#### Frame and others, Executors, Respondents, vs. Attermeier and another, Appellants.

*November 16*

December *5, 1911.*

*Contracts: Consideration: Parol evidence to explain writing: Bankruptcy: Partnership and individual estates: Dividends.*

1. Where an assignment recited that it was made in consideration of “one dollar and other good and valuable considerations,” parol evidence of the negotiations leading up to the written agreement was admissible to show what such other considerations were. Such evidence did not tend to vary or contradict the written instrument, but only to explain it.

2. Within the meaning of an agreement by which the assignee of certain. claims against the bankrupt estate of a partnership was to pay to the assignor any amount in excess of five per cent, which might be received as a dividend from such bankrupt estate, a dividend paid to the assignee upon such claims was received from the bankrupt estate of the partnership, although the funds from which it was- paid were derived from *486the individual bankrupt estate of one of the partners, the assets of whose estate were never formally transferred to the assets of the firm estate. The only way in which firm creditors could lawfully receive a dividend derived from the individual estate of a partner was by virtue of a transfer, actual or constructive, to the partnership estate; hence a constructive transfer by operation of law must be held to have been made.

Appeal from a judgment of the circuit court for Milwaukee county: J. C. Ludwig, Circuit Judge.

*Affirmed.*

The following are the main facts in the case so far as they relate to questions presented by this appeal. Further facts will be stated in the opinion, where they are discussed: One Richard Weaver was the owner of sis promissory notes executed by the firm of William Gerlach *&*Company, aggregating $15,744.34. In 1905 the firm was adjudged a bank-, rupt, and Weaver’s claim filed against the estate in the bankrupt court was allowed at the amount stated. On or about the 27th day of February, 1906, Weaver, by an instrument in writing, sold his interest in said notes and claim to the defendant *Attermeier*in consideration of one dollar and other good and valuable considerations. On the next day the defendant *LaBoule*signed and delivered a contract to Weaver wherein, for a valuable consideration, he agreed that “in the event that the creditors of William Gerlach & Company received from the bankrupt estate of said William Gerlach & Company a dividend of more than five per cent, upon claims filed in said bankruptcy proceedings, within ten days after said dividend is payable,” he would pay to Richard Weaver, his executors, administrators, or assigns, “any amount exceeding five per cent, declared and paid as dividends in said bankrupt estate above mentioned which would be a dividend upon claim of said Richard Weaver filed in said bankruptcy proceedings on the 8th day of August, 1905, and amounting in the aggregate to $15,744.34.” The agreement further provided that, in the event the creditors of said William Ger-lach & Company did not receive more than five per cent, divi*487dend upon claims filed therein at the final settlement of said bankruptcy proceedings, it sbonld be null and void. Weaver died in 1906 and plaintiffs were duly appointed executors of bis estate. They bring this action to recover the amount in excess of five per cent, that *Attermeier*received from the bankrupt estate of William Gerlach & Company, claiming that be orally agreed to repay such amount as part consideration for the assignment to him of the notes, be having paid at the time of the assignment five per cent, of the amount of the claim, or $787.32, and no more. Previous to the commencement of this action *Attermeier*bad received from the estate of George W. Goes, deceased, a partner of the firm of William Gerlach & Company, a dividend of $4,640.34. By a compromise agreement between plaintiffs and *Attermeier*it was agreed that only three eighths of this dividend, or $1,740.09, should be considered as a dividend from the bankrupt estate of William Gerlach & Company. *Attermeier*deducted $787.22, the amount he had paid for the notes at the time they were assigned to him, and paid the balance of $952.87 to plaintiffs. This, as plaintiffs claim, left all future dividends received from the bankrupt estate of William Gerlach & Company payable to them. Later the referee in bankruptcy declared a dividend of nine per cent., six per cent, of which was paid out of assets derived from the bankrupt estate of Ered E. Goes, the sole surviving partner of the bankrupt firm, and three per cent, out of assets derived from the estate of William Gerlach & Company. Plaintiffs claimed they were entitled to the total dividend of nine per cent., while defendants contended they were entitled only to the three per cent, derived directly from the estate of William Gerlach & Company. The court made voluminous findings of fact, many of which were not material to the issues involved, and rendered judgment for plaintiffs for the whole dividend of nine per cent., amounting to $1,416.99. The defendants appealed.

*488Eor the appellants the canse was submitted on the brief of *Charles J. Werner.*

For the respondents there was a brief by *Frame & Blackstone,*attorneys, and *A. W.*Fairchild, of counsel, and oral argument by *Mr. A. J. Frame*and *Mr. Fairchild.*

Viuje, J.

The court properly received evidence of the negotiations leading up to the making of the written agreement for the purpose of showing the consideration paid by the defendant *Attermeier*for the assignment to him of the notes. The assignment recited that it was made in consideration of “one dollar and other good and valuable considerations.” It was therefore competent to show by parol what the other good and valuable considerations were. Such evidence did not tend to vary or contradict the written instrument, but only to explain it. *Klueter v. Jos. Schlitz B. Co.*143 Wis. 347, 128 N. W. 43.

The finding of the trial court that *Attermeier*agreed, as a part consideration of the assignment, to repay any amount in excess of five per cent, received from the bankrupt estate of William Gerlach & Company, is amply sustained by the evidence. The witness *A. J. Frame*testified specifically that such an agreement was made, and *Attermeier*himself, in an examination under sec. 4096, Stats. (Supp. 1906: Laws of 1901, ch. 244), in a former suit, stated that “these notes have been proven as a claim against the estate of Frederick E. Coes, as surviving partner of William Cerlach & Company, in bankruptcy in the district court of the United States for the Eastern district of Wisconsin, and any amount that is secured by way of dividends in the bankruptcy court upon these notes over and above the amount of $787.22, the amount paid by me, is to be returned and paid over to R. Weaver, that is the Weaver who executed the assignment to me.” The compromise agreement entered into between plaintiffs and *Atter-meier*as to the disposition tp be made of the dividend re*489ceived from tbe estate of George W. Goes, deceased, as well as tbe contract of guaranty executed by tbe defendant LaBoule, support tbe finding tbat *AMermeier*agreed to repay any amount in excess of five per cent. Indeed, there is no testimony in tbe case tbat would support a contrary finding.

Ered E. Goes, tbe sole surviving partner of tbe firm, was adjudged a bankrupt, not because of individual debts, but solely on tbe ground of bis liability for partnership debts. No individual debts were filed against bis estate, but only tbe debts of tbe firm were filed and allowed therein, and six per cent, of tbe final dividend of nine per cent, paid tbe creditors of tbe firm was derived from tbe assets of tbe individual estate of Mr. Goes. We quite agree with counsel for defendants in saying tbat tbe question of whether or not plaintiffs are entitled to this dividend of six per cent, is tbe only question tbat should be in tbe case. It appears tbat tbe trustee of tbe firm estate was also tbe trustee of tbe estate of Ered E. Goes, and tbat tbe referee in bankruptcy in tbe firm estate ordered a dividend of six per cent, to be paid on partnership claims out of tbe assets derived from tbe estate of Ered E. Goes and a dividend of three per cent, out of tbe assets derived from tbe estate of William Gerlacb & Company. Defendants claim tbat inasmuch as tbe assets of tbe estate of Ered E. Goes were not formally transferred to tbe assets of tbe firm estate, plaintiffs are not entitled to tbe six per cent, dividend.

Sec. 5 f of tbe Bankruptcy Act of 1898 (30 U. S. Stats, at Large, 548, cb. 541) provides tbat “tbe net proceeds of tbe partnership property shall be appropriated to tbe payment of the' partnership debts, and tbe net proceeds of tbe individual estate of each partner to tbe payment of bis individual debts. Should any surplus remain of tbe property of any partner after paying bis individual debts, such surplus shall be added to tbe partnership assets and be applied to tbe payment of tbe partnership debts.” 2 Kemington, Bankruptcy, p. 1760. *490Since Ered E. Goes bad no individual creditors, his whole estate became by operation of law subject to the partnership debts. *Dickas v. Barnes,*140 Fed. 849, 5 L. R. A. n. s. 654. The mere fact that the referee in his order specified the sources whence the dividend of nine per cent, was derived rendered it none the less a dividend paid out of the marshaled assets of the partnership estate. It has uniformly been held that partnership creditors cannot recover directly from the individual members of the partnership, but must do so by filing their claim against the firm and thus receive whatever surplus there may be from the individual members by its addition to the partnership assets. *In re Henderson,*142 Fed. 588; *Euclid Nat. Bank v. Union T. & D. Co.*149 Fed. 975; *In re McCoy,*150 Fed. 106, 108. *Attermeier*therefore could not receive anything on his debt against the partnership directly from the estate of the individual partner, Ered E. Goes. The only way in which he could share in the surplus of the Ered E. Goes estate was by its transfer, actual or constructive, to the partnership estate. A constructive transfer by operation of law must be held to have been made in order to entitle *Attermeier*to receive a dividend derived from the individual estate of Ered E. Goes. The only way he could lawfully receive it was through the partnership estate. He did receive it, and no claim is made that it was not lawfully received. Hence the dividend of nine per cent, must be regarded as paid out of the partnership estate; and if so, it follows that plaintiffs were entitled to the whole thereof.

*By the Court.*— Judgment affirmed.