Case Name: M'Donald and Another v. Beach and Another
Court: Supreme Court of Indiana
Jurisdiction: Indiana
Decision Date: 1827-05-12
Citations: 2 Blackf. 55
Docket Number: 
Parties: M’Donald and Another v. Beach and Another.
Judges: 
Reporter: Blackford
Volume: 2
Pages: 55–61

Head Matter:
M’Donald and Another v. Beach and Another.
The doctrine—that the separate debt of one partner should not bé paid, out of thé partnership estate, until all the debts of the firm are discharged—is correct; but it'does not apply until the partners cease to have a legal right to dispose of their property as , they please. It is applicable only, when the principles of equity are brough^to interfere in the distribution of the partnership property among the qreditors.
Those equitable principles operate on the property remaining «in the possession of the partners, and-embrace all that has been fraudulently disposed of; but they do not pxtend to such as has been previously transferred by the firm in good faith.
ERROR to the Clark Circuit Court.
Saturday, May 12.

Opinion:
Holman, J.
The bill, answers, and exhibits, in this case, show that William Steele and Robert Steele, merchants and partners, were indebted :to 'the .complainants- in - the sum of 4,043 dollars, for which they- drew a bill of exchange on Richard Steele, a. resident of Louisville, Kentucky, - payable on-the 15th of December, 1822,'which was presented and accepted, as is said, fop the accpmmodation of the drawers, but was after-wards protested for non-payment; and thdt William, and Robert Steele are insolvent. The bill also charges a further debt against William, and Robert Steele pf several thousand dollars, but of this there is no proof. It also appears-that William^ Steele, as surety for John Wilson, (who was insolvent), was indebted by a writing obligatory to the trustees of Clarksville tg the amount of 2,700 dollars; and that Orlando Raymond, agent for -the trustees,' obtained,- through 'William Steele,., from Richard Steele, who was the agent of Iffi/iaw and Robert Steele, an order in the name of said firm,'dated the 14th of October,' 1822, for 2,80 barrels of salt,.the property of said firm,-which had been shipped to Daniel Wurts,' commission merchant of said firm at Jeffersonville, for sale. This salt was obtained on said order and deposited with the defendant Beach; and the proceeds were to go towards the payment of the debt due tq the trustees. Raymond also obtained a draft, in the' name of William and Robert Steele, on said Wurts for the balance of the debt due the trustees, dated the 26th of October, 1822, payable in six months; which draft was accepted by Wurts, provided he should have funds belonging to the said Steeles, and he pro mised to retain the funds that came into his hands for that purpose. In consequence of which draft, Wurts retained in his hands the sum of 1,200. dollars, which was less than the amount due the trustees. "This draft wasin the hand-writing 'of William Steele; but it does not appear that this fact was known either to Raymond or the trustees. On the 10th of November, 1822, the trustees transferred the bond, pf Wilson and William Steele to Beach, who was one of the trustees; and, as a collateral security for the payment, they transferred to him their claim on the 280 barrels of salt, and also the- draft on Wurts. The salt was afterwards sold for 1,012 dollars and 86 cents, and that amount credited on said bond, on the first of February,-1823.
The complainants claim the proceeds of this salt, and the pioney retained by Wurts, alleging that, by-agreement with William and Robert Steele, they were to have the proceeds of pll the salt .shipped to Jeffersonville, and that this' agreement was knówn to Beach and the trustees. The answers deny all knowledge of this agreement, and there-is no evidence to support it. They also, urge, that this disposition of the. partnership property, to pay the separate debt, of William Steele, was without the knowledge and consent of Robert Steele; and that the trustees knew this at the time they obtained the order and the draft aforesáid. This is denied by the answers; and there is no proof that this arrangement was made without the knowledge of Robert Steele. It is true that- Robert Steele, who resided at Kenhawa, Virginia, wrote a letter -.to Wurts, dated the 8th of May, 1823, protesting against the payment of said draft, and stating that he did not conceive it right for William Steele to apply the partnership property to Jhe payment of his separate, debt. This letter was written after the proceeds of the salt' had been credited on the bond of Wilson and William Steele, and after the draft (on Wurts had become due and payable. It does not expressly deny a knowledge of, and consent to, the arrangement with the trustees; but. if it is supposed-to do this indirectly, its effect is s.omewhat weakened by the testimony of Raymond, who states that -he .sa^ Robert Steele in Louis'dlle, in the month of October, 1822, or a little after; which was • about the time, or just after, the trustees had obtained the 280 barrels of salt, and the draft on Wurts; and it would seem from the deposition of Payne, a notary public, that,'on the 18fh of December, 1822, he delivered to Robert Steele, in Louisville, a notice pf the protest of the bill of exchange; sp that it would appear that Robert Steele had an early opportunity of becoming acquainted with this arrangement with the trustees. It is further weakened by the fact that Richard Steele, the agent of William and Robert Steele, who gave the order for the salt, was personally bpund to the complainants as acceptor Qf the bill of exchange, fpr the only debt they have proved against the firm of William and Robert Steele. Another strong ground which the trustees had to suppose that both the partners knew of the whole transaction, wag, that whep. Raymqnd first applied tp William Steele for the salt, s,aid Steele informed him that he would do nothing in it without consulting his partner; and about three weeks afterwards he gave the order; and that William Steele, who resided at C%cinnati, Ohio, was, in general, the active partner in relation to the salt shipped by the firm to Jeffersonville. Taking these circumstances together, there seems to be strong reasons to induce a belief, that both the partners were acquainted with, and consented to, the adjustment made with the trustees; and that both partners were bqund by it. Np argument is here drawn from the power that Richard Steele, as a general agent, had to adjust the'separate debt of William Steele, by a disposition of the partnership funds; nor from the power that William Steele, as a partner, had to divert any part of the partnership property from the purposes of the firm, to pay his own debt, contrary to the will of his co-partner; for this power, in Richard Steele,as agent, or William Steele, as a partner, is not contended for. But where no covin appears, one partner will not be considered as acting without the consent of the other; and an agent as deeply interested as Richard Steele was, can never be presumed to transcend his authority in behalf of strangers; when by sp doing he will increase his own liability. Thepe is a circumstance in this case that suggests the idea, that even the complainants considered this as a legal transaction. On the 9th of November, 1822, the complainants obtained an order on Wurts, in the name of William and Robert Steele, for the partnership funds that might be in his hands; which order was accepted by Wurts conditionally, to be discharged after satisfying his own demands, and the obligations he was already under on account of said firm. Now, it is not probable that the nature conc^ona* acceptance was unknown to the complainants, or was withheld from the knowledge of Robert Steele, unless the complainants, as well as Richard Steele, were perfectly satisfied with what had been preyiously done. So that we are induced to believe that no person whatever, at this period, sup-: posed that there was any thing illegal or fraudulent in this transaction with the trustees. And we are strengthened in the belief that this transaction was not only in good faith, but that no person supposed the contrary, from the circumstance that the adjustment was made, and the claim of the trustees transferred to Beach, sometime before we hear of any suspicion of the insolvency of Williaiyi and Robert Steele. It is not until December, 1822, that we learn that they were considered doubtful at Kenhatoa, the principal seat of their business; and not until March, 1823, that they were there reputed insolvent. Therefore, aftep examining all the circumstances of the case, we can but consider this transaction as the joint act of the firm, disposing of so much of the partnership property for the separate benefit of one of the partners.
Rut it is contended, that the separate debt of one partner should not be paid out of the partnership estate, until all the debts of the firm are discharged. This doctrine is correct, but it does not apply, until the partners cease to have a legal right to dispose of their property as they please. It is applicable¶ only, when the principles of equity are brought to interfere in the distribution of the partnership property among the creditors. These equitable principles operate not only on the property remaining in the possession of the partners, but embrace all that has been fraudulently disposed of; but will not extend to such as has been previously transferred in good faith. There is no ground on which we can presume that the trustees, when they made this arrangement for the discharge of their demand 5 or that Beach, when he purchased their claim; had any intern tion of defeating the complainants in the recovery of their debt; for it does not appear that they had any certain knowledge of its existence. They were desirous of recovering their own debt, and whether it was discharged out of the separate property of William Steele, or out of the partnership property of William and Robert Steele, was a matter in which they were not directly concerned. The trustees obtained posses sibil of the salt; and of the draft on Wurts, and transferred their claim to Beach, at a time when no person, not even the complainants, seem to have supposed there was any unfairness in the transaction; and having obtained this legal advantage, it would require a strong claim, indeed, to divest them of it. The claim of the complainants is hot of this nature. The only debt they have attempted to prove, arises on the bill of exchange. This was payable on the 15th of December, 1822. On the 9th o£ November previous, they received the conditional acceptance of their order on Wurts, and we presume were acquainted, at tliat time, with the draft in favour of the trustees; yet they permitted this arraiigement to proceed undisturbed, Until they filed the present bill in November, 1823. For the amount due on this bill of exchange, they have Richard Steele liable to them as the acceptor. It is true, they are not bound to resort to the acceptor of the bill, but may urge their claim upon the partnership property, when the property has not been disposed of, or the disposition is fraudulent. But where there fire conflicting claims, the manner in which those claims are secured, is resorted to as a means of determining their comparative merit. So, in this case, the complainants have not the Same plea for interfering with any disposition of the partnership property that they would have had, if they had no security for their demand. It should however be remembered, that the bill charges that Richard Steele is not able to pay the whole of their demand. On the other hand, his entire ability to pay the whole is asserted by the answers; and no proof is adduced on the subject. The answers also state, that the complainants have instituted suit against him, and have stayed the proceedings until this suit is determined; and that this suit is prbsecuted for his benefit: so the presumption is, that the complainants have ample security for their debt, in thus stating the merits of the complainants' 'demand, we do not contrast it with the demand of the trustees, on the ground that the trustees had originally any claim on the partnership property, but on tlxe ground that they have received a legal claim to, and possession 'of, a part of the partnership funds, and at a time when the partners had entire control over their property; and our object is to show, that if any claim could be strong enough to defeat the claim of tbe trustees, that the complainants have not made out such a claim.
But it is urged', that if the complainants have not shown themselves entitled to divest the defendants of these funds, oil account of their having security for their debt; yet that Richard Steele, as he has to discharge this bill of exchange, which it is said was accepted for accommodation only, should be considered as a creditor of the said firm; and that the arrangement with the trustees should be set aside in his favour. Btit; wheii his agency in this business is considered, it is impossible to suppose that the trustees have committed a fraud agáinst him, of have taken any undue advantage of him.
We have, throughout this case, considered Beach in the same situation as the trustees of Clarksville, as hé was a member of that corporation, and was individually apprised of the nature of the securities he obtained with the transfer of the demand of the trustees; so that it is unnecessary to investigate a question that has been stirred, whether he has paid the full consideration to the trustees for their claim. He is entitled at all events, as far as the complainants and Richard Steele are concerned, to all the advantages that could be claimed by thé trustees. And we see nothing in the case, thus far; to authorise a Court of equity to rescind the contract with the trustees, or to divest Beach of any legal advantage he has obtained.
There is another feature of the complainants' case that merits some attention. A written agreeibent was entered into On the 9th of November, 1822, between William Steele and Beach\ by which William Steele was to furnish Beach with a quantity of salt at a stipulated price, sufficient, with what salt he had received, to pay Off the demand of the trustees: The salt to be delivered in ten days, and the order on Wurts to be given up. It does not appear that either part of this agreement was fulfilled. The salt was not delivered, nor the order given up. Beach in his answer states, that the order was not to be given .up until the salt was delivered. But the complainants contend) that, according to the agreement, the order was to be given up unconditionally; and that no condition can be annexed to it by parol. This agreement is not a deed, and what right William Steele might have had under it to demand this order, before •,the failure to comply with the agreement on his part, need not now be inquired into; for the failure to deliver the salt,presents a total failure of th'e consideration on which the order was to be given up. So that neither law nor equity would require Beach to deliver up the order. This circumstance, therefore, cannot affect the case of the complainants. , Their bill was correctly dismissed by the Circuit Court;
Dewey and Nelson, for the plaintiffs.
'Howkf for the defendants'.
Per Curiam.
The decree is affirmed with costs.