Case ID: abb-pr_15/html/0434-01.html
Source: Caselaw Access Project
Author: {"author": "Leonard, J. Ingraham, P. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

FIELD a. CHAPMAN.
    
      Supreme Court, First District; General Term,
    
    
      February, 1863.
    Judgment against Joint-debtors.—Creditor’s Action.— Return of Execution.
    The right of the creditor of a copartnership is subordinate to the power of a partner to make a bona-fide disposition of the property before it is subjected to the creditor’s lien.
    Upon a judgment against joint-debtors, recovered in an action in which part only were served with summons, a creditor’s action cannot be maintained to reach the separate property of those who were not served.
    H. conveyed to C. in good faith all his interest in the copartnership property of H. & C.; subsequently C. transferred all the property to a third person.
    
      Hdd, that a creditor’s action to impeach the latter transfer as fraudulent, and to reach the property, could not be maintained under a judgment,against H. & C., after service of summons upon H. only.
    
    
      To sustain a creditor’s suit, it is not requisite that the execution preliminary should have remained in the sheriff’s hands sixty days before its return.
    Appeals from orders dissolving injunctions.
    These were two creditor’s actions, the first brought by Alfred Field and others against Isaac L. Hunt, George M. Chapman, and Julia Ann Chapman, against the same defendants. The complaint in each action set forth that the plaintiffs had recovered judgment against Hunt and J. A. Chapman, partners under the firm-name of Isaac L. Hunt & Co., after service of the summons upon Hunt alone; that the judgments were upon demands against the partnership ; that execution had been returned unsatisfied. That on the 10th day of March, 1860, the defendants Hunt and Julia Ann Chapman formed a copartnership, for the purpose of carrying on a wholesale hardware business in this city, under the firm-name of Isaac L. Hunt & Co. By the articles of copartnership (which were annexed to the complaint) Julia Ann Chapman alone was to contribute the entire capital of $40,000. The business was carried on until the 8th day of November, 1860, when Isaac L. Hunt executed and delivered to Julia Ann Chapman a bill of sale of that date (annexed to the complaint), whereby, for the consideration therein expressed, he sold and conveyed to her all his right, title, and interest in the partnership, and in and to the business, property, assets, credits, and effects thereof. It was not alleged in the complaint, nor was it claimed on the part of the plaintiffs, that this bill of sale was made with the intent to hinder, delay, or defraud creditors, or was or is fraudulent or void.
    On the 10th of November, 1860, Julia Ann Chapman made and executed to the defendant George M. Chapman a bill of sale of that date, whereby she sold and conveyed to him the stock of goods in the store in Chambers-street, and other merchandise in New Jersey, which had been the property of the late copartnership, composed of Isaac L. Hunt and Julia Ann Chapman, and amounting in value to upwards of $40,000.
    It was alleged in the complaint that this bill of sale from Julia Ann to George M. Chapman was made with the intent to hinder, delay, and defraud the plaintiffs and other creditors of the said Isaac L. Hunt and Julia Ann Chapman; that the same was without any valuable consideration, and that the only pretended consideration therefor, was individual indebtedness of Julia to George M. Chapman. It was not alleged that the bill of sale from Hunt to J. A. Chapman was concurrent with the bill of sale to G. M. Chapman, or that it was made with any intent or design that Julia Ann should make the transfer to George. On the contrary, the complaint alleged that the bill of sale from Julia Ann to George was made without the concurrence or knowledge of Hunt. The actions were to set aside the transfer from Julia Ann to George M. Chapman; and to have the property embraced therein, together with all the assets of Isaac L. Hunt & Co., and the proceeds thereof applied to the payment of the debts due the plaintiffs, and such other creditors as should come in. Injunctions were granted in both actions, on undertakings for $1,500 and $1,000 respectively. The injunctions were dissolved by Mr. Justice Allen. His opinion is reported 13 Ante, 320.
    
    The plaintiffs appealed;
    
      George N. Titus, for the appellants.
    I. The plaintiffs had a statutory right to the aid of this court to enforce their judgments against the joint property and dioses in action of the defendants Hunt and J. A. Chapman,—whether in their possession or held in trust for them, or fraudulently transferred to a third person. (2 Rev. Stat., 173, § 38; Ib., 377, § 1; Code, § 136.) 1. It is not only expressly averred that judgments were recovered against both of them as joint-debtors, but the statute required that the judgments should be entered against both, and declared that they might be enforced against the joint property of both in the same manner as if Julia Ann had been served with process. (2 Rev. Stat., 377, § 4; Pardee a. Haynes, 10 Wend., 631; Nelson a. Bostwick, 5 Hill, 37; Code, § 136; Lahey a. Kingon, 13 Abbotts' Pr., 192; Field a. Chapman, 14 
      Ib., 133.) 2. Executions against the property-of these defend- ' ants were duly issued, and returned unsatisfied; all the property of the firm was in Chambers-street. The return in the Field case before sixty days had expired, was regular. (Morange a. Edwards, 1 E. D. Smith, 414; Engle a. Bonneau, 2 Sandf., 679; Messinger a. Fisk, 1 Code R., 106; Field a. Chapman, 14 Abbotts’ Pr., 133.) The equitable remedy of an execution-creditor by bill in chancery is now enforced by action in this court. (Hammond a. Hudson River Iron & Machine Co., 20 Barb., 378.)
    H. The provision of the Revised Statutes in relation to creditors’ bills, was declaratory of an equitable principle which had been defined and established before its enactment. (Hendricks a. Robinson, 2 Johns. Ch., 283 ; Brinkerhoff a. Brown, 4 Ib., 671; Spader a. Davis, 5 Ib., 280; Hadden a. Spader, 20 Johns., 554, 568; 2 Rev. Stat., 173, §38; 3 Ib., 669, Rev. notes.) 1. That principle was, that chancery would lend its aid to enforce a judgment at law,—to assist the execution of such judgment, whenever a fi.fa. had been issued thereon and returned unsatisfied. 2. Chancery followed the highway of the common law, but went beyond the reach of the execution, and laid hold of choses in action, &c., of the debtor. Its powers were exercised to enforce such judgment as the court of law had pronounced. (Story Eq. J., § 64,1216 a, 1216 b.) 3. The sheriff’s return of nulla bona to an execution was proof that the legal remedy for the enforcement of the judgment had been exhausted. (20 Johns., 554.) The statute in terms declares the same rule.
    III. A creditor’s bill lies against J. A. Chapman upon these judgments. 1. The statute did not confine this equitable remedy to any specified class of judgments or judgment-creditors. It was extended to every judgment authorized by law, and to every party issuing an execution upon such judgment. The framers of this statute must have had in view judgments against joint-debtors as authorized by 2 Rev. Stat. 377, § 1. The term “judgment” as clearly embraced a judgment rendered pursuant to 2 Rev. Stat., 377, § 1, as any other known to the law. No rule of equity required the- creditors of an insolvent firm to recover judgments which should bind the separate estate of each partner, before they could invoke the aid of equity to enforce their judgments against the partnership property. Chan- ) eery sustained creditors’ bills founded upon such judgments, ; and the debtor not served with process was held to be a neces- j sary party, unless he was destitute of property, out of the juris- S diction of the court, or not liable to contribute towards payment j of the debt. (Van Cleef a. Sickles, 5 Paige, 505; Commercial Bank of Lake Erie a. Meach, 7 Ib., 448.) Ho greater effect is claimed for these judgments than the statute contemplates. 2. The plaintiffs had exhausted their legal remedy. The cases hold merely that the creditor must pursue his execution upon his judgment as far as he may before resorting to equity for aid to enforce such judgment. (2 Johns. Oh., 296, and cases supra.) There has been no evasion of the statute in the proceedings of these plaintiffs. If this firm did not owe the debts upon which the judgments were recovered, the party not served may be permitted, on motion, to come in and defend. Ho such motion - has been made; the debts are admitted to be due, and these / actions have become necessary by the fraudulent acts of these ■ parties. )
    IV. The plaintiffs are entitled to the aid of this court to en- ! force their judgment against the partnership property of Isaac ¡ L. Hunt & Co., whether in the possession of Julia Ann or George M. Chapman. 1. This firm was indebted to these plaintiffs before Hunt’s release to Julia Ann of Hov. 8, 1860, was made. Upon those debts these judgments were recovered, and executions issued, &c. (Cooke a. Smith, 3 Sandf. Ch., 334.) When that release was made, the firm owned notes and receivables, which the Chapmans hold and refuse to apply to the payment of the firm debts. They did not, by the operation of this release, become the individual property of Julia Ann, but are still due to the firm. (Story on Part., § 97, 8.) 2. That release was one of a series of acts done to defraud these creditors, by affecting a transfer of this partnership property to George M. Chapman, for the debt of Julia Ann, resulting in the insolvency of the firm; all of which acts are fraudulent and void as to these plaintiffs. (Wilson a. Robertson, 21 N. Y., 587; Jackson a. Cornell, 1 Sandf. Ch., 348; Murril a. Neil, &c., 8 How. U. S., 414; Yale a. Yale, 13 Conn., 185.) It purported to transfer only Hunt’s interest in the assets of the firm, remaining after payment of its debts. (Story on Part., § 326, 9; Nicoll a. 
      Mumford, 4 Johns. Ch., 522.) R gave her no other interest in the property of the firm than she had under the partnership articles. (Goertner a. Trustees of Canajoharie, 2 Barb., 625.) She has no right therein, except as a partner, until the debts shall be paid, and the partnership accounts adjusted. (Griswold a. Waddington, 16 Johns., 438; Murray a. Mumford, 6 Cow., 442; 3 Kent's Com., 7 ed., 70, note a; Baldwin a. Johnson, Sax. Ch., 453.)
    
      Chapman & Hitohcock and William Curtis Noyes, for the respondents.
    I. It has been expressly adjudged that the Code, and no subsequent act has changed or altered in any respect the provisions of the Revised Statutes. (2 Rev. Stat.,. 173, § 38; Greenwood a. Brodhead, 8 Barb., 593; Crippen a. Hudson, 13 N. Y., 161; Reubens a. Joel, Ib., 488; Andrews a. Durant, 18 Ib., 496.) The provisions of the Revised Statutes, authorizing the filing of judgment-creditors’ bills, are the only statutory enactments, now in force, applicable to such or like proceedings in this court. The decisions of the late Court of Chancery in such cases are therefore directly in point, and are conclusive as to the law upon the subject of judgment-creditors’ suits in this court. Before a judgment-creditor is authorized to file a creditor’s bill, he must make a bona-fide attempt to collect his debt by judgment and execution against each and all the defendants holden for the debt, before he can apply to the court of equity for relief. (Child a.Brace, 4 Paige, 309; Howard a. Sheldon, 11 Ib., 558; Kirby a. Schoonmaker, 3 Barb. Ch., 46; Hendricks a. Robinson, 2 Johns. Ch., 283; Wiggins a. Armstrong, Ib., 144; Brinkerhoff a. Brown, 4 Ib., 671.) The reasons for this rule are: 1. That a court of equity will not try or determine the question of debt. 2. That, if it does not appear affirmatively that the judgment cannot be collected by execution, and that such remedy has been actually exhausted, then there is no principle in equity authorizing such a creditor to subject his debtor to the costs and expenses of proceedings in equity.
    II. The plaintiffs in this action are not judgment-creditors of Julia Ann Chapman. She has never been served with any process. The judgments set out in the complaint cannot even be read in evidence against her. (Oakley a. Aspinwall, 4 N. Y., 513; 1 Duer, 1; 13 N. Y, 500.) In analogous cases where a stockholder is sued for a debt of the corporation, or as surety for the debt of his principal, the judgment is no evidence against him who was not a party to it. (Moss a. McCullough, 5 Hill, 131; Bonaffe a. Fowler, 7 Paige, 576; Thomas a. Hubbell, 15 N. Y., 405.) Tó allow these judgments and executions to be used as the foundation for equitable actions, is to give them all the force and effect in these suits they could have, had they been recovered against Julia personally. To do this is directly in conflict with Oakley a. Aspinwall.
    HI. Before this court can grant any relief in respect to property (which the plaintiffs allege has been fraudulently transferred by Julia Ann to George Chapman), it must appear that they are judgment-creditors of both Hunt and Julia Ann, and that the remedies at law have been exhausted against both. It is no answer to this objection to say, that, in form, the judgments are against both Hunt and Julia, and that, under such judgmehts, partnership property may be levied on and taken under an execution. The question here is, whether these plaintiffs can seek the aid of equity without first obtaining a judgment against Julia Ann Chapman, and showing that they have issued an execution against her, and have pursued it to every available extent against her property. This court will not assume that such remedy would be ineffectual. (Brinkerhoff a. Brown, 4 Johns. Ch., 671; McDermutt a. Strong, Ib., 687.) The plaintiffs can have no aid from the judgment as against the party (Julia Ann Chapman) who was not brought into court. (Oakley a. Aspinwall, 4 N. Y., 513, 521.) As to Julia Ann Chapman, the plaintiffs are merely simple contract-creditors. Such creditors cannot maintain an injunction-suit against their debtor and his fraudulent assignee to restrain the latter, or to have the assignment declared void and the debt paid. (Reubens a. Joel, 13 N. Y, 488.)
    IV. The proposition that the plaintiffs have, in fact, exhausted their remedy at law upon these judgments against the partnership property of Isaac L. Hunt & Co., and that therefore the plaintiffs have the right to invoke the equitable powers of this court to obtain satisfaction of their debt out of such partnership property, is unsound. 1. The rule requires a creditor before seeking the aid of a court of equity, to actually exhaust his remedy at law by making a bona-jide attempt to Ms debt by judgment and execution, not against a dissolved partnership, partnership property, a business, or a thing, but against each and every of' the parties liable for the debt. (Child a. Brace, supra; Howard a. Sheldon, supra; Renbens a. Joel, supra) 2z. The proposition ignores the well-settled principle of these cases, that it is only upon failure of the legal remedy against all and each of the parties liable for the debt, that equity lends its aid in the collection thereof. 3. The proposition also ignores the principle of the rule that requires the creditor to establish by judgment his debt against all the parties liable therefor. 4. And it also ignores the j ust reason of the rule, as stated by Y. C. Gardner in Child a. Brace (supra), and by Judge Allen in these cases: “It is unjust to all the joint-debtors, as well those served as those not served, to subject them and their joint property to the costs of this expensive remedy, before the cheap remedy at law has been fairly and fully tried.” 5. If Julia A. Chapman has sufficient property to pay the debts due to the plaintiff (and this court cannot assume that she has not), why should she be placed under an injunction in these actions, and be put to the expense of defending them before she has had an opportunity to contest her liability for the debts, and pay them upon execution, if adjudged liable? 6. It was said that Julia A. Chapman has the right to move, to come in and defend the actions in which these judgments were obtained. The answer is plain, that she is not required to invite litigation, or to defend until she is summoned into court.
    Y. The firm of Isaac L. Hunt & Co. was dissolved on the 8th of November, 1860, when Hunt executed his bill of sale to Julia A. Chapman. Thenceforth Hunt and Julia ceased to be joint-owners of the property in question. She then became sole owner of the property which is sought to be reached by this action. (Robb a. Stevens, 1 Clarke, 191; Greenwood a. Brodhead, supra; Smith a. Howard, 20 How. Pr., 121.) 1. It is plain that Julia Ann and George M. Chapman are the real parties defendant in interest in this suit. 2. It is not alleged or claimed that Julia A. Chapman is insolvent. The presumption therefore is that she is solvent. (Brinkerhoff a. Brown, supra; McDermutt a. Strong, supra. .See cases previously cited.) 3. The right of Hunt to withdraw from the firm, and to release to Julia A. Chapman, his solvent partner, his interest in their joint property, cannot be questioned. 4. The equity of copartnership creditors to be paid out of copartnership property is subordinate to the right of the partners to dispose of their joint effects as they shall see fit.
    VI. The case of Billhofer a. Heubach (15 Abbotts' Pr., 143) is plainly distinguishable from these actions, because,—1. In that case the transfer by Johnson (one of the partners) to his copartners, of all his interest in the partnership effects, was colorable and made to facilitate the fraudulent sale to Henry Heubach, and was fraudulent and void, and tiiat said bill of sale was concurrent with and a part of the machinery by which the fraudulent sale was effected. 2. Immediately after the fraudulent sale to the defendant Henry Heubach was consummated, Victor and Alfred Heubach, the two copartners who were not served with process, absconded from this State for parts unknown, for the purpose of avoiding service of process, and have since remained absent or concealed. 3. In Billhofer a. Heubach, the objection that the plaintiff had not exhausted his remedy at law against Victor and Alfred Heubach was not' taken at the trial, but was taken for the first time at the general term, and then only by the fraudulent vendee, not by either of the partners who had not been served with process. Hnless the case of Billhofer a. Heubach is thus distinguished from these actions, it is in direct conflict with the following cases, above cited: Child a. Brace; Howard a. Sheldon; Kirby a. Schoonmaker; Greenwood a. Brodhead; Robb a. Stevens; Wiggins a. Armstrong; Brinkerhoff a. Brown; McDermutt a. Strong; McElvain a. Willis; Reubens a. Joel; Crippin a. Hudson; Smith a. Howard.
    VII. The security given by the plaintiffs upon the injunctions in each of the above actions is so small, that the damages that have already been sustained by reason of said injunctions cannot be satisfied by the undertakings, and for this reason the injunctions were properly dissolved. (Ryckman a. Coleman, 13 Abbotts' Pr., 398; S. C., 21 How. Pr., 404.)
    
      
       Otherwise under section 294 of the Code, as amended in 1863. .Compare Billhofer a. Heubach, 15 Ante, 143.
    
    
      
       After the injunctions had been dissolved, the causes came up on demurrer to complaint before another judge at special term, who sustained the actions. That decision, which is reported 14 Ante, 133, is overruled by the decision in our text, as to the question of the sufficiency of the judgment, but the opinion there expressed as to the sufficiency of the return of the execution comports with this decision.
    
   Leonard, J.

Each member of a copartnership may require the assets of the firm to be applied to the satisfaction of the partnership debts. Each member may also dispose of his interest in the partnership property in good faith, and for a valid consideration, unless some creditor has acquired a lien thereon. The right of the creditor is subordinate to this power of the partner to make a bona-fide disposition of the property until it is subjected to the creditor’s lien. (3 Kent's Com., 65, and note; Story's Eq. J., §§ 675,1243,1253; Story on Partnerships, §§ 373, 402 ; Gow on Partnerships, 275 ; Exp. Rowlandson, 1 Rose, 416; Greenwood a. Brodhead, 8 Barb., 593 ; Crippen a. Hudson, 13 N. Y., 161; Sage a. Chollar, 21 Barb., 596; Ketchum a. Durkee, 1 Barb. Ch., 480; Kirby a. Schoonmaker, 3 Ib., 46.)

In the present case Hunt transferred to Julia M. Chapman all his interest in the partnership assets. There is no allegation that this transfer was fraudulent. No creditor had any lien to prevent it. Hunt has made no stipulation for the benefit of the creditors of the firm requiring Julia to pay the partnership debts, and she came under no obligation to her partner Hunt to apply those assets to any particular purpose, or to indemnify him against the partnership liabilities. The creditors have no equities here to be worked out through the retiring partner. That partner reserved none for' them or for himself. His disposition of the assets was absolute and complete, and Julia became vested with the entire and separate ownership thereof.

This property so transferred cannot be reached by execution on a judgment recovered against the firm composed of Hunt and Julia M. Chapman, where she has not been personally served with process. The property belongs to her individually, and the execution to be issued on such judgment must direct the sheriff not to levy on her separate property.

It is quite clear that in such a case the remedy at law has not been exhausted as against Julia, and that creditors having judgments recovered by the service of process on Hunt only, with executions thereon, cannot maintain an action to inquire into or set aside any transfer made by her of such partnership property or assets as were conveyed to her by her former partner Hunt in the manner above-mentioned.

The order appealed from should be affirmed.

Ingraham, P. J.

There can be no doubt that the judgment in this case would not be sufficient to warrant an execution against the defendant Chapman, who was not. served,.so as to reach her individual property.

hi or would it form the foundation of an action against her if she had been sued upon it; that would only furnish the amount of recovery after her liability was established by other evidence. (Mervin a. Kumbel, 23 Wend., 293; Oakley a. Aspinwall, 4 N. Y., 513.)

Hor would it be a cause of action upon which an attachment against the debtorAot served could be issued. (Ib.)

In the Commercial Bank, &c. a. bleach (7 Paige, 448), the chancellor held that upon a joint-judgment against several defendants, some of whom were not served with process, all must be made defendants in a creditor’s bill, to enable those whose property was taken to satisfy the debt, to claim contribution against their co-defendants; and in Howard a. Sheldon (11 Ib., 558), he held that in an action on a judgment against joint-debtors, where process was not served on one defendant, but an execution issued against the joint property of all and the separate property of the one served, the creditor had not by such execution exhausted his remedy at law so as to entitle him to file a creditor’s bill against the defendant, who was served with process in the last suit.

In that case it was also held, that the complainant had not exhausted his remedy at law for the recovery of his debt until execution had been issued against each of the defendants as to their individual property as well as the joint property of the firm.

This rule, applied to the present case, shows that the order appealed from was correct. (See, also, Child a. Brace, 4 Paige, 309.)

There is no force in the objection, that the execution was returned before sixty days had expired. All the judges in this district have held that it was not necessary. The chancellor, also, so held in Platt a. Cadwell, (9 Ib., 386).

Bajutaed, J.—concurred.

Order affirmed.