FARMERS'L. & T. CO.
v.
ENO.
89
FARMERS'L. & T. Co. v.
(Virouit Vourt, 8. D. Nf/W York. May 25, 1888.)
1.
BANKRUPTCy-SALES BY ASSIGNEE.
2.
Section 9 of the bankrupt act of 1841, rroviding that "all sales, transfers. and other conveyances by the assignee 0 the bankrupt's property and rights of property shall be made at such times, and in such manner, as shall be ordered and appointed by the court in bankruptcy," is satisfied if the sale is made pursuant to a rule or general order of the court in bankruptcy, prescribing when and how sales are to be made. A special order for each sale is not necessary.· A misdescription of lots in the notice of sale by an assignee in bankruptcy. as located "on 62d street." is corrected and nullified by a correct description of the lots by map and number.
SAME-NOTICE OF SALE-DESCRIPTION OF PROPERTY.
B.ExECUTQRS AND AD1IUNISTRATORS-ADMINISTRATORS CUM TESTAMENTO NEXO-ExECUTION OF POWERS OF EXECUTORS.
AN-
Under 2 Rev. St. N. Y. p. 72, § 22, providing that administrators o. t. a. "shall have the same rights and powers, and be subject to the same duties, as if they had been named executors in such will." where executors are by the will gIven discretion in the sale of lands, in exercising such discretion they not as executors, but as trustees; and an administrator o. t. a. would not bt. competent to exercise it; but where such executors have>exercised the discretIOn by making a contract of sale, and nothing remains but to execute the conveyances, they act, as to that, as executors merely, and an administrator c. t. a. is competent to execute the conveyances.
Amos R. Eno.
In Equity. Bill for specific performance, brought by the Farmers' Loan & Trust Company, as administrator with the will annexed, against
Turner, McClure Rolston" for complainant. ThumaB C. Ennever, Jor defendant. WALLACE, J. Unless the plaintiff can give a marketable title to the real estate purchased by the defendant by contract, specific performance of the contract Should riot be decreed. The principal objection to the title is that the sale of the rea] estate by the general assignee in bankruptcy, made in May, 1844, was void, and did not paSEl to the purchaser the title of the bankrupt. The ground of this objection is that the court in bankruptcy did not appoint the time of sale as required by section 9 of the bankrupt act of 1841. That section reads as follows: "And be it further enacted, that all sales, transfers, and other conveyances by the assignee of the bankrupt's property and rights of property shall be made at such times. and in such manner, as shall be ordered and appointed by the court in bankruptcy." The court in: bankruptcy had adopted rules under the provisions of the act. Rules 61 and 82 only need be referred to. Rule 62 was as follows: "Six days' previous notice by pUblic advertisement shall be given of the sale of personal effects, and 14 days of real estate. to be published where the notice to show cause on the petition for the decree of bankruptcy was published." Rule 82 was as follows:
FEDERAL REPORTER.
"Every assignee, within 30 days after receiving a decree of bankruptcy. lie lie shall file and have noted tlle docket of t,h,e case * * ... a report of such property or interests of the bankrupt as in the opinion of the assignee is of uncertain value, and ought to be disposed of at public sale without incurring further expense or delay respecting it. Exceptions to be filed within ten days from the filing of the report. If no exceptions be filed, then at the expiration of ten days the assignee may make an order on the docket. pursuant to his report, which order shall be final in the matter."
It is in evidence that the assignee made a report pursuant to rule 82, and included the real estate in question in the property which, in his opinion, ought to be disposed of at public sale; that no exceptions were filed to the report; that the assignee published the 14-days notice of sale of the real estate as required by, rule 61, and that May 7, 1844, he exe';' cuted a deed of the real estate to the purchaser upon the sale, which recited a sale pursuant to the terms of the advertised notice. It would be a'narrow and unreasonable construction of section 9 to construe it as in,;, tended to require a special order to be made by the court in bankruptcy whenever it might be desirable to 'sell any part of the bankrupt's propel,'ty. The language of the section' is satisfied if the sale is made pursuant to a rule or general orderof the court in bankruptcy, which prescribes when and how sales are to be made. ' Such a rule" while not intended to trammel the discretion ofthe (}purt iuany special case, is equivalent to an order in every case falling within the class covered by it; and as was saId by CHOATE, J., in Re Mott, 6 Fed. Rep. 685, "is a practical and sufficient compliance with the statute." In Smith. v. Long, 12 Abb. N. C. 113, an opinion was expressed contrary to these views, but the opinion was obiter; and in Palmer v. MOrrUlon, 104 N. Y. 132, 10 N. E. Rep. 144, the same court took occasion to declare the question to be undecided by Smith v. Long. The case of Osborn v. Baxter, 4 Cush. 406, cited in Smith v. Long, and relied upon as authority for the opinion there expressed, is plainly distinguishable from the present case. In that case the rule of the in bankruptcy was that the court should by its order "direct the time and place of the sale;" but theassiWleesold without any such order. The court had not, as here, appointed in advance when and how the sale should be made. ,. A further objection is made by the defendant, that the title did noi pass u,nder the conveyance by the assignee because of a misdescription of the premises in his notice of sale. The errOneous reference to the lot aahon. 62d street" in the advertisement was corrected and nullified by the description of the lots by map and number, and, without this, the description would probably be sufficiently certain by the reference to the lots in the advertisement as part of the bankrupt's property. The rules which test the sufficiency of a description of property conveyed are the same whether, the deed be mdde by the grantor in his own right or by an officer of the court upon a judicial sale, (White v. Luning, 93 U. 8 .. 514;) and the addition of erroneeusdescriptivematter will not vitiate the· conveyance when: there are sufficientpartieularscorrectlygiven in the instrument to' enable the parties to identify the property. Dygert v. Pletta,25 Wend. 402; Jackson v. Olark,7 Johns. 217; Jackson v. Root, 18
FARMERS'L. '" '1'. C<>.V.ENO.
91
Johns. 60; Jackson v. Marsh, 6 Cow. 281; HatMway v. Power, 6 453. The further objection is also made by the defendant that the plaintiff, as administrator of the will ,annexed of Kennelly, deceased, caimot give good title to the real estate contracted to be sold by the executors of Kennelly. The terms of the will authorized the executors to selland convey the real estate of the testator at their discretion, at any time be;. fore the youngest person entitled to receive a share of the. real estate under the will should attain the age of 21 years. After the executors had entered into the contract for the sale of the real estate to the defendant, but after they had tendered a deed to the defendant pursuant to the terms of the contract, one of them died. This suit was brought by the surviving executor, but he resigned in December, 1885, and the plaintiff was appointed administrator with the will annexed; and upon the death of ,the 8unriving executor, which occurred shortly after his resignation, the action was revived, and the administrator substituted as plaintiff. The deed was tendered by the executors to the plaintiff May 17, 1884. At that time the proceedings which had. been had in the district court of the United States for the Southern district of New York for a resale of the real estate by the general assignee in bankruptcy had been annulled by the order of that court, and the only defects in the title then tendered to the defendant were those predicated upon the objections which have been considered. The present objection comes with ill grace from the defendant, because he should have accepted the deed tendered by the executors; and if it were true that good title cannot noW be made, the consequences should fall upon the defendant, rather than upon the plaintiff, who is in no way responsible for the situation. But it seems reasonably clear that a deed from the plaintiff will give the a good title. 'the executors had exercised the discretionary power given to them by the will conformably with the terms of the trust so far as to enter into a contract with the defendant for the sale and conveyance of the real estate. If this was a complete execution of the power of sale, their rights and duties thereafter in respect to the enforceml:'nt of the contract were those strictly of executors, and not of trustees. There can be no doubt that the defendant, notwithstanding the death of the executors, could compel a specific performance of the contract. In such a suit, however, the devi.sees of the testator would be necessary parties. Fry, Spec. Perf. § 190. The statute provides that administrators with the will annexed "shall have the same rights and powers, and be subject to the same duties, as if they had been named executors in such will." 2 Rev. St. p.72, § 22. Judge DENIO said in Roome v. Philips, 27 N. Y. 363, that aa8.n original question he should have supposed that under this statute such an administrator was competent to execute a discretionary power to sell and convey real estate conferred by the will on an executor. But the decisions of the courts of the state, including the court of last resort,al'e the other waYi and it is held that, where the power is discretionary, the executor takes it in a capacity distinctly different from that of executor, and he is to be regarded as trustee, and not
92
as executor; and that the power does not pass under the statute to an administrator with the will annexed. Mott v. Ackerman, 92 N. Y. 539. If the power in trust conferred upon the executors by the will was fully exercised when they made the contract with the defendant, and thereafter their only duties in the premises were to execute a conveyance and receive the purchase money, these duties were executor's duties, not involving discretion, and can therefore be carried into effect by an admin. istrator with the will annexed. It was held in Demarest v. Ray, 29 Barb. 563, that such a power is executed as well by an executory con· tract made by the trustees as by a deed of present bargain and sale. The question now presented was involved in the case of Mott v. Ackerman, but the power of sale in the will in that case was held by the court to be an imperative, and not a discretionary, one; and the court did not consider the question because the conclusion was reached til at such a power could be exercised by the administrator as completely as by the executor. A decree is ordered for the complainant.
OSBORNE et ale "'. BARGE et ale (OVreuit Court, N. D. Iowa, C. D. May 9,1888.) PARTNERSHIP-POWER OF PARTNER TO BIND THE FmM-CHATTEL MORTGAGB Oll' STOCK-FRAUDULENT PREFERENCE. ,
A large creditor of B. & K., fearing that they were insolvent, dispatchep. an agent to obtain security. The partners met on Saturday, and promised to save the agent harmless. B. to give a mortgage on his individual property on Monday. An examination was made of the books, and, they clearly showing insolvency. both partners agreed to make a general assignment. Schedules were accordingly prepared, and instructions given the firm's attorney to have the papers ready for execution Monday morning. Sunday night K. went with the agent to another attorney, and was there induced to agree to execute a mortgage on the stock in trade in favor of the creditor by a promise of a position in his employ. The following morning K. refused to join in the assignment unless the creditor was first secured, and, B. not assenting to this, K. signed the mortgage in the firm's name, aud delivered it to the agent. This mortgage'authorized the mortgagee to take immediate possession and sell. B., who knew nothing of the mortgage until demand was made under it for possession. then executed the assignment in the firm name. and turned the property over to the assignee. Held, on bill to foreclose. that under the circumstances, according to the rule in Iowa, the mortgage was fraudulent and void.
In Equity. Bill to foreclose a chattel mortgage. Martin &- Wamback and Wright &- Farrell, for complainants. W. J. Oavil and Kamrar &- Boyes, for defendants. Before BREWER and SHIRAS, JJ. BHrnAs, J. Complainants in this cause seek the foreclosure of a chattel mortgage executed in the firm name of Barge & King, and covering substantially the stock of goods formerly owned by the firm at Webster
OSBORNE V. BARGE.
93
City, Iowa. The question before the court is as to the validity of this mortgage, and it arises under the following facts: In November, 1886, the firm of Barge & King, carrying on business at Webster City, had become insolvent, being indebted to complainants, among others, in a sum exceeding $2,000. An agent of the complainants visited Webster City for the purpose of endeavoring to get security for the debt due them. At an interview, at which both the members of the firm were present; he was assured' that security would be given him on realty owned by B. F. Barge, the understanding being that by the follow:ing Monday-the interview taking place on Saturday-Barge would select the property upon whioh the security was to be given. During Saturday and Sunday the members of the firm made an examination of the coudition of their business, and it then became apparent to them that the firm was insolvent, and the conclusion was reached that the best thing to be done was to make a general assignment for the benefit of creditors. For this purpose sched11les of the firm property and debts were made out, directions given to their attorneys to prepare the deed of assignment ready for execution on Monday morning, and a discussion had as to the proper person to aetas assignee, Robert Fullerton being finally agreed on for the position. On Sunday evening complainants' agent, with Mr. King, visited the office of complainants' attorneys, and remained there until about 3 o'clock Monday morning. During this time the chattel mortgage in question was drawn up, covering the stock in trade of the firm, and authorizing the mortgagees to take immediate possession of the mortgaged property, for the purposE' of selling the same. The influences brought to bear upon King to induce him to give the chattel mortgage are readily discernible. He had previously been in the employ of D. M. Osborne & Co. He knew that the business of the firm was at an end. Oomplainants' agent himself testifies that "he said to him that it was by no means right or proper for him to engage in the practice of bad faith, after making for himself a good record in the employment of D. M. Osborne & Co., who were constantly in need of many men to carry. on their business; and no one at his age, under such circumstances, could afford to lose the respect which it had taken so many years to gain." The evidenee shows that King, within 30 or 60 days after the execution of the n'lOrtgage, was taken into the employ of D. M. Osborne & Co., and is still with them. The result of the pressure and influence thus brought to bear upon King was manifested on Monday morning, when King refused to sign the deed of assignment unless the claim of D. M. Osborne & Co. was first secured, regardless of the fact that, had such security then been given, it would, under the Iowa statute, have destroyed the validity of the assignment. The fact of the preparation of the chattel mortgage, the same having been signed and acknowledged by King on Monday morning, was studiously concealed from Barge; and when the latter notified complainants' agent that he would not secure that claim, but that all must share alike, then King gave the agent the chattel mortgage, which was.at once filed for record. In the mean time, upon King's refusal to sign the deed of assignment, Barge executed the same in the
94
firm name. ' Complainants' agent then endeavored to ,take actual posses· sion of the firm propertynnder the mortgage, which was resisted ,by Barge and the assignee under the deed 'of assignment,and, failing in securing the control of the property, the complainants brought the present proceeding Jorthe purpose of foreclosing the mortgage. B. F. Barge, in his OWn name and in the name of the firm, deilies the validity of the mortgage,a.s does also the assignee under the deed of assignment. Thus the question is presented whether the mortgage is valid and binding upon the firD) and its property, under the circumstances developed in the testimony. That one partner may, for the purpose of procuring money to continue the husiness of the firm, or for the purpose of securing or .paying the firm indebtedness, or for any other purpose in furtherance of the business of the partnership, sell or incumber the property of the firm in Whole or in part, is not questioned, subject, however, to the qualification that, if the immediate and necessary result of the transfer will be to put an end to the firm business, then ordina.rily the actual consent of the other partner is required to give validity to such transfer. Bates, Partn.. § 403. The power of a partner to bind the firm arises from the fact that each partner is deemed to be an agent of the firm, and the extent of the power to bind the firm in a given case is a question of agency. Irwinv. Williar, 110 U.' S. 499, 4 Sup. Ct. Rep. 160. In the absence of special limitations in the articles of partnership, each partner has the authority to do any and all acts which, from the nature of the business as generally conducted, may be deemed reasonably intended to further the partnership interests. The payment of the firm debts is usually in furtherance of the business, and hence the application of the firm property in payment or by way of security of the firm debts is within the power of the partner. It is, however, held that one partner has not the right, without the assent, express or implied, of his copartner, to make such a. disposition ,of the firm property as that it necessarily terminates the business of the firm, and, by depriving the firm of the control and management of the property, virtually dissolves the partnership. Thus it is held that one partner has not the right to execute a general assignment of the firm property for the benefit of creditors. By the assignment the property is appropriated to the payment of the debts; and in ordinary commercial partnerships, whose business it is to buy and sell property, each partner has the right to sell property kept for sale, and to pay the firm debts; but the right to make a general assignment is denied to a single partner, because, in effect, the assignment ends the partnership, and deprives the firm of the present control of the property. Bates, Partn. §338. In Loeb v. Pierpont, 58 Iowa, 469, 12 N. W. Rep. 544, the supreme court of Iowa holds that one partner has not the power to execute a general assignment of the firm property without the assent, exprel:ss or implied, of the copartner. In the opinion it is said: "It would appear upon principle that snch power is not possessed by a partner. Under its exercise the business of the firm may be, and, under almost all circumstances, would be, destroyed, and the part'nership itself practically dissolved as to future business. It is true that, theoretically, the assignment
· OSBORNE V. BARGE.
95
is for tlJ.epurpose of the payment of firm debts, and that the lawaIlows one partner to use the property of the firm to discharge the indebtedness; but this rule of Jaw is applied to transactions occurring in the. ordinary business olthe firm, and does .not authorize one partner, upon the exercise oihis ·discretion, to terminate the business of the copartnership. In a matter ofsach gl.'eat. importance to each partner both ought to· be consulted, and be permitted to determine whether the condition of their affairs requires them .to transfer all their property, and abandon their business." In Hunter v. Wayneck, 25 N. W. Rep. 776, the question was whether a sale of the entire partnership property, made by one partner without the assent of the copartner, could be sustained, and the supreme court of Iowa held that it could not, saying: ". Thatit is said there is some conflict of authority as to thfil power of one partner. without the knowledge or assent of his copartner, to sell or assign all the partnership property Conceding this to be so, such question must be regarded as settled in this state. It was held in Loeb v. Pierpont, 58 Iowa, 469" 12 N. W. Rep. 544, that one partner did not have such power, when his coresided in the same town and could have been readily consulted. ... ....... Practically the plaintiff was present when the sale was made, and yet he was not consulted. The appellant had. knowledge of the partnership. .. the fbSidence of the plainti1f, and that he was not consulted." 'The evidence showed that the copartner resided about 75 miles from the place where. the firm business was transacted. The court held that, as he was not consulted, the sale was void fOf want of authority in the one partner to make it. From these authorities it would seem to be the rule in Iowa that the general power of a partner to sell the property of a firm kept for the purposes of sale, and to appropriate the firm property for the payment or seouring of the firm debts, is nevertheless subject to the limitation thaI one partner cannot, without the assent, e;:press or implied, of the copartner"even for the purpose of paying or securing the firm debts, make such a disposition of the firm property as that it, ipso facto, terminates the business of the firm, by depriving the partners of the control and management 9f the property,without which the partnership business cannot be conducted. On behalf of complainants it is forcibly urged that, while the great weight of authority sustains the proposition that one partner has not the power to execute a general assignment, it is equally well settled that one a chattel mortgage to secure a firm debt upon the partner may entire property of the firm. Does it follow, however, that because many chattel mortgages are sustained, that all must be? Is it not the effect of the transfer, rather than its mere form, which is to be considered? In Loeb v. Pierpont the transfer in form was an assignment, and in Hunter v. Wayneck it was an absolute sale, yet both were held void for the same reason. The power to mortgage is included in the power to sell,and is derived from it, and it is difficult to see why the same limitation should not apply to both modes of transfer; that is to say, if the contract between the creditor and the one· partner contemplates an immediate change in the possession and control of the partnership assets, so that, in effect,
96
its necessary result is to work an immediate destruction of the firm business,-on which ground the supreme court of Iowa holds that one partner, without the assent of his copartner, cannot assign or sell the partnership property as a whole,-it is difficult to see how such a contract can be sustained simply because it is made in the form of a chattel mortgage. Furthermore, the authorities that support the doctrine of the right of one partner to execute a chattel mortgage on the firm property mainly place reliance upon the fact that the creditor seeking to obtain security for his debt-as he has a right to do-is justified in assuming that sales or transfers of firm property made by one partner are made with the assent of the copartner. When the business of the firm is that of buying and selling, it follows that ordinarily each partner, as an agent of the firm, has the right to sell the property bought for the purpose of .sale, and the creditor has the right to assume that each partner has the authority to dispose of the property in furtherance of the partnership business. After the sale or transfer has been made, it. is too late for the one partner then to claim that, as to the particular transfer, no authority existed to make it; for the transferee has the right to rely upon authority or power which the partner apparently had.. If, however, it appears that the transferee knew at the time the transfer was made that it was made by one partner contrary to the will of the copartner, then he certainly takes the property at his peril; and if, in fact, as betweeIi the partners, the particular transfer was ultra vires, upon what ground can it be sustained in favor of the creditor? The right of one partner to give, and of the creditor to take, security upon firm property, by way of chattelmortgage or otherwise, executed by one partner, is not questioned, so long as the particular transaction does not come within the doctrine of the supreme court of Iowa, that it is not within the power of one partner, upon the exercise of his individual discretion, to make transfers which, in effect, immediately terminate the business of the copartnership. '1'he evidence in this case shows clearly that the arrangement between complainants and King contemplated the immediate taking possession of the mortgaged property. King handed the keys of the store building in which the property was situated to complainants' agent upon the delivery of the mortgage, and the latter at once p.ndeavored to oust Barge from the possession and control of the property. With complainants in full possession and control of the mortgaged property, the business of the firm would have been ended; and hence the contention .of the defendants that the transfer, regardless of its mere form, must beheld to be beyond the power of one partner to make without the consent of the copartner. Whether the fact that the transfer of the property is under the guise of a mortgage takes the case out of the operation of the rule laid down by the supreme court of Iowa in cases of assignments and absolute sales, has not, so far as we can discover, been decided by that court; and we are disposed to leave it for future consideration, in the hope that should it arise we may then have an authoritative decision by the supreme court of Iowa for our guidance in determining it.
OSBORNE
V.
BARGE.
97
The validity of the mortgage is further questioned on the ground that in fact it is a fraud upon the firm and the partner Barge. As already stated, the two members of the firm, upon mutual consultation, had the conclusion that a general assignment for the benefit of creditors should be made, and the schedules therefor had been prepared and directions given for the preparation of the deed of assignment, 80 that the same could be promptly executed on Monday morning. On Sonday night King was induced to consent to the preparation 'of the chattel mortgage, but all knowledge thereof was kept carefully concealed from his copartner. The legal effect ofthis instrument, when delivered, would be to enable the mortgagees to take the immediate possession and control of the stock in trade, and deprive the partners of the management and right of sale thereof; and the evidence shows that it was the understanding between .King and complainants' {lgent that the latter should take the immediate possession of the property. Moreover, the execution of the mortgage would necessarily result in giving complainants a preference over other creditors, and thereby destroy the validity of the general assignment, if the same should be executed as agreed upon. No elaboration of the facts is needed to show that the execution of the mortgage, under the circumstances, was a transaction of such a nature that good faith required King to consult with his partner before the execution thereof. Not only did he not consult with him, but care was taken to keep all knowledge of it from the partner until after its delivery. The motives that induced King to do as he did are apparent. He realized that the firm business was at an end. His personal interests would be best subserved by meeting the demands of complainants. For the purpose of preserving his standing with his former employers, and to insure his re-employment by them, he was willing to secretly collude with complainants, Rnd, by the execution and delivery of the mortgage withdut the knowledge of his copartner, prevent the carrying out of the agreement existing between himself and his copartner touching the disposition of the property of the firm. As between the partners, such secret ac. tion on part of King was fraudulent and void. It cannot be permitted to one partner to secretly dispose of the firm property for his own private and personal advantage. Complainants can claim no better position, nor greater rights, than the partner King. When the mortgage was executed and delivered their agent knew that it was so executed and delivered without the knowledge and consent of the partner Barge, and that, practically, it was in fraud of his rights. The agent knew the motive that had influenced the action of King, and in fact was the prime mover in the transaction. Complainants, therefore, were active participants in the fraud sought to be perpetrated on King's copartner, and as such cannot ask a court of equity to enforce an instrument thus tainted with fraud. The bill of complainants is therefore dismissed on the merits, at their cost. BREWER, J. I concur in the conclusions reached by my Brother SHIRAS, and these grounds: v.35F.no.2-7
98
KLEIN
'D.
FLEETFORD et al. May 9, 1888.)
(Cliro'Uit Court. D. Colorado.
'INJUNCTION-MODIFICATION-MoTION BEFORE ANOTHER JUDGE-U:RGENCY.
Unless the necessity is so urgent as to require immediate action, an injunction will not be modified. changed, or set aside, except by the same judge who granted it.
In Equity.
Motion to modify injunction. S. P. Rose and H. W. Hobson, for complainant. T. R. Ower and O. D. F. Green, for defendants.
BREWER, J. This is a motion to modify an injunction order made by the district judge on the 18th day of April. I had occasion last term, in deciding a case, to say to counsel that as a rule injunctions issued by one judge would remain, uIJless modified, changed, or set aside by the same judge. I need not repeat the reasons which were then stated. Judge HALLETT being away when this motion was presented, it seemed to me that it might prove an exception to that rule; that I might be justified in making an examination of the papers, and seeing if any emergency required immediate action. I have examined them. They are quite voluminous, and while I think it would be right to make the modifications which are asked; those modifications being simply to the effect that the party in charge should be some indifferent person, and not one who had been heretofore the active supporter of either of the parties, and also that each party should be allowed to go upon the premises for inspection. Each of these things I think ought to be done. It is very evident, from an examination of these voluminous pleadings, that there is going to be a protracted controversy. It is very evident from the affidavits that there has been a good deal of quarreling between these parties, who are joint owners of the property. It is very evident that there is deep feeling existing between them. So;r think it can be