Case ID: ny-super-ct_47/html/0125-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Freedman, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

JOHN HONEGGER and HERMAN LAVATER, Respondents, v. HENRY WETTSTEIN, JOHN ULRICH OEHNINGER and HENRY MEYER, comprising the late firm of Wettstein, Oehninger & Co., and FEODORE MIERSON, as receiver of said firm, Appellants.
    I. JOINT DEBTORS.
    I. Instrument purporting to discharge one, not operating to
    DISCHARGE THE OTHERS.
    
      
      (a) An instrument not under seal, and for which no consideration is in fact given, in terms releasing one of several joint debtors, will not discharge the others, especially where the creditors executing it in express terms, reserved their rights against the others.
    II. BANKRUPTCY.
    1. Discharge, effect as to foreign creditors.
    Discussion as to.
    2. Discharge purporting, on its face, to discharge one member of a firm from his individual debts.
    Effect of. It will not discharge him from the firm liabilities so as to prevent a judgment enforceable against the partnership property, whatever may be its effect as barring recourse to his separate estate.
    
      Therefore, in an action against him and the other members of the firm upon a firm debt, a motion by him to dismiss on the ground of such a discharge, was properly denied.
    
    HI. PARTNERS.
    1. Actions against. 0
    
      (a) Not barred by judgment, in an action by one partner against the others, dissolving the partnership, appointing a receiver, and also a referee to, among other things, ascertain the firm creditors and the amounts due them, and .barring those who do not present claims after being notified in a specified manner, from participating in the partnership assets, and the proceedings thereunder.
    IV. RECEIVER OP PARTNERSHIP ASSETS APPOINTED BY THE JUDGMENT DISSOLVING THE FIRM, AND MAKING PROVISION FOR THE ASCERTAINMENT, BY A REFEREE, OF THE CREDITORS OF THE FIRM, AND THE AMOUNTS DUE THEM. 1. Intervening by him in action brought by a creditor against the firm.
    (a) Sights, when allowed to intervene.
      
    
    
      1. Defenses. Unless restricted by the order of intervenor,' he may set up as many defenses as he has reason to believe can be substantiated.
    
      Í. That they may inure to the benefit of the other dedefendants, though not pleaded by them, makes no. difference where the judgment, if obtained, would have the force and' effect of a final and conclusive adjudication as to the plaintiff’s right to share ins the firm’s assets in the receiver’s hands, and the assets are insufficient to satisfy all creditors in full.
    8. Appeal. Has a right to appeal from judgments entered against one or more of the firm, though no judgment is entered against him, the only ■ disposition of the defenses, interposed by him being by rulings made in the course of the trial.
    V. FRAUD ON THE GOVERNMENT.
    I. False invoices.
    
      (a) Defense to an action for the price of goods.
      
    
    1. Where seller and purchaser enter into a fraudulent agree- ' ment to defraud the government out of its proper duties by means of false invoices, an action cannot be maintained by the seller for the price of the goods.
    Before Speir and Freedman, JJ.
    
      Decided February 7, 1881.
    Appeal from judgment entered upon the verdict of a jury, rendered pursuant to the direction of the court.
    The defendants, Henry Wettstein, John Ulrich •Oehninger, and Albert Meyer, during the time mentioned in the complaint, were partners carrying on business in the city of Hew York, under the firm name of Wettstein, Oehninger & Co.; and the plaintiffs were partners doing business under the firm name of Honegger & Lavater, at Zurich, in the republic of Switzerland.-
    The plaintiffs sought to recover in this action 89,718 francs and 8 centimes, being balance claimed to be due on account of goods sold and consigned by plaintiffs to defendants’ firm.
    These goods so sold and consigned by plaintiffs were silk dress goods, manufactured in Switzerland, subject to an ad valorem duty, and were to be, and were, delivered by the plaintiffs to said firm of Wettstein, Oehninger & Co., at the city of New York.
    Subsequent to the purchases and consignments above mentioned, and prior to the commencement of this action, an action was commenced in the supreme court of this State, by said Henry Wettstein as plaintiff, against said John U. Oehninger and Albert Meyer, for a dissolution of the firm of Wettstein, Oehninger & Co., and settlement of its affairs ; and on May 1, 1876, judgment was duly entered in said action, dissolving said copartnership of Wettstein, Oehninger & Co.
    In and by said decree Feodore Mierson was appointed receiver of all the credits and property of said late firm, and he thereupon took upon himself the duties of such office and continued to act as such receiver.
    After the appointment of said receiver and before the commencement of this action, the plaintiffs commenced proceedings in the supreme court to recover from the receiver the case marked W O C No. 9, appearing in their bill of particulars, claiming the same to have been consigned and not sold.
    
    This matter was referred to Mr. Buggies as sole referee, and on July 23, 1878, he made his report adverse to the plaintiff’s claim and adjudging'that the same were not consigned goods, but that the receiver held the same as owner.
    This report was confirmed by an order dated July 25, 1878.
    The claim of the plaintiffs upon which they seek to recover in this action was originally filed with Mr. Buggies, the referee in the action brought to dissolve the firm of Wettstein, Oehninger & Co., and said referee was directed, in and by the decree therein, to ascertain the amount due the several creditors of said firm. To this amount so filed, the receiver filed objections, and the proceedings thereon are still pending and undetermined.
    
    The answer of the defendant, Wettstein, is in effect a general denial.
    The defendant, Albert Meyer, also interposed a general denial, and then set up his individual discharge in bankruptcy.
    The defendant, John Ulrich Oehninger, in his an-, swer admitted the claim of the plaintiffs, but pleaded a release as to himself.
    The receiver, having reason to believe that this action was commenced by the plaintiffs to avoid the defense interposed by him before the referee, and that, in consequence of the neglect of the defendants to set up all the defenses they had, there was danger that the plaintiffs might recover a judgment in this action to be used before the referee as a final adjudication, on petition duly applied to this court to be made a party defendant, and for leave to defend. His prayer was granted, and an order duly entered, of which the following are the material parts, viz. :
    
      “jIt is ordered, that Feodore Mierson, as receiver of the goods, chattels and credits of the firm of Wettstein, Oehninger & Co., be and he is, as such receiver, hereby made a party defendant in the action of John Honegger and another against Henry Wettstein and others, in the superior court of the city of New York, and that he have leave to appear and answer, and to defend the action, provided he so answer within twenty days from the 19th day of December, 1879, and the plaintiff’s proceedings in said action are heréby stayed therein to have him appear and answer within twenty days from said 19th day of December, 1879.
    1 ‘It is further ordered, that this order shall not affect the complaint of the plaintiffs, nor the answers and amended answers of the defendants, but the same shall stand as they are; neither shall it affect the depositions already taken in this action ; but the same may be read upon the trial of this action against the defendants, and each of them, and against the said Feodore Mierson, as such receiver, with like effect as though the same had been taken after the answer of the said Mierson, as such receiver, had been served; and this order is made upon such condition.
    “ It is further ordered, that issue shall be of the day of the amended answers of the defendants, Wettstein and Meyer, were served herein.”
    The receiver thereupon interposed an answer containing four separate and distinct defenses, viz. :
    1. A general denial.
    
      2. That all the goods in suit were, under the laws of the United States, chargeable■ with an ad valorem, duty upon importation ; that they were all shipped by the plaintiffs under and pursuant to a fraudulent agreement between the plaintiffs and the defendants to deceive and cheat the government of the United States out of its proper duties and revenues by means of false invoices, and that the plaintiffs and the defendants intentionally and in pursuance of said fraudulent agreement did so cheat and defraud the government of the United States by means of false invoices used as the basis for assessing and fixing the amount of the duties chargeable thereon ;
    3. The pendency of the proceedings before the referee for the same claim, and that they are undetermined ; and,
    
      4. The adjudication as to the goods marked WOO No. 9.
    Upon the trial plaintiffs’ counsel objected to the receiver introducing any evidence in the action, upon the grounds that under the pleadings he is not entitled to any judgment in the action, but that the plaintiffs are entitled to judgment against him ; also, that the receiver would only be entitled to relief, in any event,, even if his pleadings showed he was entitled to inter-' vene, to the extent of the assets in his hands.
    Plaintiffs’ counsel also objected to the witness on behalf of the other defendants, upon the ground that no such defense is set up in the answer as to them.
    The court held that such evidence should be excluded, and the defendants duly excepted.
    Defendant’s counsel asked leave to amend the answer in this case, on behalf of defendant Mierson, on the ground that there was an omission, through inadvertence and haste in drawing the answer, by introducing the following clause:
    “And this defendant is informed and believes that the said Honegger & Lavater are aided and abetted in their attempt to supersede the rights of your petitioner;, conferred as aforesaid, by one or more of the partners of the said late firm of Wettstein, Oehninger & Co.; and he has reason to believe, and does believe, that the said action in the superior court has been brought by collusion between the said Honegger & Lavater, and one or more of the said late firm of Wettstein, Oehninger & Co., for the purpose of obtaining a judgment which can be pleaded and proved before said referee-upon said contest.”
    
      The court allowed the amendment.
    Plaintiffs’ counsel renewed the motion to exclude the testimony previously offered, on the ground that the receiver is not entitled to make that defense under the pleadings. 2. That assuming the allegations of the pleadings are true, it does not entitle the receiver to intervene as a defendantin other words, he is not entitled to any relief in the action—no claim is made against him. 3. He cannot prevent a recovery against the three defendants, inasmuch as the plaintiffs are entitled to enforce the personal judgment which may be obtained against the other defendants, and it does not lie with the receiver to make a defense for them which they have not set up.
    The court excluded the evidence and noted an exception.
    ' Defendants’ counsel offered to contradict the invoice mentioned in the complaint, and bill of particulars made out by the plaintiffs of the goods or merchandise mentioned in the complaint, and in the evidence or deposition of Honegger.
    Objected to on the same grounds, and also upon the grounds that it is not competent. Excluded; exception.
    At the conclusion of the evidence on both sides, which largely went to the question of value, the court dismissed the complaint as against the defendant Oehninger, denied the motion of the defendant Meyer for. a dismissal as to him on the ground of his discharge in bankruptcy ; denied a similar motion of the defendants, Wettstein and Meyer, on the ground of fraud on the government, and the further ground that the release of Oehninger operated as a discharge of all the partners ; denied .the motion of the defendants, Wettstein and Meyer, and of- the receiver to be permitted to go to the jury upon the questions of fact involved in the case; and, on motion of the plaintiffs, directed a verdict in favor of the plaintiffs against the two defendants, Wettstein and Meyer, for the sum of $24,224.97, all of which rulings were duly excepted to.
    Judgment having been entered upon the verdict, the defendants, Wettstein and Meyer, and the receiver appealed.
    
      John A. Ballestier, for defendants Wettstein and Meyer.
    
      John Halloek Brake, for the receiver.
    
      B. M. Porter, for the plaintiffs.
    
      
       It does not seem a just conclusion, from the remarks respecting collusion between the plaintiffs and one or more of the members of the firm, that the court, either at special or general term, were of opinion that an order of intervener should not be allowed, unless collusion is shown between the plaintiffs and one or more of the members of the firm. It would seem that the mere neglect of the members of the firm to set up the proper defenses would, in a case where the interests of other creditors in the partnership assets would be affected by the judgment, be sufficient.
    
    
      
       This is not so laid down in terms in the opinion, but as the judgment was reversed solely on the ground of the rejection of all evidence offered to establish the fraudulent agreement, it would seem to follow that such agreement, if established, would be a complete defense; and on the retrial of the case it was so held by the trial judge. The reporters have therefore taken the liberty of reporting it in the head-note as having been so held by the general term.
    
   By the Court.—Freedman, J.

The appellants, Wettstein and Meyer, claim that they were discharged from the claim in suit by reason of the release of Oehninger, who was jointly liable with them, if they were liable at all. If this alleged release was either a separate composition or compromise by one of several partners or joint debtors within the meaning of the statute of 1838, it only discharged Oehninger, especially as the creditors who executed it, in express terms reserved their rights against the other members of the firm. If it was neither, if it is to be judged by the rule of the common law, it cannot operate as a release even as to Oehninger, because it bears no seal and no consideration was given for it in fact. The complaint as to Oehninger having been dismissed, and the plaintiffs not having appealed, it is sufficient to hold that his release is not available to Wettstein and Meyer as a bar.

The appellant, Meyer, next claims that he was entitled to a dismissal of the complaint as to himself by reason of the discharge in bankruptcy obtained by him after the dissolution of the firm. To this the plaintiffs reply that the discharge, even if it were otherwise available to Meyer against debts due by him as a member of the firm, can have no operative force against them, because they were and are residents and citizens of Switzerland. True, it has been repeatedly held that a discharge granted in one State under the insolvent laws of such State cannot affect creditors who are citizens or residents of another State of the Union. Such a discharge has been held, so far as citizens or residents of other States of the Union are concerned, to be in contravention of that provision of the Constitution of the United States which declares that no State shall pass a law impairing the obligation of contracts. (Soule v. Chase, 39 N. Y. 342 ; Pratt v. Chase, 44 Id. 597; Baldwin v. Hale, 1 Wall. 223.)

But whether the power of Congress is similarly restricted as against citizens or residents of foreign countries, is quite another question. The power to pass uniform laws on the subject of bankruptcies throughout the United States is expressly conferred upon Congress, and may be exercised to the exclusion of all regulations on the part of the several States. It is not limited by a saving clause in favor of foreign creditors. True, even an act of Congress can have no extra-territorial force, and whenever foreign tribunals are called upon to pass upon the effect, within their jurisdiction, of a discharge in bankruptcy under the statutes of the United States upon citizens or residents of their country, they may decide the question according to the law of their own land. But when the question is raised ■in any court of the United States or of one of the several States, and especially when the jurisdiction of any •such court is invoked by foreign creditors to enforce a debt which otherwise would be clearly barred, the determination, in the absence of all limitation by treaty •or by the Constitution, depends upon the intention of the law-making power of the United States as it may be gathered from the statute. That there is no limitation upon the power of Congress, except the requirement of uniformity in the law, and that consequently it is competent for Congress to act on the whole subject of bankruptcy in every other respect with a plenary discretion, has been repeatedly decided. I do not deem it necessary, however, to enter upon a discussion of the intent of the statute as to the particular point so far discussed, as there is another objection to the availability of the discharge in this action, which was also made below, and which must be sustained. The discharge upon its face purports to discharge Meyer only from his individual debts. As to the legal effect of such a discharge Judge Raparlo, in delivering the opinion of the court of appeals, in Poillon v. Lawrence (77 N. Y. 207), uses the following language, viz. :

“We have not deemed it necessary to pass upon the question whether the proceedings in this case were in proper form to bar debts due by Lawrence as a member of the firm of Lazarus & Wolff. Corey v. Perry (67 Maine, 140) holds that under such proceedings, giving no schedule of firm debts or assets, nor praying for a discharge from firm liabilities, the discharge when obtained will relieve the bankrupt only from his individual indebtedness, and not from partnership liability. This position seems to be sustained by numerous authorities (1 Bankr. Reg. 341; 22 Wall. 395; 3 3 Biss. 491 ; Hodgins v. Lane, 11 Nat. Bankr. Reg. 463; 15 Id. 417; 2 Ben. 96; 3 Id. 386 ; 6 Id. 20; 10 Nat. Bank. Reg. 331 ; 17 Id. 76). The assignee under such a proceeding acquires no title to the firm assets, and it would seem to follow that a discharge granted therein should not affect the firm debts. Whether it bars re- . course to the separate estate of the discharged partner, for a firm debt, does not seem to have been authoritatively determined.

While the question thus remains an open one, it seems best that this court should follow the clear weight of the authorities, by which it was held, that while a member of a late partnership may, upon his individual petition, be discharged from all his debts, partnership as well as individual, provided there are ’ no partnership assets to be administered, he cannot, in case of the existence of such assets, be discharged from the liabilities of the firm, unless the firm is declared bankrupt and the firm assets are brought into the bankruptcy court to be administered according to the provisions of the bankruptcy act. Under these decisions, and especially as the discharge of Meyer only purported to discharge him from his individual liabilities, the motion to dismiss as to him was properly denied.

The pendency of the proceedings before the referee under the .judgment of dissolution granted by the supreme court, cannot be deemed a bar to this action, because in those proceedings the plaintiffs can recover only their proportionate share in the partnership assets and they are left at liberty to otherwise pursue the individual partners.

The determination had as to the case marked W O 0 Mo. 9, is conclusive, as a former adjudication between the parties, as far as it goes ; but as it only went to the effect that the goods were sold and not consigned, and that consequently the title passed, the plaintiffs were left free to sue for the price.

The most important remaining question relates to-the defense of fraud upon the government interposed by the receiver. All evidence sought to be introduced by the receiver for that purpose, was excluded, mainly on the ground that no such defense had been set up by the other defendants and that consequently it did not concern the receiver. The alleged fraudulent invoices were admitted, but only on the question of the value of the goods sued for. In this the learned trial judge clearly erred. The receiver represented not merely the members of the late firm, but the assets of the firm and the bona fide creditors entitled to them, and he was bound to protect the assets against unjust or illegal claims. He had been duly made a party to-the record in this action with leave to defend in his representative capacity. The only-conditions imposed were that his coming in should not affect the complaint of the plaintiffs or the answers of the other defendants, nor the depositions already taken. He was not limited to any particular line of defense, and consequently had the right to set up as many as he had reason to believe could be substantiated. The question of collusion between the plaintiffs and one or more of the-members of the firm of Wettstein, Oehninger & Co. was not an issuable fact to be determined at the trial, and the amendment allowing such collusion to be averred which was made in the course of the trial, was wholly unnecessary and did not affect the rights which the receiver otherwise possessed. The question of collusion was disposed of by the proceeding which terminated in the order allowing the receiver to come in and defend without limitation, and as that order was not appealed from, he had a right to substantiate at the trial, if he could, every defense interposed, and to claim such, a verdict as his proof entitled him to. He did interpose as a distinct and separate defense that the-transactions out of which the suit arose were illegal and against good morals in their inception and carried on in violation 'of the law of the land, and he had a right to show it. if he could. Enough appears in the case to show that the defense was not altogether without any foundation in fact. That this defense may enure to the benefit of the other defendants, though not pleaded by them, can under the exceptional circumstances of this case make no difference, lor the object of the plaintiffs in this'action clearly is to obtain a judgment having the force and effect of a final and conclusive adjudication as to their right to share in the assets of the firm in the hands of the receiver together with the bona fide creditors. That such assets are insufficient to satisfy all creditors in full, is a conceded fact in the case. For the reasons stated the court below erred in excluding the evidence offered by the receiver for the purpose of substantiating the defense of fraud and in refusing to pass in any manner upon the issue raised by the interposition of that defense. For the same reasons the receiver could not be deprived of his right of appeal by the direction of a verdict against Wettstein and Meyer only. The facts that he is a party to the record, that he has an interest in the result, and that he feels aggrieved by the disposition made, give him a sufficient standing before the general term.

As the conclusions already reached necessarily call for a new trial, it is unnecessary to consider the remaining questions.

The judgment appealed from should be reversed and a new trial ordered as against the appellants, with costs to appellants to abide the event.

Spbie, J., concurred.