In re Peck

• Decision Date: 21 June 1912
• Parties: In re PECK.
• Court: New York Court of Appeals Court of Appeals

206 N.Y. 55

99 N.E. 258

In re PECK.

Court of Appeals of New York.

June 21, 1912.

Appeal from Supreme Court, Appellate Division, First Department.

In the matter of the final accounting of Bayard L. Peck, as assignee of Girard N. Whitney, under a general assignment for the benefit of creditors. From an order of the Appellate Division (135 N. Y. Supp. 1131), so far as it affirms specified parts of a final decree entered on the report of a referee at the New York Special Term, John F. McIntyre appeals, and states in the notice of appeal that he will bring up for review an interlocutory judgment, entered September 18, 1911, upon a submitted controversy to said Appellate Division of the Supreme Court. Reversed, and final decree entered at Special Term modified and affirmed.

Thomas F. Gilroy, Jr., of New York City, for appellant.

Daniel Burke, of New York City, for respondent.

CHASE, J.

On and prior to January 16, 1908, Girard N. Whitney and James V. Geraghty were partners, conducting a stock brokerage business in the city of New York under the firm name of Whitney & Kitchen . On that day they made a general assignment of all their partnership property to Bayard L. Peck, as assignee, for the equal benefit of all their partnership creditors. On January 25, 1908, each of said partners made a general assignment of all his individual property to the same assignee. It was provided in each of said individual assignments that the said assignee, after paying the expenses of the assignment, should ‘pay and discharge in full, if the residue of said proceeds is sufficient for that purpose, all the debts and liabilities now due or to grow due from the said copartnership of Whitney & Kitchen, and from the said party of the first part (the assignor), with all the interest moneys due or to grow due thereon, and if the residue of said proceeds shall not be sufficient to pay the said debts and liabilities and interest moneys in full, then to apply the said residue of said proceeds to the payment of said debts and liabilities ratably and in proportion.’

Thereafter John F. McIntyre brought an action against ‘Girard N. Whitney and James V. Geraghty, copartners, doing business under the firm name and style of Whitney & Kitchen,’ to recover damages by reason of the alleged conversion to their own use of 500 shares of Amalgamated Copper Company stock owned by him and left in their possession as collateral security for certain advancements. Issues were joined in the action, and the referee before whom the action was tried found in favor of the plaintiff, and, among other things, concluded, as a matter of law, ‘that the said copartnership consisting of Girard N. Whitney and James V. Geraghty, on July 29, 1907, converted five hundred (500) shares of Amalgamated Copper Company stock, which was the property of the plaintiff, to their own use.’ Judgment was entered upon the report of the referee for the amount of the damages found by him. An appeal was taken therefrom to the Appellate Division, where the judgment was modified and, as modified, affirmed. McIntyre v. Whitney, 139 App. Div. 557,124 N. Y. Supp. 234. An appeal was taken therefrom to this court, where the judgment was affirmed. McIntyre v. Whitney, 201 N. Y. 526, 94 N. E. 1096. Thereafter McIntyre presented to the assignee of said Whitney and Geraghty, as partners, and also as assignee of each of them individually, a claim upon the judgments obtained in said action for conversion. The assignee refused to allow said claim against the individual estates, and also against the partnership estate, except that as against the partnership estate he allowed the claim to the extent of the principal of the recovery, with interest to the date of the assignment. The controversies arising from the rejection of said claim were submitted to the Appellate Division of the Supreme Court on an agreed statement of facts, and judgment was thereafter entered, establishing said claim as presented by McIntyre against said partnership estate, and also against said individual estates, but ordered, adjudged, and decreed that, as against the individual estates of said partners, said claim be disallowed by the assignee, except to the extent that claims against the copartnership of Whitney & Kitchen are allowed under the terms of the individual assignments. Matter of Whitney & Kitchen, 146 App. Div. 45,130 N. Y. Supp. 629. This proceeding was commenced to finally settle the accounts of said assignee of said partnership and of said individuals composing such partnership, respectively. On the report of the referee, the court directed the distribution of the partnership assets among the partnership creditors ratably; and said McIntyre has been paid his ratable proportion of his claim with the other partnership creditors. The court also held that by the individual assignments of the partners, respectively, the partnership creditors were given a preference by reason of the direction that they should share with the individual creditors in the distribution of the assigned estates, respectively; and that said partnership creditors should share with the individual creditors ratably to the extent of one-third of the partnership assets in each individual assigned estate; and that after the payment of one-third of said individual assets, as so provided, among the partnership and individual creditors that the individual creditors be paid their claims in full from the remaining two-thirds of said individual assets, respectively; and that the balance, if any, of said assets be paid to the partnership creditors ratably to the extent of the amount then remaining due them. Matter of Dauchy, 169 N. Y. 460, 62 N. E. 573. The court refused to allow the claim of McIntyre as a claim against the individual assigned estate of Whitney, except as stated. It is from such refusal to allow McIntyre to be included among the individual creditors of Whitney that this appeal is taken. The Appellate Division has affirmed the determination of the Special Term. Matter of Peck, 135 N. Y. Supp. 1131.

[1] The acts performed in the name of a partnership cannot ordinarily be considered apart from the persons composing it. A partnership is not like a corporation, which is a legal entity having certain rights and subject to defined liabilities. It has no independent existence. It has a name by which individuals conduct a joint business, and in which their accounts as such are kept, and through which certain established equitable rights in marshaling assets are acquired. This court, in Jones v. Blun, 145 N. Y. 333, 341,39 N. E. 954, 956, referring to a partnership, say: ‘It has been often pointed out that a partnership cannot properly be regarded as a legal entity separate and distinct from the several partners therein. For certain purposes, this fiction may be very properly indulged. In keeping partnership accounts and in marshaling the assets of an insolvent or liquidating firm, this is constantly done.’

[2] In marshaling the joint assets of persons composing a partnership and the assets of the individuals composing such partnership, it is well established in equity that the partnership assets must first be used in the payment of partnership liabilities and the individual assets in the payment of individual liabilities. An individual, who is engaged in business with others as partners, may become liable as one of such partners, and at the same time individually, as distinguished from his liability by reason of his partnership relation. A frequent example and illustration of such liability arises where a partner becomes liable upon an instrument signed in the partnership name, and at the same time by his individual signature as a guarantor or surety thereon. In such case, in the marshaling of assets, the claim may exist for preference with the claims of other firm creditors from the firm assets, and at the same time with the other individual creditors from the individual assets of the person so liable. Matter of Gray, 111 N. Y. 404, 18 N. E. 719. The joint and several liability of partners arising out of the partnership relation is subject to the equitable rule in marshaling assets. Even the statutory provision declaring the liability of every general partner (Partnership Law [Consol. Laws 1909, c. 39] § 6) is not intended to abolish that rule. Leggat v. Leggat, 79 App. Div. 141,80 N. Y. Supp. 317, affirmed on opinion below 176 N. Y. 590, 68 N. E. 1119. Such rule does not prevent a partner, by his individual contract, subjecting his individual property, in law and equity, to payment of partnership debts.

In the case of Morgan v. Skidmore, 3 Abb. N. C. 92, 111, Rapallo, J., speaking for this court, said: ‘When a partner, by his own act, makes himself individually liable for a debt of his firm, whether by express contract or otherwise, the creditor is entitled to the full benefit of that obligation, in addition to the obligation of the firm. A creditor holding the joint obligation of a firm, and also the separate obligation of one of the copartners as surety for the same debt, is entitled to payment out of the partnership assets in preference to the individual creditors of the partners; and, if he fails to obtain payment out of those assets, he is entitled to preference over the other partnership creditors in a distribution of the separate estate of the individual partner. Wilder v. Keeler, 3 Paige, 167, 176. Such are the rules of marshaling the assets in equity, where the separate obligation of the individual partner rests in contract; and therefore it is not a just ground of objection...