Thompson v. First National Bank of Jackson

• Citation: 36 So. 65,84 Miss. 54
• Court: United States State Supreme Court of Mississippi
• Decision Date: 14 March 1904
• Parties: JOHN HARVEY THOMPSON, TRUSTEE, ETC., v. FIRST NATIONAL BANK OF JACKSON

36 So. 65

84 Miss. 54

JOHN HARVEY THOMPSON, TRUSTEE, ETC., v. FIRST NATIONAL BANK OF JACKSON

Supreme Court of Mississippi

March 14, 1904

March 1904

FROM the chancery court of, first district, Hinds county. HON HENRY C. CONN, Chancellor.

Thompson appellant, was complainant and the First National Bank appellee, was defendant in the court below. From a decree sustaining a demurrer to the bill of complaint as amended the complainant appealed to the supreme court. The opinion of the court fully states the facts.

Cause reversed and remanded.

Watkins & Easterling, and Brame & Brame, for appellant.

Was the property which Barman transferred to McApine & Levy, by which transfer the First National Bank received a preference, partnership property, or was it the property of Barman?

When Suttle, as shown under the allegations of the bill, sold out to Barman, he disposed of his entire interest in the assets of the partnership, both legal and equitable; and Barman owned the same in fee simple free from any and all claims of Suttle; and when Barman sold said property, it was his property, not the property of Barman & Suttle. Part of it was the property which the firm of Barman & Suttle had owned, but at the date of the alleged preferential transfer, the title to the property was in Barman in fee simple; and it was not partnership property, but was individual property of Barman; and therefore the trustee in this case is not endeavoring to administer upon the estate of the partnership, but is endeavoring to recover from a preferred creditor property which Barman transferred to that creditor. Collier on Bankruptcy (3d ed.), 70. In re Walter P. Long, et al., 7 Benedict (District Court Reports), 149; In re Collier-Taylor & Company, 12 National Bankruptcy Register, 266; In re Wm. Downing, 33 National Bankruptcy Register, 748; Robb v. Mudge, 14 Gray, 534; Amsink v. Bean, 22 Wall., 393.

Counsel for appellee argue that the First National Bank was a partnership creditor, that at the dissolution of the firm of Barman & Suttle it had a lien on the partnership assets for the satisfaction of its debt.

If there is anything which the courts of this country have established beyond any question of doubt, it is that partnership creditors have no lien. The courts of this state and of other states, with rare exceptions, hold that the doctrine of the lien of partnership creditors is merely what the courts call a rule of administration, that is to say, when the partners themselves have made no disposition of the partnership assets, or if they have made a fraudulent disposition of the partnership assets, and administration of the assets are before a court of chancery, then a court of chancery will pay first the partnership creditors out of the partnership assets and vice versa. 22 Am. & Eng. Ency. Law (2d ed.), 192; Schmidlapp v. Currie, 55 Miss. 597; Roach v. Brannon, 57 Miss. 490; Hanover National Bank v. Klein, 64 Miss. 149.

The bill shows that Barman & Suttle were solvent; that they both desired to dissolve the partnership, they both desired and did impress upon the property the character of individual property, and that Suttle relinquished all his claim to said property, both legal and equitable, and in doing so, they were exercising a right of disposition which is inherent in the members of all partnerships; and it furthermore appears that this dissolution was not made for the purpose of defrauding partnership creditors, but the evident purpose of it and intention of the dissolution was, that Barman could take the assets and pay off the partnership creditors, which he had a perfect right to do. No creditor of Barman & Suttle could object to this arrangement; and if they had objected, the time to have objected was then, not to stand there and see Barman contract individual debts and make additions to the property on his individual credit.

Counsel for appellee say this is not a case of equitable jurisdiction. The bill shows that the First National Bank got a part of the property, we do not know how much. We know that it is liable to this appellant for the property received by it. We ask for discovery and we ask for an accounting in order that we may ascertain what part of the property it received.

It is no defense to a suit Brought by a trustee of Barman to say that some other party who may be liable for these debts is not shown in the face of the bill to be insolvent.

Green & Green, for appellee.

The rights of firm creditors cannot be changed by any agreement made by the partner. Norman v. Jackson Fertilizer Co., 79 Miss. 753; Swan v. Smith, 57 Miss. 553; Ranson v. Taylor, 30 Ohio St. 389; Hardware Co. v. Wells, 90 Tex. 110.

The trustee of an individual partner has no right to avoid firm transactions, even though they may be preferences as to firm creditors. In re Sanderlin, 109 F. 859; McNair v. McIntire, 113 Fed.; Amsinck v. Bean, 22 Wall., 404; In re Rodding, 6 Biss., 377; In re Holbrook, 2 Low; In re Shephard, 3 Ben., 352; In re Mercur, 116 F. 655; Telegraph Co. v. Institution, 116 F. 662.

A partnership is an entity, the creditors of which have the right to the assets which cannot be affected by the act of the individual partners. Bank v. Durfey, 72 Miss. 975; Bank v. Fargason, 79 Miss. 64; George v. Lumber Co., 33 So. 497. In equity partnership creditors have a lien. Bankrupt Act 1898, sec. 5, A. F.; In re Mosier, 112 F. 139. When property is appropriated to the discharge of a valid lien thereon no preference is created as against the unsecured creditors. Hallock v. Tritck, 13 N. B. R., 293; Sawyer v. Turpin, 17 N. B. R., 271.

Preferential transfers of firm property can only be avoided by the firm trustee (Collier on Bankruptcy, 308), and a dissolution of a firm does not affect a creditor's rights. Bankrupt Act 1898, sec. 5A; In re Hirsch, 97 F. 573; In re Meyer, 98 F. 976. There is no averment that the firm and J. S. Suttle were insolvent, and to transform a transfer into a preference this is a condition precedent. Vacaro v. Bank, 103 F. 441; In re Blair, 99 F. 76; In re Meyer, 98 F. 976.

Barman is not entitled to a discharge from the firm debts. In re Meyers, 97 F. 411; s.c., 97 F. 757; In re Russell, 97 F. 32; Is re Meyers, 98 F. 976; In re Hale 107 F. 432.

Upon the whole case and all the proof taken, the judgment is clearly correct, and should be affirmed, although the demurrer to the second amended bill was improperly sustained. Railroad Co. v. Adams, 32 So. 944.

Argued Orally by W. H. Watkins and L. Brame, for appellant, and by Marcellus Green, and Garner W. Green, for appellee.

OPINION

MAYES, Special Judge ^[*]

This case comes to this court by appeal from a decree sustaining a demurrer to a second amended bill and dismissing the same.

The said amended bill averred in substance as follows: That Barman & Suttle were partners, carrying on a stable business; that Suttle was only a nominal partner; that on July 1, 1901, the firm owed $ 5,500, including a large debt to the First National Bank; that the bank was well acquainted with every detail of the business of the firm; that about such day Suttle retired from the partnership, disposing of his entire interest in the assets to Barman, who assumed all the outstanding indebtedness of the firm, including the debt owing to the First National Bank; that the firm's creditors acquiesced in this arrangement; that Barman continued the business in his own name until about the 1st of October, in the usual course of business, acquiring property and disposing of the same; that about the 1st of October, being then insolvent and owing about $ 5,500, including the old firm liabilities and other debts incurred by himself after the dissolution, and being pressed by the bank and other creditors, and his stock then being worth about $ 3,000, he sold the entire stock to McAlpin & Rutherford, who undertook to pay, and did pay, the debt of about $ 2,200 then due to the bank, and a few other small debts, leaving unpaid about $ 3,000 of indebtedness, mostly due to the creditors of the former firm of Barman & Suttle; that when this transfer was made the bank well knew that Barman was insolvent, and knew that such transfer operated as a preference in its favor over the other creditors of Barman, successor to Barman & Suttle, and that in making this collection it was obtaining a preference over the other creditors of Barman and of the former firm; that on December 24, 1901, a petition for involuntary bankruptcy was filed against Barman, on which such proceedings were had that he was duly adjudicated, and complainant was duly elected and qualified as trustee in bankruptcy of Barman's estate; that such transfer by Barman was made for the purpose of preferring the bank over the remaining creditors, and that the bank "was in knowledge of all the facts at the time of said preference." The amended bill on such statements prayed that the bank be required to repay the money received by it.

This bill was demurred to for want of...