In re Estate of Wigginton

• Decision Date: 04 June 1894
• Parties: In re Estate of Edwards & Wigginton; Goddard-Peck Grocery Company et al. v. McCune, Appellant
• Court: Missouri Supreme Court

25 S.W. 904

122 Mo. 426

In re Estate of Edwards & Wigginton; Goddard-Peck Grocery Company et al. v. McCune, Appellant

Supreme Court of Missouri

June 4, 1894

Certified from St. Louis Court of Appeals.

Reversed and remanded.

Fagg & Ball for appellant.

(1) It is insisted that there is no evidence of fraud in this transaction. There is no proof that the firm was insolvent at the time of the execution of the notes to McCune and Wigginton. The note to McCune was in part for the stock of goods with which Edwards was doing business at the time that E. B. Wigginton became a partner. The other note was for money borrowed by E. B. Wigginton with which he purchased half of the stock and the additional $ 300 put in for the purchase of new goods. (2) A partnership has the unquestioned right, in the absence of any fraud, to appropriate its property, money or credit to the extinguishment of the individual liabilities of the members of the firm. (3) The execution of the note to McCune and also the note to Calvin Wigginton on the first of July, 1889, was in each case a "novation," and, in the absence of any fraudulent intent, stands upon the same footing exactly as if these two debts had been actually paid with money or property belonging to the firm. Sexton v. Anderson, 95 Mo. 373.

J. D Hostetter, E. W. Major and Eben Richards for respondents.

(1) The firm was insolvent July 1, 1889, and was made more so by the execution of the notes to McCune and C. Wigginton. (2) Creditors of an insolvent partnership have an equitable right to, or a quasi lien upon, the assets of the firm as against creditors of the individual partners. Dunnica v Clinkscales, 73 Mo. 500; Sexton v. Anderson, 95 Mo. 373; Phelps v. McNeeley, 66 Mo. 554; Huntley v. Farris, 103 Mo. 78. (3) Under the circumstances of this case the execution of the two notes in controversy was a fraud on firm creditors. First. The payees are relatives of the makers. Second. They knew of the insolvency of the firm. Third. The merchandise creditors had been told the liabilities to McCune and C. Wigginton were individual liabilities and they had a right to rely upon that fact. Fourth. The partnership received no consideration whatever for these liabilities. (4) The making of these firm notes amounted to withdrawing firm property from firm creditors to the use of members of the firm, which can only be done when ample property is left to satisfy firm liabilities. Goodbar v. Cary, 4 Woods, U.S.C. C. 663; Wilson v. Robertson, 21 N.Y. 537; Menagh v. Whitwell, 52 N.Y. 146; Keith v. Finke, 47 Ill. 272; Pritchett v. Pollock, 82 Ala. 169.

Burgess J. Barclay, J., concurring.

OPINION

In Banc

Burgess, J.

This case was certified to this court from the St. Louis court of appeals for the reason that one of the judges of that court was of the opinion that the decision filed in that court was in conflict with the decision in the case of Sexton v. Anderson, 95 Mo. 373, 8 S.W. 564.

The opinion of the court of appeals is reported in 47 Mo.App. 307. The statement of Thompson, J., of said court, is as follows:

"John McCune presented, for allowance against the assigned estate of the partnership firm of Edwards & Wigginton, a promissory note made by said firm on the first day of July, 1889, for $ 2,000, payable one day after date to his order, and bearing interest from date at the rate of eight per cent. per annum. Calvin Wigginton also presented a note of the same date and tenor for the sum of $ 1,926. The assignee allowed both of these notes, and certain other creditors of the firm appealed to the circuit court. The circuit court disallowed the notes, and from its judgment disallowing the note in favor of McCune this appeal is prosecuted. The case was, by consent of parties, submitted to the court without a jury, and no declarations of law were asked or given.

"It appeared in evidence that the partnership firm of Edwards & Wigginton was formed in March, 1889, and made an assignment for the benefit of its creditors in July, 1890. The business was a retail grocery store. The basis of the business was a stock in trade, owned by the appellant, McCune, which McCune sold to Edwards in 1887 for $ 2,600. When Edwards took Wigginton in as a partner, in March, 1889, the stock was invoiced at between $ 3,300 and $ 3,400. They were to be equal partners, and the arrangement was such, that Wigginton purchased a half interest in the stock in trade and business for $ 1,626, and then each partner put into the business in cash the sum of $ 300. The indebtedness of Edwards to McCune was originally evidenced by three unsecured promissory notes, maturing respectively in six, twelve and eighteen months from date. Edwards had borrowed other money of McCune, and had made such payments that, on the first of July, 1889, the indebtedness of Edwards to McCune stood at $ 2,000. The $ 1,926 that Wigginton put into the firm, as above stated, was entirely borrowed from his father, Calvin Wigginton. Of this, $ 900 was in a note, due one day after date, and bearing interest at the rate of one per cent. per annum; $ 500 was in a like note and the rest not evidenced by any note. Thus it was that the interest of each partner consisted entirely of borrowed capital; that Edwards still owed this claimant, McCune, $ 2,000 for his interest in the partnership capital and business, and that Wigginton, for his interest therein, owed his father $ 1,926. We proceed on the view that, what each partner had thus severally borrowed to purchase his interest in the business was an individual, and not a partnership, debt.

"The firm seems to have lost money almost from the start, and McCune, becoming uneasy, requested Edwards to take up the individual notes of Edwards, held by McCune, with the note of the firm. At the same time, Wigginton, Sr., thought that, if McCune was going to get firm paper for the individual note of Edwards, he, Wigginton, Sr., ought to have firm paper for what was due him from his son, as already stated. It was accordingly arranged between the partners and these individual creditors respectively, that the two creditors should have firm paper; and on the first day of July, 1889, the firm executed its note to McCune in settlement of the individual notes of Edwards, and also its note to Wigginton, Sr., in settlement of the individual debt of Wigginton, Jr., to him.

"The testimony leaves no room to doubt that this was done in contemplation of a possible suspension, and the avowed purpose of it was to put these individual creditors, in the event of a suspension, on an even footing with firm creditors. Edwards testified: 'It was this way: I had a great deal of sickness and had lost on grain I had bought, and McCune insisted on some plan of securing him. He was willing to aid us tide over our difficulties if in any way to make him safe -- to take joint note for the firm's note. I spoke to Wigginton, my partner, about it. He, at the same time, owed his father a like amount, or very near it. He insisted that he would want to secure his father as well as John McCune; so we mutually agreed to give them the firm's note for the amount of each claim. Both of these notes were given at the same time.' Further on, Edwards testified: 'We gave a firm note so that, in case of death or failure, they should share and fare like all other creditors.' On the same point the other partner, Wigginton, testifies: 'We saw the business was losing money -- saw no prospect of times getting better, owing to competition on each side of us, and we did not care to favor one person and not others. We wanted to treat everybody alike.' When the firm failed some six months later, its liabilities, including these two notes, footed up to about $ 5,600; its assets were inventoried at $ 3,149.95; but the assignee realized only the sum of $ 770 from the sale of the entire stock of goods under order of the court at public auction, and had succeeded in collecting only $ 70 of the $ 626 due the firm from its customers. Of these liabilities about $ 1,500 were due to merchants from whom it had bought goods."

1. No principle of law is better settled than that, in the administration of an insolvent partnership estate, the assets of the firm must be applied to the satisfaction of the firm creditors to the exclusion of the creditors of the individual partners. Hundley v. Farris, 103 Mo. 78, 15 S.W. 312; Bank v. Brenneisen, 97 Mo. 145, 10 S.W. 884, and cases cited in each.

The principle we think equally well settled by the more recent decisions of this court, as well as by the weight of judicial authority in other jurisdictions, that the assets of an insolvent firm, before dissolution, may, with the consent of all the partners, be applied to the satisfaction of all the individual debts of the members of the firm, when done in good faith. Sexton v. Anderson, 95 Mo. 373, 8 S.W 564; Reyburn v. Mitchell, 106 Mo. 365, 16 S.W. 592, and cases cited in each; Seger's Sons v. Thomas Bros. 107 Mo. 635, 18...