McNaughton's Appeal

101 Pa. 550 | Pa. | 1882

Mr. Justice Sterrett

delivered the opinion of the court, December 30th 1882.

The fund in controversy is the proceeds of partnership property sold on executions against the firm of Kingsland & Reynolds. It is conceded that the execution creditors of the firm are entitled to participate in the distribution in the order of their respective writs; but it is contended that the claim of the Second National Bank of Titusville, for which it obtained judgment and issued the first execution, never was a debt of the firm. In this the appellants are sustained by the report of the learned auditor, who, upon evidence of the most satisfactory character, found that the claim of the bank originated in a note for $1,200, made by Reynolds, one of the partners to the order of and iudorsed by Bennett, at whose instance the same was discounted by the bank for the individual benefit of the maker. When the note matured it was renewed for sixty days; but about two weeks thereafter, the bank, through the intervention of the indorsor, procured a judgment note from Reynolds, for the same amount, signed by him in the firm name, and by himself individually. On that note judgment was immediately entered and the execution in question issued.

It is unnecessary to refer particularly to the testimony upon which the Auditor based his conclusion that the claim of the bank was originally the personal debt of Reynolds and never became the debt of the firm. The presumption is that the finding of the Auditor is correct; but, even if we were to reverse the well established rule on that subject, the decided preponderance of the evidence would constrain us to say his conclusion was clearly .right, and that the bank must have known the debt was one for which the firm was not liable. Why then should the individual creditor of Reynolds be permitted to take the firm assets, to the exclusion of partnership creditors? It is suggested that the money of the bank was used in paying for the original stock of merchandise with which the firm commenced business, and in replenishing the same from time to time; and, therefore, by some species of equity, the firm should be liable for the money loaned to one of the partners, on the individual credit of himself and his indorser. It is a mistake to suppose that any such ground of liability is tenable under the facts of this case. The agreement between the partners, as found by the Auditor, was that Eeynolds should furnish the capital necessary to commence business and receive interest on so much thereof as might be in excess of his own share; and the testimony shows that the money was borrowed by Eeynolds from the bank for the purpose of providing his portion of the capital. It was neither loaned to the firm nor upon its credit. On the contrary, it clearly appears that the note was discounted for the individual benefit of Eeynolds and on the credit of himself and Bennett, his accommodation indorser; and hence the bank had no valid claim on the firm. If authority for so plain a principle be necessary, it may be found in Donnally v. Ryan, 5 Wright 306, in which Mr. Justice Woodward says: “Where no credit is given to a firm, which in law is a distinct person from the members who compose it, why should redress be sought against the firm? As well might a creditor, who had loaned his money on the credit of an individual, attempt to pursue it into the business or property of third parties and hold them responsible to himself.” In view of the fact, which must have been known to all parties concerned, that Eeynolds individually, and not the firm, was the bank’s debtor, the taking of a judgment note signed by Reynolds in the firm name without the knowledge or consent of his partner, for the purpose of subjecting the partnership property to seizure and sale on execution, was a fraud upon the creditors of the firm as well as the non-consenting partner: Purdy v. Powers, 6 Barr 492, and cases there cited. One of the general incidents of the partnership relation is the right of each partner to apply the firm assets to the payment of its liabilities; and, following out that principle, it has been held that one of several partners may justly subject the joint property to levy and sale in discharge of partnership indebtedness, by giving a judgment note therefor in the name of the firm, as was done by Kingsland in this case: Grier & Co. v. Hood, 1 Casey 430; Ross v. Howell, 3 Norris 129. But, it is a very different thing, in a legal as well as moral point of view, for a partner to thus undertake to pay his individual debt without the knowledge of his copartner.

It is also contended that the judgment and execution of the bank cannot be questioned in this collateral proceeding, especially since the conrt refused, on the application of Kings-land, to open it as to him. Undoubtedly, the general and well established rule is, that an auditor, in the distribution of money in court, cannot inquire into the validity of a judgment regular on its face: but it is equally well settled that a collusive judgment may be attached collaterally by judgment or execution creditors, who would otherwise be defrauded thereby. Whenever such a judgment, or the execution issued thereon, thus comes in conflict with the claims of creditors, they may avoid its effect by showing that, as to them, it is a nullity: Dougherty’s Est., 9 W. & S. 196; Lewis v. Rogers, 4 Harris 18; Thompson’s Appeal, 7 P. F. Smith 175, 178; Second National Bank’s Appeal, 4 Norris 528.

The facts of the case before us bring it fairly within the principle recognized in the cases above cited, and we are therefore of opinion that the learned judge erred in sustaining the exceptions to the auditor’s report and awarding the money to the appellee’s execution.

Decree reversed; and it is now adjudged and decreed that the auditor’s report be confirmed and the fund distributed in accordance therewith; and it is further ordered that the Second National Bank of Titusville forthwith pay into the court below the money erroneously awarded to and received by it, together with the costs ©f this. appeal.