Goldsmith v. Eichold

• Decision Date: 04 November 1891
• Citation: 94 Ala. 116,10 So. 80
• Parties: GOLDSMITH v. EICHOLD, ET AL.
• Court: Alabama Supreme Court

10 So. 80

94 Ala. 116

GOLDSMITH v. EICHOLD, ET AL.

Supreme Court of Alabama

November 4, 1891

Appeal from chancery court, Mobile county; W. H. TAYLOE, Chancellor.

This was a bill by Meyer I. Goldsmith against Eichold Bros. &amp Weiss and others to subject land, which had been used and occupied by the firm of A. & B. Moog, to the payment of the debts of said firm. From an order sustaining a demurrer to the bill, plaintiff appeals. Reversed.

Chamberlain & Richardson, for appellant.

Pillans, Torrey & Hannaw, for appellees.

STONE C.J.

In the authorized American edition of Lindley on Partnership (volume 1, p. 2) are many definitions of the term "partnership." Perhaps none of them will be found more precisely and comprehensively accurate than that of Chancellor Kent: "A contract of two or more competent persons to place their money, effects, labor, and skill, or some or all of them, in lawful commerce or business, and to divide the profit and bear the loss in certain proportions." 3 Kent, Comm. 23. To constitute the relation inter sese the contract must extend beyond a common agreement to share in the profits. It must equally bind the parties to bear the burden of the losses. McCrary v. Slaughter, 58 Ala. 230; Couch v. Woodruff, 63 Ala. 466; Mayrant v. Marston, 67 Ala. 453. Partnership is not necessarily an entire merger of the individual, his labor, energy, or estate in the firm. The extent of the merger is determined by the agreement entered into, and the purpose the partners have in view. Anything left out of the partnership agreement and its views, whether it be money, property, labor, or skill, pertains to the individual in as absolute right as if there had been no contract of partnership. The merger of the individual into the firm or company extends to and includes everything embraced, expressly or impliedly, in the terms of the agreement, and to that extent changes the character of his ownership. The individual parts with the separate right and power to manage, direct, and control that of which, before that time, he had been supreme arbiter. His dominion was an integer. It becomes a fraction. He surrenders to the partnership an interest in his property, labor, skill, energy, one or more, as the agreement may bind him, by express or implied stipulations, in consideration of a corresponding surrender, to like extent and for like purposes, by his copartners. The agreement consummated, each partner becomes seised and rightfully possessed of the same interest in and power over whatever has been contributed to the firm by his copartners as he retains in that contributed by himself. This, and no more. These properties of partnership render it eminently a relation of trust. All its effects are held in trust, and each partner is, in one sense, a trustee; a trustee for the newly-created entity,-the partnership,-and for each member of the firm, who thus becomes a beneficiary under the trust. He is more; he is a trustee and a cestui que trust,-a trustee, so far as his own duties bind him; a cestui que trust, so far as duties rest on his copartners. And it is sometimes said that each partner is both a principal and an agent,-a principal, to the extent he represents his own interest, but an agent only so far as he represents his copartners. The first duty devolved by this trust on each of the partners is to apply the partnership effects to the payment of the debts of the partnership, and not to pervert them to individual uses or wants, without the consent of the copartners. Any attempt to so pervert them, whether by private arrangement or under judicial proceedings, can be intercepted by the nonconsenting partners. This on the plain principle that, being beneficiaries under the trust, they have a clear right to prevent its breach. The trust goes further. After discharging all the partnership liabilities, the residuum is still held in trust for partition or distribution among the several partners, according to their several interests; and the same rights and remedies exist to preserve, protect, and secure the proper administration of the trust fund to this end as are given in enforcing the payment of debts. In administering the two remedies noted above, the court simply enforces a trust against property held in trust, and at the suit of one in whose favor the trust is declared the exist. It is only carrying out the intention which influenced the formation of the partnership. Each partner has the right to have the partnership debts paid with partnership effects, so as to relieve his individual property of the burden; and each partner has a clear right to his share of any surplus that may be left after paying the partnership debts. All men will assent to the soundness and justice of the principles stated above.

Partnerships are dissolved in various ways; sometimes by voluntary agreement, and sometimes by a sale from one or more partners to others, or by a sale to strangers. In cases falling under either of these classes there is generally no trust relation preserved, unless it is provided for in the terms of the dissolution or sale. The wants of this case do not require us to discuss this question.

Dissolution takes place also by the death of a member, and by bankruptcy or insolvency. In cases falling within either of these classes the affairs of the partnership are frequently wound up and the effects and estates administered in the courts of justice. Courts always have respect to the fiduciary rights and duties which subsist between partners, and, in the absence of special circumstances to vary the rule, will apply partnership effects primarily to partnership debts. This, because of the trust which subsisted between the parties. Hence, if the death of a member caused the dissolution, the representative or succession to his estate has the clear right to have the partnership effects applied to the payment of partnership debts in preference to the debts of the survivor, and in like preference of any right he may assert to reembark them in trade; and the insolvency of the deceased member does not vary the question. In the administration and settlement of a firm thus dissolved the court will enforce the trust in favor of the deceased or bankrupt member's estate, and apply the assets first to the payment of the partnership debts. Not because of any lien or right

the creditor or creditors can assert. They have no such lien or right. It is their debtor's right to have the assets thus applied; and in enforcing that clear right the benefit and preference accrue to the partnership creditor. It is thus that the court of equity, by a process of its own, works out the partnership debtor's quasi lien in the prior payment of the partnership creditor's demand, while he himself has no lien, and can assert no claim to be a beneficiary under the trust. The preferred payment being the result of the copartner's lien, and not of the creditor's, it follows that, if the partner has done any act by which he surrenders his lien, or estops himself from asserting it, the creditor is equally barred or estopped. His quasi lien being, at best, only the resultant of his debtor's lien, of course it cannot exist after the debtor has ceased to have any lien from which it could result. This is axiomatic.

The questions we have been considering have been often and learnedly discussed by courts and by text-writers. Possibly no clearer enunciation of the principles can be found than is shown in the opinion of Justice MATTHEWS in Fitzpatrick v. Flannagan, 106 U.S. 648, 1 S.Ct. 369. We cite many authorities bearing on the question, without attempting to collate or classify them. Pierce v. Pass, 1 Port. (Ala.) 232; Reese v. Bradford, 13 Ala. 837; Burwell v. Springfield, 15 Ala. 273; Halstead v. Shepard, 23 Ala. 558; Lang v. Waring, 25 Ala. 625; Offutt v. Scott, 47 Ala. 104; Little v. Snedecor, 52 Ala. 167; Farley v. Moog, 79 Ala. 148; Levy v. Williams, Id. 171; Evans v. Winston, 74 Ala. 349; Espy v. Comer, 76 Ala. 501, 80 Ala. 333; Fancher v. Furnace Co., 80 Ala. 481; Cannon v. Lindsey, 85 Ala. 198, 3 South. Rep. 676; Story, Partn. §§ 97,326,360; T. Pars. Partn. p. *113; Lindl. Partn. pp. *334, *351, et seq.; Id. *548 et seq.; Rogers v. Batchelor, 12 Pet. 221; Case v. Beauregard, 99 U.S. 119; Wilson v. Soper, 13 B. Mon. 411, 56 Amer. Dec. 573, and note; Menagh v. Whitwell, 52 N.Y. 146; Schmidlapp v. Currie, 55 Miss. 597, 30 Amer. Rep. 530, and note; Dob v. Halsey, 16 Johns. 34; Gram v. Cadwell, 5 Cow. 489; Evernghim v. Ensworth, 7 Wend. 326; Hutchinson v. Smith, 7 Paige, 26; Bank v. Sprague, 20 N. J. Eq. 13.

The firm of A. & B. Moog was composed of Abraham Moog and Bernard Moog. They were engaged in a mercantile business. They incurred a debt to Meyer I. Goldsmith, January 12, 1884, of $12,500, Abraham Moog died February 23, 1884, having made a will, which, after his death, was probated and established. Bernard Moog was named executor in the will, and relieved of the duty of giving bond as such. He qualified soon after his brother's death. The will contains this clause "After payment of all my debts, as above provided, I give and devise to my brother, Bernard Moog, all my property of every kind and description, real or personal and mixed," etc., "to have and to hold to him and his heirs, in fee-simple forever." The will contains no authority or power to continue...