Rubenstein v. Lottow

• Decision Date: 08 January 1915
• Citation: 220 Mass. 156,107 N.E. 718
• Parties: RUBENSTEIN v. LOTTOW; RUBENSTEIN v. SEDLIS.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

220 Mass. 156

107 N.E. 718

RUBENSTEIN

v.LOTTOW;

RUBENSTEIN

v.SEDLIS.

Supreme Judicial Court of Massachusetts, Suffolk.

Jan. 8, 1915.

Appeal from Superior Court, Suffolk County; Marcus Morton, Judge.

Two suits, each by Philip Rubenstein, trustee in bankruptcy, one against Louis Lottow, and the other against William Sedlis. From the decree, all parties appeal. Decrees directed.

David A. Ellis and Philip Rubenstein, both of Boston, for plaintiff.

Lee M. Friedman and Samuel J. Freedman, both of Boston, for respondents.

LORING, J.

The undisputed facts out of which these two suits in equity have arisen are in substance as follows:

In April, 1911, one Setlin, who theretofore had been a shipping clerk in the employ of an overall company on Hanover street in Boston, set up in business for himself. To use his own words, the business consisted in ‘jobbing; children's dresses and muslin underwear.’ Lottow (the defendant) was an uncle of Setlin. His business was manufacturing ‘ladies' and children's dresses.’ He assisted his nephew (Setlin) in setting up in business; he sold him goods on credit and spoke a good word for him when Setlin referred persons to him. In July, 1911, Setlin took in as a partner one Smith, who was an uncle of Setlin and a brother-in-law of Lottow. When Setlin began in April, 1911, he put $300 into the business. It appeared from an account of stock taken at the time he took Smith into partnership that he had $300 in the business at that time; Smith put $300 into the business, $75 of which was his own and $225 of which he borrowed from Lottow. The name of the new firm was ‘S. & S. Manufacturing Company.’

After January 1, 1912, at any rate, the business of the firm was not profitable. The firm was indebted to Lottow in a considerable sum for goods sold to the firm. On June 11, June 22, July 5 and July 25, 1912, the firm paid Lottow sums amounting to $893.20 on account of their indebtedness to him. On July 30, 1912, the partnership was dissolved by Smith retiring from the firm. To induce him to retire Setlin paid Smith $100 in cash and gave him his note or notes for $200 on Lottow agreeing to take it or them on account of his (Smith's) indebtedness to him (Lottow). All the partnership assets were assigned to Setlin, and Setlin agreed with Smith to pay all partnership debts. At the same time Setlin assigned to Lottow substantially stantially all of the book accounts due to the partnership, amounting to $1,673.25; he also gave to Lottow notes amounting in the aggregate to $500. The two were equal in amount to the indebtedness theretofore due from the partnership to Lottow. Thereafter Setlin undertook to carry on the business on his own account. After June 1st Lottow sold no more goods to the firm or to Setlin, but he furnished Setlin with samples and after July 30th he filled orders taken by Setlin through the use of these samples, on Setlin's assigning to him (Lottow) the accounts due for such sale. When Setlin took over the partnership he had some stock on hand and thereafter he made some purchases. Between July 30 and October 3, 1912, Lottow's clerk, Sedlis, advanced to Setlin $723.39, on receiving from Setlin book accounts amounting to $920.08, due for sales of goods made by Setlin after July 30, 1912. These advances were made from time to time between July 30, 1912, and October 3, 1912. Of these accounts receivable, amounting to $920.08, the judge who heard the case found that Sedlis had collected $709.91, and that the balance of the accounts was of uncertain value.

On October 3, 1912, an involuntary petition in bankruptcy was filed against Setlin. He was subsequently adjudicated a bankrupt, and the plaintiff Rubenstein, was appointed trustee of his estate.

Later these two bills were brought by the trustee so appointed, one against Lottow and the other against his clerk, Sedlis. The two bills in equity were tried together. The judge made findings of fact on February 27, 1913, and on July 24, 1913, a final decree was entered, a copy of which is set forth below. ¹

From this decree appeals were taken both by the plaintiff and by the defendants, and the case is here on the evidence taken by the commissioner when the case was heard in the superior court.

1. There are several matters of practice which should be dealt with at the outset. Neither brief complies with the second rule for the regulation of practice before the full court. That rule provides (inter alia) that:

‘When the construction or effect of a statute is drawn in question, so much thereof as is deemed necessary to the decision of the case shall be printed or written at length.’

In the case at bar several sections of the United States Bankruptcy Act are drawn in question, and not one of them, or any part of them, is printed or written in the brief filed by either party. The same rule requires that briefs shall be printed or written on paper of the usual quarto size. The plaintiff's supplemental brief is written on foolscap paper. This is a matter of some consequence. The briefs are bound together with the record, and for that reason it is important that all should be on paper of the same size.

[5] Other points of practice have to do with the final decree. The decree begins with a statement that the ‘cause came on to be heard upon the amended bill of complaint, the answer thereto and the other pleadings.’ But that statement is contradicted by the next sentence, that ‘after hearing the parties and their witnesses it is ordered,’ etc. When a cause is heard on bill and answer the facts there alleged are admitted, as is the case where a cause is heard on demurrer. The decree should have begun with the statement that:

‘This case came on to be heard at this sitting and was argued by counsel; and thereupon, upon consideration thereof, it is ordered, adjudged and decreed,’ etc.

See equity rule 37. The last part of the decree appealed from is in these words:

‘That the plaintiff is not entitled to recover the amount of the book accounts transferred by Setlin to Wm. Sedlis between July 30, 1912, and October 3, 1912, or any part thereof; that costs be allowed to the plaintiff.’

If the two suits in equity (one against Lottow and the other against Sedlis) had been consolidated so as to make one cause a single decree would have had to be entered. In that case the proper way of dealing with the matter covered by the last clause of the decree (quoted above) would have been to dismiss the bill as against the defendant Sedlis. But there was no order of consolidation of these two suits. They appear to have been tried together merely, and that without a special order. They were not consolidated; as to the difference between trying two cases together and consolidating two cases, see Lumiansky v. Tessier, 213 Mass. 182, 99 N. E. 1051, Ann. Cas. 1913E, 1049. The two suits having been tried together merely, a separate decree should have been entered in each. Again, in drawing a decree, if one of several claims is not allowed, the proper way of dealing with it is to dismiss the bill so far as that claim is concerned or not to refer to it (the decree) at all. The provision in the decree ‘that the plaintiff is not entitled to recover the further sum of $893.20 paid by the partnership of Setlin and Smith to Lottow prior to the dissolution of the partnership on July 30, 1912,’ was improper. Lastly, as was pointed out in East Tennessee Land Co. v. Leeson, 185 Mass. 4, 69 N. E. 351, the amount of the costs which are to be paid should be stated in the decree. The proper form of a decree in equity for costs is:

‘The defendant or the plaintiff [as the case may be] is hereby directed to pay the defendant or the plaintiff [as the case may be] costs amounting to [naming the sum at which costs have been taxed before the decree is entered], and execution is to issue therefor.’

2. The judge who heard the case found that when the book accounts amounting to $893.20 were assigned by the firm to Lottow on account of the firm's indebtedness, the partnership was insolvent, and that this was known to or should have been known by the defendant. But the judge ruled, as matter of law, that the trustee appointed in bankruptcy proceedings against Setlin individually could not recover a preference made by the partnership. We are of opinion that the ruling was right. The preference in question was an illegal payment of assets which did not belong to Setlin (whose trustee in bankruptcy is undertaking to recover the sums so paid), but to Setlin and Smith jointly as partners. We are not able to see how the trustee in bankruptcy of Setlin's estate can recover back property of the firm which was transferred away by the firm as an illegal preference. The plaintiff has argued that the question is governed by the decision made in Re Keller (D. C.) 109 Fed. 118, to the effect that a creditor of a firm who seeks to prove against the individual assets of a bankrupt continuing partner must account for a preference received from the firm before he can prove against these individual assets. That decision went on the ground that the creditor was proving as an individual creditor of the continuing partner, and if he was allowed to keep the preference made by the partnership before the dissolution he would be enabled to obtain a larger share than other creditors of the same class. That decision does not reach this case. And that was in terms pointed out by the judge in that case. 109 Fed. at page 122. He there said:

‘The question is not the one that would arise in case the trustee of Almon D. Keller should sue a third party to recover back money paid him by the firm on a firm debt on the ground that such payment was a preference.’

Another ground put forward by the plaintiff is that the continuing partner has succeeded to the rights of the firm and so has succeeded to the right to recover this preference. But the right to recover back the preference is a right of the creditors of the firm, not...