#### *Christian v. Ellis & als. Same v. Webb & als. Same v. Neville & als.

February, 1845,

Richmond.

(Absent Cabell, P.)

1. Partnership—Property of*—Individual Debts.—The property of a partnership cannot be subjected to the satisfaction of the individual debts of the partners, until all the debts of the partnership are paid, including the debts which may be due from the partnership to either of the partners.

2. Same—Same—Rent—Social Creditors—Subrogation. —One of the partners in a farming partnership executes his bond for the rent agreed to be paid ; but the landlord receives his rent out of the proceeds of the partnership property, taken from the demised premises, and sold under decree of a court of equity, at the instance of creditors of the other partners : Held, the rent was properly paid out of the proceeds of the partnership property, and the creditors of the individual partners have no right to be substituted to the rights of the landlord upon the bond executed by the other partner for the rent.

John H. Christian and Ebenezer P. Stratton were merchants and partners doing business in the county of Nelson under the name and style of Christian & Stratton. As partners they became indebted to Lewis Webb & Co. in the sum of 670 dollars 33 cents, for which Webb & Co. recovered a judgment against them, at the August term of the county court of Nelson for the year 1835, and issued thereon a ca. sa., on which they were taken and committed to jail on the 27th of October 1835. These partners were also indebted to Charles Ellis in the sum of 1203 dollars 5 cents, for which he recovered a judgment at the fall term 1835 of the superior court of law and chancery for the county of Nelson, and thereupon sued out execution, on which they were *169taken and committed to jail, and on the 27th of October *they took the oath of insolvent debtors on both executions, and were discharged.

Previous to this time, Christian & Stratton and Charles Christian had jointly rented a tract of land in the county of Nelson of a certain Lafayette Neville for the year 1835, for which they were to give him 300 dollars; and Charles Christian and E. P. Stratton executed their bond to Neville for that sum.

On the 17th of August 1835, Christian & Stratton executed a deed to John W. Thomas, by which they conveyed to him all their stock of goods on hand and debts due to them, their household and kitchen furniture, the crops of wheat and oats then on hand, and the crops of corn and tobacco then growing on the farm rented by them jointly with Charles Christian, and the cattle and horses thereon, for the- purpose of securing to Charles Christian a debt of 4000 dollars, which, they stated, was due to him by bond dated the 1st day of August 1835, and payable on the 1st of January 1837. By this deed, which was signed by Charles Christian, it was provided that they should remain in possession of the property until the bond became due, and take the profits thereof to their own use, and might collect the debts and apply them to the purposes of the trust. This deed was admitted to record on the day of its date, in the clerk’s office of the county court of Nelson.

On the 22d of August, in the same year, John H. Christian executed another deed to Charles Penn, by which he conveyed certain separate interests and claims which he possessed, in trust for various persons therein mentioned as his creditors or sureties. This deed was also admitted to record on the day of its date.

In November 1835, Lewis Webb & Co. filed their bill in the superior court of law and chancery for the county of Nelson against Christian & Stratton, Thomas the trustee in the first deed, Charles Christian, and the parties to the second deed, in which they charged that *the deed of the 17th of August was fraudulent; that Christian & Stratton were not indebted to Charles Christian, and that the deed was made for the purpose of defrauding their creditors; and admitting the validity of the second deed, they asked that it might be enforced, and that any balance remaining, after satisfying the trusts thereof, might be applied to the satisfaction of their claim.

Thomas the trustee answered, denying any knowledge of a fraudulent purpose by the parties to the first deed, and saying that he had not received any part of the trust fund ; and the cestuis que trust in the second deed also answered, stating their claims.

In October 1835, and previous to the institution of the suit of Lewis Webb & Co., a suit had been instituted in the same court, in which Anderson the high sheriff of the county of Nelson at the time that Christian & Stratton took the oath of insolvent debtors, Charles Ellis and Webb & Co. were made plaintiffs, and the defendants were the same persons mentioned as defendants in the bill of Webb & Co. The charges in the two bills as to the deed of the 17th of August were substantially the same, but in this case the deed of the 22d of August was also charged to be fraudulent; and the plaintiffs prayed an injunction to prevent the parties to the first deed from collecting or receiving the debts, or disposing of the property thereby conveyed, and that it might be put into possession of the plaintiff Anderson, as the high sheriff, to be sold and applied to the payment of the debts due the plaintiffs Ellis and Webb & Co.

The judge below granted the injunction, and made an order, directing that the property should be put into the possession of the plaintiffs, upon their giving bond, in the penalty of 2000 dollars, to answer to the defendants for any damages they might sustain by reason of the granting the injunction, if the same should be dissolved, ^unless the trustee Thomas, or Christian & Stratton, or some one for them, should enter into bond, in the same penalty, to have the property forthcoming to abide the future order of the court.

All the defendants answered this bill. The answer of Thomas was similar to that filed in the suit of Lewis Webb & Co. Charles Christian answered, saying that the bond for 4000 dollars was given to cover moneys loaned to Christian & Stratton, or for which they were jointly responsible to Neville for the rent of the land and articles purchased from him, or for which he was liable as their surety, and that it was agreed at the time the bond was executed, that if the indebtedness of Christian & Stratton to him, from all these sources, did not amount to 4000 dollars, they were to have credit on the bond for the balance. Christian & Stratton answered to the same effect.

The defendants Thomas, and Christian & Stratton, having failed to give the security required by the judge’s order, the sheriff of Nelson took possession of all the partnership effects of Christian & Stratton which could be found, and of the property on the farm rented by them and Charles Christian. Neville then filed his bill in the same court ' against the plaintiffs in the former suits, and the parties to the deed of the 17th of August 1835, claiming satisfaction of the rent due him, out of the property taken from his land; and by consent of all the parties, the sheriff made sale of the property in his possession. The amount of the sale of that part taken from the farm was 439 dollars 21 cents, and that of the partnership effects of Christian & Stratton amounted to 281 dollars 78 cents.

Ellis alone answered the bill of Neville. He contested his claim, and insisted that if the plaintiff was to be satisfied his rent out of the proceeds of sale in the hands of the sheriff, the creditors of Christian & Stratton should be substituted to his rights on the bond of Charles Christian.

*The three causes came on together *170to be heard on the 6th day of May 1837, when the name of the plaintiffs Lewis Webb & Co. was struck out of the second suit, as having been inserted without authority, and they were made defendants therein. And then the court decided, first, that the deed of the 17th of August 1835, was fraudulent and void ;• second, that the deed of the 22d of August was bona fide and valid; third, that Neville, the plaintiff in the third suit, was entitled to be first satisfied for the amount due to him for the rent of his land, out of the proceeds of the property taken from thence; fourth, that Ellis and Webb & Co. were entitled to be substituted to the rights of Neville against Charles Christian, for the amount of his bond, for which said Neville was decreed satisfaction out of the effects of Christian & Stratton found on the demised premises; fifth, that Webb & Co. were entitled to priority over Ellis, their ca. sa. being first levied. The court, therefore, decreed, that the plaintiff Anderson, out of the proceeds of sale and collections in his hands, should pay to Neville 300 dollars, with interest from the 1st of January 1836, till paid, and his costs; that he should pay to Ellis his costs up to the date of the decree, and that he should pay the residue in his hands to Lewis Webb & Co. And the court farther decreed, that Charles Christian should pay to Lewis Webb & Co. the sum of 300 dollars, with interest from the 1st day of January 1836, till paid.

From this decree, Charles Christian obtained an appeal to this court.

G. N. Johnson, for the appellant.

The partnership property of the demised premises, was the proper and primary fund for the payment of the rent due to Neville. If Charles Christian had been compelled to pay the bond executed by him to Neville for the rent, he would have been entitled to be substituted to his rights upon *that fund, and there could not, therefore, be any ground for the claim to substitution by the creditors of Christian & Stratton.

There was just as little propriety in decreeing the balance of the proceeds of the property found on the demised premises, which belonged jointly to Charles Christian and Christian & Stratton, to be paid to Lewis Webb & Co. before the debts of that partnership were paid, as it is a well settled principle that a creditor of one partner is only entitled to the balance due his debtor after all the partnership debts are paid. Story on Partnership, § 361, p. 513; 6 Ves. 126; Gow on Partnership, ch. 5, *§*2, p. 293.

Grattan, for the appellees Webb & Co.

Charles Christian, it 'is admitted, was liable to Neville for the rent due, as one of the tenants. All the property taken by the sheriff, from the demised premises, was conveyed by the deed of the 17th of August 1835, as the property of Christian & Stratton ; Charles Christian executed that deed, and thus acknowledged that the property was the property of Christian & Stratton, and he is estopped now from saying that it belonged to the partnership. When, then, Neville was paid his rent out of the proceeds of that property, the debt of Charles Christian was paid out of the property of Christian & Stratton. It is admitted that the court erred in decreeing against him for the whole amount of his bond. The decree should have been for a sum equal to his portion of the debt due to Neville for the rent.

The court was right in decreeing the balance of the proceeds of the property to be paid to Webb & Co. Although Charles Christian spoke in his answer of debts of the partnership, there is not a particle of proof in this record, that the partnership owed a dollar, except for the rent to Ne-ville ; and, as, according to the deed of August 17th, and Christian’s admissions in that deed, *the property, of which the proceeds were then in the hands of the sheriff, was the property of Christian & Stratton, it was properly applied to the payment of their debts. The court is referred to Harrison v. Conrad, 3 Leigh 532; Aldritch v. Cooper, 8 Ves. R. 382; and Ram. on Assets, p. 329, 8 Law Libr. 217.

*

Firm Property—Claim of Individual Creditor.—The property of a partnership is not subject to a judgment of an individual creditor till payment therefrom of the firm debts, and adjustment of the accounts of the partners as between themselves. Maddock v. Skinker, 93 Va, 479, 25 S. E. Rep. 535, citing *Christian v. Ellis, 1 Gratt. 396;*Diggs v. Brown, 78 Va. 295; Shackelford v. Shackelford, 32 Gratt. 481; Maxwell v. Wheeling, 9 W. Va. 206. See principal case cited in this connection, in Scruggs v. Burruss, 25 W. Va. 676.

Same—Same.—The court, in Maxwell v. Wheeling, 9 W. Va. 210, said : “There are some questions of law so well settled in regard to partnership transactions, that it is only necessary to announce them for all to acquiesce therein. One is, that partnership debts are entitled to be first paid out of partnership effects, before the effects can be subjected to the satisfaction of the individual debts of the partners. *Christian v. Ellis, 1 Gratt. 396."*See also, in this connection, principal case cited in Moore v. Wheeler, 10 W. Va. 44.

Same — Same — Equitable Conversion — Resulting Trusts.—“In equity real estate purchased with partnership funds for partnership purposes is treated as personalty, and not as realty, and is held liable to the satisfaction of the debts of the copartnership, including debts due to any one or more members of the firm, in preference to the individual debts of the partners. And it matters not in whose name the property may stand, as the owner of the legal title ; the party in whose name it stands being treated as a trustee of the partnership, and account-. able accordingly. Pierce v. Trigg, 10 Leigh 406; Wheatley v. Calhoun, 12 *Id.*264 ; *Christian v. Ellis, 1 Gratt. 402."*Diggs v. Brown, 78 Va. 295.

STANARD, J.,

delivered the opinion of the court.

The court is of opinion that the circuit court properly adjudged the deed of the 17th of August 1835, to be void as to the judgment creditors of Christian & Stratton, so that the effects of Christian & Stratton, embraced by that deed, remained chargeable by such judgment creditors in like manner as they would have been had the said deed not been made; and that the said court properly adjudged, between the judgment creditors, priority to Lewis Webb & Co., and decreed to them in part of their judgment, the proceeds of the goods of Christian & Stratton. The court is further of opinion that the proceeds of the furniture, crops and stocks on' the plantation rented of Neville by Charles Christian, John H. Christian and E. P. Stratton in partnership, were liable, in the first place, for the stipulated rent of 300 dollars, and the surplus of such proceeds to the claims of the creditors of the partnership in the tenancy, including any one of the partners who might be creditor by over advancements, or otherwise, before they could be charged by the creditors of Christian & Stratton, and that the payment of that rent, out of the proceeds of said furniture, crops and stocks, was properly decreed; but that the court erroneously decreed the surplus of those proceeds to the creditors of Christian & Stratton, in disregard of the rights of the creditors of the partnership in the said tenancy, and still more erroneously considered the creditors of Christian & Stratton entitled, by substitution, to charge the appellant on his bond to Neville for the rent, and subjected him to a decree in ^favour of the creditors of Christian *171*&*Stratton, for an amount equal to the rent paid out of the tenants’ effects on the demised tenement, and decreed costs to Ellis, by whom the claim of substitution had been made.

The court doth, therefore, adjudge, order and decree that so much of the decree as is herein declared to be erroneous, be reversed and annulled, and that the appellees Webb *&*Co. and Ellis pay to the appellant the costs expended in the prosecution of his appeal in this court, and the cause is remanded for further proceedings, in conformity with the foregoing opinion and decree.