Jackson v. Sheldon

9 Abb. Pr. 127 | N.Y. Sup. Ct. | 1859

Lead Opinion

By the Court.—Davies, J.

The plaintiff is a creditor of a special or limited partnership, composed of the defendants Odiah L. Sheldon, Horace B. Sheldon, and William L. Harris as general partners, and Lucius B. Sheldon as special partner.

The other defendants, then creditors of this limited partnership, and under circumstances not free from suspicion as to its fairness, commenced suits against the general partners in September, 1858, and no defence being interposed, at the expiration of twenty days from the service of the summons obtained judgments against the general partners for about the sum of $80,785. All these judgments'were .perfected on the same day and by the same attorney for all the plaintiffs therein, and on the next day following, after the issuing of execution thereon, and a levy on the goods of the defendants, they made a general assignment for the benefit of all their creditors. This was the only assignment or transfer of'their property which the law permits, and if the judgments obtained by their relatives, on the 29th of September, and which operated as an effectual transfer of their property, and a preference of those creditors, were obtained collusively, or in violation of the spirit and intent of the statute, then they fall within its prohibition, and must be held to be in fraud of it, and therefore void.

That at the time these judgments were obtained the partnership was insolvent, there cannot be any question.

How the provisions of the statute are, that any sale, assignment, or transfer of any of the property or effects of such partnership, made by such partnership when insolvent, with intent of giving a preference to any creditor of the partnership over other creditors of such partnership, and every judgment confessed, lien created, or security given by such partnership under the like circumstances, and with the like intent, shall be void as against the creditors of the partnership. (3 Rev. Stats., 5th ed., p. 64)

Nearly the same language is used in reference to the insolvency of moneyed corporations. The statute in reference to them declares, thatmo conveyance of the property of a moneyed corporation, assignment, or transfer thereof, nor any payment made, judgment suffered, lien created, or security given, by any such corporation when insolvent, with the intent of giving a preference to any particular creditor over other creditors of the company, shall be valid in law. (2 Rev. Stats., 5th ed., p. 519.) It is apparent that the object and intent of the statute in both cases, in the event of insolvency, was to secure equality among the creditors of either the partnership or of the corporation: It has sought to prohibit, in the most emphatic terms, the doing of any act whereby one creditor should obtain a preference over others, and that if any such act is done or suffered it shall be ineffectual to carry out the intent of a preference.

The plaintiff in this cause is a creditor of this partnership, and as such is entitled to have the funds of it applied to the payment of all its debts pro rata.

And Chancellor Walworth, in Inmes a. Lansing (7 Paige, 586), says: “ That if the insolvent partners neglect to place the partnership effects in the hands of a proper and responsible trustee, to be distributed without delay among all the creditors of the firm, other than the special partner, ratably, in proportion to the amounts of their several debts, either due or to become due; any creditor may file a bill in this court in behalf of himself and the other creditors of the firm, and may have a receiver appointed to protect the trust-fund, and to distribute it among the several creditors who may come in and prove their debts, under the decree to be obtained on such bill.”

The chancellor also says, in this case, that this court is bound to carry into effect the principle of the statute, namely, “ an equal distribution of the partnership effects among all its creditors, by treating the property of the limited partnership after insolvency, as a trust-fund for the benefit of all the creditors.” The same principles are reaffirmed in Hayes a. Heyer (3 Sandf., 203); see also Whitewright a. Stimpson (2 Barb., 379).

These cases, therefore, fully sustain the proposition, that as soon as the special partnership becomes insolvent, it is the duty of the general partners to place the assets of the firm in the hands of a competent trustee, to divide the same equally among its creditors. The question presented in this case is, whether having neglected that duty, the court will permit them, by reason of such omission to accomplish indirectly, what they are prohibited from doing directly—give a preference among their creditors. I think, clearly not. The moment the firm became insolvent, their effects became trust-funds, to be divided equally among all their creditors. Ho one creditor could obtain a preference over another, for payment out of this fund, by reason of any act of omission or commission on the part of these, whose duty it was immediately to place the funds and assets in the hands of a competent trustee. On the happening of insolvency, the assets of a limited copartnership, equally with those of a moneyed corporation, have attached to them the character of trust-funds, in which all creditors are entitled equally to participate, and in which no one can share to the disadvantage of the others. There is no hardship in this, for all dealing with a limited partnership or a moneyed corporation are assumed to know the law. They must be held to deal with their debtor, whether it be the one or the other, with full knowledge of the fact; that if it becomes insolvent, from that moment all its assets and effects are irrevocably pledged and devoted to an equal distribution among its creditors. No act of any creditor, by vigilance or otherwise, in collusion with the debtor, or by his remaining passive, can obtain a preference or priority, which the law prohibits and makes void. The law does not permit one cestui que trust to obtain or retain a trust-fund for his benefit, to the exclusion of the other cestuis que trusts.

The general partners of this special partnership, not having discharged the duty which the law casts upon them, on the happening of the insolvency of the partnership, by placing the trust-funds in the hands of a competent trustee, for equal distribution among all the creditors, it is entirely competent for this plaintiff to invoke the aid of this court, to accomplish the same result. It is the duty of this court to appoint a receiver for that purpose, who will be entitled to take charge of and possess himself of all the assets, funds, and effects of said partnership as they existed at the time of its insolvency, discharged of all liens, suffered or created since the happening of that event, and to collect in the same, and to distribute the same equally among all the creditors of the partnership.

The injunction and receiver as prayed for in the complaint should have been granted, and the order appealed from denying the same, must be reversed, with costs.

Roosevelt, P. J.—concurred.

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Dissenting Opinion

Clebke, J. (dissenting).—I

entirely dissent from this opinion.

There is not a particle of evidence showing collusion or connivance between the plaintiffs and defendants in the judgments sought to he set aside by this action. It is based upon mere suspicion, arising from the relationship of the parties. The actions in which those judgments were recovered, were commenced without any communication or understanding between the parties, or even any knowledge on the part- of the defendants therein, until the summonses were served. At all events, there is no evidence whatever of any such communication, understanding, or knowledge, but rather the contrary,—namely, a determination, if possible, to defend them. I repeat, there is no proof of collusion, but so far from it, the proof discloses resistance. And the material of which this motion is composed, is solely suspicion ; which, as suspicion, may be plausible; but, as the foundation of a legal proceeding, is most unsafe. The judgment-creditors have done nothing more than, by superior vigilance, to secure their debts; if they were the greatest strangers and most bitter enemies of the defendants in these judgments, they could have done nothing more or less to satisfy their claims than they have done.

II. Appeal from order denying motion to vacate sale, and direct sheriff to retain property and proceeds.

At about the same time that the plaintiff moved for the injunction as above stated, he moved also in the same action for an order that the sales already made by the sheriff, under the executions and judgments which the plaintiff sought to avoid, should be set aside, and a new sale ordered.

The motion was founded on affidavits, alleging that the property sold was not sufficiently advertised and exposed, and was sold for inadequate prices. The affidavits to oppose the motion responded very fully to these allegations. The details of the affidavits it is not necessary to state. The motion was denied at special term, and the plaintiff appealed.

R. B. Roosevelt, for the appellant.

Tracy, Powers & Tallmadge, for respondents Sheldons, the judgment-creditors.

Bogardus & Brown, for respondents Sheldons and Harris, the judgment-debtors.

By the Court.—Davies, J.

This suit is instituted for the purpose of setting aside certain judgments entered by default against the defendants Odiah L. Sheldon, Horace B. Sheldon, and William Harris, in favor of the other defendants James 0. Sheldon, Henry K. Sheldon, and Ann P. Sheldon. The defendants in those judgments being the general partners of a limited partnership, composed of them and one Lucius M. Sheldon. Executions were issued upon those judgments, by virtue of which the property of the judgment-debtors has been levied .upon and sold by the sheriff of the city and county of Hew York.

A motion is made in this cause to vacate and set aside such sale, on the ground of certain alleged irregularities, in conducting the sale.

A careful perusal of the affidavits has failed to satisfy my mind that the irregularities complained of are of that serious character, which would warrant the court upon that ground to vacate the sale.

The affidavits of the auctioneer and deputy sheriff, the latter particularly having had long and great experience in conducting such sales, are positive, that every effort was made to display the goods so as to bring the best price, and every precaution used to give the utmost publicity to the sale, and insure the greatest number of bidders. The evidence is not clear that the goods were not properly arranged in lots, and put u¡) so as to bring the best prices.

The affidavits certainly preponderate in establishing that the sale was fairly conducted, that the goods were well arranged for the sale, and that the prices obtained were as near the value of the goods sold as is usual on sheriffs’ sales.

But a fatal objection to this motion, we think, is, that it is not made in the suits in which the executions were issued. The object of the motion is to correct an irregularity in these suits, to set aside a proceeding had in them, and to obtain a re-sale upon the executions issued in these suits.

The application for such rolief, we think, should have been made in these suits, and if the sale which has been had by virtue of the execution issued in them was irregular and should be set aside, and a resale ordered, it was proper that such orders should have been made in these suits. So far as setting the sale - aside for irregularity, it was a proceeding in them which is sought to be corrected by a motion in this cause, and we think the motion for that > purpose should have been made in those causes.

But the motion asked for more, that the sheriff should retain possession of the property levied upon, and hold the same to abide the further order of this court. ■

If the views expressed on the other appeal in this cause are correct, then clearly it was the duty of this court to direct the sheriff to retain such property or its proceeds, to be distributed equally among the persons entitled thereto. 1 The order appealed from was, therefore, erroneous in refusing to grant the relief asked for by the plaintiff, and should, therefore, for this reason be reversed, but without costs.

Boosevelt, J.—concurred.

Cleeke, J.—dissented.