Case ID: scl_48/html/0018-01.html
Source: Caselaw Access Project
Author: {"author": "Wardlaw, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Horatio Kuhne vs. J. McD. Law.
    
      Partnership — Separate Pstate — Buie on Sheriff — Legal Liens — Gase Overruled.
    
    "Where the separate property of a member of a partnership is sold under an older execution against the firm and a junior one against him individually, the> junior and separate execution creditor cannot, by rule, compel the Sheriff to apply the proceeds of the sale to his execution in preference to the older one against the firm. Roberts vs. Roberts, 8 Rich. 14, overruled.
    If the separate creditors of a member of a firm have any equity to have his separate estate applied to the satisfaction’of their debts, to the exclusion of creditors of the firm who have acquired legal liens by means of executions against the firm, they must apply to a Court of Equity for relief. The Law Court looks only to the liens, and satisfies them according to their legal priority.
    That partnership effects must first be applied to partnership debts is a well settled rule, but the authorities are so conflicting that it seems to be unsettled in this State, whatever the rule may be elsewhere, whether separate effects are first to be applied to separate debts. The argument and authorities on both sides of the question stated.
    BEFORE "WARDLAW, J., AT SUMTER, FALL TERM, 1861.
    Horatio Kuhne had an execution against J. McD. Law, which was lodged with the Sheriff of Williamsburg on the 25th April, and with the Sheriff of Sumter on the 10th May, 1860. S. S. Farrar, Bros. & Oo. had an execution against Law, Law & Co., of which firm J. McD. Law was a member, which was lodged with the Sheriff of Sumter on the 20th April, 1860. Hnder the execution of S. S. Farrar, Bros. & Co., the Sheriff of Sumter, on the 26th April, 1860, levied on two negroes “ as the,property of J. McD. Law,” and under the execution of Kuhne, he on the 17th May, 1860, levied on the same negroes. On the 8d December, 1860, the Sheriff sold the negroes for $1,565, a sum insufficient to satisfy the execution of S. S. Parrar, Bros. & Oo. Kuhne!s execution then amounted to about $1,200. He immediately notified the Sheriff that he claimed that amount of the proceeds of the sale, and this was a rule on the Sheriff to show cause why he had not satisfied the plaintiff’s (Kuhne’s) execution from said proceeds. The Sheriff’s return stated the facts of the case, and that he held the proceeds subject to the order, of the Court.
    Wardlaw, J. I discharged the rule, not thinking it safe to deprive the plaintiffs in the older ji. fa. of their precedence, by a proceeding to which they were not parties. The case of Roberts vs. Roberts, 8 Bich. 14, to which I was referred by the actor in the rule, does not seem to me to'be supported by the other case of Wilson & Co. vs. Bowden, 8 Bich. 9, which is cited for its support.
    The actor in the rule, Kuhne, appealed, and now moved this Court to reverse the decision of the Circuit Court and make the rule absolute: Because, by law, the proceeds of the sale of the two negroes, referred to in the return, were applicable to the execution of the plaintiff.
    
      J. S. G. Richardson, for appellant,
    cited ■ Ex parte Crowder, 2 Vern. 706; Ex parte Elton, 3 Ves. 240; Story on Part. § 363,365, 376, 377, 378; 2 Kent Com. (5th Ed.) 65, and note b; 2 Spence Eq. Jur. 213; Cary on Part. (219,) (220,) 5 Law Lib. 88 ; Murrill vs.'.Neill, 8 How. 425,17 Curt. 646; Woodrop vs. Price, 3 Dess. 207; Hall vs. Hall, 2 McO. Oh. 302; Sniffer 
      
      & Paxton vs. Pass, MSS. Charleston, 1828 ; Wardlaw vs. Gray, Dud. Eq. 94; Gadsden vs. Carson, 9. Rich. Eq. 252; Wilson vs. McConnell, 9 Rich. Eq. 500.
    
      
      Dessaussure, contra,
    cited Jones vs. Postel, Harp. 92; 1 Mer. 529; Ool. on Part. 337; 2 Johns. Cb. 509 ; 2 Story Eq. § 677; Eicb. Eq. Cas. 369.
    
      
      IN THE COURT OF APPEALS.
      (Mjmtefaa, ¿frkmtrg fam, 1828.
      JUSTICES. PRESENT.
      HON. ABRAHAM NOTT.
      “ CHARLES J. COLCLOCK.
      “ DAVID JOHNSON.
      Sniffer & Paxton vs. Administrator of William H. Sass.
      
        PaA'tn&rsMp — Administration of Assets.
      
      A and B had been in copartnership, and a creditor of the firm recovered judgment against them. A became insolvent, and B died, leaving separate assets, and also separate creditors, whose demands were not in judgment: — Held,, that the separate creditors were entitled to be first paid out of the separate assets, in a due course of administration, and that if any surplus remained after payment of the separate debts, it was applicable to the judgment against the firm. ■
      It has been the settled law of this State, since the year 1797, that the separate creditors of a member of a firm are entitled to be paid out of his separate estate in preference to the creditors of the firm.
      BEFORE THOMPSON, CH., AT CHARLESTON, APRIL, 1827.
      The decree of his Honor, the Circuit Chancellor, is as follows:
      Thompson, Ch. H. B. Toomer and William H. Sass were copartners in trade from the year to 1817, at which time there was a dissolution of the copartnership. In 1828 the complainants, as executors of George Beek, obtained judgment at law against Toomer & Sass. In 1824, in the life of Sass, Toomer took the benefit of the Insolvent Debtors’ Act. In November, 1825, "Sass died, leaving assets, now in the hands of -Ins administrator, which assets were acquired several years after the copart-nership had been dissolved. The question submitted for the consideration of the Court' is, whether the aforesaid judgment shall be paid.out of the assets of William H. Sass in preference to his private creditors, which debts consist entirely in choses in action, on which no judgments have been obtained. The doctrine laid down in the authorities relied on by the counsel for the defendant is certainly correct, that the copartnership funds are primarily liable for the payment of the copartnership debts before recourse can be had upon the private funds of each copartner. But in the event of an insolvent copartnership, or where it is inadequate to the payment of its debts, the private funds of each individual copartner may be resorted to. For the defendant it is contended, that inasmuch as the funds of Sass had accrued subsequently to the dissolution of the copartnership, they are exclusively liable to his private creditors, who had extended credit to him on the faith thereof. This argument dbes not hold good. As cautious men they should have made inquiry of what liens this property was subject to, and they would have readily found that it was bound by the judgment before alluded to, as well as others. And being so bound, all property subsequently acquired was liable to go in satisfaction thereof, until it had become entirely extinguished. It is therefore ordered and decreed, that the defendant do pay over to the complainants, out of the moneys in his hands belonging to the estate of his intestate, the judgment aforesaid, together with interest and costs, unless'it should appear that there exist previous preferable liens, the balance of the funds to be applied in a due course of administration.
      From this decree the defendant appealed on the ground: That the private creditors of William H. Sass were entitled to payment out of the assets of William H. Sass’ estate, in preference to the judgment creditors of Toomer & Sass, under tlie circumstances of the case.
      
        The opinion of the Court was delivered by
      Nott, J. If this were now a new question, I think it would have been one of no inconsiderable difficulty. But it appears to me to be too well settled in this State to be now drawn into question. The case of Woodrop vs. Mxecutor of John Price, 8 Dess. 203, was precisely the case now under consideration. Judge Dessaussure, who tried the cause, says: “The question is, whether the decree against Price & Co. binds his private estate, was to put complainant’s demand on a footing of judgments against J. Price in his private capacity, with priority over his bond creditors, there being no joint estate out of which the debt can be paid.” “Upon this question” (the Chancellor observes) “a Judge sitting here is not at liberty to entertain a doubt. It has been settled by repeated decisions of this Court, that the private estate is primarily liable to the private creditors, and the copartnership effects to the copartnership creditorsand although that is but the opinion of a single Chancellor, yet several cases are referred to, from which it would appear that the decision had been uniformly the same way from the year 1797 up to that time, and from that time to the present, being near years, the rule does not appear to have been questioned: and we are authorized to draw the same inference from the acquiescence of the learned and experienced counsel employed in that case. In the case of Tunno and Trezevant, 2 Dess. 264, 270, which was tried in the year 1804, before all the Chancellors, the same rule is laid down. I think, therefore, without looking beyond our own decisions, we ought to consider the question now as settled, and not again to be disturbed. But it appears to me also to be conformable with the decisions of the English courts. In 1 Montague on Part. 214, it is said the joint estate is applicable to the payment of the joint debts, and the separate estate to the payment of the separate debts, and the surplus of. either estate must be added to the other deficient estate; that inference is drawn from a great variety of cases, collected in the appendix of the same volume, page , from which it will appear that the rule was regularly applied from the year 1682 to the year 1759, including the whqje time of the chancellorship of Lord' Hardwicke. The principle of those decisions is stated in Em parte OooJe, 2 P. Wms. 500, where the Lord Chancellor says, it is settled and is a resolution that joint creditors shall be first paid out of the partnership or joint estate, and the separate creditors out of the separate estate. Indeed the same rule prevailed until the year 1784, when Lord Thurlow had the boldness to innovate upon a practice which had governed the decisions of successive Chancellors for a hundred years.
      The rule adopted by Lord Thurlow was, that the bankrupt’s property, consisting of his separate property and his interest in the joint property, should be appropriated indiscriminately to the payment of the joint and separate creditors. Lord Loughborough succeeded Lord Thurlow, and treated his decisions with as little respect as he had done those of his predecessors. He w<3nt back nearly to the old rule, which had prevailed until the time of Lord Thurlow, making a distinction, the good sense of which I-have not been able to discover, but which, as it relates principally to cases of bankruptcy, it is not now necessary to consider.
      When Lord Elden came in he adopted the rule as settled by Lord Loughborough, but he observed that he did so, that the rule might not change with every new judge, rather^than from any other motive; Ex parte NuttaTl, 6 Ves. 814; but never failed to find fault with it whenever he had occasion to consider the question. But non nostrum tantas eom-ponere lites. The rule established by our own Courts appears to me to be consonant with the general principles of the English decisions, and equally consistent with the general principles of law; vide Grey vs. Ohiswell, 9 Ves. 124. The cases in the English books have, to be sure, arisen generally under tlieir bankrupt laws; but if it is a good rule in cases of bankruptcy, I cannot perceive why it should not be equally so in other cases. Upon a separate .execution against the property of only one member of a firm, the plaintiff is entitled only to the partner’s share of the partnership property. 1 Montague, 99; Heyden vs. Heyden, Salk. 393 ; -vs. Butler, 2 Ld. Ray. 871; West vs. Skip, 1 Yes. 239. And even then the purchaser can take only the partner’s share ofthe surplus after all the partnership debts are paid. Fox vs. Hanbury, Cowp. 445 ; Skip vs. Ha/rwood, before’Lord Hardwicke, 1747; Tailor vs. Fields, 4 Yes. 396 ; Button vs. Morrisson, 17 Yes. 201; Ohapman vs.-, 3 B. & P. 289. If, therefore, the separate creditors must take the partnership effects, subject to the partnership debts, it would appear that, upon principles of reciprocity, the partnership creditors ought to take the private effects upon the samé terms.
      It is, however, contended, that by the provisions of the Executors’ Law of 1789, the debts must be paid according to the order therein prescribed, and that, as the plaintiff had a judgmeht and execution which gave him a lien on all the estate of the defendant’s intestate, whether joint or separate, he was entitled to priority. But that was the case of Woodrop and 
        Price, 3 Dess. 203, in which Judge Dessaussure observed that it was a question on which he was not at liberty to entertain a doubt; and if it was so well settled at that time (in 1811) we are surely not at liberty to entertain a doubt upon the subject now. For although the Act requires the debts to be paid in a particular order, it does not meddle with the fund out of which they are to be paid, and all that can be required is, that each particular class of debts, should be paid out of its appropriate fund, according to the terms of the Act. The rule, therefore, as heretofore settled by the Court of Equity, does not appear to be incompatible with the provisions of the Act, nor with the general principles of law applicable to the subject. And if the correctness of it were still more doubtful, I should think it unwise and improper to innovate upon it after such long acquiescence. I am of opinion, therefore, that the decree of the Chancellor must be reversed.
      It is ordered, decreed, and adjudged, that the private creditors of the said William H. Sass be first paid out of the funds in the hands of the defendant, according to the due course of administration; and that, after paying the same, the balance, if any, be paid over to the complainants, and that the costs be paid out of the funds; and that if there should be no balance after paying the private creditors, that the bill be then dismissed, with costs.
    
   Tbe opinion of tbe Court was delivered by

Wardlaw, J.

Tbe case of Roberts vs. Roberts, 8 Ricb. 14, was, in all material circumstances, identical with tbe one now before us, — a rule against tbe Sheriff at tbe instance of a separate creditor, under which a partnership creditor, without notice to bim, so far as can be perceived, was deprived of the lien wbicb bis execution against tbe firm bad upon tbe property of the defendant, who was one of tbe partners. When tbe present case was first argued before this Court of Appeals in May last, tbe attention of tbe Court was called to cases in our Court of Equity, wbicb bad fully considered tbe question, and decided that a separate creditor of one partner was not, in reference to the estate and effects of that partner, entitled to precede a creditor of the firm. Wardlaw vs. Gray, Dud. Eq. 112; Fleming vs. Billings & Belk, 9 Rich. Eq. 149; Gadsden vs. Carson, 9 Rich. Eq. 257, 267; Wilson vs. McConnell, 9 Rich. Eq. 510. In the hope of effecting uniformity of decision on this subject, this Court referred to the Court of Errors the question whether a separate creditor had such right to primary payment out of the effects of a partner, his debtor, as would override the prior lien of a partnership creditor.

That question was, during our present sitting, argued before all the Judges assembled in the Court of Errors. For the separate creditor, it was argued that the rule — partnership effects are primarily liable to partnership creditors, and separate estate to separate creditors — is drawn from the Boman law, and tbe first branch of it which gives a preference to partnership creditors with respect to partnership effects prevails universally and is undisputed: that the converse of the rule, under which preference is given to separate creditors with respect to separate effects, may be found to have been decided in England as early as 1715, and was probably held there long before; — prevailed there uniformly for 70 years, (in which is embraced the whole period of Lord Hardwicke’s chancellorship) until it was reversed by Lord Thurlow in 1785; — was there re-established by Lord Loug-borough in 1796, and has ever since had the sanction of successive Chancellors; — was recognized in this State as early as 1797, ( Woodrop vs. Price, 3 Dess. 207;) and often afterwards acted on, (Hall vs. Hall, 2 McC. Ch. 302,) especially in a case now in manuscript, (Sniffer & Paxton vs. Admrs. of Sass,) where Judge Nott, in 1828, made a careful examination of the whole subject; prevails in New York, Massachusetts, and Maryland, and in 1850 was, in the Supreme Court of the United States, firmly established in an able opinion pronounced by Judge Daniel. Murrill vs. Neill, 8 How. 414.

Eor the partnership creditors it was argued, that the preference given to partnership creditors, with respect to partnership effects, results from the right subsisting between the partners, under which each partner is entitled to only his share of the surplus after payment of the debts and settlement of the accounts of the firm, which share is all that can be reached by a separate creditor under his execution against one partner; that the converse of the rule cannot be referred to the same principles — is sometimes in equity the result of the doctrine that he who can resort to either of two funds shall not be permitted to interfere with those who are confined to one — but where there is no fund remaining but the separate estate, has no support even in equity, by which it could resist the lien which a senior execution of a partnership creditor has upon the estate of every member of the firm; that reasons have been suggested such as these: in extending credit a partnership creditor looks to the firm, a separate creditor to the separate estate; credit given to the firm increases its means, credit given to the separate partner increases his means; but these are fanciful, and contrary to what every one acquainted with partnerships in rural districts knows tobe true; that the case of Wardlaw vs. Gray established in 1837 the right of partnership creditors, after exhaustion of the partnership effects, to come in pan passu with separate creditors in the distribution pro rata of the estate of a deceased partner, and so the Courts of Equity in this State have ever since administered the rule, having carefully re-examined the subject in 1856-7 in the three cases, 9 Rich. Eq;, before cited; that the converse of the rule grew up in the English Court of Bankruptcy, where it was adopted for its convenience, and has been there extended to the Courts of Equity by Chancellors presiding in both Bankruptcy and Equity, but even in the distribution of assets in the power of a Court of Equity does not control prior liens: if ever recognized at law, it could not be applied in a Court' of Law with a just regard to the rights of all parties.

The Court of Errors attained no satisfactory conclusion respecting the rule which should prevail in equity in the distribution of separate effects between separate and partnership creditors; but the Judges were nearly, if not entirely, unanimous in the opinion that at law the supposed preference given to a separate creditor should not be allowed to prevail against a prior lien acquired by a partnership creditor. They considered the case of Roberts vs. Roberts as one inconsiderately adjudged, sustained by no previous decision in the State, and rather oppugned by the effect which in Wilson vs. Bowden, cited for its support, was given to the legal rights of the as-signee. This case was then withdrawn from the Court of Errors, and is now decided by this Court.

After what has taken, place, the case of Roberts vs. Roberts no longer controls us. That case was probably submitted without argument, and decided under misapprehension. Of those who signed the hasty opinion given in it, no one now living, who has spoken about it, has the least remembrance of it. The other cases at law found in our reports (Crawford vs. Baum, 12 Rich. 75; White vs. Union Co., 1 N. & McC. 517) show that partnership creditors must be satisfied before any portion of a partner’s, share of the surplus can go to his separate creditor; for the separate creditor can sue but one, whereas to partnership creditors all are bound, and it is the right of the partners who are not indebted to the separate creditor, that the partnership debts should be paid. If there is an equity which gives to the separate creditor a preference as to separate effects, in a Court of Equity only can such equity be projected — for there only can all persons interested be made parties, and the proper inquiries concerning the partnership effects, and disposition of effects of both kinds, be had. Every case which has been cited to sustain what is called the converse of the rule is an equity case. At law the firm and every partner in it is bound for a partnership debt. The liability is said to be joint and several.; but the contract is joint only. Suits against partners severally could not be sustained. Each of them is the agent of the others, and the law makes no distinction between an execution against them as partners and one against them as joint contractors acting each for himself. (See cases cited, 11 Rich. L. 730.) Either execution has a lien upon the goods of every one of them, and satisfaction of either execution may be exacted from any one of them, leaving him to compel contribution from the others.

We know not here that there are any partnership effects, or that the estate of the separate creditor is not sufficient to satisfy creditors of both kinds. It has been further suggested in argument that we have no certain information that H. Kuhne is really a separate creditor, for it is said that Law’s note was given for goods purchased by the firm. This insufficiency of our information strengthens the argument against the attempt of a Court of Law in any form to maintain a separate creditor’s supposed equity; but it is specially influential in a case like this, brought forward by a rule on the Sheriff, in which no order in favor of the separate creditor could be made, that would conclude partnership creditors no parties to it, or would secure the Sheriff. The propriety of leaving, to be determined in actions between the parties, their opposing rights thus brought before the Court by rule on the Sheriff, has frequently been held, (Cooper vs. Scott, 2 McM. 155; Dawkins vs. Pearson, 2 Bail. 619; Cannady vs. Odum, 2 Rich. 528,) and might of itself have availed for the dismissal of this rule, had not the case of Roberts vs. Roberts stood as a precedent; which, in the first place, we were required to remove.

The motion is dismissed.

Bunkin, C. J., and Inglis, A. J., concurred.

Motion dismissed.