Excelsior Mill Co. v. Hanover

• Decision Date: 21 February 1899
• Citation: 78 N.W. 737,102 Wis. 309
• Parties: EXCELSIOR MILL CO. v. HANOVER.
• Court: Wisconsin Supreme Court

102 Wis. 309

78 N.W. 737

EXCELSIOR MILL CO.

v.HANOVER.

Supreme Court of Wisconsin.

Feb. 21, 1899.

Appeal from circuit court, Lincoln county; Charles V. Bardeen, Judge.

Action by the Excelsior Mill Company against Frederick A. Hanover and another, as partners, and Henry D. Hanover, garnishee. From a judgment against the latter, he appeals. Reversed.

On December 18, 1896, Frederick A. and Clarence G. Hanover, co-partners, being insolvent and without expectation of working out of said insolvency, mortgaged their entire partnership stock in trade to the garnishee defendant to secure the note of Clarence G. Hanover to Henry D. Hanover, the condition being that “said mortgagor shall pay to said mortgagee the sum of one thousand dollars, according to the terms of a certain promissory note executed by the said F. A. Hanover, June 14, 1895, to said Henry D. Hanover, payable one year after date, with interest at 7 per cent. per annum, which said note was given as a renewal of a note of similar terms and in the same amount, executed and delivered between the same parties about a year prior thereto, and was given to secure a loan made to said Frederick A. Hanover and Clarence G. Hanover, and was used and invested by them in the business of the firm of F. A. Hanover & Son.” There is some evidence that in June, 1896, F. A. and Clarence G., as a firm, assumed partnership liability for the debt evidenced by said note. The court, however, negatives such promise or assumption in his finding. The note evidenced a debt originally incurred by both partners in 1893, but not as a firm. At the time of making said mortgage the firm were indebted to the plaintiff in the sum of about $550 for merchandise purchased for partnership purposes. The garnishee, within a few days after the making of said mortgage, and before the commencement of this suit, foreclosed the same, and sold the stock of merchandise, realizing therefrom the sum of $1,003.28, which he indorsed upon his note. The plaintiff, having obtained judgment and issued execution, garnished Henry D. Hanover in aid thereof. The circuit court held the garnishee liable for the proceeds of the mortgaged property, and rendered judgment against him therefor, from which judgment the garnishee appeals.

Van Hecke & Smart, for appellant.

Curtis & Reed, for respondent.

DODGE, J. (after stating the facts).

There were vigorously argued in this case several important questions relating to the rights of the firm creditors against partnership assets when attempted to be applied to private debts of the partners, which, however, it is wholly unnecessary to consider. Here, the partnership property had all been sold to bona fide purchasers for value before the garnishment, and the money proceeds thereof had, with consent of both partners, been applied in part payment of the bona fide private debt secured by the mortgage, and had been mingled with other moneys. The cases of Spitz v. Tripp, 86 Wis. 25, 28, 56 N. W. 330,Jones v. Kosing, 92 Wis. 55, 65 N. W. 732, and Salter v. Bank, 97 Wis. 84, 72 N. W. 352, have fully settled the rule, for this court, that whether or not a transfer of property be fraudulent, if that property has been entirely disposed of, and the proceeds are not in any way held in trust for the debtor, but have been applied under his direction or to his debts, garnishment cannot be sustained against even the fraudulent transferee of such property. In Spitz v. Tripp, supra, the court, speaking by Cassoday, C. J., said: “Under this statute, Tripp cannot be held liable, as garnishee, for any property, moneys, credits, or effects belonging to the principal debtor, which had passed out of his possession or control more than three months prior to the service of the garnishee summons upon him. Had Tripp been garnished by the plaintiffs at any time between July 26, 1892, and September 10, 1892, then the validity of the mortgage. and Tripp's right to hold possession of the goods, would have been involved, and might have been determined. Bank v. Wilson, 74 Wis. 398, 43 N. W. 153;Edwards v. Roepke, 74 Wis. 575, 43 N. W. 554. But, upon the facts of this case, it is immaterial whether the mortgage was valid or invalid, or such possession lawful or unlawful, as against J. L. Tabor's other creditors, since none of them during that time proceeded against the property or Tripp as garnishee.” In Jones v. Kosing, supra, the court, speaking by Marshall, J., said: “Kosing having sold his interest in the property, and parted with possession and control of it, and applied the proceeds in the payment of Adolph Keller's debt to him, before service of the garnishee summons, he cannot be held as garnishee, whether the mortgage and bill of sale were valid or invalid, or his possession was lawful or unlawful, as against the other creditors of Adolph Keller.” The distinction between levying upon the property itself, and attempting to reach the proceeds after the property has been disposed of, is also pointed out in Powers v. Large, 69 Wis. 621, 35 N. W. 53, and Coover's Appeal, 29 Pa. St. 9. Garnishment, while in many respects serving the purpose of a creditors' bill, is nevertheless limited by the statute. It reaches only property or effects belonging to the debtor in the hands of the garnishee, or indebtedness from the latter to the former, neither of which existed at the time of the garnishment in this case, and as a result the appellant could not be held liable on that process. Judgment reversed, and cause remanded, with directions to enter judgment in favor of the garnishee defendant.

BARDEEN, J., took no part.

MARSHALL, J.

I concur in the opinion of the court so far as it goes, but think the question submitted to the circuit court on which the case turned there, and presented here with much learning and ability by counsel for the respective parties, deserves to be considered and decided. It is not satisfactory to counsel in a cause, or the court from which the cause is removed to this forum for review, to have some new question discovered and assigned as sufficient to rule the situation, leaving entirely out of view those questions upon which much labor has been expended. For a cause to be so disposed of, where the new discovery is really the only question involved, of course cannot be helped, but that is of extremely rare occurrence and is not the situation here. Where certain questions have been supposed to control a case till submitted on appeal, and they are in the case, it seems that they should be considered and decided even if some other question be decided, requiring the same result.

The learned trial court decided this case in accordance with an affirmative holding on the following question: Is a conveyance of firm assets by the members of an insolvent partnership, to pay the individual indebtedness of one of its members, and without any other purpose, void as to partnership creditors? That decision, it seems, is wrong, and the judgment based on it necessarily wrong, though there have been so many observations in decisionsof this court along the line which the learned trial court followed, that it is very easy to see how the judicial mind drifted into a channel which resulted in holding that the use, by an insolvent firm, of any of its assets for any purpose other than to pay partnership debts, is fraudulent and void as to firm creditors.

In Thayer v. Humphrey, 91 Wis. 276, 64 N. W. 1007, the rights of creditors as to the property of an insolvent partnership were carefully considered and determined with such definiteness that it ought to settle the law for this state. The facts were that J. D. Putnam & Co. and both of its members, J. D. Putnam and J. B. Goss, were hopelessly insolvent. In that situation, Putnam sold out his interest in the firm property to A. J. Goss, and the firm of J. B. Goss & Co. was formed to continue the business with the same assets, the new firm agreeing to pay the old firm debts out of such assets. A. J. Goss was insolvent when this arrangement was made. The new firm conducted the business for a time, contracted some new debts and paid part of the old liabilities, when an assignment for the benefit of creditors was made. The creditors of the old firm claimed a preference over the new creditors, and whether they were entitled to such preference or not turned primarily on whether the old firm, being insolvent, could make a bona fide conversion of its property into that of the new firm, so as to cut off the equity of the old creditors to be first paid. After a very careful study of the subject, that question was unanimously answered in the affirmative. Though two opinions were filed, both were to the effect that if a member of an insolvent firm sell his interest therein to his copartner or a stranger, without intent to hinder, delay or defraud partnership creditors, and without in any way retaining his equitable right to have the partnership debts paid out of the partnership assets, the dependent right of partnership creditors is thereby extinguished. The only division was in this: The court held that where the agreement in effect is that the partnership debts shall be paid out of the partnership assets, and the circumstances are such as to clearly show that all of the parties intended to devote such assets to that purpose, and there was evidently no other method in contemplation or other way to effect such payment, the court is warranted in holding that thereby the equity of the vendor partner is retained for that purpose. Justices Pinney and Newman concurred in the idea that the circumstances mentioned were not sufficient to preserve the equity of the vendor partner, hence not of the partnership creditors. All the members of the court approved the rule of Ex parte Ruffin, 6 Ves. 119, which, with few exceptions, prevails in this country and England and has for nearly a century. It was decided in 1801, and language there used by Lord Eldon, or its...