Kelley v. Flory

• Decision Date: 09 February 1892
• Citation: 84 Iowa 671,51 N.W. 181
• Parties: KELLEY ET AL. v. FLORY ET AL.
• Court: Iowa Supreme Court

84 Iowa 671

51 N.W. 181

KELLEY ET AL.

v.FLORY ET AL.

Supreme Court of Iowa.

Feb. 9, 1892.

Appeal from district court, Jasper county; J. K. JOHNSON, Judge.

Action for an accounting, and to declare certain chattel mortgages junior to the plaintiffs' attachment lien. The decree of the district court was such that Mary A. Leverton and C. W. Newton (of the defendants) and the plaintiffs appealed. In the disposition of the case, defendants will be designated as appellants.Meredith & Ogg and Harrach & Meyers, for appellants.

H. S. Winslow, for appellees.

GRANGER, J.

For some time prior to April 16, 1889, C. D. Flory and C. M. Newton were partners in the “carriage business” at Newton, Iowa; and on that day, by a written contract and bill of sale, Flory sold his interest in the firm to C. M. Newton, and the partnership, by the terms of the sale, was dissolved,--C. M. Newton assuming by the contract of sale the payment of all firm debts, and taking all the share of Flory in the stock of carriages, etc., including “all book-accounts and moneys and credits owing said firm, and the good-will of all said business;” Flory granting to Newton absolute ownership of the property, with the right to sell and dispose of the same. At the time of the sale the plaintiff companies and the Ottumwa Buggy Company (originally a party plaintiff, but it dismissed the suit as to itself, were creditors of the firm for goods and materials furnished. January 22, 1889, Flory & Newton made to A. M. Harrah a chattel mortgage on the firm stock to secure him as security for the firm against the payment of a firm debt of $1,000. The day following the sale by Flory to Newton, April 18, 1889, C. M. Newton made to defendant Mary A. Leverton a mortgage on the stock to secure four notes aggregating $2,000, which notes were executed by C. M. Newton to his wife September 17, 1888, and were by his wife transferred to her sister Mary A. Leverton. The consideration for these notes, as between C. M. Newton and his wife, is said to be money loaned when Newton engaged in the carriage business with Flory in 1888. Mary A. Leverton paid the Harrah mortgage on the stock, and took from C. M. Newton, April 18, 1889, a second mortgage, to secure her therefor; the amount then being $993. On the 20th of April, 1889, C. M. Newton made to defendant W. A. Armstrong a mortgage on the stock to secure the sum of $200. April 20th, 1889, after the execution of the Armstrong mortgage, the plaintiffs, by virtue of attachments in separate suits, seized the stock as liable for the firm debts; and the issues involve the priority of the attachment liens over those of the mortgages. The district court gave preference to the Armstrong mortgage and to the Mary A. Leverton mortgage of $993 over the attachments, and to the attachments over the $2,000 mortgage to Mary A. Leverton. The principal contention in the case is as to the action of the district court in preferring the attachments to the $2,000 mortgage.

A rule of law invoked as against the action of the court is that, although the assets of a partnership will be first applied to the satisfaction of the firm debts, and that the separate creditors of the partners can seek indemnity from the surplus, the rule is for the benefit of the partners; and if, upon dissolution, they waive the privilege by dividing the property between them, and then mortgage it severally to secure their individual debts, the creditors have no grounds of complaint. Such a rule can only be successfully invoked in favor of parties who in their transactions are free from fraud or collusion against creditors. At the time Flory & Newton dissolved partnership, we think the firm...