Hubbard v. Curtis

Woodward, J. The record, as contained in the transcript, is imperfect, in not stating some of the steps in the progress of the cause. Thus, there is no record of the first appointment of the receiver; and several proceedings are referred to, in the final decree, of which there is no mention in the progress of the cause. But it is probable that these, or some of them, were omitted as having no important bearing on the result. The bill was filed in December, 1857, at which time the injunction was allowed. In January, 1858, the receiver gives bond, and, in February, he makes a first report. On motion, the injunction is dissolved .so far as to allow the sheriff to sell, but holding the proceeds liable to the payment of the joint debts, if it should be so decreed. Then the final decree orders the money to be so applied, and perpetuates the injunction. Curtis filed an answer admitting the matter of the bill, and consenting to a decree in accordance therewith. The final entry states that Gove & Co., who had filed a demurrer and an answer, appeared by counsel, and orally stated that they did not resist a decree, such as was prayed for. A judgment was recovered by O. W. & S. L. Keith against said Curtis, which is not regularly introduced into the pleadings, but as a portion of the property of the firm was attached in that suit, it is agreed by counsel that if it is finally held, that the judgments of Wilcox, Perry & Eacher should be paid from the assets of Hubbard & Ourtis, then the court may also decree the payment of the judgment of Keith. These circumstances and facts are here mentioned, either to explain the state of the record, or the case in relation to them, or to .dispose of them at once, as having no important bearing in the cause. Of this latter character, is the matter of the sale to Ams-den. As the propei’ty came back into the hands of the — 12 — firm, and stands with the rest of their assets, and constitutes a part of them, either by a cancelation of the original sale, or by a re-sale, (and which seems immaterial), no question of consequence arises in relation to it, and the subject does not appear to have any bearing in the case, and may be dismissed without further remark. The true questions arising in the case, are upon the course of proceedure, and the rights of the jxarties, when the separate creditor of a partner levies upon, or aims to reach, the interest of that partner in the joint property; and what are the rights of the joint creditors, and how are they to be enforced ? Two propositions are familiar to all. That the creditor ; of one partner may levy upon the interest of his debtor in j the firm ; and that the creditors of the firm are entitled to j be first satisfied from the partnership funds, and the sepa- \ rate creditors from the individual funds. The application and test of this second rule, arises only where there is a dejficiency in one of the funds. Consequently, the doctrine 'had its origin under insolvent and bankrupt laws. It is not confined to cases actually arising under such laws, but requires an actual insolvency as the ground of its application. This is the usual mode of stating the rule, but it is not strictly true, for absolute insolvency is not required. If, for instance, a firm is just solvent, and no more, having just sufficient to pay its creditors, the creditors of individual partners could not come in. And so it would be of the separate fund. In the present case, the creditors of Curtis alone levied on partnership property. Hubbard, his partner, in behalf of the firm, and of the creditors of the firm, obtained an injunction to stay the sale. On this point, there is a difference among the authorities. It is upon the question, whether the court will stay the sale, and throw the burden upon the creditor levying to wait the settlement of the partnership affairs, to ascertain whether the debtor-pax-tner has a real aixd valu¡able interest, over and above the liabilities of the firm ; or — 13 — whether the officer shall proceed to sell, letting the purchaser buy at his own risk, and he take the burden of undergoing a settlement of the partnership, and take according to the result — nothing, if there be no balance due the debtor-parti ner, and something, if there be a balance. That the court would not stay a sale, is held in Litler v. Walker, 1 Freem. Ch., (Miss.,) 78 ; by Chan. Kent, in Moody v. Paine, 2 Johns. Ch., 548; and in 3 Kent’s Com., 65, note (f), Chancellor Kent appears to have been constrained by prior cases in his own state, and in the passage last above referred to, he notices the position of J udge Story, and concedes that the other is the more suitable rule. Sougham v. Carter, 12 Wend., 131; Philips v. Cook, 24 Ib., 390; Brewster v. Hammett, 4 Conn., 540 ; Parker v. Pistor, 3 B. & P., 288. On the other side of the question are: 1 Eden on Inj., 53 and note; Collyer on Part., sec. 340, citing Taylor v. Field, 4 Ves., 396; S. C. 15 Ves., 559, note; Bevan v. Lewis, 1 Sim., 376; Gow on Part., (3d Ed.) 144; Collyer sec. 831, states this case precisely, citing 1 Mad. Ch. 131, (which Mr. Kent says is not supported by his authorities); Lowndes v. Saylor, 1 Madd., 423; Newell v. Townsend, 6 Sim., 419; In re Smith, 16 Johns., 106; Newhall v. Buckingham, 14 Ill., 405; Place v. Sweitzer, 15 Ohio, 142; Washburne v. Bmk of B. Falls, 19 Vt., 278; 1 Story Eq., secs. 675, 678, et seg.; Story on Part., secs, 97, 260, et seg.; McDonald v. Beach, 2 Blackf., 55. Some of the above cases are at law, but they discuss questions and cases bearing closely upon the pure equity view of the subject. Such is the above case of Phillips v. Cook ; and in Sougham v. Carter, though at law, Ch. J. Savage says : The court would stay a sale on execution to allow an account to be taken in equity, and if this was not done, yet, only the interest of the partner would be sold. But, according to the rule in equity, he says, the partnership accounts should all he liquidated before a sale on execution, and cites 16 Johns., 106; and 2 Yes. & Bea., 300. In either case, — 14 — however, whether the sale be stayed till the accounts are settled in equity, or not, all the books agree that the purchaser takes only the interest of the judgment debtor, and takes it | as he held it, that is, subject to the payment of the partnership debts. A question standing still earlier in the order of proceeding, has been whether the officer shall take actual possession of the joint property, and, on a sale, deliver it to the purchaser, or whether he only lets in the purchaser to a tenancy in common with the other partner; and perhaps the weight of authority favors the actual taking and delivering, and some of the cases have held what seems rather strong and hard doctrine on this subject. But, however this may be, it is agreed that the purchaser takes, subject to the settlement of ' the partnership, and if there is no surplus belonging to the debtor, he takes nothing, and the property is taken from him by the joint creditors. See the above authorities. If the property is sold before an account is taken, of course the interest of the debtor is liable to be sacrificed, on account of the uncertainty, and. the purchaser is burdened with the settlement of the business of the firm. In the other mode of proceeding, the creditor takes this upon himself, and .if there is no balance, there is nothing to sell. The rule is clearly summed up and stated in Eden on Inj., 53-5. Having stated that the subject had undergone an elaborate discussion in a case in the Exchequer, Taylor v. Field, 5 Ves., 396, and 15 Ves., 559, note, he states the conclusion as there held: '“Whether the partner, for valuable consideration, sells his interest in the partnership, or his representatives take it upon his death, or a creditor takes it in execution, or assigns under a commission, the party coming in in the right of the partner, takes nothing more than an interest in the pai’tnership, which is not tangible, and cannot be made available, except under an account between the partnership and the partner. The creditor will, accordingly, be restrained from proceeding, until such account has been taken.” This seems to be the more consistent rule, and supported by the — 15 — greater weight of authority. The following cases, also, bear upon the subject: Fox v. Hanberry, Cowp., 445; Richardson v. Gooding, 2 Vern., 293; West v. Skipp, 1 Ves., 239 ; Hankey v. Garrett, 3 Bro. C. C., 457; and 1 Ves. Jr., 236; particularly, Barker v. Goodwin, 11 Ves., 78; Young v. Keigleby, 15 Ves., 557; Dutton v. Morrisson, 17 Ves., 193. In reply to suggestions of the respondent’s counsel, we would say, that the stay of sale is not allowed upon the ground that the interests of the other partners will be 'damaged by a sale, but it is to ascertain and protect the rights of the joint creditors. Again : the account is not taken solely to ascertain whether there is a surplus interest in the debtor, as counsel seem to Suppose; but it being found that the joint effects are not sufficient, or only sufficient, to meet the demands of the joint creditors, the object is to protect these, and direct the funds to their payment. It is objected that the complainant does not distinctly allege insolvency, and that he does not seek a stay of sale merely to ascertain the debtor’s interest, but asks a perpetual injunction. It is true that the bill is not as full and explicit as it might well have been; but, what with the facts stated, and the averments of the petition, an alleged insolvency is apparent. He avers that the assets are not sufficient to discharge the indebtedness, and upon this basis he asks a perpetual injunction. The court having cognizance of the case to take an account of the partnership affairs, finding it insolvent in fact, must necessarily make the injunction perpetual in the end, since there was no interest remaining in the debtor, to sell. It appears, that in the present case, the court dissolved the injunction, so that the officer proceeded to sell, and, therefore, it is questionable whether the point is properly made as to whether an injunction should be allowed to stay a sale. Yet the whole proceeding is so involved, one part with another, that we have given attention to it. At the sale, the respondents, "Wilcox, Perry & Eacher, became the purchasers; and it being ascertained that there is no interest in the debtor for — 16 — his separate creditors, they are directed in the decree to restore to the receiver the property purchased. This is what we have remarked would be the case with any other purchaser, where it should be ascertained that there was no surplus interest in the debtor-partner. As. to the objection that no master in chancery is appointed to take an account of the partnership debts, or any tribunal or proceeding, such that the defendants could appear and contest claims set up, it is to be remarked that the record is not full. There is an evident omission to state some of the steps in the course of the proceeding, and the cause seems to have been prepared to bring to this court certain question, only. It is a matter of course that the court should take some order to ascertain the true joint liability; and though the record as presented to us, fails to show what this was, (as in some other respects also), yet, as the final decree implies that some order was taken, we cannot see our way clear, to say there was error, either in what was done, or what was omitted to be done. If, in truth, the court has not judicially ascertained the joint liabilities which the receiver is directed to pay, this should still be done, with proper notice to the defendants. It has been remarked that insolvency is fairly and sufficiently alleged, and we think it is proved, too. It would not give a just view to regard the first report of the receiver, alone, for this is but a general showing of the state of the firm, at his appointment, setting down the lumber at cost, and the debts and liabilities both ways at their face ; whilst the second report is made after the receiver had had time to ascertain the true condition of things, and in truth, has relation to the time of his appointment. This shows the actual state of the firm much more truly than the first. Finally, it seems that the bill in such a case, may be filed either by the debtor-partner, or the remaining partners —by the joint or the separate creditors — or the purchaser. Story on Part., section 263 ; 3 Kent, 65, note; Washburn v. Bank of Bellows Falls, 19 Vermont, 278. This — 17 — last case says that the partnership creditors have only to make ont a prima facie case of insolvency. And Lord Bosslyn said that the principle of distribution to joint and separate creditors, involved in these cases, was applicable not only in bankruptcy, but upon general principles of equity. 3 Yes., 210 ; 3 Kent, 66, note. In conclusion, we are satisfied that the bill was correctly sustained, and that there is not error in the final decree. If there was a want of proper proceeding in ascertaining and settling the claims of the partnership creditors, it is not made to appear; and as the record sent up manifestly omits some portion of the proceedings, we cannot infer that the proper measures were not taken. The decree of the district court is affirmed.