McGregor v. Ellis

2 Disney (Ohio) 286

• Court: Ohio Superior Court, Cincinnati
• Decided: June 15, 1858
• Docket: No. 3,972
• Status: Published

Opinion

Storer, J.

The decision of this cause, upon the facts before us, directly involves the validity and effect of the assignment made by Ellis, for himself and partner, to Worthington, and as this point is determined, the rights of the parties must mainly depend.

It is admitted by the pleading, and not denied by the evidence, that Ellis & Sturges were greatly embarrassed; the deposits made with them as bankers were very large, and the depositors had become anxious for the ultimate security of their money, insomuch that there was not only much feeling excited, but violence even threatened and actually feared. One of the partners was a resident of New York, against whom an order of attachment might have issued, and his interest, to say the least, in the property of the firm could have been seized, the immediate consequence of which would have worked a dissolution of the partnership, and a practical sequestration of its assets.

Under these circumstances Ellis, for the benefit of all their creditors, vested the trust in Worthington, and, so far as the condition of things then existing is to be regarded, we are satisfied the course he adopted was fair and just, demanded, even, by the interests of all concerned.

It has been seriously doubted, however, whether such a transfer of the partnership property by one member of the firm is obligatory upon the others. We say doubted, as it seems to us that, upon principle, the authority assumed by Ellis may well be sustained, however hesitating the opinions of modern judges, where the effort has been in their adjudications, not so much to vindicate well established rules, and apply them to the daily necessities of business, but to trace distinctions between cases, to establish some new theory, whereby a particular action can be sustained or defeated.

There can be no doubt, but one partner could assign a portion of the joint effects in payment of the firm debts, or by way of security for antecedent debts, or debts to be afterward contracted. Story on Part., sec. 101 ; Collyer on Part., see. 395. And Lord Mansfield held in Fox v. Hanbury, Cowper, 445, that even after an act of bankruptcy, by one partner, the solvent partner might bona fide assign the partnership effects to a creditor of the firm.

In Harrison v. Sterry, 5 Cranch, 289, the Supreme Court of the United States decided to the fullest extent, that the assignment of partnership property by one member of the firm, by an instrument under seal, in the name of the partnership, was valid, and transferred the right of each partner. Indeed, the power to sell by each partner is essential to the existence of the partnership; without it the partners would be powerless; as they could no longer be the agents of their fellows, they would possess no other authority than that of individuals, and the anomaly would exist of a community of interest and a joint liability, and yet there be no power in those who mutually owned the property to dispose of it.

But, it is claimed, the power to transfer a portion of the partnership effects, will not authorize one partner to assign the whole for the benefit of the joint creditors; and, thus it was held, in 1 Dessausure, 537, Dickinson v. Legare, though there were peculiar circumstances in the case that might well have induced the decision, without reference to the point adjudicated. So in Egberts v. Wood, 3 Paige, 517; Havens v. Hussey, 5 Paige, 30; Kirby v. Ingersoll, 1 Harr. Mich. 172; same case in 1 Douglass, Mich. 477, which was affirmed by the majority of the court. In this last ease the decisions upon the point were referred to and are examined by the judge who gave the opinion, and they are also referred to and examined by the judge who dissented, whose reasoning, it seems to us, is entitled to more respect than that of his colleagues. See also Hayes v. Heyer, 3 Sanford, S. C. 284; 1 Hoffman’s Ch. 511, Hitchcock et al. v. St. John; Mabbett v. White, 2 Kernan, 451; Dana, adm’r, v. Lull, 17 Vermont, 390. In each of these cases it will be discovered that the judges place their opinions on some fact or incident connected with the subject submitted to them, as materially effecting their judgment; as, for instance, it is doubted whether it was not within the authority of the several partners to convey to a trustee, for the benefit of all the partnership creditors, in the absence or .inability of the other partners to unite in the transfer, or the necessity for the immediate interference of the resident partner, to save the joint property for equal distribution.

On the other hand, the decision already quoted, of Harrison v. Sterry, the well-considered case of Anderson v. Tompkins, 1 Brock. 456, where Chief Justice Marshall, to our apprehension, pronounces what is, in reality, the law; the opinion of Judge Johnson in Robinson v. Crowder, 4 McCord’s Law Rep. 537, where he states the principle very clearly, and assumes “that every partial application of partnership funds for the payment of debts, whether it consists of cash, or goods, or anything else, is, in effect, an assignment for that purpose, and binds the firm; and if, in the course of things, a general assignment becomes necessary, there can be no reason why it should not be equally binding. The principle is the same, whether it be partial or total, and it follows that, in either case, one may bind the whole.” The rule is also affirmed in 8 Leigh, 415, McCullough v. Sommerville; so in Deckard v. Case, 5 Watts, 22.

The law, we freely admit, remains unsettled, and we are left at liberty to determine the question upon general principles. We should have no hesitation to do so, under the circumstances of the case, were it necessary to a satisfactory solution of the point we have already stated as chiefly involved in this controversy.

If we should recognize the doctrine that would deny to one partner the right to assign the whole partnership effects, and such a transfer will not bind the other members of the firm, we are very fully satisfied that Sturges, with a full knowledge of all the facts connected with it, has ratified the act of Ellis by so many unequivocal evidences of his assent to the trust vested in Worthington, that he is estopped from denying the validity of the transfer; and the plaintiff is equally affected, for the creditors of the copartnership can claim no other or higher right than the individual partners. If the latter are precluded, so are the former.

First, It is in evidence that Sturges permitted the trust to continue in Worthington from November, 1854, to July, 1855, without any public denial of the right of the trustee to act — without any appeal to the legal tribunals to set aside the trust, or to enjoin its execution; all this, too, while the trustee had control of assets to the nominal amount of more than a million of dollars, which the interest of both debtors and creditors demanded should be appropriated without delay. to the purpose contemplated by the assignment.

Second, That he has permitted the trustee to settle claims, receive payments of debts due to the partnership, deliver up securities, and aided the trustee to settle and arrange, for the benefit of the creditors, claims assigned by the deed of trust.

Third, That he withdrew from the trustee a portion of the assets assigned, and subsequently restored the value, thereby admitting the right of the trustee to control the partnership property.

Fourth, That during the period embraced within the dates referred to Sturges has compromised a large amount of the debts due by Ellis & Sturges, and claimed a credit for the same with the trustee.

Fifth, That he united with Ellis in a request to "Worthington to relinquish the trust, consented to indemnify him against liability, consequent upon the re-transfer of the assets, allowing the expenses incident to the trust, and,, in effect, receiving from the trustee himself the title under which he claimed the right to make a subsequent assignment to Mr. Perry.

Other facts are in proof tending also to produce the conviction to which we have arrived, that Sturges has ratified the act of his copartner, Ellis, and is, therefore, bound by the assignment made by him to Worthington; but we need not specially refer to them.

We hold, then, that the assignment to Worthington, taken in connection with the subsequent conduct of both partners, created an express trust, in behalf of their creditors, which bound the trustee to perform the several duties it imposed.

We suppose the assent of a party to an act done for his benefit, or which may injuriously even affect him, may always be presumed, if with a full knowledge of the thing done, he permits it to be applied to his benefit, or does not disclaim it; and it will depend upon the nature of such transaction, what must be the degree of evidence to be required to authorize the implication. A man is never permitted to change his position, where it has assumed a positive character, and authorize the belief he intended it should represent what others might even suppose he did, and aver that he did not mislead, nor intend to mislead. He must be unequivocal and decided in his conduct; silence, even, may be equivalent to acquiescence, much more the exhibition of what has been termed “masterly inactivity.”

On this hypothesis the statute of limitations depends for its vindication. He who has the right and does not assert it, is forever rebutted by his delay. It is the foundation, also, of estoppels in pais, which are applied in every case where a party who has once assumed a particular relation, attempts afterward to renounce it. He is never permitted to do so where the rights of others would be affected by his denial. “ Qui tacet, consentiré videtur. Qui potest et debet vetare jubet.” 1 Greenleaf Ev. secs. 196, 197.

Having accepted the trust, the trustee is never permitted afterward to renounce or repudiate the responsibilities of the office. Hill on Trustees, 219, 221; 4 Johns. Ch’y, 136, Shepherd v. McEvers.

But the cestuis que trust, the creditors, may assent to a renunciation of the trustee, and when it is expressly proved, or can be clearly implied from their acts, the trustee is discharged.

It follows, then, that all the creditors of Ellis & Sturges, who are not included within this definition, notwithstanding the re-assignment by Worthington to Sturges, have still a claim upon the txmst property, and can require the trust to be executed for their benefit.

The plaintiff', as well as those whose interests have been consolidated with his, can not, therefore, obtain any preference in the distribution of the trust fund. We must see that the trust is administered for the benefit of all who are entitled to claim it.

Those creditors who have released the trustee, in express terms, must be postponed, to those who have declined to give their assent to his re-assignment; and as we are satisfied the trust still exists, the whole fund in the hands of Worthington, at. the time he declined the trust, is still subject, in equity, to be charged, in the hands of Sturges, as well as of Perry, his assignee.

It must, therefore, be referred to a master, to examine into and report the state of the account between the trustee and the trust property — to ascertain the names of all the creditors of Ellis & Sturges who have not assented to the re-transfer to Sturges. The trustee will be protected, as it is very clear he has been careful of the interests of all confided to his care; and what he has done, has been in the exercise of a sound discretion, as well as perfect good faith. As the court have complete jurisdiction over the subject, they may permit Worthington to execute the trust, or take such other course, by the appointment of some other person in his stead, as it may deem proper. Whenever the report is filed, and the performance by Worthington of his trust shall be approved, he may, with propriety, be released from any future duty as trustee, and, by decree, protected from any liability subsequent to the time he renounced^ the trust. He can not be compelled to relinquish the securities deposited with him by Sturges, at the time he received the trust, until he is released by the creditors, or protected by our decree.

Another branch of this cause is submitted for our decision, which arises upon the answer and cross-bill of the executors of Wm. B. Morton, deceased, the former partner of Ellis, who withdrew from the firm when the partnership of Ellis & Sturges was formed. The peculiar features of this claim make it proper, we think, to require it to be docketed as a separate action under the section 119 of the code. We may thus examine the questions involved without the confusion that must otherwise result from connecting together the various interests in controversy.

The cross-bill contains many allegations, which are denied by the answers of Worthington, Sturges, and Perry. Ellis is in default.

It is claimed by Morton’s executors that they, or the representatives of their estate, have a lien upon the real and personal property belonging to Ellis & Morton, at the dissolution of that firm, for all the partnership debts outstanding and unpaid; that there are large sums still due to the creditors of that firm, which ought, in equity, to be discharged by the assets transferred to Ellis & Sturges.

The tenns upon which that co-partnership was dissolved required that all the debts due by Ellis & Morton should be paid by Ellis & Sturges, who assumed the same, and, it appears, agreed to protect Morton from future liability.

It is now contended that many of these debts are due, and Morton has been compelled to pay several judgments rendered against Ellis & Morton, for which Ellis & Sturges have made no provision; and, therefore, his estate ought to be subrogated to all the right of Ellis, in the assets transferred to Ellis & Sturges, excepting the cash on hand and notes discounted subsequently to the formation of the latter firm.

Eefore the true condition of the partnership, as it was when Morton withdrew, can be ascertained, there must be a reference to a master, and this is required, not only for the benefit of the estate of Morton, as well as of Ellis, but to vindicate the arrangement made between Ellis and Sturges for their subsequent connection in the business.

Very serious charges have been made against Morton by Sturges, the truth of which, in a great measure, depends upon the state of the affairs between Ellis and Morton, when Sturges became a partner. It is now claimed that Morton was guilty of fraudulent misrepresentation, which misled Sturges, and induced him to make the arrangement with Ellis; that the firm of Ellis & Morton was then actually insolvent, instead of each of the partners being entitled to any sum whatever, by way of profit or capital really invested. These allegations demand a full investigation; they should not lightly ba passed over, and we will, therefore, refer them, also, for full examination to the same master.

We are satisfied that all the claims still standing in the name of Ellis & Morton, and which were not assigned to Ellis when Morton withdrew, are subject still to the equities of the several partners and their representatives; but the notes, bills, and cash actually assigned to Ellis by Morton, and which afterward became the property of Ellis & Sturges in good faith, and for a consideration satisfactory to Morton, can not now be reached by the creditors of the former firm. The creditors of a co-partnership have no special lien upon the partnership property; whatever equity is allowed them is to be worked out through the. right of the partners themselves, and it results from this principle, that where the separate partners have lost their lien, none can be saved to the creditor.

This lien maybe lost, as it always is, when the joint property is sold in good faith to a third person, or when one partner retires from the firm, disposing, meanwhile, of his interest to the other partner, or to a third person, with his co-partner’s consent, taking the assumption of his co-partner, or of a third person, to discharge all the firm debts. This rule was settled in ex parte Ruffin, 6 Ves. 125, affirmed in 11 Ves., 5, ex parte Williams, and is the established doctrine of the English courts. It is very fully and clearly explained by Judge Bigelow, in 9 Cushing, 556, recognized in Wilcox et al. v. Kellogg et al., 11 Ohio, 399, and in the late case of Miller v. Estill et al., 5 Ohio St. 508.

Morton’s representatives must rely upon the agreement of Ellis & Sturges to pay the debts of Ellis & Morton, for their ultimate indemnity. We can not aid them when we find their testator had released his lien upon the partnership property by his sale to Sturges.