Case ID: cin-sup-ct-rep_1/html/0460-01.html
Source: Caselaw Access Project
Author: {"author": "Hagans, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Andrew Pfirrman, Plaintiff in Error, v. David Koch et al., Defendants in Error.
    K. and F., partners, dissolved, F. buying out K.’s interest, giving bis note tberefor. F. insured, and a loss by fire occurred. The firm at the time, without the knowledge of either, was insovent. Judgment against F. was recovered on the note, and a lien obtained on the insurance money, when the judgment was assigned in payment of K.’s individual debts. The plaintiff, a firm creditor, afterward claimed to subject the same fund.
    
      Held, That the firm creditors had no lien on the firm property to prevent a valid sale thereof.
    That such a valid sale might, Iona fide, take place as between partners as well as to strangers.
    That the purchase and sale as between F. and K. was not a fraud on firm creditors.
    That K.’s judgment was entitled to be satisfied from F.’s assets in its order . of priority, and that the assignees had a better equity than the plaintiff.
    
      This was a proceeding in error on the part of the plaintiff below, to reverse a decree of tbe court in Special Term, rendered in favor of some of the defendants.
    Tbe whole case is fully stated in tbe opinion.
    
      Forrest & Lindemann, for plaintiff in error.
    
      Shonter & Smith, contra.
   Hagans, J.

Koch & Freiderich were in partnership in the liquor business. Neither of the parties were aware of tbe fact that the partnership was actually insolvent, when Koch sold out bis interest in tbe firm to bis copartner, Freidericb, for $1,000, who gave his note therefor. Freidericb took all tbe property, and assumed all tbe firm liabilities, and also insured tbe property, after bis purchase, in bis own name. Tbe note was not paid when due, and Koch brought suit on it against Freidericb, and obtained judgment. In tbe meantime Freidericb, who was still carrying on tbe business, was .burned out, and tbe loss was adjusted with tbe insurance companies. Koch instituted proceedings, in aid of execution, on bis judgment against Freidericb, in tbe Probate Court, served process on Freidericb and tbe insurance companies, and sought to subject tbe funds in their bands to tbe payment of bis judgment. "While tbe proceeding in tbe Probate Court was pending, Koch, in good faith, assigned part of tbe judgment to Anthony Shoiiter, part to Hauck & "Windiscb, and tbe residue to Philomena Arndt, in satisfaction of bis individual indebtedness to them, of which assignments tbe insurance companies were notified. Some of tbe creditors of tbe firm of Koch & Freidericb afterward brought suit in the Court of Common Pleas on judgments obtained by them against Koch & Freidericb, in which they sought to subject the same funds in tbe bands of tbe insurance companies to tbe payment of tbe judgments, and enjoined further proceedings by Koch in tbe Probate Court. Tbe plaintiff' in this action, who held a judgment against Koch & Freiderich, was not. a party to any of these proceedings, and six months afterward brought this suit in this court, making all the parties in the cause pending in the Court of Common Pleas parties here, and alleged that the sale of Koch’s interest in the firm to Ereiderich was a fraud; that the indebtedness of $1,000, the consideration of said sale, was fraudulent and void, as against the creditors of the firm, because the interest sold was, in fact, worthless, the firm being insolvent at the time, of which the plaintiff was then personally cognizant, and asks that the liens on the funds in the hands of the insurance companies be marshaled, and that his judgment be paid therefrom.

In the meantime, after this suit was brought, the cause pending in the Court of Common Pleas was tried, and that court adjudged the funds to belong to the partnership creditors,, in the order of priority, but also gave effect to the said judgment, obtained by Koch against Ereiderich, and decreed that the assignees thereof be paid out of the funds, in their order of priority. That decree was not carried into effect, so far as the assignees of the Koch jugdment are concerned, by common consent. These assignees have filed their answers here, not only setting up the decree in that case in bar to this suit, but denying plaintiff’s right to recover at all as against them.

The plaintiff now claims that the goods burned were substantially firm property, though the testimony shows no satisfactory identity of the property sold by Koch to Ereiderich with those insured by Ereiderich, and burned; and also seeks to recover out of the funds enough to satisfy his judgment against the firm. Koch was insolvent when this suit was brought, and is still insolvent; and Ereiderich has since died, and his estate is also insolvent.

We have not considered the effect of the decree rendered in the Court of Common Pleas during the pendency of this suit, preferring rather to consider this case upon its merits.

It is a familiar principle of the law that fraud vitiates all contracts. If this sal e of Koch to Ereiderich were fraudulent, as against the firm creditors, such funds as those that appear here might be reached by the application of equitable principles in a proper case. No actual fraud was committed by either of the parties at the time of the sale, which seems to have been bona fide. Indeed, so far as the testimony shows, it is questionable whether the firm was really insolvent at the time of the sale, though, for the purposes of the case, it may be said to have been so in the popular sense of the term. It does not necessarily follow that the interest in the stock of goods was the only consideration of the note. Both the partners agreed at the time that Ereiderich should buy out Koch at the price of $1,000. Ereiderich made no resistance to the recovery of the judgment on his note for the purchase money, nor did he in his lifetime, nor has his administrator since his death made any objection, either to the payment of the judgment or the assignment by Koch of the same to the payment of his individual creditors.

Was there any reason, under the circumstances, why one partner might not sell out to the other in good faith? We think not. It was entirely competent, upon the dissolution of the firm, that the members of it should agree, for a valuable consideration, that the partnership property should belong to one of them; and thereby the whole property will be vested in such partner, wholly free from the claims of the firm creditors. These creditors had no lien on the partnership property for their debts, but only an equity, to be worked out through the partners, to insist upon its application thereto. Story on Partnership, sec. 358 et seq.; Wilcox et al. v. Kellogg et al., 11 Ohio, 394; Belknap v. Cram et al., 11 Ohio, 411.

Clearly, therefore, the property vested in Koch absolutely, who insured it in his own name. No lien on the property, on the part of any firm creditor, admitting that they were the goods of the former partnership that were destroyed, and that the insurance money was really the firm’s, was had until after Koch had seized the funds in the hands of the insurance companies (Bank of Rochester v. Bank of Sandusky, 6 Ohio St. 254), and had actually transferred the judgment to the defendant in satisfaction of his individual debts, to which Freideriec may be held to have assented, as he did not then or at any subsequent time resist. And this transfer would be good, both in law and equity, though the assignees of the judgment knew the parties were insolvent. Sigler v. The Knox Co. Bank, 8 Ohio St. 511; Gwin, Reed & Taylor v. Selby et al., 5 Ohio St. 97.

It is argued that the plaintiff has a prior or better equity than the defendants. We have seen that the sale vested the title to the property in Freiderieh; that the funds in the hands of the insurance companies were his, and not those of the firm, and that the firm creditors had no lien upon it. How, then, can the plaintiff claim any prior or better equity? If he seeks to subject these funds as the funds of Freiderieh, Koch had seized them by his proceedings in aid of execution, and the plaintiff made no effort to do so until six months afterward. If he seeks to subject these funds as the funds of Koch, Koch had assigned to the defendants long prior to the service of process in this case. The equity of the assignees of the judgment, in any view we can take of this cause, is prior and better than that of the plaintiff'.

The judgment will be affirmed.