CIRCUIT COURT OF THE UNITED STATES.

Summer Circuit.

RHODE ISLAND, june term, 1832, at newport.

Hon. JOSEPH STORY, Associate Justice of the Supreme Court. BEFORE Hon. JOHN PITMAN, District Judge.

JOSEPH HOXIE v. JESSE CARR AND OTHERS.

All persons in interest must be made parties to proceedings in Equity before a decree.

The mortgagees, under a conveyance made before the filing of a Bill in Equity in relation to the premises mortgaged, should be made parties; as should also the mortgager; but their omission is no necessary cause of abatement of the suit. The abatement of a suit in Equity is merely an interruption to the suit, suspending its progress, until new parties are brought before the Court.

Where there is a transfer of interest pendente lite, a supplemental Bill may be filed by or against the purchasers.

Creditors are not necessary or proper parties generally in a Bill between partners to wind up the partnership concerns.

In the absence of fraud and breach of trust, property purchased with partnership funds does not of necessity become partnership property, if that is not the intention of the parties.

The circumstance, that the payment for property purchased has been made out of the partnership funds, especially if the property be necessary for the ordinary operations of the partnership, and be actually so employed, in the absence of controlling circumstances, will be decisive, that it was intended to be held as partnership property.

Upon a dissolution of a partnership, each partner has a lien upon the effects, as well for his own indemnity against the joint debts, as for his proportion of the surplus; but the creditors of the partnership, as such, have no lien upon the partnership effects for their debts.

Hoxie v. Carr et al.

Where real estate is purchased for partnership purposes, and on partnership account, let the legal title be vested in whom it may, as where the conveyance is taken to the partners as tenants in common, it will, in Equity, be deemed partnership property, and, like other effects, personal estate; and the partners are the cestuisque trust. But a Court of Law must view it, in general, only according to the legal title. Semble, that as between the executor or administrator of a deceased partner and his heir or devisee, it is considered, in Equity, as personalty. Rules as to the creation of resulting trusts.

Semble, that the exception in the Statute of Frauds in England and Massachusetts, as to resulting trusts, is merely affirmative of the general law, and does not create a saving of resulting trusts, which would otherwise have been cut off, unless in writing. Accordingly, in Rhode Island, where the Statute of Frauds contains no such exception, resulting trusts are on the same footing as in England and Massachusetts.

Where purchasers of real estate, at the time of their purchase, have actual or constructive notice, that it was partnership property, it will be chargeable in their hands with the payment of the partnership debts, even though they have no notice of the existence of these partnership debts. If they have no notice, that it was partnership property, they are exonerated to the extent of the purchase-money already paid by them; and, so far as the purchase-money has not been paid, that is a substituted fund, chargeable in their hands with the same burthens as the real

estate.

Circumstances under which notice will be implied.

THIS

HIS was a Bill in Equity framed with a double aspect. It stated a partnership between Joseph Hoxie the plaintiff, and Simon Reynolds one of the defendants, in the manufacture of cotton cloths, under the firm of the West Greenwich Manufacturing Company; and the possession and purchase of certain real estate, including the factory, and other appendages, out of the joint funds of the partnership, which were occupied, used, and improved, for the benefit of the partnership ; a dissolution of the partnership in March, 1826, with large debts owing by the company; a parol contract for the sale by Reynolds to Hoxie upon certain conditions of all his share in the partnership property, and a part-performance in June following of the conditions of the contract of sale on the part of Hoxie, and an offer to perform the residue; a possession of the premises under the sale by Hoxie; a subsequent sale by Reynolds to Nathan Carr and Jesse Carr

Hoxie v. Carr et al.

(two of the defendants) of his share in the real estate aforesaid; which last sale it charges to be fraudulent, and with notice of Hoxie's contract, and with intent to defraud creditors; and it charges a subsequent payment by Hoxie of a large part of the partnership debts; and the insolvency of Reynolds. It then prays for a specific performance by Reynolds, and a conveyance by his grantees according to his contract with Hoxie, and for an injunction &c.; or, if that cannot be done, it prays for an account of the partnership debts, and that the real estate may be charged with the amount; and for further relief.

The answers admitted the partnership; denied the contract of sale to Hoxie, and part-performance; and asserted that the conveyance to the defendants, the Carrs, was bonâ fide, and without notice; and that the real estate so sold was not partnership property; but, though paid for out of the partnership funds, was purchased and held by the partners as tenants in common, and not otherwise. The owners also admit the possession by Hoxie, but insist that it was by wrong, and not by contract. The answer of Reynolds also asserted, that Hoxie, in December, 1827, (before the filing of his bill) had mortgaged to certain persons (Hopkins, Arnold, and Briggs) the half of the premises asserted to be bought of him, whereby Hoxie was now disabled to perform the contract set up by him. Other matters not now material to be mentioned occurred in the answer of one of the defendants, Nichols.

By a supplementary answer, the defendants further alleged, that since the commencement of the suit and the filing of the answers, viz. in July, 1830, Hoxie had executed a conveyance to one A. Hopkins of all the right, title, interest, and claim, which he had in the premises in the Bill mentioned; and also, that the sheriff's sales of two of the lots of the real estate in the Bill mentioned, had been made

Hoxie v. Carr et al.

under executions against Hoxie. The Bill, so far as it respects Amos Reynolds, to whom one lot of the real estate in controversy was conveyed, was dismissed, since he has never been made a party by the service of any process upon him.

The general replication having been filed, and evidence taken, the cause came on to be argued upon the merits; and at the argument the following points were presented for the consideration of the Court.

First, whether it was competent for the plaintiff to maintain his bill after the mortgage made by him as stated in the original answers; and if it was, whether the conveyances, pendente lite, do not abate the suit.

Secondly, whether the parol contract by Reynolds with Hoxie for a sale, was sufficiently established in point of fact; and if so, whether, in point of law, the party under the circumstances was entitled to a decree for a specific performance.

Thirdly, whether the real estate would, under all the circumstances, be deemed partnership property, since the conveyances thereof were to the partners, as tenants in common; and if it was to be deemed partnership property, whether the plaintiff was entitled to any relief against the present defendants, who were purchasers.

Richard W. Greene and J. Whipple, for the plaintiff, and J. L. Tillinghast and N. Searle, for the defendants.

STORY J. This cause has been most fully and elaborately argued upon all the points, and, since he is now no more, I may be permitted to say (what I should feel compelled to suppress in regard to the living) by one of my brethren,1 whose loss we all deplore, with the consummate skill and profound learning, which always distinguished him.

1 Mr. Searle is here alluded to by the Court.

Hoxie v. Carr et al.

As to the first question, I think, that the objection is well founded in principle, though not to the extent of the line of the argument. It is impossible, that a decree can be made in favor of the plaintiff to bind the mortgagees under the conveyance made before the bill filed, unless they are made parties. They have an interest, which cannot be overlooked by the Court, not wholly displacing that of the plaintiff, who, as mortgager, still retains an interest, but concurrent with it. It would be hard upon the defendants to compel them to go on to a decree, which, whether in favor of or against them, would still not be binding on the mortgagees. The latter, in every possible aspect of the case, have an interest in the matter of the bill, whether it be viewed as a bill for a specific performance, or a bill for a settlement of the partnership accounts, and a charge upon the real estate. Suppose there should be a decree charging the estate, as partnership property, with the partnership debts, how could the Court proceed to decree a sale to satisfy those debts, unless the mortgagees were made parties? The general rule, that all persons in interest must be made parties before a decree, is clearly applicable to the present case. But the omission of such parties is no necessary cause of abatement of the suit. That can arise only from matters subsequent to the bill. It may be ground, at the hearing, for a dismission of the bill without prejudice for want of proper parties, or for an order, that the bill shall stand over to make new parties, with leave to file a supplemental bill.1

As to the conveyance of the plaintiff, as well as the

1 See Cooper, Equity Plead. ch. 1, § 4, pp. 63, 64, 73, 74, 75; Id. ch. 3, § 4, p. 214; Goodwin v. Goodwin, 3 Atk. R. 370; Whitcomb v. Minchin, 5 Madd. R. 91; Foster v. Deacon, 6 Madd. R. 59; Bishop of Winchester v. Beaver, 3 Ves. R. 314.