Case Name: In re WHITNEY & KITCHEN. In re WHITNEY. In re GERAGHTY
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1911-07-07
Citations: 130 N.Y.S. 629
Docket Number: 
Parties: In re WHITNEY & KITCHEN. In re WHITNEY. In re GERAGHTY.
Judges: 
Reporter: West's New York Supplement
Volume: 130
Pages: 629–637

Head Matter:
In re WHITNEY & KITCHEN. In re WHITNEY. In re GERAGHTY.
(Supreme Court, Appellate Division, First Department.
July 7, 1911.)
1. Judgment (§ 675 )—Conclusiveness—Parties.
A firm of stockbrokers having made an .assignment for the benefit of creditors, as a firm and individually, claimant brought suit against the firm and the assignee for damages for conversion of certain stock. Complaint was dismissed as to the assignee, but he continued in the action apd took part in the argument of subsequent appeals, in which a judgment for plaintiff for a specified sum and interest was affirmed. Held, that the judgment was conclusive, in the absence of fraud and collusion, both as to the principal debt and interest, costs, and allowances against the assignee and all other persons interested in the partnership estate, as well as against the assignors; and that, notwithstanding a provision in the assignment that the property was assigned to pay all liabilities of the firm, with interest due, or to grow due thereon, the interest, costs, and allowances being a part of the judgment, the assignee could not allow the principal included in the judgment, and reject the interest, costs, and allowances.
[Ed. Note.—For other cases, see Judgment, Cent. Dig. §§ 1190, 1191; Dec. Dig. § 675. ]
2. Judgment (§ 582 )—Effect—Merger of Judgment.
Where a cause of action has been reduced to judgment, the cause of action is merged in the judgment, so that whether it was recovered for a tort or on contract the recovery becomes a debt which the defendant is under obligation to pay.
[Ed. Note.—For other cases, see Judgment, Cent. Dig. § 1079; Dec. Dig. § 582. ]
3. Assignment for Benefit of Creditors (§ 314 )—Claims—Right to Share in Estate of Individual Partners.
A firm having made an assignment of the firm assets for the benefit of. creditors, the individual partners also made assignments of their in-' dividual property, which provided that the assignees should pay all debts and liabilities due or to become due from the firm, and from the assignors individually, and, if the residue of the proceeds should not be sufficient to pay the same in full, then to apply the residue ratably. Held, that where claimant recovered judgment against the firm and individual partners for conversion of corporate stock by the firm, and it did not appear that the partners individually acted or profited therefrom, claimant was entitled to the allowance of his claim in full, including costs, allowances, and interest against the estate of the firm, and, as to any balance remaining unpaid, was entitled to share equally in the estates of the individual partners with the individual creditors and creditors of the firm.
[Ed. Note.—For other eases, see Assignments for Benefit of Creditors, Cent. Dig. §§ 921-925; Dec. Dig. § 314. ]
In the matter of the assignment of Whitney and Kitchen, copartners, as a firm, and individually. Submission of controversy between John F. McIntyre and Bayard L. Peck as assignee for the benefit of creditors of the firm, and of the partners individually. Decree for plaintiff.
See, also, 128 N. Y. Supp. 1034.
Argued before INGRAHAM, P. J., and McLAUGHLIN, LAUGH-LIN, MILLER, and DOWLING, JJ.
Thomas F. Gilroy, Jr., for claimant.
Daniel Burke, for assignee.
For other cásea see same topic & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes

Opinion:
DOWLING, J.
Girard N. Whitney and James V. Geraghty were stockbrokers in the city of New York, doing business under the firm name and style of Whitney & Kitchen. On January 16, 1908, the firm made a general assignment for the benefit of its creditors, without preference, to Bayard L. Peck,, and on January 25, 1908, the members of the firm made individual general assignments, without preference, to the same person, who duly qualified as assignee under all three assignments on January 17, 1908, February 24, 1908, and March 25, 1908, respectively. Thereafter, and on June 3, 1908, the claimant, John F. McIntyre, commenced an action against "Girard N. Whitney and James V. Geraghty, copartners, doing business under the firm name and style of Whitney & Kitchen, and Bayard L. Peck, as assignee for the benefit of creditors of said copartnership," to recover the sum of $30,337.50, with interest, upon allegations of the' copartnership of defendants in the business of stock brokerage under the firm name of Whitney & Kitchen; of the making of the firm assignment before referred to; of the purchase by the copartnership, at plaintiff's special instance and request, of 500 shares of Amalgamated Copper Company stock at the then market price of $90 a share, including the commission of said copartnership; of the deposit by plaintiff with the copartnership of the sum of $5,000 in cash as margin upon said transactions and as part payment of the purchase price of said shares; of an agreement by the copartnership to advance for plaintiff the balance of the purchase price of said shares and to hold them as collateral security for such advances; of the further deposit by plaintiff with said copartnership at its demand and request between August 7 and October 23, 1907, of sums aggregating $25,000 as margins upon the transaction, and as partial repayment of the advances made by the copartnership. The complaint then further alleged :
"Seventh. On information and belief that on or about the 27th day of July, 1907, the defendants Whitney and Geraghty, composing the said copartnership as aforesaid, without the consent or knowledge of plaintiff and in violation of his ownership and of his rights in said stock, and in violation of the said agreement between plaintiff and said copartnership, disposed of said five hundred (500) shares of stock of the Amalgamated Copper Company and converted the same to their own use.
"Eighth (as amended). That prior to the commencement of this action, and on January 16, 1908, January 17, 1908, and January 19, 1908, plaintiff duly demanded from the defendants Whitney and Peck as assignee as aforesaid, and on January 21, 1908, plaintiff duly demanded from the defendant Geraghty the return to him of said stock and at said times duly offered to pay the balance due thereon, but said defendants and each of them failed and neglected and refused to return the same, and on information and belief said stock is not and was not then and has never since said conversion been in the possession of said defendants or of any of them."
It was further set forth that plaintiff did not know of the conversion of his stock until January 16, 1908; that the highest market price of 'the stock between July 27, 1907, and that date was $90.37^2 per share; and that due proof of claim had been presented against the assigned estate of the copartnership to the assignee, who had rejected the same. Thereafter the complaint was dismissed by stipulation against the defendant Peck, but he continued in the action and took part in the argument of the subsequent appeals. The suit having been sent to a referee to hear and determine, judgment was thereafter entered on his decision in favor of the plaintiff and against the defendants "Girard N. Whitney and James V. Geraghty, copartners composing the firm of Whitney & Kitchen" in the sum of $11,485.21 damages, together with $977.40 costs and disbursements. On appeal to this court the judgment was modified by increasing it to $36,356.53, with costs of the appeal amounting to $249.29. 139 App. Div. 557, 124 N. Y. Supp. 234. On appeal to the Court of Appeals the judgment of this court was affirmed, with costs. 201 N. Y. 526, 94 N. E. 1096. Included in the judgment in its present form is an allowance granted pursuant to the provisions of section 3253, Code Civ. Proc. Thereafter proof of claim of the amounts due the various judgments was duly filed with the assignee, wherein the plaintiff gave notice that he "claims that the copartnership of Whitney & Kitchen consisting of James V. Geraghty and Girard N. Whitney, general partners," is justly indebted to him in the amount thereof. At the same time he filed similar proofs of claims against the individual estates. The assignee rejected all of the claims against the copartnership estate beyond the principal thereof, with interest down to the time of the making of the assignment, and rejected in toto the claims against the individual estates.
The questions presented for decision are: (1) Are the judgments recovered a valid claim against the copartnership estate for the whole amount thereof with interest, or only for the amount admitted by the assignee? (2) Are the claims based on said judgments provable against the individual estates of the members of the firm, as well as against the copartnership estate; and, if so, are they to be preferred in payment over the other firm debts and equally with the claims of individual creditors of the individual estates?
To the first question we believe the answer must be returned that the judgments are final and conclusive upon the assignee and all other persons interested in the copartnership estate, as well as upon the assignors. So far as the interest is concerned, the members of the firm determined the question for themselves when they directed their assignee, by the terms of the assignment, to pay and discharge in full, so far as the funds were sufficient, "all the debts and liabilities now due or to grow due from the said copartnership, parties of the first part, with all interest moneys due or to grow due thereon." But even apart from this provision the assignee could not question the judgments, or seek to separate them and allow part and disallow the rest, when the judgments themselves are not attacked for fraud or collusion. "Where a cause of action has been prosecuted or reduced to judgment, the cause of action is swallowed up and merged in the judgment which is a higher and superior sort of security." 20 Am. & Eng. Ency. of Law (2d Ed.) 599. "After the recovery of this judgment, whether it was recovered for a tort or upon contract, the recovery became a debt which the defendant was under obligation to pay; and the law implied a promise or contract on his part to pay it. The previ pus cause of action whatever it was, became merged in the judgment." Gutta Percha Co. v. Houston, 108 N. Y. 278, 15 N. E. 402, 2 Am. St. Rep. 412. "I am of the opinion that, in the absence of any suggestion of fraud, collusion, undue advantage or mistake, a judgment recovered against an assignor for benefit of creditors, even after the making of the assignment, on a full litigation of the merits, and on a deliberate and intelligent decision by a court of competent jurisdiction, is conclusive on the assignee, as to the fact and amount of an indebtedness established thereby on a consideration existing before the assignment." Austin Abbott, Referee, in Eudington's Petition, 5 Abb. N. C. 322.
This is so even when the assignment is made pending the trial of the action. "Where during the pendency, and before the trial of an action, the defendant makes a general assignment for the benefit of creditors, and the action after a trial at which the defendant appears and defends results in a judgment in favor of the plaintiff, the judgment in the action is not only competent evidence as to the amount of the plaintiff's claim against the assigned estate, but, in the absence of fraud or collusion in the recovery of the judgment, is conclusive evidence thereof against the assignee and the defendant's other creditors." In re Roberts, 98 App. Div. 155, 90 N. Y. Supp. 731. So in Merchants' Nat. Bank v. Hagemeyer, 4 App. Div. 52, 38 N. Y. Supp. 626, an assignee was allowed to become a party to an action where the assignment was made after the action was commenced, on the ground that the judgment to be rendered would be conclusive upon the assignee, whether made before or after the assignment. We are of the opinion, therefore, that whatever was incidental to the recovery of the judgment and involved therein as a necessary result of the litigation, including the costs and allowance therein, as well as the interest accruing because of the delay, became final and conclusive as against not only the assignors, but their assignee and creditors, in the absence of fraud and collusion. The present record not only fails to disclose the presence of such elements, but affirmatively establishes a most vigorous opposition to plaintiff's claim, carried to the court of last resort, with the assignee participating in the appeals.
The second question presented it seems to us necessitates the drawing of the distinction which was pointed out in Matter of Blackford, 35 App. Div. 333, 54 N. Y. Supp. 972 (relied on by claimant), between a tort pure and simple and one arising out of the contractual relationship between the parties. It sufficiently appears from the summary heretofore made of the original complaint that the tort alleged was that of the copartnership, and that it arose out of a disregard of the contractual rights of plaintiff by" the partnership. There is no allegation of any wrongful act of the individual members of the firm. No one of them is charged to have unlawfully converted or disposed of plaintiff's property. The claim is that the copartnership converted the stock, and the referee has found that the copartnership unlawfully delivered plaintiff's stock to another firm in payment of a copartnership debt; the copartnership being credited with the value thereof on the books of the clearing house of the New York Stock Exchange. This therefore is a joint debt, arising out of a violation by a copartnership of its contractual duties, with no profit accruing therefrom to the individual members but solely to the copartnership. Ordinarily it would come under the rule of equity that joint creditors, must look to the joint estate, and individual creditors to the separate estate of the partners, based on the principle that the joint creditors have extended credit on the faith of the firm property and the individual creditors on the faith of the separate estates of the partners. Matter of Blackford, supra. The cases relied upon by plaintiff as sustaining his contention that the liability herein is joint and several are either those wherein an individual liability has been created by members of a firm individually indorsing the firm notes, or such exceptional cases as Morgan v. Skidmore, 55 Barb. 263, affirmed 3 Abb. N. C. 92, where a member of a firm had personally made a false representation as to the solvency of his firm and the condition of the estate of one of the deceased members, in reliance upon which plaintiff had issued a draft for ¿12,000. It was there held that judgment could be obtained against the estate of the member making such representation, even after plaintiff had obtained judgment against the firm for the original amount due, nor was there anything inconsistent in the two suits, for they were not suing as creditors of the deceased, when his liability would be joint, but upon his representation, whereon his liability was personal.
But in this case the individual members of the firm have extended the usual rule by each directing in their individual assignments that their assignee shall pay and discharge in full "all the debts and liabilities now due or to grow due from the said copartnership of Whitney & Kitchen and from the said party of the first part, with all the interest moneys due or to grow due thereon; and, if the residue of said proceeds shall not be sufficient to pay the said debts and liabilities and interest moneys in full, then to apply the said residue of said proceeds to the payment of said debts and liabilities ratably and in proportion." It was held in Mills et al. v. Parkhurst et al., 9 N. Y. Supp. 109, that the application of the equitable rule by which partnership debts are primarily payable out of partnership assets and individual debts out of individual assets, with a preference to each class of debts over the other as respects the distribution of the corresponding fund, would be prevented only by express and unmistakable directions to the contrary in the instrument of assignment, but that when the intention of the assignor was clearly expressed that no distinction was to be made between his individual debts and those which arose from his connection with the firm that intention must be effectuated. Such is the case with the assignment now under consideration.
It follows, therefore, that the assignee must allow the claim of John F. McIntyre at its full amount, including costs, allowance, and accrued interest, against the copartnership estate of Whitney & Kitchen, and that as against the individual estates of Girard N. Whitney and James V. Geraghty the claimant is entitled to share equally therein with the individual creditors, and the creditors of said firm, to the extent of the balance remaining due upon his claim against the firm.
Judgment is directed accordingly without costs.
MCLAUGHLIN and LAUGHLIN, JJ., concur.
Reported in full in the New York Supplement; reported as a memorandum decision without opinion in 56 Hun, 640.