Holland v. Fuller

Worden, J. Suit by appellees against appellants to set aside a certain conveyance, and subject the property to the payment of debts. Trial by the Court, finding and judgment for the plaintiffs. The proper steps were taken to present the questions involved, for decision here. The material facts are believed to be as follows: The plaintiffs are the only unpaid creditors of the firm of Richard and Silas Tyner, and have respectively recovered judgments against Richm'd, as the surviving member of the firm, upon their claims against the firm. The partnership of Richard and Silas Tyner commenced in 1834, and continued until the death of Silas, which occurred in 1852. The firm was insolvent at the time of the dissolution by the death of Silas. At the time of the dissolution, the partnership owned lot No. 22, in Cambridge City. They had also purchased lots numbered 9, 10, 11, and 12, on which they had paid, out of the partnership effects, two-thirds of -the purchase-money. After the death of Silas, Richard paid the remaining third of the purchase-money, and “knowing that the firm was insolvent, and that he would have the debts to pay,” took the deed for them in — 197 — his own name. Afterwards, in 1854, Richard, being insolvent, made a general assignment of his effects, including, amongst other property, the lots above mentioned, to George Holland and Abner McCarty, for the benefit of creditors. The object of the suit was to set aside the assignment so far as the above-mentioned lots are concerned, and to subject them to the payment of the plaintiffs’ judgments. It appears that at the death of Silas, the firm was indebted in bank in the sum of 51,500 dollars, and also to Roots and Coe in the sum of 9,500 dollars. For most of the indebtedness of the firm, either Holland or McCarty was liable, being on the paper. After the death of Silas, Richard executed his own individual paper, with Holland and McCarty as his sureties, had the same negotiated, and applied the proceeds to the payment of the above sums. The firm was also indebted to other persons about 20,000 dollars, which, after the death of Silas, was paid by Richard, in the same manner, except those mentioned in the complaint. At the time of the assignment above mentioned, Holland was on about 104,000 dollars of Richard’s paper, and Me Carty on about 75,000 dollars of the same paper. Between the death of Silas and the date of the assignment, there had been paid on the partnership debts, but about 10,000 dollars out of the assetts of the firm. The value of the property embraced in the assignment was from 55,000 to 75,000 dollars. The individual property left by Silas, together with the firm property, would not pay the firm debts, by 20,000 dollars. At the death of Silas, Richard, upon an estimate, supposed himself to be worth 15,000 or 20,000 dollars, over and above his own and the firm debts. After the death of Silas, the indorsements and acceptances of Messrs. Holland and McCarty, above referred to, were made upon the credit of Richard, and upon their faith in his ability and honesty. Whenever he asked them to indorse for him, they did so without inquiry, and without explanations being made. They indorsed the paper of the firm in the same way. The assignment in question provides for the sale, &c., — 198 — of the property, and the payment of creditors, subject to ^he provisions and trusts therein made. The second provision is as follows: “2d. The following named persons are herein declared to be preferred, creditors, to-wit, Abner McCarty, Enoch McCarty, Nathan D. Gallion, Root,s and Coe, Ezekiel Tyner and George Holland, of the first class, to the extent following: the persons above named as preferred creditors of the first class, are now liable upon bills of exchange, notes, and other mercantile paper, negotiated at sundry banks, and by divers private bankers and brokers, for the benefit of said. Richard Tyner, and for the benefit of Tyner and Childers, on which said parties above named are bound and liable as aforesaid as drawers, indorsers, acceptors, and payors. It is, therefore, hereby expressly declared that said funds so as aforesaid realized from said personal and real estate, shall be applied and paid in such manner as to save harmless, and fully and completely indemnify the said parties on such paper as they are so as aforesaid legally bound to pay, in the order following, that is to say, first, to indemnify and save harmless the said Abner Me Cariy upon all such paper of the aforesaid character and description as he is legally bound to pay, as first preferred creditor of this class. Second, to indemnify and save harmless, the said Enoch McCarty, Nathan D. Gallion, Roots and Coe, Ezekiel Tyner, and George Holland, upon all such paper of the aforesaid character and description as they are legally bound to pay, in proportions equal to their respective liabilities thereon.” The assignment does not provide for indemnifying McCarty and Holland against any liability as indorsers or sureties of Richard and Silas Tyner. It appearing on the trial that the plaintiffs are the only creditors of Richard and Silas Tyner, whose claims have not been paid, the Court adjudged that the undivided half of said lot 22, and the undivided third of the other lots mentioned, be sold to satisfy the plaintiffs’ claims, and that the proceeds, after paying costs, be applied pro rata thereon. — 199 — The counsel for the appellants claim that but two questions arise for our determination: First. Was this property, belonging to the firm, to be regarded as real or personal estate ? and if real, descending to the heirs at law of Silas Tyner, under what conditions did his heirs receive it? Second. Can Holland and McCarty, under the circumstances of this case, be substituted in place of the original creditors of the firm ? For the purposes of this case, we deem it wholly unneessary to determine how far, and under what circumstances, real estate owned by a partnership, will be treated as personalty. Whatever may be the rights of each partner to dispose of the partnership effects, in good faith, during the existence of the partnership, it is well settled that after dissolution, one member of the former firm cannot appropriate the joint property to the payment of his own individual debts, to the exclusion of the creditors of the firm. This doctrine is as applicable to real, as to personal estate. In the case of Matlock v. Matlock, 5 Ind. R. 403, it is held “that real estate acquired with partnership funds for partnership purposes, must be considered as partnership property, and first applied to the satisfaction of the partnership debts.” Vide McCulloch v. Dashiell, 1 Am. Lead. Cases, 460, and notes. The principle is, that upon a dissolution of the partnership there can be no proper distribution of the effects among the members of the firm, until the partnership debts are paid; or, in other words, the partnership effects are charged with the partnership debts, and the rights of the several members of the firm to the effects of the partnership, are subject to the rights of the partnership creditors. Mr. Justice Story states the proposition in the following terms: “In short, in case of a dissolution, each partner holds the joint property clothed with a trust to apply it to the payment of the joint debts, and subject thereto, to be distributed among the partners according to their respective shares therein.” Story’s Part., § 360. — 200 — In Nicholson v. Leavitt, 4 Sandf. (S. C. R.) 252, it was held that an assignment by partners, of partnership property, giving preference in payment to the creditors of one of the partners over the creditors of the firm, was not, for that reason, void; but that such preference violated a rule of'equity, was invalid, and might be avoided by a suit on behalf of such partnership creditors. We come to the second question—Can Holland and Me Carty, under the circumstances, be substituted in place the original creditors of the firm? In our opinion, the doctrine of substitution is not applicable to the case. It is insisted that the successive securities given by Holland and McCarty, were but a continuation of the original debts of the firm; and, therefore, that they should be regarded now as sureties of the firm, and entitled to occupy the position of creditors of the firm. The facts proven, however, are at variance with this position. To be sure, at the death of Silas, both Holland and McCarty were liable upon the paper of the firm; but that liability has been extinguished by the payment of the paper by Richard. The new paper made by Richard, and secured by Holland and McCarty, was not given in novation of the old. It does not appear to have been made to the parties that held the original debts. It was negotiated in the market, and the avails applied in payment of the old debts. It does not even appear that at the time the new paper was made, Holland or McCarty knew the purpose to which Richard intended to apply the proceeds of it. They indorsed the new paper upon the credit of Richard, and upon their faith in his ability and honesty, without inquiry or explanations; and without any understanding or agreement that the proceeds should be applied to the payment of the firm debts for which they were liable. At this time, Richard was apparently solvent, and worth 15,000 or 20,000 dollars over and above his own and the firm debts. Holland and McCarty saw proper to become surety for Richard alone, and he having paid the partnership debts for which they were liable, they remain sureties only for Richard, and can claim — 201 — no rights as sureties for the firm. The assignment itself entirely excludes the idea of indemnity to them as sureties of the firm of Richard and Silas Tyner. This provides for indemnifying them against their liability on paper negotiated “for the benefit of said Richard Tyner, and for the benefit of Tyner and Childers.” No allusion is therein made to any liability as sureties of Richard and Silas Tyner. Richard, in his testimony, says that “the assignment referred to was executed to secure Messrs. Holland and McCarty from liability on the new paper thus given in extinguishment of the old indebtedness of Richard and Silas Tyner.” The assignment was undoubtedly intended to secure them from liability on the new paper; but the new paper cannot be said to have been given in extinguishment of the old indebtedness. It was the payment of the old indebtedness, by Richard, that operated as an extinguishment. Perhaps, had the new paper been given in novation or renewal of the old, it would be considered as essentially the same debt; but such, we have seen, was not the case. The new paper, so far as appears, was executed without any reference to the old whatever, and had no connection with it. The proceeds of the new, upon negotiation, were applied by Richard in payment of the old; but this fact will not entitle Holland and McCarty to be deemed sureties of the firm, the debt for which they were sureties being thus canceled. We have seen that at" the time of the dissolution, the firm owned lot No. 22, and had paid for two-thirds of the other lots. The Court only ordered.one-half of the above interests to be sold. This, we suppose, was intended to embrace the individual interest of the deceased partner in the lots. Whether the whole of lot No. 22, and the whole of the partnership interest in the other lots might not have been subjected to the payment of the plaintiffs’ claims, is a question not before us, as the plaintiffs make no objection to the judgment. The defendants have no cause to complain of the judgment in this respect. We see no error in the proceedings for which the judgment should be reversed. J. Perry, G. Develin, and G. Holland, for the appellants (1). J. S. Newman and J. P. Siddall, for the appellees (2). Per Curiam. The judgment is affirmed with costs.