Hill v. Cornwall & Bro.'s Assignee

• Decision Date: 10 May 1894
• Citation: 95 Ky. 512,26 S.W. 540
• Parties: HILL et al. v. CORNWALL & BRO.'S ASSIGNEE. MERCHANTS' NAT. BANK v. SAME. BANK OF LOUISVILLE v. SAME. FARMERS' & DROVERS' BANK v. HILL.
• Court: Kentucky Court of Appeals

26 S.W. 540

95 Ky. 512

HILL et al. v. CORNWALL & BRO.'S ASSIGNEE.

MERCHANTS' NAT. BANK v. SAME.

BANK OF LOUISVILLE v. SAME.

FARMERS' & DROVERS' BANK v. HILL.

Court of Appeals of Kentucky.

May 10, 1894

Appeals from chancery court, Jefferson county.

"To be officially reported."

Petition by the Louisville Trust Company against R. E. Hill, the Merchants' National Bank, Eleanor Cornwall, the Bank of Louisville, the Farmers' & Drovers' Bank, and others asking advice as to the administration of a certain trust. There was a decree construing the trust. Defendants appeal. Modified.

A father and his two sons constituted a manufacturing firm. Their business was carried on in a factory bought by the father. After the firm had begun business, he conveyed a third interest in the property to each of his sons, and credited it to them as their contribution to the firm. The property was always treated by the partners as firm property. Held that, on assignment by the firm for the benefit of creditors, the factory was firm property, in which the sons' wives had no dower until after the firm creditors had been paid.

Fairleigh & Straus and R. W. Woolley, for appellants Hill and others.

Helm &amp Bruce, for appellant Bank of Louisville.

Pirtle Speed & Trabue, for appellant Farmers' & Drovers' Bank.

Blain & Kinkead and Humphrey & Davie, for appellant Merchants' National Bank.

Muir, Heyman & Muir, for appellee, Louisville Trust Co.

PRYOR J.

In the month of March, 1891, Cornwall & Bro. made an assignment for the benefit of creditors, and each member of the firm also made an individual assignment for the same purpose. The firm was composed of William Cornwall and his two sons, William Cornwall, Jr., and Aaron W. Cornwall. The business of the firm was the manufacture of soap and candles, and, being largely indebted, individually as well as partners, many questions have arisen touching the character of the assets, and the mode of payment or distribution of the trust fund between creditors. The Louisville Trust Company was made the assignee, and filed this petition below, asking advice as to the administration of the several trusts, and for a final settlement of its accounts as assignee. They owned real estate consisting of the soap factory proper, and the warehouse adjoining, that was used in the business. It is claimed by the firm creditors that this realty was partnership property, purchased and used for that purpose, and therefore to be treated as personalty, and liable for the partnership debts; and, on the other hand, it is claimed to be realty, and a claim to a potential right of dower asserted by the wives of William Cornwall, Jr., and Aaron Cornwall. It is further claimed that Mrs. Hill, a daughter of William Cornwall, Sr., and sister of the other two members of the firm, is the owner of an undivided one-third interest in the factory property, under a conveyance from her father, made and recorded long prior to the assignment; and that the firm is indebted to her for the rent of this one-third interest for many years, and this rent Mrs. Hill seeks to recover. The manner in which this property was held, and the interest of the several claimants in it, will be considered before determining the remaining questions presented. If the factory and warehouse building belonged to the firm, then the wives of William and Aaron Cornwall have no claim to dower, as the entire property is insufficient to pay the partnership debts.

The elder Cornwall had been engaged in the same business with his brother, John Cornwall, for many years, when John Cornwall died, and the partnership ended. The factory property was then sold by a decree of the Louisville chancery court, and William Cornwall, Sr., through his son William, purchased the factory, and in March, 1870, a commissioner's deed was made to William Cornwall, Jr., for the entire factory. The father, William Cornwall, Sr., owned at the time of the sale one-half of the factory, and therefore had to pay only one-half of the proceeds of sale or the purchase money. In a few days after the sale his son William Cornwall, Jr., conveyed to his father two-thirds of this factory, retaining the title to the one-third by gift from his father. The sons had no estate, or at least the entire capital for conducting the firm was furnished by their father. The business was continued under the old firm name of Cornwall & Bro., but it is manifest that the factory was purchased for partnership purposes, and, although paid for by the capital furnished by the father, the payment was out of partnership funds, and the property used for partnership purposes. While it is true Aaron Cornwall did not arrive at age until 1874,-three years after the purchase at the decretal sale,-when he did arrive at maturity, his father conveyed to him an interest of one-third in the factory, and in the year 1875 he conveyed the remaining third interest in the factory to his two sons, in trust for his daughter Sally, now Mrs. Hill. So it appears that William Cornwall, Sr., had divested himself of the legal title to this property, or of his interest in it as purchaser under the decree, to his three children. That Mrs. Hill was not a partner is evident, as she seems to have had no connection with the factory or its manufactures, her two brothers holding the title for her; and in fact she had been receiving rent for this one-third interest. While William Cornwall, Sr., had divested himself of the legal title to the factory building, he had furnished all the capital with which to run it, and was certainly interested as a partner; and, when looking to the character of the partnership, and the conveyances from the father to his two sons to enable them to have capital as well as himself in the enterprise, it cannot well be argued that the senior Cornwall had no equitable right to have the entire property applied to the payment of the partnership debts. In their days of prosperity they might well have said, as they now state, that this realty was not considered or treated by the firm as partnership property, yet the firm books demonstrate that this one-third interest conveyed to each son constituted his capital invested in the enterprise, and that such must be the result of the acts and conduct of all the parties.

William Cornwall states that this property was purchased for the purpose of being operated by the firm, and, not only so, but that it had been so operated since that date, William Cornwall, Jr., being then the only partner. The senior Cornwall, as the books of the firm show, put into the concern at the beginning a large sum of money. There was no one else to furnish the capital. The factory sold at decretal sale for $44,500, and on the books of the firm the senior Cornwall is credited by his half interest, which is $22,250. There is an account on the books styled the "Building, land, and machinery account," and from it can be seen what was paid by the firm for the buildings, land, and machinery, and the entries on the books show that the money due on the purchase of this factory was paid out of the firm money, and this firm money was the cash paid into the firm by Cornwall Sr., and for which he was credited on his individual account, and went to pay what the firm owed for the one-half interest owned by John Cornwall, who was a member of the old firm. The building and machinery account is charged with the one-half interest of William Cornwall, Sr., and he is credited by it. William Cornwall, Jr., is credited on the books with the value of his one-third interest that had been conveyed him by his father, and his father is charged with the amount, transferring or giving to his son in this way that much of his (the father's) capital. Like entries were made when Aaron Cornwall was given his one-third interest, Aaron being credited and his father charged with the amount. The value of the third of the property conveyed to Mrs. Hill was credited to the building, land, and machinery account, and this was proper, as that account had been charged with the entire cost. It must be assumed that all the partners consented to this conveyance to Mrs. Hill, leaving two-thirds of the building as property liable for partnership debts, and in fact partnership property. The factory and warehouse were both assigned by these partners as partnership assets, and the property, or its value, is found on the balance sheets of the firm's business down to the date of the assignment. The warehouse property was paid for by the firm. It was bought for firm purposes, and used as such. We have but little doubt on this question, and, while the property held under these separate deeds would be treated as realty after paying partnership liabilities, it must be regarded as partnership property, and was properly subjected to the payment of partnership debts. The fact that separate conveyances were made to the sons by the father cannot make it individual estate, because it was used and treated as a part of the partnership. If each of the three partners had owed a one-third interest before forming the partnership, and had agreed to erect a factory on the land, and to credit each by the value of his interest on the firm books as capital furnished, could there be any reason for holding the property not primarily liable for partnership debts? We can perceive none; and, while the wives of each would be entitled in such a case to dower, as the title was held before the partnership was created, in this case the factory was purchased for partnership purposes, paid for out of the partnership funds, and used for partnership purposes. In Spalding v. Wilson, reported in 80 Ky. 589, where the conveyance was made to the two partners jointly, it was held that this made no difference. The...