Harold J. Lyon v. C. B. Prescott

• Decision Date: 06 October 1931
• Parties: HAROLD J. LYON v. C. B. PRESCOTT
• Court: Vermont Supreme Court

156 A. 679

103 Vt. 442

HAROLD J. LYON v. C. B. PRESCOTT

Supreme Court of Vermont

October 6, 1931

May Term, 1931.

Bankruptcy---Burden of Proving Claim Exempt from Discharge in Bankruptcy---Partnership---Right of Partnership Receiver in Equity against Bankrupt Partner Misappropriating Partnership Funds---Duties of Partnership Receiver as to Its Assets---Partner's Misappropriation of Partnership Funds Unaffected by his Discharge in Bankruptcy---Execution---Power of Court of Chancery To Issue Certified Execution---G. L 2385---Character of Relationship between Partners---Remedies Available to Defrauded Partner---When Question as to Issuance of Certified Execution is One of Fact and When One of Law---Discretion of Chancellor.

1. Burden of proving that claim is exempt from discharge in bankruptcy is on party asserting its exemption.

2. If claim against bankrupt partner for misappropriation of partnership funds survived bankruptcy proceedings, held that it would be available in equity to receiver of partnership as representative of court, though he could not sue at law for lack of legal title.

3. Receiver of partnership had duty to resort to any of assets of partnership, and all if necessary, until they were realized on or creditors were satisfied.

4. In view of provision of Bankruptcy Act, 17 (11 U.S.C. A., 35) exempting debts which are "liabilities for the wilful and malicious injury to the property" of another liability of partner for misappropriation of partnership funds is unaffected by such partner's discharge in bankruptcy.

5. Court of chancery has no power to issue certified execution, unless such power is conferred by statute.

6. G. L. 2385, providing that, in specified circumstances, certified execution may be granted in action for recovery of money or property held in trust or in fiduciary capacity, does not make form of action or court before which it is pending vital to statute's application, and court of chancery is thereby clothed with authority to issue certified execution under circumstances specified therein.

7. Relationship between partners is highly fiduciary in character.

8. Fiduciary character of relationship between partners continues until affairs of partnership are fully settled and closed.

9. Each partner stands as trustee for other in dealings with assets of firm, and as cestui que trust in respect of dealings of his partner therewith.

10. While partners may not be trustees of each other in strict and technical sense, their relations are so fiduciary as to give rise to same remedies in behalf of defrauded partner as would in like circumstances be available to technical cestui que trust against his trustee.

11. Whether in action by cestui que trust against one standing as trustee former is entitled to certified execution, is usually question of fact and not reviewable if sustained by evidence, but where facts appear of record it is question of law.

12. Where it appeared of record that bankrupt partner had wilfully and maliciously appropriated partnership funds, whether, in suit in equity, injured party was entitled to certified execution was question of law.

13. In such suit, in view of provisions of G. L. 2385, chancellor, having found that partner had misappropriated partnership funds intentionally, had no discretion in matter of issuing close jail execution, but injured party was entitled thereto as matter of right.

APPEAL IN CHANCERY. Heard on bill of complaint, answer, cross-bill, and facts found by chancellor after the November Term, 1930, Orange County, Sherburne, Chancellor. Decree dismissing cross-bill of defendant, Prescott, discharging receiver previously appointed by court for partnership formerly existing between the plaintiff and defendant, upon compliance with certain directions, and motions of receiver and defendant for judgment for payment to them of sum misappropriated from partnership by plaintiff and for close jail certificate denied. From such decree defendant and receiver severally appealed. The opinion states the case.

Decree reversed, and cause remanded. Let a decree be entered in accordance with the views herein expressed.

Stanley L. Chamberlin for the defendant.

March M. Wilson for the receiver.

Ernest E. Goodrich for the plaintiff.

Present: POWERS, C. J., SLACK, MOULTON, and THOMPSON, JJ.

OPINION

POWERS

These parties were formerly partners in the automobile business. The partnership was dissolved on February 5, 1930, and trouble having arisen over the settlement of its affairs, Lyon brought an equity suit to secure the appointment of a receiver and to liquidate the partnership. Prescott filed a cross-bill alleging that Lyon had received and converted money and property belonging to the firm, which, he insisted, should be accounted for. A receiver was duly appointed, the facts were found by the chancellor, and a final decree was rendered, from which the receiver and Prescott filed appeals. It is found that after the dissolution, and on the 1st, 10th and 15th days of May, 1930, Lyon collected and appropriated to his own use sums aggregating $ 827.33 which belonged to the firm. The receiver demanded this money of Lyon but it was not paid over. All the debts of the partnership--except a balance due Prescott-together with the expenses of the receivership have been paid. A small balance left in the receiver's hands was decreed to Prescott to apply on his claim, which had been presented to and allowed by the chancellor. The findings do not show how this claim accrued, but it is alleged in the cross-bill that it arose from loans made to the firm. On September 14, 1930, Lyon was adjudged a bankrupt, and in due time he was discharged.

The first question for consideration is: Was the claim against Lyon cut off by the discharge in bankruptcy?

On this question, the burden of proof was on the appellants who assert its exemption. Smith v. Ladrie, 98 Vt. 429, 431, 129 A. 302. We may assume at the outset that if this claim survived the bankruptcy proceedings, it would be available, in equity, to the receiver as representative of the court, though he could not sue at law upon it for lack of the legal title, Murtey v. Allen, 71 Vt. 377, 381, 45 A. 752, 76 Am. St. Rep. 779; Underhill v. Rutland Railroad Co., 90 Vt. 462, 467, 98 A. 1017. It was his duty to resort to any of the assets of the partnership, and to all of them, tangible or intangible, if necessary, until they were realized on or the creditors were satisfied. So if there remains a claim against Lyon that can be realized on in these proceedings, the receiver can collect it and apply its avails to the liquidation of Prescott's claim.

We need not pause to inquire whether this claim would survive as a...