41 Tenn. 430 | Tenn. | 1860
delivered the opinion of the Court.
The complainants are a portion of the joint creditors of the late mercantile firm of Snodgrass & Brothers. Joseph Snodgrass, the senior member of said firm, died in July, 1868, and immediately after his death, to-wit:
The firm, at the death of. Joseph Snodgrass, was largely indebted to the complainants, (who are merchants of New York, Philadelphia, and Nashville,) for goods purchased in the Eall of 1857, and likewise to a large number of persons at home; and was then really insolvent, to the extent of many thousands of dollars.
The assignment proposes to be for the benefit of all the creditors of the firm, and all are named, including the complainants; but, by reason' of the preference given to the domestic creditors, it is probable that but little, if anything, will be left for the complainants. Among the class of preferred creditors, there are a large number, perhaps upwards of twenty, the respective amounts of whose debts, are not stated at all. There are also a large number of debts provided for in the preferred list, which, prima fade, are individual debts of the several partners, and not debts of the firm.
By the terms of the deed, the trustee is to take possession of the “lands, tenements, town lots, goods, wares, drugs, jewelry, merchandise, property and effects, hereby assigned and conveyed; and sell and dispose of the same, upon such terms and conditions, as, in his judgment, may appear best, and most for the interest of all the parties concerned, and convert the same into cash,” &g. The deed further provides, that if the trustee
The trustee is required, out of the proceeds, first, to satisfy in full, a long list of preferred domestic creditors, whose names occupy nearly two pages, and among whom are included the trustee himself, and several family relatives of the makers of the deed. The surplus is to be distributed pro rata among the complainants, and other creditors, not included in the privileged class.
The attachment, in the present case, was not issued until the 22d of November, 1858, more than five months after the date of the assignment.
It appears from a schedule, exhibited by the trustee, with his answer, that the entire assets of the firm, of every description, except the land, was estimated at upwards of $40,000. It likewise appears from said schedule, that, after Ms acceptance of the trust, and before the service of the attachment, he realized from the trust property, and paid to certain of the preferred creditors, upwards of $15,000. The residue of the property seized upon the attachment, was placed in the hands of a Receiver, by order of the Chancellor, who appointed the Trustee, Receiver. An application was made by Dibrell, as Trustee and Receiver, for a sale of the real estate, which was decreed accordingly.
The bill impeaches the assignment for fraud, both in law and in fact, and also upon other grounds.
The Chancellor decreed the assignment void in law, on the ground that the surviving partners did not possess the power to make an assignment to a trustee of the partnership effects, and more especially an assign
It may be observed, before noticing the material grounds relied upon to avoid the assignment, that the objection to the legal competency of the trustee to execute the trust, in the shape in which it is presented to us, is of no importance. The objection is this: The trustee, at the time of his appointment as such, was the Clerk of the County Court of White. He, in form, before entering upon the execution of the trust, gave a bond, and t,ook an oath, as prescribed by sec. 1974 of the Code — the bond being taken by the deputy Clerk, and the oath administered by him also.
This was clearly not allowable. The Clerk himself is the person designated by law, to take and preserve the bond; and to administer the oath. These acts can not, in the existing state of our law, be performed by the principal Clerk before his deputy; and, consequently, unless exonerated from the obligation to give bond and take the oath, by the beneficiaries in the trust, (as may be done, by the section above referred to,) the Clerk is not legally competent to act as trustee.
Admitting this to be so, however, it in no way affects the validity of the trust, or the interests of the beneficiaries. The law referred to provides for the appointment of another, to act in all cases where the trustee fails to qualify; and, of course, the case of a trustee incompetent by ■ law to act, is embraced: Sec. 1977. But, aside from this, in equity a trust is never allowed to fail, or to bo affected, for want of a trustee.
We proceed to notice the more important grounds upon which the validity of the deed of trust is assailed.
2d. It is said that it was fraud, in law, at least upon the complainants, to embrace in the assignment debts that were not due from the partnership, but from the individual members of the firm.
If the fact were shown to be so, the legal conclusion insisted upon would not follow, as was decided in Lassell vs. Tucker, & Sneed, 1.
But the matter of fact, except in a very few instances, is shown not to be as assumed, and that in fact, the debts, though apparently the individual debts of the separate partners, were, in reality, partnership debts:
It is clear, that wherever the original credit was given to the partnership, that will constitute a debt against the partnership, notwithstanding the partner contracting the .debt may have given his own separate security, or made himself personally liable therefor. And, on the other hand, if the original credit was exclusively given to the partner contracting the debt, the partnership will not be liable therefor, although it has been applied to the use and benefit of the firm, (Story on Part., sec. 367,) unless, indeed, the debt thus contracted by the partner on his own account, exclusively, has been immediately assumed by the partnership, with the assent
There is no doubt that, under certain circumstances, and upon a sufficient consideration, by agreement of the partners, and with the consent of the creditors, the separate debts of one partner may be converted into the joint debts of the partnership, and the joint debts of the partnership into the separate debts of one partner: Id., 369-370. It is generally true, however, that in order to bind the firm, the partner contracting the debt must have had an original authority to do so, and have exercised it on the" credit and account of the firm, and not on his own exclusive credit or account; or else, the transaction must have been subsequently ratified and adopted by the firm, as one for which they were originally liable, or for which they have elected to become jointly liable, or to give their joint security: Id., 148, 146.
From these principles, it will easily be seen what debts embraced in the assignment are partnership debts, and what remain the separate debts of the individual partners.
3d. It is also insisted, that the omission in the deed to state the respective amounts due to a large number of the preferred creditors, if not sufficient to avoid the deed altogether, will at least, avoid it pro tanto.
It is certainly proper, for various reasons, that the
4th. It is next insisted, that the surviving partners had no power to make an assignment of the partnership
This objection presents a question of serious difficulty, and one upon which the authorities are directly at variance. The power of one partner to make a general assignment of all the partnership property, so as to break up its operations, has been regarded as doubtful by some of the authorities: Story on Part., sec. 101, note 4, and cases cited; Burrill on Assignments, (2d ed.,) 45 to 65, where the cases are more fully referred to; 3 Kent’s Com., 47, note. The current of authority, however, is, perhaps, in favor of such a power: 5 Sneed, 1.
A much more difficult question is, as to the power of one partner, where all are living, and capable of acting in the matter, and might be consulted, to make such an assignment of the partnership effects to a trustee, for the benefit of creditors, without the consent, or against the will, of his co-partners, even though all the creditors be admitted to an equal participation of the proceeds, by the terms of the assignment. The power to make such an assignment is denied by numerous cases, more especially when it assumes to give preferences to some of the joint creditors; and in other cases the power is distinctly maintained. See the authorities above referred to, where most of ‘the cases, on both sides of the question, are noticed.
The case of Lassell vs. Tucker, 5 Sneed, 1, maintains the doctrine that one partner, in the absence of his co-partner, may make a valid assignment, to a trustee, of all the partnership effects, for the security and payment of the partnership debts. This case simply involved the
If required now to express an opinion, we should feel reluctant to yield our assent to the doctrine, that it is compatible with the fundamental principles upon which the partnership relation is based, that one partner should be held to possess the authority to exclude his co-partner from all participation in the determination of the question, whether or not an assignment should be made, and if so, to whom made, and for the benefit of what creditors of the firm. The question would be different, of course, where the emergency did not admit of consultation with the other partner, as if he were absent, or incapable of acting in the matter; and upon this distinction, the case of Lassell vs. Tucker, is not inconsistent with our present views.
But, however this may be, in a case where the partners are all living at the time of the assignment; the question, more properly for our determination, in the case before us, is, whether or not, after a dissolution of the partnership, by the death of one member, the surviving partners have authority to make an assignment of all the partnership effects, real and personal, to a trustee, with preference to some of the joint creditors— the partnership being insolvent.
We are aware, that upon this question, as upon most others connected with this general subject, there
It seems to us, that the doctrine which asserts such a power in the surviving partners, is reeoncileable with the established rights, as declared by law, of the representatives of the deceased partner, as well as of the joint creditors of the firm, and consequently, cannot be sound.
All the books agree, that a dissolution by the death of one partner, ipso facto, puts an end to the partnership: Story on Part., sec. 342. The partners, from the time of dissolution, became distinct persons, and tenants in common, of the joint stock: 3 Kent’s Com., (2nd ed., 63.) And the personal representative of the deceased partner becomes a tenant in common with the survivors, of all the partnership property and effects in possession: Story on Part., sec. 346. It is true, that to a limited extent, and for particular purposes, the partnership is said to subsist: that is, so far, and only so far, as it may be indispensably necessary to enable the surviving partner to wind up and settle the affairs of the partnership: Id., 344, 325.
Upon the dissolution, each partner, in the words of Mr. Story, (Ibid., sec. 326,) has a perfect right to require, that the partnership funds shall be directly and regularly applied to the discharge of the partnership debts and liabilities; and after these are discharged, to have his share of the residue of the partnership funds. And this right is a lien upon the partnership effects, as between the partners. The personal representative of the deceased partner, has the same lien, or equitable right; and hence, it was not merely his right,
And the doctrine, it is obvious, is no less inconsistent with the rights of the joint creditors, who have also an equity, or quasi lien, under and through the specific lien of the partners themselves, entitling them to have the partnership effects ratably appropriated to the discharge of each and all of the joint debts, in case of a dissolution, by the death or bankruptcy of one of the partners: Ibid., sec. 361; 2 Story’s Eq. Jur., 1253.
This well established equity, of all the joint creditors, (in case of a dissolution by the death or bankruptcy of one partner,) to have an equal distribution of the partnership effects, cannot, possibly, as it seems to us, be reconciled with the supposed authority of the surviving partners, to make an assignment of all the effects, and thereby, either wholly or partially, to defeat the rights of a portion of the creditors: These conflicting rights cannot co-exist.
In noticing this objection, we, of course, have no reference to ordinary assignments: For, as a general rule, it is well settled in this State, and elsewhere, that a reasonable discretion given to the trustee, in regard to the terms of sale, or the giving a reasonable length of time for the execution of the trust, will not affect the validity of the assignment.
The objection is restricted to this peculiar case: The case of an insolvent partnership, dissolved by the death of one of the partners. In such a case, it seems to us, that the discretion attempted to be given to the trustee, in respect to the terms of sale, and the time within which the trust shall be executed, is equally at variance with the prescribed duty of the surviving partner, and the recognized rights of the creditors of the firm. In such a case, it is alike the duty of the surviving partners, and the right of the creditors, to have the effects of the dissolved and insolvent concern, converted into money, without any unnecessary delay, and applied to the payment of the debts. And, by the implied terms of the contract of partnership, as well as by implication of law, the surviving partners, themselves, if capable of acting in the matter, are the proper persons upon whom this responsible trust is devolved. The attempt of the surviving partners to throw off this responsibility upon a stranger, and to commit the inter
6th. In regard to the real estate: The doctrine that one partner may dispose of all the partnership property and effects, for any and all purposes within the scope and objects of the partnership, and, in the course of its trade and business, is, upon general principle, confined strictly to personal property, and does not extend to real estate, held by the partnership. In such a case, one partner cannot transfer the real property belonging to the firm, for it belongs to the partners as tenants in common, and neither partner can convey more than his undivided interest: Story on Part., 101, 94, 92; 2 Story’s Eq. Jur., sec. 1207. It is, nevertheless true, that all real estate purchased for the partnership, and paid for out of the funds thereof, is regarded as part of the partnership stock and effects, in the view of a Court of Equity, if not of Courts of Law. No matter how the title may stand at- law, or in whosesoever name it may be, it will in equity, be treated as belonging to the partnership: Ibid, 92, 98. But still, according to the settled general law, there is no survivorship in the real estate of the partnership: Ibid, sec. 92; 2 Story’s Eq.. Jur., sec. 1207.
But by our Act of 1784, ch. 22, sec. 6, which abolishes joint tenancy, it is provided: “ That estates held
7th. Another question is presented: It has been already stated that the trustee, in the interval between the date of his qualification and the service of the attachment, actually realized upwards of $15,000 of the trust funds, which he appropriated to the satisfaction of his own, and other preferred debts. The question is, can 'these payments be allowed to stand? We think not. The assignment being unauthorized, and in violation of the rights of the joint creditors to share ratably the effects of the insolvent firm, it necessarily follows, that the appropriation of the fund made by the trustee was unauthorized and unequitable, as against the complainants.
The individual creditors of the several partners had
The decree will be affirmed, and the cause remanded for an account, and such further proceedings as may be thought necessary, with leave to amend, by bringing the several parties to whom payments may have been made by the trustee, before the Court.