169 N.Y. 460 | NY | 1902
On the 20th day of November, 1895, the firm of Lape and Dunlop, composed of Thomas Lape and John Dunlop, made a general assignment to Henry B. Dauchy for the benefit of creditors, which on the same day was followed by general assignments of the individual members of the firm to the same assignee. The firm assets have been converted into money and distributed among the creditors of the firm. No individual assets of Dunlop have come into the hands of his assignee or been found by him. These proceedings were *464 instituted by the assignee to obtain a final settlement of his accounts as to the individual assets of Thomas Lape. The firm and the individual members thereof were insolvent and the assets of neither were sufficient to pay the creditors. The assignee's accounts in these proceedings show a balance in his hands, subject to the order of the court, of $13,351.54. One-third of this amount, after the statutory deductions and expenses, was ordered applied pro rata upon the preferred claims, and the remaining two-thirds were directed to be distributed among the individual creditors of Lape. Upon review the Appellate Division modified the order distributing the remaining two-thirds of the assets among the individual creditors of Lape by directing that the same be distributed pro rata among his individual creditors and the firm creditors. The question thus presented for this review is as to whether the remaining individual assets of Lape, after the applying of one-third upon claims which he has preferred, should be distributed among his individual creditors or among his individual and firm creditors.
The liability of an individual copartner for the debts of the firm is well settled. Judgment may be awarded against him therefor and execution may be levied upon his goods; but the law is equally well settled that a court of equity in distributing the estates of an insolvent copartnership and of the insolvent members thereof, in the absence of any lien acquired by creditors or of a lawful direction by the assignor, the copartnership assets will be devoted to the payment of the partnership creditors and the individual assets to the payment of the individual debts. (3 Kent Com. 65; Hewitt v. Northrup,
The learned Appellate Division, in its prevailing opinion, appears to have entertained the view that the direction contained in the assignment to distribute among the firm creditors, as well as the individual creditors, "does not create a legal preference because both classes of debts are at law considered equal." If the direction is not a preference, what is it? Were it not for the direction, the firm creditors, confessedly, would get nothing; for the assets to be distributed will only pay a small percentage of the individual creditors. It is by reason of this direction that the respondents maintain their right to a share in the distribution, and if it is not legal they have no foundation upon which to maintain their claim. The learned court further state that "such direction by the assignor is, at most, a destruction of a preference that might thereafter be created by the application of an equitable rule." According to this, it is the equitable rule which creates the preference, and not the direction contained in the assignment. We do not so understand it. The equitable rule of distribution is a rule of justice, and it does not favor preferences. When the assets of a firm have been devoted entirely to the payment of the creditors of a firm equity will not sanction the appropriation of the individual assets to the payment of the remaining claims of the firm creditors to the detriment of the individual creditors. If it *467 did it would often result in the payment of the firm creditors in full, while the individual creditors would receive but a small percentage on their claims. Our conclusions are that a preference was created by the direction contained in the assignment and not by the rule of equity; that under the statute the assignor had exhausted his power to prefer by the fourth clause of the assignment, and that his directions contained in the fifth clause, in so far as they are at variance with the equitable rule of distribution, are void and without force and effect.
The order of the Appellate Division should be reversed, and that of the County Court affirmed, with costs.
PARKER, Ch. J., GRAY, O'BRIEN, BARTLETT, CULLEN and WERNER, JJ., concur.
Ordered accordingly.