Baer's Sons v. Wilkinson.
| Decision Date | 12 December 1891 |
| Court | West Virginia Supreme Court |
| Parties | Baer's Sons v. Wilkinson. |
The syllabus in Darby & Co. v. Gilligan et al. approved and reaffirmed, as follows: "When one member of a mercantile firm purchases the interest of another 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 individuat 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. "
There are two partners composing a firm, one of whom undertakes to convey the whole firm property by a deed in which his individual debts, or debts other than those of the firm, are given preference. The deed is made at a time when the copartner is present, or within easy reach, but he is not consulted, and does not ratify, and does not concur in such assignment. Query: Is such a deed, made under these circumstances, but not otherwise fraudulent, valid and effectual to deprive the creditors of the firm of their right to have the social assets applied to pay the social debts? It seems not.
8. Partners and Partnership attachment Fraudulent Conveyance Priority of Debts.
An attachment issued under paragraph 6 of section 1, c. 10, of the Code, by a firm creditor who seeks to set aside a fraudulent deed made by one partner under circumstances first above described, if directed against the trustee or one partner only, will be ineffectual to create a lien upon the firm property, and will give no priority to such attaching creditor.
H. M. Russell for appellants, cited 30 W. Ya. 443; 26 W. Ya. 807; 8 Leigh 415; 18 Graft. 404; 25 W. Ya. 670; Id. 288; 18 Graft. 387; 23 W. Ya, 771; 9 S. E. Rep. 432; 20 W. Va 614; 1 Yes. 131; 1 Bates Part. § 502 et seq.; 12 S. E. Rep. 708; 21 N. E. Rep. 733.
C. L. Brown for appellees, cited Code, c. 133; 27 Graft. 479; 81 W. Ya. 156; 30 W. Ya. 586; 20 O. 441; Sto. Part, § 401; 2 Paige 400; 5 O. S. 508; 30 0. S. 380; 3 Rob. (N. Y.) 691; 28 How. Pr. 488; 16 N. J. L. 147; 90 N. C. 90; 4 Sawy. 138; 24 Conn. 290; 52 N Y. 146; 5 Munf. 418; 64 Ga. 243; 14 la, 251; 74 Ga. 86; 75 111. 48; 40 Pa. St. 107; 2 H. & M. 603; 6 R. 509; 10 L. 155; 11 G. 636; 1 Sandf. Ch'y 348; 60 Wis. 418; 6 Munf. 418; 1 Bates Part. §§ 338, 350, 457, 509, 551, 556, 557, 562, 566, 1071.
Lucas, President:
This case comes before us on appeal from a final decree entered by the Circuit Court of Jackson county on the 13th day of August, 1890.
In February, 1888, J. E. Wilkinson and T. B. Wilkinson, under the firm name of Wilkinson & Co., were carrying on a mercantile business in the town of Ravenswood. The appellants, Delaplain, Son & Co., were engaged in the wholesale business in the city of Wheeling, and sold goods to Wilkinson & Co. to the amount of one thousand one hundred and ninety six dollars and ninety nine cents; and on the 18th day of. February, 1888, Wilkinson & Co., executed three notes for that amount. Subsequently, in March of the same year, some additional sales having been made, and these notes not being yet due, one of the partners, J. E. Wilkinson, executed a new note for one thousand two hundred and seventy three dollars and forty nine cents, which embraced the three former ones; and it is claimed by the appellants that this new note was by them received, not in payment, but as collateral security, of the former notes. It is alleged also that this new note was secured by a deed of trust on the separate estate of J. E. Wilkinson's wife.
ln February, 1889, Thomas B. Wilkinson retired from the firm, and his interest was purchased by one W. A. Tall man, who with James E. Wilkinson, as is alleged, composed the new firm of Wilkinson & Tallman. The new firm, appellants aver, assumed the liabilities of the old firm of Wilkinson & Co. It appears that Tallman, although he agreed to pay two thousand dollars, had no means, and really paid nothing. To the new firm, however, of Wilkinson & Tallman the appellants sold a further bill of goods amounting to two hundred and sixty four dollars and forty four cents.
On the 1st of October, 1889, the firm of Wilkinson & Tallman dissolved, Wilkinson taking the assets and agreeing with Tallman to pay the debts. It secerns reasonably clear from the evidence that the firm was then insolvent.
On the 9th day of October, 1889, James E. Wilkinson made an assignment of all the assets of the firm for the benefit of creditors. The deed purports to convey all of his property, and with firm creditors some of his individual creditors are included as beneficiaries. Wilkinson's notes of one thousand two hundred and seventy three dollars and forty nine cents were included among the preferred debts. The appellees, Baer's Sons, brought suit to set aside this deed of trust as fraudulent, and attached the goods included in the assignment. The Circuit Court adjudged and decreed that the deed was fraudulent. The trustee had in the meantime proceeded to execute the trust, had disposed of the stock in a manner commended by all the parties to the suit, and had paid over three hundred dollars to the appellants to be credited on their preferred debt. The Circuit Court gave preference to the attaching creditors, and ordered the fund to be distributed upon that basis, and further decreed, in pursuance of this view, that the three hundred dollars already paid to appellants should be refunded and paid over by them to such attaching creditors. The trustee, who perhaps had become garnishee under the attachment, was directed to pay over all the money, securities, and accounts derived from the trust into the hands of the general receiver of the court, to be by him distributed or administered in pursuance of the principles of the cause adjudicated as already described. A special replication was filed by the appellees, which was excepted to, but the objection was overruled by the court. There was likewise an injunction obtained by them against the trustee, which was perpetuated.
It is assigned as error that this special replication was allowed to be filed over the objections of the appellants; that certain exceptions which appellants had indorsed upon depositions were erroneously overruled; that it was error to refuse to dissolve the injunction; that the assignment was erroneously decreed to be fraudulent, and the distribution directed was consequently erroneous; that to receive and adopt as conclusive the admissions of Wilkinson, and the recitals of the deed as to the existence and amounts of the debts provided for, was error; and finally the direction to refund the three hundred dollars and the decree against appellants for that sum, with leave to issue execution, were erroneous.
This case presents the same principles for consideration which were disposed of in Darby v. Gilligan, 33 W. Ya. 246 (10 S. E. Rep. 400.) In that case it was held: "When one member of a mercantile firm purchases the interest of another 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 manner as to devote the whole of them 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 right of the firm creditors, such deed is fraudulent and void."
A distinction is attempted to be drawn between the present case and the one just cited, based upon the fact that in this case the grantor, one of the partners, did not attempt by the assignment to apply the social assets exclusively to his individual debts. In reply to this argument, it is necessary to consider that the direction in the deed is to pay first a debt of the preceding firm of Wilkinson & Co. amounting to one thousand two hundred and seventy three dollars and forty nine cents, and that all of the indebtedness in the second class of preferred creditors was contracted by the previous firm of Wilkinson & Co. These debts? if paid in order of priority, would consume the whole fund, or very nearly so, that has been realized from the stock of goods. The debts of the former firm of Wilkinson & Co. had become really individual debts of the grantor, J. E. Wilkinson; that is to say, he was individually liable for them, and has given his individual obligation for the largest debt named in the first class of preferred creditors.
The whole reasoning in the case of Darby v. Gilligan, as found in the opinion of the court, applies fully to this case. As was said in that case, so we may say of the case at bar, the firm as well as the individual partners were indebted to insolvency at the time the contract of dissolution was made. As the firm of Tallman & Wilkinson individually were then insolvent, there was no valuable consideration for the contract; and the stock of the firm was plainly liable for the firm's debts, independently of any contract between the members. As a question of law, the whole transaction, so far as J. E. Wilkinson was concerned, was fraudulent, and the circumstances which rendered it so were known to the trustee. Of course I do not mean to impute actual moral obliquity to any one engaged in the transaction, but the purpose to withdraw the stock of the firm from its creditors,...
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