Hennessy v. Western Bank

[310] The opinion of the Court was delivered by Rogers, J. On the trial .the defendant moved for a nonsuit. It was contended by the plaintiffs that they were entitled to a verdict against the Bank, who were the garnishees, because the assignment of May Í837 appeared on its face insufficient to transfer the property of Knox, Boggs & Co., as against their creditors. But the court, disregarding this point, ordered a nonsuit on the ground that property fraudulently assigned, is not attachable under the Act of 1836, in the hands of the fraudulent assignee. In this opinion, however, the court was mistaken, as appears from the case since decided of Stewart v. M’Minn, (5 Watts & Serg. 101). But if the nonsuit was properly ordered, but for a wrong reason, we must suffer it to stand ; and this makes it necessary to consider the-second error assigned, “in not deciding that the assignment was fraudulent and void as against the creditors of Knox, Boggs & Co.” Various reasons are urged against the validity of the assignment, the principal of which are, that after stipulating for a release from the creditors, who are required to execute the same in a limited time, so as to partake of the fund, the assignors, who were partners, have neither transferred their partnership nor separate estate. Out of this general proposition two questions arise: first, whether the assignment being by deed and made by two of the partners only, is not binding on the third, and therefore void; and secondly, whether the deed is void because it contains no assignment of the separate property of one of the partners. After the case of Deckard v. Case, (5 Watts 22), the first point must be considered as settled in this State. It is there ruled that one partner may transfer the whole stock in trade of the firm; and if possession be delivered, and the transaction be bona, fide, it matters not whether the instrument be under seal or not. Here there is no allegation of fraud, and in that respect it comes within the principle of the case cited. There, as here, the objection was made without avail, that one partner cannot bind his copartner by deed. In all essential particulars the cases are identical. The principle that one partner cannot bind his copartner by deed, only holds in an executory and not an executed contract, as for example, where a partner seeks to bind his copartner by a bond for the payment of money, or the performance of a collateral condition. And the cases, when examined, will all be found to be of this description. It would be a strange misapplication of a principle which has been already extended far enough, that where a partner in the regular course of business sells an article by a contract under seal, it should not bind the firm; and further, that even where the article is delivered in pursuance of the contract, it may be avoided. It has been decided that a release is good notwithstanding a seal, and certainly a seal would not destroy the efficacy of a receipt. Com. Dig., title “Merchant,” note H, 153. By the execution of the contract consummated by delivery, the property [311] is transferred to the assignees, which cannot be avoided by the fact that the instrument, which is the evidence of the agreement, is under the seal of one of the partners only. In Harrison v. Sterry, (5 Cra. 300), it is decided that an assignment of funds for the payment of debts is in the course of trade; and whether it be a general or partial assignment, can make no difference, for they depend upon the same principle. And the views taken by this court in Deckard v. Case, are borne put fully in Robinson v. Crowder, (4 M’Cord 519); Mills v. Barber, (4 Day 425); and Hodges v. Harris, (6 Pick. 360). But is an assignment, which stipulates for a release, valid without containing a transfer of the separate estate of each of the partners ? And we are of opinion it is not. The creditors have, under such circumstances, a right to require a transfer of all the property liable to their debts; otherwise they may refuse to release, without losing their recourse to the property of the debtor; for so far as regards the creditors who do not come into the terms prescribed by the deed, it remains, notwithstanding the assignment, the property of the debtor. It is unreasonable to require the creditor to release his debt, unless upon the unconditional surrender of the whole property of the debtor, whether it consist of partnership effects or of the separate individual property. And this is the principle clearly asserted in M’Clurg v. Lecky, (3 P. R. 83); Passmore v. Eldridge, (12 Serg. Rawle 201); Adlum v. Yard, (1 Rawle 163); Johnston's heirs v. Harvy, (2 P. R. 92); and M'Allister v. Marshall, (6 Binn. 338). A debtor cannot make a reservation at the expense of his creditors, of any part of his income or property, for his own benefit, nor can he stipulate for any advantage either to himself or family. It would be in vain to make these decisions, if in the case of partnerships each partner could withhold his separate estate from his creditors. If he cannot reserve or stipulate for any advantage to himself or family, for the same reason he cannot be permitted to withhold his separate estate from his creditors, and at thé same time exact from them an unconditional release. True, it may not appear affirmatively that the partner, who neglected or refused to execute the deed, had any separate property; but .this is totally immaterial, as it would not, in our judgment, help the assignment, even if it should subsequently appear that the debtor, contrary to the facin ninety-nine cases out of a hundred, was entirely destitute of any estate whatever. It is an indispensable condition to the validity of an assignment of an insolvent debtor, that the deed itself should contain a transfer of all his property, whether belonging to the firm or to each partner in his separate capacity. If on inspection of the deed the creditors observe that it is defective in that essential particular, they may refuse to execute a release, and are not bound to investigate the fact whether the partners have or have not separate estate. They may rely on the common sense [312] presumption that they have some separate property, and it would be unreasonable to require them to go further. To suffer insolvent debtors to omit such a transfer, would lead to great frauds, which even now, with every care and circumspection, it is so difficult to prevent. In truth, under our imperfect system, guard as we may, creditors are nearly if not quite at the mercy of their debtors. It operates as a means of coercion on them, with every advantage on the side of a fraudulent debtor; and this would be much increased if we should tolerate assignments, the direct tendency of which would be a temptation to withhold valuable estates from the grasp of creditor’s. But this is not only true in principle, but we have the benefit of a direct decision on the point. The creditors, as is said in Thomas v. Jenks, (5 Rawle 226), are entitled to the benefit of the whole estate, of which they are not to be deprived by an arrangement which would impose upon them the necessity of resorting to a part of it in exclusion of the rest. The very imposition of a choice, which might prove unfortunate, would be an exposure of them to a peril which they are not bound to encounter. An assignment, therefore, that would present but a part of the effects to the creditors, and refuse the rest, is necessarily fraudulent, inasmuch as it might be a means to extort an unfair advantage. Now an assignment of partnership effects only is a partial one; and although in the case cited, it appeared affirmatively that the debtor had separate estate, .yet the cause did not turn on that point, but upon the broad principle that the creditor had a right to an assignment embracing in its terms clearly and explicitly as well the separate as the joint property of every member of the firm. And this surely is imposing no hardship on the debtors; for if they have separate estate,'the creditors are entitled to the benefit of it: if they have none, the deed is so far inoperative. The creditors have a right to the chance of after-discovered property, of which it may be possible the debtors at the time of the execution of the deed were ignorant. This construction has this great recommendation in my mind, that it may in many cases prevent debtors from attempting to impose onerous conditions on creditors, taking advantage of the perilous situation in which they may place them, who may for this reason only, be constrained to take part rather than run the risk of losing their whole debt. We see nothing wrong in that part of the deed which, in order to facilitate and hasten the object and purposes of the assignment, gives full power to assignees to appoint and employ, according to their discretion, one or more agents or attorneys under them, with full or limited powers and the same at pleasure to dismiss and revoke. There is nothing more in this clause than what is usually contained in every letter of attorney. And in this case such a provision was absolutely necessary, as it will be literally impossible for the assignees to give their personal attention to the col [313] lection of the numerous debts owing the firm in different parts of the United States. Indeed from necessity the assignees would have the same authority, even without any express power in the deed. If the assignees exercise their discretion improperly, as is apprehended, they will subject themselves to personal liability. Nor do we see anything exceptionable in exempting the assignees from liability for any effects that shall not come to their hands, or any losses, insolvencies or defaults that shall happen in the execution of the trust, either in the sale of the goods, collection of debts or misconduct of agents or attorneys, unless in cases of wilful neglect of duty or want of proper care, diligence and fidelity on the part of the assignees. As I construe this clause, the assignees can claim no other exemption they would not have been entitled to without it. They are liable for want of care, diligence and fidelity, and this would be the extent of their responsibility upon the general principle of principal and agent. They would not, at common law, be answerable for the acts of their agents, where proper care was taken in their selection, unless there was an omission of ordinary diligence on the part of the assignees in compelling them to perform their duty. So also, it would be unjust to charge them with property which never came to their hands, unless it appeared that it might have been reduced into possession and was not so in consequence of their supineness and neglect. Neither do we see any difficulty in the way of the assignees, arising from the fact that persons who reside in the United States are allowed but three months, whereas those who reside out of the United States are allowed nine months to execute a release. Such a discrimination is but just, as it gives every creditor a sufficient time to examine the assignment, inquire as to the assets of the debtor, comply with its requisitions and thereby entitle himself to a participation in the fund. A creditor should decide on the expediency and justice of releasing his debt, with a view to that debt, the conduct of the debtor, the amount of his assets, and not with a reference to the probable action of other creditors. Judgment reversed, and a venire de novo awarded.