Darby v. Gilligan
| Decision Date | 20 November 1889 |
| Citation | 33 W.Va. 246 |
| Court | West Virginia Supreme Court |
| Parties | Darby & Co. v. Gilligan et al.*(Green, Judge, Absent.) |
Fraudulent conveyance partners and partnership SOcial Assets.
When one member of a mercantile firm purchases the interest of theother 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 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 rights of the firm creditors such trust deed is fraudulent and void.
F. Woods for appellants.
M. H. Dent for appellees.
Snyder, President:
Appeal from a decree of the Circuit Court of Taylor county, pronounced March 28, 1887, in the suit of Darby & Co. and others against John J. Gilligan and others. The suit was brought to set aside a trust deed made by said Gilligan to John T. McGraw trustee, to enjoin said trustee from disposing of the property thus conveyed to him and to have the same applied to the payment of the plaintiffs' debts.
On September 17, 1883, the said Gilligan and James Burns entered into an agreement in writing whereby they agreed to form a partnership for conducting a general merchandising business in the town of Grafton, Taylor county, Gilligan having prior to that time been merchandising at the same place and having then on hand a stock of goods which he put into the firm at the value of $2,000.00, and Burns paid into the firm $1,000.00. Upon this capital stock they agreed that Gilligan should have a two thirds and Burns a one third interest in the assets, business and profits of the partnership. At the time this partnership was formed Gilligan was indebted to the First National Bank of Grafton and others in the sum of $1,100.00, for money borrowed and put into the mercantile business while he was conducting it alone. During the carrying on of the business by the firm, the firm contracted debts to the plaintiffs and others, and the partners so managed the business that they and the firm became indebted to insolvency. Afterwards on Feb. 27, 1885, by a contract in writing the partnership was dissolved, upon the terms, that in consideration of $1,000.00, for which Gilligan executed to Burns his note payable one year from that date, Burns withdrew from the firm and Gilligan assumed and agreed to pay all the then existing indebtedness of the firm. About two months after, on April 24, 1885, Gilligan conveyed to John F. McGraw the whole of the as- sets of the late firm, in trust to secure all his debts, including the debts due the plaintiff and others by said firm; but in said conveyance he preferred the aforesaid $1,100.00 due to the Grafton Bank and others, the note for $1,000.00, given to Burns as aforesaid, which had been assigned by him to Anna Burns, and other individual debts amounting in the aggregate to more than thevalue of the assets conveyed.
Upon these facts, the plaintiffs, the appellants here, contend that this attempt of Gilligan to prefer and pay his individual debts out of the said assets is a fraud upon the firm creditors, which, according to well settled principles, a court of equity will not permit. Ordinarily the partnership estate is liable for the payment of the firm debts in preference to the individual debts of the partners. This is the right of the partners inter se. The creditors of the partnership have no such right of priority over the creditors of the partners individually, otherwise than by substitution to the rights of the partners inter se. The partners may release this right, and, if they do so bona fide, the creditors of the partnership can not complain; for it is not their right, except subject to the proper disposition and control by the partners themselves, to whom it belongs. This right is generally called the partner's lien. It differs from a...
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