Doner v. Stauffer

The opinion of the court was delivered by ' Gibson, C. J. It is settled by a train of decisions in thq Ameri-. can, as well as the British courts', that the joint effects belong to* the firm, and not to the partners, each of whom is entitled only to ■■ a share of what may remain after payment of the partner-.? ship debts; and consequently, that no greater interest .can be derived from a voluntary assignment of his share, or a sale of.-it on exe-i. cution. That a contract which enables the parties to keep a class •of their creditors at bay, and yet retain the indicia of ownership, should not have been deemed within the statutes' of Elizabeth, is at*. [204] tributable exclusively to the disposition universally manifested by courts of justice to- encourage trade; But such as it is, has the contract of partnership been established; and the principle which enables the partners to pledge to each other, the joint effects as a fund for payment of the joint debts, has introduced a preference in favour of the joint creditors, founded on no merits of their own, Sut on the equity which springs from the nature of the contract between the partners themselves. The author of the Commentaries on American Law, vol. 3, page 38, attributes this preference to an inherent equity in the joint creditors themselves, arising from a supposed acquisition of the partnership effects from their means.The opinions of Chancellor Kent, are so justly entitled to deference, that no prudent judge will.differ from him without hesitation; yet I cannot but adhere to the opinion I expressed in Bell v. Newman, 5 Serg. & Rawle, 92, that in-eases of insolvency or bankruptcy, in which- alone the question of priority can be material, the joint effects consist of the wreck- of the capital originally embarked.Under a joint commission, by which the effects pass to the assignees,while the partners are personally discharged,- I admit, that the preference of the joint creditors has no other foundation, if it has-any at all, than this supposed inherent equity; and the best elementary writer on. the' subject so» disposes of the difficulty. Gow on Partnership, 341-2. But in the case of a separate commission, Lord Eldon expressly puts it on the particular equity of the'part-ners themselves; Ex parte Ruffin, 6 Vesey, 126, and in the case of an execution, Chief Baron M'Donald does the same. Taylor v. Fields, 4 Vesey, 396. To-secure the firm from the extravagance of’ its members, by preventing the capital from being withdrawn' from the purposes of the partnership,- the stock is pledged for the burthen which, from the nature of the connexion, is to» be borne by all; but in moulding the law of partnership to its present form, the credit gained by giving the joint creditors a preference, was, if an object at all, a very remote one. Accordingly, with the singly exception of a joint commission, we find that wherever the part-1 ners are not individually involved, the joint creditors have no preference whatever: as in the instance' of a bona fide assignment of j the effects, to one of the partners, after the partnership has been1' dissolved. ^ In consequence of the rule as I have stated’ft-, a separate execu-tion creditor sells, not the chattels of the partnership, hut the interest of the partner, encumbered with the-joint debts;' and the joint creditors therefore have no claim to the proceeds.- To allow them the proceeds, and recourse to the property in the hands of the1 purchaser, would subject' if to a double- satisfaction. Neither can-they take the proceeds or the property at their election. They • can interfere at_all, only on the ground of a preference which ha»» [205] regard only to the partnership effects, and these have not Been sold but only the subordinate interest of the partner, which was, strictly speaking, his separate estate. Their recourse, therefore, is necessarily to the property in the hands of the purchaser. Now had the sheriff sold the interest of bu.t one of the partners, the execution creditor would have clearly been entitled to the proceeds. But although he sold the whole stock at one operation, on separate executions against both, there was, in contemplation of law, a separate sale of the interest of each. What then would have been the effect, had these sales been made consecutively? The first, in the order of time, would have passed the interest of the partner, subject to the equity of his co-partner, and the execution creditor would have been entitled to the price, But this equity, together with the remaining interest of the other partner, would have passed by the succeeding sale, to the same purchaser; the execution creditor, in that instance, also taking the proceeds. Can it make a difference, then, that instead of being consecutive, these two sales were simultaneous? A curious question might arise whether separate purchasers of the shares respectively, would stand in the relation of partners, so as to enable the joint creditors to follow the goods. It seems to me they would not, because not personally involved in payment of the debts. Here, however, where the shares of the partners are united in the same purchaser, every semblance of partnership equities is at an end. As regards the goods in the hands of the purchasers, this is conceded; but the joint creditors insist that the proceeds are to he substituted for .the goods, and subjected to the same equities. That might be done if the proceeds belonged to the partners; but it is not easy to imagine how they are to be treated as the owners of money raised by a sale on executions against them. For what purpose should the ownership of it be vested in them, even for an instant? ' Not to give the; joint creditors a preference, for that would make the rights of thb partners depend on the claims of the joint creditors., who on the contrary can claim nothing but by virtue of the lien, where there V one, of the partners. To say that the partners have such a lien, because the joint creditors have .an equity, and that the joint creditors have an equity because the partners have a lien, would be to argue in a circle. Here the partners cannot be prejudiced in respect of their claims on each other., the advantage to be gained from an application of the joint effects to their separate debts, being mutual and equal, The consequences are precisely the same, as if the effects had been sold on an execution against^ both. We are, therefore, of opinion that the joint creditors can not interpose; and consequently, that the rejection of the evidence, as-well as the direction to the jury, was substantially right. [206] I have considered the question on principles applicable to it, in analogy to well settled parts of the law of partnership, rather than on authority bearing directly on the point. But, since this opinion was drawn, my brother Huston has' directed my attention to the case of Brinkerhoff v. Marvin, 5 Johns. Ch. R. 300, which is direct to the point; so that independent of analogies, we have an author rity on which we might safely rule the cause. But both principle ,and authority are adverse to the preference claimed; and the issue, therefore, was .correctly found for the plaintiff Huston, J., dissented.. Rogers, J., was sitting at Nisi Prius, and tools no part in the judgment. Judgment affirmed