U.S. Supreme Court
Murrill v. Neill, 49 U.S. 8 How. 414 414 (1850)
Murrill v. Neill
9 U.S. (8 How.) 414
A merchant who owed debts upon his own private account and was also a partner in two commercial houses which owed debts upon partnership account executed a deed of trust containing the following provisions, viz.:
It recited a relinquishment of dower by his wife in property previously sold and in the property then conveyed, and also a debt due to the daughter of the grantor, which was still unpaid, and then proceeded to declare that he was indebted to divers other persons residing in different parts of the United States, the names of whom he was then unable to specify particularly, and that the trustee should remit from time to time to Alexander Neill, of the first moneys arising from sales, until he shall have remitted the sum of $15,000, to be paid by the said Neill to the creditors of the said grantor, whose demands shall then have been ascertained, and if such demands shall exceed the sum of $15,000, then to be divided amongst such creditors pari passu, and out of further remittances there was to be paid the sum of $ 12,000 to his wife as a compensation for her relinquishment of dower, and next the debt due to his daughter, and after that the moneys arising from further sales were to be applied to the payment of all the creditors of the grantor whose demands shall then have been ascertained. In case of a surplus, it was to revert to the grantor.
The construction of this deed must be that the grantor intended to provide for his private creditors only out of this fund, leaving the partnership creditors to be paid out of the partnership funds.
Under the deed, it was the duty of the trustee to divide the first $15,000 amongst the private creditors of the grantor and exclude from all participation therein the creditors of the two commercial houses with which the grantor was connected; next to pay the debts due to the wife and daughter; then to pay in full the private creditors, or divide the amount amongst them, proportionally.
The rule is that partnership creditors shall, in the first instance, be satisfied from the partnership estate. and separate or private creditors of the individual partners from the separate and private estate of the partners with whom they have made private and individual contracts, and that the private and individual property of the partners shall not be applied in extinguishment of partnership debts, until the separate and individual creditors of the respective partners shall be paid.
The American and English cases respecting this rule examined.
On the 24th of September, 1839, Luke Tiernan, of the City of Baltimore, and Anne, his wife, made a deed of trust to Charles H. Carroll, of Livingston County, New York, thereby conveying to said Carroll about 5,888 acres of land, part of Tuscarora Tract in said Livingston County, of which Luke Tiernan was seized in fee simple as his individual property. The property so conveyed is in said deed estimated to be worth about $120,000 chanroblesvirtualawlibrary
The deed, among other things, recites that Anne, the wife of Luke, had previously joined in a conveyance of various portions of said tract, the property of said Luke, which before that time had been sold, without receiving for her separate use any consideration therefor.
It also recites that said Luke was indebted to Anne E. Brien, at the time of her death, in the sum of $4,450, which on her death became due to Luke Tiernan Brien, her only child and heir at law.
It also recites that said Luke
"is indebted to divers other persons, residing in different parts of the United States of America, in a large amount of money in the aggregate, but the names of all the persons to whom he is so indebted, and the amount due to each respectively, the said Luke Tiernan is now unable to specify particularly."
The deed then conveys said land to said Carroll in trust, to sell and convey the same in the manner therein specified, and after paying expenses, including a commission for his services, to remit the net proceeds of the first moneys arising from the sales in bank checks or drafts to Alexander Neill of Maryland
"until he shall have remitted the sum of $15,000, to be paid by the said Alexander Neill to the creditors of the said Luke Tiernan, whose demands shall then have been ascertained, and if the demands so ascertained shall exceed the said sum of $15,000, the same shall be applied in part payment of each of said demands, in the ratio that each of said demands respectively shall bear to the whole sum to be so applied."
After said sum of $15,000 shall have been remitted, then the sum of $12,000 is to be remitted by said Carroll to such person as said Anne Tiernan may designate, which is to be invested for the sole and separate use of said Anne, as a compensation to her for relinquishing her dower in the land by the deed conveyed.
Then the sum of $4,450, with interest from the 1st of January, 1841, is to be remitted by said Carroll in payment of the above-mentioned debt due to Luke Tiernan Brien.
"And after the last-mentioned sum shall have been remitted as aforesaid, all the residue of the moneys arising from such sales (after deducting the expenses and commissions as aforesaid) shall be remitted by the said Charles H. Carroll from time to time, as the same shall be received, to the said Alexander Neill, in the manner hereinbefore provided for the remission of the said sum of $15,000, and the same shall be applied by the said Alexander Neill to the payment of the debts due from the said Luke Tiernan to all the creditors of the said Luke, whose
demands shall then have been ascertained by the said Alexander Neill, and in case that the sum so to be applied shall be insufficient for the payment of all such demands, then and in this case the same shall be applied in part payment of each of said demands, in the ratio that each of said demands respectively shall bear to the whole sum to be so applied to that object, and in case the said sum shall be more than equal to the payment of such demands, then and in that case the residue thereof shall be paid by the said Alexander Neill to the said Luke Tiernan, his heirs, executors, administrators, or assigns."
The said Carroll, in pursuance of said deed, proceeded to make sale of various parts of the property thereby conveyed, and from time to time, from 1 March, 1841, to 22 April, 1844, remitted to said Neill, in various amounts, the whole sum of $15,000 provided to be paid in the first place to said Neill out of the net proceeds of sales as above mentioned. This sum increased in the hands of Neill, by interest and premiums on the drafts in which it was remitted, to $16,440.55.
Luke Tiernan was a partner in the commercial firm of Luke Tiernan & Son, of Baltimore, the only other partner therein being his son Charles Tiernan. This firm was dissolved previously to the death of Luke Tiernan, which occurred on 9 November, 1839, and after his death it was conducted under the same name by Charles Tiernan.
Luke Tiernan was also a partner in the commercial firms of Luke & Charles Tiernan, and Tiernan, Cuddy & Co., of New Orleans. The partners of the first-named firm were Luke and Charles Tiernan, and of the second, Luke Tiernan, Charles Tiernan, Calvin Tate, and James McG. Cuddy.
The firm of Tiernan, Cuddy & Co., failed in December, 1835, for a large sum of money. Charles Tiernan was the liquidating partner thereof, and was engaged f Tiernan, Cuddy & Co., failed in December, 1835, for a large sum of money. Charles Tiernan was the liquidating partner thereof, and was engaged f Tiernan, Cuddy & Co., failed in December, 1835, for a large sum of money. Charles Tiernan was the liquidating partner thereof, and was engaged from April, 1836, to May, 1842, in collecting the assets of the firm. He collected about $100,000, the whole of which, and a good deal more, he paid in satisfaction of the debts of the firm. Calvin Tate, one of the partners, applied for the benefit of the bankrupt law of the United States on the 18th of February, 1842, and obtained his discharge under said application. The amount of debts returned by him as due by Tiernan, Cuddy & Co. was $569,069.49, and the amount as due to said firm was $800,743.47.
On 29 May, 1845, the executors of Luke Tiernan, on an account then passed by them with the Orphans' Court of Baltimore County, had in hand a balance in cash to the amount of $506.91. They conjecture that with this balance, debts may be collected and other assets may be realized, including chanroblesvirtualawlibrary
the entire real and personal property of said Luke to the amount in all of about $30,000. None of this amount, however, so far as appears, was ever collected, except said sum of $506.91, and the entire estimate is merely conjectural.
The individual debts of Luke Tiernan, as proved and allowed in this case, amount to $31,586.25.
The partnership debts of all the firms in which Luke Tiernan was concerned as partner, as approved in this case, amount to $295,025.74.
In October, 1843, John D. Murrill, a citizen of the State of Virginia, and the Bank of New Orleans, filed their bill in equity against Mr. Neill, claiming from him an account of his trust under the deed now described, and a distribution of any fund in his hands among the creditors of Mr. Tiernan. The bill was amended by making William T. Somerville a defendant, as executor, along with Mr. Neill, of Luke Tiernan.
The answer of Neill admits the receipt under the deed of $15,000, increased by interest from investment to $16,440.55, and this sum he asks may be distributed among the creditors of Mr. Tiernan who may under the trust have right to it. Testimony was taken to show the insolvency and the debts and assets of the partnership in New Orleans, and of Luke Tiernan. The separate estate of the latter in Maryland is shown to have been administered, leaving only $506 in the hands of the executors, and some good debts to be collected, and some unsalable stocks.
The court passed an order for notifying creditors of Luke Tiernan to file their claims, and under it a number of claims have been presented, partnership and individual, against Luke Tiernan. The individual amount to $31,586.25, the partnership to $295,025.74.
The matters being referred to an auditor to report an account upon the claims, he stated two accounts, one applying the fund to payment of only the individual creditors, the other to payment of them and of the partnership creditors pari passu.
Upon exceptions taken, the court determined that the individual creditors were to be preferred, and the funds of the trust should go to their satisfaction before any payments should be made to the partnership creditors.
The trustee was therefore directed to proceed to distribute and pay over the funds accordingly. From this decree the complainants appealed to this Court. chanroblesvirtualawlibrary