Vietor v. Glover

• Decision Date: 23 April 1897
• Parties: VIETOR ET AL. v. GLOVER ET AL.
• Court: Washington Supreme Court

48 P. 788

17 Wash. 37

VIETOR ET AL. v. GLOVER ET AL.

Supreme Court of Washington

April 23, 1897

Appeal from superior court, Spokane county; James Z. Moore, Judge.

Action by George F. Vietor and others against James N. Glover and others to set aside a conveyance to a trustee as in fraud of creditors. Judgment for defendants, and plaintiffs appeal. Affirmed.

Samuel R. Stern, Cyrus Happy, and W. W. Tolman, for appellants.

L. B Nash, Lucius G. Nash, Dolph, Mallory & Simon, and John M Gearin, for respondents.

ANDERS J.

On January 2, 1895, a firm composed of Bernhard and Herman Loewenberg, engaged in mercantile business at Spokane, Wash transferred to one James N. Glover, as trustee, all their firm and individual property, both real and personal. Contemporaneously with this conveyance, Mr. Glover executed and delivered what was termed a "declaration of trust," in which he recited that he held the property for certain banks and persons who were creditors of Loewenberg Bros. in amounts specified, and that he was to sell the property conveyed to him, and out of the proceeds thereof pay the claims, in a certain order therein indicated. Thereafter, and while the property was in the possession of the said Glover, plaintiffs herein, who were, respectively creditors of Loewenberg Bros., commenced actions against the said firm to recover the respective amounts alleged to be due them. In each of these actions an attachment was sued out, and levied upon the property in the possession of said Glover; and subsequently this action was brought, in aid of the attachments, to set aside the transfer to the trustee, Glover, on the ground that the same was a fraud upon the plaintiffs and other creditors of the firm, for the reason, among others, that it was made to hinder, delay, and defraud the creditors of the said firm, and especially the plaintiffs. The defendants answered, alleging that the transfer of the property was not made or the property received by them to hinder or delay the plaintiffs, or any other creditor or creditors, but for the sole purpose of paying honest debts due them by Loewenberg Bros. and by B. and H. Loewenberg, and that the promissory notes evidencing their respective debts had been delivered to said Loewenberg Bros. and canceled; and praying that the proceeds of the property be distributed in accordance with the terms of the agreement and conveyance. Upon these issues the cause proceeded to trial, and judgment was rendered for the defendants, dismissing the complaint, with costs. From this judgment this appeal is taken.

It appears from the evidence that the debts for which the property was transferred were of long standing, and that the notes representing some of them had been renewed from time to time, with the consent of the payees. Some of the debts were in existence even while Julius Loewenberg was a member of the firm of Loewenberg Bros., which was prior to October 1, 1893. But the later firm of Loewenberg Bros. recognized these debts as its own, although at least two of the notes were not signed by the firm, but were, upon their face, the notes of the individual partners. Many interesting points are made and discussed in the learned and elaborate brief of counsel for appellants, but they are all practically included in, or illustrative of, the general proposition urged, that appellants, being creditors of the firm of Loewenberg Bros. as it existed at the time of the transfer complained of, are entitled to priority of payment out of the firm assets over the joint creditors of the individual partners, as well as the creditors of the preceding firm, and that the conveyance to respondent Glover is therefore, as to them, fraudulent and void. The equitable rule contended for on behalf of appellants only applies where the court is called upon to administer and distribute partnership assets, or where its jurisdiction to set aside a conveyance for fraud in fact has been successfully invoked by firm creditors. A partnership creditor, merely as such, has no right in or lien upon partnership property. He merely has the right to sue and reduce his claim to judgment, and to sell the partnership property on execution. Lindl. Partn. (2d Am. Ed.) pp. 334, 354; Bates, Partn. §§ 820, 824; Case v. Beauregard, 99 U.S. 119; Fitzpatrick v. Flannagan, 106 U.S. 648, 1 S.Ct. 369; Huiskamp v. Wagon Co., 121 U.S. 310, 7 S.Ct. 899; Schmidlapp v. Currie, 55 Miss. 597. But each partner has the right in equity-often denominated a "lien" by courts and text writers-to have the firm property applied to the satisfaction of the firm debts; and so long as this equity subsists the courts allow the creditors of the firm to avail themselves of it, on the principle of subrogation, whenever the property is "within the control of the court, and in course of administration." Case v. Beauregard, supra. But this equity or lien, or whatever else it may be called, is primarily for the benefit and protection of the individual partner, and not the creditors. The partner may therefore waive it, and, if he does so, the resulting equity of the creditor is absolutely destroyed. Moreover, this right attaches only to partnership effects, and hence "if, before the interposition of the court is asked, the property has ceased to belong to the partnership,-if, by a bona fide transfer, it has become the several property either of one partner or of a third person,-the equities of the partners are extinguished, and consequently the derivative equities of the creditors are at an end. It is therefore always essential to any preferential right of the creditors that there shall be property owned by the partnership when the claim for preference is sought to be enforced." Case v. Beauregard, 99 U.S. 125. The doctrine thus announced is affirmed in the other cases cited from the same court, and is undoubtedly correct on principle. The controlling question, therefore, in any particular case, is whether or not the transfer of the property is bona fide. The evidence shows, and it is not denied, that at the time of the transfer both the firm and the individual members thereof were insolvent, but that alone did not destroy the right to dispose of its property in good faith and for an honest purpose. If a firm that is in debt could not sell or otherwise dispose of its property, it might never be able to pay its debts at all, and it would be difficult, if not impossible, for it to conduct its business; for it could not give a good and clear title to any specific chattel it might sell, and the purchaser of any partnership commodity would be obliged to take it subject to the lien...