Buchan v. Sumner

2 Barb. Ch. 165 | New York Court of Chancery | 1847

The Chancellor.

Previous to the revised statutes, a judgment in a court of record, in this state, was a lien upon the lands of the judgment debtor from the time of the entry of such judgment; whether docketed or not. But, by the statute then in force, if the judgment was not properly docketed, it did not affect the lands of the judgment debtor, as against subsequent purchasers or mortgagees. (1 R. L. of 1813, p. 501, § 3.) Even as to them, however, the undocketed judgment was entitled to priority, in equity, if the purchaser, or mortgagee, had notice of its existence at the time of his purchase, or when he took his mortgage. (Davis v. The Earl of Strathmore, 16 Ves. Rep. 420.) That statute made no provision for priority in favor of the lien of subsequent judgment creditors. The first judgment although not docketed, was therefore entitled to a preference, over the lien of a junior judgment, which had been docketed as directed by the statute. But if the land of the debtor bad been sold, by the sheriff, under an execution upon the junior judgment, to a purchaser who was ignorant of the existence of the prior undocketed judgment, such purchaser took the land discharged of the lien of the undocketed judgment.

The revised statutes, however, have made a very material alteration in the law relative to the liens of judgments. For-the 12th section of the title in relation to judgments, (2 R. S. 360,) declares that no judgment shall affect any lands, tenements, real estate, or chattels real, or have any preference as against other judgment creditors, until the record thereof shall be filed and docketed, as therein directed. The effect of this provision of the revised statutes appears to be, to prevent the common law lien of the judgment from attaching at all upon the real estate of the judgment debtor until the judgment has been docketed; and not merely to protect bona fide purchasers and incumbrancers, who had no notice of the existence of the judgment when their interests in, or liens upon, the real estate of the judgment debtor accrued. The provisions of the act of the 14th of May, 1840, on this subject, are also in accordance with this construction of the revised statutes. For the 25th section of that act-declares, that no judgment, or decree, which shall be entered after that act takes effect, shall be a lien upon real estate, unless the same shall be docketed, in books to be provided for that purpose, by the county clerk of the county where the lands are situate.

This court may enforce an equitable lien, either upon a legal or an equitable estate in lands. And where the common law, or a statute, creates a lien upon a legal interest in land, this court, by analogy, sometimes declares and enforces a similar lien upon an equitable estate. But where the lien is created by statute, and the lien itself, as well as the estate against which it is sought to be enforced, is purely legal, this court is not authorized to extend the lien to cases not provided for by the statute. Judge Lane, in delivering the opinion of the supreme court of Ohio, in the case of Douglas v. Huston, (6 Ohio Rep. 162,) says, the existence, validity, and extent of a judgment lien, in that state, are matters purely legal, dependent upon statutory provisions; and that if the lien fails at law, it cannot be aided in equity. And in Mower v. Kipp, (6 Paige, 88,) this court decided that it could give effect to the lien of a judgment, as against subsequent purchasers and incumbrancers, upon a legal title, only so far as the lien could have been enforced by execution at law.

The fact that the error in the docketing of the respondent’s judgment, in the office of the clerk of the city and county of New-York, was the error of the clerk, and not the error of the judgment creditor, or of his attorney, does not therefore authorize this court to interfere to deprive another judgment creditor of his legal priority; if he has obtained one by such error of the clerk. The case of Landon v. Ferguson, (3 Russ. Ch. Rep. 349,) was similar to the case now under consideration, in this respect. There the judgments had been carried into the proper-office to be docketed, but from some mistake of the officer the dockets were not completed. The judgment creditors claimed a preference, over other creditors of the decedent, in the distribution of his estate upon a creditor’s bill. But as the judgments had not in fact been docketed, Lord Gifford decided that the holders of the judgments were not, even in equity, entitled to a priority. (See also Braithwaite v. Watts, 2 Cromp. & Jerv. Rep. 318.)

Upon an examination of the statute, I think the counsel for the appellant is also right in supposing that the respondent’s judgment was not duly docketed; so as to entitle it to a priority upon thát ground. The revised statutes direct the clerk of the court in which the judgment is recovered, upon the filing of the record, to docket the judgment. And they also prescribe the particular manner in which it is to be done. The clerk is to enter, in an alphabetical docket, in the books to be kept for that purpose, a statement, containing the names at length of all the parties to the judgment, the amoimt of the debt, or damages-, with the costs, and the hour and day of entering such docket. And if the judgment is against several persons, such statement must be repeated under the name of each person against "whom the judgment was recovered, in the alphabetical order of their na/mes respectively. (2 R. S. 361, § 13.) The act of May 14th, 1840, requires the clerk of the county where the lands are situate, upon the filing of the transcript in his office, to docket the judgment in the manner prescribed, by law. And, in addition to the requirements of the revised statutes on that subject, the county clerk must specify the court in which the judgment mentioned in such transcript was recovered, and the day and hour on which the judgment was perfected; as well as the time of the docketing of the judgment by him. (Laws of 1840, p. 334, § 26.) The statute does not declare, in express terms, that the judgment shall be entered, in the alphabetical docket, under the letter corresponding with the surname of the judgment debtor. But such has been the practical construction which has been given to the statutes on this subject for more than a century; and it is the only mode in which a judgment can be docketed so as to enable a subsequent purchaser, or incumbrancer, by a search in the clerk’s office, to ascertain whether there is an existing lien, by judgment, upon the real estate of the judgment debtor. In the present case, therefore, the docketing of Naylor’s judgment under the letter P, which was the initial letter of the Christian name instead of the surname of Palmer Sumner, the judgment debtor, was not even a substantial compliance with the requirements of the statute.

The rights of the parties to the surplus moneys in controversy, were in no wise affected by the order of the superior court, to amend the docket of the respondent’s judgment nunc pro tunc. Before that order was made, the mortgaged premises had been sold and conveyed by the master; and the surplus moneys had been brought into this court. So that if the superior court had the power, under the act of April, 1844, (Laws of 1844, p. 92, § 7,) to order a judgment to be docketed nunc, pro tunc, so as to give it a priority, as a lien upon real estate, over an intermediate judgment, it could not give a lien upon real estate which had been sold and conveyed, under a decree upon a prior incumbrance, long before that order was made. Besides, the order itself, in substance, provides that the docketing of Naylor’s judgment, nunc pro tunc, shall not prejudice the rights of those whose judgments had been duly docketed subsequent to the recovery of his judgment, and before the entry of that order.

The other ground, however, upon which the counsel for the respondent base his claim to an equitable priority, in reference to the surplus proceeds of the mortgaged premises in this case, appears to be sufficient to sustain the order appealed from. It is a settled principle of the law of partnership, that the partnership effects are to be applied in the first place to the payment of the debts of the firm, and to equalize the claims of the different copartners in relation to the fund. In other words, the separate estate or interest of a copartner in any of the co-partnership property, is only his share, of that part of the copartnership effects, or of the proceeds thereof, which remains, after •the debts of the firm, and the demands of his copartners, as such, are satisfied. And if one of the copartners has paid more than his share of the partnership debts, he has a claim upon the partnership property, which claim in equity is paramount to the claims of the separate creditors of his copartner. (Taylor v. Fields, 4 Ves. 396. Ex parte King, 17 Idem, 115. Christian v. Ellis, 1 Grat. Rep. 396. Nicholl v. Mumford, 4 John. Ch. Rep. 522.) In the cases Smith v. Haviland & Field, and of Deveau v. Fowler, (2 Paige’s Rep. 400,) this court held that an assignment, by one of the partners, or by his personal representatives, of his or their interest in the surplus, was not a relinquishment of the equitable claim to have the debts of the firm paid out of the copartnership funds, where the rights of bona fide purchasers were not involved.

In reference to real property, conveyed to the partners for the benefit and use of the firm, or received in payment of debts due to the copartnership, it is perfectly well settled, both here and in England, that the legal title vests in the grantees thereof, as in an ordinary conveyance of real estate. Thus at the common law, if land was purchased with copartnership funds, for partnership purposes, and was conveyed to all the partners, generally, 'in fee, it would at law create a joint tenancy; so that neither could convey any more than his share of the land during the lives of his copartners. And upon the death of either of the partners,-without having severed the joint tenancy by a conveyance, the legal title to the whole of the land would survive to the other copartners. But under the statutes of this state relative to joint tenancies,.the several copartners, to whom such a conveyance was made, would become tenants in common of the legal title. And upon the death of either, the undivided portion of the legal -title thus vested in the deceased partner, would descend to his heirs at law; without reference to the equitable rights of the several copartners in the land as a part of the property of the firm. The law is the same in England where the conveyance is made to the several copartners ps tenants in common.; or where there is any thing, upon the face of the deed, showing that it was not intended to create a joint tenancy, but only a tenancy in common in the property. And I believe it is -not disputed any where, that a bona fide purchaser, or mortgagee, who obtains the legal title to partnership lands, or to an undivided portion thereof, from the person who holds such legal title, and without notice of the equitable rights of others in the property as a part of the funds of the co-partnership, is entitled to protection in courts of equity as well as in courts of law. But questions have frequently arisen, both in this country and in England, concerning the equitable rights of the copartners, or .their representatives, in such property, .as between themselves; and also as between the heirs at law and the personal representatives of a deceased copartner.

Where real estate is purchased with partnership funds, for the use of the firm, and without any intention of withdrawing the funds from the firm for the use of all or any of the members thereof as individuals, I believe it has never been doubted in England, that such real estate was, in equity, to be considered and treated as the property of the members of the firm collectively; and as liable to all the equitable rights of the partners as between themselves. And for this purpose the holders of the legal title are considered, in equity, as the mere trustees of those who are beneficially interested in the fund; not only during the existence of the copartnership, but also upon the dissolution thereof by the death of some of the copartners or otherwise. (Lake v. Craddock, 3 Peere Wms. 158. Smith v. Smith, 5 Ves. 189. Watson on Part. 72. Gow on Part. 48, 288. Story on Part. 128, § 93. 1 Story's Eq. §674.)

Another question has arisen, in relation to real estate as co-partnership property, respecting which there has been a great conflict of opinion in England. That question is, whether real estate of a copartnership, upon the death of one of the copartners, and after the debts have been paid and the equities adjusted between the several members of the firm, belongs, in equity, to the executor or administrator of the decedent, as a part of his personal property; or whether the beneficial interest, as well as the legal title, in the decedent’s share of such real estate, descends to the heirs at law. In the case of Thornton v. Dixon, (3 Bro. Ch. Ca. 199,) Lord Thurlow, upon the first argument, inclined to think the interest of the deceased partner must, in equity, be considered as a part of his personal property; and that it should go to his personal representatives. But upon a second argument, he changed his opinion, and decided that, in the absence of any agreement that the land should be converted into personalty at the termination of the partnership, it belonged to the heir, as real estate. That decision was followed by Sir William Grant in Bell v. Phyn, (7 Ves. 453,) and in Balmain v. Shore, (9 Idem, 500.) But these decisions were subsequently overruled by Lord Eldon in Townsend v. Devaynes, (Mont. on Part. App. 97.) And it may now be considered as the general rule in England, that real estate belonging to the firm, unless there is something in the partnership articles to give it a different direction, is to be considered, in equity, as personal property; and that if goes to the personal representative of the deceased partner who was beneficially interested therein. (Selkrigg v. Davies, 2 Dow’s P. C. 231. Phillips v. Phillips, 1 Myl. & Keen, 649. Broom v. Broom, 3 Idem, 443. Houghton v. Houghton, 11 Sim. Rep. 491. Morris v. Kearsley, 2 Young & Coll. Rep. 139.) In a very recent case, however, Lord Langdale appears to have departed from this general rule, where the copartners, after the termination of the copartnership, continued to treat the property, which had been purchased by the firm, as real estate, by renting it to a new firm. He there held, that upon the death of one of the members of the old firm, his beneficial interest in the real estate, as such copartner, was, in equity, to be considered as real estate; and that it belonged to his heir at law (Rowley v. Adams, 7 Beav. Ch. Rep. 548. See also Randall v. Randall, 7 Sim. Rep. 271.) And in a still later case, the court of common pleas, in England, decided that real estate conveyed to trustees for the use of a copartnership, was to be considered as giving the several members of the firm an equitable freehold therein, to the extent of their respective shares in the copartnership stock, so as tp entitle them to vote as freeholders ; although the trust deed declared, in express terms, that the lands conveyed thereby should be considered in the nature of personal, and not as real estate. (Baxter v. Newman, 1 Lutw. Regist. Cas. 287.) But in that case, Chief Justice Tindall, who delivered the opinion of the court, distinctly recognizes the principle that a court of equity will deal with real property as if it was personalty, so far as is necessary to carry the intention of the copartners into execution.

The American decisions in relation to real estate purchased with partnership funds, or for the use of the firm, are various, and conflicting. But I think they may generally be considered as establishing these two principles: First, that such real estate is, in equity, chargeable with the debts of the copartnership, and with any balance which may be due from one copartner to another upon the winding up of the affairs of the firm. Secondly, that, as between the personal representatives and the heirs at law of a deceased partner, his share of the surplus of the real estate of the copartnership, which remains after paying the debts of the copartnership, and adjusting all the equitable claims of the different members of the firm as between themselves, is considered and treated as real estate.

In Smith v. Jones, (3 Fairf. Rep. 337,) Judge Emery recognizes the principle that real estate, purchased with copartnership funds, is in equity to be treated as part of the effects of the firm. In a subsequent case, Blake v. Nulter, (1 Apple. Rep. 19,) Weston, C. J. doubted whether this principle was not to be controlled, in the state of Maine, by statute. But in Dudley v. Littlefield, (8 Shep. Rep. 422,) it was held that there might be a copartnership in the purchase and sale of real estate; although different rules prevailed in that case, in relation to the transfer of the title, from those which were applicable to personal property owned by the firm.

In Pitts v. Waugh, (4 Mass. Rep. 424,) the supreme court of Massachusetts decided that a man could not be charged as a dormant partner in a firm for the buying and selling of land; and that the law merchant did not extend to such a case. In the subsequent case of Goodwin v. Richardson, (11 Idem, 469,) the same court decided that where lands were mortgaged to a mercantile firm, for the security of a debt, and the copartners afterwards entered for non-payment, so that the equity of redemption was extinguished according to the law of that state, the moiety of the land, upon the death of one of the copartners, descended to his heirs at law; and that the surviving partner had no claim to payment out of the proceeds of that moiety of the land, in preference to the individual creditors of the deceased partner. But the decision in that case may have been controlled by a local statute giving the creditors of the copartnership the same rights against the separate property of the decedent as his individual creditors had.

The case of Hoxie v. Carr, (1 Sum. Rep. 104,) arose in the state of Rhode Island, and came before the late Mr. Justice Story, in the circuit court of the United States, upon a bill in equity. And his honor decided that real estate of the copartnership, purchased with partnership funds, was in equity to be deemed the property of the partnership, without reference to the legal title, whether vested in all or any of the members of the firm; and that it must be considered and treated as personal estate, as regarded the payment of the partnership debts, and the adjustment of partnership rights, upon the winding up of the concern. He also said, in that case, that Goodwin v. Richardson, in the state of Massachusetts, turned upon a mere point of local law, under a local statute, and did not dispose of the equities between the parties resulting from general principles. He held, therefore, that the equitable lien of one of the partners, upon the real estate, for the adjustment of the balance due to him from the firm, and for the payment of the copartnership debts, was entitled to a preference over the legal title which the defendant had acquired, from the other copartner, with notice of such equitable lien. And the decision in the case of Sigourney v. Munn, in the adjoining state of Connecticut, (7 Conn. Rep. 11,) is in accordance with the principles stated by Judge Story in the case last referred to.

The case of Coles v. Coles, (15 John. Rep. 159,) in the supreme court of this state, appears from the marginal note, to be in conflict with this principle; but upon examining the report itself, it will be seen that there was nothing in that case to show when the property was purchased, or that it was purchased with partnership funds. All that appeared was that the partnership business had been carried on there, and that the two individuals composing the firm sold the premises, and the defendant received the whole of the proceeds of the sale, after paying off the incumbrance upon the lot. The court very properly considered it as real estate, held by the two copartners as tenants in common, and not as a part of the partnership .property; and allowed the plaintiff to recover the one half of the surplus proceeds of the sale, in an action for money had and received for the use of the intestate. In Smith v. Jackson, (2 Edw. Ch. Rep. 28,) where real estate had been purchased with the funds of a copartnership which had become insolvent, the late vice chancellor McCoun decreed the surplus proceeds of the property, on the foreclosure of a mortgage thereon, to be paid to the creditors of the firm; as a part of the copartnership property.

In the case of Smith v. Wood, (Saxt. Rep. 76,) the chancellor of New-Jersey decided that where property had been purchased with the copartnership funds, but had been treated by the members of the firm as real estate, for a long time after the dissolution of the copartnership, and each of them had sold his undivided half of the land separately, and where the rights of creditors of the firm were not concerned, that the proceeds of the sale must be considered as the proceeds of real estate, held by the copartners merely as tenants in common." But he intentionally declined to express any opinion upon the question as to how the real estate, in that case, might have been considered in equity, as between the partners themselves, during the existence of the copartnership; or afterwards, as between the partners and creditors. In the subsequent case of Baldwin v. Johnson, (Idem, 441,) that court recognized and acted upon the principle that real estate purchased with partnership funds is, in equity, the property of the partnership, although the legal title is taken in the name of one of the members of the firm only.

In McDermot v. Lawrence, (7 Serg. & Rawle’s Rep. 438,) where land was leased in fee to the members of a copartnership, and buildings erected thereon by them out of the partnership funds, and where one of the lessees, some years after the dissolution of the partnership, and after the premises had ceased to be used for partnership purposes, mortgaged his third of the premises to a bona fide mortgagee, who had no notice of the equities claimed by the other partners, the supreme court of Pennsylvania decided that, as between the mortgagee and partnership creditors, the mortgaged premises were to be considered as real estate; and that the mortgagee was entitled to priority in payment out of the proceeds of the undivided third mortgaged to him. There is nothing in this decision inconsistent with the settled • rule of equity in England on the subject of the real estate belonging to a copartnership. For it is admitted that a bona fide purchaser, or mortgagee, who obtains the legal title to the property without notice of the equitable claims of other members of the firm, is entitled to protection. But in a more recent case, the supreme court of Pennsylvania has gone much further. For in Hale v. Henrie, (2 Watts’ Rep. 144,) that court decided that it was not competent to show by parol, to affect the title or possession, that land deeded to two persons as ten ■ants in common, was purchased and paid for by them as part ners, and was, in fact, partnership property; but that when partners intended to bring real estate into a partnership stock, their intention must be manifested by deed, or writing, placed on record.

In Forde v. Herron, (4 Munf. Rep. 316,) the court of appeals in Virginia recognized the principle that real estate, purchased with the funds of a copartnership, might in equity be liable, to the equitable liens of the individual partners, in preference to the separate debts of those partners in whom the legal title was vested. But they held that a bona fide mortgagee was protect- . ed, under the circumstances of that case. That court again recognized the principle in Deloney v. Hutcheson, (2 Rand. Rep. 183.) But a majority of the judges thought there was nothing to show that the property in question was purchased with the funds of the firm, or as partnership property. .There is nothing in either of those decisions, therefore, which is inconsistent with the decision in a previous case, of Edgar v. Donnally, (2 Munf. Rep. 387.)

In the case of Baird v. Baird, (1 Dev. & Bat. Eq. Ca. 524,) the supreme court of North Carolina decided that lands purchased with partnership funds, belonged' to the copartnership; and could not be partitioned, until the accounts of the copartners were taken, and the interest of each partner therein ascertained. And in the case of Richardson v. Wyatt, (2 Dess. Eq. Rep. 471,) the court of chancery in South Carolina decided that real property, thus purchased, belonged to the firm; and the widow of a copartner who had died, largely indebted to the fa was not entitled to dower in his legal estate in such property. And in Winslow v. Chiffelle, (Harp. Eq. Rep. 25,) the court of appeals in that state held that the real estate of the partnership was chargeable with the debts of the firm, in preference to the separate debts of individual members.

In McAllister v. Montgomery, (3 Hay. Rep. 94,) the court of errors and appeals, in Tennessee, decided that under the statute of that state, relative to joint tenancies for the purpose of trade and commerce, real property belonging to the copartnership went to the surviving partner, for the purpose of paying the debts of the firm; and that the heirs at law of the deceased partner were entitled to the residue of his share, after the partnership concerns were adjusted, and the debts of the firm paid. And in a recent case the present supreme court of that state decided that real estate, purchased by a partnership for the use, or on account of the firm, was in equity to be deemed partnership property; no matter in whose name the purchase was made, or whether the legal title was in one or all of the copartners. (Hunt v. Benson, 2 Humph. Rep. 459.) It was also held in that case, that if the property was paid for with the funds of the firm, it was prima, facie evidence, and decisive in the absence of countervailing circumstances, that it was intended to be held as partnership property.

In Greene v. The Surviving Partners of Greene & Co., (1 Ham. Ohio Rep. 535,) the articles of copartnership provided rhat, upon the dissolution of the firm, the property of the concern should be sold, and the proceeds applied in the first place to the payment of the debts due from the partnership. And the supreme court of Ohio decided, in that case, that the real estate of the firm, although the legal title thereof was in all the copartners, as-tenants in common, was subject to the equitable liens of the individual partners for the adjustment of the affairs of the firm. And one of the partners having died indebted to the firm, in an amount greater than the value of his share, it was held that his widow was not entitled to dower in the property. The case of Greene v. Graham, (5 Idem, 264,) is not in conflict with that decision. For it was only decided, in the latter case, that a person cláiming under a sale made by the representative of the deceased partner, was prima facie entitled to partition; in the absence of all proof that the one half-of the property did not in equity belong to the deceased partner.

In the case of the heirs of Pugh v. Currie, (5 Alab. Rep. N. S. 446,) one of the members of the firm purchased real estate with the copartnership funds, with the intention of improving and selling such lands for the use and benefit of the firm. He afterwards died insolvent, leaving the firm deeply indebted. Upon that state of facts the supreme court of Alabama decided that,- in equity, the land belonged to the firm; and that the heirs at law of such deceased partner held the title in trust for the surviving partners, to pay the debts of the firm. So in Woolridge v. Wilkin, (3 How. Miss. Rep. 360,) the court of appeals of Mississippi held, that lands purchased with partnership funds, and which had been subsequently sold to pay partnership debts, were in equity a part of the joint stock of the firm, and that the widow of one of the partners, who did not join in the conveyance, and whose husband died subsequent' to the sale, was not entitled to dower in the undivided share of the premises of which her husband once held the legal title, as a tenant in common with his copartners. And in the case of Thayer v. Lane, (Walk. Ch. Rep. 200,) Chancellor Manning, of Michigan, decided that, as between the partners themselves, real estate purchased with partnership funds was in equity partnership property, and that as between them it should be divided as such, upon the dissolution of the firm; unless, at the time of-the purchase, it was understood to be an individual and not a partnership transaction.

Although a court of equity considers and treats real property as a part of the stock of the firm, it leaves the legal title undisturbed, except so far as is necessary to protect the- equitable rights of the several members of the firm therein. And in- the present case, Sumner was the owner of the one half of the mortgaged premises, subject to the equitable lien of his copartner thereon, for one half of the debts which the latter was obliged -to pay, subsequent to the dissolution of the- firm ; the personal property of the copartnership ha.ving been disposed of at the time of such dissolution. That prior equitable lien, however, was paramount to the subsequent legal lien of the appellant, by virtue of his judgment. For the separate creditors of the individual partners have no equitable right, to any part of the partnership property, until the debts of the firm are provided for, and the rights of the partners as between themselves fully protected. (Nicholl v. Mumford, 4 John. Ch. Rep. 522. Christian v. Ellis, 1 Gratt. 396. Cammack v. Johnson, 1 Green’s Ch. Rep. 163. Pierce v. Tierman, 10 Gill & John. 253.)

The lien which the appellant, in this case, had obtained, upon the legal title of his "judgment debtor, in one half of the equity of redemption in the mortgaged premises, by the prior docketing of his judgment, must therefore yield to the superior as well as prior equitable claim of Naylor, upon the same equity of redemption as partnership property. For the general lien of a judgment creditor, upon the lands of his debtor, is subject to all equities which existed against such lands, in favor of third persons, at the time of the recovery of the judgment. And the court of chancery will so control the legal lien, of the judgment creditor, as to restrict it to the actual interest of the judgment debtor in the property; so as fully to protect the rights of those who have a prior equitable interest in such property, or in the proceeds thereof. (White v. Carpenter, 2 Paige’s Rep. 217. Kierstead v. Avery, 4 Idem, 9. Matter of Howe, 1 Idem, 125.)

The respondent, therefore, is entitled to the whole surplus proceeds which are in litigation here. And the decretal order of the vice chancellor must be affirmed with costs.