52 N.Y. 146, Menagh v. Whitwell

Citation:52 N.Y. 146
Party Name:NANCY MENAGH, Respondent, v. JOHN WHITWELL et al., Appellants.
Case Date:February 04, 1873
Court:New York Court of Appeals

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52 N.Y. 146

NANCY MENAGH, Respondent,

v.

JOHN WHITWELL et al., Appellants.

New York Court of Appeal

February 4, 1873

Argued Mar. 1, 1872.

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COUNSEL

W. F. Cogswell for the appellants. The mortgages and sales thereunder simply transferred the undivided interest of Smith & Rubert in the firm property, subject to the payment of the firm debts. (Moody v. Payne, 2 J. C., 548; In re Smith, 16 J. R., 102; Story's Eq., § § 677-678.) Any attempt to use partnership property to pay individual debts is fraudulent, and so void. (Ransom v. Van Deventer, 41 Barb., 307; Wilson v. Robertson, 21 N.Y. 587.) The mortgage was void because of the agreement that the mortgagors should continue business with the mortgaged property for their own benefit. (Edgell v. Hart, 5 Seld., 213; Conkling v. Shelley, 28 N.Y. 360; Russell v. Winne, 37 Id., 591.)

E. Countryman for the respondent. The conveyances under which plaintiff derives title were valid, and vested the legal title of four-fifths of the property in plaintiff. (Dimon v. Hazard, 32 N.Y. 65; Ford v. Williams, 24 Id., 359; Smith v. Howard, 20 How., 121; Story on Part., § 358; Collyer on Part., § § 174, 894; Willard's Eq. Juris., 719; Conkling v. Shelley, 28 N.Y. 360; Ketchum v. Durkee, 1 Barb. Ch., 480; Cory v. Long, 2 Sweeney, 491; Miller v. Lockwood, 32 N.Y. 293; Howe v. Lawrence, 9 Cush., 553; Robb v. Mudge, 14 Gray, 534; Russell v. Winne, 37 N.Y. 591-597.) Where one partner assigns his interest to another and retires, that other acquires a title free from any lien in favor of firm creditors, and may lawfully transfer the property to pay individual debts. (Dimon v. Hazard, 32 N.Y. 65; Smith v. Howard, 20 How., 121, 124; Kirby v.

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Schoonmaker, 3 Barb. Ch., 47; Ketchum v. Durkee, 1 Id., 480; Sage v. Chollar, 21 Barb., 596; Cory v. Long, 2 Sweeney, 491; Bullitt v. M. E. Ch., 26 Penn. St., 108; Allen v. Center Valley Co., 21 Conn., 130, 137.) The transfer of interest being made in good faith and with the assent of all the partners, the estate of the old firm became vested in the new firms respectively. (Smith v. Howard, 20 How., 121, 123; Ex parte Ruffin, 6 Vesey, 119, 128: Ex parte Williams, 11 Id., 3, 6; Story on Part., § § 307, 321, 358; Robb v. Mudge, 14 Gray, 534.) Plaintiff and Rubert having received the delivery and taken actual possession of the property prior to defendant's seizure and sale, the mortgagors had no remaining interest subject to a levy under execution. (Mattison v. Baucus, 1 N.Y. , 295; Galen v. Brown, 22 Id., 37, 39, 41; Hall v. Sampson, 35 Id., 274; Lewis v. Russell, 42 Id., 251; Battes v. Ripp, 3 Keyes, 210.) So far as the rights of creditors are concerned, the partnership estate is that in which the partners are jointly interested at the time of the institution of legal proceedings. (Dimon v. Hazard, 32 N.Y. 65, 79; Ex parte Ruffin, 6 Vesey, 119, 127; Howe v. Lawrence, 9 Cush., 553, 557.) The court will assume, in the absence of an affirmative finding of insolvency, if necessary to sustain the judgment, that the partnerships were solvent at the times of the transfers. (Dimon v. Hazard, 32 N.Y. 65, 77; Grant v. Morse, 22 Id., 323.) A man, though embarrassed, is solvent, if he has enough property to pay his debts. (Curtis v. Leavitt, 15 N.Y. 10, 200-202; Leitch v. Hollester, 4 Id., 211, 215; Herrick v. Borst, 4 Hill, 650; Bump on Bank. [ [4th ed.], 448.) Partners have at all times, while administering their own affairs, the power in good faith and for a valuable consideration to transfer the firm property to each other or strangers. (Ransom v. Van Deventer, 41 Barb., 307, 313; Van Alstyne v. Cook, 25 N.Y. 489, 494; Wilson v. Robertson, 21 Id., 587; Howe v. Lawrence, 9 Cush., 553, 556; Robb v. Stevens, 1 Clarke Ch., 192; Artisans' Bank v. Treadwell, 34 Barb., 553.) The legal title of the property

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in question could not, in equity, be superseded by the equities of the partners or their creditors. (Meech v. Allen, 17 N.Y. 300; Stevens v. Bank of Cent. N.Y. , 31 Barb., 290; Kendall v. Rider, 35 Id., 100.)Defendant Whitwell, from his relation as sheriff to the other defendant, as deputy, is equally liable with him. (Waterbury v. Westervelt, 9 N.Y. , 598; Stillman v. Squire, 1 Denio, 327; Curtis v. Fay, 37 Barb., 64; King v. Orser, 4 Duer, 431.)

RAPALLO, J.

The mortgages executed by John C. Smith and William B. Rubert appear to have been regarded by the learned referee as transferring an undivided four-fifths of the corpus of the partnership property therein described. He has found, as to the mortgage from Smith, that it was executed and delivered with the assent of the other members of the firm. This mortgage, if such be its true construction, having been given to secure the individual debt of the partner, even if effectual as to the firm, by reason of the concurrence of all the partners giving it, would be a fraudulent misapplication of the partnership property, and void, as to the creditors of the firm, under the principle of the cases of Ransom v. Van Deventer (41 Barb., 307), and Wilson v. Robertson (21 N.Y. 587), unless the firm were solvent at the time the mortgage was given, and sufficient property would remain, over and above that devoted by that instrument to the payment of the individual debt, to pay the debts of the firm. The Supreme Court have considered that the findings of the referee fail to disclose any insolvency, but, on the contrary, establish the solvency of the firm at the time the mortgages were given. We cannot concur in this view of the effect of the findings, but think that the facts found show that the firm was insolvent when the mortgages were given, and if there were any doubt upon that point, they clearly establish that the diversion of four-fifths of its properties to the individual debts of two of the partners would make it insolvent.

According to these findings, the firm was, in February, 1867, and had been from December, 1866, largely indebted and

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embarrassed, and the value of its property, and its consequent ability to pay its debts, depended, in part, upon the continuance and proper management of its business. The mortgages were given on the 2d and 28th of February, 1867. If they were intended to be liens upon the corpus of the property, as they have been treated by the referee, and not merely liens upon the surplus which should belong to the partners respectively after payment of the firm debts, it is evident, from the facts stated as existing at the time, as well as from the result, that their enforcement would prevent the firm creditors from collecting their demands out of the firm property, and that, under the principle of the cases cited, they were fraudulent and void as to such creditors. If so, the mortgagees, by purchasing at the sale under the mortgages, acquired no valid title as against such creditors, and the plaintiff was consequently not entitled to recover.

Assuming, however, that the mortgages were intended to pass merely the individual interests of the mortgaging partners in the common stock, and for that reason were not fraudulent as to the firm creditors, then it becomes necessary to consider their legal effect upon the rights of creditors of the firm. It is clear that the remaining partner was entitled to the control of the firm property so long as he retained his interest, and to apply it to the firm debts, and that the mortgagees acquired only a right to the surplus, if any, which would be found to belong to the mortgagors on the settlement of the accounts.

And so long as any of the partners had this dominion over the firm property, it can hardly be questioned that it was subject to levy on execution at the suit of a firm creditor. (Lovejoy v. Bowers, 11 N. H., 404; Coover's Appeal, 29 Penn. St. R., 9; Pierce v. Jackson, 6 Mass., 243.)

But the point upon which the judgment was sustained in the Supreme Court, at General Term, was, that after the execution of the mortgages H. E. Goodwin, the only remaining

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partner, made a separate transfer, to a third party, of his individual interest in the partnership properties, and, on this ground, it was held that when the execution was levied none of the defendants in the execution had any leviable interest in the property levied upon; and it was further held that the plaintiff, who had purchased the interest of S. E. Rubert, under his mortgage, was entitled, by virtue of the two mortgages and of the purchase at the sale under them, to recover the value of four-fifths of the corpus of the partnership property levied upon by the defendants, without regard to the partnership debts.

This position is not without authority in its support. It is founded upon the theory that the separate transfers of the individual interests of all the partners divested the title of the firm; that firm creditors have no lien upon the partnership effects and no direct right to compel their application to firm debts in preference to individual debts. That the right to compel this application is an equity vested in the partners themselves, and exists only as between each other. That so long as this equity exists in any of the partners, the creditors have an equity to compel its enforcement between the partners, and may, by this means, obtain the application of the partnership properties to their demands, in preference to the individual debts or separate dispositions of any of the partners; in other words, "that the equities of the creditors can only be worked out through the equities of the partners." From these premises, the conclusions have been drawn that if such equities are waived or released by the partners themselves the...

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