Sickman v. Abernathy

• Decision Date: 24 December 1889
• Citation: 14 Colo. 174,23 P. 447
• Parties: SICKMAN et al. v. ABERNATHY et al. SAME v. HAX.
• Court: Colorado Supreme Court

23 P. 447

14 Colo. 174

SICKMAN et al. v. ABERNATHY et al.

SAME v. HAX.

Supreme Court of Colorado

December 24, 1889

Commissioners' decision. Appeal from district court, Larimer county.

In October, 1881, Alonzo P. Sickman and S. B. Livingston formed a partnership for transacting a mercantile business; were equal partners; only continued in business until about the 4th day of February following, when the firm of Livingston &amp Sickman sold to Jonathan Sickman, father of A. P. Sickman and T. H. Davy, and by bill of sale assigned and transferred to them, the entire stock of goods then on hand book-accounts, credits, and good-will, for the sum of $15,000, and received in payment three notes, of $5,000 each made by Sickman & Davy, due, respectively, 60, 90, and 120 days after date. Livingston & Sickman at the time of the sale were badly in debt, if not insolvent. Immediately upon commencing business, or very shortly afterwards, Sickman & Davy commenced to pay the $15,000 for which the notes were given, without regard to the time of their maturity. Such payments were made upon the orders of Livingston & Sickman, and paid either in cash, or by substituting the paper of Sickman & Davy for that of Livingston & Sickman. At the time of the purchase by Sickman & Davy, A. P. Sickman was indebted to the Poudre Valley Bank for $2,000 for money borrowed, for which the bank held his note, which, with interest, amounted to $2,083, on April 19, 1882, at which time it was paid by Sickman & Davy at the request of Livingston & Sickman, and a credit given for the amount upon one of the $5,000 notes of Sickman & Davy. Among the accounts standing upon the books of the old firm at the time of the sale which were assigned to Sickman & Davy was a personal account of A. P. Sickman, due the firm of Livingston & Sickman, of $827.16; one of S. V. Livingston, $665.43; and another of Livingston, called the 'house account,' of $1,066.99,--Livingston's two amounting to $1,732.42; also, an account against one L. Welch of $409.22, against which Welch had a set-off for the full amount, which did not appear upon the books. These several accounts, amounting to $2,958.80, together with a bill of goods, amounting to $254.78, bought by Livingston from Sickman & Davy after the transfer, making in the aggregate over $3,000, were, by the mutual agreement of Livingston and A. P. Sickman with Sickman & Davy, indorsed as credits upon the notes of the latter. These being the payments over which the controversy arose, others need not be noticed. About the 1st of March, 1883, appellees Abernathy and Hax, respectively, commenced proceedings by attachment against Livingston and A. P. Sickman for sums due them for goods sold, and Jonathan Sickman and Davy were served as garnishees. They having answered that they were not indebted, the answers were traversed. After trials had been had in the county court, appeals were taken to the district court, a trial had by jury, resulting in favor of the garnishees, which verdict was set aside by the court. In March, 1885, another trial was had, resulting in finding the garnishees indebted to Livingston & Sickman in the sum of $3,123.44. From which judgments, appeals were taken to this court. Errors are assigned upon the giving by the court of the 3d, 4th, 7th, 8th, 9th, 10th, 11th, 12th, and 13th instructions on the part of plaintiffs, and upon the refusal of the court to give two instructions asked by garnishees.

Ballard, Robinson & Love, for appellants.

Haynes, Dunning & Annis, for appellees.

REED C., ( after stating the facts as above.)

At the time the suits by attachment against Livingston & Sickman, and the proceeding by garnishment of Sickman & Davy, were commenced, the three notes of the latter, which were negotiable, had been paid to the satisfaction of the payees, delivered up to the makers, and the whole transaction closed. Section 12, c. 46, Gen. St. 520, is as follows: 'No person shall be liable as a garnishee by reason of having drawn, accepted, made, or indorsed any negotiable instrument, when the same is not due in the hands of the defendant at the time of service of the garnishee summons, or the rendition of the judgment.' This might, perhaps, be considered as concluding this case, when applied to the facts, if our construction of it is correct; but the learned and experienced judge before whom the case was tried does not seem to have so considered it. Neither did the counsel. The importance of the case seems to render a full discussion of the questions presented necessary.

At the time of the sale and transfer of the assets of the defendants to the garnishees, the attendant circumstances and relation of some of the parties were such, perhaps, as to raise a doubt in regard to the honesty of the transaction sufficient to have caused an investigation by the creditors, which might have been had under proper proceedings; and, if found fraudulent, the sale could have been set aside, and the entire property in the hands of Sickman & Davy subjected to the payment of the debts, or, if found best, the sale could have been affirmed, and provision made for the application of the entire proceeds to the payment of the debts. But no such course was taken. The creditors, instead of questioning the honesty of the sale, acquiesced, treated it as legitimate, and elected to proceed against the purchasers for money supposed to be due. By the course pursued the sale and transfer of the assets of the firm to the garnishees was ratified. There are numerous authorities in support of this proposition. In Bishop v. Trustees of Hart, 28 Vt. 75, it is said: 'By instituting this suit to recover the avails of the property assigned, and therein charging them as trustees under the assignment, they have not only ratified the assignment itself, but also any disposition of the property which may have been made by the trustees under it. The plaintiffs will not be at liberty after that to question the legality of any transfer of the property which the trustees may have made.' After having acquiesced in the sale, and by failing to institute proper proceedings, and by instituting this suit, having ratified the sale, it is clear the creditors could not challenge the bona fides of the transaction, nor impeach it for fraud. Neither could they attack collaterally, on the proceeding against the garnishees, the validity of the payments made. To have enabled them to successfully attack it, there must have been some privity existing between the creditors and garnishees; otherwise, the transaction, being one they had affirmed, rested entirely with the parties to the purchase and sale. A knowledge of the indebtedness of the old firm, of itself, imposed upon the purchasers no obligation, either legal or moral, in regard to the application of the funds. Such obligation could only be imposed by contract, or by the intervention of legal proceedings. Unless creditors intervened by proper suits while an indebtedness existed, the garnishees could not be affected by the question of solvency or insolvency of the parties, or their own knowledge, or want of knowledge, on that subject. An individual or firm may be notoriously insolvent, and yet, as long as they are unrestrained at law by legal proceedings, can continue to do business as if absolutely solvent. A purchaser can take good title to any property purchased, and discharge his indebtedness in any agreed manner.

There was evidently a misconception by the court in regard to the law applicable to the case. As before stated, previous to the closing of the transactions between the old firm and the new one, no suit was instituted. There are two propositions of law necessary to be discussed in this connection First, until a court interposed, and the assets of the firm were in the custody of the law, there could be no creditors' lien upon partnership assets, as supposed by the court; second, previous to intervention and custody of assets by the court, the right to have firm assets applied to the payment of firm debts in preference to those of the individual debts of the partners was one that pertained to the firm, and individuals composing the firm, and in no wise pertains to the creditors of the firm. In Case v. Beauregard, 99 U.S. 119, it is said: 'So long as the * * * partner retains an interest in the firm assets as a partner, a court to equity will allow the creditors of the firm to avail themselves of his equity, and enforce through it the application of those assets, primarily, to payment of the debts due them, whenever the property comes under its administration. It is indispensable, however, to such relief, when the creditors are, as in the present case, simple contract creditors, that the partnership property should be within the control of the court, and in the course of administration, brought there by the bankruptcy of the firm, or by an assignment, or by the creation of a trust in some mode. This is because neither the partners nor the joint creditors have any specific lien, nor is there any trust that can be enforced until the property has passed in custodia legis.' This case was followed by another between the same parties in 101 U.S. 688, where the decision was reaffirmed. This was followed by Fitzpatrick v. Flannagan, 106 U.S. 648, 1 S.Ct. 369, where nearly the identical question involved in this case was presented. In that the court below instructed the jury as follows: 'If you shall find from the evidence that the defendant sold or transferred any of the property or assets of the late firm of Fitzpatrick Bros. with intent to prevent the creditors of the firm of Fitzpatrick Bros., or any of them, from collecting their debts, such sale or disposition will sustain this ground of attachment. It was the duty...