Miller v. Estill

J. R. Swan, J. It is assigned for error that the court below erred in the distribution made of the funds in the hands of the plaintiff, George Miller, assignee of William B. Travis ; and also in the distribution of the funds in the hands of Small, the receiver. The determination of these assignments of error involves the question whether either Travis, or the creditors of the several firms, had any priority over each other in the payment of debts out of the funds created by the sale of the goods. Partnership property is primarily liable to pay partnership debts; and the surplus, if any, belongs to the partners. This primary liability arises from the equity of the partners, who have a lien upon the partnership property, which they may enforce to pay the partnership debts, in preference to the creditors of the [517] individual partners. The creditors of the partnership, however, have no such lien ; and it is only through the right of the partners to have the joint property thus applied to pay joint debts, that the creditors of the firm can invoke the application of the rule, that the partnership property shall be primarily liable. "When, therefore, the right of the partners themselves to apply the partnership property in extinguishment of the partnership debts -is gone, the right of the partnership creditors thus to apply it, is also divested. Thus, it is competent for the partners, upon a voluntary dissolution, to agree that the joint property of the partnership shall belong to one of them ; and if this agreement be bona fide, and for a valuable consideration, it will transfer the whole property to such partner, and, like any other sale to third persons, will wholly free the property from the primary claim of the joint creditors. And this result will, in general, take place, although the whole or a part of the consideration of such transfer is, that the partners taking the property, shall pay the debts of the partnership. It seems to be a general rule, that when the equities of the creditors of a partnership are to be worked out through the medium of that of the partners, it must be done upon the joint effects of the partnership. Applying these principles to the case before us, it appears .that the partnership of Travis, Estill & Co. was dissolved, and the interest of Travis in the partnership property of Travis, Estill & Co. was divested by the contract under which the plaintiff in error withdrew the interest and capital stock of Travis in the firm, and Estill & Beebout agreed to pay the debts of the firm. The effect of this contract was a sale by Travis, to Estill and Beebout, of the partnership effects, and divested Travis of all further lien upon them. In such a transaction, where one partner takes the partnership property and agrees with the outgoing partner to pay the debts of the firm, there may, in some cases, be circumstances which will induce a court of equity to recognize and assert a lien upon the partnership property, in favor of the outgoing partner. Thus, if there be a voluntary dissolution of partnership with an agreement that one of the partners shall take the partnership property and pay [518] the partnership debts therewith, a court of equity would, perhaps, enforce a proper application of the assets of the firm, in behalf of the retiring partner. But in the case before us, Travis first dissolved the partnership of Travis, Estill & Co., by an assignment to a trustee, and then, through the trustee, divided the property of the firm, and was content with the personal promise of Estill & Beebout that they would pay the partnership debts. The object of the division seems to have been to place the parties, in respect to the partnership property, as they were before the partnership was entered into. We do not think Travis intended to retain a lien upon the partnership property which remained in the hands of Estill & Beebout, or that his equities are superior to other creditors of Estill & Beebout. Estill & Beebout, with the goods thus held by them, commenced doing business under the name and firm of Estill & Bee-bout ; and, afterwards, under that name and firm, assigned the goods and assets of the firm, and their individual property, to Samuel W. Beebout, in trust, to pay the creditors of the firm. It seems there were no creditors of that firm. If the assignment, however, was intended for the benefit of the creditors of the firm of Estill & Beebout, which existed prior to the formation of the firm of Travis, Estill & Co., then it was an attempt to give the creditors of the old firm a preference over the creditors of Travis, Estill & Co., and the assignment operated, under the statute, for the benefit of creditors generally. Travis, in his assignment to Miller of his individual and firm property, undertook to give his individual creditors a preference. Whether such a preference can be given in firm property by a partner, or whether his partners could not have insisted upon his assignee applying the firm property thus assigned to the payment of the firm debts, it is not necessary in this case to inquire; for the partners of Travis, Estill & Beebout, soon after his assignment, apportioned and divided the firm property, and delivered to Miller, the assignee of Travis, the amount of the assets which Travis would have been entitled to, had there been a dissolution of the partnership by mutual consent; and then Es-till & Beebout agreed to pay the firm debts. This promise of [519] Estill & Beebout to pay the firm debts did not discharge Travis from the claim of the firm creditors upon his individual property. There was, in fact, after the assignment of Travis, and the apportionment and division of the assets of the firm between Estill & Beebout and Travis’s assignee, no firm property or joint fund to pay the debts of Travis, Estill & Co.; so that the question really is, whether Travis and his partners could make such assignments of firm and individual property as to give individual creditors a preference over the creditors of a firm. It will be observed that a single fund only is created by these transactions of Travis, and that fund is derived, in part from the firm, and in part from the individual property of Travis. Under these circumstances, the assignment must operate under the statute relating to assignments, for the benefit as well of the firm creditors of Travis as his individual creditors. And in thus holding, we do not intend to determine what is the effect of an assignment by a partner of his individual property only for the benefit of his individual creditors. But we do hold that where a firm is dissolved and the property of the firm divided between partners, the members of the firm cannot, in contemplation of insolvency, make an assignment of their property, both individual and that which was derived from the firm, for the benefit of, and giving preference to, their individual creditors, to the exclusion of their firm creditors. The statute relating to assignments in contemplation of insolvency, will operate upon the assignment, and work out an equal distribution. The agreement of Estill and Beebout with Travis, through . Miller, his assignee, to pay the partnership debts of Travis, Es-till & Co. cannot be interposed to disturb the distribution of the assets in the hands of the receiver and of Miller, to creditors. The creditors must be first paid ; and, when paid, the balance of the funds, if any, may be adjusted, in view of this agreement of Estill & Beebout with Travis. There not being, however, sufficient funds to pay the debts, the creditors of Travis, Estill & Co. receive a pro rata amount upon the whole of their claims; and the amount of those claims remaining unpaid, after the application of the fund derived from the assets of Estill & Beebout, [520] will be a proper subject of adjustment under tbe above mentioned agreement of Estill & Beebout with Travis, to pay the debts of Travis, Estill & Co.; but Travis cannot, under that agreement, place himself in the relation of a creditor of Estill & Beebout, so as to claim any portion of that fund. If Travis could thus, as creditor under that agreement, claim a portion of that fund, a distribution would in effect be obtained twice upon the same debts, and Travis’s portion of the fund on account of his liability to the creditors of Travis, Estill & Co., be transferred and applied to the payment of the creditors of Travis, Estill & Co. The decree of the court below was in accordance with these views, and must be affirmed. The order of distribution seems to have been made generally to creditors ; and was not, as the assignment of errors assumes, confined to creditors named in the report. Whether the court erred in disallowing the claim of Travis against Travis, Estill & Co., we cannot determine, as the record does not disclose the facts upon which the court passed. The order directing the assignee and receiver each to pay one half the costs, was not, so far as we can' perceive, an abuse of discretion in the court below. We cannot, therefore, disturb it. Decree of the district court affirmed.