Court Opinion

ID: 7282984
Source: CourtListenerOpinion
Date Created: 2022-07-25 20:21:11.119853+00
Date Added: 2024-06-11T16:19:04.452756
License: Public Domain

The Chancellor.
The great object of the bill is to avoid the mortgage given by John Y. Baldwin to Mrs. Johnson, in 1820, after the dissolution of the partnership; on the ground that, as regards the complainant, it is fraudulent, and therefore cannot be sustained.
The complainant has sought, in the first place, to establish by the evidence, that the property on which the mortgage was given, was at the time partnership property; that although the deeds were given to John Y. Baldwin in his own name, yet that in truth, Jesse Baldwin had in equity an equal interest in the purchase.
So far as regards the property in Franklin street, formerly Hiram Freeman’s, the fact is established beyond all doubt. It was purchased at the sale with the partnership funds; and although the conveyance was made to John Y. Baldwin alone, and therefore the legal title vested in him, he held the one moiety in trust for the benefit of Jesse. It is the plain case of a resulting *450trust, and may be proved by parol. The fact is admitted in express terms in the answer of John Y. Baldwin. It was after-wards used as the property of the firm. They received the rents, paid the taxes, made the repairs, and every thing that was done in relation to it was in the name of the firm. J. Y. Baldwin alleges that the deed was made to him by mistake; and so far as he is concerned, or his interests brought in question, there can be no difficulty.
As respects the property in Fair street, formerly Mrs. Baldwin’s, the case is not so clear. John Y. Baldwin states, in his answer, explicitly, that he considered that as belonging to himself. He admits that he purchased it with the partnership funds, for it was sold on an execution in favour of the firm ; but says that he made himself debtor to the firm for that amount, and that in preparing that deed, whereby the property was conveyed to him individually, there was no mistake. Fie assigns several reasons which induced him to make the purchase for his own benefit; some of them are certainly very plausible, and are rendered the more so by the answer of his co-defendant., Mrs. Johnson. He denies that he held possession of it for the use of the company, or that the same was held and used as partnership property.
I think, however, that the evidence is conclusive to show that this defendant is mistaken in this part of his answer. There are a great variety of facts going to show that the property was always held under the company, and treated by them as their property ; and I do not see how it is possible to reconcile these facts with the allegations in the answer. The deed bears date in 1813. In March, 1814, a general inventory was taken of the partnership stock and property, as is customary among merchants. In that inventory is embraced, and in the hand-writing of John Y. Baldwin, this property in Fair street, being the same that was Mrs. Baldwin’s; and it is valued at one thousand dollars, and footed up with the valuation of the house in Franklin street, which is admitted to be the property of the firm. In December of the same year, the taxes were paid to the town collector. The receipt is drawn by John Y. Baldwin, and is somewhat indistinct ; but the property in Fair street is distinguished in it either as the property of the firm, pr of Jesse Baldwin, and not of J. Y. *451Baldwin. In March, 1815, another inventory of stock, &c. was taken, part of which is in the hand-writing of John Y. Baldwin and part in that of Jesse Baldwin. In this is also included the house in Fair street, valued at one thousand dollars, and that part of the inventory is in the hand-writing of John Y. Baldwin. In the inventory of 1816, also in the hand-writing of John Y. Baldwin, both houses are included. In another inventory, taken in September, 1816, mention is made of two or three houses, which it is presumed has reference to the same ones, but they are not designated, and this inventory appears not to be in the handwriting of John Y. Baldwin. In January of the same year, (1816,) the direct tax was paid to Seth Woodruff for the year 1815. The receipt, drawn by John Y. Baldwin, is as follows: “ Newark, Jan. 28, 1816. Received from Messrs. John Y. Baldwin & Co. the sum of three dollars and thirty-five cents, in full of direct tax for their house, lately occupied by Mrs. Esther Baldwin, in Fair street,” <fcc. In October, 1816, a receipt was given by Paul Brown to John Y. Baldwin & Co. for a charge in repairing the pump of their house in Fair street. This receipt was drawn by John Y. Baldwin. In May, 1816, a similar receipt was given by Job Meeker to John Y. Baldwin & Co. for work done for their houses in Fair street. This was also drawn by John Y. Baldwin. In July, 1816, there are sundry entries made in the company’s common day book, of contracts made with various persons for renting the houses in Franklin and Fair streets. These entries are made by John Y. Baldwin ; and in describing the houses in Fair street, he in every instance, save one, calls them our houses. The sam° book shows that the rents were paid. In 1817, a part ot the property was occupied by David Ball. In July he paid the first quarter’s rent, and took a receipt from John Y. Baldwin, in the name of John Y. Baldwin & Co. To Mrs. Williams, who occupied another part, a similar receipt was given by Jesse Baldwin for one quarter’s rent; and underneath it, on the same paper, are memoranda made of the receipt of the other three quarters. In 1818, David Conger is charged in the company’s ledger with twenty-four pounds rent for that year, for the house in Fair street, and this charge is made by John Y. Baldwin. In 1819, Mrs. Williams occupied part of the *452house in Fair street, and in July of that year, John Y. Baldwin gave her a receipt for rent in the. name of the firm. And in 1820, in the general inventory that was made of the stock and property of the company at the time of the dissolution, the three houses were again included. In addition to this, it is testified by Isaac Nichols, the assessor of the town, that he was assessor from 1817 to 1823 ; that he was directed by John Y. Baldwin to assess the property in Franklin street and Fair street to the firm of John Y. Baldwin & Co., and that it was so assessed until John Y. Baldwin left the store, since which he has assessed it to the complainant, at his direction.
These facts and circumstances show very conclusively, that not only the house in Franklin street, but the houses in Fair street also, were considered by John Y. Baldwin as belonging to the firm. They were treated by him as such, in all respects. He states in his answer, that he considered himself a debtor to the firm for the amount paid ; but I do not find that he ever charged himself with it, or gave any information to his partner that he considered the property as his own.
The result is, that on the 1st of January, 1820, the property belonged to the firm, and must be so considered in this court, notwithstanding the legal title was in John Y. Baldwin. On the 1st of January, 1820, the partnership was dissolved by mutual consent. The terms were, that Jesse Baldwin, the complainant, should take all the property and pay all the debts ; and in the schedule then made, the houses in Fair street were considered as belonging to the partnership. From that time the whole management and direction of the property was assumed and exercised by the complainant. i\a ma<je leases, received rents, and acted in every other respect as owner and it appears that the title deeds were placed, by common consent, in the hands of an attorney, to have the necessary conveyance prepared, to pass the legal title to the complainant.
After the dissolution, and the agreement upon which it was founded, and as a necessary consequence resulting therefrom, the equitable and beneficial interest in this real estate became vested in the complainant; and John Y. Baldwin, having received a fair consideration for all his proportion, became a mere trustee for *453the benefit of the purchaser. He still had the naked title, but as between him and his former co-partner, it could avail nothing.
I do not consider it necessary to discuss the question which has been much agitated in the chancery of England, as well as our country, whether real estate, acquired with partnership funds, is to be considered as a part of the joint stock, and as such must be brought into the common fund ; or whether it is to be considered as a tenancy in common, and that the rules of partnership property do not apply to it. For, in this case, independently of any partnership regulations, there was an actual agreement and sale of the estate ; and even if we consider these partners as tenants in common in respect of these lands, yet b.y the agreement and sale, which were made in good faith, and for a valuable consideration, tíre complainant became entitled, and in equity is considered as owning the whole in severalty.
It follows as a necessary consequence, that after the sale and dissolution, John Y. Baldwin had no right, as against the purchaser, to treat this property as his own. If it were part of the joint stock, his authority over it ceased at the dissolution. He could not use it for his private benefit, nor in any mode inconsistent with the closing of the partnership business: Gow on Part. 253. If it were not a part of the joint stock, then having parted with his beneficial interest, and being a mere trustee, he had no right to interfere with the property of his cestui que trust.
But however true this may be, it does not follow that, because John Y. Baldwin may have acted mala fide, therefore Mrs. Johnson has no rights. She comes before the court claiming to be a bona fide purchaser for a valuable consideration, without notice of any fraud or improper conduct on the part of John Y. Baldwin; and claiming as she does under the person having the legal title at the time, she is entitled to great consideration.
The rule of equity touching the rights of a person claiming to be a bona fide purchaser for a valuable consideration, is a very strict one, perhaps too strict; but it is, nevertheless, so well settled, that it ought not to be lightly disturbed. And it does appear to me that the claim of the defendant, Mrs. Johnson, to be considered in the light of such purchaser, cannot be sustained. *454She bad no knowledge whatever of the pretended title of J. Y. She had understood, and therefore believed, that the {jtje was ¡n p¡m_ She piacecj implicit confidence in his state-ments_ c]oes no[ appear from her answer, that she had ever examined or seen, or even inquired for, the title deeds. If inquiry had been made for them at the time the mortgage was given, they could not have been produced. They were in the possession of a third person, for the purpose of preparing a formal transfer to Jesse Baldwin ; and that fact could scarcely have been concealed. Every man purchases at his peril, and is bound to use some reasonable diligence in looking to the title and competency of the seller. It will not answer to rest upon mere reputation or belief, unless the party intends to rely upon his covenants alone.
In this case, too, John Y. Baldwin was not in possession, either by himself or his tenants, at the time the mortgage was taken, nor had he ever any separate and exclusive possession. David Ball says he rented of John Y. Baldwin, but that he recognized both him and Jesse as owners or landlords, and paid the rent at the store. David Conger always paid the rent to Jesse after he returned from New-York, and always thought the property belonged to the firm. Such was the common reputation. Mrs. Williams rented of John Y. Baldwin, who said the property was his ; but Jesse claimed the rent, and she paid it. Henry Earl hired the house in Franklin street in October, 1819 : he hired of Jesse Baldwin, and knew no body else in the transaction. These tenants were in possession in February, 1820, when the mortgage was taken, and it is evident that inquiry from any of them would have given sufficient information to put her upon inquiry. It would have informed her that if it was not the separate property of Jesse Baldwin, it was at least the property of the firm, or claimed as such ; and that firm being dissolved, John Y. Baldwin could not execute a mortgage, or give a title for any part of the property. In Taylor v. Hibbert, 2 Ves.jr. 440, Ld. Roslyn says: “I have no difficulty to lay down, and am well warranted by authority and strongly founded in reason, that whoever purchases an estate from the owner, knowing it to be in the possession of tenants, is bound to inquire into the estate these *455tenants have.” And again; “ It was sufficient to put the purchaser upon inquiry, that tie was informed the estate was not in the actual possession of the person with whom he contracted ; that he could not transfer the ownership and possession at the same time; that there were interests, as to the extent and terms of which it was his duty to inquire.” In Hiern v. Mill, 13 Ves. 120, the principle is expressly recognized. See also Daniels v. Davison, 16 Ves. 254; Allen v. Anthony, 1 Meriv. 282; 1 John. C. R. 299. I am aware that these authorities extend only to cases in which the rights of the tenants are concerned. But there is no difference in principle or in reason. The object of the inquiry would be to ascertain the nature and extent of their possession and rights; and the notice would be equally good whether they informed the purchaser of a holding under the vendor or some other person, or whether of a leasehold or a freehold interest. In the case of Daniels v. Davison, cited before, the person in possession had been a tenant of the vendor, but at the time of the sale and purchase claimed to hold the property under an article of agreement to purchase of the vendor. The court held, that “ being in possession under a lease, with an agreement in his pocket to become the purchaser, gave him an equity, sufficient to repel the claim of a subsequent purchaser who made no inquiry as to the nature of his possession.” That was, as I conceive, a stronger case than the present. There it was admitted the person in possession was in under the lease, and it was argued that the most the purchaser was bound to take notice of was some leasehold interest; but the court held, that if his title was good as against the purchaser under a lease for forty-five years, it would be good for a greater interest.
I think there is weight in the position advanced by the counsel of the complainant, that Mrs. Johnson cannot claim the protection of a bona fide purchaser, because here there was no money paid; that this was a mere collateral security; that the old notes were not given up, and consequently that the party, in the language of the books, is not hurt. The rule undoubtedly is, that the person claiming such protection must have paid the purchase money; to have secured it, will not answer. The court gives protection in the peculiar case, on the ground that it is ab-*456solut.ely necessary ; that without it, the money must inevitably be lost: Wallwyn v. Lee, 9 Ves. jr. 32; Harrison v. Heathcote,, 1 Atk. 538; 3 Atk. 304, Hardingham v. Nicholls ; Maitland v. Wilson, 3 Atk. 814; Beekman v. Frost, 18 John. R. 562. I have doubts whether this case could be considered within the rule, but I do not find it necessary to decide the question.
The result of my judgment on this part of the case is, that this mortgage cannot be sustained as against Jesse Baldwin. John Y. Baldwin made the conveyance without a particle of authority, and in fraud of the lights of the complainant; and Mrs. Johnson received the mortgage without any investigation, relying entirely upon the integrity of the mortgagor, when the slightest inquiry would have sufficed to satisfy her that he had no right whatever to meddle with the property. I regret this conclusion, seeing that the defendant, Mrs. Johnson, is a female, and probably unacquainted with business ; but I am not able to bend the rule to meet her particular situation. I am induced to believe that she has acted honestly in the whole matter, notwithstanding a number of circumstances calculated to excite suspicion, and certainly showing very great incaution. The facts, that in 1819 this partnership note was renewed without any notice to Jesse Baldwin; that in the same year she took a conveyance from John Y. Baldwin of the Caldwell property for a trifling consideration, part of which was to pay the interest due on the note ; that soon after, when in consequence of difficulties between the partners she applied to John for further security, and took his individual property to secure the partnership debt, after the dissolution, and without having the mortgage registered ; and that of all these matters Jesse Baldwin, though a near neighbour and responsible man had no kind of notice; would naturally lead to a suspicion that there was a studied effort to conceal them from him, unless their disclosure should become actually necessary. If this were the honest debt of the company, there could be no possible motive for concealment. But as the defendant has positively denied any intentional misconduct, I am not at liberty to disbelieve her, and therefore regret the necessity that impels me to take from her the security on which she rested.
It was insisted by the defendant’s counsel, that if the mortgage *457should not bo good as against Jesse, it should be available in equity against the moiety of the property, the legal title of which was in John at the time the mortgage was given. This 1 think cannot be, without unsettling the principles already established. She had notice, or might have had notice, that this was, or had been, partnership property ; and the partnership being dissolved, that John Y. Baldwin bad no right to make such conveyance. Or if it should be contended, that this being real property, the parties, on the dissolution, held it as tenants in common, then she h?id notice, or might have had notice, that the beneficial right and interest of John Y. Baldwin was vested in Jesse, and of course that a mortgage would be of no avail. At the time of executing the mortgage, John had no interest to bind or to convey, and the mortgagee can take nothing under it.
It was also contended, that the original notes were given for money advanced to the firm, and that the court ought to hold this property liable for the payment of the debt, before the mortgage is delivered up. I am not disposed to question the original debt, or the liability of the firm to pay it. They are matters with which, as it appears to me, I have no concern; and hence I shall not grant that part of the complainant’s prayer which seeks to have the notes cancelled. But I do not see the way clear in ordering the notes to be paid out of this particular fund. The whole property of the partners is liable for the payment of the partnership debts. If all can be paid, it is well. If not, they must be paid pro rata ; or at all events, this court cannot establish a preference, the only foundation for which would be an unauthorized and fraudulent act of a partner after dissolution.
I have examined the pleadings carefully, to ascertain how far the court would be authorized to make any order or give any direction in relation to the payment of the notes, and it appears to me that that matter is not within the case. The bill prays relief against the mortgage; and although it prays that the notes may be given up to be cancelled, yet that seems to be on the ground that they are merely colourable, and therefore no foundation for the mortgage, and that to effect the complainant’s object, (the avoidance of the mortgage,) it might be necessary to go into the consideration of the notes.
*458The decree of the court is, that the mortgage be delivered up to be cancelled, and that the defendant be perpetually restrained from all further proceedings on the execution.
Not being satisfied that there is any fraud in this case on the part of Mrs. Johnson, I shall not order costs as against her.