Offutt v. Scott

47 Ala. 104

• Court: Supreme Court of Alabama
• Decided: January 15, 1872
• Status: Published

Opinion

PECK, C. J.

The first question that seems to arise on this record is, how is the real estate purchased of Knox and wife by Richard H. and William E. Offutt to be regarded? Lid it belong to these parties as individuals, as tenants in common, or did it belong to them as partners, and, therefore, in equity subject to the payment of the partnership debts?

The rule undoubtedly is, that real estate purchased for partnership purposes, and paid for with partnership funds, becomes partnership property, and as far as the creditors of the firm are concerned, and for the payment of their debts, it is, in equity, to be regarded and treated as belonging to the partnership, as assets of the firm. It is immaterial to whom the legal title may be conveyed— whether to the partners by name, as individuals, or to one of them, or to a third person. — Parsons on Partnership, 364.

In the case of Lang’s Heirs v. Waring, 25 Ala. 639, the court say: “After much .vascillation by the English courts, the doctrine may now, perhaps, be considered as settled, that, unless there is something in the articles of copartnership, or some agreement by the parties, real estate purchased with partnership funds, for partnership purposes, is, in a court of equity, converted and treated as personalty, and, therefore, goes to the personal representatives, and not to the heir of the deceased partner”’ They further say, “ While the decisions of American courts generally concur in affirming that such estate is, in equity, chargeable with the debts of the partnership, and with any balance there may be due from one partner to another,.there is much conflict among them as to whether the surplus, in case of the death of a partner, shall descend to the heir, as real estate, or go to the personal representative for distribution.” — See, also, Story on Partnership, § 93.

It is unnecessary for us to resolve the doubt that seems to exist as to what shall be done in such a case with the surplus that may remain after the payment of the partnership debts, whether it shall be regarded as real or personal property. It seems to us, however, that the better opinion, is, that it is to be treated as real property, and .to be disposed of as such.

By looking at the deed of Knox and wife, a copy of which is made an exhibit to the complainant’s bill, we see that this real estate consists of two lots in the city of Montgomery, and was purchased on the 24th of March, in the year 1859, at the price of $30,000, and was conveyed to said Richard H. Offutt and William E. Offutt; but at the time of the purchase said parties were, and for some time before had been partners, doing a grocery and commission business in said city of Montgomery, under the firm name of R. H. & W. E. Offutt; that said partnership continued to the 1st of September, 1860, when it was dissolved by the death of said William E. Offutt; that before this event all the purchase money had been paid except $9,000, and for that sum the said Knox held the note of said firm, which was afterwards paid by the surviving partner, R. H. Offutt.

There is no positive evidence for what purpose this real estate was purchased, or with what funds it was paid for. The "bill states there was a store-house on said premises, which, after the purchase, was occupied by said firm as a business stand; and this is admitted by the answer of the respondents, Charles L. Offutt, L. A. R. Switzer, and the administrator de bonis non, &c., of said "William E. Offutt, deceased, Andrew J. Noble. It seems to us, therefore, the fair inference or presumption is, that this property was purchased for partnership purposes, and, also, that it was paid for out of the partnership funds. If not, why had the note of the firm been given for the $9,000 that remained unpaid at the death of said W. E. Offutt? The said R. H. Offutt, who was examined as a witness, says “ the purchase was made partly for cash and partly on a credit. The last of $9,000 remained unpaid at the time of the death of William E. Offutt, and was subsequently paid to "William Knox, or his order. I do not recollect at what time it was paid. The claim was an ordinary negotiable note, signed by R. H. & W. E. Offutt.” It does not appear that these parties had any property outside of the business of the firm, or that did not belong to the firm.

If this is a correct view of the transaction, as we think it is, then, on the death of the said W. E. Offutt, in equity it vested, with all the other partnership property, in the surviving partner, R. H. Offutt, who thereby became entitled to the exclusive right of possession and management of the same, but only for the purpose, of closing up the partnership business, and paying the partnership debts, &c. In equity, he held the property in trust, first, for the payment of the partnership debts, and then for those who might be entitled to what remained, whether as heirs or personal representatives of the deceased partner, or otherwise. — Parsons on Part. 364, 440.

Was the debt of the complainant upon which he recovered his judgment against the said R. H. Offutt, the debt of said firm of R. H. & W. E. Offutt, or the individual debt of said R. H. Offutt? and if the debt of said firm, had the complainant exhausted his remedy at law against said firm before the filing of this bill?

1st. The bill states that said debt grew out of shipments of bagging, rope and twine, made in Lexington, Kentucky, in the latter part of April and the early part of May, 1860, which were consigned to said firm, in Montgomery, Alabama, to be sold on account of the shippers; that one R. B. Hamilton made one of said shipments, and that the other shipments were made by complainant.

The evidence, however, shows they were all made in the name of the complainant, but that said Hamilton had some interest therein, which was afterwards assigned to complainant.

These shipments, if they were received by said firm before the death of said W. E. Offutt, whether sold in whole or in part, or remaining on hand at the time of his death, constituted a legitimate part of the business of said firm, and, therefore, for the purpose of winding up the business of the firm, might be sold by the said R. H. Offutt, as surviving partner, and when sold the claim of the complainant on account thereof was properly against the said firm, and not against the survivor as an individual; and being a claim against the firm, it was the duty of the survivor to render an account of the same to the complainant, and after deducting the usual commissions, or such as might have been agreed upon between the parties, to have paid the remainder to the complainant. A surviving partner, in winding up the business of the firm, is a trustee for all persons interested in the partnership, for the creditors of the firm, for the representatives of the deceased partner, and for himself; and his trust being to wind up the concern, his powers are commensurate with the trust, and, generally, whatever he may do in that behalf is valid, if honestly done, and within the fair scope and purpose of the trust. If there be negligence, delay, misconduct, or gross mistake, equity will interpose to give the proper relief. — Parsons on Part. 410-413.

In the absence of satisfactory evidence to the contrary, it is to be presumed these shipments were received within the time then required to transport such goods from Lexington, Ky., to Montgomery, Ala., in the usual course of trade and of commercial intercourse between these places; that is, within a reasonable time. The said R. H. Offutt, in his deposition, says they were received in the fall; but we think it manifest he uses the word “fall” in a very loose manner, and without the intention to convey the meaning that they were, in fact, received after the death of his brother, the said W. E. Offutt, which happened early in September, 1860, after said shipments were made. In speaking of the dissolution of said firm by the death of said W. E. Offutt, and when it ceased to do business, he ssys it was dissolved by the death of "William E. Offutt, that it ceased to do business in the fall of 1860; and speaking of the shipment of said goods, he says, “ I recollect the shipment to said firm by said plaintiff; the shipment was received in the fall of 1860.” This evidence certainly does not prove the said goods were received after the dissolution of said firm by the death of W. E. Offutt. The time between the date of the last shipment, the 8th day of May, and the death of said W. E. Offutt, if it happened on the 1st day of September, thereafter, is 114 days. It seems to us unreasonable to believe, on such evidence, knowing, as we do, the facilities of transportation between the two places at that time, that 114 days elapsed between the shipment of said goods and their arrival at Montgomery. We think it far more reasonable to believe they reached their place of destination before the expiration of half that time; therefore, we feel constrained to believe, and hold, that said goods were received by said firm before the death of W. E. Offutt, and that the complainant’s debt, arising out of their sale, whether made before or after the dissolution of the firm, must be regarded as the debt of said firm, and, therefore, should be paid out of the assets of the firm.

The character of this indebtedness was not changed, nor the liability of the firm to pay the same was not released, by the settlement that was had between the said R. H, Offutt, as surviving partner, the said Hamilton and the complainant, in New Orleans, in February, 1866. The said Hamilton, in his deposition, expressly states that such was not the intention of himself or of the complainant, and the inference is that such was not the intention of said R. H. Offutt, as he then renewed the note that had been given to the complainant on the first day of January, 1861,'for $1,045 94, in the name of the firm, on account, in part, of said goods, and then, or shortly afterwards, rendered to complainant an account of sales, showing the firm was indebted in the further sum of $2,347 20'.

2d. Had the complainant exhausted his remedy at law against the firm before the filing of this bill? His only remedy at law against the firm was by suit against the surviving partner. — Parsons on Part. 447; Murray v. Mumford, 6 Cowen, 441; 1 Ch. Pl. 50. Such suit had been brought, judgment recovered, and an execution on said judgment returned by the sheriff, “ no property found.” This was the end of his remedy at law against the firm, and it had proved unavailing. The only remedy left was in equity, to subject this real estate to the payment of his judgment. Equity, notwithstanding the form of the conveyance, regards it as the property of the firm, and equity only ean appropriate it to the payment of the debts of the firm.

On the part of the respondents, Charles L. Offutt, L. A. R. Switzer, and the administrator de bonis non, &c., it is objected, that said suit was brought and the judgment rendered against said R. H. Offutt, not in his character of surviving partner, but as R. H. Offutt individually, and that, therefore, said judgment did not in any way affect the partnership or the partnership property; and as to said respondents, it proved nothing, except its own existence as a judgment against R. H. Offutt, but did not prove the complainant had exhausted his remedy at law against said firm. This objection can not prevail. On the death of said W. E. Offutt, the complainant’s only remedy at law against the firm was by suit against the surviving partner. Such a suit may properly be brought against the surviving partner, without any reference to the partnership, or that the defendant is sued as surviving partner, ( Goelet v. McKinstry, 1 Johns. Cases, 405; 1 Ch. Pl. 50;) and an execution issued on a judgment so recovered may be levied, not only on tbe individual property of tbe defendant, but also on tbe personal property of the firm; consequently, tbe complainant’s judgment in this case, and tbe return of tbe execution issued on it “no property found,” not only proved tbe complainant bad exhausted bis remedy at law against the firm, but that tbe surviving partner himself was insolvent. Neither can tbe objection of tbe statutes of non-claim and of bmitations, interposed by said respondents, be sustained. Tbe object of tbe complainant’s bill in this behalf is not to obtain a personal decree, or to enforce a liability against tbe personal representative of tbe deceased partner, but to enforce tbe trust alleged to exist in favor of tbe complainant, as a creditor of tbe said firm, against tbe real estate of tbe partnership, bis remedy at law against tbe firm having been exhausted.

This real estate being a trust fund for tbe payment of tbe debts of the firm, and tbe complainant a creditor of tbe firm, with bis remedy at law exhausted, equity will decree tbe payment of bis debt out of said real estate, whether it be in tbe possession of tbe surviving partner, or in tbe possession of tbe personal representative or tbe heirs of the deceased partner. Until tbe debts of tbe firm are satisfied, neither the personal representative nor tbe heirs of the deceased partner have any beneficial interest in tbe real estate of tbe partnership; but after they are paid, what is left becomes tbe property of tbe surviving partner, and the personal representatives or heirs of tbe deceased partner discharged of tbe trust. — Parsons on Part. 372, 441, and note p.

Tbe respondent Bay, in bis answer, claims that as to tbe half interest of tbe surviving partner, R. H. Offutt, in said real estate, be is a bona fide purchaser for valuable consideration, without notice, and therefore entitled to bold it against tbe equity of tbe complainant, as a creditor of tbe firm. This, on tbe bearing, was conceded by tbe complainant’s counsel, and they admitted that, as to said half interest, tbe complainant was entitled to no relief.

Tbe bill, as to said respondent, was therefore properly dismissed. As to the remaining half interest, that is, the interest of the estate of the deceased partner, we see no reason why it should not be subjected to the payment of the complainant’s debt. The fact that it had passed into the possession of the deceased partner’s administrator, with the permission of the surviving partner, and that ho and the respondent, R. H. Offutt, as heirs of the said W. E. Offutt, had assigned them interest in the same to the respondents, Charles L. Offutt and A. L. R. Switzer, who are also hems of said W. E. Offutt, and that a partition had been made between said respondent Ray and said Charles L. Offutt and A. L. R. Switzer, and said administrator, it seems to us, can not defeat the complainant’s equity as a creditor of the firm. As far as appears, the said assignment was a mere voluntary assignment, without consideration, and as the surviving partner, from whom the said administrator obtained the possession, held it as a trustee for the creditors of the firm, his possession can stand upon no better equity than the possession of the person from whom he received it, without paying anything for it. It still remains trust property, and equity will appropriate it to the purposes of the trust.

As to the alleged variance between the statements of the bill and the proof, it seems to us said variance is insufficient to prevent a decree in favor of the complainant. It could hardly have operated as a surprise to the respondents, and we do not see how they are prejudiced or injured by it, and if not suprised or injured by it, then it should be regarded as an immaterial variance. — Lock’s Executor v. Palmer, 26 Ala. 312; Chapman v. Hamilton, 19 Ala. 121.

The chancellor decreed that the complainant was entitled to relief, out of the half interest of said real estate not conveyed to said respondent Ray, to the extent of one half of the amount of the partnership assets of $9,000 used by said R. H. Offutt, after the death of said W. E. Offutt, in payment for said real estate, and interest thereon, from the time the administrator, respondent Noble, commenced receiving the rents and profits of the same. The reasons of the chancellor for limiting his decree by the amount of ilie assets of the firm paid for said real estate, after the death of said W. E. Offutt, and subjecting the interest of the estate of the deceased partner in the same to one half tof that amount only, with interest thereon from the time the administrator commenced receiving the rents and profits •on said real estate, are not stated in the opinion; whatever iis reasons may have been, it seems to us there is no error in the decree on that account of which the appellants can complain. The complainant certainly gets no more by it ■than he is entitled to.

The decree is affirmed, at the costs of the appellants.