C. Gotzian & Co. v. Shakman
61 N.W. 304
Wis.
1894
Check Treatment
WiNsnow, J.

This is an action by creditors who have attached the entire stock in trade of a trading firm, to compel another creditor, who has a prior attachment on the same property, to exhaust certain mortgage securities given to him by one member of the firm before resorting to the fund in court arising from the sale of the attached property. In support of the complaint the plaintiffs rely upon the familiar equitable principle that if one creditor can resort to *58two funds, and another to one of them only, the former must first seek satisfaction out of that fund which the latter cannot touch. Conceding the existence of this principle, the defendant contends — and doubtless correctly, as a general proposition — that it only applies where the two creditors have the same debtor and the two funds are the property of the same person. 1 Story, Eq. Jur. (13th ed.), § 643; Ex parte Kendall, 17 Ves. 520. Were this an ordinary case of one creditor of a firm seeking to compel another creditor to exhaust securities given him by one partner on his individual property, we should have no difficulty in sustaining the demurrer. .There are, however, allegations in the complaint which introduce additional equitable considerations, not present in the cases in which the rule has been applied, and which must be considered.

It is alleged in the complaint that, by the contract of partnership, Sommermeyer agreed with his partners to advance and furnish all the necessary capital to be used in the business, except the sum of $4,000, which his copartners furnished, and that in pursuance of this agreement, and in lieu of capital or money, he gave to Shahmcm the bond and mortgages, in order to obtain credit for goods to be purchased for the firm business. Now, if such was the agreement, it is difficult to see why the bond and mortgages, when given, did not become, in legal effect, a part of the capital of the firm. Had Sommermeyer sold the lands, or mortgaged them to a third person, and placed the proceeds to the credit of the firm account in bank, they would undeniably have become a part of the capital or assets of the firm. The funds so realized manifestly could not thereafter be treated as his individual property, but as his contribution to the capital which he was bound to furnish under the agreement he had made with his copartners. In the case at bar he has accomplished practically the same result in a different way. He' has not, it is true, sold his lands and put *59tbe proceeds in tbe money drawer of tbe firm; bnt be bas mortgaged tbem and, in effect, placed the mortgage in tbe money drawer. Capital may be contributed to a firm as web by way i of a security as by actual cash, and whether that security be sold and tbe cash put in tbe till, or whether it be turned out as cobateral to assist tbe firm in buying goods and obtaining credit, can make no difference with its real character. Tbe abegations of tbe complaint seem to us to demonstrate that tbe bond and mortgages given to Shah-mam, in fact amounted to a contribution to tbe capital stock of tbe firm made by Sommermeyer in pursuance of bis partnership agreement, and must be so regarded in equity. In form, it was a security given by a partner upon bis individual property; in fact, it was a bontribution to tbe capital of tbe firm. This plainly constitutes what is termed by Story (1 Eq. Jur. § 645) a “ supervening equity which must be considered,” and, when considered, it plainly brings tbe case within tbe rule, because tbe two funds are thus, in tbe contemplation of equity, both partnership funds.

But a further web-establisbed equitable rule is invoked by tbe defendant, and that is that equity wib not marshal assets in tbe manner desired here, to tbe injury of tbe prior creditor. 8 Pom. Eq. Jur. § 1414. We are unable to see what substantial injury wib be inflicted upon tbe defendant by requiring him first to exhaust bis mortgage security, at least upon lands within this state. It is true, there must result some delay, in case foreclosure is necessary, but there wib be no dbninisbing of security, because tbe fund realized from sale of tbe stock of goods should and must be kept intact pending tbe defendant’s attempt to reabze upon bis mortgages. During this time, no part of bis security wib be taken from him. It is true that delay to tbe prior creditor bas been sometimes spoken of as a bar to tbe relief here asked, but we are not ready to subscribe to tbe doctrine that mere delay is • sufficient to compel tbe court to denj^ tbe relief *60•when no other injury is involved. Some delay is a necessary consequence of the enforcement of all rights, and, if a possible delay would defeat the right of a junior creditor to have the assets of his debtor marshaled, such marshaling would rarely, if ever, take place. The true rule, we think, is well expressed in Evertson v. Booth, 19 Johns. 486, where it is said that the relief will not be given “ if it wall endanger thereby the prior creditor, or in the least impair his prior right to raise his debt out of both funds,” and it is further said that there is “ no principle in equity which can take from him any part of his security until he is completely satisfied.” Applying these principles to this case, we discover no ground on which to refuse the relief which the plaintiffs ask, if it shall prove that the allegations of the complaint are true. With the funds realized from the sale of the attached property in court, the defendant’s rights are not endangered, nor his right to raise his debt out of both funds impaired, nor is any part of his security taken from him. It seems very questionable whether the court should require the defendant to foreclose the mortgages on the Minnesota and Dakota lands, because they are beyond the jurisdiction of the courts of this state. Denham v. Williams, 39 Ga. 312. But it is not necessary to decide this point on this demurrer, as we think that so far as the mortgages cover lands within this state, at least, the plaintiffs are entitled, under the allegations of the complaint, to some relief.

By the Cowrt.— Order reversed, and action remanded with directions to overrule the demurrer.