84 Iowa 671 | Iowa | 1892
For some time prior to April 16, 1889, C. D. Flory and C. M. Newton were partners in the “carriage business” at Newton, Iowa; and on that day, by a written contract and bill of sale, Flory sold his interest in the firm to C. M. Newton, and the partnership, by the terms of the sale, was dissolved — G. M. Newton assuming by the contract of sale the payment of all firm debts, and taking all the share of Flory in the stock of carriages, etc., including “all book accounts and moneys and credits owing said firm, and the good will of all said business; ” Flory granting to
A rule of law invoked as against the action of the court is that, although the assets of a partnership will be first applied to the satisfaction of the firm debts, and that the separate creditors of the partners can seek indemnity from the surplus, the rule is for the benefit 'of the partners; and if upon dissolution they waive the privilege by dividing the property between them, and then mortgage it severally to secure their individual debts, the creditors have no grounds of complaint. Such a rule can only be successfully invoked in favor of parties who in their own transactions are free from fraud or collusion against creditors. At the time Flory & Newton dissolved partnership, we think the firm was insolvent, and that the individual members of the firm were also insolvent. The specified consideration to Flory for his interest was one thousand dollars but what he did receive was part of the stock then on hand, and was certainly considerably less in value. The situation just before the dissolution was that the firm assets were somewhere from three thousand to forty-five hundred dollars, which, equitably applied, should have gone to the firm creditors. By the transaction of the dissolution, with the changes immediately following, the firm property is entirely absorbed; and those who have aided the firm’s business during its existence by extending credit are left without any means for payment, under the claims of the appellants. It is perhaps not to be said that the law will not in any case give its support,to such results; but it must be said that such support is only given where the transaction is free from fraud, or the law’s protection is invoked in behalf of an innocent party. In this case it is not to be said that the partners were not actuated by a fraudulent purpose. When Flory took a part of the firm stock in payment, he knew that he was withdrawing, and placing beyond the reach of creditors,
A more difficult task is to determine the faqts and apply the law to the conduct of Mary A. Leverton. The notes, to secure which the mortgage to her was given, she purchased from her sister, Mrs. Newton, applying in payment therefor nine hundred and forty dollars of a previous indebtedness of Mrs. Newton to her, and paying the balance through an exchange of property. The purchase of these notes was at the instance of Mrs. Newton, Miss Leverton refusing to make the purchase unless Mr. Newton would secure their payment, which he agreed to do, and which agreement resulted in the giving of the mortgage in question. There can be no question but that Miss Leverton knew before she bought the notes — relying' on the promise of Newton that he would secure them — that the security must come from the property that was or lately had been that of the partnership. It appears from the evidence that the purchase of the notes was not finally agreed upon until some time during the day of the
. On the plaintiffs’ appeal, the judgment of the district court is so manifestly right that we do not think it is seriously questioned. The judgment is, on both appeals, aeeibmed.