Ferris v. Van Ingen & Co.

110 Ga. 102

• Court: Supreme Court of Georgia
• Decided: April 1, 1899
• Status: Published

Opinion

Simmons, C. J.

(after stating the facts as above). 1. It was argued by counsel for the plaintiffs in error, that the surviving partner had no right or authority to continue the business of the partnership after the death of the senior partner, except by an order of the court of ordinary, and then for one year only. This contention is, under the general law of the State, sound in ordinary cases where a member of a partnership dies; but where, the will of the deceased partner, provides for a continuance of the business of the firm, that, as was stated in the case of Brannon v. Oder, 106 Ga. 168, changes the law as to his estate and gives his personal representative and surviving partner the power and authority to continue the business, to make contracts and to bind the estate of the deceased partner. In earlier times it seems that courts differed as to the right of the testator to provide for this, and differed as to the construction of wills containing such provisions. Now, however, it is well settled that a testator has the right and the power to provide for a continuance of his business or the continuance of the partnership of which he was a member, and that he may in his will direct that the whole of his estate shall be liable for the debts incurred by the surviving partner in carrying on the business of the partnership. The courts hold, however, that the language of the will giving this> power to the personal representative must be “clear and unambiguous, demonstrating in the most positive manner that the testator intended to make his general assets liable for all debts contracted in the continued trade after his death.” Burwell v. Mandeville, 2 How. (U. S.) 559. In the case just cited Judge Story said: “It is competent for the partners to provide by agreement' for the continuance of the partnership after [a partner’s] death; but then it takes place in virtue of such agreement only, as the act of the parties, and not by mere operation of law. A partner, too, toay by his will provide that the partnership shall continue notwithstanding his death; and if it is consented to by the surviving partner, it becomes obligatory, just as it would if the testator, being a sole trader, had provided for the continuance of his trade by his executor, after his death. But, then, in each case the agreement or authority must be clearly made out; and third persons, having notice of the death, are bound to inquire how far the agreement or authority to continue it extends, and vhat funds it binds; and if they trust the surviving party beyond the reach of such agreement, or authority, or fund, it is their own fault, and they have no right to complain that the law does not afford them any satisfactory redress. A testator, too, directing the continuance of a partnership, may, if he so choose, bind his general assets for all the debts of the partnership contracted after his death. But he may also limit his responsibility, either to the funds already embarked in the trade, or to any specific amount to be invested therein for that purpose; and then the creditors can resort to that fund or amount only, and not to the general assets of the testator’s estate, although the partner or executor or other person carrying on the trade may be personally responsible for the debts contracted.” See Brannon v. Ober, supra, and cases cited; 17 Am. & Eng. Enc. 1. 1134 et seq., and cases cited; Woerner, Administration, *689, and cases cited; Willis v. Sharp, 113 N. Y. 586.

2. It will be seen, by reference to the extract of the will above set out, that the survivor of the firm of Eerris & Son had full and complete power to carry on the partnership business in the firm name, and make contracts which would bind the entire assets of the estate of the deceased partner. The language is clear and unambiguous, and shows beyond all doubt that it was the intention of the testator that his whole estate should be bound for the debts incurred by the survivor in carrying on the partnership business. ' The surviving partner assented to this provision of the will, carried on the business, and incurred debts in the purchase of goods and other things for the benefit of the firm. There can be no question that, under the will, the survivor had authority to execute a mortgage or security deed to secure the debts thus contracted, having obtained the written consent of his coexecutor which the fifth item of the will provides for. The authority to contract debts carries the authority to secure the payment of those debts by liens or otherwise. It was argued here that the record shows that the surviving partner had paid all the debts which existed against the firm at the time of the death of the testator, and that debts contracted subsequently wea.’e not the debts of the firm but individual debts of the surviving partner, and, consequently, the latter had no power to make the security deed to secure such debts. We think we' have •shown that the surviving partner did have full power under the will to make new debts which would be binding upon the assets •of the firm and of the estate of the testator. If the surviving partner did pay off the debts existing at the-time of the death of his partner, he paid them off as partnership debts; and if in carrying on the business of the firm he subsequently created new debts, they were also partnership debts, as much so as if the testator, the deceased partner, had been in life and assented to ■contracting them. Under this, view, there was no necessity for an accounting as between the surviving partner and the partnership, for all that was done by the surviving partner in carrying on the business of the partnership' was done as acts of the firm and not of himself as an individual. It was also contended that a part of the notes owed by the firm to Van Ingen & Co-, at the time of the execution of the deed were renewed notes of the old firm, and that giving these new notes was a novation. If we are right in the construction of the will and the powers thereby given to the surviving partner, .the renewing of these notes was not a novation; besides, the will expressly authorizes the ■surviving partner to renew notes and bind the firm assets and the estate of the testator thereby.

3. It was insisted in the argument here that when Van Ingen & Co. took the security deed from Ferris & Son and purchased the mortgage from Harris, the original mortgagee, the mortgage became merged in. the deed, the latter conveying- a greater estate than the mortgage. We admit that snch is the general rule of law, but in equity there are exceptions. One of these exceptions is that the lesser security is not merged in the greater when it appears that the holder of both intended that a merger .should not take place. In the case of Knowles v. Lawton, 18 Ga. 476, it was said: “Merger does not, in general, take place when the person in whom the two estates meet intends that it shall not take place. ” In that case the holder of the equity of redemption purchased the mortgage,' which was in process of foreclosure, and continued the prosecution of the foreclosure ¡suit; and this court held that this act showed that his intention was that there should be no merger of the two estates. See also 15 Am. & Eng. Enc. L. 314, and cases cited. In Knowles v. Lawton the intention was implied from the acts of the purchaser of the mortgage; in the present case it is not necessary for the court to go that far. We think the intention that there should be no merger is a necessary deduction from the writings themselves. The deed recites that it is given subject to the mortgage, giving the original amount, the date, and the names of the original mortgagors and mortgagee; gives the amount then unpaid, and .states that the mortgage was then transferred and assigned by the original mortgagee to Yan Ingen & Co., the grantees in the deed. In the bond for titles given by Van Ingen & Co. to Ferris & Son and others, including Mrs. Ferris, the plaintiff in error here, it was also recited that Van Ingen & Co., were not to reconvey the land until the mortgage and deed were both paid off. They also agreed that the rate of interest should be reducedfrom 8% to 6% per annum, and agreed that they would not exercise their power of sale, given in the mortgage, until the expiration of three years. By an independent agreement of Van Ingen & Co. it was also stipulated that they were not to foreclose the mortgage within -three years, and that they extended the time of payment of the amount then due on it for that length of time; with reduced rate of interest as above recited. We think this clearly demonstrates that it was the intention of Yan Ingen & Co. that' the mortgage security should not become merged in the security deed; and, as before re marked, merger does not in equity take place when it is the intention of the parties that it shall not do so.

4. The record discloses that Ferris & Son had contracted other debts besides those owing to Tan Ingen & Co., and had given to Mrs. Potter a mortgage on their stock of goods to secure their indebtedness to her. Mrs. Potter filed a creditors’ bill in behalf of herself and all other creditors, alleging that the firm was insolvent, and praying for the appointment of a receiver to take charge of the goods and the store belonging to the firm. Tan Ingen & Co. filed an intervention, setting up their mortgage and security deed, and asking for an order requiring the receiver to turn the realty over to them. Mrs. Ferris, the widow and executrix of the testator, filed her intervention as set out in the statement of facts, claiming that a year’s support had been set apart to her and her minor son by a judgment of the ordinary, and that this judgment was of higher dignity than the mortgage held by Tan Ingen & Co., or the security deed made to them by Ferris & Son and by herself as executrix and as an individual. The judgment for year’s support was against the estate of the deceased partner, her husband. While it is the general rule that real estate owned by partners is held by them as tenants in common, yet when they purchase it in the firm name for the purpose of carrying on the partnership business and actually use it for that purpose, then it is partnership assets. Our code declares that a partnership “may arise from a joint ownership, use, and enjoyment of the profits of undivided property, real or personal.” Civil Code, §2626. This section recognizes that realty may be partnership property when the partners use it in carrying on their business and enjoy the profits arising from it. In the case of Willis v. Henderson, 43 Ga. 325, it appeared that Henderson had obtained a judgment against P. B. Jones, and had execution, issued thereon, levied upon certain land as the property of P. B. Jones. The látter filed an affidavit of illegality, setting up that .the land was not his individually but belonged to him and John F. Jones as partners in farming. This court sustained the illegality, holding that the land was partnership property and could not be levied on as the property of one of the individual partners, but that the creditor must resort to process of garnishment. This case distinctly recognizes land as a subject of partnership property where it is used in carrying on the partnership business. Bleckley, C. J., in the case of Baker v. Middlebrooks, 81 Ga. 491, said upon this subject: “Perhaps, as to land in actual use by the firm in its business, there may be a sort of title in the partnership distinct from ownership as tenants in common. This would seem to be so if Willis v. Henderson, 43 Ga. 325, was well decided. The code [§2626] gives some countenance to this theory.”

We believe the law to be that whenever a firm purchases real estate in the firm name, with partnership funds, for partnership purposes, and actually uses it for such purposes, it does become partnership property. 17 Am. & Eng. Enc. L. 944 et seq., 1 Bates, Partn. §279 et seq.; 2 Bindley, Partn. *343 el: seq. This being so, equity will, in winding up the partnership and paying the debts, treat real estate as partnership assets. Black v. Black, 15 Ga. 445; Bank v. Cody, 98 Ga. 154, 155; 17 Am. & Eng. Enc. L. 952 et seq.; Bindley, Partn., supra. The real estate now in controversy having been purchased by the partnership, which paid part of the purchase-money in cash and gave notes, in the firm name, for the balance, and having been actually used by the partnership in carrying on its business, it should certainly be treated in equity as partnership assets, the partnership being insolvent. In the distribution of the partnership effects, equity will apply the proceeds of the sale of this real estate to the payment of the partnership debts, according to their priorities, before the widow and minor child of the deceased partner can claim a year’s support out of the proceeds. In the case of Sellers v. Shore, 89 Ga. 416, this court held: “On the death of a partner, the title to the personal assets of the firm is cast upon the survivor, who is charged.with the administration of the same, first for the payment of the partnership debts, and secondly for paying over the deceased partner’s share in the surplus to his legal representatives. Unless there is a surplus none of the assets constitute any part of the estate of the deceased, and consequently they are not chargeable with the year’s support allowed to his widow.” See also Boone v. Sirrine, 38 Ga. 121. Moreover, it appears that Van Ingen & Co. were the assignees of the mortgage given by Ferris & Son during the life of the deceased partner to secure the notes given for the purchase-money of the store. Consequently, under section 3472 of the Civil Code, the judgment for year’s support could certainly not be paid until the purchase-money had been paid off.

5. For the same reasons the widow is not entitled to dower out of this property. She is only entitled to dower out of the property of which the husband died seized and possessed. This having been partnership- property, the husband did not die seized and possessed of it in his own right. In the winding up of this insolvent partnership it is treated as personal property, and the widow is, of course, not entitled to dower in it until after the partnership debts have been paid off. In speaking of this subject, Mr. Bates in his work on Partnership (vol. 1, § 290) says: “ To the extent in which real estate is converted into partnership stock, all the incidents attach to it which belong to any other stock, in so far as is consistent with the technical rules of conveyancing. . . If the partner dies, there can be no dower or inheritance or distributive share claimed; the real estate or its proceeds, until creditors are paid and copartners’ claims adjusted, and dispositions of partnership real estate, whether before or after the death of a partner, are free from any incumbrance of inchoate dower, whether the sale be by the act of the partners, or on foreclosure, or under execution, or by an assignee in insolvency, or a receiver in winding up, or by a surviving partner. And whether the title be in all the partners or some of them, or solely in the husband of the claimant, is wholly immaterial. If, under the jurisprudence of any State, dower is a legal and not an equitable estate, so that a legal title would devolve upon the widow, she would hold such title in trust for the purposes of the partnership.” Moreover, in the present case, the surviving partner had -full power and authority, under the will, to make the security deed, by and with the consent of his coexecutor. The will stated that whatever the surviving partner did in and about the business in carrying on the partnership should be as binding on the firm assets and the'estate of the testator as though the latter were still in life, and therefore this security deed conveyed out of the partnership all title to this real estate. Treating the security deed, then, as being as effective as though made when both partners were in life, it is clear that the widow, even if the realty had been held in the name of her husband alone, could not take dower until the debt for which the security deed had been given had been paid off and discharged. Kinnebrew v. McWhorter 61 Ga. 33; Harman v. Strange, 62 Ga. 167.

6- As before remarked, Mrs. Ferris alleged in her intervention, not only that she was entitled to a year’s support and to dower -out of the real estate of the partnership, but that she had paid off to Harris, the original mortgagee, $5,000 of the notes given him by the firm. In her first intervention she alleged that this was a loan by her out of her individual property to the firm of Ferris & Son. Subsequently she amended her pleadings and alleged that the money was paid at the instance and request of Van Ingen & Co., in order that the security for their debt might be increased by that amount by decreasing the amount due upon the mortgage debt; and that it was the understanding of all the parties that she should be subrogated to the rights of the mortgagee to the extent of her payment of these notes. This allegation was admitted hy the demurrer, and standing alone it would seem, under the authorities, that the transaction operated to subrogate her to the rights of the mortgagee to the extent of the $5,000 which she alleges she paid. But in considering the demurrer the court must look at all the allegations of the petition and to the exhibits thereto. Attached as exhibits to her intervention are the security deed, the bond for titles, and the independent agreement of Van Ingen & Co., above recited. From the deed it appears that Mrs. Ferris was one of the grantors therein, both as executrix and as an individual. She signed it in both capacities. Among the recitals in the deed is one in which it is stated that the deed is given subject to the mortgage executed by Ferris & Son before the death of the elder Ferris; that this mortgage was originally for $13,784.94; that it was dated June 4, 1891; that it was made by John C. and Chas. H. Ferris to Harris; and that upon it “there is now remaining unpaid, due or not due, and includ ing all interest,"a sum not to exceed twelve thousand five hundred ($12,500) dollars in the aggregate, and now transferred and assigned by Harris to E. H. Van Ingen &' Company.” The grantors, including Mrs. Eerris, also covenanted that the premises were free and clear of all incumbrances of every nature, and warranted the title against themselves, their heirs, executors, etc., and against all other persons. This deed was executed about two years after she alleges she had paid off the purchase-money notes to the extent of $5,000. It will be observed that nothing was said by her in these recitals of any claim of lien or rights of subrogation which she had in the premises. She recited and covenanted that there was not more than $12,500 remaining unpaid upon the mortgage debt, and, according to her own allegations, that amount would not cover the amount due to Van Ingen & Co. as transferees and also this $5,000. It seems to us that if she intended to assert her right of subrogation she should have done so at the time of the execution of this deed. If she claimed the right to be subrogated to the amount of $5,000, she ought to have inserted that amount in the recitals and in the covenant, and recited the amount unpaid upon the mortgage as something more than $1Y,000. Instead of doing this, she covenanted that not more than $12,-500 was unpaid, and she thereby induced Van Ingen & Co. to take the additional security offered for the debt due them by the partnership. Even if her claim had been at this time a just »and equitable one and she had intended later on to assert it, her failure to do so at the time or to let Van Ingen & Co. know that she had any such claim was, if not an estoppel, a waiver by her in their favor of her right of subrogation.

But, it was argued, these recitals and covenants do not bind her, because she was not in her individual capacity a necessary party to the deed, and because there was, as to her, no consideration. From reading the record it is apparent that at the time this deed was made the firm of Eerris & Son was financially embarrassed. Harris, the original mortgagee, had commenced proceedings to foreclose the mortgage. The firm not only owed this debt to him, but was also indebted to Van Ingen & Co. in a large amount. Mrs. Eerris was interested in the success of the firm; Her monthly allowance under the will seems to have depended upon it; and at the majority of the minor child the partnership was to be wound up and the assets divided, unless continued by consent, and she was to be one of the distributees. It was clearly to her interest that the business should be run at a profit. There was, therefore, sufficient consideration moving to her to make the recitals and covenants in the deed binding upon her. Even were this not true, her promises would not be without consideration. It is not necessary that the consideration should move to the promissor. Section 3657 of the Civil Code declares: “A consideration is valid if any benefit accrues to him who makes the promise, or any 'injury to him who receives the promise.” The exhibits to the intervention show that Van Ingen & Co. bound themselves not to foreclose the mortgage until the expiration of three years from the time of the execution of the deed. They also agreed that the rate of interest on the mortgage notes should be reduced from -8% to 6% per annum. This shows that even if Mrs. Eerris had received no benefit individually, Van Ingen & Co. had sustained an injury. They agreed to postpone the collection of their debt, and they reduced the rate of interest upon it. We think there was sufficient consideration to make the deed binding upon Mrs. Eerris individually. Under this state of facts, even if she had a right to be subrogated at all to the rights of the mortgagee, her right is inferior to the claims of Van Ingen & Co. It may be replied to this that she alleges that Van Ingen & Co. knew of her right of subrogation and agreed to it. This may have been time, as she alleges, at the time she paid off the notes, but these notes were paid off in October, 1892, while the deed was executed two years thereafter, in October, 1894. She does not allege that the matter was mentioned at this later time, or that Van Ingen & Co. knew that she had not been repaid by the partnership the amount she had paid on the mortgage. If Van Ingen & Co. knew that she had paid this money and been subrogated to that extent to the rights of the mortgagee, and the business had then run on, and this new transaction had then been entered into by them and by her without reference to her right, it would be very natural that they should infer she had been reimbursed or her claim satisfied. Another significant fact in this connection is, that while the notes she claims to have paid were indorsed in blank by the payee, they were marked “Paid” on their faces. This would seem to indicate that Mrs. Ferris had, as she at first alleged, paid off these notes, and regarded the transaction as one of general loan to the partnership rather than as a purchase of the rights pro tanto of the mortgagee. Looking at the whole record, we are satisfied that if at the time of the execution of the security deed she had any right of subrogation, she at that time waived it in favor of the claims of Van Ingen & Co.

7. As before recited, Mrs. Ferris intervened and set up the judgment of the ordinary, giving her and her minor son the sum of $5,000 for her support. For some reason not disclosed by the record, the minor also filed an intervention. Van Ingen & Co. demurred to this latter intervention, and the demurrer was sustained. This year’s support was set apart jointly to the minor and the widow, and in such a case the widow represents the minor and has absolute control of the property set apart as the year’s support. She can sell or dispose of it without consulting the child, and without any proceeding in any court of law or equity, and without making the child a party in such a proceeding. She in effect becomes trustee for the child for his share of the amount set apart. If he should marry or come of age, he' would not be entitled to withdraw from the widow his portion of the year’s support. She would still retain it. Miller v. Miller, 105 Ga. 305. This being the status of the widow as to the year’s support, we think the minor can not intervene and set up the same judgment which is set up by the intervention of the widow. Indeed we think the minor can not intervene at all, unless he shows that the widow has failed, refused, or neglected to do so, or that she is in collusion with other creditors, or that there is some other good and equitable reason why he should be heard in the matter. In the present case nothing; of this sort was alleged, and if the interventions of both the widow and the minor had been good, then, under the pleadings, each could have recovered the full amount of $.5,000, the amount set apart to them jointly. We think, therefore, that whether or not the widow has already intervened, the minor can not intervene independently unless he shows some special equitable reason for so doing. As no such allegations were made in the intervention of the minor in this case, the demurrer was properly sustained.

8. It appears from the record that the real estate upon which Van Ingen & Co. held the mortgage and security deed had been assessed for taxes. Ferris & Son failed to pay them, and the tax fi. fas. w"ere about to be levied upon the property by the sheriff, when Van Ingen & Co. paid the taxes and had the fi. fas. transferred to them. Pending the litigation and before final decree, Van Ingen & Co. applied to the court for an order to the receiver to pay-them the amount they had thus paid out. The court granted the order and directed the receiver to pay the taxes out of the rental which he received from the real estate upon which Van Ingen & Co. had the mortgage and security deed. This was excepted to on the ground that the court had no authority to order the taxes paid before the final decree and out of the income from the property. Under section 888 of the Political Code, the transferee of a tax fi. fa. stands in the shoes of the State, county, or city by whose authority the tax fi. fa. was issued. He has the same rights and priorities that the State, county, or city would have had. Taxes, under our law, are the highest- lien. The authority levying them can not be postponed to the end of a long litigation before demanding the taxes due it, but is entitled to have the taxes paid as they become due. The transferee has, under the code, the same rights and remedies. It was, therefore, not necessary for the court to await the end of this litigation and until final decree to order the tax fi. fas. paid. The taxes being of higher dignity than any other lien, it was immaterial out of what property or fund of the insolvent partnership they were paid. The fi. fas. were a higher lien upon all the property of the firm than any other lien or claim. It seems to us proper and right that they should have been ordered paid out of the income derived from the property upon which the transferees held the deed and mortgage. Nor, in our opinion, did it make any difference that the order was passed in vacation and not in term time. When a court of equity takes charge of an estate under a creditors’ petition of the kind now under consideration, it is virtually the administrator of the estate. It is always open for the purpose of administering the assets of the estate, and can direct its receiver how to administer funds in his hands as well in vacation as in term. This is especially true since the act of 1895, now section 4323 of the Civil Code.

9. The court did not err in rendering, a final decree, settling the dignities and priorities of the different claims against the property, before the property was sold and the proceeds brought into court. We can not see what difference it could make whether the final debree was made before or after the sale. The decree settles the priority and dignity of each lien, and when the money is brought into court it must be distributed according to the relative dignity of the different claims. The relative dignity or priority of each claim can be settled as well before as after the sale. We have given this case careful consideration and examination, and after much study and reflection find no error in any of the rulings complained of, except that it appears that the court failed to render any judgment in favor of Mrs. Ferris as to the amount she claimed to have paid on the notes secured by the mortgage and for which she claimed to have been subrogated to the rights of the mortgagee. Taking the view of the trial judge this was possibly correct, but under our view Mrs. Ferris was entitled to have her claim paid after the claims of Van Ingen & Co. had been entirely satisfied. We therefore direct that the decree be amended so as to give Mrs. Elizabeth Ferris a judgment for the amount she paid on the mortgage debt and as to which she claims to-be subrogated to the rights of the mortgagee.

Judgment affirmed, with direction.

All the Justices concurring.