242 F. 777 | 4th Cir. | 1917
For many years Robert Harris and his brother, H., C. Harris, were partners in the business of manufacturing tobacco at Reidsville, N. C., under the firm name of Robert Harris & Bro. As such partners they were the owners of 90 shares of the capital stock of the Citizens’ Bank of Reidsville, of which SO shares were acquired in June, 1885, and 40 shares in April, 1901. Prior to July, 1898, they became indebted to the Citizens’ Bank in the sum of about $17,000, of which $11,000 was represented by their firm notes ancr$6,000 by notes signed jointly by them and another concern. The charter of the bank provides that it “shall have a lien on the stock for the debts due it by the stockholders, before and in preference to other creditors,” and the loans in question were made upon the faith of this provision.
H. C. Harris died in April, 1911, leaving a will, drawn by himself, by which he gave his entire interest in the partnership, subject to a charge for his wife’s support, to his son, W. C. Harris, who had for some time been connected with the business. The will was duly probated, but it named no executor, and no administrator with the will annexed was appointed. Without other legal proceedings of any sort, but acting on this testamentary bequest, and in evident accord with the desire of Robert Harris and the family of his deceased brother, the son at once assumed to take the place of his father as a member of the firm, and thereupon the business went on as before, under the same firm name, and apparently without any public announcement of the change of personnel, except by putting W. C. Harris, instead of H. C. Harris, on the letter heads of the company. For convenience the terms “old firm” and “new firm” will be used to designate the partnership before and after the change of membership.
The notes above mentioned were renewed at intervals of three or four months during the lifetime of FI. C. Harris, and they continued to be renewed in the same manner after his death; the aggregate amount-remaining at $17,000. The cashier of the bank testified, in September, 1913, that “up to three years ago,” when a new note was taken, the old note was marked “Cancelled” or “Paid,” but since that time the old notes had always been marked “Renewed.” When W. C. Harris came into the firm; the bank was assured, both by him and by Robert Harris, that the business would continue the same as before, and that the bank would have its lien on the 90 shares of stock, which were worth more than its loan; and so the loan was extended by successive renewals of the notes. Thus matters went on for upwards of two years, during which time a large part of the indebtedness of the old firm to other creditors was paid off and fresh indebtedness incurred by the new firm. Then misfortune came, and in June, 1913, the new firm, together with Robert Harris and W. C. Harris as individuals, was forced into bankruptcy. In due course the bank made proof of its debt and
On .August 1, 1913, the trustee filed a petition, reciting the indebtedness to the bank and the stock ownership of the bankrupts, stating his opinion that the rights of general creditors to this stock were subordinate to the statutory lien of the bank, and recommending the court to so decree, and to direct a sale of the stock accordingly. An answer to this petition was filed a little later by two creditors of the old firm, and thereupon the matter was sent to the referee in bankruptcy as special master. About this time certain creditors of the old firm took some action in a state court of North Carolina which resulted in the appointment by that court of a receiver of the partnership composed of Robert Harris and H. C. Harris, of which Robert Harris was' the surviving partner. This-receiver came into the bankruptcy proceeding in January, 1914, with an answer to the petition of the.trustee, ana in the following month with a petition of intervention, in which answer and petition he set up, among other things, that the old firm was dissolved by the death of H. C. Harris, that its affairs had not been wound up and settled, that its assets were insufficient to pay its creditors in full, that the trustee in bankruptcy had been put in possession of the property, including the manufacturing plant and the 90 shares of bank stock, that this property belonged to him as receiver .of the dissolved partnership, and that it should not be used to pay the debts of tire bankrupt firm of Robert Harris and W. C, Harris; and he prayed the court to so adjudge and to direct the trustee to turn the property over to him as such receiver.
So far as the record discloses the litigation under review is confined to the bank stock, and involves (1) the right of the bank to a lien thereon as security for its debt, and (2) the title to the stock as between the trustee and the receiver. The special master sustained the lien claimed by the bank, and also held that title to the stock was vested in the trustee, and his report was confirmed by the district court. The receiver appeals.
A motion is here made to dismiss the appeal, at least in part, on the ground that the decree below determines two separate and distinct questions, namely, the lien of the bank and the title to the stock; that the first of these questions, talcing into account the way it was raised, is not a “controversy arising in bankruptcy proceedings,” which can be reviewed by appeal, but rather and strictly a “proceeding in bankruptcy,” which is reviewable only by petition to superintend and revise, to be filed within 10 days; and that consequently this court is without jurisdiction as to so much of the decree as adjudges the bank to have the lien it claims. And in this connection it is asserted that tire question of title is of no consequence, if the lien be sustained, since the value of the stock is less than the bank’s debt.
True, the decree below decides two questions, the disputed lien and the disputed title, and it might be conceded that the first of these, standing by itself, would be a “proceeding in bankruptcy,” which could be reviewed only by petition to revise. But the two questions are not separable in the sense that they are independent and unrelated. On the contrary, they are so united that the determination of one virtual ly determines the other. If the receiver’s contention be sustained, the bank has lost its lien, because in that case its debtor, the new firm, was not a stockholder; if the trustee’s concession be sustained, the stock belonged to the new firm when bankruptcy occurred, and the lien of the bank attached by virtue of its charter provision. It thus appears, as we think, that the question of title is the dominant question, since it includes in effect or draws with it the question of lien. It would be an anomalous situation if this court should hold that the decree under review, so far as it relates to the lien, must stand as final, because not brought here by petition to revise, and at the same time hold, so far as it relates to the title, that it must be reversed, and the stock awarded to the receiver, when such reversal would necessarily operate to deprive the bank of its lien. Since the character of the proceeding must be determined “by the nature of the claim set up against the trustee in bankruptcy,” as the Supreme Court said in Coder v. Arts, 213 U. S. 223, 236, 29 Sup. Ct. 436, 441 (53 L. Ed. 772, 16 Ann. Cas. 1008), it seems clear to us that the receiver’s claim of title and right of possession must be regarded as the controlling issue, which carries with it, and gives jurisdiction to review, the subordinate question respecting the lien of the bank. The motion to dismiss is denied.
“No doubt these clauses, taken together, recognize the firm as an entity for certain purposes, the mtost important of which after all, is the old rule as to the prior claim, of partnership debts on partnership assets and that of individual debts upon the individual estate. * * * But we see no reason for supposing that it was intended to erect a commercial device for expressing special relations into an absolute and universal formula — a guillotine for cutting oft all the consequences admitted to attach to partnerships elsewhere • than in the bankruptcy courts.”
These observations plainly refute the contention here considered. If, as Mr. Justice Holmes declares, the most important purpose for which we can recognize a partnership entity is limited to the distribution of assets, we may well conclude that its vitality does not survive the death of a member. It must, therefore, be held in this case that the old firm and new firm are not in law the same.
It may be added, however, that the bankruptcy court had the disputed stock in custody and complete jurisdiction of all the interested parties. As a court of equity, in matters of this kind, it had the undoubted power to make such determination of the controversy as justice appeared to require. We are convinced that its decree is right, and should not be disturbed.
Affirmed.