Batchelder v. Altheimer

• Decision Date: 05 April 1881
• Citation: 10 Mo.App. 181
• Parties: ALFRED H. BATCHELDER ET AL., Appellants, v. GERSON L. ALTHEIMER ET AL., Respondents.
• Court: Missouri Court of Appeals

10 Mo.App. 181

ALFRED H. BATCHELDER ET AL., Appellants,

v.GERSON L. ALTHEIMER ET AL., Respondents.

St. Louis Court of Appeals, Missouri.

Apr. 5, 1881.

1. Under the statute, the assets of a limited partnership are a trust-fund in a sense in which those of an ordinary partnership are not; and the aid of a court of chancery may be effectually invoked to distribute such fund equitably among the creditors.

2. A contract creditor of an insolvent limited partnership may, without having reduced his claim to judgment, invoke equity, on behalf of himself and other creditors, to protect and ratably distribute the assets of such partnership, and to appoint a receiver for that purpose.

APPEAL from the St. Louis Circuit Court, BOYLE, J.

Reversed and remanded.

PATRICK & FRANK, for the appellants: Whenever a limited partnership becomes insolvent, or is in contemplation of insolvency, its property becomes a trust-fund for equal and ratable distribution among all the creditors; and any creditor may file a bill in equity in behalf of himself and the other creditors, and may have a receiver appointed to protect the trust-fund, and may have the members of the firm restrained, by injunction, from intermeddling with the fund.-- Innes v. Lansing, 7 Paige, 583; Kerr v. Blodgett, 48 N. Y. 63; Hayes v. Heger, 3 Sandf. 294; Whitewright v. Stimpson, 2 Barb. 379; Galwey v. Sugar Co., 36 Barb. 263; Groshon v. Lyon, 16 Barb. 466; Lachaise v. Marks, 4 E. D. Smith, 614; Conro v. Iron Co., 7 How. Pr. 166; Levy v. Ley, 6 Abb. Pr. 91; Laclaire v. Lord, 10 How. Pr. 461; Jackson v. Sheldon, 9 Abb. Pr. 127; Bank v. Treadwell, 34 Barb. 561; Van Alstyne v. Cook, 25 N. Y. 480.

MYERS & ARNSTEIN and BROADHEAD, SLAYBACK & HAEUSSLER, for the respondents: Under the allegations of the petition, all the defendants being residents and citizens of this State, the plaintiffs are not entitled to proceed in equity, as they are not judgment creditors.-- Martin v. Michael,23 Mo. 50; Merry v. Fremon, 44 Mo. 518; Alnutt v. Leper, 48 Mo. 319; Wiggins v. Armstrong, 2 Johns. Ch. 144; Uhl v. Dillen, 10 Md. 500; High on Inj., sects. 26, 94, 250; Hubbard v. Hubbard, 14 Md. 356; Kent v. Curtis, 4 Mo. App. 121; McKenzie v. Cowing, 4 Cranch C. Ct. 479; Johnson v. Farmum, 56 Ga. 144; Mittnight v. Smith, 17 N. J. Eq. 259; Wintringham v. Wintringham, 20 Johns. 296; Brown v. Bank, 5 Mo. App. 1; High on Rec., sect. 406; Brinkerhoff v. Brown, 4 Johns. Ch. 671; Story on Part., sects. 357-361; Jarvis v. Brooks, 23 N. H. 140; Adams' Eq. [354]^*; Story's Eq. Jur., sect. 672 a.

BAKEWELL, J., delivered the opinion of the court.

The petition in this case alleges that on November 25, 1879, plaintiff and his co-plaintiffs were engaged in Boston and other places as wholesale dealers in boots and shoes and other goods; that on July 1, 1879, defendants formed a limited partnership under the Missouri statute, with defendant Rosenberg as the limited partner; that the defendant partners are indebted to plaintiffs respectively in various amounts, aggregating $20,000; of which various amounts on open account, aggregating about $3,500, are due, and the balance is not yet due; and that the defendants are indebted to other persons in the sum of $150,000 for goods purchased by the firm between July 1 and October 28, 1879; that said limited partnership is insolvent, and has been for many weeks past, in contemplation of insolvency; and that the general partners are also insolvent; that since said firm was insolvent, the general partners have been making sales and improper dispositions of the property of the firm, or in some way secreting its effects; that they control and are able and likely to divert the effects of the firm from the creditors equally, and are allowing favorite creditors to sue so as to get an advantage in priority of payment; that said changes and transfers of the effects of the firm and of its general partners have been made by the firm and the general partners for the purpose of giving priority to one creditor over other creditors of the firm and of the general partners while the firm was insolvent.

The petition then sets forth several instances of alleged fraudulent shipments of goods of the firm with the marks of the shippers erased, and of secreting goods in warehouses, and raising large sums in bank from warehouse-receipts thus obtained, on a pledge at three-fifths of the value of the goods, and of causing liens to be affixed to goods of the firm, and of consigning goods to fictitious persons, and of refusal to give information to creditors, and to answer questions about the business of the firm, and to allow creditors to inspect the books; and of secreting notes, bills, and evidence of indebtedness belonging to the firm. The petition further says that, while the firm have $45,000 in cash secreted, they have caused several collusive attachments to be levied upon their goods. Several of these attachments, for amounts of thousands of dollars each, are alleged to have been made simultaneously by Felix J. Rosenberg and Gustave Altheimer, upon all the visible and known property of defendants, the amounts in the attachment suits aggregating $35,000. It is alleged that these attachments were made collusively, to hold creditors at a distance and force a compromise; and that the alleged grounds of these attachments are fraudulent conveyances and concealment of property by defendants to hinder and delay creditors. The prayer is that a receiver be appointed of the defendant firm, to protect the trust-fund and distribute it among the creditors who may come in and prove their debts under the decree to be obtained; to collect outstanding debts and take possession of all the property of the firm, and that defendants be ordered to deliver to the receiver all the property and books of the firm, and be enjoined from intermeddling with the effects of the partnership until further order. A preliminary injunction was granted, which was afterwards dissolved, and the order appointing a receiver vacated. Defendants demurred to the petition, as not stating facts sufficient to constitute a cause of action, and the demurrer was sustained, and there was judgment for defendants.

The well-established general rule is, that creditors who have no lien and no title, and who have not reduced their claims to judgments where this can be done, are not in a condition to call for an injunction and the appointment of a receiver. Whether the debts are due or not is immaterial. The insuperable difficulty is that the creditors have not legally established their claims; and until they have done so, until their claims are reduced to judgments, they have no right to deprive the debtor of possession. The courts cannot, at the instance of a creditor at large, restrain a debtor in the enjoyment and disposition of his property. To do so would open a wide door for much mischief, making the rights of the citizen depend on the uncertain discretion of judges instead of the well-defined rules of law. This is well settled in Missouri and elsewhere. It is unnecessary to cite authority in support of the proposition, nor is this doctrine at all called in question by counsel for plaintiffs. It is claimed that the primary object of the bill, the first and principal purpose which it is intended to accomplish, presents in itself a cause of equity cognizance, and that the case is not therefore within the rule. The primary object of this bill is claimed to be the assertion of a trust and the protection of a trust-fund, ratable distribution of the fund being but an incident to the primary object of the bill. A simple contract creditor, one who has not reduced his claim to judgment, may, it is contended, enforce the trust and invoke the aid of a court of equity for that purpose.

The enforcement of pure trusts is undoubtedly one of the original and inherent powers of courts of equity. Where, by direction of the debtor, the property had been conveyed in trust for the general benefit of his creditors to one of the debtors, and the bill was filed for all the creditors to establish the trust, it is held that these facts constitute the grounds of jurisdiction. This was said in Kent v. Curtis, 4 Mo. App. 127; and there can be no doubt of the doctrine. Russell v. Clark's Executors, 7 Cranch, 87; Miller v. Davidson, 8 Ill. 518; O'Brien v. Coulter, 2 Blackf. 421. And it must be immaterial whether the trust is declared by a deed of the debtor or by statute. If by law the assets of a limited partnership become, when the partnership becomes insolvent, a special equitable fund for the payment of its debts ratably, then there can be no question that a creditor at large who comes into a court of chancery, not seeking the satisfaction of his debt specifically, but filing the bill for the benefit of himself and others and to remove the fund beyond the reach of abuse, has a standing in court; and then this petition states a good course of action.

The legislation on the subject of special partnerships was borrowed from the French law. The Société en Commandite was unknown to the common law, by which all partners were liable to the obligations of the firm, on the principle that he who shares the profit should share the burden. By the Société en Commandite, a special privilege was secured. The sleeping partner was liable only for the amount he invested in the partnership. The privilege obtained, however, only on compliance with all the provisions of law, which exonerated him from general liability. 3 Kent's Comm. 34; Ames v. Downing, 1 Bradf. 321-329. This system of limited partnership was first introduced by statute into New York, and subsequently adopted in other States of the Union. The New York statute (1 Rev. Stats. 766) provides (sects. 20, 21) that every sale, assignment, or transfer of any of the effects of a limited partnership, made by such partnership when insolvent, or in contemplation of insolvency of the firm or of one of the partners, with intent of...