In re Bean

• Decision Date: 07 March 1916
• Docket Number: 2700.
• Citation: 230 F. 405
• Parties: In re BEAN et al. In re QUIGLEY.
• Court: U.S. Court of Appeals — Sixth Circuit

230 F. 405

In re BEAN et al. In re QUIGLEY.

No. 2700.

United States Court of Appeals, Sixth Circuit.

March 7, 1916

[Copyrighted Material Omitted]

Quigley the bankrupt, was engaged alone in the retail furniture business. On September 28, 1912, Bean & Lupfer (and others) entered into a written contract with Quigley whereby they agreed to procure, by their indorsements, additional capital for the business, and whereby they received a transfer of 49 per cent. of the business. The contract seemed to be carefully drawn and covered many details. It is copied in the margin. ^[1] On October 28th they discovered that Quigley had misrepresented the condition of the business. With Quigley's consent the contract was canceled, and Quigley gave to Bean & Lupfer, severally, his notes for the amounts which had gone into the business on account of their indorsements, and they paid up the indorsed obligations to the same amount. On December 11th Quigley was adjudicated bankrupt; Bean & Lupfer, in right of the notes so given, being among the petitioning creditors.

It soon developed that the contract of September 28th was believed to create a partnership between Quigley and the others, and on December 17th certain alleged creditors of this partnership filed a petition in bankruptcy against them, alleging the existence of such partnership and the resulting liability of the individuals. When, however, upon the hearing of the order to show cause, it was pointed out that the petition did not allege the insolvency of Lupfer, one of the alleged partners, and that it could not truthfully do so, the petitioning creditors dismissed this petition. Whereupon Bean & Lupfer presented their notes for allowance as claims against the bankrupt estate of Quigley; objection to the allowance was made upon the ground that Bean & Lupfer were partners; and the referee held that the contract did in fact create a partnership, but that the notes were, nevertheless, allowable as claims against Quigley. He cared for the respective rights of Bean & Lupfer on one side, and the creditors of this partnership on the other side, by providing that on the claims so allowed any dividends which might become payable should be paid, not to Bean & Lupfer, but to those creditors of Quigley who became such between September 28th and October 28th, thereby, in effect postponing Bean & Lupfer, as creditors of Quigley, to the creditors of Quigley, Bean & Lupfer. Upon Bean & Lupfer's petition for review, the District Judge affirmed the referee in all respects; and they bring this petition to revise.

Charles J. Pretzman and John W. Wilson, both of Columbus, Ohio, for petitioners.

A. H. Johnson, of Columbus, Ohio, for trustee.

Raymund & Hedges and Watson, Stouffer, Davis & Gearheart, all of Columbus, Ohio, for creditors.

Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.

DENISON Circuit Judge (after stating the facts as above).

1. Bean & Lupfer urge that the question of partnership or not has been twice adjudicated in their favor: First, when their status as creditors of Quigley was fixed by the adjudication in bankruptcy based on their petition; and, second, when the petition, alleging that they were partners, was dismissed. Neither branch of this position is tenable. Even if Bean & Lupfer were partners until October 28th, they then ceased to be, and they were in the ordinary status of retired partners who were creditors of the continuing sole owner of the business for the agreed purchase price of their interests. No reason is suggested why such creditors may not petition for and obtain an adjudication in bankruptcy; and such adjudication has no bearing upon the question whether the petitioning creditors had, at some former time, been partners of the one against whom they file their petition. The dismissal of the second petition in bankruptcy was not only voluntary, amounting only to that nonsuit which adjudicates nothing, but the meritorious point upon which the action of the court would have rested if that action had been invoked, viz., that Lupfer was not insolvent, did not involve and so could not have decided the question of partnership.

2. We are not inclined to discuss at length the effect of the contract. This was fully and satisfactorily done, both by the referee and by the District Judge. It is claimed that the transfer of the interest in the business was only by way of security or indemnity against the indorsements, and some provisions of the contract are not inconsistent with this view; but we think the contract, as a whole and on its face makes it reasonably clear that the...