15 F. Cas. 805 | S.D.N.Y. | 1874
It is contended, for Macfarlane, that the effect of the agreement of December 7th, 1869, was to transfer to Long the title to the whole of the partnership property, free from any exclusive lien or equity in favor of creditors of the firm, the transfer not being coupled with any condition that the partnership property shall be applied by Long to the payment of the partnership debts, but there being only a personal agreement by Long to pay the debts of the firm and hold Corey free from them; that Corey, while changing the right of property in the partnership assets, intended, by the agreement, to substitute, for the protection of himself and of the creditors of the firm, Long’s individual covenant to pay the partnership debts; that this covenant made Corey Long’s individual creditor; that the assignee has succeeded to Corey’s right of action on this covenant, and can enforce it to the extent of compelling Long’s separate estate to perform such covenant equally with Long’s other personal obligations; that the creditors of the film, for whose benefit such covenant was made, have a right to enforce such covenant, either at law or in equity, in their own names; that the funds collected by the assignee from the receiver constitute a part of Long’s separate estate; and that Macfarlane, in respect to his whole claim, less the dividend, is entitled to share, on an equal footing with the individual creditors, in dividends out of Long’s separate estate.
It is contended, for the three individual creditors of Long, that the debts of the firm to Macfarlane were not, by the agreement of December 7th, 1869, converted into the separate debts of Long; that such agreement could not impair the liability of the copart-ners, or of either of them, to a creditor of the firm, without the consent of such credit- or; that there is no evidence that Macfarlane accepted the individual liability of Long for the joint liability of the firm and of its members; that on the contrary, the copartners, as such, were adjudged bankrupts, on the application of Macfarlane, on a part of the debt in question, and he proved his claim on the whole thereof against the firm and its joint estate, and received a dividend thereon out of funds which all parties regarded at the time as funds of the copartnership estate; that, if the agreement of December 7th, 1869, is valid, the property of the firm which was transferred thereby became the separate property of Long, free from any claims of Macfarlane, as a creditor of the firm, and the funds received by the assignee from the receiver should not be treated as joint estate, or as applicable to the payment of joint debts, but should be applied, in the first instance, to pay the debts of the three individual creditors of Long, and any balance remaining should go to the creditors of the firm; that the second proof of debt of Macfarlane — -that against Long alone — should be stricken out; that the claims of the three individual credit-ore of Long should be paid in full out of all the funds in the hands of the receiver, before making any distribution of the same to Mac-farlane; and that, if that cannot be done, then the assets collected by the assignee from the receiver should be applied to the debts incurred by the firm, and the other assets in the hands of the assignee should be applied to the claims of the three individual creditors of Long.
The provisions of the insolvent statutes of Massachusetts (183S, c. 163, § 21, and I860, c. 118, §§ 10S, 109) are the same as provisions found in the 36th section of the bankruptcy act.
[In Robb v. Mudge, 14 Gray, 534, Train and Thayer being partners, Thayer assigned to Train, on the day of the expiration of the firm by limitation, all his interest in the property of the firm; and, in consideration thereof, Traifi, by the same instrument, agreed with Thayer to assume and pay all the debts of the firm, and to indemnify Thayer therefrom. Subsequently, Train individually went into insolvency, having a large individual estate, besides the property so con reyed to him. The creditors of the firm sought to prove their claims against the private estate •of Train. The assignment of the assets of the firm to Train having been made in good faith, the court, on the authority of Howe v. Lawrence, held that such assets could not be treated as joint estate, or be applied to the payment of joint debts. It being urged that Train had, by the agreement, stipulated to assume and pay all the debts of the firm and indemnify Thayer therefrom, the court held that such stipulation gave no right to the creditors of the firm to treat Train as their separate debtor, and to prove against his private estate, because there was no evidence of any agreement or assent, on the part of such creditors, before the commencement of the insolvent proceedings, to accept Train as their individual debtor in lieu of the firm, and therefore there had been no conversion of joint debts into separate debts, and the case was not one of a conveyance of property in trust for the benefit of Thayer, or of creditors of the firm, but a transfer to Train for his own use, with a mere personal covenant by him to pay the debts of the firm. The court also held, on the authority of Howe v. Lawrence, that the creditors of the firm had failed to establish any right to prove against the separate estate of Train, on the ground that they were entitled to assert an equity against Train or his assets in the hands of the assignee, based on his stipulation in the agreement.
[In Wild v. Dean, 3 Allen, 579, Foss and Swett being partners, and owing firm debts, Swett purchased the interest of Foss in the partnership property, and executed to him a bond to pay all the debts of the firm. Subsequently the joint and separate estates of Foss and Swett were put into insolvency. After the warrant was issued, but before the first publication of notice, one Wild, the holder of notes made by the firm, gave a written nCtiee to Foss and Swett severally, of his election to take Swett as his debtor
[The eases of Howe v. Lawrence, and Robb v. Mudge, are cited, with approval by the court of appeals of New York, in Dimon v. Hazard, 32 N. Y. 65.]
In Re Downing [Case No. 4,044], in Missouri, Downing and Emerson, being copart-ners, dissolved by consent. Downing purchasing all the assets of the firm from Emerson, and agreeing with him to pay all its liabilities. Eight months afterwards, Downing assigned all his assets, including those which came from the frm, to a trustee, for the equal benefit of all his individual creditors and the creditors of the firm. After that. Downing was adjudged a bankrupt, in Missouri, and the trustee turned over the proceeds of the assets to the assignee in bankruptcy. The copart-nership, as such, was not adjudicated bankrupt. Emerson was adjudicated a bankrupt in Massachusetts. The creditors of the firm did not release Emerson from liability. Claims against Downing individually, as well as claims against him as one of the firm, were proved against his estate. After his voluntary assignment, and before he was adjudged a bankrupt, he delivered to each one of the creditors of the firm a written agreement, under seal, signed by him, reciting the dissolution of the firm, the conveyance to Downing of the assets of the firm, for a consideration given by Downing to Emerson, the agreement by Downing to assume and pay all the debts of the firm and hold Emerson harmless from the same, and then saying, “I have agreed to pay the debts and liabilities of said firm, as my own private individual debts, and the party with whom this agreement is made may now have debts and claims against said firm,” and then going on to agree with the creditor, for value received of him, “that I individually, will pay, as my own private and individual debts, all and singular the debts, liabilities and claims against said firm of Downing & Emerson,” held by the creditor. The question arose, whether the separate creditors of Downing should be first paid in full before the creditors of the firm should receive any dividends from the funds in the. hands of the assignee. The district court ruled in favor of the separate creditors. The circuit court reversed the ruling. The view it took was, that, as the result of Downing’s agreement with Emerson to pay all the liabilities of the firm, the creditors of the firm had the right, as between themselves and Downing, to treat Downing as individually liable to them on his promise to Emerson for their benefit, and could enforce such promise against him, in equity (citing 1 Pars. Cont., 5th Ed., 467, 46S, and cases cited, and 2 Greenl. Ev. § 109, and cases cited); that such promise, on the election of the creditors of the firm to avail themselves of it, is cumulative to their other rights; that they need not release the firm in order to be able to obtain the benefit of such promise; that such creditors may assent to and claim the benefit of such promise at any time, either before or after the bankruptcy of the promisor; and that, while the parties made the firm’s property the individual property of Downing, Downing superad-ded his individual liability to the existing liability to the creditors of the firm. But the court further held, that, even if the foregoing views were erroneous, the 30th section of the bankruptcy act only comes into operation when there are firm assets, and the bankruptcy proceedings are against the firm and each of its members; and that, as there was no joint property, and the bankruptcy proceedings were only against Downing, and not against the firm, all of the creditors of Downing. who had proved their debts, were entitled to share pro rata in the distribution of his estate, whether their debts were originally against the firm or against Downing individually.
In the present case, as the bankruptcy proceedings are against both of the copartners, as such, the provisions of the 30th section must apply, I think, even though there is no joint property. Whether they would not apply if the proceedings were against one copartner alone, as held by the court in Mis
On the authorities referred to, there can be no question, that, in this case, the transfer of the firm property to Long having been made honestly, and in good faith, upon a dissolution, and for a valuable consideration, and without any fraud or collusion between the copartners to defeat the rights of the joint creditors, the joint property became, by the transfer, the separate property of Long. The more difficult question is, what are to be considered “separate debts” of Long, to the payment of which the statute requires his separate estate to be first appropriated. There was no “joint stock or property of the copartnership” at the time of the commencement of the proceedings in bankruptcy, and none such passed to, or has come to, or is in the hands of, the assignee.
The 36th section draws a distinction between “the creditors of the copartnership” and the “separate creditors” of each partner. It also calls the former “joint creditors” and speaks of the debts due to them as “joint debts,” while it speaks of the debts due to such separate creditors as “separate debts.” It puts joint creditors and joint debts in antithesis to separate creditors and separate debts. This it does, although, necessarily, the copartners are jointly and severally liable to the creditors of the copartnership for the joint debts. This liability is recognized by the 30th section, because, after the separate estate of each partner has been appropriated to pay his separate creditors, the section does not direct the balance of such separate estate to be paid over to the partner, but directs it to be added to the joint stock for the payment of the joint creditors. It recognizes the liability of the separate estate for the joint debts, on the basis of a several liability of each partner for the firm debts, but it arbitrarily postpones such liability to the liability of the separate estate for the separate debts. It, therefore, seems to me, that, when the statute is to be construed with a view to see what are the separate debts which are first to be paid out of the separate estate, the separate debts spoken of must be regarded as being confined to debts which arise out of a liability other than, or in addition to, that resulting solely from a debt contracted by the firm.
In the present case, the debts to Macfarlane were contracted originally solely by the firm, for goods sold by him to the firm. What has occurred to make the liability of Long in respect to them a liability other than, or in addition to, that resulting from his having been a member of the firm when the debts were contracted?
The transaction of the agreement of December 7th, 1SC9, is relied on; and the covenant therein, on the part of Long, to pay all the debts of the firm, in consideration of Corey’s agreement, and of Corey’s assignment to Long of all Corey’s interest in the assets of the firm, is alleged to have created, when assented to by Macfarlane, a separate liability on the part of Long, in addition to that resulting from his having been a member of the firm, to respond, as a separate debtor, to Macfarlane, for the debts of the firm to Macfarlane, and thus to have made Macfarlane, in respect of such debts, a separate creditor of Long, entitled to share in the separate estate of Long, in addition to his right to share, as a creditor of the firm, in any joint property there might be. This is the view taken in the Downing Case. The view of the supreme court of Massachusetts, in the cases before cited, is, that where the one partner sells out the firm property to the other, and takes the personal contract of the latter to pay the joint debts, he thereby deprives a joint creditor of any right to share, as a separate creditor of the latter, in his separate estate, in its distribution under the statute, although the latter agrees with the former to personally pay the joint debts, in consideration of the conversion of the firm property into such separate estate, unless the joint creditor assents to accept the latter as his individual debtor in lieu of the firm, and does so before the statutory proceedings are commenced, and unless, further, the latter, by an express oí-an implied promise, made to the joint credit- or, promises to assume and pay the joint debt as his own private, individual debt, in such wise as to convert the joint debt into a separate debt on which he and his separate estate are to be liable as upon a contract entered into by him individually.
It is with hesitation that any court, in administering a provision of the bankruptcy act which is like in terms to one which is found in the insolvent law of Massachusetts, and has been adopted therefrom, and has been expounded by the highest court of Massachusetts, would venture to differ from the well considered decisions of that court in regard to such provision. But I find it impossible to concur in the view just stat. ed as the view of that court. The view taken in the Downing Case seems to me much the more reasonable one, and to be more consonant with the equitable principles on which the bankruptcy act is to be administered. See, also, to the same effect, In re Knight [Case No. 7,880], Long, by his agreement, not only agreed, as between himself and Corey, to pay all the debts of the firm, having received all its property, but put himself voluntarily into the position, as respected the creditors of the firm, of agreeing that such creditors might, if they chose, treat him as so liable individually, and in respect of all his separate estate, including what became such by the transfer, in addition to his liability as a joint contractor, and
The issues certified must, therefore, be answered, as follows: The fund received by the assignee from the receiver constitutes, and is to be treated and distributed as, a part of the separate estate of Long, and it is not partnership property, to be applied, in the first instance, to the payment of partnership debts; and Macfarlane, in respect to tm> debts originally incurred by Walter P. Long & Co., and afterwards assumed by Long, is entitled to be admitted to the list of Long’s separate creditors, and to share in dividends out of Long’s separate estate, equally with separate creditors.
[Although the two individual notes of Long, dated after December 7th, 1869, are embraced in the second proof of debt, they form no part of the $8,531 52 mentioned in the first proof of debt, and are not set forth in the statement of account annexed to the first proof of debt, and as it does not appear that they were given for debts of the firm, I have not regarded them as involved in the questions now determined.]
[From 9 N. B. R. 227.]
[From 9 N. B. R. 227.]
[From 9 N. B. R. 227.]
