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Statement of the Case.
UNION BANK OF CHICAGO v. KANSAS CITY BANK.
APPEAL FROM THE CIRCUIT
COURT OF THE
THE WESTERN DISTRICT OF MISSOURI.
No. 13. Argued October 16, 17, 1889. – Decided May 19, 1890.
Upon appeal from a decree in equity of the Circuit Court of the United
States, accompanied by a certificate of division in opinion between two judges before whom the hearing was had, in a case in which the amount in dispute is insufficient to give this court jurisdiction, its juris
diction is confined to answering the questions of law certified. Upon the question of the construction and effect of a statute of a State,
regulating assignments for the benefit of creditors, the decisions of the highest court of the State are of controlling authority in the courts of
the United States. Section 35t of the Revised Statutes of Missouri of 1879, concerning volun
tary assignments for the benefit of creditors, does not invalidate a deed of trust, in the nature of a mortgage, by an insolvent debtor, of all his personal property, to secure the payment of preferred debts, reserving a
right of redemption. By the law of Missouri, one partner has power to hind his copartners by a
mortgage of all the personal property of the partnership to secure the
payment of particular debts of the partnership. A receiver derives his authority from the act of the court, and not from the
act of the parties; and the effect of his appointment is to put the property from that time into his custody as an officer of the court, for the benefit of the party ultimately proved to be entitled, but not to change
the title, or even the right of possession. By the law of Missouri, a mortgage by one partner of the personal property
of an insolvent partnership, to secure the payment of particular debts of the partnership, is valid, and does not operate as a voluntary assignment for the benefit of all its creditors under $ 354 of the Revised Statutes of 1879; although another partner does not assent to the mortgage, and has previously authorized the making of a voluntary assignment under the statute; and although the partner making the mortgage procures a simultaneous appointment of a receiver of all the partnership property.
This was a petition, in the nature of a bill in equity, filed in a court of the State of Missouri by citizens and corporations of other States, judgment creditors (each of them in the sum of less than $2500) in behalf of all the creditors of James
Statement of the Case.
B. Melone, of Macon in the State of Missouri, Richard A. Melone and Charles H. Benedict, of Kansas City in that State, and all three citizens of Missouri, and doing business at Kansas City as partners, under the name of Benedict, Melone & Co., against those three partners, three banking corporations of Missouri, and Charles Stewart, likewise a citizen of Missouri.
The bill alleged that on February 16, 1882, Richard A. Melone, in behalf of the partnership, executed a deed of trust, a copy of which was annexed to the bill, purporting to be by and between the partnership of the first part, Stewart of the second part, and the three banks of the third part, and to convey to Stewart the personal property and choses in action of the partnership; provided that if the partnership should pay certain specified debts which it owed to each of the banks, “then these presents, and everything herein shall cease and be void; but if they, the said Benedict, Melone & Co., shall fail or make default in the payment of such indebtedness to said three above-mentioned banks, or any part thereof, when the same shall have become past due and payable for five days, then it shall be lawful for said party of the second part to sell said property in any manner he shall think fit, and out of the proceeds arising from said sale pay off said indebtedness or so much thereof as shall be unpaid, together with the costs and expenses of said sale, and the overplus, if any there be, shall be paid to said parties of the first part. Said party of the second part shall take immediate possession of said property.”
The bill further alleged that this deed included all the partnership property; that the partnership and each partner were then, as all the defendants well knew, hopelessly insolvent; that on the same day, and simultaneously with the execution of this deed, Benedict, upon a suit commenced by him in a court of Missouri to wind up the partnership, procured the appointment of Stewart as receiver of its property, and he immediately qualified and entered upon his duties as such; that James B. Melone had previously authorized his copartners to make a general assignment for the benefit of all
Statement of the Case.
the partnership creditors without any preferences, and never authorized or approved the deed of trust; that the action of the two other partners in executing that deed to Stewart and having him appointed receiver was a fraudulent attempt on their part to evade the statute of Missouri concerning voluntary assignments ; 'that by reason of the premises, and of that statute, the deed of trust operated as a voluntary assignment of all the property of the partnership for the benefit of all its creditors; that all the partnership property was delivered to Stewart and taken possession of by him under the deed of trust; that out of the property Stewart had realized the sum of $58,000, enough to pay all the creditors of the partnership about sixty per cent of their debts if the preferences in the deed of trust should be set aside; but that Stewart, instead of performing the duties required of him by the aforesaid statute of Missouri, had treated the deed of trust as a valid mortgage, and had paid the debts of the banks in full, amounting to about $19,000, and was proceeding to distribute as receiver the rest of the trust fund in his hands.
The bill prayed that the deed of trust might be declared to be a general assignment for the benefit of all the creditors of the partnership in proportion to their respective claims; that Stewart be ordered to make distribution accordingly; and that the banks be ordered to pay the sums received by them into the registry of the court.
Stewart and the three banks demurred to the petition; and before further proceedings in the cause, it was removed, on application of the plaintiffs, into the Circuit Court of the United States; and that court, upon a hearing on bill, answers, replication and proofs, before Mr. Justice Miller and Judge Krekel, ordered the bill to be dismissed, and they certified a division of opinion on the following questions :
“1. Is the instrument of writing in this case, called a deed of trust, which we find, as a matter of fact, conveys all the partnership property of Benedict, Melone & Co. to Charles Stewart as trustee, as security for the banks therein named, void for want of the assent of James B. Melone, one of the partners, which was never given to that transfer ?
Argument for Appellants.
“2. As James B. Melone did give his previous assent and directions to the making of an assignment for the benefit of creditors, does the deed of trust above mentioned operate as a general assignment for the benefit of all the creditors of the partnership under section 354 of the Revised Statutes of Missouri of 1879.
“3. Does the making of that deed of trust and appointment of a receiver, who is the same person as the trustee, on the same day, and as part of the proceeding to administer the assets of the insolvent partnership, to which the banks and Stewart and the partners in the firm of Benedict, Melone & Co. agreed, constitute a general assignment for the benefit of all the creditors, and require the receiver to administer the funds in his hands in that manner ?"
A final decree was entered for the defendants, in accordance with the opinion of the presiding justice; and the plaintiffs appealed to this court.
Mr. S. C. Douglass (with whom was Mr. C. L. Dobson on the brief) for appellants.
I. Treating the instrument 'as a deed of trust with preferences, it is not properly executed to make it the act of the firm, having been made without the assent of one of its members, and the preferences therein attempted to be created are void and should be set aside.
The authorities are unanimous in holding that, by the act of co-partnership, the implied power of a partner over the partnership assets is limited to transactions within its business scope and objects; and they are, practically, as unanimous in holding that this implied authority is personal to the partner and cannot be delegated to another person without the assent of the other partners, and that neither party is authorized, by virtue of the partnership relation, to appoint a trustee and interpose him between the partnership, its property and creditors, thereby, ipso facto, dissolving the partnership, and placing its property in the hands of third persons for sale and disposition. Transfers, made in conducting the business of the
Argument for Appellants.
firm, are in exercise of a power to preserve, while such as mean dissolution are in the exercise of a power to destroy, and, to validate them, a special authorization must be shown. Hitchcock v. St. John, 1 Hoffman Ch. 511; Wetter v. Schleiper, 15 How. Pr. 268; Dana v. Lull, 17 Vermont, 390; Rogers v. Batchelor, 12 Pet. 221; Welles v. March, 30 N. Y. 31+; Palmer v. Myers, 43 Barb. 509; Deming v. Colt, 3 Sandf. (N. Y.) 284; Hayes v. Heyer, 3 Sandf. (N. Y.) 293; Coope v. Bowles, 18 Abb. Pr. 442; Bowen v. Clark, 1 Bissell, 128; Pearpoint v. Graham, 4 Wash. C. C. 232 ; Holland v. Drake, 29 Ohio St. 441; Bull v. Harrison, 18 B. Mon. 195 ; Kirby v. Ingersoll, Harrington Ch. (Mich.) 172; Maughlin v. Tyler, 47 Maryland, 545 ; Stein v. La Dow, 13 Minnesota, 412; Dunklin v. Kimball, 50 Alabama, 251; Pettee v. Orser, 6 Bosworth, (N. Y., 123; Loeb v. Pierpoint, 58 Iowa, 469; Havens v. Hussey, 5 Paige, 30; Ormsbee v. Davis, 5 R. I. 412; Wooldridge v. Irving, 23 Fed. Rep. 676; Nat. Bk. of Baltimore v. Sackett, 2 Daly, (N. Y.,) 395; Loeschigk v. Hatfield, 5 Robertson, (N. Y.,) 26; Kemp v. Carnley, 3 Duer, (N. Y.,) 1; Haggerty v. Granger, 15 How. Pr. 243; Everson v. Gehrman, 10 How. Pr. 301; Hughes v. Ellison, 5 Missouri, 463; Drake v. Rogers, 6 Missouri, 317; Clark v. Rives, 33 Missouri, 579; Hook v. Stone, 34 Missouri, 329; Keck v. Fisher, 58 Missouri, 532.
II. Treating the instrument as a deed of general assignment, it is properly executed to make it the firm act, inasmuch as the two resident partners participated in the transfer, and the absent one directed the assignment to be made, and ratified the transfer only as such assignment.
Section 354, Rev. Statutes of Mo. of 1879, Vol. I page 54, is as follows: “Every voluntary assignment of lands, tenements, goods, chattels, effects and credits, made by a debtor to any person in trust for his creditors, shall be for the benefit of all the creditors of the assignor in proportion to their respective claims, and every such assignment shall be proved or acknowledged, and certified and recorded in the same manner as is prescribed by law in cases wherein real estate is conveyed.” This term “voluntary” is applied to assign