Thayer v. Humphrey

• Decision Date: 08 November 1895
• Citation: 91 Wis. 276,64 N.W. 1007
• Parties: THAYER v. HUMPHREY. DAVIES v. HUMPHREY.
• Court: Wisconsin Supreme Court

91 Wis. 276

64 N.W. 1007

THAYER

v.HUMPHREY.

DAVIES

v.HUMPHREY.

Supreme Court of Wisconsin.

Nov. 8, 1895.

Syllabus by Marshall, J.

A. J. Goss and J. D. Putnam were partners, under the firm name of J. D. Putnam & Co. The firm was insolvent. It was dissolved, J. D. Putnam selling out his interest, with the understanding that the business should be continued by a new firm, known as J. B. Goss & Co. The consideration for the sale on Putnam's part was that the new firm should assume and pay all the old firm debts. He supposed that J. B. Goss was the real purchaser, though the transfer was made to A. J. Goss, who shortly after transferred to J. B. Goss. The new firm was advertised as J. B. Goss & Co., and no notice was given of any change from the old firm other than what was indicated in the change of the firm name. A. J. Goss, in fact, dropped out; so that J. B. Goss became sole proprietor. The new concern had no way of paying the old firm debts, except out of the assets derived from the old firm and the accumulations of the business. The business was conducted a short time under the new management, and then J. B. Goss made an assignment for the benefit of creditors, and about the same time A. J. Goss made an assignment for the benefit of creditors. A. J. Goss being held to be an ostensible partner, and liable for all the debts of the concern of J. B. Goss & Co. by holding out, and there being three sets of creditors,--namely, those of the old concern of J. D. Putnam & Co., those of the new concern of J. B. Goss & Co. (consisting of J. B. Goss and A. J. Goss as an ostensible partner), and those of J. B. Goss alone,--and there being no firm assets of the ostensible firm known as J. B. Goss & Co., unless the assets and property owned by J. B. Goss in the business conducted under the name of J. B. Goss & Co. should be considered partnership assets in equity, by reason of A. J. Goss being liable to all the creditors as a partner, by holding out, in the administration of the affairs of the two insolvent concerns, in equity, the following principles apply:

(1) In the administration of the affairs of a partnership and of the individual members thereof, the fixed rule must be applied that joint estate goes first to joint creditors, and separate estate to separate creditors, with the exception that where there are no partnership assets. and there is no living solvent partner, partnership creditors may prove with the separate creditors of a partner in the settlement of his estate pari passu.

(2) Partnership creditors have no “lien,” strictly so called, on partnership assets, but must work out their preference over the creditors of the individual members of the partnership through the equities of such members.

(3) If one of a partnership sells out, bona fide, his interest to his copartner or to another, without in any way retaining his equity to have the partnership creditors paid out of the assets, the property is converted into the individual property of the purchaser, free from all the equities of the seller, even if the purchaser, as the consideration for such purchase, agrees to pay the firm debts; otherwise, if the purchaser agrees, expressly or impliedly, to apply the assets to such purpose.

(4) The word “assets,” used in No. 1, is not confined to assets at law, but includes all assets applicable to the payment of the partnership debts, under the well-defined principles for the administration of the affairs of insolvent partnerships under the direction of a court of equity.

(5) Those who deal with persons representing themselves to creditors generally as partners in a certain business are entitled to have the property used in such business applied to the payment of the debts incurred in such business in preference to the individual debts of the members of the partnership, and the ostensible member of such partnership is likewise entitled to have the assets of the ostensible firm so applied.

(6) If a member of an insolvent firm sells out with the understanding that the business is to be continued with the same assets, and the purchaser or purchasers, as consideration for the sale, are to assume and pay the old debts, and the circumstances are such as to evidence the fact that the purpose of the transaction is to pay the old firm debts, and to wind up the old partnership concern, by the payment of the debts of such concern out of the partnership assets and a continuation of the business, the court is warranted in concluding that the equity of the outgoing partner to have the assets of the firm applied to the payment of the firm debts is not changed, and that the right of the creditor to enforce it continues.

(7) If one of the members of an insolvent firm sells out his interest to an outside party or to his associates, and thereby a new firm is formed, which assumes the debts of the old firm, the intention of all the parties being that the new firm shall continue the business in substantially the same way, with substantially the same assets, and that the old debts shall be paid out of such business, and such new firm subsequently makes an assignment for the benefit of creditors, in the administration of the assignment the creditors of the old and the new firm may prove their claims pari passu, and be preferred over individual creditors of the members of such new firm. By reason of the facts disclosed in this case, the court being warranted in finding an implied promise made at the time J. D. Putnam sold out that the old firm debts should be paid out of the firm assets, held, that an equity was reserved which the creditors can enforce, and that appellants, the one being a creditor of the old firm of J. D. Putnam & Co., and the other of the ostensible firm of J. B. Goss & Co., cannot prove pari passu with the individual creditors of A. J. Goss in his assignment, but they can both prove pari passu with the creditors of J. B. Goss, in his assignment.

Appeal from circuit court, St. Croix county; E. B. Bundy, Judge.

Appeals by Lottie Thayer and Charles Davies from orders disallowing their claims. Affirmed.

Each of the above-named appellants filed a claim against respondent's assignor in his assignment proceedings, and such proceedings were had that an issue was made up as to each in respect to whether he is entitled to share pari passu with the other creditors of such assignor. The decision was against the claimants, upon the ground that they are partnership creditors. The facts in regard to the existence of a partnership doing business at River Falls, Wis., composed of J. D. Putnam and A. J. Goss, its dissolution, and the subsequent existence of the ostensible firm of J. B. Goss & Co., composed of J. B. Goss, the actual owner, and A. J. Goss, the ostensible partner, as stated in Thayer v. Goss, 64 N. W. 312; Thayer v. Humphrey and Gibbs v. Humphrey, Id. 750 (decided at this term), may be considered as facts here; and otherwise the facts necessary to present the legal questions involved are sufficiently set out in the opinion.

Pinney and Newman, JJ., dissenting.

F. M. White, for appellants.

Spooner, Sanborn, Kerr & Spooner, for respondent.

MARSHALL, J. (after stating the facts).

There are no findings of fact in these cases, but the evidence distinctly shows that the firm of J. D. Putnam & Co., on the 3d day of November, 1891, when Putnam sold out as hereafter stated, was hopelessly insolvent; that J. D. Putnam, the managing partner of the firm, was insolvent as well; that he desired to retire from the business, and have its affairs closed up, and, in order that this might be done, without an assignment on his part and on the part of the firm as well, which, it was thought, would imperil the private business of A. J. Goss, it was agreed that the firm should be dissolved, and that Putnam should transfer his interest in the firm property, and also his individual property, for the benefit of the firm, and that the business should be thereafter continued under some new management, in which the old debts should be assumed and paid, through its operations. J. B. Goss, the son of A. J. Goss, conducted the negotiations for the latter, but it was concluded in such a way that Putnam believed, and had a right to believe, that the son was to take his (Putnam's) place in the firm; that Putnam was simply to step out, and J. B. Goss to step in. When the transfer was made, it was in form to A. J. Goss, but it satisfactorily appears that Putnam supposed that J. B. Goss was the real purchaser, and that the business was to be carried on so as to liquidate the firm debts, and eventually relieve him from liability. The agreement of dissolution expressly stated that the business would be conducted by J. B. Goss & Co., who would settle all claims of the old partnership. It was so advertised to the world, over the signatures of J. D. Putnam and A. J. Goss; J. B. Goss managing the whole affair. At this time the legal title to the property was in A. J. Goss, but he soon afterwards conveyed it to J. B. Goss, who thereafter held it as the real owner of the business, though the same was always carried on under the name of J. B. Goss & Co., and all the old creditors, pursuant to the agreement made at the start, as they presented their claims, were recognized as creditors of J. B. Goss & Co., down to the time of the assignments of J. B. Goss and A. J. Goss, hereafter mentioned. Through the confusion surrounding the sale, by reason, among other things, of the claim on the part of Putnam that J. B. Goss was the purchaser, and came in and took his place, while the title was, nevertheless, at first made to A. J. Goss; that the business was, however, from the start, advertised as that of J. B. Goss & Co.; and that, soon after the new arrangement, the property was actually conveyed to J. B. Goss; and that it continued to the end to be administered by him as J. B. Goss & Co., and the old debts to be recognized as the debts of J. B. Goss & Co.,...