Murrill v. Neill

THIS was an appeal from the Circuit Court of the United States for the District of Maryland, under the following circumstances.

On the 24th of September, 1839, Luke Tiernan, of the city of Baltimore, and Anne, his wife, made a deed of trust to Charles H. Carroll, of Livingston County, New York, thereby conveying to said Carroll about 5,888 acres of land, part of Tuscarora Tract, in said Livingston County, of which Luke Tiernan was seized in fee simple as his individual property. The property so conveyed is in said deed estimated to be worth about $120,000.

The deed, among other things, recites that Anne, the wife of Luke, had previously joined in a conveyance of various portions of said tract, the property of said Luke, which before that time had been sold, without receiving for her separate use any consideration therefor.

It also recites, that said Luke was indebted to Anne E. Brien, at the time of her death, in the sum of $4450, which on her death became due to Luke Tiernan Brien, her only child and heir at law.

It also recites, that said Luke 'is indebted to divers other persons, residing in different parts of the United States of America, in a large amount of money in the aggregate, but the names of all the persons to whom he is so indebted, and the amount due to each respectively, the said Luke Tiernan is now unable to specify particularly.'

The deed then conveys said land to said Carroll in trust, to sell and convey the same in the manner therein specified, and after paying expenses, including a commission for his services, to remit the net proceeds of the first moneys arising from the sales, in bank checks or drafts, to Alexander Neill, of Maryland, 'until he shall have remitted the sum of $15,000, to be paid by the said Alexander Neill to the creditors of the said Luke Tiernan, whose demands shall then have been ascertained; and if the demands so ascertained shall exceed the said sum of $15,000, the same shall be applied in part payment of each of said demands, in the ratio that each of said demands respectively shall bear to the whole sum to be so applied.'

After said sum of $15,000 shall have been remitted, then the sum of $12,000 is to be remitted by said Carroll to such person as said Anne Tiernan may designate, which is to be invested for the sole and separate use of said Anne, as a compensation to her for relinquishing her dower in the land by the deed conveyed.

Then the sum of $4450, with interest from the 1st of January, 1841, is to be remitted by said Carroll in payment of the above-mentioned debt due to Luke Tiernan Brien.

'And after the last-mentioned sum shall have been remitted as aforesaid, all the residue of the moneys arising from such sales (after deducting the expenses and commissions as aforesaid) shall be remitted by the said Charles H. Carroll from time to time, as the same shall be received, to the said Alexander Neill, in the manner hereinbefore provided for the remission of the said sum of $15,000, and the same shall be applied by the said Alexander Neill to the payment of the debts due from the said Luke Tiernan to all the creditors of the said Luke, whose demands shall then have been ascertained by the said Alexander Neill; and in case that the sum so to be applied shall be insufficient for the payment of all such demands, then and in this case the same shall be applied in part payment of each of said demands, in the ratio that each of said demands respectively shall bear to the whole sum to be so applied to that object; and in case the said sum shall be more than equal to the payment of such demands, then and in that case the residue thereof shall be paid by the said Alexander Neill to the said Luke Tiernan, his heirs, executors, administrators, or assigns.'

The said Carroll, in pursuance of said deed, proceeded to make sale of various parts of the property thereby conveyed, and from time to time, from the 1st of March, 1841, to the 22d of April, 1844, remitted to said Neill, in various amounts, the whole sum of $15,000, provided to be paid in the first place to said Neill out of the net proceeds of sales as above mentioned. This sum increased in the hands of Neill, by interest and premiums on the drafts in which it was remitted, to $16,440.55.

Luke Tiernan was a partner in the commercial firm of Luke Tiernan & Son, of Baltimore, the only other partner therein being his son Charles Tiernan. This firm was dissolved previously to the death of Luke Tiernan, which occurred on the 9th of November, 1839, and after his death it was conducted under the same name by Charles Tiernan.

Luke Tiernan was also a partner in the commercial firms of Luke & Charles Tiernan, and Tiernan, Cuddy & Co., of New Orleans. The partners of the first-named firm were Luke and Charles Tiernan, and of the second, Luke Tiernan, Charles Tiernan, Calvin Tate, and James McG. Cuddy.

The firm of Tiernan, Cuddy & Co., failed in December, 1835, for a large sum of money. Charles Tiernan was the liquidating partner thereof, and was engaged from April, 1836, to May, 1842, in collecting the assets of the firm. He collected about $100,000, the whole of which, and a good deal more, he paid in satisfaction of the debts of the firm. Calvin Tate, one of the partners, applied for the benefit of the bankrupt law of the United States on the 18th of February, 1842, and obtained his discharge under said application. The amount of debts returned by him as due by Tiernan, Cuddy & Co. was $569,069.49, and the amount as due to said firm was $800,743.47.

On the 29th of May, 1845, the executors of Luke Tiernan, on an account then passed by them with the Orphans' Court of Baltimore County, had in hand a balance in cash to the amount of $506.91. They conjecture that, with this balance, debts may be collected and other assets may be realized, including the entire real and personal property of said Luke, to the amount in all of about $30,000. None of this amount, however, so far as appears, was ever collected, except said sum of $506.91, and the entire estimate is merely conjectural.

The individual debts of Luke Tiernan, as proved and allowed in this case, amount to $31,586.25.

The partnership debts of all the firms in which Luke Tiernan was concerned as partner, as approved in this case, amount to $295,025.74.

In October, 1843, John D. Murrill, a citizen of the state of Virginia, and the Bank of New Orleans, filed their bill in equity against Mr. Neill, claiming from him an account of his trust under the deed now described, and a distribution of any fund in his hands among the creditors of Mr. Tiernan. The bill was amended by making William T. Somerville a defendant, as executor, along with Mr. Neill, of Luke Tiernan.

The answer of Neill admits the receipt under the deed of $15,000, increased, by interest from investment, to $16,440.55; and this sum he asks may be distributed among the creditors of Mr. Tiernan who may under the trust have right to it. Testimony was taken to show the insolvency, and the debts and assets, of the partnership in New Orleans, and of Luke Tiernan. The separate estate of the latter in Maryland is shown to have been administered, leaving only $506 in the hands of the executors, and some good debts to be collected, and some unsalable stocks.

The court passed an order for notifying creditors of Luke Tiernan to file their claims, and under it a number of claims have been presented, partnership and individual, against Luke Tiernan. The individual amount to $31,586.25, the partnership to $295,025.74.

The matters being referred to an auditor to report an account upon the claims, he stated two accounts, one applying the fund to payment of only the individual creditors, the other to payment of them and of the partnership creditors pari passu.

Upon exceptions taken, the court determined that the individual creditors were to be preferred, and the funds of the trust should go to their satisfaction before any payments should be made to the partnership creditors.

The trustee was therefore directed to proceed to distribute and pay over the funds accordingly. From this decree, the complainants appealed to this court.

The case was argued by Mr. Mayer and Mr. Johnson (Attorney-General), for the appellants, and by Mr. Brown and Mr. Meredith, for the appellees.

The counsel for the appellants, contending that they were entitled to share ratably with the individual creditors in the funds proceeding from the lands conveyed, submitted these propositions:--

1. There is no rule at law, nor in equity, which gives separate creditors a priority of payment over joint creditors, out of separate estates; although the principle is well established that joint, that is (more properly) partnership, creditors are first to be paid out of partnership property. This principle is founded upon the consideration that each partner is interested in the partnership fund, and concerned to see it applied for his exoneration by its paying the common liabilities; and it is pledged accordingly, not only for partnership debts, in favor of partnership creditors, but from each to the other partner for the indemnity of both. The prior right of partnership claims upon the partnership estate arises, therefore, from the nature of that estate, in reference to the rights of the partners; and does not grow out of any limitation of the rights or remedies of the partnership creditors. Such being the nature of the partnership fund, it is regarded, too, as under a prior lien in favor of the partnership creditors. The principle, then, which gives the priority is not restrictive, but is cumulative, in furnishing a security, by this preferred claim to the partnership property, in favor of partnership creditors. The rule contended for by the appellee has reference only to the marshalling of assets, not to the satisfaction, directly or ultimately, of the joint claims. It is a rule only 'of convenience.'

2. Whatever may be the rule as to the distinctive appropriation of separate and joint estates of debtors, it is believed to be clear from the authorities, that where there is no joint estate, or it is inadequate, or there are no solvent partners, the partnership creditors are admitted to dividends, with separate creditors, out of the separate estates.

3. Modern decisions in equity regard partnership claims, and satisfy them, as jointly and severally binding the partners. In this respect, equity follows the law, and would virtually make the property here, under that position, legal assets. The whole idea of separate claims having a priority upon separate estates, arose from the impression that the partnership claims should not be treated in equity as joint and several.

4. Whether the proceeds of sales under Mr. Tiernan's deed be regarded as legal or as equitable assets, the terms of the deed demand a distribution among all creditors, without preference to any class.

5. But those proceeds are to be regarded as legal assets, and the partnership creditors can no more rightfully be excluded from them than they could have been denied, after judgment against all the partners, the privilege of levying an execution on the lands, if they had not been conveyed. So far as the deed provides for creditors generally, it does but what the law had ordained, in subjecting the lands to all creditor claims. Equity here must follow the law in applying the avails of this property. That is the true equity.

Under the first proposition, the following authorities were relied upon. 5 Cranch, 34; 5 Serg. & R. (Pa.), 78; Eden on Bankruptcy, 169; 3 Ves., 238; 4 Id., 838, 437; 6 Id., 813, 9 Id., 118, 124, 125; Ex parte Haydon, 2 Bro. C. C., 5; 14 Ves., 447; 15 Id., 496; 17 Id., 210; 5 Johns. (N. Y.) Ch., 60, 74; 2 P. Wms., 500; 2 Russ., 191, 194, 196; 1 Har. & G. (Md.), 96; 8 Pet., 271; 4 Johns. (N. Y.) Ch., 525; 3 Madd., 229; Buck's Cases in Bankr., 227; 2 Madd. Ch. Pr., 464; 3 Kent, 43, 64, 65; 8 Law Rep., 273, Judge Ware's Decision; Story on Partn., 363; West v. Skip, 1 Ves. Sr., 239.

Under the second, the cases from Vesey and 2 Bro. C. C., 5; 2 Madd., 464; 5 Serg. & R. (Pa.), 78, cited under the first proposition, were relied on.

Under the third proposition, 1 Story Eq., 626, § 676; 1 Myl. & K., 582; 1 Meriv., 539, 572; 2 Johns. (N. Y.) Ch., 508; 1 P. Wms., 682; 3 Ves., 238; 4 Id., 838; 1 Har. & G. (Md.), 96; 2 Russ. & Mylne, 495; 1 Keen, 219; 1 Gall., 371, 630; 2 Vern., 292; 2 Ves., 100, 371.

Under the fourth proposition, Ram. on Assets, 317 (8 Law Lib.); 1 Vern., 63, 101; 2 Id., 61, 763.

Under the fifth, 1 Vern., 63, 410, 411; 2 Id., 764; 1 Story Eq., 521, § 553; 22 Pick. (Mass.), 450, 454, 455.

The counsel for the appellees contended,--

1st. That the language of that clause in the deed of the 24th September, 1839, which directs that the first $15,000 remitted by the trustee shall be paid to 'the creditors of the said Luke Tiernan,' throws upon the appellants the onus of showing that the creditors of the partnership firms of Tiernan, Cuddy & Co., and L. & C. Tiernan were meant to be included. Thomas v. Beynon, 12 Ad. & Ell., 431.

2d. That, for the purpose of determining the meaning attached by the grantor to the language of the provisions of said deed, and to ascertain what he intended by the same, the court, by means of extrinsic evidence, will place itself in his situation, by inquiring into all the collateral facts and circumstances that can be made ancillary to those objects. Wigram's Extrinsic Evidence, (2 Lib. of Law and Eq.,) Introductory Observations, § 9; the whole of Proposition V., with the notes, and especially §§ 61, 62, 71, 72, 73, 74, 77, 78, 79, 95, 96; the whole of Proposition VII., with the notes, and particularly §§ 150, 151, 152; General Conclusions, §§ 211, 212, 213, 214, 215. Broom's Legal Maxims, 262, 263, 294 (1 Lib. of Law and Eq.); Gresley's Evidence in Equity, 203; Cheyney's case, 5 Co., 68; Altham's case, 8 Co., 155; Counden v. Clark, Hob., 32; Smith v. Jersey, 2d Brod. & B., 473; Doe v. Harvey, 8 Bing., 239; Gord v. Needs, 2 Mees. & W., 129; Hiscocks v. Hiscocks, 5 Id., 367, 368; Allen v. Allen, 12 Ad. & Ell., 451; 1 Greenl. Ev., §§ 286, 287, 288, 290, 297; Blackwell v. Bull, 1 Keen, 176; Doe v. Morgan, 1 Cromp. & M., 235; Shore v. Wilson, 5 Scott, N. R., 1037, 1038; Bradley v. Steam Packet Co., 13 Pet., 89; Barry v. Combe, 1 Id., 640; Barkley v. Barkley, 3 McCord (S.C..), 269; Doe v. Roe, Ga. Dec., Part I., 80.

3d. That the deed per se, without looking beyond it, or out of it, ought to be construed to include only the creditors of Luke Tiernan, on his own individual account. Broom's Legal Maxims, (1 Lib. of Law and Eq.,) pp. 120, 126, 127, 128, 140, 141, 150, 151; 1 Preston's Shep. Touch., ch. 5; 30 Law Lib., 150 et seq.

4th. If this construction be not correct, they will maintain that the money in question in this case, which consists of the $15,000 first mentioned in the deed, with the increase thereof, should be divided solely among the individual creditors, and that the partnership creditors of said Luke Tiernan, if embraced at all in said deed, are secured by the subsequent part thereof, which provides that the residue of the proceeds of sales shall be divided among all the creditors of said Luke.

5th. And if neither of said constructions shall be sustained by the court, they will further maintain that said Luke Tiernan, if all his debts, both individual and partnership, be taken into consideration, made said deed with reference to the rule common both to courts of equity and bankruptcy, that individual creditors shall first be paid out of individual property, and partnership creditors out of partnership property, and that all the property conveyed by said deed, being the individual property of Luke Tiernan, must be applied in the first instance to the payment of his individual debts.

They relied on the decree of Lewis H. Sanford, Assistant Vice-Chancellor of the First Circuit of the state of New York, made with reference to this deed, in the case of Slatter v. Carroll, 2 Sandf. (N. Y.) Ch., 573; Cary on Part., 220, (5 Law Lib.); Id., 296; Gow on Part., 386; Story on Part., §§ 363-366, 376; 3 Kent, 64, 65 (4th ed.); Collyer on Part, 337-341; 3 Bland (Md.), 356; McCulloh v. Dashiell, 1 Har. & G. (Md.), 97; Pierce v. Tiernan, 10 Gill. & J. (Md.), 253; Tuckers v. Oxley, 5 Cranch, 44, 45; United States v. Hack, 8 Pet., 271; Wilder v. Keeler, 3 Paige (N. Y.), 171; Payne v. Matthews, 6 Id., 19; 1 Story Eq., § 675; Eden on Bankruptcy, 169 et seq., 34 Law Lib.

Mr. Justice DANIEL delivered the opinion of the court.