McArthur v. Chase
| Citation | 54 Va. 683 |
| Court | Supreme Court of Virginia |
| Decision Date | 25 February 1857 |
| Parties | MCARTHUR v. CHASE & als. |
1. In the act of March 29, 1837, Sess. Acts 1836-7, p. 41, in relation to limited partnerships, the word " insolvency," in § 20 of said act, means that the partnership has not sufficient property and effects to pay all its debts.[a1]
2. A deed made by a limited partnership conveying all its property in trust to pay a debt to a firm of which the special partner is a member, at a time when the debts of the partnership exceeded the value of its property, and when the acting partners knew that the partnership must stop business unless the special partner or his firm would advance money to enable them to carry on the business, and without an undertaking on his part to make such advances, though they may have had some expectations that he would do it, is void as to the other creditors of the partnership.
3. Under such circumstances confessions of judgments in favor of some creditors in order to give them a preference, are void as to the creditors. [a1]
4. A special partner taking a deed of trust to secure a debt due to a firm of which he is a member, under such circumstances makes himself liable as a general partner to the creditors of the partnership.[a1]
5. In the distribution of the assets of such a partnership among its creditors, a debt due to a firm of which the special partner is a member, is to be paid ratably with the debts due to other creditors.
6. A court of equity having obtained jurisdiction of a suit by creditors to set aside a deed improperly made to give preference to a creditor of the partnership, and to have a distribution of the assets of the partnership among all the creditors, may proceed to do complete justice in the cause and to make a personal decree against the special partner who has made himself liable as a general partner, in favor of the creditors, for the balance due them respectively after distributing the assets of the partnership ratably among them.
7. The fact that the creditors have recovered judgments at law against the general partners, will not defeat their remedy against the special partner.
8. The share of the special partner in the debt due to the firm of which he is a member, will be retained under the control of the court, and applied to the satisfaction of the creditors of the partnership.
9. To ascertain what is the share of the special partner in said debt the court will direct an enquiry into the ability of the firm of which he is a member to pay their debts independent of their claim upon the partnership, and into the interest of the special partner in said firm; and will direct that if no evidence is offered, it shall be presumed that the firm is able to pay its debts, and that the special partner has an equal interest in the concern.
In May 1848 John E. Penman and Daniel Penman purchased of James Bean two tracts of land in the county of Frederick, for which they were to pay him ten thousand dollars; four thousand dollars to be paid on the 1st of December following, and the balance of six thousand dollars was to be paid in four equal annual payments, with interest from the last date. The object of this purchase was to establish a furnace for the making of iron. On the first day of June in the same year a partnership was entered into between the two Penmans and Richard Thompson, under the name and style of Penman, Thompson & Penman, for the purpose of carrying on the business of making iron, and of conducting a mercantile establishment in connection therewith; in which it was agreed that John E Penman, being without means, should give his attention to the preparing the buildings and other works connected with the business, and should superintend the making of iron, and the other two should each put in the sum of fifteen hundred dollars as capital, and all were to be equally interested and they also agreed to advance to the firm as a loan a sum not exceeding one thousand dollars, if necessary to put the works into efficient operation, and also whatever sum might be necessary to enable the firm to pay to Bean the sum of four thousand dollars, which would be due to him on the 1st of December of that year. All these parties were from the city of New York, and Daniel Penman and Thompson were residing in that city at the time the partnership was formed, and so continued until some time in the year 1849.
By deed bearing date the 13th of January 1849, John E. and Daniel Penman conveyed to Thompson and Marion Penman, each one-fourth of the land and other property of the partnership. In this deed it was recited that the furnace had been erected. And it was further recited that Marion Penman had advanced the sum of four thousand dollars to pay to Bean the amount due to him on the 1st of December 1848, and it was agreed that she should be a dormant partner of the concern, and each should be interested one-fourth in the property and business of the partnership. This deed was not executed by Marion Penman, and she denied that she had ever assented to it, or agreed to become a partner. And so the court held.
Some time in the spring of 1849 Daniel Penman and Thompson removed from New York to the iron works in Frederick county, and Thompson became the financial agent of the partnership, and the manager of the store. He seems to have been acquainted in New York with the firm of McArthur & Co.; and before the 2d of August of that year he contracted a debt with them for goods purchased, exceeding the sum of two thousand dollars. On that day articles of partnership were entered into between the two Penmans and Thompson and William McArthur, of the firm of McArthur & Co. whereby it was agreed that he should become a special partner, and should put into the partnership the sum of five thousand dollars: The business to be conducted under the old name of Penman, Thompson & Penman, and each of the partners to be interested one-fourth, both in the property and business. The steps prescribed by the act of March 29th, 1837, in forming a special partnership, seem to have been pursued; and McArthur advanced his five thousand dollars, a part of which was applied by the direction of Thompson, to the payment of the debt due to McArthur & Co. and the balance was paid up in money.
The original parties having commenced their business with very inadequate capital, the partnership was in difficulties from the commencement of their operations; and previous to McArthur's becoming a partner, in order to obtain accommodations at the Farmers Bank of Virginia at Winchester, the partners, on the 19th of April 1849, conveyed their partnership property to trustees to secure several notes or drafts which had been discounted for them at bank, and also to secure future accommodations. After McArthur became a partner he was compelled to make advances for them to enable them to meet their engagements. These advances were made by his firm; and by the 6th of April 1850, Penman, Thompson & Penman were indebted to McArthur & Co. about twelve thousand dollars. This included the debt of four thousand dollars due to Marion Penman, and also a debt of one thousand dollars lent to the partnership by James Penman of New York, both of which had been transferred to McArthur & Co. At that day the debts of the partnership amounted to between thirty-five and forty thousand dollars, and their own estimate of the value of their property was about forty-five thousand dollars. It was sold, however, during the summer of that year, and the whole partnership property produced the sum of twenty-two thousand and fifty-one dollars and sixty-seven cents; and this seems to have been considered by all the witnesses examined on the subject, except some of the partners, to have been its full value.
In this condition of the partnership the two Penmans and Thompson being the general partners, conveyed the whole partnership property real and personal to trustees in trust to secure the debt due to McArthur & Co. And there was no doubt that this deed was executed at the instance of William McArthur. The deed recited that it was the purpose to provide for the payment of the debt due to McArthur & Co. and also for any further advances or acceptances which McArthur & Co. might make for the partnership. But it provided for a sale whenever Penman, Thompson and Penman should fail to pay any of the debts secured, when due, or if then due, when McArthur & Co. should require the trustees to sell. When this deed was executed there seems to have been some expectation by the general partners that McArthur & Co. would make further advances for them so as to enable them to go on with the business. McArthur in his answer in this case says that Thompson proposed to him that his firm should make further advances, and informed him that their prospects of getting along and making money were better than before. That the respondent who conducted the correspondence, informed Thompson that before he could submit the proposition to his partner the firm of Penman, Thompson & Penman ought to secure the firm of McArthur & Co. To this they agreed, and the deed of trust was executed. That after the execution of the deed, McArthur & Co. required an exhibit of the indebtedness of the firm and of the expenses monthly in working the furnace, and the quantity of iron made, & c. before they would decide upon making further advances to them; and upon receiving this exhibit McArthur & Co. not perceiving that money could be made at the business, declined to advance any thing more for the partnership. And it appears from the evidence that the deed was executed by Penman, Thompson & Penman with some expectation that they would be further aided by McArthur & Co. and also with the knowledge that...
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