King v. Sutton

Opinion by Holt, C.: The court, in its third conclusion of law, stated that equity demanded that the amount paid plaintiffs on the chattel mortgages should have been applied in liquidation of the partnership debts. The mortgages were executed by Sutton several months after the dissolution of the partnership, and upon his stock of merchandise as it then existed ; how much of that stock had formerly belonged to the firm, is not stated. It is certain, from the findings, that Sutton had made additions to it by purchases of goods after the dissolution in September. Of the firm’s debts, $256 which was due at the time of the execution of the mortgages was secured by the first mortgage, and the balance of the indebtedness by the second. The first one was paid in full by the 20 per cent, paid by Sutton while running the store as the agent of the creditors, and the $247.37, which was credited by the plaintiffs on that account, when the property was sold to the purchaser whom Sutton had found. The question is fairly presented to us, whether the indebtedness of the firm, secured by the second mortgage, must be paid before the individual indebtedness of Sutton, secured in like manner. [603] ' We think the rule is well settled, that a debtor making voluntary payment may direct to which account or debt — if there be more than one — the credit may be applied; if he makes no such direction, then the creditor" may; if both fail to do so, then the law will apply payment according to its notions of justice. (Shallabarger v. Binns, 18 Kas. 345; United States v. Kirkpatrick, 9 Wheat. 737; Wooten v. Buchanan, 49 Miss. 386; National Bank v. National Bank, 94 U. S. 439; National Bank v. Bigler, 83 N. Y. 53; Whitaker v. Groover, 54 Ga. 174; Jones v. Williams, 39 Wis. 300; Moore v. Kiff, 78 Pa. St. 97; Hersey v. Bennett, 28 Minn. 86, 9 N. W. Rep. 590.) The plaintiffs did appropriate $347 of the amount received to the payment of the individual debt of Sutton. If there was nothing in the agreement of dissolution of Sutton and Lusk, or if the creditors of the firm had no lien upon the partnership property, or nothing specified in the mortgages to the contrary, then the plaintiffs would have had full power to make this appropriation. (Shallabarger v. Binns, 18 Kas. 345.) And this rule would not be different although the debt was contracted subsequent to the partnership debt of Sutton & Lusk. The goods mortgaged by Sutton to secure hi's own indebtedness and that of the firm, were his own property. In a bona fide dissolution of the partnership it was agreed between the partners that Sutton should take all the property of the firm, except the store building, and pay all the debts. The creditors had no lien upon the firm’s property to secure the payment of their claims; neither did Lusk have any lien, equitable or otherwise, upon the goods for the payment of the partnership liabilities, that could be enforced in any court. (Parker v. Merritt, 105 Ill. 293; Mortley v. Flanagan, 38 Ohio St. 401; Giddings v. Palmer, 107 Mass. 269; Story on Partn., §§ 358, 359, and note.) This rule does not conflict with the well-established doctrine that partnership debts may be primarily enforced against the partnership property, rather than the property of the individuals of the firm. While the firm [604] is in existence its property may be sold by either partner, and will be followed by no claim, in law or equity, by the creditors of the firm if sold to the purchaser in good faith. When the firm is solvent the partners are free to dispose of its property, so far as the creditors are concerned, just the same as though it were the property of the individuals; and one of them, under such circumstances, may become its separate owner. The law does not provide that partnership debts may be first enforced against the joint property of the firm in preference to the individual debts of the partners, on the ground of any equity held by the creditors, but this relief is granted to the creditor on account of the equities of the partners, each one of them having the right to demand that the firm property shall be devoted to the payment of the firm debt, and shall be first exhausted before the individual estates are taken. (City of Maquoketa v. Willey, 35 Iowa, 323.) Lusk could have had no equity in this matter, for he had voluntarily parted with his interest in the partnership property; this left the creditors of Sutton, or of Sutton & Lusk, full liberty so far as Lusk was concerned, to make appropriation of the proceeds received as they saw fit, either out of Sutton’s or the firm’s property. We believe that the court erred in its third conclusion of law, and that plaintiffs having made appropriation of the amount paid to them, the court ought to have allowed it to remain. It follows, therefore, that the fourth conclusion of law is erroneous, and under the findings of fact the judgment, instead of being for $293.97 for plaintiffs, should have been for $638.97. We recommend that the judgment be modified in accordance with this opinion. By the Court: It is so ordered. All the Justices concurring.