Holland v. Drake

Welch, C. J. The important question in the case is, whether one member of an insolvent firm, either before or after dissolution of the partnership,-can make a valid assignment of all its effects for the benefit of creditors against the will of a copartner, or without procuring his assent when present or accessible. Until this question is decided in the negative, it is unnecessary to consider thequestions whether this firm was dissolved by the published notice, and if so, whether such dissolution had the effect to lessen or take away the power to assign. The important question is, diyl the power ever exist ?• The authorities and decisions on this subject are quite [446] numerous, and are far from being uniform. It is deemed unnecessary here to attempt a review of them, or to enter into or repeat the reasoning pro and eon on which they assume to stand. The leading cases will be found enumerated and referred to in Parsons on Partnerships, 165 (notes l, m, n, o), and Story on Partnerships, sec. 101, note 2. We have examined these cases with much care and consideration, and think the weight of authority, as well as the better reasoning, is with those who deny the validity of such an assignment. The power to make it is not within the contemplation of an ordinary partnership contract. It is not a power to act as agent of the company in carrying on its business and paying its debts, but a power to appoint an agent and to clothe him with all the powers of the partners. If the power exists where there are only two partners, as in the present case, it must also be conceded where there are many. It is easy to see that in many such cases it might be exercised to the great injury and annoyance of the non-consenting members of the firm. It is often the case, especially in times of financial depression, that a firm, if forced into liquidation, and their effects sold under the hammer, would prove insolvent, whereas if suffered to struggle on they would become solvent and successful. In such cases a single member, without the concurrence of the creditors, could, by the exercise of the power in question, bring it to an end, and place all its interests in the hands of a trustee of his own selecting; or, by threatening to exercise the power, he could compel his copartners to submit to unjust terms of forbearance. True, he might, in the absence of such a power, where the terms of the partnership did not forbid it, by a proceeding in equity dissolve the firm and place its assets in the hands of a receiver. But in that case the receiver would be chosen and appointed by the court, and not by the partner, and the other members of the firm would be consulted and heard. We think the safer and juster rule is to require the assent of all the partners, either actually given or to be fairly implied from [447] the situation of the parties, or from the manner of conducting the business of the firm. But it is claimed that the assignment took effect from the date of its execution by McRay, because its subsequent approval by Tracy related back and took effect from the date of its execution, which was prior to the attachment. As between the partners, and as between them and third persons who acquired no new rights in the meantime, this is undoubtedly true. Such is the well-settled law in all cases of volunteer agencies. It is equally well settled, however, that it can not haye effect so as to defeat the rights of third persons bona fide acquired in the meantime. A contrary rule of law would be calculated to work manifest injustice. Take the present case for an example. Holland and Pettitt levied their attachment while the assignment remained in abeyance. It might never be confirmed by Tracy. With him alone rested the power to give it effect or to defeat it. If Holland, and Pettitt dismissed their attachment, Tracy might fail to affirm the assignment, and they would lose their lien if they persisted in their attachment proceedings. Tracy might affirm the assignment, and they would be left to pay their costs. They would thus be placed completely within Tracy’s power, and their rights be made to depend on his will or caprice. Such is not the law. The assignment took effect from the date of its execution, but not so as to affect the rights acquired by the intervening attachment. The question, therefore, whether the assignment is to be regarded as taking effect from the time when it was delivered to the probate court, or from the time of its actual acceptance by the assignee, becomes immaterial. It is enough that the attachment was levied before the confirmation by Tracy. It is also claimed that the lien of the attachment was lost by the agreement under which the property was delivered to the assignee by the sheriff. We are of opinion that the parties are estopped by their agreement from setting up any such defense. The property was given into the hands of the assignee on the faith of the agreement. [448] But for the agreement it would have been retained and sold by the sheriff. To allow this defense would be to aid the defendants in practicing a fraud upon the plaintiffs. A further claim made by the defendants in error is that the proper parties were not before the court; that the creditors of the firm, as well as the assignee, should have been made parties defendant. "We think otherwise. The assignee, like an executor or administrator, is an officer recognized by the law, and whose duties and qualifications are regulated by law, and he fully represents the creditors in such cases. The judgment of the common pleas and probate courts must be reversed, and the cause remanded to the probate court for further proceedings.