Opinion ID: 1361063
Heading Depth: 1
Heading Rank: 3

Heading: effect of judgment against only one partner.

Text: We have accordingly before us a judgment for a partnership debt against one of the partners of Fletcher and Shaw, valid against a collateral attack. The question then before us is what is the effect of such judgment insofar as it affects the joint property of the partnership? That question has not been argued by counsel on either side. It has presented a great deal of difficulty. We have attempted to make an exhaustive search of the authorities. We find a number of cases in which joint property of joint debtors has been held subject to attachment or execution when only one of the joint debtors had been served with process. This was under the so-called joint debtor statute, which is in force in many states. See 49 C.J.S. 79 (3); Vols. 1 and 2 Freeman on Judgments (5th Ed.) Sections 107 and 569; Yerkes vs. McFadden, 141 N.Y. 136, 36 N.E. 7; Continental Supply Co. vs. Trust Co., 52 N.D. 209, 202 N.W. 404; Ellsberry vs. Black, 28 Colo. 477, 65 P. 629. We have no such statute, and have found but comparatively few cases bearing on the point before us, in the absence thereof. We find two absolutely contradictory and conflicting lines of authorities in this connection. We shall present them along both lines. It is held in the case of Donnell vs. Williams, 21 Hun. (N.Y.) 216 that: Where, in an action brought against a firm, consisting of two members, an attachment is issued, and thereafter one of the partners is personally served with the summons, but the other is not,    the attachment ceases to be a lien upon the firm property. In Davidson vs. Knox, 67 Cal. 143, 7 P. 413 it was held that in an action against individuals as in the case at bar, under statutes in that state, somewhat similar to those in this state, no judgment would be allowed against the joint property of the individuals. In Brown vs. Gorsuch, 50 W. Va. 514, 40 S.E. 376 it was held: Joint property having been levied on, it could not be subjected to the payment of plaintiff's demand without service on both the partners, either actual or constructive. See as supporting this holding to more or less extent, Stokes vs. Insurance Co., 141 S.C. 417, 139 S.E. 846, also the same case in 130 S.C. 521, 126 S.E. 649. In Rich vs. Solari, 17 Dist. of Columbia 371, the facts were exactly like those in the case at bar. Judgment was rendered against one partner, who alone was served in a suit commenced against both parties on a partnership contract. The court referring to some Maryland cases in which the common law had been modified stated: Without questioning the soundness of those decisions it is apparent to us that in this District, where the common law in this respect has not been modified by statute, the law is otherwise. The obligation of the firm being merged in the judgment against one partner, as to all members of the firm, and the judgment being against one only, it logically follows that the execution cannot be broader than the judgment and can only be levied on the property of the judgment debtor; hence cannot be levied on the partnership property. Ex parte Christy, 2 Deac. & C., 155; Bradley vs. Millar, 1 Rose 273. It will be noted that that case is based upon the theory of merger. That theory is stated in 2 Freeman on Judgments, supra, 567 as follows: In the absence of statute to the contrary, whenever two or more persons are jointly liable, so that if an action is commenced against any less than the whole number the nonjoinder of the others will sustain a plea in abatement, a judgment against any of those so jointly bound merges the entire cause of action. The cause of action being joint, the plaintiff cannot be allowed to sever it against the objection of any of the defendants. By taking judgment against one, he merges the cause of action as to that one, and puts it out of his power to maintain any further suit, either against the others severally or against all combined. However, speaking of the rule of merger, the court in Frost vs. Thompson, 219 Mass. 360, 106 N.E. 1009 stated in part as follows: The doctrine of merger, like res judicata, operates only between parties and their privies. It does not affect strangers to the original proceeding and is not available as a bar in their favor.    Apart from authority and on reason this conclusion is sound. It is only in proceedings in rem that the judgment of a court has been regarded as affecting those who are not parties or privies. Merger is a doctrine which has been extended `very far' in this commonwealth, and which `has not received the approval of the Supreme Court of the United States' and of other courts of respectable authority.    In the course of the judgment in Beckett vs. Ramsdale, 31 Ch. Div. 177, where after full discussion, it was held by the Court of Appeal that recovery of judgment against a surviving partner did not bar an action against the estate of a deceased partner, the doctrine was referred to by Lord Bowen as one of `fierce severity.' It does not affect liabilities collateral or subsidiary to the original cause of action and yet separable from it. Furthermore, we are inclined to think that the doctrine of merger has been abolished in this state insofar as the situation is presented in this case by Section 3-3901, Wyo. Comp. St. 1945 which states: When judgment is rendered in this state on a joint contract or instrument, parties to the action who were not summoned,    at the rendition of the judgment, may be made parties thereto by action in the same court, if they can be summoned in the state, etc. We shall now present the other line of authorities. It appears that in Maryland the doctrine of merger was substantially abolished by statute somewhat similar to that of our statute heretofore cited. In the case of Johnston vs. Mathews, 32 Md. 363, the court said: One of the partners having been summoned in the suit, which was instituted against all the partners, there was a party in Court, a judgment against whom would have been effective against the whole of the effects and assets of the firm. An annotation in 20 Ann. Cas. 1238 sets out the so-called Pennsylvania rule. In the case of Taylor and Fitzsimmons vs. Henderson, 17 Serg. & Rawle (Pa.) 453, it appears that one Mr. Page, a partner, had not been sued along with the others. The court said in part: For the separate debt of a partner, I admit, only his separate estate can be sold; and as by the contract of partnership, the debts are to be paid before capital or profits can be divided, it follows that he has no specific interest in the partnership effects, but only in what may remain after the settlement of the partnership account, and nothing beyond can be levied. But for a partnership debt, the entire property in the specific thing must be sold, even in a judgment against one of the partners; because through the medium of the execution, the law compels him to make the same application of the joint funds to the joint debts, that it was undoubtedly competent to him to make voluntarily.    Thus, I take it to be clear, that the interest of Mr. Page in the partnership effects, might be sold on a judgment against the others, just as if he had appeared to the action; and he was, therefore, a defendant both in substance and in form, although not technically a party to the issue. In the case of Harper vs. Fox, 7 Watts and Serg. (Pa.) 142 the court stated: A partner has power to dispose of the joint effects by his separate act; and that he may not bind the firm by submission to arbitration, or confession of a judgment, is because it would bind the persons and separate estates of the members, and thus transcend the limits of partnership authority. But that a judgment against a single partner, as the representative of the firm, may be satisfied out of the joint effects, was said in Taylor vs. Henderson, (17 Serg. & Rawle 456). A judgment may be recovered against a less number than all the members, if there be not a plea in abatement; and the effects of the partnership may consequently be seized in execution of it. The rule so laid down in these cases has been consistently adhered to by the Pennsylvania courts. Thus it was said in Cover vs. Brown, Sutter & Co., 7 Pa. Dist. Rep. 19 as follows: The foregoing citations will serve to show that a partner not served with process in an action against the firm will not be bound individually by a judgment obtained in such action; and where only one of three partners is served, as in this case, an execution upon the judgment cannot be levied upon the individual property of those not served.    But the partnership effects may be sold on an execution issued upon a judgment obtained for a partnership debt against one of the partners: Ross vs. Howell, 84 Pa. 129; Freiler vs. Kear, 126 Pa. 470. The judgment thus obtained against one of the partners will authorize a levy and sale of the firm property as well as of his separate property: Boyd vs. Thompson & Coxe, 153 Pa. 78. In the case last cited the court said in part: He (a partner) has a right to insist that the goods belonging to the partnership shall be used to pay the partnership debts, and if he deems it necessary to his own security or that of the creditor, he may confess a judgment against the firm for the amount of such debt which will justify the levy and sale of the goods of the firm and his own in payment thereof. In so doing he imposes no new or original liability on his firm, for the debt was already due from it. In that sense the judgment is not an executory contract to be performed in future, but a mode of payment for a debt contracted in the past, the consideration for which the firm has already enjoyed. Such a judgment has been sustained for purposes of execution against the goods of the firm in many cases, among which are Harper vs. Fox, 7 W. & S. 142; Grier vs. Hood, 25 Pa. 430; Ross vs. Howell, 84 Pa. 129; McCleery vs. Thompson, 130 Pa. 443. We need not pass upon the question of confession of the judgment but the principle underlying these cases is the same as the principle underlying the case at bar. In the case of Powers vs. Braley, 41 Mo. App. 556 the question was as to the effect of the sale of partnership property under an execution against one of the partners for a judgment for a partnership debt. The court said: This question is one of first impression in this state, so far as we are now advised, but we think that both reason and authority sustain us in the conclusion that, where a judgment has been obtained against one partner only on an unquestioned firm obligation, and personal property belonging to the firm is levied upon and sold to satisfy such judgment, the sale will pass to the purchaser the entire title. This conclusion is not unreasonable, but it is in harmony with the law governing partnerships. It is well settled that one partner can sell, in the regular course of business, all the goods of his firm; he may bind the other members as makers or indorsers of negotiable securities, provided the transactions are within the scope of the partnership business; he can pledge or mortgage the personal assets of the firm to secure the payment of a partnership debt; he has authority to sell to a firm creditor the firm assets to pay a partnership liability, and, therefore, when a judgment is obtained against a single partner upon a partnership obligation, and the personal assets of the firm are taken on execution to satisfy the judgment, such levy must be regarded as an application by the partner, through legal process, of the joint fund to the satisfaction of a joint debt. And it would make no difference whether the judgment against the partner was involuntary or by confession; the result would be the same. This position in no way militates against the well-known doctrine that one partner cannot confess a judgment against his copartners, because such judgment would bind the separate estate of the members, and this would be beyond the scope of partnership authority. But this principle is not violated by permitting a judgment against a single partner for a firm obligation to be satisfied by the sale of partnership property. In such cases the court would restrain the execution to partnership effects and to the separate estate of the partner personally bound. In the case of New Coronado Coal Co. vs. Jasper, 144 Ark. 58, 222 S.W. 22, one of the syllabi is as follows: Where members of a partnership are sued, and service is only had upon one of them, a judgment in favor of plaintiff binds the served partner personally and as a partner, and partnership funds impounded by attachment and garnishment. The case of Martin & Bro. vs. Davis & Co., 21 Ia. 535 presents a contest between two attaching creditors. In one case a judgment was had against only part of the members of the partnership, while a judgment was obtained against all of them in another case. The court held: The fact that a judgment on a firm debt was rendered against only a part of the members of the firm does not affect the equitable right to have the partnership property subjected to its payment. The court said in part: The fact that the judgment was rendered against only two members of the firm, would not affect the equitable right to have the partnership property subjected to its payment. The rule in equity does not regard the form of the judgment, but the substance of the debt. Looking alone to the substance of the claims or debts of the respective parties, they are precisely equal in equity; both are partnership debts. Especially is this true under our statute, which holds the partner not sued or included in the judgment still liable. An interesting case is that of Bethel vs. Judge of Superior Court, 57 Mich. 379, 24 N.W. 112 which involved the validity of garnishment in an action brought against a firm or partnership, but of which one of the defendants was an infant. No judgment, of course, could be recovered against the latter, and the question was as to the effect of the judgment and the garnishment insofar as the adult partner was concerned. In other words, the question was whether or not, in view of the fact that judgment was not obtained against all the partners but only the adult partner, the garnishment of the property of the partnership was valid or not. The court held that it was and that the garnishee was not discharged by reason of the fact that no judgment was obtained against all of the partners. The court considered in part a section of the statute which is very similar to Section 3-5018 of our statutes which provides that a garnishee should stand liable to the plaintiff to the extent of his right or interest therein from the time the garnishee is served with a written notice. The court in the Michigan case said in part: Under this statute the rights and liabilities of the parties depend upon the facts which render the claim one garnishable or not at the time of the service of the writ.    If at that time the liability of the garnishee existed, it must continue until discharged in the manner provided by the statute. The statute provided that failure to recover judgment against the principal defendant should be deemed a discontinuance of all proceedings against the garnishee, as is also true under Section 3-5033, Wyo. Comp. St. 1945. As applied in the particular case the court came to this conclusion: The proper construction to be given to this section of the statute is this: In all cases where judgment is rendered in favor of the plaintiff in the principal suit a garnishee is not discharged or entitled to judgment of discontinuance by a change of parties to the record, where the claim was one that was garnishable at the time of service of process. It must be remembered in this case that the action was commenced against both of the parties in this case, so that the indebtedness owing to it was clearly properly garnishable at the time when the action in this case was commenced, and as no judgment could be taken against the infant in the Michigan case, so no judgment could be taken against Fletcher, because he was not served by process. The change of parties is analogous. See also Thomas vs. Brown, 67 Md. 512, 10 Atl. 713. We are thus confronted with two different lines of decisions on the point before us. There does not seem to be any intermediate course which we could adopt, so that it seems that we must adopt the reasoning of one or the other of these lines. Modern legislation is along the line of the Pennsylvania rule. 2 Williston on Contracts, Section 336, enumerates some 38 states in which modification of the common law rules have been adopted, and tending in the direction of adopting the Pennsylvania rule above mentioned. The joint-debtor statutes have mentioned are clearly in that direction. We think, accordingly, we should adopt the Pennsylvania rule and the cases supporting it and hold that a valid judgment was rendered against the defendant, John B. Shaw, herein, which binds the property of the joint debtors and could accordingly be reached by garnishment process.