80 Md. 371 | Md. | 1895
delivered the opinion of the Court.
In October, 1893, George W. S. Hoffman, W. E. Hoffman and John W. Hoffman, partners, trading under the firm name of W. H. Hoffman & Sons, executed a deed of trust, in which their wives joined, to John B. Ramsay and Simon P. Schott, by which they conveyed all their property, “ including all of the joint stock of the copartnership and all of the separate estate of each of the partners in trust, for the payment of partnership and individual creditors, according to their respective rights and interest therein.”
The Circuit Court of Baltimore City assumed jurisdiction of the trust, and after the sale of the property, which will be more particularly hereafter referred to, an audit was made distributing the proceeds of sales, etc. The appellant held, at the time of the assignment, two notes of the firm, each being for the sum of five thousand dollars, and endorsed by George W. S. Hoffman and J. W. Hoffman, individually. With each note there were deposited bonds of the Gunpowder Valley R. R. Co., of the par value of $7,500.00, as collateral security, with the usual authority to the bank to sell at public or private sale, in case of default. The appellant filed its claim for the amount of the notes, together with costs of protests, against the estates of the firm and of the individual endorsers. The National Mechanics’ Bank of Baltimore excepted to the allowance by the Auditor of the claim of appellant, because it had not credited the value of the collateral security held by it, and the appellant excepted to the audit for the reason, as it alleges, that the real estate held and owned by the three members of the firm was their individual property, and not partnership assets.
The principal questions presented for our consideration, are:
ist. Is the appellant entitled to a distribution on its whole claim, without crediting the value of the securities held by it as collateral ?
2nd. Is the real estate held by the members of this firm to be treated as partnership or individual property, so far as the appellant is concerned ?
If the appellant had sold the securities held by it between ' the dates of the assignment and the distribution, there could be no question about the right of the trustees or the creditors to require it to credit its claim with the net proceeds of such sale. The case of Third National Bank v. Lanahan, trustee, 66 Md. 461, has established that as the law of this State, whatever may be the effect of the decisions elsewhere, cited by the appellant, and it is a just and equitable rule. Such being the case, would there be any equity in permitting the appellant to receive a dividend on its whole claim, simply because it saw proper to delay realizing on its securities until after distribution was made ? We think not. The creditor who holds collateral securities ..for his claim, has the advantage over other creditors to the extent of their value, or what he may realize upon them, but he should not be permitted to have in addition thereto, what in many cases might be equivalent to double dividends or even more. If, for example, the collaterals realized fifty per centum of the creditor’s claim, and the .debtor’s estate would only pay fifty cents on the dollar, the creditor with the security would be paid in full, whilst the others would receive only one-half of their claims. Great inconvenience and cost would oftentimes follow the practice
The value of the securities thus held should be ascertained and credited on the claim before distribution is made. That can be easily done by relevant testimony, taken under authority of the Court, when no sale has taken place. This •was the practice in bankruptcy proceedings, and is not without precedent in other Courts. See In re Bridgman, 1 B. R. 312; Amory v. Francis, 16 Mass. 308; Farnum v. Boutelle, 13 Metc. 159; First National Bank v. Eastern
In considering the question as to' the right of the appellant to have the real estate treated as the individual property of the members of the firm, and not as partnership assets, we must bear in mind the fact that W. H. Hoffman was the original owner of all this property, and that whilst it .was thus owned by him he was in partnership with his three sons, trading under the name of William H. Hoffman & Sons, being the style of the firm subsequently adopted by. them. If a deed of trust, similar to the one made by the sons, had been made in the lifetime of the father, by the members of the original firm, it would hardly be contended that the real estate should be treated as partnership property — certainly not as against the individual creditors of William H. Hoffman. By his last will and testament the senior Hoffman charged an annuity upon the “ Gunpowder Mill ” property, for the purpose of keeping a burying ground, etc., in proper condition, and made certain provisions for his wife. He directed his executors to ascertain the value of the rest of his property and gave it, with the exception of one-twentieth thereof left to Peter Vondersmith, his son-in-law, to his three sons and his daughter, Lydia A. Smyser, to be divided between them equally, share and share alike. He directed that in the division his son, John W. Hoffman, should have the property known as the “ Gunpowder Mill,” chargeable with the annuity aforesaid, together with certain water rights and' four hundred acres of land-connected therewith, known as “ Paper Mill Hills;” also a part of the tract of the land known as “ Laurel Hills,” one hundred yards wide, on each side of a stream. He also 'directed that in the distribution his son, George W. S. Hoffman, was to have the “ Marble Vale Mill” property, containing 21.8 acres, and his son, William E. Hoffman, was to have his “ Clipper Mill,” together with a tract of land called “ Grist Mill Hills,” containing 257 acres; also a tract
It is admitted in the agreed statement of facts, that after the father died the three sons continued to trade under the firm name of William H. Hoffman & Sons, and opened on their firm books an account headed “ Real Estate,” in which they entered all the property so derived by them and continued the same on their books in that way; “ that between the said three sons all the said real estate was always considered in their business as copartnership property, and was treated between themselves as such, but that the title to the same appeared in the Land Records of Baltimore County, and in the office of the Register of Wills of Baltimore County, as having been derived by them under the will of their said father, and the conveyances of said Vondersmith and Smyser, as has been hereinbefore stated, and no conveyance was made by them to the said partnership.”
It múst be conceded that there is nothing on the face of the will that would indicate any intention of the testator to vest the property in his three sons as partners; but, on the contrary, it is apparent that he intended them to own individually certain properties which he directed to be given them, as above stated. The property was, at the time the partnership was formed, the individual property of the three members. So far as the record discloses, nothing has since
If this property had been purchased with partnership funds for the use and on account of the firm, it would be immaterial that the title stood in the name of the individual members, as a Court of Equity would treat it for all the purposes of the partnership as firm property, and hence it would be liable to the partnership creditors to the exclusion of the individual creditors until the former are satisfied. In that case there would be an implied or constructive trust in favor of the partners as such, which would inure to the benefit of the creditors of’ the firm. But when it has been acquired in the manner above stated, the question arises whether those dealing with the members of the firm have not the right, in the absence of some notice or knowledge to the contrary, to assume that the public records inform them correctly as to the ownership of the property, notwithstanding the private understanding between the partners themselves. Creditors have sometimes suffered great hardships by Courts of Equity declaring property standing in the name of one person to be in trust for the benefit of others, but such decisions are rendered to prevent injustice being done those whose money purchased the property, and relief is only granted to them when their claims are established by clear, direct and explicit proof. This Court has said, “This strictness of proof is required because of the danger of rendering titles depending upon deeds and other written documents insecure.” Witts v. Horney, 59 Md. 586.
The same reasoning applies to real estate held of record .by members of a firm as tenants in common. When it is
If property is purchased with partnership funds, and conveyed to one or more of the partners as individuals, the-entries of the firm books would have great, possibly controlling, weight, as to whether it should be treated as partnership or individual property, but Courts should require more than private entries and understandings between partners to overcome the,public records in cases, such as this. No one would suppose, from reading the-will of William H. Hoffman, that the property belonged to the partnership. Persons dealing with the individual members would be led to believe from that will that they owned the property individually, and inasmuch as it was once the separate property of the members, we are not prepared to break down all the safeguards and protection intended by our Registry Acts by announcing as the law of this State that partners can so change the character of real estate, originally owned by them as individuals, and not in any way derived from the partnership, as to give priority to firm creditors over their separate creditors simply by making entries in their books and treating it between themselves as partnership property, without giving some notice or doing some acts equivalent to notice, to their individual creditors. The agreed statement of facts does not show that the appellant had notice of any facts that should have put its officers on inquiry. The statement is not as full as it might have been. It does not even show what business the firm was engaged in, but from the arguments, and what we gather from the record, we assume that they were manufacturing paper. Nor is it definitely stated whether the business was conducted in one or more paper mills, although it is shown
If the paper mills themselves, and such other real estate as would properly be used in connection with’ them, were treated by the partners as firm property, and were so úsed as to give notice to creditors of the individual members of the firm that they had been put into the partnership as part of the common stock, and were entered on the books of the firm in such way as to comply with the Statute of Frauds, then the partnership creditors might properly be given priority over the separate creditors to the extent of the proceeds of sales of such property. The record does not disclose such facts as would justify us in determining that question, but as the decree must be reversed, the Court below can authorize testimony to be taken on that subject. We have carefully examined the authorities cited by the counsel for the respective parties, as well as many others, and have found considerable apparent conflict between some of them. But. when the facts of them are carefully examined, it will be found that the most
ist. That as the farms, houses and similar property were-not purchased with partnership funds, for partnership purposes, but were, as far as the public records show, the separate property of the individual members, and were not incident to the business of the firm, the fact that the partners entered them on the firm books and treated them as firm property is not sufficient to change them into partnership property, and the proceeds of sales of them should be. applied to the payment of the claims of individual creditors prior to those of the partnership creditors.
2nd. That if .the paper mills, and such other real estate connected therewith as would be necessary for the convenient and proper conduct of the business, were treated by the partners as partnership property, were put into the firm, business as part of the common stock, and were so entered in the books of the firm as to comply with the Statute of Frauds, then the partnership creditors should have prior-, ity over the general creditors of the individual .partners in the distribution of the proceeds of sales of such property • provided this class of property was so used as to give notice to the latter that it was treated as partnership property and was' substantially involved in the business of the firm.
There is still another question to be disposed of. It is contended that the appellant is estopped from claiming that the real estate is individual and not partnership property, by reason of its signing a recommendation to the Court to ratify its sale reported May ist, 1894, by John B. Ramsay, one of the trustees.
Mr. Ramsay and Mr. Schott, the trustees, differed as to the propriety of a sale of the property remaining unsold at the price which had been offered, the latter thinking that in time a better price could be obtained, whilst the former thought it best to sell at once. Mr. Ramsay reported the sale and Mr. Schott was required to show cause why it
We do not think the facts stated in the record are sufficient to-estop the appellants. It is perfectly apparent that the difference between the trustees was as to the price to be obtained for the property — whether the offer received by Mr. Ramsay, should be accepted or they should wait for a better price. There is not a particle of evidence tending to show that the property did not bring its full value, or that
This Court, in Hardy & Brothers v. Chesapeake Bank, 51 Md. 590, in speaking of the doctrine of an estoppel in pais, said: “ It can therefore only be set up and relied on by a party who has actually been misled to his injury, for if not so misled he can have no ground for the protection that the principle affords.” From what we have already said it can be seen that we think that an application of the above principle of law to the facts of this case disposes of the question of estoppel.. The decree pro forma must be reversed and the cause remanded for further proceeding in accordance with this opinion.
Decree reversed and cause remanded with costs to the appellant.