Darby v. Gilligan

• Citation: 10 S.E. 400,33 W.Va. 246
• Parties: DARBY et al. v. GILLIGAN et al.
• Decision Date: 20 November 1889
• Court: Supreme Court of West Virginia

10 S.E. 400

33 W.Va. 246

DARBY et al. v. GILLIGAN et al.

Supreme Court of Appeals of West Virginia.

November 20, 1889

Syllabus by the Court.

Where one member of a mercantile firm purchases the interest of the other member, and in consideration thereof assumes to pay all the partnership debts, the firm and both members being at the time insolvent, or on the eve of insolvency, and shortly thereafter the purchasing partner, without paying any of the firm debts, conveys the whole of the assets of the late firm to a trustee, in such a manner as to devote the whole thereof to the payment of his individual debts, held, such sale, being without any valuable consideration, is ineffectual to convert the social assets into individual property; and, as to the equitable rights of the firm creditors, such trust-deed is fraudulent and void.

Appeal from circuit court, Taylor county, W. T. ICE, Judge.

Frank Woods, for appellants.

M. H Dent, for appellees.

SNYDER P.

Appeal from a decree of the circuit court of Taylor county pronounced March 28, 1887, in the suit of Darby & Co. and others against John J. Gilligan and others. The suit was brought to set aside a trust-deed made by said Gilligan to John T. McGraw, trustee; to enjoin said trustee from disposing of the property thus conveyed to him; and to have the same applied to the payment of the plaintiffs' debts. On September 17, 1883, the said Gilligan and James Burns entered into an agreement in writing, whereby they agreed to form a partnership for conducting a general merchandising business in the town of Grafton, Taylor county, Gilligan having prior to that time been merchandising at the same place, and having then on hand a stock of goods, which he put into the firm at the value of $2,000, and Burns paid into the firm $1,000. Upon this capital stock, they agreed that Gilligan should have a two-thirds and Burns a one-third interest in the assets, business, and profits of the partnership. At the time this partnership was formed, Gilligan was indebted to the First National Bank of Grafton and others in the sum of $1,100, for money borrowed and put into the mercantile business while he was conducting it alone. During the carrying on of the business by the firm, the firm contracted debts to the plaintiffs and others, and the partners so managed the business that they and the firm became indebted to insolvency. Afterwards, on February 27, 1885, by a contract in writing, the partnership was dissolved, upon the terms that in consideration of $1,000, for which Gilligan executed to Burns his note, payable one year from that date Burns withdrew from the firm, and Gilligan assumed, and agreed to pay, all the then existing indebtedness of the firm. About two months after, on April 24, 1885, Gilligan conveyed to John T. McGraw the whole of the assets of the late firm, in trust, to secure all his debts, including the debts due the plaintiffs and others by said firm; but in said conveyance he preferred the aforesaid $1,100 due to the Grafton Bank and others, the note for $1,000 given to Burns as aforesaid, which had been assigned by him to Anna Burns, and other individual debts, amounting in the aggregate to more than the value of the assets conveyed. Upon these facts the plaintiffs, the appellants here, contend that this attempt of Gilligan to prefer and pay his individual debts out of the said assets is a fraud upon the firm creditors, which, according to well-settled principles, a court of equity will not permit. Ordinarily the partnership estate is liable for the payment of the firm debts, in preference to the individual debts of the partners. This is the right of the partners inter se. The creditors of the partnership have no such right of priority over the creditors of the partners individually, otherwise than by substitution to the rights of the partners inter se. The partners may release this right, and, if they do so bona fide, the creditors of the partnership cannot complain; for it is not their right, except subject to the proper disposition and control of the partners themselves, to whom it belongs. This right is generally called the "partner's lien." It differs from a common-law lien in that it is not dependent on possession, and any single partner can convey a good title to specific chattels by a bona fide sale in the course of trade; and a lien does not involve the right to deal with the property, whereas the...