Case Name: John A. Macdonald, Pl'ff, v. The Trojan Button Fastener Company et al., Def'ts
Court: New York Supreme Court
Jurisdiction: New York
Decision Date: 1890-03-14
Citations: 29 N.Y. St. Rep. 867
Docket Number: 
Parties: John A. Macdonald, Pl’ff, v. The Trojan Button Fastener Company et al., Def’ts.
Judges: 
Reporter: New York State Reporter
Volume: 29
Pages: 867–873

Head Matter:
John A. Macdonald, Pl’ff, v. The Trojan Button Fastener Company et al., Def’ts.
(Supreme Court, Special Term, Rensselaer County,
Filed March 14, 1890.)
1. Pabthebship—Tbahsfee of assets bt faetheb.
While one partner may transfer the firm property to a creditor in payment of a firm debt, he cannot transfer the entire property to one who is not a creditor, with the object and intent of putting an end to the part nership business and placing the partnership effects beyond the reach and control of his copartner.
2. Same.
Plaintiff and defendants, H. and W., were copartners. These defendants gave plaintiff notice of dissolution, and organized a corporation under the same name as the firm, to which they transferred all the firm property, notified customers of the firm of such transfer, and received the letters, checks, etc., sent to the firm. Held, that such transfer could not be upheld; that at most it was a transfer of the interest of H. and W. in the property which gave the corporation no title to the property itself, and that as the partnership was dissolved, plaintiff, as continuing partner, was entitled to possession for-the purpose of winding up the business.
S. Same—Injunction.
Neither partner was entitled to the exclusive use of the firm name, and its use by the defendant corporation cannot be restrained after dissolution "of the firm, nor can it be restrained from carrying on the same business, licensing others to use machines, the patent on which it may be the owner of in part, or selling articles in common use to any who may choose to buy of it.
Motion to dissolve an injunction.
G. M Patterson, and Smith & Parmenter, for motion; N. Davenport and Eselc Cowan, opposed.

Opinion:
Fursman, J.
In May, 1885, the plaintiff and the defendants Ham and Wight entered into co-partnership in the business of manufacturing and selling hand-power button setting machines, and foot-power button setting machines, of leasing such machines to others, and in manufacturing and selling fasteners, staples, buttons, etc. The name and style adopted by the firm was " The Trojan Button Fastener Company."
The original articles provided for a partnership of one year, but the partnership was continued by mutual consent after that period, and down to about the time of the commencement of this action. The articles contained a provision to the effect that the partnership, if not dissolved at the expiration of the year, might thereafter be dissolved by any partner on giving a notice of thirty days to the others. The several partners, in pursuance of the partnership agreement, contributed various interests held by them respectively in certain letters patent affecting button setting machines, and also other property pertaining to the business to be carried on by the partnership. Upon the execution of the partnership articles the firm entered upon business at Troy, manufactured or had manufactured a large number of button setting machines, issued licenses to others to use machines, 'manufactured staples or button fasteners, etc., to be set by such machines, and established and maintained a prosperous and lucrative business.
Before the commencement of this action, and about February 11, 1890, the defendants Ham and Wight in conjunction with the defendant Patterson, and others, united in the formation of a manufacturing corporation under the laws of this state, the trustees of which are the defendants Ham, Wight and Patterson, and the corporate name of which is " Trojan Button Fastener Co." The business of this company, as stated in the certificate of incorporation, is substantially the same as that carried on by the firm " The Trojan Button Fastener Company " above mentioned.
Immediately upon the formation of this corporation the defendants Ham and Wight, without the knowledge or consent of their copartner Macdonald, assigned and transferred to it all the property of the firm, including the patents and leases above referred to, and put the corporation in possession thereof, and of the office and place of business of the firm, and of its books and other appurtenances of its business. Thereupon, by way of commencing business, the corporation caused to be issued and sent out by mail to the customers and lessees or licensees of the firm a circular in substantially these words : "All the leases, patents and property of the copartnership known as the Trojan Button Fastener Company have been sold to an incorporated company, called 1 Trojan Button Fastener Co., Incorporated,' with a cash capital of $50,000. The working force of the old partnership enters the incorporated company, and with the addition of increased capital and new inventions are in a position to be of greater service than ever before.
" This transfer of the effects of the partnership to the incorporated company was hastened by the action of one of the partners, John A. Macdonald, who owned a quarter interest in the partnership, and who, we have reason to believe, has endeavored to deliver all its property into the hands of The Heaton Button Fastener Company. We have no interest in common with the Heaton Company, and a sale of this kind would tend to create a monopoly of the Button Fastener business. We believe in honest competition, and know it is for the best interests of our customers that the leases and machines remain in the hands of the Trojan Button Fastener Company, Incorporated. Eemittances, orders and all mail should be addressed hereafter to
" Trojan Button Fastener Company, incorporated."
The complaint charges (and the affidavits support the allegation), that the corporation is taking possession of the correspondence, drafts, checks and orders sent to and intended for the firm, claiming the right to do so, and is excluding the plaintiff from the office of the firm, from possession of the firm property, correspondence, books, etc., assuming to hold and control the same by virtue of the assignment and transfer above mentioned.
Upon these, and other facts set forth in the complaint and accompanying affidavits, a temporary injunction was issued restraining the defendants from in any manner using the name Trojan Button Fastener Company, or any other name bearing a close resemblance thereto, in the button fastener business, or from making any sales, or conducting or carrying on any business heretofore and now carried on by the firm known as The Trojan Button Fastener Company, of which firm the said plaintiff and the said defendants Albert W. Ham and Arthur M. Wight are members, and from using or licensing any of the button fastening machines constructed under and in accordance with the patents mentioned in the complaint herein, or any part thereof, or any part of any of them, and from selling any staples for buttons to any of the licensees of the said firm known as The Trojan Button Fastener Company, and. from receiving or in any way interefering with any letters, orders,, drafts or money directed, sent or belonging to said firm, and from directing, requesting or inducing the postmaster of the city of Troy or any of his employees or any person connected with said office to withhold from said plaintiff any letters directed to the said The Trojan Button Fastener Company, or to " Trojan Button. Fastener Company, Incorporated," or to deliver any such letters to. said defendants, or to either or to any of them.
The order was afterwards modified, ex parte, so as to permit the corporation to receive mail matter addressed to " Trojan Button Fastener Company, Incorporated," or clearly intended for it.
It is also made to appear that, previous to the formation of the corporation, the defendants Ham and Wight served on the plaintiff the notice of their intention to dissolve the copartnership provided for in the partnership articles.
Underlying the law of partnership is that of agency. The partners are severally agents of the firm and of each other as to all matters pertaining to the conduct of the partnership business while the partnership continues, and to the winding up of its affairs when it is dissolved. As in all other agencies the authority to act for the firm is limited to such matters as are within the scope of the partnership business and are fairly among the pur poses of the partnership as indicated by the partnership articles.
In a manufacturing and mercantile partnership this includes the manufacture and sale of such articles as the partnership agreement intends, and the doing of all things properly incident, thereto. Unless specifically prohibited by the agreement, either partner may contract debts in the business of the firm, and may pay its debts. To this end it is competent for one partner to-transfer the property of the firm in payment of a firm debt. This is strictly within the scope of the partnership business.
The law appropriates the partnership property to the payment of partnership debts to the exclusion of the individual debts of the partners, and requires such appropriation to be made before-any division among the partners is had. The authorities, are numerous that one partner may transfer partnership property to a creditor in payment of a firm debt, and, in the absence of fraud, such transfer is valid not only against the other partners,, but other creditors of the firm also. Mabbett v. White, 12 N. Y., 442, and cases cited on page 454.
I have found no case, however, holding that one partner may, without the knowledge of the other, transfer the entire property and assets of the firm to one who is not a creditor, with the object and intent of putting an end to the partnership business, and placing the partnership effects beyond the reach and control of his copartner. That the transfer by Ham and Wight to the corporation in this case was made with such purpose cannot be doubted.
The firm was solvent and doing a prosperous business. The corporation was formed avowedly to carry on a like business. Ham and Wight were instrumental in its formation, and were named as two of the three trustees in the certificate of incorporation.
Immediately upon its formation they transferred to it the entire assets of the firm, and turned over to it its working force, its books and business office. There is no pretense that the corporation was a creditor of the firm, nor that this transfer was made in the course of its business, or in pursuit of the legitimate objects for which the partnership was formed. The intent of this transfer is evidenced by the circular issued by the corporation immediately thereafter. It was sent out to the customers of the firm, and to persons holding leases of machines from it, and was signed by the corporate name, which wras also the name of the firm. It declared that all the leases, patents and property of the firm had been sold to it, and that the working force of the firm had entered its employment.
Without ever having had a customer, it stated that the company was in a position to be of greater service to "our customers" than "ever before," and advised that "remittances" and "all mail " should in future be addressed to it. It is clear that the corporation by means of this circular intended to possess itself of the money, checks and mail matter that in the course of the firm business as well as in winding up its affairs might, otherwise, be sent to it. The sale and transfer was not made in the business of the firm, but in hostility to it, and for the purpose above indicated. It is invalid as a sale of the entire assets of the firm, and, the corporation having full knowledge of all the circumstances of the firm, its objects and business, and that the plaintiff neither knew of nor consented to it, was ineffectual to convey title to the whole property to it. It is settled law that one partner cannot, without the consent of the others, make an assignment of all of the firm. assets for the benefit of creditors. The reason is that it is not within the scope of the partnership enterprise, is not a part of the ordinary business of the copartnership, but is subversive of it, and authority to do so cannot be implied from the partnership 'relation. Welles v. March, 30 N. Y., 344; Klumpp v. Gardner, 114 id., 153; 22 N. Y. State Rep., 672. These reasons apply with equal force to a sale and transfer of the entire property and assets of a firm by one partner, without the consent of the others, to a person having full knowledge of the intent thereby to destroy the business of the firm and deprive the nonconsenting partner of all control over its property. Moreover, the defendants Ham and Wight are not only incorporates and stockholders, but constitute two of the three trustees of the corporation. The sale and transfer of the firm property was therefore practically to themselves. As stockholders they still own a share of the property sold by them to the company proportionate to their interest in the corporation, and as they constitute a majority of its trustees they .are able to exercise absolute and exclusive control over all its property and affairs. While this is of no importance so far as their own individual property and interests are concerned, it cannot be sustained when it involves also the property and interests -of others who do not consent to it. A sale of all of a firm's property by two out of three partners to themselves, without the-knowledge or consent of the other, could hardly be upheld. Such is the practical effect of the sale in this case, and it cannot be sustained on either principle or authority.
Assuming, however, that the transfer in question was effectual as a transfer of the interests of Ham and Wight in the partnership property and assets, it did not confer upon the corporation any title to the property itself, nor any right to its possession and control as against the plaintiff. All that can be thus transferred is the interest of the partners making the sale which may remain in the surplus after the partnership debts are paid and the rights of partners ascertained and determined. It is well settled that a purchaser from one partner of his interest in the partnership acquires no title to any share of the partnership effects, but only his share of the surplus after an accounting and án adjustment of the partnership affairs. Tarbell v. West, 86 N. Y., 280, 287. In Menagh v. Whitwell, 52 N. Y., 146, Judge Rapallo affirms that " purchasers of the share of an individual partner can only take his interest. That interest, and not a share of the partnership effects, is sold, and it consists merely of the share of the surplus which shall remain after the payment of the debts, and settlement of the accounts of the firm." The rights of a transferee of the individual share or interest of a partner in the joint property are but a right to an accounting, and to what remains after an adjustment of the partnership accounts and dealings. Nicoll v. Mumford, 4 Johns. Ch., 522. It can make no difference that the partnership is dissolved.
After dissolution the powers and authority of the individual partners are still more limited than during its existence. They can then make no new contracts on behalf of the firm, nor incur any new obligations to bind it. They cannot even dispose of its property save in payment of its debts, and in the ordinary course of closing up its affairs. "In case of a dissolution each partner holds the joint property clothed with a trust to apply it to the payment of the joint debts, and subject thereto, to be distributed among the partners according to their respective shares therein Story on Partnership, § 360, and Judge Allen in Menagh v. Whitwell, declares that " all must unite in order to give effect to any disposal of the property, except in execution of the trust, or in the ordinary course of business." Geortner v. Trustees of Ganajoharie, 2 Barb., 625. After dissolution the right and duty to wind up the affairs of the partnership still remain, and, where the other partners have disposed of their whole interest, remain in the continuing partner.
The partners who have thus disposed of their entire interest in the partnership have thereby divested themselves of all right to the control of its property, and even to share in the winding up of its business, or to participate in the final accounting and adjustment of its affairs. The purchaser of a partner's interest cannot withdraw his share of the joint effects. They must remain in the possession of the continuing partner for the purpose of winding up the partnership. Allen, J., in Menagh v. Whit- well, above cited. In such case " the remaining or stationary partner is entitled to hold possession for the purpose of paying off the debts and winding up the business of the firm." Horton's Appeal, 13 Pa., 67. If these views are correct, it follows that the plaintiff is entitled to have possession of all the property and effects of the firm " The Trojan Button Fastener Company," for the purpose of winding up its affairs, including its books, papers, and correspondence, and that the defendants have no lawful right to withhold them from him, nor to obstruct or interfere with him in the exercise of his rights and duties in this respect.
The injunction as issued, however, restrains the defendants from using the name " Trojan Button Fastener Company " in its business. I do not think the defendant corporation can be lawfully deprived of this use. • The name ' The Trojan Button Fastener Company " under which the firm carried on its business is a mere arbitrary designation adopted by it when the copartnership was formed. Neither partner can have any exclusive right to- its use, nor can its use by third persons be prevented after a dissolution of the firm first employing it, and a discontinuance of its business. Lathrop v. Lathrop, 47 How. Pr., 532; Morgan v. Schuyler, 79 N. Y., 490.
The corporation has, also, a clear right to engage in the same business as that carried on by the firm. The claim of the plaintiff to an exclusive right either to carry on the business or to employ exclusively the patents and appliances necessary thereto, is not, upon the facts disclosed in this case, founded upon any known legal principle; nor the partnership being dissolved, can it tie prohibited from licensing others to use any machine the piatent on which it may be the owner of in whole or in part; certainly it -can not be restrained from selling articles in common use, such as buttons, and staples for buttons, to any person who may wish to buy of it, whether such person has heretofore been a customer of the firm, or not.
I conclude, therefore, that the defendants should be restrained, pending this action, from withholding from the plaintiff the property of the firm, including its books and papers, from interfering with him (unless by legalprocess), in winding up the partnership business and affairs, and from receiving the letters, checks, drafts, or money sent by mail and clearly directed or intended for the firm, and from in any way preventing the receipt of such letters by him from the post office. In all other respects the injunction order should be dissolved.