McGown v. Sprague

GIBBONS, J. The equity of the bill filed by complainant is attempted to be sustained by counsel on two grounds : first, under the statute of 1846, viewing the bill and the proceedings under it purely as a statutory proceeding; and secondly, it is insisted that the bill contains equity on its face independent of the statute. Upon the first ground assumed, it is insisted that the relation which the complainant, McGown, held to the defendant, Sprague, after the dissolution of the partnership, and after the complainant had sold out his interest in the concern, was that of a surety for the payment of the partnership debts, and therefore the case falls directly within the eighth section of the act of 1846, and the complainant was authorized to proceed under the statute. This position we think well taken ; but the bill does not seem to have been filed under that statute, as the proceedings under the bill are by no means in conformity with the act. The statute requires that the particular debt should be distinctly set out by affidavit, which is due to the complainant, or for which he is liable as security, and also that bond should [529] bo given as in casos of attachment at law. — See section 3 of the act, p. 17, Pamphlet Acts of 1810. Neither the affidavit nor the bond seems to have been filed according to the requisitions of the statute; and, indeed, it does not seem to have been intended to be, at the filing of the bill, a proceeding under the statute. Where proceedings of this nature are authorized only by statute, the uniform decisions of this court are, that such proceedings, when taken, must be substantially conformable to the directions of the statute. These would seem to be too defective to be sustainable as such. But it is insisted that the bill contains equity independent of the statute, and that upon the idea of preventing to the complainant irreparable loss and mischief. The chancellor, it would seem, considered the case made by the bill to fall within the case of Reese v. Bradford et al., 13 Ala. 837, and dismissed the bill for want of equity, of his own mere motion. We do not consider that case as entirely decisive of this. If the complainant had been a creditor of the firm of Sprague & McGown, or of Sprague individually, the cases would then have been analogous, and the case cited would necessarily have controlled this. In that case, it is distinctly laid down as a principle, and is well sustained by authority, that u partnership creditors have no lien on the partnership effects for the payment of their debts; and they stand in respect to partnership property as individual creditors do to the property of individual debtors, without having any lien thereon, until their debt is reduced to a judgment creating a lien on real estate, or until execution is issued on said judgment creating a lien on the personalty.” Story on Part. 509, 510. Partners, however, have a lien on the partnership effects, to pay the partnership debts. — lb. It is said, however, that as McGown had sold out his interest in the firm to Sprague, the partnership no longer existed, and the oflects of the late firm became by the act of sale individual effects ; and therefore the lien of McGown, as a partner, to have the effects applied to the payment of the partnership debts, was lost by said act of sale.—Reese v. Bradford et al., supra. This is doubtless true, and may all be conceded, and yet, we apprehend, the bill contains equity notwithstanding. When MoGown sold out to Sprague, he did so on the agreement or undertaking of Sprague to pay the partnership debts, and to indemnify him [530] from all loss in consequence of said debts. Instead of performing the agreement, Sprague leaves the debts unpaid, becomes insolvent, and absconds, leaving also numerous individual creditors, who will, as complainant has the right to suppose, be anxious to realize their debts. Sprague’s contract with him, then, not being performed, and circumstances having arisen by which its performance has become entirely improbable, has not McGown the right, as between himself and Sprague, to consider himself released from their contract, so far as it deprived him of a lien upon the partnership effects to have them applied to the payment of the partnership debts; and if the goods which he sold can yet be identified, and the debts which he assigned are yet uncollected, would not a court of equity reinstate him to his original rights, as a partner with a lien upon the partnership effects to have them applied as above stated? If these are correct propositions, then the bill contains equity in itself, independent of the statute. It sets out -distinctly the contract of sale of the complainant’s interest, the agreement on the part of Sprague to pay the partnership debts and hold the complainant harmless from all liability on account thereof, the failure of the said Sprague to perform the contract, the fraudulent absconding on his part with a view of avoiding the payment of his debts, and his insolvency. All these circumstances, taken together, we consider, give to the complainant an equity to be relieved from the effect of the contract of sale, so far as it deprived him of a lien upon the partnership effects to have them applied to the payment of partnership debts, and to be restored to his original rights as a partner with the lien above stated.—Carey on Part. 205; Deveau v. Fowler, 2 Paige 400; Kitchen v. Lee, 11 Paige 107. It results from these views, that the decision of the chancellor in dismissing the bill for want of equity was erroneous, and his decree is therefore reversed, and the cause remanded, with instructions to proceed with the cause as upon a bill containing in itself a valid subsisting equity. It is further ordered that the costs of this court be taxed to the defendant Sprague, to be paid out of the funds in the hands of the register in the court below. LIGON, J. I will briefly state my reasons for dissenting from the opinion of the court in this case. [531] In the first place, I do not consider the allegations of the bill, and the manner in which it is filed, sufficient to bring it within the act of 1846, (Pamphlet Acts, 1845-6,) and consequently it is within the rule laid down by this court in the ease of Reese & Heylin v. Bradford et al., 13 A. R. 837, and was rightly dismissed by the Chancellor, unless it can derive some aid from the general lien which each partner has upon the partnership effects for the payment of the debts of the firm. 2. It is apparent from the face of this bill, that McGown and Sprague had fully dissolved their partnership several months before it was filed, upon an agreement that Sprague was to take the effects of the firm and pay all its debts. Upon making this agreement McGown retired from the partnership, and ceased to interfere in its concerns. Sprague continued the business in his own name, and paid a large portion of the firm debts. No fraud on the part of Sprague, either as to McGown, or the creditors of McGown & Sprague, in the purchase from Me-Gown, as I understand its allegations, is charged in the bill. If under these circumstances, McGown has no lien as a partner, it is clear to my mind, that neither he nor the creditors of Sprague alone, or of McGown & Sprague, who have not reduced their claims to judgment, have the right to come into a oourt of chancery to charge the effects of Sprague with their payment. The rule is, that when a firm is dissolved, by one partner selling his entire interest in the partnership effects to his co-partner without fraud, and the selling partner retires from the firm on an agreement that the remaining partner shall pay the debts, the latter becomes the absolute owner of all the effects, discharged from the lien of the retiring partner.—Story on Partnership § § 358, 359; Collyer on Partnership 603 to 605; Ex parte Ruffin, 6 Ves. 119, 124, 127; Ex parte Williams, 11 Ves. 3, 8; Campbell v. Miller, 2 Swanst. R. 552, 557; Ex parte Fell, 10 Ves. 34; Ex parte Peele, 6 Ves. 602. As the retiring partner has no lien, the creditors of the firm, as it stood before his retirement, have none; for all liens which the creditors can have in case of dissolution must arise out of that of the retiring partner; and as we have seen that McGown has none, neither have the creditors of the firm from which he had retired. As a general rule, creditors, as such, have no lien [532] on the effects of a partnership for the payment of their debts.— See authorities, supra. Both McGown and the creditors which he has joined with him in his bill, can be regarded in no other light than creditors at large, and in that capacity are forbidden to resort to a court of equity for the collection of their demands.—Reese & Heylin v. Bradford et al., 13 A. R. 837. For these reasons, I think, the decree of the Chancellor should have been affirmed.