Veal v. The Keely Company

Supreme Court of Georgia1890-11-10

86 Ga. 130

Summary · law.co

Holding. The judgment is reversed. A partnership may validly execute a mortgage on partnership property to secure an individual debt of one partner, and when such a mortgage is senior in time, it takes priority over later mortgages on the same property.

W. J. Veal and The Keely Company both held mortgages on property belonging to the partnership Veal & McClelland, with Veal's mortgage dated one day before The Keely Company's mortgage. Both mortgages were recorded. When the property was sold and funds were placed in the sheriff's hands, the trial court awarded all proceeds to The Keely Company. Veal appealed this decision.

The appellate court examined the circumstances of how Veal's mortgage arose. L. O. Veal, a partner in the firm, had borrowed money from his father W. J. Veal and contributed it as capital to the partnership. To formalize the arrangement, the partnership executed a mortgage on its business assets to secure repayment of this individual debt. The court found that a partnership may validly mortgage partnership property to secure an individual partner's debt, particularly when the partners have agreed to treat that debt as a partnership obligation. Because Veal's mortgage was senior in time to The Keely Company's mortgage, the court determined that proceeds should have been applied to Veal's mortgage first.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether a partnership may mortgage partnership assets to secure an individual partner's personal debt
Which mortgage has priority when multiple mortgages are recorded on partnership property
Whether the priority rule favoring partnership creditors is waivable by the partners themselves

Procedural posture

W. J. Veal appealed a trial court judgment awarding contested funds in the sheriff's hands to The Keely Company in favor of both mortgagees' claims on partnership property.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

Blandeord, Justice.

This was a contest for money in the hands of the sheriff. W. J. Veal claimed the money under the foreclosure of a mortgage against Veal & McClelland, dated January 6th, 1890, and duly recorded. The Keely Company claimed the money upon the foreclosure of a mortgage against Veal & McClelland, dated Januaiy 7th, 1890, and duly recorded. The court awarded the money to the Keely Company, and W. J. Veal excepted to this ruling of the court.

It appears from the record in this case that L. O. Veal, of the firm of Veal & McClelland, borrowed certain money from W. J. Veal, the plaintiff in error, which he put in as a part of his share of the capital stock of the firm of Veal & McClelland; that McClelland,his partner, having drawn from the assets of the firm an amount greatly in excess of his share, L. O. Veal proposed to draw out enough from the funds of the firm to pay the money he owed W. J. Veal, his father; thereupon, it was agreed between L. O. Veal and McClelland, composing the firm of Veal & McClelland, to allow the money to remain in the business of the firm upon the condition that Veal & McClelland would make and execute their mortgage to "W. J. Veal to secure the payment of the money which his son, L. O. Veal, had borrowed ; notes for the amount were executed by the firm of Veal & McClelland, and a mortgage to certain of the stock of goods of Veal & McClelland was given to W. J. Veal to secure the payment of the same.

We think it beyond question that a firm may execute a mortgage upon the firm’s stock of goods, or other assets, if they think proper to do so, to secure the payment of an individual debt of one of the members of the firm. More especially would this be so when it appears that such debt has been made, by agreement between the members of the firm, a partnership debt. It is laid down by Jones on Chattel Mortgages, section 44, that: “Amortgage by partners upon partnership property to secure an individual debt of one of the partners is valid. The rule preferring partnership property for the payment of partnership debts is for the benefit of the partners, and they may waive it. The giving of such a mortgage is itself a waiver. The partners, while the partnership property is still under their control, have power to appropriate it to secure their individual debts. The mere preference of individual debts by mortgage to secure them over partnership debts is not such a fraud upon partnership creditors that a court of equity will set it aside. The partnership creditors have no lien on the property of the partnership, if the partners themselves have none.” The rule laid down in this section is sus tained by tbe authorities cited, aud we think this principle applies to the present case. And therefore, as it appears that tbe mortgage of "W. J. Yeal was the oldest lien upon the property sold, which brought the money into court, we think that the money in the hands of the sheriff should have been first applied to this mortgage.

Judgment reversed.