the time of the execution thereof; and if not a resident, then with the clerk of the township where the property so mortgaged shall be at the time of the execution of such instrument.”

“ Sec. 4. Every mortgage so filed, shall be void as against the creditors of the person making the same, or against subsequent purchasers or mortgagees in good faith, after the expiration of one year from the filing thereof, unless within thirty days next preceding the expiration of the said term of one year, a true copy of such mortgage, together with a statement exhibiting the interest of the mortgagee in the property at the time last aforesaid claimed by virtue of such mortgage, shall be again filed in the office of the clerk of the township where the mortgagor shall then reside, if in this state; and if his residence shall not be in the state, then m the office of the clerk of the township in which such property shall then be.”

“ Sec. 7. In all townships in which the office of the recorder of the county is kept, such instrument shall be deposited with him, and he shall perform the duties imposed upon, and be entitled to the fees provided for, township clerks in this act, and his certificate shall nave the same force in evidence,” etc.

The chattel mortgage to Bliss, undei’ which the defendant, Masson, claims, was first filed in the proper office on the 21st day of May, 1853; while that to Warner, under which the plaintiffs claim, was not thus filed until the 12th of July thereafter. But Bliss, the prior mortgagee, neglected to file a copy of his mortgage “within thirty days next preceding the expiration” of one *year from the date of the original filing. His mortgage was originally filed on the 21st of May, 1853, and he did not file a copy with the requisite statement of his claim under it, until the 22d day of May, 1854, being the next day after the expiration of the year. This neglect would work a postponement of' this mortgage in favor of subsequent mortgages in good faith, unless the fact that the year expired on Sunday gave him, in law, the next day after the expiration of the year, in which to do what the •statute required to be done within thirty days preceding the expiration of the year. And on this point the adjudicated cases are full and decisive. The rule is very clearly laid down in Burr v. Lewis, 6 Texas, 76, where it was held that “ courts in the construction of their own rules of practice, generally exclude Sunday in their computation of time. But where a statute directs that an act shall be done within a certain number of days, Sunday can not be excluded, although it should be the last day.” To the same effect are Ex Parte Dodge, 7 Cowen, 147; Moot v. Parkhurst, 2 Hill, 372; Alderman v. Phelps, 15 Mass. 225; Bissell v. Bissell, 11 Barb. S. C. 96. The computation of days of grace on commercial paper, and the “ time within which an act is to be done as provided ” in the code of civil procedure, are exceptions to this rule.

No copy of the original mortgage, however, was filed by Bliss even on Monday the 22d of May; but, instead of a copy, he refiled the original mortgage, and caused the refiling to be indorsed thereon, together with a statement of his claim, and also the consent of the mortgagor and of the assignee of the mortgage, that the same should be refiled as o/the 20th of May, 1854. The refiling of the original mortgage with the proper and requisite indorsements, would, we think, have been a substantial compliance with the requirements of the statute, and therefore sufficient, if it had been done in time; but it is clear that it was not competent for +he paities to the mortgage, by any arrangement between themselves, to affect injuriously any rights which had accrued in favor of a subsequent mortgagee in good faith.

The mortgage to Bliss, then, must, on account of his laches, *be postponed to that of Warner, provided Warner is a “ subsequent mortgagee in good faith.” And this is the only question which remains.

It is contended on behalf of the defendant Mason, that inasmuch as Bliss’ mortgage was good and valid, and properly on file, without any then existing laches, at the time when Warner’s mortgage was taken and filed, Warner had at least constructive notice of the existence of the prior mortgage, and therefore can not be a “mortgagee in good faith.” This claim of the defendant presents two questions. 1. Does actual notice of the existence of a valid and properly registered prior mortgage, constitute, of itself, mala fides in a subsequent mortgagee? and, if so, 2. Does, mere constructive notice have the same effect ?

In the consideration of these questions, it is important to notice, that our statute on the subject of chattel mortgages is borrowed, in all its important features and provisions, literally from that of New York ; and the presumption is, that when our legislature borrowed the statute of New York, it did so in contemplation, and with approval, of the construction and legal effect of the statute borrowed, as declared authoritatively by the highest courts of that state.

Referring, then, to cases decided under the statute of New York, .prior to its adoption into our own legislation, we find that it was held, in Sanger v. Eastwood, 19 Wend. 514, that clear and actual notice of a prior mortgage is, per se, conclusive evidence of mala fides. So, in Gregory v. Thomas, 20 Wend. 17, it was held that actual “notice of the existence of an unpaid'prior mortgage of personal property, destroys the preference which a second mortr gagee would otherwise be entitled to claim, in consequence of possession not accompanying the first transfer, and by reason of the omission of the first mortgagee to refile his mortgage within the period prescribed by statute.” These cases dispose of the first question. As to the second question, we should, on principle, be inclined to hold, that constructive notice merely could not properly be taken as conclusive evidence of mala fides; and, on this point, we are supported by the opinion of the court expressed in the case last above cited. That case *was closely analogous to the one before us. It was a contest for priority between mortgages under a chattel mortgage. The second mortgage had been taken and filed during the first year of the prior mortgage; and the second mortgagee claimed the priority, on the ground that the first mortgagee had failed to keep his mortgage on foot, by filing a copy within the thirty days preceding the expiration of the year from its first filing. Cowen, J., in delivering the opinion of the court, and in reply to this claim of the second mortgagee, says: “ This was doubtless so upon the case as it stood, when the defendant below offered to prove that actual notice of his first mortgage was given to the plaintiff below, when his was taken.”

We are of opinion, then, both on principle and authority, that the plaintiff’s assignor, Warner, was a “subsequent mortgagee in good, faith.that Bliss, the defendant Mason’s assignor, lost his original priority by laches; and that the plaintiffs are legally entitled to priority of lien on the property in question, as well the personalty as that which savors of the realty.

Judgment for plaintiffs.

Bartley, C. J., and Swan, Scott, and Sutliee, JJ., concurred.


author: Scott, J.

text:
    C. J. Hardy and others v. William L. Van Harlingen.
    H. , by Ms last will, bequeathed to his daughter, M., more than $10,000. The money being in the hands of the executor, W., and M., in contemplation of marriage, executed an agreement, stipulating “that the said M., after her marriage with the said W., shall hpve full and entire control of her estate, now in the hands of the executor of her father; and shall have the right to receive, receipt for, or draw orders for any sum or sums, of interest or principal, which may be at any time coming and payable on her portion of her father’s estate, and invest the same, or any part thereof, as she may deem proper, . . . in as full and perfect a manner as she could if of full age and sole; . . . and at the decease of the said M., her estate shall pass to her legal distributees and heirs, on her father’s side, subject, however, to any disposition that she may make by will.” About two years after the marriage, "M. died intestate, and without issue. During the coverture, she drew from the executor most of her legacy, and passed the money into the hands of her husband, W., who invested it in lands, for which he took the title in his own name, with the approbation of M. Held—
    I. That the effect of the antenuptial agreement was to exclude the husband from that interest in and control over his wife’s property which would otherwise, at common law, have been vested in him by the marriage; and to give1 the wife a separate estate in the legacy, in respect to which a court of equity will treat her as a feme sole.

    2. The agreement does not, either expressly or by necessary implication, limit M. to a life estate in, or to the income of, the legacy. She must, therefore, be regarded as retaining the unqualified ownership of the capital, and, as incident thereto, had the right of disposing of it at pleasure, by gift or otherwise, and was not restricted to the single mode of disposition by will.
    3. Though the husband can assert no marital rights in the property specified in the agreement, yet he is not estopped from claiming as a donee, under a power conferred upon his wife by the agreement.
    4. Though in cases of alleged gifts from the wife to the husband, courts will look with a jealous and scrutinizing eye upon the transaction, yet undue influence on the part of the husband will not be presumed from the mere relation of the parties; it must be shown either by direct proof, or by circumstances from which it may be fairly inferred.
    5. The residue of the legacy remaining i'n the hands of the executor, and of which no disposition was made by M., will, by the terms of the agreement, pass to the complainants.
    In chancery.
    Reserved in the district court of Warren county.

      P. B. Wilcox, for complainants.

      Durbin Ward, for defendant.
   Scott, J.

In 1841, G-eorge Hardy died, testate, leaving as Ms legatees six minor children, among whom was a daughter named Margaret, who, in October, 1850, in the seventeenth year of her age, intermarried with the defendant, W. L. Yan Harlingen, a young man of respectable character and standing, but of limited means. Under her father’s will, she became entitled to something over ten thousand dollars, which, at the time of her marriage, was in the hands of the executor. Upon the suggestion of her guardian, in contemplation of the marriage, and shortly *prior thereto, the following agreement, prepared by the guardian, was executed by the parties:

“This agreement, made this day of October, in the year 1850, between William L. Yan Harlingen and Margaret Hardy, both of the town of Lebanon, witnesseth: That the said William and Margaret being about to enter into the marriage relation, thought it prudent to provide for the safety and integrity of the said Margaret’s estate, as left by her father’s will, and therefore havo mutually agreed that the said Margaret, after her marriage with the said William, shall have full and entire control of her estate now in the hands of the executor of her father, J. M. Williams, Esq., and shall have the right to receive, receipt for, or draw orders for any sum or sums of interest or principal which may be at any time coining and payable on her portion of her father’s estate, and invest the same or any part thereof, as she may deem proper; or the said Margaret, at all times during her said coverture may, by writing, under her hand aud seal, authorize and direct any other person to receive, receipt for, and invest, as she may direct, any part of her said estate in as full and perfect a manner as she could if of full age and sole, and such receipt so made or authorized by the said Margaret shall be good vouchers to the executor aforesaid, or any other .person in whose hands her said estate may be at the time said receipts or orders are given; and at the decease of the said Margaret, her estate shall pass to her legal distributees and heirs, on her father’s side, subject, however, to any disposition that she may make by will. In testimony whereof the said parties have hereunto set their hands and seals, at Lebanon, Warren county, Ohio, on the day and year first above written.
“ Wm. L. Van Harlingen, [seal.]
“ Margaret Hardy. [seal.]
“ Attest, A. H. Dunlevt.”
“ This agreement, on the part of Margaret Hardy, entered into by my consent, and with my advice as her legal guardian.
(Signed,) “ A. H. Dunlevt.”

Mrs. Van Harlingen died intestate and without issue, in September, 1852.

More than nine thousand dollars of her distributive share of her father’s estate was drawn by her out of the hands of the executor, in various sums and at different times during the coverture, for which receipts were given to the executor in the name of herself and husband. This money was, from time to time, passed by Mrs. Van Harlingen into the Ijands of her husband, who invested a large portion of it in lands which ho purchased in Illinois, taking the title in his own name, and otherwise used the residue of it as his own.

*This bill is filed by the surviving brothers and sisters of Mrs. Van Harlingen, claiming as against the executor, the balance of Margaret’s estate still in his hands; and, as against Van Harlingen, claiming the funds thus received by him through his wife, and of which she made no disposition by will.

Their claim rests on two grounds: 1. On what is claimed to be the express limitation of the antenuptial agreement; 2. On the ground of undue influence by the husband over the wife.

Hence, two questions arise: 1. Had Mrs. Van ^Harlingen the right to dispose of the money in question by gift to her husband ? and, 2. If she had this right, was it so disposed of as to make the gift valid ?

In regard to separate property of the wife, that is to say, property in which she has a separate estate,” by virtue of a marriage settlement, which excludes the husband from those rights in, and control over, the subject-matter of the separate estate, which would otherwise, at common law, be vested in him, as husband, the question has arisen, both in this country and England, whether, as to such separate estate, a married woman has full power of disposition except as specially restricted by the settlement; or whether-she has no power of disposition except as specially conferred by the settlement. Counsel in this case have, with much research, collected the authorities bearing upon this question, and have very clearly shown that the decisions in England have not been uniform on the subject, and that opposite sides of the question have been espoused by tho courts of the several states in this country. The general current of the English decisions would seem to establish the rule that a feme covert with respect to her separate estate, is to be regarded, in a court of equity, as a feme sole, and may dispose of her property accordingly, unless she is specially restrained by the instrumefit under which she acquires her separate estate..

Tho earliest reported case in this country arose in South Carolina, and was decided by Chancellor Desaussure according to this rule, upon a full review of the English authorities. Ewing v. Smith, 3 Desaussure, 417. But this decision was, upon appeal, reversed, the court, by a bare majority, overruling the *ehanccllor; and this final decision has been since followed in that state.

In New York the question first arose in the case of the Methodist Episcopal Church v. Jacques and others, 3 Johns. Ch. 78. Chancellor Kent, in that case, reviewed the English decisions, and regarding them as “ floating and contradictory,” held the true principle of these settlements to be that, as to her separate property, the wife is only to bo deemed a feme sole, sub moda, or to the extent of the power clearly given.

The decree of the chancellor was appealed from, and his decision reversed by tbe court of errors — three senators only dissenting. 17 Johns. 548.

The English rule was thus adopted in New York, and so it has been in Virginia, at least as to personal property. West v. West’s Executors, 3 Randolph, 373; 2 Leigh, 183. And in North Carolina, so far as regards personal property. Harris v. Harris, 7 Ired. Eq. 111. So in Connecticut, Imlay v. Huntingdon,'20 Conn. 126; and in several other states. On the other hand, the doctrine of Chancellor Kent in the Methodist Church v. Jacques has been adopted in Pennsylvania. Lancaster v. Dolan, 1 Rawle, 231; Thomas v. Folwell, 2 Wharton, 11. Such is the rule in South Carolina, as we have seen, and perhaps in some other states.

This question has generally arisen under marriage settlements proper, by which the wife originally acquired the estate. It has frequently occurred in relation to real estate, which could only be transferred in the mode pointed out by statute. In most of the cases there were trustees in whom the provident grantor had vested the legal title to the property in question.

It is not necessary to determine what rule of interpretation and construction sound policy would require in such cases, except so far as the time, circumstances, or reasons are to be found in the case before us.

Where the instrument is a settlement made in favor of the wife by a third party, the grantor may, doubtless, subject his bounty to such conditions and limitations as his own prudence *may suggest; and in such cases Chancellor Kent’s rule might with propriety be adopted.

Were the subject-matter of the grant real estate, a question might well arise as to the wife’s power of disposition under the settlement, in any other than the statutory mode.

But in this case the property was personalty — it was money— the ownership of which might pass by verbal gift and transfer .of possession. In this money the wife had an absolute'property, derived from the will of her father, which imposed no limitation on any of the rights incident to such ownership. Having thus, prior to, and independent of, the antenuptial agreement, the unlimited power of disposition, the paper which is called the marriage settlement was executed by the parties. Reading it by the light of surrounding circumstances, their intention can scarcely be doubted. The guardian of Margaret mas a man of experience and prudence. Thinking it possible, from his knowledge of the world, that Van. Harlingen might be actuated by mercenary motives in seeking the proposed matrimonial alliance, and might, after marrriage, squander the property and leave his wife to destitution, he suggested to his ward the propriety of an agreement which would secure to her the control of, at least, a part of the legacy which parental affection had provided for her support. With her approbation, he drew up an agreement which would have divided the property about equally between herself and husband. But Van Harlingen preferred that the whole should remain, after marriage, as before, subject to the-exclusive control of his wife; and at his suggestion the agreement was accordingly modified and made to assume its present form. The sole intention of the parties would seem to have been to' prevent the operation of the common-law principle which would have transferred, upon the marriage, all of Margaret’s personal property to her husband. This rule of the law the parties might, by previous contract, modify, or abrogate, so far as it applied to them.

Had the agreement simply provided that the husband should acquire no rights in the property by the marriage, and that the wife should hold it as a feme sole, notwithstanding the marriage, all the express terms of the actual agreement would have been *its legal results. No other person could impose restrictions or limitations upon her exercise of the full right of disposition resulting from the absolute ownership which was left in her. Any such restrictions could only be self-imposed, and, as against her, they are not to be presumed. No trust was created by this instrument; there was no attempt to vest the legal title in any third party; and the dominion of the husband being excluded, the wife, thus retaining the unqualified ownership, must be regarded as retaining therewith the absolute jus disponendi incident thereto.

Looking to the terms of the instrument, we find it to be mutually agreed between herself and Van Harlingen, that the said Margaret, after her marriage with the said William, shall have the full and entire control of the estate now in the hands of the executor,” etc., u and shall have the right to receive . . . and invest the same or any part thereof, as she may deem proper, . . . in as full and perfect a manner as she could if of full age and sole; . . . and at the decease of the said Margaret, her said estate shall pass to her legal distributees and heirs on her father’s side, subject, however, to an y disposition that she may make by will.” There is in. this, no express limitation of Margaret’s interest to a life estate, or the use of the income merely; no indication of an intention to place-the capital or any part of it beyond her own control; and the parties do virtually stipulate that the whole and every part of it maybe used by her according to her own pleasure during life, and that, whatever portion of it she may retain till her decease, shall thereupon pass to her heirs, unless her will shall otherwise direct. We regard this simply as a declaration that the legal rights of the husband shall not attach to this property, either during the life of the wife, or upon her decease. As a consequence of this, it would, at her death, pass to her heirs if not otherwise disposed of by her.

Whatever diversity may be found in the decisions of courts as to a married woman’s power of disposition over her separate estate, we have found no case in which an antenuptial agreement, such as the one executed in this case, and having relation only to personalty, has been held to give the wife only a right to the ^profits or income for life, with a mere power of appointment by will as to the capital. Any such decision would certainly be at variance with the doctrine of the text-books.

. . . “ It may now be laid down as a general rule that all antenuptial [agreements for securing to a wife separate property,, will, unless the contrary is stipulated or implied, give her, in equity, the full power of disposing of the same, whether real or personal, by any suitable act or instrument in her lifetime or by her last will, in the same manner and to the same extent as if she were a feme sole.” 2 Story’s Eq. Jur., sec. 1390.

“ If the property is expressly given to a married woman to her 1 sole and separate use,’ without saying for life; and she is further-authorized to dispose of tho same by will; in such a case the gift will be construed to confer on her the absolute property, and consequently she may dispose of it otherwise than by will; for the absolute property being given, the power becomes nugatory and is. construed to be nothing more than an anxious expression of the donor that she may have an uncontrolled power of disposing of the property.” 2 Story’s Eq., sec. 1394. And to the same effect, 2 Bright on Husband and Wife, 242; Basford v. Street, 16 Ves. 135.

“ It is settled that an express negative declaration is requisite to deprive a feme covert of her prima fade right of disposing of her separate estate.” Hill on Trustees, 422.

It has also been decided that where the limitation is to a feme covert indefinitely, with power to appoint by will, and in default of such appointment then to her executors, she has the complete dominion over the thing limited, and may appoint by any form of instrument during her lifetime, although the power of appointing be confined to one form, namely, a will.” Clancy’s Husband and Wife, 296.

Being satisfied, then, as we are, both from the language of the agreement and the surrounding circumstances, that it was not the intention of Mrs. Yan Harlingen to place her property, in any respect, out of her own control, but that the governing purpose was to retain the same dominion over it as though she had remained sole, we must regard her, in respect to this property, as *a feme sole, and concede to her the power of disposing of it at pleasure, by gift or otherwise.

Nor do any covenants of the- husband contained in the agreement, present an obstacle to his becoming the object of her bounty. He is not here asserting any marital right, but claiming as donee, under a power which the agreement conferred upon his wife.

There remains, then, but a question of fact in the case.

Were the funds in question disposed of by Margaret, during the coverture, by a valid gift of her husband ?

There is no doubt that courts should narrowly scrutinize cases of alleged gifts from the wife to the husband, and should promptly set them aside whenever there is good reason to believe that they have been procured by the improper exertion of that influence which the relation of the parties to each other puts in the power of the husband. The transaction will be viewed with a jealous eye on account of the péculiar facilities enjoyed by the husband for the exercise of an improper influence. At the same time undue influence is not to be presumed from the mere relation of the parties. It must be shown either by direct proof or by circumstances from which it may fairly be inferred.

It is not unreasonable to suppose that a husband may occupy a prominent place among the objects of a wife’s affection. And there is nothing apparent in this case to render it either surprising or improper that Mrs. Yan Harlingen should have given to her husband the money which, independent of the antenuptial agreement, would have become his by operation of law.

From the evidence in this case we may fairly infer that the in-termarriage of William and Margaret was induced by mutual affection. Indeed there is not a particle of evidence in the case tending directly to discredit the character or conduct of the husband. It was owing to his own remonstrance that the antenuptial agreement was not so drawn as to transfer to him. some 85,000 of his wife’s property There would seem to be no doubt that her confidence in and affection for him continued unabated till her death. If any reliance can be placed in the testimony, she knew well that the title to the Illinois lands was held by her husband *in his own name, and she was not only willing but solicitous that it should be so. Her husband had executed a will by which, had she survived him, all the property would have become hers; and she desired to leave no doubt of its being his if he survived her. This desire and purpose she expressed with frequency and earnestness to many of her intimate friends and acquaintances, to whom she stated her reasons for not wishing to give her property to her brother or sisters; reasons founded on the easy circumstances of some of them, and the improvident habits of others.

She was informed by attorneys whose advice she sought, that she could not make a valid will until she became of full age; and that if she united with her husband after she became of age, in executing a receipt to her father’s executor for the money which she had permitted to pass into her husband’s hands, and with which she knew he had purchased property in his own name, that the property would thus become absolutely her husband’s. She remained at Lebanon till she became of age, and executed such a receipt, avowing that her object was to secure the property to her husband. After her removal to Illinois, and during the last six months of her life, she repeatedly made similar declarations to her acquaintances there, as to the disposition she had made of her property in favor of her husband. Such are substantially the facts as shown by ten or twelve witnesses whose depositions have been taken by the defendant.

On the other hand, one single witness testifies to representations of a different kind, made to him by Margaret. That she spoke to him repeatedly of the importunities, not of her husband, but of his family and friends. Most of those representations are shown, by other witnesses, to have been untrue, if made; and several circumstances are disclosed by himself, which do not tend to strengthen our reliance upon his statements.

But independent of this, it would be strange that Margaret should have disclosed to this witness alone, who was a stranger to her in blood, her real wishes and views in respect to her property, while she earnestly and persistently sought to create, and *keep up till her death, a different impression in the minds of all her other friends and acquaintances.

The mass of testimony leaves no doubt upon our minds that Mrs. Yan Harlingen gave to her husband the money which was drawn from the executor, intending to make it his property. No undue influence is shown, and the gift must, therefore, be held valid.

As to the residue of the legacy, still in the hands of the executor, and of which no disposition was made by Mrs. Yan Harlingen, the terms of the antenuptial agreement will pass it to the complainants.

Decree accordingly.

Hartley, C. J., and Swan, Brinkerhoee, and Sutliee, JJ., concurred.


text:
    Lester A. Harman v. Seth A. Abbey.
    Where S. gave to H. a chattel mortgage on a stock of goods, to secure the payment of certain notes of hand, H. permitting S. “to make sales at retail only,” stipulations in the mortgage, that H. should at all times hold absolute and exclusive possession of the goods as against all persons other than. S., and should release all claims to the property as soon as the debt should be fully paid, etc., do not take the case out of the rule, that a mortgage of personal property, where the mortgagor retains possession of the property mortgaged, with the power of sale, is void as against subsequent purchasers and execution creditors. Collins v. Myers, 16 Ohio, 547, and Freeman v. Rawson, 5 Ohio St. 1, followed and approved.
    Petition in error to reverse the judgment of the district court of Cuyahoga county.
    The original action in the court below was brought by Harman against Abbey, to obtain the possession of a stock of goods in a country store.
    Abbey had taken possession of the goods, as the sheriff of the county, under executions against one'Albert Sanderson, who had ^purchased the goods of Harman, and had, before the ex-■editions were levied, given to him notes therefor and a mortgage thereon, to secure their payment.
    ithe mortgage contains the following provisions :
    “ It is mutually agreed, that during the whole life of this mortgage, and until the whole of said notes are paid, the said Harman shall, in person, or through some agent to be selected by himself, retain the possession of said stock of goods, in order to see to and enforce the performance of said contract; the said Harman or his agent at all times to hold absolute and exclusive possession as ■against all persons other than said Sanderson, permitting the said ■Sanderson to make sales at retail only, and do all other things in pursuance of said contract, but not'to withdraw any portion of the proceeds thereof from the business, beyond the amount of necessary expenses — the said Sanderson to pay the agent selected by said Harman, as aforesaid, a reasonable compensation for his services in the business, and all other expenses which the said Harman shall incur in keeping his said security good, and in converting the same into payment. The said Harman to release all claims to said goods, as soon as his said debt shall be fully paid, together with all expenses incurred by him as aforesaid; and it is further agreed by me, that this mortgage and bill of sale shall cover and extend over all the goods now in my possession in said store, which I have added or may add to said stock purchased of said Harman.”
    The district court charged the jury “ that said mortgage was absolutely void in law, as against the creditors of Albert Sanderson, and that the same was insufficient in law to sustain the plaintiff’s claim to the possession of the property therein described.”
    The jury found for the defendant, and assessed his damages. The plaintiff moved for a new trial on the ground that the court erred in charging the jury as stated.
    This motion was overruled, and judgment entered on the verdict. This action of the court is assigned for error.

      G. Stetson, for plaintiff.

      Paine & Wade, for defendant.
   Bartley, C. J.

It was adjudged by the late Supreme Court of this state, in the case of Collins v. Myers, 16 Ohio, 547, that a mortgage of personal property, where the mortgagor retains possession -of the property mortgaged, with the power of *sale, is void as against subsequent purchasers and execution creditors. The doctrine of that case was fully affirmed by this court in the case of Freeman v. Rawson, 5 Ohio St. 1. These cases are decisive of the case before us. And the stipulations, that Harman should at all times hold absolute and exclusive possession against all persons other than said Sanderson, the mortgagor, and release all claims to the mortgaged property as soon as his debt should be fully paid, etc., could have no effect to take this case out of the rule of the adjudicated cases mentioned.

Judgment of the district court affirmed.

Swan, Brinkerhoee, ScotTj and Sutliee, JJ., concurred.