Williams v. Whedon

• Decision Date: 24 April 1888
• Citation: 16 N.E. 365,109 N.Y. 333
• Parties: WILLIAMS et al. v. WHEDON et al.
• Court: New York Court of Appeals Court of Appeals

109 N.Y. 333

16 N.E. 365

WILLIAMS et al.

v.WHEDON et al.¹

Court of Appeals of New York.

April 24, 1888.

Appeal from general term, supreme court, Fifth department.

Action by John T. Williams and another against George M. Whedon, as survivor, etc. The plaintiffs appeal.

A. F. Baldwin, for appellants.

Wynkoop & Rice, for respondent Cross.

James A. Robson, for respondent Whedon.

RUGER, C. J.

This action is in the nature of a creditors' bill against George M. Whedon, survivor of the firm of Whedon & Renwick, and J. Judson Cross, assignee, to set aside a general assignment made by the survivor, and to reach and subject the assets to the payment of the plaintiffs' debt. The plaintiffs, as judgment creditors of the survivor, claim that such assets have been fraudulently transferred by him, and that they are therefore entitled by virtue of their judgment, and an execution returned unsatisfied thereon, to have such assignment annulled, and the proceeds of the property applied to the payment of their judgment. It conclusively appeared in the case that not only the firm, but also the survivor, was insolvent, and unable to pay the firm debts in full. No fraud in fact was proved upon the trial, and the sole ground upon which the action is sought to be supported is the claim that, the surviving member of a partnership having no power to transfer its assets in trust for the benefit of creditors, and thereby create preferences among them, an attempted transfer thereof by him operates as a legal fraud upon the creditors generally. The theory upon which this contention proceeds is the claim that the survivor is a trustee of the firm assets for the purpose of converting them into money, and paying therewith the firm debts, and that in the administration of this duty he has no power to create a trust through which it may be performed, or preferences among the creditors to be paid.

The plaintiffs occupy the very anomalous position of asserting that the survivor is powerless to create preferences because he holds the property in trust, but that his attempt to do so not only destroys the trust, but authorizes a single creditor to step in and take the whole property in satisfaction of his debt, to the exclusion of other firm creditors. This view seems to lead to a logical absurdity, and cannot, we think, be maintained upon reason or authority. We do not see how any creditor, in the absence of fraud, has a right to complain of the disposition which an insolvent debtor makes of his property. Such a debtor has a legal right to transfer all of his property to one or more creditors, provided he does so in good faith, for its fair value, and with an honest intent to pay his debts. Such a right is incident to the ownership of property, and follows the legal title wherever that goes, unless some special equity in favor of some individual or class is violated thereby. Daby v. Ericsson, 45 N. Y. 786. If there are persons who have such special rights, they alone have a standing to enforce them, and they cannot be availed of by third persons for their own benefit. Upon the death of one partner, the surviving members of the firm become the legal owners of its assets by virtue of their survivorship, and have the exclusive right to sell, mortgage, and dispose of them in the performance of their duty in closing up the affairs of the partnership, and can do so in the manner they deem best for the interests of those concerned. The representatives of the deceased partner have no legal interest in such assets, and no legal right to interfere in their administration, so long as the survivor is prosecuting the business of closing up the estate, and applying its proceeds in the payment of firm debts. The survivors do not take such assets as trustees, but, as survivors, hold the legal title, subject to such equitable rights as the representatives have in the due application of the proceeds. They may therefore require the application of the assets to the payment of partnership debts; but the time, manner, and mode of doing so are a part of the administration of the estate, which is under the exclusive control of the survivors. While such representatives have an equitable interest in the distribution of any surplus remaining after the payment of the debts, yet until all of such debts are paid it is a mere contingency, which may or may not eventually ripen into a legal right. The rules regulating the distribution of the estates of deceased persons can therefore have no application in the control of the affairs of an insolvent firm being administered by surviving partners. It was said by Lord WESTBURY in Knox v. Gye, L. R. 5 H. L. 656, that ‘the surviving partner is often called a trustee, but the term is used inaccurately; he is not a trustee, either expressly or by implication. On the death of a partner, the law confers on his representatives certain rights as against the surviving partner, and imposes upon the latter corresponding obligations. The surviving partner may be called, so far as these obligations extend, a trustee for the deceased partner; but when the obligations have been fulfilled, or are discharged, or terminated by law, the supposed trust is at an end.’ It is well settled by authority in this state that partners may lawfully make general assignment of...