Court Opinion

ID: 6510052
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:21:34.203403+00
Date Added: 2024-06-11T15:54:50.456818
License: Public Domain

STONE, J.
Money was borrowed separately from two persons, each transaction having its inception about the same time — January, 1874. The evidence of the indebtedness was in each case renewed from time to time, and mortgages given as security on the same property — the borrower’s interest in the “ Times” newspaper and its property. In the case of Mrs. Benagh’s loan, the first mortgage was executed directly to her, on the same date as the loan, January 8th, 1874. This mortgage was renewed every three months. *223In the loan by Fitts & Co., bankers, tbe bill of Taylor & Warren, partners and joint-owners of the Times newspaper, was taken as security, due at a short interval. This debt was increased during the year, and was renewed every thirty days. A mortgage on Taylor’s interest in the Times newspaper wa^ given to Warren, to indemnify him against the use of the firm name, Taylor & Warren. This mortgage was also renewed at short intervals. At the request of Taylor, none of the mortgages were put on record, until March, 1875. Each series of mortgages was renewed, within every three months; and this, it was believed, would preserve the lien from the date of the several mortgages given in renewal, without expense and notoriety of registration. In other words, it Avas believed that mortgages on personalty might be recorded within three months after their execution, and this would operate constructive notice to creditors and purchasers from their date. Each of the loans was for the personal use of Mr. Taylor, and no part of the money vias applied to the purposes of the partnership of Taylor & Warren. Neither Mrs. Benagh, nor Mr. Warren, knew of the mortgage to the other, pr that the other loan had been negotiated. Cn the 23d of March, 1875, Mr. Taylor being short in the payment of interest, promised quarterly, to Mrs. Benagh, she consulted counsel, and, on his advice, had her mortgage recorded on that day. Warren’s mortgage Avas recorded four days afterwards. The question presented is, which has the paramount claim on the mortgaged property? Warren has paid up the bill to Fitts & Co., out of his private funds ; and he is the actor in this suit.
1. In settling partnership accounts, each partner is clothed with the right to insist that the partnership effects shall be first applied to the payment of the partnership debts ; and this right will prevail over the claims of an alienee or creditor of the co-partner. So clearly defined is this right — so necessary to persons engaging in joint adventures of this kind — that it has been long and firmly settled, that each partner has a lien on the effects, that they shall be applied primarily to the extinguishment of the partnership liabilities. This results, naturally and necessarily, from the nature of the enterprise, and of the title by which the property is held. The title is in the company, or association of individuals, and no one of the number has a separate ownership or right to .any part or piece of the property or effects of the partnership. And the lien goes further than this. After the debts are all paid, each partner has a lien on the remaining partnership effects, for any balance due him upon a proper accounting together. — 1 Story’s Eq. Ju. § 677; Moore v. Smith, *22419 Ala. 774; Donelson v. Posey, 13 Ala. 752; Cannon v. Copeland, 43 Ala. 201; McGown v. Sprague, 23 Ala. 524; Reynolds v. Mardis, 17 Ala. 32; Reese v. Bradford, 13 Ala. 837; Lucas v. Atwood, 2 Stew. 378; Emanuel v. Bird, 19 Ala. 596; Bridge v. McCullough, 27 Ala. 661; Waldron v. Simmons, 28 Ala. 629; Andrews v. Keith, 34 Ala. 722; Coster v. Bank of Georgia, 24 Ala. 37; Parsons on Partnership, 265, 350, 351, 352, 168, 502; Bank v. Carrolton Railroad, 11 Wall. 624; Rodriguez v. Heffernan, 5 Johns. Ch. 417; Sitler v. Walker, 1 Freem. Ch. Rep. 77.
2. The disputed question in this case is, whether the claim of Warren is a partnership demand. There can be no question that it was a partnership debt, so long as it remained unpaid to Pitts & Co.; and they could have claimed and asserted all the rights against the partnership and its effects, which the law accords to partnership creditors. The bill was executed in the firm name, with the knowledge and consent of both partners ; and this bound the firm. Even if the firm name had been signed by one, without authority from the other, the bill was made to be used, and was used in borrowing money; and there is no evidence that Pitts & Co. knew the use to which the money. was to be applied. We are not prepared to say the debt would not have been a partnership liability, even if the bill had been executed as last supposed.—Knapp v. McBride, 7 Ala. 19; Jemison v. Dearing, 41 Ala. 283; Cullum v. Bloodgood, 15 Ala. 34: 2 Brick. Dig. 306, § 103; Sprague v. Zunts, 18 Ala. 382.
The relation between partners is one of generous confidence. In the absence of special agreements to the contrary, the law constitutes each the agent of the other, and the representative of the firm in the conduct of all the ordinary business of the partnership. The act of one is the act of all. If it be a mercantile partnership, a sale by one is a sale by all. And a payment to one member of the firm discharges the debt, although that member may misapply or squander the money. It is not unfrequently the case, that one partner becomes more indebted to the firm than another. He may use more of the income and effects in his personal and private affairs, — may overdraw his share, or may anticipate future receipts and emoluments, sometimes with, and sometimes without his co-partner’s knowledge or permission. In either case, his share of the profits, or of the capital, if needed, will stand incumbered by a lien, to make good such deficit to his co-partner ; and that lien will be paramount to the right of any alienee or creditor of his. “ In general, when a sum of money is advanced to a partner, or a partner is permitted to take it as a loan, and there are no express *225terms agreed on, his profits are in the first place answerable; and if they are insufficient, his share of the stock goes to discharge this balance ; and if that is insufficient, he becomes a personal debtor for the balance.” — Parsons on Partnership, 241. See, also, 3 Kent’s Com., marg. pp. 40 et seq.
If, instead of borrowing the firm’s credit to raise money on, Mr. Taylor had used its money, or had hypothecated its bills-receivable, and thus realized the sum of them on his private account — and this, either with or without Mr. Warren’s consent — the rule above declared would have applied in all its force, and Mr. Warren would have held a lien. So, if there had been a partnership debt of Taylor & Warren, and Mr. Warren had paid it out of his private funds, this would have given him a claim and lien against Taylor’s interest in either profits or capital of the partnership, paramount to the rights of creditors of, or purchasers from Taylor. And such creditor or purchaser would have no right to complain: for he would realize, by the transaction, all that Taylor could claim. He would be entitled to no more. In other words, Mrs. Benagh, in this suit, can claim what Taylor could claim, if he were suing Warren; no more. She purchased no other right.—See Donelson v. Posey, and other authorities supra. She cannot complain of this; for, purchasing a partner’s interest in partnership effects, it was her duty to inquire of the other partner, how the account stood between them.
It will be seen that we have placed Warren’s superior claim on the lien which the law gave him as a partner. Hence, it was not necessary for him to take a mortgage, or, taking it, to have it recorded. When he incurred the liability for Taylor, by allowing him to pledge the credit of the firm, he had no knowledge or notice of Mrs. Benagh’s claim. We need not, and do not decide, that his claim would prevail over Mrs. Benagh’s, if, before the firm became bound to Fitts & Co., he had been notified of the conveyance to her.
We hold that, after taking a proper account between the partners, charging Taylor with the sum paid Fitts & Co. and interest, as so much paid to and for him by Warren, the business manager; and charging to each partner all proper debits, and allowing to each all proper credits, if a balance be found due to Warren, he has a first lien on the partnership effects, income and capital, for its payment. This is his share in the partnership effects, and he is entitled to it, before Mrs. Benagh can take any thing by her mortgage. Any balance to be equally divided between Warren and Taylor, the interest of the latter, as far as necessary, to be applied to the payment of Mrs. Benagh’s mortgage, and interest *226thereon from January 1st, 1876. Should the balance, on taking the account, be found in favor of Taylor, and against Warren, then such balance to be a first lien in favor of, and applied, as far as necessary, to the payment of Mrs. Benagh’s mortgage debt, computed as above. Any balance of partnership effects to be equally divided between the partners; Taylor’s share to go to Mrs. Benagh, so far as necessary to extinguish her mortgage claim. If any thing be realized from the mortgaged property in Greene county, the product to be applied to the payment of Warren’s claim, if necessary, after exhausting the partnership effects. Should any of the partnership property and effects be used in paying a” balance found due to Warren, and should any portion of Mrs. Benagh’s claim remain unpaid; and should there remain a surplus of proceeds of the Greene county mortgaged property, after paying Warren’s claim, then, to the extent that Taylor’s interest mortgaged to Mrs. Benagh is applied to Warren’s claim, she, Mrs. Benagh, is subrogated to the mortgage rights of Warren in the surplus of the proceeds of the Greene county mortgaged property.
The decree of the Chancery Court is reversed, and a decree is here rendered, in accordance with the principles declared above. Costs of appeal to be paid by the appellees.
It is referred to the register to take proof, and report an account to the Chancery Court, being governed in the matter of taking the testimony by directions of the chancellor in his decree rendered in this cause. All other questions, including the costs of the original suit, to be determined by the chancellor.