Case Name: James White vs. John and George Dougherty, Thomas Miller and Archibald and William Woods
Court: Tennessee Supreme Court
Jurisdiction: Tennessee
Decision Date: 1827-08
Citations: 1 Mart. & Yer. 309
Docket Number: 
Parties: James White vs. John and George Dougherty, Thomas Miller and Archibald and William Woods.
Judges: 
Reporter: Tennessee Reports
Volume: 8
Pages: 309–323

Head Matter:
James White vs. John and George Dougherty, Thomas Miller and Archibald and William Woods.
A prior mortgagee, with notice of the subsequent mortgage, must hold the excess beyond what will pay his own debt, as trustee for the younger mortgagee.
The joint creditors of apartnership, have in equity a general lien on the funds of the partnership, and are entitled to payment out of the partnership effects, in preference to creditors of an individual member of the firm.
It is a general rule, that a joint creditor of a partnership, having a lien on the separate property of one of its members, must, in case the firm is insolvent, exhaust his separate lieft before he comes in with other creditors for a share of the partnership effects.
•The separate interest of each partner in the effects of the partnership, is his share of the surplus, after all debts are paid; and an individual creditor of such partner, can only acquire a lien on such interest; if the partnership is insolvent, there is no interest upon which he can acquire a lien. *
A purchaser for a valuable consideration, without notice of an equitable lien, holds the property discharged of such lien.
A vendor of real estate, by taking a new and distinct security for the payment of the purchase money, waves his lien on the property sold.
This wasabill in equity, filed by James White, a creditor and junior mortgagee of John Dougherty, seeking the recovery of his debt from the defendants, or the satisfaction of his debt, out of the property mortgaged, or the postponement of the prior mortgage executed by said John Dougherty to Thomas Miller and Archibald Woods and Wm. Woods, to secure a debt due them from John and George Dough®*"ty.
The circumstances of the case are as follows. In the year 1805, and from thence to 1815, James White and John Dougherty were partners in trade, and in the latter year the partnership was dissolved. Articles of dissolution, under the seals of the partners, were executed, and Dougherty agreed to give White $'10,000 for his interest in the concern of White and Dougherty, and to pay all the debts due from the firm. White, by said articles of dissolution, relinquished all his right to the partnership property, both real and personal, in the following words. “Article 2d. The said James White relinquishes to the said John Dough-erty, all his interest in said firm of White and Dougherty, including real property, as well as all other which belongs to said firm. In consideration of which relinquishment of interest, the said John Dougherty agrees to credit in full James White’s account with White and Dougherty; also credit in full James White’s account with John Dougherty, and pay him, the said White, in four equal annual payments, ten thousand dollars, to wit, $2,500 each 4th day of July, commencing 1816 and ending 1819, making the above sum of ten thousand dollars.” This article of dissolution was witnessed by two witnesses, but not proved and registered until February, 1820.
John Dougherty executed his four notes for the $10,000, paid all the debts of the firm of White and Dougherty, and about $4,000 of the debt due White, leaving a balance unpaid of about $6,000.
In 1816, John and George Dougherty entered into partnership to carry on the mercantile business; and in the fall and winter of 1819, their situation became desperate, and they failed. ■ The effects of the firm were insufficient to discharge the debts of the firm by about $ 10,000. They had borrowed of the Nashville Bank, at its branch at Winchester, about $12,000; for which amount, the defendants Thomas Miller and Archibald and William Woods endorsed for them. They had purchased large quantities of goods in New York and Baltimore, which, in the fall of 1819, they sold in part to Herbert & Kyle, for ‡ 11,050, taking from them notes in divers sums, but all payable in two annual payments; alleging, at the same time, they wished ultimately to transfer them to their New York and Baltimore creditors. In the latter part of 181!j, John an4*£3reorge Dougherty deposited their notes with Thomas Miller, for the safety of him and their other endorsers in bank, Archibald and William Woods. The complainant alleged in his bill, and introduced some proof in support of the allegation, that Miller and Woods had a permanent lien on these notes, and were to pay the bank debt out of them. The defendants alleged, that the notes were deposited with Miller, until other security should be given, to secure said endorsers. On the 8th January, 1820, John and George Dougherty, by deed transferred to their endorsers, Miller and A. and Wm. Woods, lots No. 10 and 29, and their bank stock in said bank at Winchester, on which $6,250 had been paid, as a security for said endorsers. The lots 10 and 295 were formerly the property of White and Dougherty, but were then the individual property of John Dougherty, by virtue of White’s relinquishment upon their dissolution. On the 20th January, 1820,White called on John Dougherty in Winchester, and they both signed a writing in the following words. “I am willing to wait for the amount of my debt9 due from major Dougherty, five years, carrying interest from the date. Major Dougherty proposes to include my debt in a mortgage with Thomas Miller, Archibald Woods and William Woods, who hold debts on Herbert and Kyle to the amount of $11,050, the real property in Whinches-tcr and the stock in the Winchester Bank; out of which property they are bound to pay $12,000, the balance of the above property will then be for the security of my debt; this 20th January, 1820.”
“James White,
“John Dougherty.”
White left this writing with his agent John Campbell, and proceeded on his journey to Huntsville. On the 21st January, 1820, his agent drafted the mortgage for the lots, including the bank stock, and Herbert and Kyle’s notes. John Dougherty would not execute it, alleging these debts must be appropriated to pay the debts of John and George Dougherty, as they belonged to that firm, and he had entered into the arrangement without the consent of his copart-ner. John Dougherty then consummated the agreement with White’s agent, with this’variation. He gave White a mortgage on lots 10 and 29, which had been previously mortgaged to Miller and A. and Vim. Woods; and also on three other lots in Winchester, not mortgaged to Miller and Woods. The notes on Herbert and Kyle, and bank stock, were left out. On each of the notes, executed by Jolm Dougherty to White, an endorsement was made by John Campbell, the agent of While, that to secure the payment of each, a mortgage had been given on certain town lots in Winchester, and five years given for the payment of the money. White returned to Winchester on the 28th February, 1820, and on that day John Dougherty and himself signed other articles, which recited the mortgage of the lots as the security for White’s debt, aud stipulated for the annual payment of the interest; or on failure, Dougherty was to give White possession of the lots mortgaged. About the 25th of February, 1820, the New York and Baltimore creditors of John and George Doherty, came on to Winchester, and about $7000 of the notes on Herbert and Kyle were taken out of the hands of Miller and transferred to them. The remaining §4000 of notes on H. and K. were retained by Miller till 1822, and were then applied to pay a debt due from the firm of J. and G. Doherty, to Luke Tiérnan; for the payment of which, Miller had become security on the 20th February, 1820. This debt was subsisting against the firm of J. and G. Doherty before the mortgage was executed to White.
Miller, A. and Wm. Woods, having paid the bank debt of §12,000, foreclosed their mortgage on the lots, and on the 6th of August, 1824, had the same sold, and Thomas Miller became the purchaser. The bank stock of $6,250 ivas also transferred to said endorsers at par, and a credit given to said J. and G. Doherty for that amount. A large amount is still due said Miller and A. and W. Woods, on account of their paying said bank debt, beyond the amount of the bank stock, and what has been paid by the sale of said lots, 10 and 29. In December, 1819, one William Irwin took out an attachment in Huntsville, Alabama, fora debt of $5000, due him from Caleb Langley, and said J. and G. Doherty. On this attachment, Herbert and Kyle were summoned as garnishees. The attachment was quashed for being taken out illegally. In March, 1820, James White, John Doherty and Thos. Miller each employed counsel to attend to this attachment case and to have it quashed. This and some other circumstances were relied on by complainant to prove that Miller had notice of the different agreements between John Doherty and White, and the liens arising out of them, before he permitted the notes ■of H. and K. to pass out of his hands.
On the 4th June, 1818, Wm. Patterson recovered ajudgment against John Doherty in the county court of Franklin county, for $1000, debt, and $90 damages, besides costs. A fi. fa. issued on this judgment to the sheriff of Franklin county on1 the 30th Nov. 1818, and was returned by said sheriff to the Feb. term succeeding, enjoined by John Do-herty. On the 14th December, 1824, said injunction was dissolved. On the 23d December, 1824, an alias fi. fa. issued on said judgment; and on the 1st January, 1825, was levied on said lots, 10. and 29. They were afterwards sold by virtue of said levy, and Thomas Miller became the purchaser,'to whom the sheriff executed a deed. The chancellor below, Judge Haywood, at June term, 1826, of the chancery court at M’Minnville, dismissed the bill, from which an appeal has been taken to this court.
Green and Gibbs for complainant, contended,
1st. That White had a lien on the. notes of Herbert and Kyle, and the bank stock, by virtue of the agreement of the 20th January, 1820; that Miller had notice of that lien, and held the notes and ban.k stock as trustee for White, after dis charging the liabilities of himself and Woods to the bank; that his permitting the notes to pass out of his hands, was a breach of trust on his part, and a fraud upon White; and that he ought to be held responsible for White’s debt.
2d. Admitting White had waved his lien on the bank stock, and Herbert and Kyle’s notes, yet he had a mortgage on lots 10 and 29, and as Miller and Woods had an older lien on the same lots, and also a lien on the notes and bank stock, they ought to have paid the bank debt out of the notes and bank stock, and left the lots for the payment of White’s debts. That their not doing so after notice of White’s mortgage, was a fraud upon White; and that their mortgage on the lots 10 and 29, should be postponed to White’s.
3d. The lots 10 and 29 were originally owned by White and Dougherty, and the article of dissolution did not pass the title to John Dougherty. White still retains the legal estate to an undivided moiety of said lots, and a lien thereon, until his debt is paid; and at all events, his claim to one half, is superior to Miller and Woods.
4th. Supposing that the article of dissolution did divest White of the legal estate to said lots, yet White had an equitable lien thereon for the payment of his debt, 'inasmuch as it was a part of the original consideration for which the lots were sold.
5th. The sale under Patterson’s judgment communicated no title, as it was not made within a year' after said judgment was rendered; and supposing it had, the taking of the injunction bond removed the lien created by the judgment.
James Campbell and hacks, for defendants.
1st. White had no lien on the notes or bank stock by virtue of the agreement of the 20th January, 1820, because that was a mere memorandum or executory instrument, and in carrying the contract into execution, the bank stock and notes on Herbert and Kyle were left out by agreement witn John Campbell, White’s agent, and by the subsequent consent of White himself.
2d. The notes on Herbert and Kyle, and bank stock, were partnership effects of John and George Dougherty, and White’s debt was due from John Dougherty alone. The debts of the firm of John and George Dougherty, were to be first paid before an individual creditor of John Dough-erty was entitled to any thing; but the firm of John and George Dougherty being insolvent, no individual creditor of John Dougherty could obtain alien on the debts of the partnership. The creditors of the firm have a lien on the effects, and neither partner, separately, has any interest therein except his share of the undivided surplus after all the debts are paid. Here, as the firm of John and George Dougherty was insolvent, neither partner, separately, could give a lien on the partnership property. (Watson on partnerships 100 and 101, 1 Ves. 279, 4 Ves. 796, 4 John. Chan. R. 552.)
3d. Miller and Woods had no notice of White’s pretended claim to the notes or bank stock, and "could in no event be affected by it. Even supposing he had notice, Miller certainly intended no fraud upon White in letting the notes go to pay the debts of John and George Dougherty. The motive to commit fraud’ was wanting. Pie did nothing wrong, and cannot be charged with acting improperly.
,4th. White says Miller and Woods had a lien on lots 10 and 29, on the bank stock, and Herbert and Kyle’s notes, and inasmuch as White had a lien on lots 10 and 29 only, Miller and Woods should have paid their debt out of the bank stock and Plerbert and Kyle’s notes, and let him have the lots to pay his debt. Answer. The lien of Miller on Herbert and Kyle’s notes was but temporany, and only continued unil they got the mortgage on the lots. They were then bound to give up the notes, except the $4,000 retained to pay Tiernan, and did give them up. The question here raised by complainant is, that Miller and Woods’ mortgage should be postponed to his. In no event will a prior mortgage be postponed to a junior one, unless the older mortgagee has been guilty of actual fraud. Here-then is no ground to charge Miller and Woods with fraud. Miller had no notice of White’s lien before the 25th Febru ary, 1820, when $7,000 of the notes on Herbert and Kyle were withdrawn; and if he bad, he was not bound to retain the notes for the benefit of White. (1 John. Ch. R. 603, 1 JJoTlb. 162, Ct
4lh. Complainant contends, one half of the lots 10 and 29, once belonged to White; that he sold his interest to Dougherty by the articles of dissolution; that those articles did not convey the legal estate; and that White is entitled to hold one half, or his original interest in the lots, until the consideration is paid. Answer. The articles of dissolution do convey White’s interest to Dougherty, because they were joint partners in the properly before the articles were executed. Such a relinquishment as is therein contained, would pass the legal estate from one co-partner to another at common law. Secondly; by the statute of Tennessee, deeds are to be construed according to the intent of the parties. Here, it was clearly the intention of White and Dougherty, that the legal estate should pass to Dougherty, by the articles of dissolution. Complainant also contends, that the legal estate did not pass to Dougherty until February, 1820, when the article of dissolution was registered. It is not seen how the establishment of this position can help him. But the legal estate did pass, as between White and Dougherty, though the deed was never registered. And even supposing it did not pass until registered, the moment it passed to Dougherty by the registration, it w'ould inure to Miller and Woods. Complainant says, supposing the articles of dissolution did pass the estate in the lots, White retained an equitable lien on the half of the property he conveyed until his debt was paid. Answer 1st. Miller and Woods were purchasers for a valuable consideration without notice of White’s equity. 2d. White took a new security for his debt, when he took the mortgage of the 21st January, 1820, and thereby gave up the lien. 3d. White took his lien expressly subject to Miller and Woods. 4th. These lots were partnership effects, placed by White in Dougherty’s hands, out of which he has to pay the debts of the firm of White and Dougherty; and the very intent of the instrument by which it was done, is inconsistent with the idea of such a lien.
5th. Patterson’s judgment in 1818, was a lien on the lots 10 and 29, and Miller’s title under it, overreaches all subsequent conveyances. Peck’s Rep. 48, Haywood’s opinion in Porter's lessee v. Cocke, and in this case when tried in the chancery court at M’Minnville.

Opinion:
Crabb, J.
delivered the opinion of the court. The defendants, John and George Dougherty, became partners in trade and merchandise in 1815; they were embarrassed in 1819, and on the 1st of January, 1820, were insolvent to the amount of eight or ten thousand dollars beyond their means of payment. The firm owed large debts to creditors-in the Atlantic cities; and to the branch of the Nashville Bank at Winchester, about twelve thousand dollars. • The defendants, Miller and the Woodses, were their accommodation indorsers for the latter sum to the bank. John Dougherty was individually indebted to the complainant, James White, about six thousand dollars. In the latter part of the year 1819, John and George Dougherty sold goods to Herbert and Kyle of Huntsville, to the value of about eleven thousand dollars, and took their notes for the amount. These, they pledged to Miller for the security of himself and the Woodses. Whether that was a permanent, or a temporary pledge, is one question of fact disputed by the parties.
The Doughertys also assigned to their indorsers, Miller and others, for their additional security, stock in the bank to the nominal amount of about six thousand dollars. On the 8th day of January, 1820, John Dougherty mortgaged to the indorsers, for their security, two town lots in Winchester, his individual property.
On the 20th of the same month complainant and John Dougherty signed in Winchester a memorandum in the following words: " I am willing to wait for the amount of " my debt from Major Dougherty five years, carrying inter- " est from the date. Major Dougherty proposes to include " my debt in a mortgage with T. Miller, Archibald Woods "and W. Woods, who hold debts on Herbert and Kyle to " the amount of $11,050, the real property in Winchester, " and the stock in the Winchester bank, out of which proper- " ty they are bound to pay $12,000, the balance of the " above property will then be for the security of my debt; " this 20th January, 1820." "James White.
" JOHN D OUGHERTY."
The complainant then left Winchester, and the next day John Dougherty executed and delivered to complainant's agent, who received it, a deed of mortgage for the same two lots which had been mortgaged to Miller and others, with three other lots in the same town. The deed describes the two lots as " being the same specified in a mortgage executed for the same to Archibald Woods, William Woods and Thomas Miller, dated on the 8th instant."
The complainant affirms, that Miller had notice soon af-terwards of the agreement evidenced by the above memorandum, and of the lien he says he acquired by means of it. 'The defendants deny that they had any notice until after the notes were disposed of as hereinafter-mentioned. Hence arises another disputed question of fact. Afterwards, but when, the parties do not agree, nor does the evidence precisely specify,) Herbert and Kyle's notes, pledged to Miller, were surrendered by him at the instance of the Dougher-tys to their joint creditors, and the amount was subsequently paid to them. It does not appear that the two lots and the bank stock are more than a sufficient, and defendants allege them to be a slender security for their liabilities.
Complainant insists that the defendant, Miller, acted iniquitously in giving up the notes on Herbert and Kyle to the eastern creditors; and for that reason, his lien, as a prior mortgagee of the two lots should be postponed in equity to his own. And, beyond all doubt, if the fact were, that Miller had the first claim to security by mortgage and pledge on certain property, and complainant a second mortgage or security on the same, of which Miller had notice, and if there were no other persons having a better claim than complainant, Miller would hold the excess^ beyond the satisfaction of his own claim, as a trustee for the benefit of complainant, and a court of equity would bold him accountable for a disposition of that excess to the prejudice of complainant.
1. Let us then, first take it for granted, that it was the intention of John Dougherty and complainant, by theinstrument of the 20th January, and the mortgage of the 21st, to give complainant a lien on Herbert and Kyle's notes and the bank stock, in addition to the two town lots, second on-3y to the lien of Miller and his associates, to the amount of |> 12,000, and that the instrument relied on, was effectual for that purpose, so far as they could make it effectual, and that Miller -was apprised of it before he delivered over the notes of Herbert and Kyle to the other joint creditors; was the subsequent act of delivering up the notes to them, such a wrong committed by Miller towards White, as a court of equity can redress?
Leaving the complainant for a moment out of view, how would the equities stand between the other joint creditors, and Miller and others?
That the joint creditors of a partnership, have in equi-V ty a general lien on the funds of the partnership, and that, in case of insolvency, they are to be preferred to the creditors of an individual member of the firm, is at this day too firmly settled to be questioned. (1 Ves. Rep. 239;) Field vs. Taylor, (4 Ves. Rep. 396, 6 Mass. Rep. 242, 2 John. 280, 4 John. Ch. Rep. 522, 20 John. Rep. 611.)
The other joint creditors then say to Miller and the Woodses — we are all joint creditors — we have all a general lien on the partnership funds — there is not enough to pay us by 8 or 10 thousand dollars — we do not claim a participation with you in the additional specific lien that you have by your superior vigilance acquired on the two lots, but we ask, that you will exhaust that fund before you commence a diminution of the already insufficient fund, to which alone, we can have recourse under the circumstances — the partnership property.
Could Miller resist such a demand in a court of equity? W e take it to be clear that he could not. It is an established general rule of equity, that where two ascertained creditors have one fund common and open .to both, and one has a second fund to which the other cannot resort, the former shall exhaust his separate fund before he shares in the com mon one. Everston vs. Booth, (19 John. Rep. 63;) Hawley vs. Mancius, (7 John. Ch. Rep. 184; 17 Ves. 520.)
There are some exceptions to this rule, of which the supposed case would not be one. There would be peculiar propriety in applying the general rule to the case supposed, as both of the funds, namely, the joint property and the individual property, or in other words, both John and Geo. Dougherty, and John Dougherty would, independently of specific liens, be equally liable to the claims of all the joint creditors, both to the plaintiffs in the supposed application, and to Miller and others the supposed defendants.
If a court of equity would have compelled Miller to surrender Herbert and Kyle's notes to other joint creditors, they having ascertained their demands by judgment, upon its being seen that Miller had a sufficient separate fund to secure him, it cannot be said he acted unconscientiously by / doing the same thing without its decree. That the credi- . tors who got them, are bona fide creditors, is not contested, though it does not appear that their demands were ascer- . tained by judgment. Indeed it is expressly admitted that • there was, and is a deficiency of joint means to discharge vjoint liabilities to the extent of eight or ten thousand dollars.
The complainant, however, here interposes his claim,and says, that he has a lien on the lots, stock and notes. Admit it. When did it originate? On the 20ih of January. To this, the joint creditors answer, as to the notes and other joint property, we had a lien of a prior date — a general lien on all the partnership property, and there is not enough to pay us.
Miller and Woods answer as to the two lots, and say, we too had alien of a prior date, which originated on the 8th of January. And they all answer — when we exhaust the value of the lots, and all the joint property, there is still a part of the joint debt unpaid.
There seems to have been a sort of vague idea in the mind of the complainant, that as the creditors of John and George Dougherty were entitled to a preference over him as to the joint property, he, as a creditor of John Dougherty, was entitled to a similar preference over them as to the individual property of John, notwithstanding some of the joint creditors had a prior specific lien on it. In this he is wholly mistaken. There is no legal foundation for such a preference. The liabilities of partners are joint and several. John Dougherty was as much the debtor, or as likely to be the debtor of Miller, as he was of White. They were running a race, and qui prior est in tempore potior est in jure.
2. Supposing that John Dougherty possessed the legal right on the 20th of J anuary to dispose of the Herbert and Kyle notes, and the bank stock, to the prejudice of the joint creditors of himself and partner — did he do so?
Thé instrument of that date is not very clear and definite in its terms. At least it is incomplete in its character, and contemplates the subsequent fulfilment of what it only proposes. We must look to the mortgage deed of the next day for that fulfilment. One of the partners had the day before rashly promised what he then thought it improper to perform: and what this court think he should neither have promised nor performed — to dispose of a large portion of the partnership property without the consent of his co-partner; or without the consent of his joint creditors, to pay or secure an individual debt of his own. On the 21st he executed a mortgage deed, in which none of the joint property was included, but conveying the two lots in Winchester, probably in lieu of the excluded property. This deed was accepted by complainant's agent, and the arrangement acquiesced in by himself. We think the complainant had no lien beyond the terms of the mortgage.
It is not thought necessary to examine very particularly whether the defendant, Miller, had notice of the instrument of the 20th. Because, as we do not consider the arrangement thén proposed to have been consummated, nothing (obligatory existed of which notice could be given. And it will not be pretended, that notice would vary the effect of the instrument itself, and make it communicate an interest, if, without notice, it would communicate nothing. We should require to be much better satified than we are, how ever, before we should be prepared to say, in opposition to the direct denial in Miller's answer, that he had the alleged notice*
The complainant relies on another ground. He and John Dougherty were once partners in merchandise. They dissolved their partnership on the 6th day of July, 1815, and by the deed of dissolution, complainant "relinquished to said Dougherty, all his interest in both of the said firms, including real property, as well as all other, which then belonged to either of said firms." Complainant says, that his legal interest in an undivided moiety of the real estate, did not pass by this deed; and that therefore he can now maintain this bill. This averment comes with but a bad grace from the complainant, after he has permitted John Dougherty to remain in undisturbed possession for some years, under the deed of partition, and by that means enabled him to make conveyances to innocent purchasers; but more especially, after he has himself expressly recognized the estate in fee of Dougherty, by himself, accepting from him a mortgage in fee, as the bargainee of a legal title. This is manifestly an after thought, first introduced in an amendment of his bill, contrary to the scope, frame and nature of his first complaint.
But a sufficient answer of itself to the proposition is, that complainant, if he be correct, need not come into this court. Let him go into a court of law, and there set up his supposed legal title to an undivided moiety against the persons having the adverse possession. Upon what principle can it be seriously insisted that a court of equity would indulge a complainant actually asserting such a claim, directly in the face of his own deed, relinquishing all right? Did he even come for a partition, as he does not, he would be told, in such a case, first to establish his title at law. (1 John. Ch. Rep. 117; 4 ibid, 276.)
But again, it is said, that if the legal title passed by the deed of dissolution, the plaintiff has, as vendor, a lien on the lots for the consideration money. There are several reasons why he cannot successfully assert such a lien.
A sufficient one is, that Miller and others were purcha sers without notice of any lien from any thing that appears. (Sugden on Ven. and authorities there cited, 398; 7 Wheat. 46; 3 Hay. 195.)
Again, by complainant's own shewing, he has waved such a lien, if he had it, by taking distinct and independent securities. (Sugden, 387, Brown vs. Gilman; 4 Wheat. 255, 292.) Besides taking a mortgage on these, he took a mortgage on three other lots.
We are of opinion that the decree of the court of equity dismissing the complainant's bill, oughtto be afíirmed.