Parish v. Lewis

The Chancellor. The complainants are the joint judgment creditors of a late partnership concern, consisting of Samuel B. Cusack, Joseph C. Lewis and Joseph Dobbs. It appears that, shortly after the formation of the partnership, Lewis retired from the concern, and that the business was subsequently carried on by Cusack &. Dobbs, who ultimately sold out the stock of goods to E. C. Wilkinson, taking from him, in payment therefor, his several promissory notes, payable at different periods thereafter. One of these notes — 306 — was transferred into the hands of the Commercial Bank of Manchester, as collateral security for a debt owing to the bank by said Dobbs and James Cusack, a brother of the other partner, Joseph Cusack. Another of said notes was passed into the hands of the defendant, Turner, as it appears, in the discharge of a debt owing to him from Cusack & Dobbs. The complainants insist that these notes are still to be regarded as partnership effects of Cusack, Lewis & Dobbs; that they were transferred without the consent of all the partners, and that they, as judgment creditors of said partners, have a right to pursue them into the hands of the present holders, and to subject them to the satisfaction of their judgment; and especially, as they allege, that two of the firm (Cusack and Dobbs) are insolvent. The answers of the bank and of Turner set out the manner in which they obtained the notes in question, and insist upon holding them discharged of any claim on the part of the complainants. It is not necessary, from the view which I have taken of the case, to notice the facts more in detail. It is with reluctáhce that I find myself compelled to decide the case, in part, upon a question not made at the hearing; and I should have directed an argument upon it, if there could be any doubt respecting it. That question is: Can the complainants maintain their suit as mere judgment creditors, without showing the return of an execution unsatisfied? The partnership effects, which they seek to subject to their judgment claim, are in the hands of third persons, claiming them as their own,' and consist in mere choses in action, not liable to seizure and sale under an execution at law. Now, I understand the rule to be this: If you wish to reach legal assets of your debtor, and to remove obstacles which obstruct your course at law, it is sufficient that you show a judgment, creating a lien upon those assets; but if you Avish to reach equitable assets, or other things not subject to execution at law, you must show that you have exhausted your remedies at law, by a return of an execution unsatisfied, as the foundation of your right to come into this court. In such case, the complainant’s right to relief in this court depends upon his having run his execution at law without being able to satisfy his judgment. It is not a mere — 307 — technical objection, but goes to the very foundation of the suit, and is not waived even by a general answer. The complainant must show an execution returned unsatisfied, and no state of facts will excuse such a return. Brinkerhof v. Brown, 4 John. Ch. R. 671, 687; McElwain v. Willis et al. 9 Wendall 548; Scriven v. Bostwick, 2 McCord’s C. R. 416; Hadden v. Spader, 20 John. R. 554; Moore v. Young, 1 Dana’s R. 516. It is'true that the complainants in this case allege that two of the debtors, Cusack and Dobbs, are insolvent; but there is no allegation that the other partner (Lewis,) is insolvent; and if there were, it would not be sufficient according to the authorities to which I have referred. Where there are several joint debtors, the creditor must exhaust his remedy by execution against all, before he can come into this court, unless one should stand in the situation of a surety to the others. Child v. Brace et al. 4 Paige Ch. 309. I think then, that the complainants’ bill cannot be sustained, unless there is something in the fact, that they claim as partnership creditors, which exempts it from the application of the rule to which I have adverted. I know of no case which holds that the creditors of a partnership', having a purely legal claim, can come into equity for its in-forcement upon any other terms than .those which govern what is usually called a creditor’s bill. There is to be sure a dictum of the vice chancellor of New York, in Lawton v. Levy, (2 Edw. Rep. 201,) in favor of supporting a bill by the simple contract creditors of a partnership which had been dissolved, and where the partners were making a fraudulent disposition of the effects; but this dictum is wholly unsustained either by principle or authority. The case of Child v. Brace, (4 Paige, 309,) is an authority directly the other way, and is strikingly analogous to the one before me. In that case, as in this, the complainant had obtained his judgment at law against partners, and filed his bill for the purpose of reaching chose's in action; no execution had been sued out; the insolvency of the partnership was alleged, but there was no proof upon that point;, and the bill was dismissed at the héaring, upon the ground that the complainant had not exhausted his remedy at law. If the complainants may maintain this bill, it must be because they have — 308 — some equity in or quasi lien upon the effects which they seek to reach. I think a reference to the authorities will show that no such pretentions can be sustained. In the case ex parte Williams, 11 Ves. 5, Lord Eldon says, that after a dissolution of a partnership, the partnership property still retains its character for the purpose of distribution, not as the rights of creditors, but as the rights of the partners themselves require. And he adds, that it is through the operation of administering the equities as between the partners themselves that the creditors have that opportunity. As a general rule the creditors of a partnership cannot enforce a' claim purely legal in its nature against the partnership property, except by an action at law. One exception to this rule is where the partnership is dissolved by the death of one of the partners; there the remedy of the joint creditors at law is against the survivors alone, but in equity they may proceed jointly against the survivors and the representatives of the deceased partner. The right of creditors to have the partnership property applied in satisfaction of their claims, depends upon the right of each partner so to apply it in exoneration of his private estate. In ex parte Kendall, 17 Ves. 526, Lord Eldon said, in all these cases of distribution of joint eifects, it is by force of the equity among the partners themselves that the creditors are paid, not by force of their own claim upon the assets, for they have none. So in the case ex parte Ruffin, 6 Ves. 119, 126, the Lord Chancellor said, “It is the case of two partners, who owed joint debts and had joint effects. Under these circumstances their creditors, who had demands upon them in respect to those debts, had clearly no lien whatsoever upon the partnership effects. They had the power of sueing and by process of creating a demand that would directly attach upon the partnership effects; but they had no lien upon or interest in them in point of law or equity.” But even if the complainants were rightly before the court in this particular, I can perceive no ground for sustaining , their bill as against the defendants, Turner and the Manchester Bank." The complainants claim as the creditors of Cusack, Lewis & Dobbs; they are not the creditors of the firm of Cusack & Dobbs, to whom the notes in question were made payable, and from one of — 309 — whom the present holders obtained them. After Lewis sold out his interest in the goods to his partners, Cusack & Dobbs, they constituted from that time a new and separate firm, and were the debtors,of the complainants, only on account of their former connection with the firm of Cusack, Lewis & Dobbs; and even supposing the complainants to have had a quasi lien upon the .stock of goods when they passed into the hands of Cusack & Dobbs, that lien doubtless ceased when the goods were converted into negotiable notes. But I apprehend no such lien attached or followed the goods into the hands of Cusack & Dobbs. After Lewis retired from the firm by selling out to his co-partners, the partnership property thus transferred became from that time the separate property of the firm of Cusack & Dobbs, discharged from all claim on the part of the creditors of Cusack, Lewis & Dobbs. In the case ex parte Ruffin, 6 Ves. 119, where a partnership was dissolved by one selling out to the other, and the continuing partners afterwards became bankrupt, the joint creditors petitioned to have their claims paid out of the effects in his hands which had belonged to him and his former partner; but the court decided that the joint creditors had no equity attaching upon the partnership effects remaining in specie in his hands. The same question again arose in ex parte Williams, 11 Ves. 3. In which it was held that the right to apply partnership property to the payment of joint debts,, only existed as between the partners themselves, and that it was competent for the partners to say that this equity should no longer exist, that a sale of the stock in trade, by one partner to another, put an end to that equity; and that the joint property, thereafter, became the separate property of the purchasing partner, and was not liable in his hands to the claims of the joint creditors. The court said, “ if creditors do not like the arrangement they may go to each of the partners and desire payment.” It was admitted that a mere dissolution would pot be considered as producing that effect, for there the partner holding possession would hold it in trust for the payment of the joint, debts. I think that these decisions are sustained by the strongest considerations of policy, and sanctioned by the general rules of law in relation to private, property. It would open a wide door for imposition, if property which a man holds as his own, and upon the faith of — 310 — which he is dealing with the world, was allowed to be trammeled' with secret and tacit liens, because it had once been the subject of partnership rights. I am accordingly of opinion that the bill must be dismissed at the complainants’ costs. Let a decree be prepared accordingly.