Burrows v. Leech

• Citation: 74 N.W. 296,116 Mich. 32
• Court: Michigan Supreme Court
• Decision Date: 01 March 1898
• Parties: BURROWS v. LEECH ET AL.

74 N.W. 296

116 Mich. 32

BURROWS v. LEECH ET AL.

Supreme Court of Michigan

March 1, 1898

Appeal from circuit court, Wayne county, in chancery; Willard M Lillibridge, Judge.

Bill by George L. Burrows, survivor of himself and Amasa Rust deceased, partners as Burrows & Rust, against Edward W Leech, survivor of himself and Patrick M. Gamble, deceased partners as E. W. Leech & Co., Archibald G. Lindsay, receiver, and Archibald G. Lindsay, to require Lindsay, as receiver in foreclosure proceedings, to account for a portion of the proceeds of the mortgaged property. From a decree dismissing the bill, complainant appeals. Affirmed.

Thomas S. Jerome (H. E. Spalding, of counsel), for appellant.

De Forest Paine (Hoyt Post, of counsel), for appellee Lindsay.

HOOKER J.

One Gamble was a member of two co-partnerships, viz. E. W. Leech & Co., consisting of E. W. Leech and himself, and Lindsay & Gamble, consisting of the defendant Lindsay and himself. The firm of E. W. Leech & Co. and its individual members became insolvent, and Gamble, for and on behalf of the firm, gave mortgages upon the firm property, to secure certain creditors. The first mortgage was given to the Michigan Savings Bank, the second to Lindsay for the purpose of securing claims of Lindsay & Gamble and the People's Savings Bank, and these were followed by several others, given to persons and firms not parties to this record. Some questions arise upon the nature of two of the claims covered by the second mortgage, but there is no doubt that one of these represents an indebtedness from E. W. Leech & Co. to Lindsay & Gamble, for lumber purchased by the former from the last-mentioned firm. Proceedings were commenced in chancery to foreclose the mortgage given to Lindsay, and to convert the mortgaged property (which was mostly personal) into money, that it might be applied upon the several mortgage claims, in proper order, so far as it would go. It seems to be admitted that there was not sufficient to pay all of the mortgages. All of the mortgages were made parties, and Lindsay was appointed receiver, and sold the property under an order of the court. A final decree was made, directing the order and amounts in which the fund should be applied to the several mortgages. The complainants (unsecured creditors of E. W. Leech & Co.), having procured a judgment upon their claim, applied to the court having jurisdiction of the proceedings mentioned for leave to levy execution upon the property, subject to the mortgages, and this was granted. The execution was subsequently returned with a small collection from another source, and unsatisfied as to the residue. The bill in this cause was then filed, attacking the mortgage given to Lindsay as fraudulent, and asking that the receiver be required to account to the complainants, upon the ground that, inasmuch as there was a common partner, the mortgage given secured a debt in which one of the mortgagors was interested as creditor, and that, if held valid, it would have the effect of withdrawing some of the assets of E. W. Leech & Co. from their creditors, and applying them to the purpose of one of the members of that firm, i. e. Gamble. It is also claimed that the mortgage was made with an intent, upon the part of Gamble, to defraud the creditors of Leech & Co.

The first contention rests upon the well-known principle of the law that, while co-partnerships are treated as distinct entities in the mercantile world, they are not in the law, all common-law actions being brought for or against persons constituting the firm, in their individual names, and upon the rule that one cannot be both plaintiff and defendant in an action at law. The authorities are therefore uniform to the effect that one firm cannot maintain a common-law action against another having a common partner, though the law does not treat contracts between such firms as void; and it is only necessary for the creditor firm to make an assignment of its claim, to make it collectible by an action at law. Evidently, as the technical rules mentioned are the only obstacle to collection of a debt by one firm against another in action at law, the prohibition does not rest upon any obvious injustice, but is a good illustration of that inelasticity of the common law which it is the province of equity to remedy. The authorities agree that equity may take cognizance of these cases in a suit between the parties. Still equity follows the law in both respects. It does not treat the partnership as an entity, nor does it make the common partner both complainant and defendant; but, all being before the court, it so frames its decree as to grant proper relief.

Counsel for the complainants do not dispute the jurisdiction of equity in a suit arising between, and restricted to the members of, the debtor and creditor firms. They do, however maintain that in such a suit a court of equity would not content itself with treating the two firms as distinct entities, and make a decree for the whole amount of the debt, but that, inasmuch as it is dealing with individuals, it must sift out individual, as contradistinguished from firm, rights, and that it must therefore take an account of the business of the creditor firm, and ascertain what, if any, balance can be found in favor of the common partner, that such balance may be deducted from the amount of the complainants' recovery. Here we may pertinently inquire why equity should be so strenuous to leave the interests of the common partner in the debtor rather than the creditor firm, where, as in this case, he might prefer to have it left, and where justice to persons not members of either firm might imperatively require that it should be left. Again, it would seem to logically follow that if it is dealing with individuals, rather than partnership entities, and is going to do complete justice to all, it must go further, and take an accounting of the business of the debtor firm, in order to know what member is to have the benefit of this deduction. Counsel cite in support of this proposition an anonymous article published in 5 Am. Law Rev. 47, which contains the best exposition of this theory that we have seen. The author reaches the conclusion by a process of reasoning from admitted premises, and his aim seems to be, not to maintain the justice or expediency of such a rule, but its existence as a logical necessity, growing out of the legal status of the co-partnership, with which it is evident that he is not in sympathy. The article concludes as follows: "On the whole, therefore, it seems to us that a dissolution of the plaintiff firm is necessary, and, as incident thereto, an account between its members, before this debt can be recovered. That no more direct remedy can be had seems evident from the entire absence of adjudication upon the subject in the English equity courts, where such cases would certainly be frequent were there any remedy short of a dissolution. Like so many other anomalies in the law of partnership, this springs entirely from the failure of the courts to recognize the personality of the firm; and until that is done, and until the courts in their rules of practice cease to make the relation of partnership conform to a code of rules adopted in a state of society where mercantile usages had little influence, no change for the better will be made." We may agree with him that matters would be simplified by the adoption of the rule of the civil and Scottish law that co-partnership, like corporations, should be treated as legal persons, and that the harmony of our jurisprudence would be thereby made more perfect; but we are not convinced that there is no escape from the hard logic by which his result is reached. The difficulty with it seems to be that it ascribes to equity some of the inelasticity pertaining to legal remedies. If he is correct, in addition to the "anomaly" that the author mentions, we have another, viz. a case where, by reason of the rigidity of legal rules, equity cannot find a way to afford merited relief, which it is the especial boast of equity that it can always do; and this seems to stand entirely upon the proposition that in no case will equity "do things...