34 F. 687 | N.D. Ill. | 1888
This case now embodies live creditors’bills, or bills in the nature of creditors’ bills, filed by creditors of Day Bros. & Co., to set aside certain alleged unlawful preferential payments made by said firm. The first case was brought by Coffin et al. v. Day et al., by a bill filed in the circuit court of Peoria county, in June, 1885, and removed to this court, and was for the collection of judgments at law recovered by the complainants against Day Bros. & Co., between February 13,1885, and June 2, 1885. The second case was brought by Dornan et al. v. Day et al., in January, 1886, for the collection of two judgments at law rendered in January, 1885, against Day Bros. & Co. The third case was brought by Parker et al. v. Day et al., in January, 1886, for the collection oí a judgment at law rendered in July, 1885. The fourth case was brought by Simpson et al. v. Day et al., in March, 1885, for the collection of a judgment rendered in December, 1884. And tho fifth case was brought by Richard et al. v. Day et al., in May, 1886, for the collection of a judgment rendered in May, 1886. On May 24, 1886, all these cases were, by an order of court, consolidated, with the provision “that said suits should henceforth proceed as one cause, without prejudice to
The bill charges that the sale to Charles B. Day of the stocks of goods was fraudulent and void, and made to hinder and delay creditors, and also attacks the several transactions where the assets of the firm were applied for payment of the individual indebtedness of the members of the firm, on the ground that these creditors, as copartnership creditors, had a first and prior lien upon these copartnership assets for the payment of their debts before any individual indebtedness of the members of the firm could be paid.
I see nothing in the proof, or in the character of the transaction itself, which should render void or inoperative the sale of the stock of goods. There is no proof that the sale was lor an inadequate price, or that it was made in bad faith. Charles B. Day had, at the request of the firm, involved himself to a very large amount as the indorser of this firm; and they had the right, undoubtedly, under the law, to prefer him, and see that he was protected as against their other creditors; and no challenge is made but that the price which he gave for the goods was as much as they would have brought if sold in any other manner. Nor is any question made in the proof as to the validity and good faith of the indebtedness which was assumed by C. B. Day.
This leaves us to consider the question of the validity of those transactions so far as they relate to the payment of the individual debts of tlie members of the linn out of the assets of the firm, and to determine whether these complainants are entitled to have those transactions set aside, and to recover these assets so applied to the payment of individual debts.
In making their terms for the sale of their stocks of goods to the defendant Charles B. Day, the firm required him to pay as part of the purchase price the debt of L. L. Day for $7,453, upon which the firm was liable as indorser; tlie notes of Marsters for $6,500, upon $5,000 oi which C. B. Day was indorser, and §1,300 of which was' indorsed by the firm; and the note of Van Sickler for $5,000, which the pleadings state was also indorsed by the firm, but of which I do,not find any evidence in the record; so that we may assume that the appropriation of the assets of the firm for the payment of these individual debts was the act of all the partners, — that is, the firm assets are applied to the payment of these individuals debts with the consent of all the partners, — and by such application said firm assets become individual property. Tlie transfer by King to Mrs. Griswold of the C. B. Day
It seems to me that the questions involved in this branch of the case are fully met and answered by the decision of the supreme court of the United States in Case v. Beauregard. 99 U. S. 119, where Mr. Justice StroNG, speaking for the court, says:
“The object of this bill is to follow and subject to the payment of a partnership debt property which formerly belonged to the partnership, but which, before the bill was filed, had been transferred to the defendants. No doubt the effects of a partnership belong to it so long as it continues in existence, and not to the individuals who compose it. The right of each partner extends only to a share of what may remain after payment of the debts of the firm and the settlement of its accounts. Growing out of this right, or, rather, in-eluded in it, is the right to have the partnership property applied to the payment of the partnership debts in preference to those of any individual partner. This is an equity the partners have as between themselves, and in certain circumstances it inures to the benefit of the creditors of the firm. The latter are said to have a privilege or preference, sometimes loosely denominated a ‘ lien,’ to have the debts due to them paid out of the assets of a firm in course of liquidation, to the exclusion of the creditors of its several members. Their equity, however, is a derivative one. It is not held or enforceable in their own right. It is practically a subrogation to the equity of the individual partner, to be made effective only through him. Hence, if he is not in condition to enforce it, the creditors of the firm cannot be. Rice v. Barnard, 20 Vt. 479; Appeal of Bank, 32 Pa. St. 446. But so long as the equity of the partner remains in him, so long as he retains an interest in the firm assets as a partner, a court of equity will allow the creditors of the firm to avail themselves of his equity, and enforce, through it, the application of those assets primarily to payment of the debts due them, whenever the property comes under its administration. It is indispensable, however, to such relief, when the creditors are, as in the present case, simple-contract creditors, that the partnership property should be within the control of the court, and, in the course of administration, brought there by the bankruptcy of the firm, or by an assignment, or by the creation of a trust in some mode. This is because neither of the partners nor the joint creditors have any specific lien, nor is there any trust that can be enforced until the property has passed in custodia legis. Other property can be followed only after a judgment at law has been obtained, and an execution has proved fruitless. So, if before the interposition of the court is asked the property has ceased to belong to the partnership, if, by a Iona 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. * * * The joint estate is converted into the separate estate of the assignee by force of the contract of assignment. And it makes no difference whether the retiring partner sells to the other partner or to a third person, or whether the sale is made by him or under a judgment against him. In either case his equity is gone.”