Case Name: Edward B. Talcott v. Asa Dudley, assignee of Edmund B. Bill
Court: Illinois Supreme Court
Jurisdiction: Illinois
Decision Date: 1843-12
Citations: 4 Scam. 427
Docket Number: 
Parties: Edward B. Talcott v. Asa Dudley, assignee of Edmund B. Bill.
Judges: 
Reporter: Illinois Reports
Volume: 5
Pages: 443–456

Head Matter:
Edward B. Talcott v. Asa Dudley, assignee of Edmund B. Bill.
Appeal from Dupage.
i. Bankruptcy — title of assignee. It is a well settled principle of law, that by a decree of bankruptcy, the assignee succeeds immediately to all the rights and interests of the bankrupt, to just the same extent that the bankrupt himself had them, and subject to and affected by all the equities, liens, and encumbrances existing against them in the hands of the bankrupt. The assignee is not a bona fide purchaser for a valuable consideration, but he rather acquires a title by operation of law; and the title comes into his hands in no more perfect a condition than it left the hands of the bankrupt. Indeed, the assignee maybe considered rather as a volunteer, [*428] than a purchaser, and takes the title divested of no lien or equity previo :sly created, either by operation of law, or the act tf the bankrupt,
2. Same — same—possession. But although the assignee succeeds to all the legal title of the bankiupt, still he does not, in all cases, succeed to all his rights of possession, and paiticularly so in case of the bankruptcy of one member of a partnership. By the decree of bankruptcy, the partnership is dissolved, and that which was a joint tenancy between the former membeis of the firm, becomes a tenancy in common between the remaining partner and the assignee; and, unlike the ordinary case of a tenancy in common, where both tenants are entitled to the possession, the remaining partner alone is entitled to the possession, disposition, and control of the partnership effects, and the assignee is only entitled to ati account of the bankrupt’s share of the pannership effects, after the pa>ment of the partnership debts.
3. Same — same—partnership assets. By the decree of bankruptcy the bankrupt partner becomes civiliter mortuus. so far as the partnership effects and creditors aie concerned, and the assignee becomes the personal representative of the bankrupt, like an executor or administrator, and, as in case'of the death of one partner, the other partner succeeds to the rights of survivorship, andthe creditors of the firm are entitled to be first paid out of the partnership effects, belore the individual creditors of the bankrupt can come in for any share of those effects.
4. Partnership — assets on death, etc. Upon the decree of bankruptcy or death of one member of a partnership, or dissolution by agreement, the artificial or civil person, which was the creature of the partnership articles, ceases to exist; and the effects belonging to the partnership are the assets of that civil person, out of which its creditors are entitled first to be paid; and into whose hands soever those assets go, as the administrator or representative of that artificial being, they must be held in trust for the payment of those debts ; and after they are paid, the former partners, as their representatives, have an interest in the surplus.
5. Same — interest of assignee of bankrupt member. The assignee of a bankrupt has an interest only in a just division of what is left after paying the partnership debts.
6. Same — secret. The law’ discountenances secret trusts and partnerships, as opening a wide door to the grossest frauds. Most effectually to prevent this, whenever the tights of third persons interfere, neither of the partners, in a secret partnership, is peimitted to assert that partnership, but the whole is considered as an individual transaction, and the property as belonging to the ostensible partners. Unless the creditors choose to treat the dormant partner as interested, there is no partnership excepting as between.the partners themselves.
7. SAME — estoppel of dormant partner. A dormant partner, by permitting the ostensible partner to carry on business in his own name, is, as is also his assignee in bankruptcy, forever estopped from denying the sole interest of the latter, when the rights of third persons intervene.
8. SAME — creditor’s lien acquired. Where one of two partners was decreed a bankrupt, and upon the same day a judgment was rendered against the other partner, for a partnership debt, upon which execution was issued and placed in the hands of the officer, and while the execution was in the hands of tile officer, but before the same was actually levied, the assignee of the bankrupt partner, with the assent of the other partner, who was insolvent, took possession of the personal property of the partnership, and the officer subsequently forcibly took it outof the possession of the assignee, by breaking the lock of the storehouse where the same was kept, and sold it on the execution : Held, that an action of trespass could not be maintained by the assignee against the cfficer, and that the plaintiffs in the execution had an equitable, lien upon this property, and had the right to pursue it wherever they could find it, at any time before it passed into the hands of a bona fide purchaser; and that the plaintiffs, by their judgment and execution, acquired'a lien of which they could not be divested by any act of the judgment debtor, or the assignee of the bankrupt.
9. Same — custody of effects on death or bankruptcy. Semble, That a court of equity, in its discretion, may give the control and disposition of partnership effects to the as-signee of a bankrupt partner, or to the executor or administrator of a deceased one, where it is shown that the partner is insolvent, or where it is shown that there is danger that the partnership property will be squandered or misapplied ; but in doing this, so far from divesting or disturbing liens either legal or equitable, which creditors of the firm, or third persons may have in the property, it will take care to preserve and enforce them.
10. Same — bankmptcy of one member. Upon the bankruptcy of one of two partners, if the administration of the assets of the partnership comes into the hands of the assignee of the bankrupt, the proceeds cannot be applied in payment of the expenses of the bankrupt proceedings.
This cause was heard in the court below, at the September term, 1843, before the Hon. RtchaRD M. Young, [*429] without a jury. The court rendered a judgment against the defendant, who appealed to this court.
This was an action of trespass, instituted in the Du Page circuit court, by the appellee against the appellant, for taking and selling a stock of goods, which the appellee claimed as assignee in bankruptcy of one Edmund B. Bill. The appellant justified the taking of the goods as deputy marshal of the district of Illinois. Issue being joined in the cause, it was submitted to the court below, and a jury waived, upon an agreed case made by the parties. This case shows that the plaintiff in the court below, on the 20th of February, 1843, took possession of the stock of goods in the store of Isaiah M. Smith, by receiving the keys thereof from said Smith; and that said plaintiff took such possession solely as the assignee in bankruptcy of said Edmund B. Bill. That the defendant was deputy marshal of the United States, for the district of Illinois, and entered said store by breaking the lock, and seized said goods on the 27th day of February, 1843, by virtue of an execution duly issued from the circuit court of the United States, for the district of Illinois, in favor of Tracy, Maver, & Irwin, against said Isaiah M. Smith, for the sum of $1155.69, dated January 19th, 1843, (which execution came into the hands of said deputy marshal, on the 23d day of said month of January,) and sold the said goods at public auction, on the 27th of March, 1843, for the sum of $647, and delivered them to the purchasers respectively. That said Bill was a dormant partner of said Smith; and that they carried on business in the name of Isaiah M. Smith. That said Bill was declared a bankrupt, upon his petition for the benefit of the late bankrupt law of the United States, on the 10th day of December, 1842; and that said Smith was insolvent at the time of the decree of bankruptcy against Bill, (but neither the plaintiffs in the execution against him, nor their attorneys, were aware of this fact,) and was about applying for the benefit of the said bankrupt law, at the time the levy was made. That the debt upon which the judgment was rendered against Smith, and said execution issued, was for the purchase of goods for said partnership, in the name of said Isaiah M. Smith. That said judgment was rendered against said Smith, on the 10th day of December, 1842, by confession, after process had been duly issued and served on him. That said appellee was duly appointed assignee of said Bill. The said execution and Bill’s decree of bankruptcy were made parts of the agreed case. The court found the value of the property taken on execution to be $674, and gave judgment against the appellant for one half the amount thereof, to ['7' 430] wit, $337, and costs of suit. The plaintiff excepted to the amount of the judgment, and the defendant excepted to the judgment of the court, and brought the cause to this court by appeal.
J. Young Scammon (with whom was N. B. Judd), for the appellant,
relied upon the following points and authorities: 1. The constitutionality of the bankrupt law is the first point in the case. Unless said act is constitutional, the plaintiff in the court below could not sustain his action.
2. Dudley, the assignee of Bill, succeeded only to his rights, and property, and took the same in the same plight and condition, and subject to the same equities, as though Bill had not become a bankrupt.
The clear rule in bankruptcy is, that the assignee takes the property and rights of property of the bankrupt, subject to all the rights and equities of third persons, which are attached to it in the hands of the bankrupt. JExparte ISTewhall, 5 Law Reporter, No. 7, 308; Parker & Blanchard v. Muggridge, 5 Law Reporter, No. 8, 358.
It is a well established doctrine, that (except in cases of fraud) assignees in bankruptcy take only such rights and interests as the bankrupt himself had, and could himself claim and assert at the time of his bankruptcy; and, consequently, they are affected with all the equities which would affect the bankrupt himself, if he were asserting those rights and interests. 6 Law Reporter, No. 8, 352, referring to Brown v. Heathcote, 1 Atkyns 160,162; Mitford v. Mitford, 9 Vesey 87, 100.
The assignee of one partner is only entitled to the partner’s share of the partnership. Eddie v. Davidson, Doug. 651.
This was so held also in the case of Field v.-, 4 Vesey, Jr. 396.
Assignees stand precisely in the situation of the bankrupt. Stouffer v. Coleman, 1 Yeates 390.
Under a separate commission against one of several partners, only his private property, and his interest in the funds of the firm pass to the assignees. Harrison v. Sterry, 5 Cranch 302.
3. Had Bill been an open and ostensible partner of Smith, the assignee would have had no right to take possession of the partnership effects or property ; the only interest of the assignee being in the surplus which should remain after payment of the partnership debts.
The bankrupt act manifestly contemplates, that as to all property and rights of property of the bankrupt, and as to all suits in law or equity pending, in which the bankrupt is a party, the bankrupt is to be treated as if he were civiliter mortuus, and all his property and rights of property were vested in the as-signee, as his executor or administrator. Ex parte Fos- [* 431] ter, 5 Law Reporter, No. 2, 71.
In the case of a tenancy in common supervening on the dissolution of a partnership, by the death or bankruptcy of one of the partners, the joint property remains in the hands of the surviving or solvent partner, clothed with a trust to be applied by him to the discharge of the partnership obligations, and to account to the representatives of the deceased, or of the bankrupt partner, for his share of the surplus. The right of -the assignee is not, therefore, to the possession of the partnership effects, but to an account, and to the bankrupt’s share of the surplus, after the debts of the firm are paid. Ex parte Norcross, 5 Law Reporter, No. 3, 124. See also Parker & Blanchard v. 'Muggridge, 5 Law Reporter, No. 8, 359.
The surviving partner has a legal title to the partnership effects; and in equity he is considered a trustee to pay the partnership debts, and to dispose of the effects of the concern, for the benefit of the partnership. Hutchinson v. Smith, 7 Paige 26.
The creditors of the several partners cannot claim a dividend out of the joint estate, until all the partnership creditors are paid, and then they are permitted to come in upon the surplus. Wilder v. Keeler, 3 Paige 171.
Where one of the several partners dies, the surviving partners-without the assent of the personal representatives of the deceased partner can appropriate the partnership property to the payment of the partnership debts, and may give such preferences in the payment of debts as they may think proper. Egberts v. Wood, 3 Paige 517.
All partnership property and responsibilities, upon the death of one partner-, survive to the survivor, and in a bill in chancery in relation thereto, it is not necessary to make the personal representatives of the deceased partner a party. Jones v. Hardesty et al. 10 Gill <fc Johns. 404.
Separate creditors, in equity, can seek indemnity only from-the surplus of the joint fund, after tlie satisfaction of the joint creditors. McCulloch v. Dashiell, 1 Har. & (3-ill 90.
The rule appears to be well settled, that in case of insolvency, the joint creditors of a co-partnership are entitled to payment out of the property and effects of the firm, in preference to the separate creditors of the individual co-partners; and such separate creditors, etc.
4. Had the debt .for which the judgment was rendered, and execution issued against Smith been his private debt, neither Bill nor his assignee could sustain an action of trespass against the officer for selling the partnership property. Gardner v. [*432] Campbell, 15 Johns. 401; Mesereau v. Norton, 15 Johns. 180.
The case of Aldrich v Wallace, 8 Dana 287, shows that the interest of one partner in a co-partnership may be levied on and sold, and that his interest in each article should be sold. S. P. Douglass v. Winslow, 20 Maine 92.
A sheriff is justified inlevying an execution against the goods of one partner, on the goods belonging to the firm. Moore & Co. v. Sample, 3 Alab. 319. When the sheriff levies on the interest of one partner, he is justified in taking exclusive possession of the goods of the firm, until the aid of a court of equity is successfully invoked. Ibid.
On an execution against one of two partners, the sheriff may seize the entire partnership effects, or so much thereof as may be necessary to satisfy the execution, and sell the interest of thepart-her against whom the execution is issued; and an action of trespass will not lie against the sheriff, at the suit of the other partner or his assignees, for delivering to the purchaser the property,sold. Phillips v. Cook, 24 Wend. 389 ; Shaver v. White, 6 Munf. 110.
5. The judgment in this case was for a partnership debt, and against all persons named in the partnership, and the marshal had the right, both at law and in equity, to take partnership property and apply it to the payment of the partnership debt.
6. Bill, being only a silent partner of Smith, and the goods •having been purchased in the name of Smith alone, was stopped to deny that the goods were Smith’s, when levied upon by either Smith’s creditors, or the creditors of the partnership.
A dormant partner need not be named as plaintiff in assumpsit for goods sold, formed on a contract at the time of making which his interest was unknown to the defendant. On releasing or selling his interest to his co-partner, he is a competent witness for the latter. Clarkson v. Carter, 3. Co wen 84. And if' a dormant partner partakes of the benefit of a cohtract, he cannot.maintain an action. Lloyd v. Archbowle, 2 Taunt. 324 ; Boville v. Wood, 2 M. & S. 23.
The non-joinder of a secret partner cannot be pleaded in abate ment. N. Y. Dry Dock Co. v. Treadwell, 19 Wend. 525; Mul-lett v. Hook, 21 Éng. Common law R. 259.
As respects third persons, a different rule prevails in regard to silent partnerships from that which obtains in the case of open partnerships. Cammack v. Johnson, 1 Green’s Ch. R. 168 ; 4 Barb. & Hart Dig. 412, § 18.
The execution creditor (in the case of a silent partnership) has his remedy complete against all the effects of the visible partner, and against all the effects which belong to him and his dormant partner as partners, and it makes no differ-[* 483] ence whether the debt was contracted by the debtor on the partnership account, or on his individual account. Ibid. §20.
The prior right of a partnership creditor to be paid out of the partnership stock, in preference to a separate creditor, does not' hold in a case of dormant partnership. French v. Chase, 6 Greenl. 166; Commercial Bank v. Wilkins, 9 Greenl. 28; cited in 2 Wheat. Selw. 1162; Lord v. Baldwin, 6 Pick. 851.
Air attachment of the goods of a partnership, by a creditor of one of the partners, is not valid against an after attachment of the same goods by a partnership creditor. Price v. Jackson, 6 Mass. 248. . Butin the case of a dormant partnership, an attachment of the stock in trade of the ostensible partner, in a suit against him alone, has preference to a subsequent attachment of the same goods by another person, in an action against the partners. Lord v. Baldwin, 6 Pick. 349. See case of agency in 7 Term R. 359-61.
If persons represent themselves as partners, or permit each other to represent them, no agreement interse will exonerate any of them from the joint liability resulting from contracts in the partnership name or character. Craig v. Alv'erson, 6 J. J. Marsh. 612. The converse of this proposition is also true ; that if two persons in partnership suffer one of the firm to carry on business in his name alone, and represent himself as the sole person interested in the business, the dormant partner cannot afterwards deny as between himself and third persons, that the ostensible partner is the sole owner of the partnership effects.
Every partner is an agent of the partnership ; and the principal distinction between him and a mere agent is, that he has a community of interest with the other partners. Story on Partn. 1.
If an infant should hold himself out as a partner during his infancy, though in reality not so, and should not, after his arrival of age, notify his disaffirmance thereof, he would be liable to third persons, trusting the partnership, to the same extent as if he were actually a partner ; for his conduct would, under such circumstances, amount to a delusion or deceit upon such third persons ; and when one of two innocent persons must suffer,'he ought to do so, whose negligence or misconduct has occasioned the loss. Story on Partn. 11.
7. The execution against Smith was a lien upon the goods in Smith’s store, from its delivery to the deputy marshal, on the 23d of January, 1813, and could not be defeated by any act of Smith; and consequently Dudley could acquire no rights, as against the execution,, by the delivery of the keys to him by Smith. Lambert v. Paulding, 18 Johns. 311; Wells et al. v. Marshal, 4 Oowen 411. •
[* 434] A creditor who is entitled to a lien has the same lien against the assignees under a commission of bankruptcy against the debtor, which he had against the debtor himself. Montague on Lien 77.
The teste of the writ of execution binds, against all sales and acts of the party himself. Smallcomb v. Cross, 1 Ld. Raym. 252.
Levi Davis (with whom was Justin ButteRfield), for the appellee,
relied upon the following points and authorities: 1. The property levied on being in possession of Dudley, as assignee of Edmund B. Bill, a bankrupt, was in the custody of the law, and therefore not liable to execution (3 Scam. 451), Bill & Smith being partners, and the property being partnership property. Hagan v. Lucas, 10 Peters 400.
2. Isaiah M. Smith being insolvent, and the property levied on being partnership property, the same vested in Dudley, as assignee, for the benefit of all the creditors. 5 Law Rep. 498.
3. Admitting that Smith was solvent and able to pay all the debts of the firm, and he, the said Dudley, as assignee, held the partnership effects as tenants in common, and each one was equally entitled to the possession; and if Smith waived his right to the possession, and delivered up the property, to the assignee, the property belonged to the assignee for the benefit of all the partnership creditors, and could not be taken in execution, and no one had a right to complain. Murray v. Murray et al. 5 Johns. Ch. R. 60.
4. Even admitting that the execution created a lien upon the property from the time it came into the hands of Talcott, yet the assignee had, by virtue of the decree in bankruptcy, an equal lien upon the property, and he having first obtained possession of the property, had a claim to it superior to the-claim under the execution.
Constitutionality of the Bankrupt Law. Congress has power to establish uniform laws upon the subject of bankruptcy. See Const. LT. S. This exercise of power on the partof congress is supreme. 1 Howard 277. Those who framed the constitution took into consideration the interest of debtors, as well as creditors. They were not confined to a bankrupt law such as was technically understood arid existed in England at the time the constitution was formed. Bankrupts at that time were treated as criminals in England.
Congress may pass a bankrupt law, authorizing proceedings in bankruptcy to be commenced at the suit of a debtor. Sturges v. Crowninshield, 4 Peter’s Cond. R. 414. Definition of bankrupt: Tomlin’s Law Diet. 169; Bouvier’s Law Diet. [*435] 118.
Cases Citing Text. Purchaser at sale by assignee of bankrupt takes title which bankrupt had, and is chargeable with equities against bankrupt to same extent that bankrupt was. Strong v. Clawson, 5 Gilm. 346.
Purchaser at sale of real estate by as-signee of- bankrupt, holds against unrecorded deed of bankrupt. Holbrook v. Dickenson, 56 Ill. 497, 499.
Assignee for benefit of creditors takes not as bona fide purchaser, but as volunteer, subject to all claims, liens and equities good against assignor. Hardin v. Osborne, 94 Ill. 571, 574.
In action on note against maker, liis discharge as bankrupt after making such note is valid defence. Griswold v. McMillan, 11 Ill. 390.
If partners of intestate unreasonably delay settlement, administrator may maintain bill against them to enforce settlement, and may have receiver appointed. Miller v. Jones, 39 Ill. 54, 61.

Opinion:
Catón, Justice,
delivered the opinion of the court: This was an action of trespass brought by Dudley against Talcott for taking from his possession and disposing of a quantity of merchandise. The case was submitted to the court below on an agreed state of facts, from which it appears that Tracy, Maver & Irwin obtained a judgment in the circuit court of the United States against one Smith for 11155.69, on the 10th of December, 1842, on which an execution issued on the 19th of January, 1843, and came to the hands of Talcott, as deputy marshal, on the 23d of the same month. On the same day that the judgment was rendered, Dudley was appointed assignee in bankruptcy of one Bill, who was a dormant partner of Smith'. The debt on which this judgment was rendered had been contracted by Smith on account of the dormant partnership, to which also the goods belonged, which Tallcott seized on the 27th of February, and sold on the 2d of March, 1843. Before Talcott levied on the goods, Dudley, with the consent of Smith, took possession of the goods and locked them up in the store where Talcott found them. The circuit court rendered a judgment for the plaintiff for $337, being the value of a moiety of the goods. This judgment we are now called upon to review. I take it to be - a well settled principle of law that, by a degree of bankruptcy, the assignee succeeds immediately to all the rights and interests of the bankrupt to just the same extent that the bankrupt himself had then, subject to and affected by all the equities, liens and encumbrances existing against them in the hands of the bankrupt. The assignee is not a bona fide purchaser for a valuable consideration: but he rather acquires a title by operation of law, and the title comes into his hands in no" more perfect a condition than it left the hands of the bankrupt. Indeed the assignee may be considered rather as a volunteer than a purchaser, and takes the title divested of no lien or equity previously created', either by operation of law, or the act of the bankrupt. These are familiar and well established rules under the English bankrupt law (Brown v. Heathcote, Atk. 160; Jewson v. Marston, 2 Atk. 117; Milford v. Milford, 9 Vesey 87), and have been repeatedly recognized and adopted under the bankrupt law of the United States. Marshall v. Winslow, 6 Law Rep. 352; Parker et al. v. Muggridge, 5 Law Rep. 358; Ex parte Newhall, 5 Law Rep. 308, 358.
But although the assignee succeeds to all the legal title of the bankrupt, still he does not in all cases succeed to all his right of possession, and particularly so in case of* the bankruptcy of one member of a partnership. By the decree of bankruptcy the partnership is dissolved, and that which was a joint tenancy between the former members of the firm becomes a tenancy in common between the remaining partner and the assignee; [*486] and unlike the ordinary casé of a tenancy in common, where both tenants are entitled to the possession, the remaining partner alone is entitled to-the possession, disposition, and control of the partnership effects, and the assignee is only entitled to an account of the bankrupt's share of the, partnership effects, after the payment of the partnership debts. Ex parte Norcross 5 Law Rep. 124. By the decree of bankruptcy the bankrupt partner becomes eiviliter mortuus, so far as the partnership effects and creditors are concerned, and the assignee becomes the personal representative of the bankrupt, the same as an executor or administrator (Exparte Foster, 5 Law Rep. 71), and as in such a case the other partner succeeds to the survivorship, and the creditors of the firm are entitled to be first paid out of . the partnership effects, before the individual creditors of the bankrupt can come in for any share of those assets. Ex parte Cooke, 2 P. Wms. 500; Ex parte Hunter, 1 Atk. 228; McCullock v. Dashiell, 1 Har. & Gill 96; 2 Wheat. Selw. 1162, note 1; 3 Paige 171, 517.
Upon these principles, even if Smith and Bill had been ostensible partners,, the judgment on which this execution was issued being for a partnership debt was entitled to a priority over any individual debts of either of the partners out of the partnership effects, and consequently these goods were first liable under this execution. As creditors of the firm, the plaintiffs in that execution had an equitable lien upon these goods, and had a right to . pursue them wherever they could find them at any time before they passed into the hands of bona fide purchasers. It was urged that Smith, having voluntarily delivered up the goods to the assignee, be thereby acquired the legal possession, of which he could not be divested, but had a right then to go on and administer them the same as any other assets of the bankrupt. The equitable lien of the creditors could not be thus destroyed. It was a right which' the law recognizes and respects, and will take care to enforce.
But even admitting the right of the assignee to the possession of the goods with the assent of Smith, still Tracy, Maver & Irwin being execution creditors, and having a superior right to a satisfaction of their debt out of the partnership effects, had a right to enforce that satisfaction by a levy and sale, without inconvenience or embarrassment from the assignee any more than from Bill, had he not been declared a bankrupt. Mitchell v. Winslow, 5 Law Rep. 352.
It was supposed, however, that the circumstance of Smith being insolvent so changed the rights of the parties that the assignee was'entitled to the possession of and to administer upon the partnership effects without being disturbed by the execution; and in support of this position cases were cited where the court of chancery has interfered and given the control and disposition of partnership effects to the assignee in bankruptcy, or executor of one partner, where it shown that the other [* 437] partner was also insolvent, and there was danger that the partnership property would be squandered or misapplied. That courts of equity are possessed of such a power, is not questioned, and under the direction of a sound discretion, they will never fail to exercise it, whenever a proper case is presented; but in doing this, so far from divesting or disturbing liens, either legal or equitable, which creditors of the firm, or third persons may have on the property, they will take care to preserve and enforce them. Parker et al. v. Muggridge, 5 Law Rep. 359.
Upon the decree of bankruptcy, or death of one member of a partnership, or dissolution by agreement, the artificial or civil person which was the creature of the partnership articles, ceases to exist, and the effects belonging to the partnership are the assets of that civil person, out of which its creditors are entitled first to be paid; and into whosoever hands those assets go, as the administrator or representative of that artificial being, they must be held in trust for the payment of those debts; and after they are paid, the former partners, or their representatives, have an interest in the surplus.
As, then, the assignee of the bankrupt only has an interest in a just division of what is left after the payment of the partnership debts, so far as we can learn from the facts agreed upon in this case, the assignee could take nothing ; for the debts far exceed the value of the assets, and no surplus could be left in which the assignee could claim a share; so that, in fact, and in law, he could have no interest in the matter, it being only in a division of the surplus that he could claim an interest.
But admitting the right of the assignee to the possession, control, and disposition of the assets of the firm, to the same extent that Smith had, still he would have held them in trust for the same purposes, and must have disposed of them and applied the proceeds in the same way. He could not have applied the proceeds in payment of the expenses of the bankrupt proceedings, or in payment of the private debts of the bankrupt, or in liquidation of any other charge properly existing against the person or estate of him alone; but he would have been obliged to apply the whole in satisfaction of this particular debt alone, for it does not appear there were any other claims against the firm; and if there were, those plaintiffs, by their superior vigilance, in obtaining judgment and execution, acquired a lien and superior right; and so, if the plaintiff should recover in this cause, he must recover as representative of the firm, and not of one member of it alofie; so that whatever money he should recover on the judgment, he must hold as trustee for these creditors, and would immediately have to apply the whole of it in the payment of this particular [* 438] debt, in attempting to collect which, in obedience to the mandate of the law, the alleged trespass was committed. This it seems to me would be but a legal farce, and acted out at a very great and useless expense.
But there is another principle of law which is directly applicable to this ease, and which I thmk is equally conclusive against the plaintiff's right to recover. I have hitherto examined this case as if Bill had been an open and ostensible partner. But such was not the ease. He was but a dormant partner, secretl}' enjoying the benefits of the business, while his interest was kept concealed from the world. The business was conducted in the name of Smith, with whom alone these judgment creditors dealt; and whom alone they supposed they were trusting; but it was not alone on his personal responsibility that they trusted, but on the property which he had in his possession, with which he was doing business. They saw property in his hands, and by the silence of the other partner, they were told that it was his, and in the same way were they lead to believe that the goods, which they were selling him, were also to be his, and help to form a fund from which they might seek payment; and now, when they recover a judgment against Smith, perhaps for the purchase money of these identical goods, and attempt to make their money from them, they are told, for the first time, that they are not Smith's, but belong to the assignee of Bill, who is a bankrupt; and must go to pay the expense of obtaining his discharge, and to satisfy his individual creditors. This would be as repugnant to the principles of law, as to the dictates of natural justice. The law and the courts discountenance these secret trusts and partnerships, as opening a wide door to the greatest frauds. Most effectually to prevent this, whenever the rights of third persons intervene, neither of the parties are permitted to assert the partnership, but the whole is considered as an individual transaction, and the property as belonging to the ostensible partner, unless the creditors choose to treat the dormant partner as interested. Indeed, I may say there is no partnership, only as between the partners themselves ; and this principle of overlooking the dormant partner is carried so far, that in suits commenced by the firm, he need not be joined.. Thus in Clarke et al. v. Miller, 4 Wend. 628 (see also Clarkson v. Carter, 3 Cowen 84; 2 Esp. 486), the court says: "Though a-dormant partner may be sued for the debts of the firm ; yet his name need not and ought not tobe used when they are plaintiffs;" and in the case of Stacy et al. v. Duy, 7 Term R. 361 and note c. it was held that in a suit by a firm, when all the members were sleeping partners but one, the defendant might set off an account against the one in whose name the business was conducted, and with whom alone he supposed he was dealing; and in Lord v. Baldwin, 8 Pick. 348, the principle that the creditors might consider the active partner alone inteicsted, is very accurately and clearly stated by Ch. J. Parker. He says : " Even if he (the dormant partner) owned the whole of the stock, as [*439] between him and the known man of business, still it is in law the property of the latter, for he is allowed to claim and use it as his alone, and thus lead persons to trust him upon the faith of goods in his possession." He adds; "The property then is not the dormant partner's, to the prejudice of those who trust him who carries on the business, and obtains the credit." And in a suit by the firm, in his name, the defendant might, according to the decision made by this court at this term, in the case of Brooks v. McKinney, 'ante 309, call the sleeping partner, who owned the whole of the stock, as a witness, and make him swear directly against his interest. It would be difficult to cite a case that more forcibly illustrates the principle that he is estopped from asserting his own interest in the cause, to the prejudice of the interests of others. •
To apply these principles to the case under consideration, we find Smith doing business alone, and professedly and apparently on his own account. Under this belief, Tracy, Maver & Irwin trust him with goods, which are put into his business, and when they obtain judgment and execution against him, and go to levy on these goods, they are told that they are not the goods of Smith, nor liable to be sold for his debts ; but that Bill, of whom they may have never before heard, had an interest in them, to whose assignee in bankruptcy they have gone, for whose benefit and the benefit of his creditors they must 'be sold, to the prejudice of those who have given Smith a credit for the same goods. This will not do. Bill, by allowing Smith to conduct the business in his own name, without disclosing to the world that he was interested himself, is forever estopped from denying that Smith was alone interested in the business, when the rights of third persons intervene ; and if Bill would be estopped from asserting his interest, then his assignee, upon the principles before laid down, is equally estopped from asserting a claim to the goods to the prejudice of the rights of the creditors. Bill, by remaining silent, disclaimed to those who dealt with Smith, any interest in his business, and to that disclaimer they have a right to hold him, and whatever their rights were, as against him, so they are as against his assignee. They sold the goods to Smith; to him they trusted them, and in law, as to them, they continued Smith's, unless sold to a bona fide purchaser. These are principles required by the policy of the law, which are indispensable for the purpose of preventing frauds, and from which the courts will not depart. As the property of Smith, then, the ostensible • man of business, the marshal had a right, in every point of view, to levy this execution, and in doing which he was guilty of no trespass. We therefore think he was entitled'to judgment.
In this opinion we steer wide of several important ques-[*440] tions which were discussed at the bar, but which we think are not necessarily involved in the decision of this case.
Judgment is reversed with costs.
Judgment reversed.