Carver Gin & Machine Co. v. Bannon

• Decision Date: 17 May 1887
• Parties: CARVER GIN & MACHINE CO. v. BANNON and others.
• Court: Tennessee Supreme Court

4 S.W. 831

85 Tenn. 712

CARVER GIN & MACHINE CO. v. BANNON and others.

Supreme Court of Tennessee.

May 17, 1887

Appeal from chancery court, Shelby county.

Wm. M Randolph, for complainant. Gautt & Patterson and H. C Warinner, for defendant.

CALDWELL J.

Under the firm name and style of F. J. Bannon & Co., Albert Paine and F. J. Bannon were partners in the ownership and operation of a cotton-gin in the city of Memphis. In the course of the business, for partnership purposes, and in the name of the firm, they contracted certain debts with the Carver Gin & Machine Company, evidenced by several acceptances. Subsequently Albert Paine, F. J. Bannon, and Margaret Bannon in their individual names, executed their two joint notes to M. Gavin for $750 each, and on the same day Paine and Bannon conveyed their partnership property in trust to Sullivan, to secure the judgment of the two notes to Gavin. Some 10 months thereafter the Carver Gin & Machine Company filed this bill to set aside the trust conveyance as a fraud upon the partnership creditors, and to subject the property herein described to the payment of said obligations. There is no proof of an intention to defraud the creditors of the firm and we think the conveyance is not fraudulent in law, as against such creditors. It is true that the effect of the conveyance is to appropriate copartnership assets, in the first instance, to the satisfaction of other than copartnership liabilities; but such appropriation is not unlawful, being made in good faith. The creditors of the firm have no lien upon the firm property. It is the partner who has the lien or equity, and the partnership creditors, by appropriate proceedings in court, may avail themselves of that equity through lien, but not otherwise; and if, by any means, that equity is extinguished as to the partner, its benefit is lost to the partnership creditors. No equity is left to either of the partners in this case, for each of them has joined in a conveyance of the firm property, without reservation in behalf of the creditors of the firm.

Speaking upon this subject, Mr. Kent says: "But creditors have no lien upon the partnership for their debts. Their equity is the equity of the partners, assenting to the payment of the partnership debts. These are just and obvious principles of equity, on which we need not enlarge, and they have been recognized and settled by a series of English and American decisions." 3 Kent, Comm. 65, side page.

In Ex parte Ruffin, 6 Ves. 119-126, Lord ELDON said: "It is the case of two partners, who owed several joint debts, and had joint effects. Under these circumstances, their creditors, who had a demand upon them in respect of those debts, had clearly no lien whatsoever upon the partnership effects. They had power of suing, and, by process 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. * * * In all those ways the equity is not that of the joint creditors, but that of the partners, with regard to each other, that operates to the payment of the partnership debts."

The same doctrine was recognized and applied in the subsequent cases of Ex parte Williams, 11 Ves. 3-5, and Ex parte Kendall, 17 Ves. 526. In the latter this language was used: "* * * and, in all these cases of distribution of joint effects, it is by force of the equities of the partners among themselves that the creditors are paid, not by force of their own claim upon the assets for they have none." Numerous cases are collected in note to the case of Silk v. Prime, 2 Lead. Cas. Eq. pt. 1, pp. 393, 396, which sustains the proposition that the equities of the partnership creditors depend upon the equities of the partners themselves, and consequently may be defeated by the bona fide appropriation of the firm assets by the partners. Judge Story says that the partnership creditors have no lien upon the partnership assets, but that they have equities which they may work out through the lien of the partners; that is, that "they have something approaching to a lien, of which, with the assent of the partners entitled to the lien, they may avail themselves, in a court of equity, against the partnership effects." Story, Partn. §§ 97, 326, 360. The same author calls the right of the firm creditors "a quasi lien upon the partnership effects, as a derivative subordinate right, under and through the lien and equity of the partners." Story, Partn. § 361. This right is defined in similar terms in Ewell's Edition of Lindley on Partnership, *655, note 1.

The same rule and doctrine have been applied, without question, more than once in Tennessee. In Fain v. Jones, 3 Head, 309, this court, speaking through Judge WRIGHT, said: "The general creditors of a firm have no lien upon the partnership assets if the partners themselves have none. The claim of the creditors must be worked out through the equities of the partners, and, if they have none, neither have the creditors."

In House v. Thompson, Judge CARUTHERS, delivering the opinion...