White v. Dougherty

• Decision Date: 31 August 1827
• Citation: 8 Tenn. 309
• Parties: JAMES WHITE v. JOHN AND GEORGE DOUGHERTY, THOMAS MILLER, AND ARCHIBALD AND WILLIAM WOODS.
• Court: Tennessee Court of Appeals

8 Tenn. 309

JAMES WHITE

v.JOHN AND GEORGE DOUGHERTY, THOMAS MILLER, AND ARCHIBALD AND WILLIAM WOODS.

Supreme Court of Errors and Appeals of Tennessee.

August Term, 1827.

If the defendant have the first claim to security by mortgage and pledge on certain property, and complainant have a second mortgage or security on the same property, of which defendant had notice, and if there were no other person having a better claim than complainant, defendant would hold the excess, beyond the satisfaction of his own claim, as a trustee for the benefit of complainant, and a court of equity would hold him accountable for a disposition of that excess to the prejudice of complainant.

But if the debt of defendant were a partnership debt, and the debt of complainant a debt of one of the partners, and there were other creditors of the partnership to whom the defendant had given up a portion of the property, the result would be otherwise.

For it is well settled that the joint creditors of a partnership have, in equity, a general lien on the funds of the partnership, and that, in case of insolvency, they are to be preferred to the creditors of an individual member of the firm.

And it is equally well established that, where two ascertained creditors have one fund common and open to both, and one has a second fund to which the other can not resort, the former shall exhaust his separate fund before he shares in the common one. (Acc. Henshaw v. Wells, 9 Hum., 568.)

If, therefore, the defendant could have been compelled by other of the partnership creditors, by suit in equity, to surrender the partnership property held by him in mortgage or pledge, he having a sufficiency of the separate property of one of the partners to secure him, he can not be said to have acted unconscientiously by doing the same thing without decree.

To the complainant's claim as a creditor of the partner whose separate property was mortgaged or pledged to the defendant, of a lien of a prior date to the surrender by defendant to the other creditors, the creditors can successfully answer that, as to the partnership property surrendered to us, we had a lien of prior date--a general lien on all the partnership property, and there is not enough to pay all; and the defendant can answer, as to the separate property, that he, too, had a prior lien by mortgage or pledge.

The complainant is wholly mistaken in supposing that, as the creditors of the partnership were entitled to a preference over him as to the joint property, he, as a creditor of one of the partners, was entitled to a similar preference over them as to the individual property of that partner, notwithstanding some of the joint creditors had a prior specific lien on that property. They were running a race of diligence, and qui prior est in tempore potior est in jure. (Acc. House v. Thompson, 3 Head, 512.)

One partner has no right, where the partnership is insolvent, to dispose of a large portion of the partnership property, without the consent of his copartner and of the joint creditors, to pay or secure an individual debt of his own.

Nor is complainant's case aided by the fact that part of the realty originally belonged to him as a member of the previous partnership, and that, by the articles of dissolution, his legal title did not pass; for, if so, his remedy is at law, and equity will not aid him in the face of his relinquishment of all right in the articles of dissolution.

Nor can he claim a vendor's lien as to such moiety, for the defendants were purchasers without notice; and, moreover, the lien was waived by taking distinct and independent securities.

[Cited in: 1 Pickle, 719.]

This was a bill in equity, filed by James White, a creditor and junior mortgagee of John Dougherty, seeking the recovery of his debt from the defendants, or the satisfaction of his debt out of the property mortgaged, or the postponement of the prior mortgage executed by said John Dougherty to Thomas Miller, and Archibald Woods and Wm. Woods, to secure a debt due them from John and George Dougherty.

The circumstances of the case are as follows. In the year 1805, and from thence to 1815, James White and John Dougherty were partners in trade, and in the latter year the partnership was dissolved. Articles of dissolution, under the seals of the partners, were executed, and Dougherty agreed to give White $10,000 for his interest in the concern of White and Dougherty, and to pay all the debts due from the firm. White, by said articles of dissolution, relinquished all his right to the partnership property, both real and personal, in the following words: Article 2d. The said James White relinquishes to the said John Dougherty all his interest in said firm of White and Dougherty, including real property, as well as all other which belongs to said firm. In consideration of which relinquishment of interest, the said James Douherty agrees to credit in full James White's account with White and Dougherty, also credit in full James White's account with John Dougherty, and pay him, the said White, in four equal annual payments, $10,000, to-wit, $2,500 each 4th day of July, commencing 1816 and ending 1819, making the above sum of $10,000.” This article of dissolution was witnessed by two witnesses, but not proved and registered until February, 1820.

John Dougherty executed his four notes for the $10,000, paid all the debts of the firm of White and Dougherty, and about $4,000 of the debt due White, leaving a balance unpaid of about $6,000.

In 1816, John and George Dougherty entered into partnership to carry on the mercantile business; and in the fall and winter of 1819, their situation became desperate, and they failed. The effects of the firm were insufficient to discharge the debts of the firm by about $10,000. They had borrowed of the Nashville Bank, at its branch at Winchester, about $12,000; for which amount, the defendants Thomas Miller and Archibald and William Woods indorsed for them. They had purchased large quantities of goods in New York and Baltimore, which, in the fall of 1819, they sold in part to Herbert and Kyle, for $11,050, taking from them notes in divers sums, but all payable in two annual payments; alleging, at the same time, they wished ultimately to transfer them to their New York and Baltimore creditors. In the latter part of 1819, John and George Dougherty deposited their notes with Thomas Miller, for the safety of him and their other indorsers in bank, Archibald and William Woods. The complainant alleged in his bill, and introduced some proof in support of the allegation, that Miller and Woods had a permanent lien on these notes, and were to pay the bank debt out of them. The defendant alleged that the notes were deposited with Miller until other security should be given, to secure said indorsers. On the 8th January, 1820, John and George Dougherty, by deed, transferred to their indorsers, Miller and A. and Wm. Woods, lots No. 10 and 29, and their bank stock in said bank at Winchester, on which $6250 had been paid, as a security for said indorsers. The lots 10 and 29 were formerly the property of White and Dougherty, but were then the individual property of John Dougherty, by virtue of White's relinquishment upon their dissolution. On the 20th January, 1820, White called on John Dougherty in Winchester, and they both signed a writing in the following words: “I am willing to wait for the amount of my debt, due from Major Dougherty, five years, carrying interest from the date. Major Dougherty proposes to include my debt in a mortgage with Thomas Miller, Archibald Woods, and William Woods, who hold debts on Herbert and Kyle to the amount of $11,050, the real property in Winchester, and the stock in the Winchester Bank; out of which property they are bound to pay $12,000, the balance of the above property will then be for the security of my debt; this 20th January, 1820.

James White,

John Dougherty.”

White left this writing with his agent John Campbell, and proceeded on his journey to Huntsville. On the 21st January, 1820, his agent drafted the mortgage for the lots, including the bank stock and Herbert and Kyle's notes. John Dougherty would not execute it, alleging these debts must be appropriated to pay the debts of John and George Dougherty, as they belonged to that firm, and he had entered into the arrangement without the consent of his copartner. John Dougherty then consummated the agreement with White's agent, with this variation. He gave White a mortgage on lots 10 and 29, which had been previously mortgaged to Miller, and A. and Wm. Woods; and also on three lots in Winchester, not mortgaged to Miller and Woods. The notes on Herbert and Kyle, and bank stock, were left out. On each of the notes, executed by John Dougherty to White, an indorsement was made by John Campbell, the agent of White, that, to secure the payment of each, a mortgage had been given on certain town lots in Winchester, and five years given for the payment of the money. White returned to Winchester on the 28th February, 1820, and on that day John Dougherty and himself signed other articles, which recited the mortgage of the lots as the security for White's debt, and stipulated for the annual payment of the interest; or on failure, Dougherty was to give White possession of the lots mortgaged. About the 25th of February, 1820, the New York and Baltimore creditors of John and George Dougherty came on to Winchester, and about $7,000 of the notes on Herbert and Kyle were taken out of the hands of Miller and transferred to them. The remaining $4,000 of notes on H. and K. were retained by Miller till 1822, and were then applied to pay a debt due from the firm of J. and G. Dougherty to Luke Tiernan, for the payment of which Miller had become security on the 20th February, 1820. This debt was subsisting against the firm of J. and G. Dougherty before the mortgage was executed to White.

Miller, A. and Wm. Woods, having paid the bank...