City of Maquoketa v. Willey

35 Iowa 323 | Iowa | 1872

Beck, Ch. J.

l. ebincipai, reieas<?o?TY: surety. • The defense mainly relied upon by the defendant is, that, by the voluntary act of plaintiff, property seized upon the attachment issued in ^¡3 action against Murphy brought by the city, was appropriated to the payment of the debts of the firm of Murphy & Shattuck, when in fact it belonged to Murphy, and could not legally have been taken upon the partnership debts. Defendant’s position, then, is this: The plaintiff, by the institution of the suit against Murphy and the levy of the attachment, had acquired a hold upon property of Murphy which was legally liable to plaintiff’s claim; by assenting to the confirmation of the referee’s report and the rendition of judgment thereon according to its terms, the plaintiff voluntarily released the property seized upon the attachment, which operated to discharge the defendant. The consideration of this position demands, in the first place, an inquiry as to the rights and obligations of principal and security, touching the transaction. At present we will regard the property taken upon the attachment as the individual property of Murphy and not as partnership assets primarily liable to the partnership debts. We will also regard the act of plaintiff in assenting to the judgment upon the referee’s report as a voluntary relinquishment of the property. These positions will be hereafter discussed in the light of the evidence and the rules of law applicable thereto.

I. Our first inquiry relates to the obligation and rights of the principal and security. The law does not require the principal to institute a suit against the debtor or to pursue an action of indebtedness with diligence and to call to his aid all the remedies provided by the law. If he has brought suit, he may stop short in its prosecution before judgment, or if he has recovered judgment he may fail or refuse to sue out execution and, indeed, if execution has been issued, he may cause its return without a levy. All this may be done even though judgment, execution and levy would have resulted in the collection of the debt against the principal debtor; the security is not thereby discharged. The creditor, however, cannot relinquish any hold he has acquired upon the property of the debtor without resorting to the proper proceedings to make therefrom the debt. And this rule is alike applicable if the property has been voluntarily placed in the hands of the creditor, or he has acquired a lien thereon by proceedings at law. This is unquestionably the rule of the authorities. They will be found collected and discussed in 8 Leading Cases in Equity (Hare & Wallace’s Notes, p. 552, Rus v. Berrington), and 2 Am. Leading Cases, 260 (Hare & Wallace’s Notes to Pain v. Packard and King v. Baldwin). See upon this point Chambers v. Cochran & Brock, 18 Iowa, 159. This rule is well founded upon the equitable doctrine that he who, by his willful act, causes a loss, ought to endure its consequences and not transfer its effects to an innocent party. , The creditor, having in his hands property to secure the debt, voluntarily placed there by the principal debtor, would not be permitted to relinquish it or appropriate it to other purposes. By such an act the property would be lost so far as the satisfaction of the debt is affected. The case is not different if the property should come to the hands of the creditor, by his own act, as through the institution of legal proceedings. In either case it is plain that equity and fair dealing toward the surety demand that he appropriate the property to the payment of the debt.

The case before us, if the goods seized upon the attachment were in fact the property of Murphy and not of the partnership, and the plaintiff hy his act assenting to the rendition of judgment lipón the referee’s report, caused them to be diverted from the payment of the judgment, comes within the rule just stated. By the act of the plaintiff property in its possession belonging to Murphy, which had been taken for the purpose of .satisfying the debt, was discharged, and then, so far as that debt is -concerned, is lost. The loss must be borne by plaintiff.

II. We are required now to determine the positions which, thus far in the consideration of the case, have been assumed.

ship: liability arm and individual debts. Was the property levied upon by the attachment, Murphy’s individual property? The partnership, as it appears from the finding of the referee, was dissolved before the levy of the attachment, under an arrangement by which Murphy , ,s, A,-, , , became the absolute owner, but bound by an agreement with his copartners to pay the firm debts. The good faith of this transaction is not impeached. As a question of fact, then, it must be regarded as settled by the record that at the time of the levy of the attachment the goods were the property of Murphy, and that he had undertaken with his partner to pay all the firm debts. Under this state of facts could the firm debts be legally enforced against those goods ? It is a well-established doctrine that upon the dissolution of a firm its property may be transferred to one partner, bona fide, and for a valuable consideration, and be held free from the prior claim of the creditors of the partnership as a fund out of which they are to be first satisfied. And this rule prevails even though the partners so acquiring the property of the firm assume the payment of the partnership debts. See Story on Part., §§ 358, 359, and notes.

This rule is not in conflict with that general and well-settled doctrine that partnership debts may be primarily enforced against partnership property, and is based on the 'rights of the partners, and not upon equities of the creditors. Partnership creditors have no lien upon the joint property for the payment of their claims. While the firm is in existence such property may be sold, and will be followed by no claim in law or equity of the creditors of the firm. The partners are free to dispose of it as the property of individuals may be disposed of, and one of them may become its separate owner. The disposition may be made pending or upon an arrangement for dissolution, and as the partners may then sell their property to another so may they transfer it to one of themselves free from any equity of the joint creditors.

The law does not provide that partnership debts may be primarily enforced against joint property of the firm in preference to individual debts of the partners on the ground of any equity held by the joint creditors. The relief is secured to the joint creditor on account of equities of the partners. They have the right to demand that the firm property shall be devoted to the payment of the partnership debts and shall be first exhausted before their individual estates be taken thereon. On account of this equity the relief just stated is granted to the creditors. Ladd v. Griswold, 4 Gilm. 25; 1 Am. Lead. Cas. (Hare & Wallace’s Notes), 469; Notes to McCulloch v. Dashiell, and Matter of Smith; Story on Part., § 358. We conclude, therefore, that the creditors of the firm of Murphy & Shat-tuck were not entitled to priority as to the goods seized in the attachment proceeding, and that the judgment of the court rendered upon the report of the referee was in conflict with the law.

III. The judgment was rendered upon the referee’s report without objection and upon the consent of the city; that is, of its attorney in the case, for whose act in this, matter the city must be held responsible. As we have seen, the judgment was unauthorized by law. It is then the case of a judgment by consent adverse to the rights and interest of the defendant. Under it certain property upon which the city had a legal hold for the satisfaction of its claim against Murphy, was discharged and thus lost to defendant. It was a voluntary relinquishment, for the judgment by consent, contrary to the rules of law and the rights of the parties, must be so considered. Under the principles above announced, the loss resulting therefrom must be alone borne by the plaintiff.

i Estoppedjudicial sale. IY. The goods seized under the attachment were sold after final judgment at private sale. It is claimed that, as i^-is was a com’se not authorized by law, defendant is discharged from liability thereby. It is not shown that the goods were sold for less than their value or that a greater sum could have been realized by a public sale, but it is claimed that as the sale was illegal, prejudice to defendant will be presumed. We think, whatever may be the facts and law upon this branch of the case, it is well established by the evidence found in the record that defendant advised and assented to a private sale. The evidence quite satisfactorily leads us to this conclusion. This precludes defendant from taking any advantage of the irregular sale, even though it should be made to appear that loss was sustained thereby. Having knowledge of the contemplated private sale, it was his dirty to forbid it, and stand upon his rights to have the law take its regular course. By abandoning this right and assenting to a different course pursued by the sheriff, he is now estopped to complain or claim relief for loss resulting therefrom.

Y. It is the rule of the authorities that when property of the principal has come under the control of the creditor either by the voluntary act of the debtor or by process sued out by the creditor, for the purpose of being applied upon the debt, a voluntary relinquishment thereof will discharge the security to cm extent corresponding with its value. Mayhew v. Cricket, 2 Swanst. 185; Commonwealth v. Vanderslice, 8 S. & B. 452; Lechtenthal v. Thompson, 13 id. 157; Commonwealth v. Hoos, 16 id. 252; Dixon et al. v. Ewing, 3 Ham. 280; The Bank of Missouri v. Matson, 24 Mo. 333; Rice v. Morton, 19 id. 263; Baker v. Briggs, 8 Peck. 122; Law v. East India Co., 4 Ves. 824; Payne v. Commercial Bank, 6 Smede & M. 24; Sneid v. White, 3 J. J. Marsh. 525; Givens v. Busco, id. 534; Jones et al. v. Bullock, 3 Bibb, 467; Bank of Canton v. Reynolds, 13 Ohio, 84; Bank v. Fordice, 9 Barr, 275; Fergusson v. Turner, 7 Mo. 497; Hays v. Ward, 4 Johns. Ch. 123 ; Bugbee v. Duphora, 9 Gill, 314.

"Under the decree of the court rendered in the consolidated chancery and intervention proceedings instituted by Shattuek $723.29 was set apart for the payment of the partnership debts. This is the extent of the loss sustained by defendant. As we have just seen, he can have no claim for any loss resulting from the private sale of the goods, if any in fact did occur. The judgment in this case is for $860. That sum, less the amount set apart for the partnership creditors, is the true measure of plaintiff’s damages on the bond. The judgment of the district court will be modified accordingly and a judgment will be entered here if plaintiff so elect for the sum of $136.71 and costs of the court below. The costs of the appeal will be paid by plaintiff.

It is proper to remark that there are irreconcilable discrepancies in the abstract before us touching the amount paid to the partnership creditors. The sheriff’s return shows that $891.99 were set apart by him and paid over to the clerk for that purpose. But the decree of the court directed that the sum of $723.29 should be reserved for that purpose. It is impossible to explain this discrepancy. If we take either sum as the amount paid the firm creditors, a conflict will arise in the record. If the first named be the sum, the payment is in excess of the amount fixed by order of the court; if it be the second, a sum remains unaccounted for. But it is not our duty to attempt to harmonize evidence thát is irreconcilable. "We leave it for counsel to determine whether there be mistakes in the abstracts, and to explain these things which can only be done by reference to the original record. If the basis of our conclusion as to the amount of the judgment which plaintiff ought to recover be incorrect, it may be shown hereafter, and if a proper ease is made, the judgment of this court will be corrected as the facts may demand.

Modified and affirmed.