La Chaise v. Lord

Ingeaham, F. J. The plaintiffs, being creditors of Lord and Brown, move for an injunction against the partnership property, and a receiver. The complaint shows the indebtedness ■ of the firm of Lord & Brown to the plaintiffs, upon a note of $1,073 50 ; that Lord & Brown formed a limited partnership in December, 1850, to continue five years, and that the other ■ defendant, Marks, was the special partner, having advanced — 214 — $20,000 thereto, that during the existence of the partnership,. Marks withdrew from the funds of the firm 118.339 80, and about the 1st of July, 1854, received from the firm their notes-for $17,100; that at about that time the firm served upon their-creditors a notice of the dissolution of the limited partnership; that at the time Marks received such sums of money from the firm they were insolvent, and that such moneys were transferred in contemplation of insolvency; that the firm of Lord & Brown is now insolvent and wholly unable to pay their-debts, and have now in possession several thousand dollars of' assets of said partnership, out of which they are paying debts, and giving preferences over the debt due to the plaintiffs. The defendants, Lord & Brown, do not deny the indebtedness to the plaintiffs. They admit the insolvency of the firm, and that they have in their possession some of the assets of the-firm. They explain the moneys paid to Marks to have been, dividends of profits, which they allege to have been made in. good faith, and after allowance for all losses sustained at the-times of such dividends for the years 1851, ’52 and ’53 ; and-aver that such dividends were made from the net profits. They also aver that at the time of the dissolution in July,.. 1854, they believed the firm to have been solvent. That on such dissolution they bought from defendant, Marks, his interest in the assets of the firm as special partner, for which the notes of Lord & Brown were given, payable after all the. liabilities of the special partnership should have been matured.. That Lord & Brown as general partners, bought the assets of the firm of Lord & Brown (the limited partnership) which.-, were duly transferred to them, and they incurred a liability for said purchase of $140,000, of which they have since paid. $75,000. That Lord & Brown thereupon formed a new general copartnership in which Marks had no interest. That such new firm failed in ¡November, 1854, and that there is now due to the creditors of the limited partnership $65,000, and of the general partnership $115,000. They also allege • the pendency of another action in this court by Lottimer and. others in behalf of all the creditors of such limited partnership,, praying for an injunction and receiver, prior to the commencement of this action. — 215 — If this action had been by the plaintiffs as creditors of Lord & Brown, on behalf of all the creditors of the limited partnership, and Marks had not been sought to be charged as a general partner1,1 think the facts appearing before me would have been sufficient to warrant the granting of this motion.. The firm is admitted now to be insolvent, owing about $65,000,. and by a proceeding to which but little value can be attached so far as the claims of creditors are concerned, all the assets of the firm of Lord & Brown, the limited partnership, have been sold to Lord & Brown, the general partners, and as appears from the evidence, in consideration of their agreeing to pay all the liabilities of the limited partnership, amounting to $140,000. Had such liabilities been discharged at maturity, none of the creditors would have had any cause of complaint against the arrangement, but when debts to the amount of $65,000 are left unpaid, the creditors may well claim as void a sale of the whole assets of the firm by the partners, to themselves, when they are told they have no claim upon such assets, and must rely upon the individual liability of Lord & Brown, the members of the general partnership, to whom they claim such assets belong. Ho such arrangement can be sustained to deprive the creditors of the limited partnership of their right to insist that the assets of that firm shall be applied to the payment of its debts, and although the defendants may have gone on and paid, with borrowed money, some of their liabilities, there is nothing in that fact to justify them in withholding from such creditors the assets still remaining in their hands, and which under any circumstances should' be applied in discharge of the liabilities of the limited partnership. That such a transfer between the same parties can be sanctioned as depriving creditors of their right to follow the assets of the firm for the discharge of its debts, seems to me inconsistent with every principle of justice or equity. It may be, that upon a dissolution of a firm, one partner may sell to the other partner all his interest in the assets of the firm, and that if such transaction is l)ana fide, and for the purpose of winding up the affairs of the firm, a creditor cannot take such property from liens obtained against it by the creditors of the partner making the purchase. — 216 — Ketchum v. Durkee, 1 Barb. Ch. R. 480). But this doctrine cannot be extended to such a case as the present one, and I doubt whether it can be in any case of limited partnership. The right to grant such motion was settled in the case of Inness v. Lansing, (7 Paige, 584), and has been since followed by the supreme court, in Whitewright v. Stimpson, 2 Barb. S. C. R. 379, and the rule adopted in those cases as to limited partnerships was extended -by Judge Edmonds to a general partnership, in Dillon v. Horn, (5 How. P. R. R., 35). Whether the decision in the latter case can be sustained it is not necessary now to decide. And when it appears that a disposition was made, or to be made, of the assets, in giving a preference to one creditor over another in view of insolvency, the provisions of the 219th section of the Code are comprehensive enough to warrant such a proceeding. In the cases, however, to which I have referred, the action was commenced not for the benefit of the plaintiffs solely, but of all the creditors of the insolvent firm. The appointment of a receiver in those cases would have secured the partnership funds and assets for the joint benefit of all, and upon a distribution of such assets, the creditors would have been entitled •equally to share in the proceeds 'thereof. There is a manifest propriety in requiring such a form of action before the property of the firm should thus be placed in the hands of the receiver. There is no equity in taking from a firm the whole of their property to pay or secure one individual creditor to the exclusion of others. The impropriety of thus placing in the hands of a receiver the whole of the assets of the firm to pay a claim of $1000, and thereby depriving other creditors having claims amounting to $64,000, of any proceedings against such assets until the first creditor is paid, is so manifest that it can require no argument to show that it ought not to be done. Even if the plaintiffs were judgment creditors, they could only have an order allowing a receiver to take sufficient of the assets of the firm to obtain the means of discharging their debt; and until they are judgment creditors there is no propriety in giving them a receiver, unless in a case where the effect of such receivership will operate to secure all the creditors of the firm. I think, also, there is a difficulty in the present action which — 217 — forms an objection to the granting of this motion. It should be required, to warrant such an order, that all the defendants sought to be made liable as partners, admit the indebtedness. The defendant Marks (to whose answer I have not before referred, denied such indebtedness. He denies any joint indebtedness whatever, and does not admit the plaintiff’s claims. If he is sought to be held liable as a defendant, he certainly does not admit the indebtedness; but, on the contrary, his answer shows a statement of facts which would, if proved, entitle him to a verdict. Besides, other creditors might not, even if the action had been commenced for all the creditors, have been willing to engage in such a contest. It is not necessary for me to pass upon the questions argued before me as to the liability of Marks. His liability is denied. If it exists it is not admitted, so as to warrant me in granting this motion. If he is not liable, it can only be decided at the end of a protracted litigation, and- the funds and assets of an insolvent firm should not be tied up from all the creditors for the purpose of enabling one creditor to enter into such a controversy. The granting of an injunction and appointing of a receiver in cases of this kind is admitted by the chancellor to be an addition to the former powers of a court of equity, and it seems to me to be proper that the power should only be exercised where the claim ■ is undisputed, and where the property will as speedily as possible be applied to the use of the creditors. An objection was made upon the argument, and it appears in the defendant’s answer, ■ that another action is pending in this court for the benefit of all the creditors, and that such action was commenced prior to the present one. The mere existence of such an action, although a prior one, has no effect upon this motion. "Whether prior or subsequent in its commencement, it affords no ground to stay proceedings in other actions, until after a judgment has been rendered in a case in which the other creditors can combine and make themselves parties. After such a judgment a motion could formerly be made to stay proceedings in other suits, so far as relates to the appointment of a receiver. This was settled by the chancellor in Inness v. Lansing, before referred to. (7 Paige, 583). — 218 — This motion must be denied, with $10 costs, and the temporary injunction dissolved, without prejudice to the renewal of it, if the plaintiffs shall by amendment obviate the objections which now exist, as above stated.