Opinion
Decided January 26, 1898.
ERROR to the Circuit Court of Hamilton county.
The action below was brought by Owen McGrath against Catherine Cowen, individually and as executrix of the will of her deceased husband, to dissolve a partnership existing between the parties, and for the appointment of a receiver to take charge of the assets and wind up its affairs. The petition alleges that the plaintiff, "in the year 1868, entered into a partnership with James Cowen, since deceased, by verbal contract, for an indefinite period of time, under the firm name of Cowen McGrath, for the purpose of conducting the business of wholesale dealers in boots and shoes in the city of Cincinnati, on consignment and for commission, and also for the purpose of conducting in their own right the business of selling boots and shoes at retail in said city; that said partnership was at sufferance, and was so continued by the plaintiff and said James Cowen, for a period of about eighteen years, up to November, 1886, when the said James Cowen died, in the city of Cincinnati; that on December 6, 1886, the last will and testament of said James Cowen was duly probated in the probate court of this county, under which the defendant Catherine Cowen, widow of said James Cowen, was duly appointed and qualified as executrix, and is still acting as such; that, among other things, said last will and testament provides as follows, viz.: Item 2. ` It is my desire that the business of Cowen McGrath be continued as heretofore, and my executrix is authorized and required, by and with the advice of my sons now engaged in said business, to continue the same and to make any and all contracts or arrangements proper to effectuate the same. I have been associated with Mr. McGrath for thirty-three years, and I can rely upon his considerate treatment of my family in this matter. The proceeds of my share in said business to be divided between my wife and children as they may agree, or in the absence of any agreement, in the proportion named for the division of my estate.' And in Item 3 of said will, among other things, it is provided: `It is my will that no division of my property take place as long as the business of said Cowen McGrath be continued.' Plaintiff further states that after the death of said James Cowen, said business and partnership was continued under an agreement between the plaintiff and the defendant and under the terms and authority conferred by said will, and also under an agreement with the defendant individually, under the same firm name and in the same manner as it was formerly conducted prior to the death of said James Cowen, and that the said business and partnership was so continued from the time of said death and the time of the probate of said will up to the present time at sufferance and without any agreement as to the duration of the said partnership or business whatever. The plaintiff states that the business now carried on by said Cowen McGrath consists of a wholesale establishment at No. 64 West Pearl street, Cincinnati, for the sale of boots and shoes on commission, which merchandise has been consigned to said firm by manufacturers and dealers located in Massachusetts and other eastern states and elsewhere, and that said firm has a stock of goods and merchandise now on hand belonging to said consignors, and also certain outstanding accounts representing sales from such consigned goods, which may belong to consignors; that the other business conducted by said firm are two retail stores in the city of Cincinnati, one at 150 West Fifth street, and the other at 272 West Fifth street, which stores contain goods and merchandise sold to said firm absolutely, and from which stores the said firm are prosecuting sales of boots and shoes at retail. Plaintiff further states that the said firm, doing business both at Pearl street and Fifth street, is insolvent, and is unable to meet its obligations either for the goods held on consignment or for the goods purchased for said retail stores; that some of the debts owing by said firm are past due, and they are unable to pay the same; that mortgages have been executed by said firm to various creditors to secure their claims against said firm upon the stock in said retail stores, and that the said mortgagees are now in possession thereof, with power to sell; that there is a large equity in said property covered by said mortgages, which should be preserved for the benefit of the creditors of said firm, and which may be seized by legal process, and may be jeopardized unless a receiver be appointed to take charge and possession thereof for the benefit of creditors, and the property in said wholesale store and the accounts arising therefrom belonging to consignors, will be jeopardized unless the same be preserved by a receiver to be appointed by the court, who shall take possession thereof for the benefit of whom it may concern; that suits are threatened against said firm, and there is a conflict between said mortgagees as to their priorities, and said mortgagees threaten to sell said property, and the same will thus be sacrificed unless sold by a receiver, to be appointed by this court. Plaintiff states that he heretofore demanded of the defendant, both as executrix as aforesaid and individually, a dissolution of said firm, which she refused and now refuses, and he now demands as of right a dissolution thereof; that he has never been able upon his demand for a dissolution, to agree with the defendant upon the terms thereof, or to secure her assent or concurrence thereto, and can not now agree with her thereon; that he has heretofore demanded of the defendant to join with him in an assignment for the benefit of creditors, by said firm, of all of its property, which she has refused and still refuses; that the rights and interests of this plaintiff and of all the creditors of said firm, and the rights of the consignors and owners of the goods and accounts in said wholesale store will be endangered and sacrificed unless all the property belonging to said firm be placed in the possession of a receiver, to be appointed by this court; that the plaintiff is entitled to have said firm dissolved and its property appropriated to the payment of its debts. Wherefore plaintiff prays that said firm be dissolved by the order of this court, and that a receiver be appointed by this court to take charge and possession of all the property, rights and credits of said firm, and to sell the same under the orders of this court, and apply the proceeds as the court may order, and for all other and proper relief to which he is entitled in equity."
Upon the filing of the petition, with the consent of an attorney who had formerly attended to some business for the defendant, but who was without authority to represent her in the action, a receiver was appointed, who qualified and took possession of the property. It does not appear that the defendant was served with process; but, without taking any step to vacate the appointment of the receiver, she filed an answer, which is as follows:
"Now comes Catherine Cowen, executrix under the will of James Cowen, deceased, and Catherine Cowen individually, and by leave of court files this her answer and cross-petition herein. 1. Defendant denies each and every allegation of the petition not herein specifically set forth and expressly admitted. 2. Defendant denies that the firm of Cowen McGrath executed any mortgages to various creditors to secure their claims against said firm upon the stock of goods contained in the retail stores belonging to the said firm. Defendant says that, if there be any such mortgages, the same are invalid, and have no force or effect, for the reason, among others, that they were not executed by said firm of Cowen McGrath, nor by any one duly authorized thereto, or to execute and deliver said mortgage or mortgages; and they further deny that any of the parties named in said pretended mortgages were in lawful possession of the property mentioned therein at the time of the appointment of the receiver herein, nor at any time; and that, if any of said parties were in the actual possession of said stock, such possession was without authority of said firm of Cowen McGrath. 3. Defendant says that the mortgages referred to in the petition of the plaintiff herein were all executed and delivered by said plaintiff without the knowledge or consent of this defendant, and without any authority of law to execute and deliver the same; that said mortgages were not executed in the regular course of the business of said firm, nor for the purpose of obtaining any money or funds for or on behalf of said firm, nor for any purpose in furtherance of the continuation of the business thereof, but were executed solely by Owen McGrath, the plaintiff herein, and against defendant's consent, to secure an antecedent and existing indebtedness of said firm when the same was practically insolvent. Wherefore the said defendant, Catherine Cowen, executrix, and Catherine Cowen, individually, prays that said mortgages and each of them may be declared null and void, and held for naught; that the proceeds from the sales of the property mentioned and described in said mortgages shall be distributed pro rata among all the creditors of said firm of Cowen McGrath, and for all other and proper relief."
The firm of David Cummings Co., which was an unsecured creditor of the partnership of Cowen McGrath, to an amount exceeding eleven thousand dollars, was made a party, and filed an answer similar to that of Mrs. Cowen. There were a number of other creditors without security. The mortgagees referred to in the petition also became parties, and filed answers, claiming the benefit of their mortgages, and alleging that the debts secured by them were bona fide debts of the firm of Cowen McGrath, and that when the mortgages were executed, the defendant Catherine Cowen was absent from Hamilton county, and inaccessible, which last allegation was denied by reply. After trial and judgment in the common pleas, the cause was appealed to the circuit court, where the mortgages were held invalid, and the proceeds of the partnership assets ordered to be distributed pro rata to all the partnership creditors; the fund being insufficient to satisfy all.
Kramer Kramer and Ramsey, Maxwell Ramsey, for plaintiffs in error.
The mortgagees, together with Owen McGrath, prosecute error to this court. A further statement of the facts, so far as they are deemed material in the disposition of the questions made, will be found in the opinion.
We claim the following propositions are sustained by the authorities:
1. There has been and is such a consensus among the authorities to the effect that a. partner can not execute a general assignment for the benefit of creditors, that it is now settled law.
2. It has been so frequently and uniformly held that a partner, without the consent of his copartner, may mortgage all the firm property to secure a firm debt, that it may be said that it is now a rule of law that a partner has such power.
Some of the authorities supporting the first proposition are as follows: Holland v. Drake, 29 Ohio St., 441; The H. B. Claflin Co. v. Evans, 55 Ohio St., 183; Wells v. March, 30 N. Y., 344; Loeb v. Pierpont, 58 Iowa, 469; Deming v. Colt, 3 Sanford, 284; Kimball v. Hamilton, 8 Bosw., 491; Coqually v. Weil, 47 Md., 277; Hock v. Stone, 34 Mo., 329; Dana v. Lull, 17 Vt., 390; Brooks v. Sullivan, 32 Wisc., 444; Bull v. Harris, 18 Ky., 199.
Some of the authorities supporting the second proposition are as follows: Mabbett v. White, 12 N. Y., 443; Graser v. Stellwagen, 25 N.Y., 315; Tapley v. Butterfield, 1 Metc., (Mass.) 515; Woodruff v. King, 47 Wisc., 264; Miften v. Mosher, 7 Metc., 244; Chicago Union Bank v. Kansas City Bank, 136 U. S., 225; Arnold v. Brown, 24 Pick., 89; Lambe v. Durrant, 12 Mass., 56; Patch v. Wheatland, 8 Allen, 102; 14 R. I., 500; 3 Duer, 1; 61 Wisc., 335; 17 S.E. Rep., 946; 24 S. W. Rep., 578; 68 Tex., 400; 130 Ind., 63; 55 N. W. Rep., 662; 58 Mo., 532; Settle v. Dry Goods Co., 66 Fed. Rep., 850; Letts, Fletcher Co. v. McMasters, 83 Ia., 449; Kaiser v. Dry Goods Co., 96 Ga., 760; White Lead Co. v. Hays, 33 N. W. Rep., 657; Same on rehearing 35 N. W. Rep., 494.
In case of an assignment for the benefit of creditors, the assignor intends to digest himself not only of the title to his property, but of the control of it. Kohn Bros. v. Clement, 55 Ia., 593.
An assignment is the transferring and setting over to another some right of title or interest in things in which a third person, not a party to the assignment, has a concern and interest. There must be the intervention of a trustee. Whinner v. Hoyt, 28 N. W. Rep., 384; Cowles v. Ricketts, 1 Ia., 584; Froome v. Jones, 13 Ia., 594; Bank v. Crittenden, 66 Ia., 240; Havens v. Hussy, 5 Paige, 30; Loeb v. Pierpont, 58 Ia., 469; Burrell on Assignments, 43-65; 1 Am. Leading Cases, 442-462; Collyer on Partnership, section 395; Storey on Partnership, section 101.
A partner can, make a mortgage covering all the firm property. Woodruff v. King, 47 Wisc., 264, Lindley on Partnership, Vol. 1, pp. 140, 141, 2d. Am. Ed. and notes.
The partner can not make an assignment. Storey on Partnership, section 101 and notes.
There is no prohibition on his making a mortgage in any part of the said work. Jones on Chattel Mortgages, 4th Ed., section 46; Cobbey on Chattel Mortgages, section 433; 3 Weekly Law Gazette, 365; 3 Western Law Monthly, 306.
Distinguishing a general assignment for the benefit of creditors from a chattel mortgage, Froome v. Jones, 13 Ia., 481; 33 Mo., 579; 58 Mo., 532.
A general assignment can not be made by one partner because the assignment ipso facto dissolves the partnership; because the property passes once for all beyond the control of the partnership, and because there being a trustee, a complication of duties and responsibilities is involved.
The weight of authority is to the effect that a partner has such an absolute jus disponendi of the partnership effects that he can, in a single sale, dispose of or mortgage the whole firm property, and this, too, though it may put an end to the partnership; 24 Pick, 89; 5 Watts, 22; 59 Ala., 338; 10 Mass., 481; 12 Mass., 56; 12 N. Y., 454.
The question whether or not the giving of mortgages by a partner of an insolvent firm and the contemporaneous appointment of a receiver, is tantamount to a general assignment, has been decided by this Court in case of Cross v. Carstens, 49 Ohio St., 548; Chicago Union Bank v. Kansas City Bank, 136 U. S., p. 223.
The defendants in error now ask the Court to go a step further and to hold that because a partner can not make a general assignment as is decided in 29 Ohio St., 441, and the case of Claflin v. Evans, supra, be in consequence can not make a mortgage. Bates on Partnership, section 403, et seq.; 21 Colo., 803; 18 B. Monroe, 195.
McGrath did not deprive Mrs. Cowen of any rights or powers in respect to the partnership. The creditors, as such, have no rights to the assets of the firm except through the partners. She could have paid off the mortgages if she desired. She could have executed mortgages herself to prefer any creditors; and it is a mere sentiment to say that the payment of particular debts, if they be honest, by a partnership can be a fraud upon the partners or any of its creditors. It is the first duty, the all-the-time duty, of a partner to pay off its debts, and if it can not pay any money, then to secure its debts, and such of its debts as either of the partners may determine, are entitled to preference.
In the case at bar the active managing partner, who had floated the insolvent firm along for years, through his efforts with the bank to borrow money and renew obligations, saw fit to prefer the bank. The same is true as to the other plaintiffs in error who were local shoe manufacturers in Cincinnati, and who extended credit to this firm on liberal terms and who had dealt with the firm for many years. 83 Ia., 449; 96 Ga., 760; 12 N. Y., 443; 136 U. S., 225; 68 Tex., 400; Jones on Chattel Mortgages, 4th, Ed., section 46; Harvey v. Ford, Mich., 47 N. W. R., p. 242; Roberts v. Waterman, Mich., 55 N. W. R., 662; 43 Pacific Rep., p. 35; 127 N. Y., 442; Farwell v. Cooke, 42 Ills.. App. 191: 138 Ills., 571; 130 Ind., 63; 56 N. W. R., 321.
If the non-assenting partner does not object to the decree, can creditors be heard to complain'?
It will be remembered that Mrs. Cowen was satisfied with the decree in the Common Pleas Court, sustaining these mortgages. She took no appeal whatever and prosecuted no error. Therefore as to her the decree of the Common Pleas Court is final. The unpreferred creditors, defendants in error, David Cummings Co., alone appealed from the decree of the Common Pleas to the Circuit Court.
We contend that they are in no position to complain of the giving of these mortgages. Any rights which they have in the assets of this partnership can only be worked out through the `partners. Sigler v. Knox Co., Bank, 8 Ohio St., 511; Huis kamp v. Moline Wagon Co., 121 U. S., 310; Case v. Beaueregard, 99 U. S., 119.
Was this a partnership at the time the mortgages were executed?
Owen McGrath and James Cowen were partners as Cowen McGrath for eighteen years prior to the death of Cowen. He died nine years prior to the giving of these mortgages. Upon his death the firm of Cowen McGrath was dissolved by operation of law. At that time, and thereafter, Owen McGrath, as surviving partner, had the right to liquidate the business, and pay off the debts, and in so doing, he had a right to prefer any of the creditors. Bohler v. Taphan, 1 Fed. Rep., 461; 29 W. L. B., 93; Woerner on Administrators, 281, et seq.
"The business from the time of Cowen's death was continued by McGrath under the same firm name, and some of the debts secured by these mortgages, notably the debt to the bank, were renewals of debts existing at the time of Cowen's death.
It is true that Mrs. Cowen remained in the store and drew a salary, but she was working in one of the retail stores as a saleslady, not as a partner, and the firm was not continued with her, notwithstanding the will of her husband that it should be, by any contract of McGrath's whatever, either in writing or verbally, or by implication.
It is well settled that an executrix can not enter into a partnership agreement, with or without a direction in the will as against creditors, owing to her fiduciary relation and trust capacity, so that if this was not a surviving partnership, then the business carried on under the name of Cowen McGrath, since the death of Cowen, belonged to McGrath alone, doing business under the name of Cowen McGrath, and the title to the property was in him alone, so that the business of Cowen McGrath, since the death of Cowen, was either a surviving partnership, or it was the business of Owen McGrath alone.
The mortgages, therefore, being executed in three different capacities, must be sustained.
First — If it be a partnership, they were executed by McGrath as one of the firm, and without any fraud whatever.
Second — If it is a surviving partnership, they were executed by McGrath, as surviving member of that partnership; and,
Third — If it be neither a partnership nor a surviving partnership, then he executed the mortgages in his individual right. Johnson Levy and William II. Jones, for defendants in error.
All the text writers lay down the rule with remarkable unanimity, that one partner may sell or encumber by way of a mortgage, either to raise funds or secure debts of the copartnership, its property, for the purpose of carrying on the partnership, but he cannot do it for the purpose, or with the intent, of terminating the business; and in this connection, care must be observed not to confound the entirety of the body (that is, the whole or all of the copartnership property) with the entirety of some particular class, kind or portion of the partnership goods or plant. Story on Partnership, section 101; Holland v. Drake, 29 Ohio St., 441; Lindley on Partnerships, Vol. 1, star p. 126; Bates on Partnership, sections 315, 317, 320; Hawtayne v. Bourne, 7 M. W. 595; ex parte Chippendale; 4 De G., M. G. 19.
One partner can not pledge the entire partnership property and chattels without the assent of his copartner, to prefer the claims of a few, or even all, the creditors, and the same time give them immediate possession of the property. Pettee v. Orser, 6 Bosw., 137; Sloan v. Moore, 37 Pa. St., 217.
It is true that Mrs. Cowen did not appeal from the decision of the common pleas court, but her legal status was settled and determined when she filed her answer and cross-petition in that court asking that the mortgages all be set aside and that the partnership assets be distributed pro rata among all the creditors. By filing her answer and cross-petition she irrevocably determined her status, and when that was done it was not necessary that she should personally follow the case through its various stages, but leave that to be done by the creditors, who are the only ones pecuniarily interested or affected by the controversy.
Mrs. Cowen was brought into court by her co-partner, McGrath, on his petition for a dissolution of the firm and a distribution of its assets. This petition alleges the execution of the mortgages; that the mortgagees were in possession with power to sell; that there was a large equity in the property covered by the mortgages which should be preserved for the benefit of the creditors of the firm, and concludes with a prayer that the receiver take charge and possession of all the property, and sell the same under orders of the court and apply the proceeds as the court may order.
The governing principle is this: that while a partner has the power `to sell or mortgage the entire stock of the firm, it is subject to the limitation that such a sale or mortgage must be for the purpose of furthering and carrying on the business of the firm, and not of destroying or terminating it. Bates on Partnership, section 403.
The single inquiry, therefore, is, was the power exercised to preserve the business of the copartnership, or to destroy it? Osborne v. Barge, 29 Fed., Rep., 725.
There are a number of other cases that in principle fully sustain the doctrine of Osborne v. Barge, and to the more important of which we will now refer. Blaker v. Sands, 29 Kan., 551"; Cayton v. Hardy, 27 Mo., 536; Drake v. Thyng, 37 Ark., 228; Grossman v. Shears, 3 Ont. App., 583; Kimball v. Hamilton Fire Ins. Co. 8 Bosw., 495; Dickenson v. Legare, l Desaus, 537; Sloan v. Moore, 37 Pa. St., 217; Hunter v. Wayneck, 67 Iowa, 555; Carr v. Hertz, 33 Atl. Rep., 194.
Another ground for holding the mortgages executed by McGrath invalid is because they covered not only the merchandise intended for sale, but also the counters, shelving, fixtures and other chattels not intended for sale, but only for the continued use of the partnership business, and as to which, under all the authorities, he had no power as a partner to sell or pledge.
Partnership — Appointment of receiver — Non-consent of partner — Rights of partners and of firm creditors — Effect of mortgage on firm property given by one partner — Death of one partner and continuation by surviving partner and the executor of deceased — Nature of such continued business — Proceedings in error to reverse judgment — No record of finding or agreed statement of facts — Rule of presumption by court as to facts.
1. The appointment of a receiver in an action between partners, though appearing to have been made by consent, does not estop the defendant from taking issue on the allegations of the petition which relate to the rights of the parties or of creditors in the partnership property, nor from attacking the validity of mortgages made by the plaintiff of the partnership property without the defendant's consent: but the existence and membership of the firm, as alleged in the petition, is not thereafter open to dispute by the parties.
2. A dissolution of a partnership takes place immediately on the death of one of its members; and a continuation of the business thereafter by the surviving partner and the executor of the deceased member, in pursuance of an agreement between them, is the formation of a new partnership, the terms of which, when not otherwise expressly agreed upon, may be implied from the manner of conducting the business to be the same as those of the former partnership.
3. Where, in a proceeding in error in this court, the record does not show an agreed statement or finding of the facts, but there is a bill of exceptions purporting to contain all the evidence, and the reversal of the judgment is sought on the ground that the undisputed facts, or those proven by uncontroverted testimony, require its reversal, it will be presumed, in support of the judgment, that all facts necessary to sustain it, which the evidence fairly tends to prove, were established to the satisfaction of the court whose judgment is under review.
4. While each partner is the agent of the other for the purpose of carrying on the partnership business in the usual and ordinary way, and has authority to bind the firm by sales and mortgages, of any or all of its property, made in the usual and ordinary course of its business, to bona fide purchasers and mortgagees, it is not within his implied authority to make a final disposition of all the tangible property of the firm, either by chattel mortgage or other method of transfer, the purpose and effect of which is to immediately terminate the partnership, and place the property beyond its control; and when such disposition is so made without the consent of a copartner who is accessible at the time, it is a fraud on the latter, and may be avoided by him, though it be made to bona fide creditors of the firm, and to create preferences in their favor.
5. The assertion by the non-assenting partner of his right to avoid such disposition of the partnership property inures to the benefit of the partnership creditors, who may avail themselves thereof to secure an equal distribution of the fund.
The subject of the controversy here is the validity of the chattel mortgages made by Owen McGrath, in which is involved his authority to make them against the known wishes of the defendant Catherine Cowen. One of the grounds on which it is sought to sustain them is, that when they were executed, the property covered by them belonged to the partnership which had been formed between the plaintiff and James Cowen, the business of which was then being carried on by the former, as the surviving member of the firm, who, as such, it is claimed, had the absolute power of disposition of the assets, without the concurrence or consent of the defendant. It is contended, that the petition contains proper allegations showing this to be the nature of the partnership, the character of the business, and the ownership of the property, and that the defendant is estopped from controverting them, by her consent, as appears of record, to the appointment of the receiver. Or, on the other hand, if the firm consisted of the plaintiff and defendant, the latter is estopped by the order appointing a receiver to deny the execution of the mortgages by that firm. The record, however, will admit of neither of these interpretations.
1. There can be no doubt that, upon the death of James Cowen, the partnership between him and McGrath was immediately dissolved, and the exclusive possession and control of its entire assets became vested in the survivor for the purpose of closing up its affairs; so that, if no new partnership relation was thereafter entered into by McGrath, there was none to be dissolved, nor any . occasion for an application by him for a receiver. It also appears from the petition that, by the will of the deceased partner, his executrix was directed to continue the business with McGrath, and authorized to make all necessary and proper contracts for that purpose; and that, in pursuance of the authority conferred by the will, the partnership business was continued and carried on, under an agreement between McGrath and the defendant individually, and as executrix of the will, from the death of James Cowen and the probate of his will until the time of the filing of the petition. As a partner cannot possibly continue to be a member of a firm after his death, any agreement with his executor, or other person having a beneficial interest in the share of the assets which belonged to him, for the continuation of the business thereafter with the surviving partner, is, necessarily, the formation of another partnership, the terms of which, when not otherwise expressly agreed upon, may be implied, from the manner of conducting the business, to be the same as those of the former partnership. "What is inaccurately called provisions against the dissolution of the partnership is an agreement that, if either party dies, his property shall remain in the firm and in the business, for the benefit of his children; or that his children, or some of them, or some other person, shall immediately on his death take his place in the firm, and become a partner in his stead. All these agreements and arrangements and all that can be made for a similar purpose, are, in fact, only bargains for the creation of a new partnership when the old one ceases to exist. And so, too, all arrangements or contracts which may be made between the surviving partners and the representatives or appointees of the deceased have for their effect only the formation of a new partnership, which, upon some terms or other, takes the stock, and carries on the business of the old one." Parsons on Partnership, section 343. The effect cannot be otherwise of any arrangement for a continuation of the business, between the surviving member of the firm and the executor or other appointee under the will of the deceased member, made in pursuance of the will; for, upon the death of the partner, his personal estate, including his interest in the partnership, devolves upon his executor and vests in the beneficiaries of the will, and becomes their property.
The plaintiff, in unequivocal terms, recognizes the defendant as a copartner with him in the business and property in question. He alleges in his petition, "that he has heretofore demanded of the defendant, both as executrix as aforesaid and individually, a dissolution of said firm, which she refused and now refuses, and he now demands as of right . a dissolution thereof; that he has never been able, upon his demand for a dissolution, to agree with the defendant upon the terms thereof, or to secure her assent or concurrence thereto, and can not now agree with her thereon; that he has heretofore demanded of the defendant to join with him in an assignment for the benefit of creditors, by said firm, of all of its property, which she has refused and still refuses; that the rights and interests of this plaintiff and of all the creditors of said firm, and the rights of the consignors and owners of the goods and accounts in said wholesale store, will be endangered and sacrificed unless all the property belonging to said firm be placed in the possession of a receiver, to be appointed by this court; that the plaintiff is entitled to have said firm dissolved, and its property appropriated to the payment of its debts." If, therefore, any estoppel arises from the averments of the petition and the appointment of the receiver as therein demanded, it is such as precludes a denial by the plaintiff of the existence of the partnership between him and the defendant, and of her rights as a member of the firm. In order to have a dissolution of a partnership and a receiver, it is essential that there be a partnership to be dissolved; and the members are necessary parties to an application for the appointment of the receiver. The appointment, therefore, is necessarily a determination of the existence and membership of the firm involved in the application, and, it may be of such other facts as are essential to the order of appointment, but no further.
2. The purpose of the appointment is to place the assets in the control of a disinterested person, to be disposed of to the best advantage of the members and creditors of the firm, so that their rights in the fund may be secured as they may be made to appear. But the appointment, though made by consent, is not a confession of all the allegations of the petition, so as to forestall inquiry into the rights of the parties in the fund, upon issues raised by proper pleadings. The determination of questions concerning the execution and validity of the chattel mortgagees, and of the rights of the parties and of creditors with respect to them, was not necessary to the order of the court appointing the receiver; nor does the record show any adjudication of them when the order was made; nor did they properly enter into the appointment. Such questions relate to the distribution of the fund, rather than to the selection of a person to preserve it; and the proper method of presenting them is by answer or other appropriate pleadings, for which, when the appointment was made, no party in interest was in default; and their adjudication may be appropriately had, as was the ease in the court below, upon the final distribution of the fund.
3. The mortgages were assailed on the ground that the manner of their execution, under the attending circumstances, was such as to render them ineffectual to create liens on the property included in them, which was that of the partnership then existing between the plaintiff and Catherine Cowen; and on this ground they were held invalid by the circuit court. There was no finding of the facts by that court; but the case is here upon a bill of exceptions purporting to contain the evidence, which, it is claimed, is without substantial conflict, and its review is sought hereupon the theory that the undisputed facts, or those established by uncontradicted testimony, require the reversal of the judgment. In such a case, as this court is not required nor expected to weigh the evidence, it will be presumed, in support of the judgment, that all facts necessary to sustain the judgment, which the evidence fairly tended to prove, were established to the satisfaction of the trial court. And, within that rule, the material facts of the case, as shown by the record, may be stated as follows: On the 20th day of May, 1893, the copartnership, then consisting of the plaintiff and Catherine Cowen, was engaged in the retail boot and shoe trade, having two stores on Fifth street, in the city of Cincinnati, and was the owner of the stocks of goods in both stores, and of the counters, shelving, furniture, and fixtures used in conducting the business, and was also engaged in handling boots and shoes on commission at a store on Pearl street; but the goods of that store belonged to the consignors. The firm was then, and for some time had been insolvent, in the sense that its property was insufficient to pay its debts, though it still had good credit, and was actively engaged in the prosecution of its business. On that day, which was Saturday, the plaintiff caused to be prepared, ready for execution, the four chattel mortgages in question, which cover all the tangible property then belonging to the firm, including, the counters, shelving, and other furnishings and fixtures necessary for, and used in carrying on its business, and signed the same in this form: "In witness whereof, the said Cowen McGrath, a firm, and Owen McGrath, surviving partner of said firm, and Owen McGrath, individually, have hereunto set their hands, this 20th day of May, A. D., 1893. "Cowen McGrath by Owen McGrath, Owen McGrath, surviving partner of Cowen McGrath. Owen McGrath."
At the same time, the plaintiff had prepared, ready for filing, the petition for the dissolution of the partnership and appointment of a receiver, which he subsequently filed, as hereinafter stated. On the day the mortgages were signed, they were placed in the hands of the mortgagees, which was the first intimation to them that there was any intention to make them. At that time none of the claims secured by the mortgages were due, except, it may be, a small part of one of them, and none of the creditors to whom the mortgages were made had requested security, or were pressing for the payment of their debts. There had been no previous understanding or agreement that those creditors were to have security, nor was there any stipulation for delay, or extension of credit, or other change whatever in the situation of the mortgagees, on account of the security offered, but the giving of the mortgages was the voluntary and unsolicited act of the plaintiff. The mortgagees, however, made the affidavit on the mortgages which the statute requires, and then immediately surrendered them to the plaintiff, who retained them in his possession and control until the following Monday morning, when, about nine o'clock, he caused them to be filed with the recorder, and immediately thereafter filed the petition in the court below. The mortgages appear to be without a sufficient condition of defeasance, and contain a stipulation authorizing the mortgagees to take immediate possession of the property, which they did as soon as the mortgages were filed, through the attorney who then represented them, as well as the plaintiff; and the stores were at once closed, and possession delivered by them to the receiver appointed upon the filing of the petition. The avowed purpose of the plaintiff, in the course pursued by him, was to terminate the partnership, place its property beyond the control of the firm, and insure the preference of the mortgagees, all of which was known to them at the time; and the whole proceeding was without the assent or knowledge of Mrs. Cowen, who resided in rooms above one of the stores, was accustomed to participate actively in the business of the firm, and, at all business hours of the day on which the mortgages were prepared and signed, was present at the store, engaged with the plaintiff in attending to the business as usual; but his actions and designs respecting these transactions were purposely concealed from her, for the apparent reason that she had refused to unite in a general assignment of the partnership effects for the benefit of its creditors, and the plaintiff knew she was opposed to any step which would put an end to the partnership, or interrupt its business. The property covered by the mortgages, which, as before stated, constituted substantially all the property of the firm, is insufficient to satisfy the indebtedness intended to be secured by them, and there are other creditors to a large amount who are without security of any kind.
It is obvious, from these facts that the mortgages, if sustained, amounted to a complete and final disposition of all the partnership effects, such as at once and inevitably put an end to the partnership, by the act and according to the will of the plaintiff alone, not merely without the consent or concurrence of his copartner, who was easily accessible and could have been consulted, but in direct violation of her known wishes on the subject. In the making of such a disposition of the partnership property, neither partner has any greater right than the other to have his plan and desires observed and carried out, but each is entitled to an equal voice; and the observance of that good faith which the partnership relation enjoins upon its members in their conduct toward each other requires that, before attempting such disposition by one partner, the other, when accessible, shall be consulted, and given an opportunity to protect himself by forbidding its completion, or making his objections to its consummation. And any secret arrangement by one partner, in a transaction of that kind, by which it is sought to frustrate the wishes of the other, or deprive him of his equal right, whether designed to secure to the former some individual advantage or not, is a fraud on his copartner, and in excess of his implied authority as a member of the firm.
The implied authority of a partner in the transaction of the partnership business is not a consequence of his interest in the partnership property. That belongs to the firm, and, in case of insolvency, is regarded as a trust fund for the creditors. The individual interest of the partner amounts to nothing more than his share of any surplus that may remain after the debts are paid, and the rights of the partners, as between themselves, are adjusted. This interest each partner is free to dispose of without the consent of the others. But his power to bind them or the firm in the disposition of its property rests upon the ground of agency which arises from the presumed assent of the members in the formation of the partnership; and, in order to be binding upon them, his acts must be within the limits set by them on his authority, or as implied from the nature of the partnership business. The general rule, in the absence of special agreement or ratification, is that each partner is a general agent of the firm for the purpose of carrying on its business in the usual and ordinary way, and what is necessary for that purpose is the limit of the authority. `'The nature of every business implies certain intrinsic restrictions, to exceed which requires express authority, and which a third party dealing with a partner must observe. The powers of the partner do not extend beyond what may be fairly regarded as coming within the ordinary necessities of the business." Bates on Partnership, section 317. "The act of one partner, to bind the firm, must be necessary for the carrying on of its business. If all that can be said of it was that it was convenient, or that it facilitated the transaction of the business of the firm, that is not sufficient, in the absence of evidence of sanction by the other partners. Nor, it seems, will necessity itself be sufficient if it be an extraordinary necessity. What is necessary for carrying on the business of the firm under ordinary circumstances, and in the usual way, is the test." Lindley on Partnerships, *page 126. While, within this rule, one member of a partnership may, in the usual and ordinary course of its business, make a valid sale, or pledge by way of mortgage or otherwise, of all, or part of its effects intended for sale, to a bona fide purchaser or mortgagee, without the consent of the other members of the firm, it is not within the scope of his implied authority to make a final disposition of all of its effects, including those employed as the means of carrying on its business, the object and effect of which is to immediately terminate the partnership, and place its property beyond its control. Such a disposition, instead of being within the scope of the partnership business, or in the usual and ordinary way of carrying it on, is necessarily subversive of the objects of the partnership, and contrary to the presumed intention of the partners in its formation. As was said by Strong, J., in Sloan v. Moore, 37 Pa. St., 217, 223. "While a contract of partnership constitutes each of its members an agent for the others, it is only for the purpose of carrying on the partnership, and not of destroying it. Denuding the firm of its property is a thing not contemplated in carrying on a partnership, and consequently no agency for such a purpose is intended to be created. When, therefore, one partner is at hand, and might assent, but does not, it is quite unreasonable to presume that he has empowered his copartner to do an act destructive of the purposes for which the firm was established." Upon the same principle, the courts hold that it is not within the power of one member of a firm to make an assignment of its effects for the benefit of its creditors, without the consent of other members who are accessible for consultation. It is not because such a transfer is called an assignment, or is made in that form, that is held to be beyond the power of the partner, but because it operates to immediately terminate the partnership and place the property beyond its control. Any other form or method of transfer which has the same effect, and is made for the like purpose, must, for the same reason, be equally beyond the partner's implied authority. In Osborne v. Barge, 29 Fed. Rep., 725, 729, Mr. Justice Shiras said of a transaction in substance like the one under consideration that: "If a mortgage is given upon the stock in trade of a partnership, and under such circumstances that the giving thereof practically terminates the business of the firm, no reason is perceived why the assent of both partners is not as essential to give validity to such an instrument, as in the case of a general assignment. The mortgage executed to complainants covered practically all the stock of the firm, came due in twenty-four hours after its date, and gave the mortgagees full power to take immediate possession of the property, and to sell the same for the payment of the mortgage debt. The practical effect, therefore, of the instrument, would be to terminate the business of the firm, and to hand over the .control and right of disposition of the partnership property to a third party. The right to thus destroy the life and business of the firm is not possessed by one of the partners, and, to be valid, it must appear that such an instrument was executed by the authority of all the partners."
The difference between the question here involved and that considered at some length in the opinion in Cross v. Carsten, 49 Ohio St., 548, 565, is manifest and substantial. There, the instruments whose validity and effect were in question were executed in pursuance of an understanding between the two members composing the firm, and were in fact executed by both, The power of one partner to perform the act without the other's consent was not involved, while that is the precise question here presented. Though the mortgages made by the plaintiff may not constitute a technical assignment in trust, their execution was designed to accomplish all the purposes of a preferential assignment, and, if sustained, all the consequences of such an assignment must ensue; and therefore, with respect to the power of the plaintiff to execute them in behalf of the firm, contrary to the wishes of his copartner, or without her consent, the question is practically the same as in case of a formal assignment. A general assignment, so made, for the equal benefit of the creditors, would be less objectionable in the eyes of a court of equity than a transaction like the one before us; for equity looks with disfavor upon any disposition of an insolvent debtor's estate which discriminates between equally meritorious creditors, and is reluctant to disturb any which insures equality among them.
The mortgagees are not in the position of bona fide purchasers, because (1,) they were aware of the plaintiff's purpose in making the mortgages, and co-operated with him in its accomplishment, and the manner of their execution and the attending circumstances were sufficient to advise them that Mrs. Cowen was not participating in the transaction; and (2,) the mortgages were made voluntarily, without any previous agreement for security, or obligation to give it, and without any extension of credit, or time given for the payment of the indebtedness, or other change in the situation of the creditors to whom they were given. Lewis v. Anderson, 20 Ohio St., 281. But, if it were otherwise, the mortgages are not binding on the firm, nor valid liens on its property under the established rules for determining the rights of third persons who deal with a partner, and the obligatory effect of his acts upon the firm and the other partners. In Lindley on Partnerships, *125,126, these rules are stated as follows: "1. That if an act is done by one partner on behalf of the firm, and it was necessary for carrying on the partnership business in the ordinary way, the firm will prima facie be liable, although in point of fact the act was not authorized by the other partners. 2. That if an act is done by one partner on behalf of the firm, and it was not necessary for carrying on the partnership business in the ordinary way, the firm will prima facie be not liable. In the first case the firm will be liable unless the one partner had in fact no authority to bind the firm, and the person dealing with him was aware of that want of authority; whilst in the second case the firm will not be liable unless an authority to do the act in question, or some ratification of it, can be shown to have been conferred or made by the other partners."
Without attempting here a review of the cases cited by counsel for plaintiffs in error, it may be remarked of them generally, that they either lack or possess some feature of importance which distinguishes them from this case. That of Mabbett v. White, 12 N. Y., 441, which is mainly relied on in support of the mortgages, is distinguishable from a case like this in the particulars pointed out by Mr. Justice Miller, in Bowen v. Clark, 1 Bissell, 128, 136, where he says: "The court of errors of New York, in the case of Mabbett v. White, by a vote of five judges to two, expressed the opinion of the majority, that one partner had authority to sell and transfer all the copartnership effects directly to a creditor of the firm in payment of a debt, without the knowledge or consent of his copartner, although the latter is at the place of business of the firm, and might be consulted, and that such transfer is valid, although the firm is insolvent, and thereby one creditor acquires a preference over the other creditors of the firm. This was in fact a controversy at law between creditors of the firm, and there was evidence, although contradictory, of the subsequent assent of the non-assenting partner. That decision virtually rejects the principle of implied agency, and, in my opinion, it can only be sustained, if at all, upon the ground which was not stated by the majority, that in a controversy at law between creditors, one creditor cannot object to the validity of such an assignment to another creditor, but that the non-assigning-partner alone can make the objection." And this distinction was probably in the mind of the judge who prepared the opinion in Mabbett v. White, when he said: "We do not say that in no case would equity interfere in favor of the firm against a third person, in case of a contract of sale by one member. But this is an action at law between creditors, and the jury have negatived all fraud in fact on the part of the plaintiff."
Here the non-assenting partner makes objection to the unauthorized acts of the plaintiff; and the assertion by her, of her right to avoid the mortgages inures to the benefit of the partnership creditors, who may avail themselves of her equity, to secure an equal distribution of the partnership fund.
We discover no error in the record which requires a reversal of the judgment below, and it is affirmed.
Judgment affirmed.