Court Opinion

ID: 6230316
Source: CourtListenerOpinion
Date Created: 2022-02-17 20:20:25.386486+00
Date Added: 2024-06-11T08:57:50.296192
License: Public Domain

The opinion of the court was delivered by
Woodward, J.
Unquestionably the debt of John Siegel, Jr., to his father John Siegel, Sr., was originally an individual and not a partnership debt. The paper taken for it proves it such, and the verdict has fixed it as the debt of one partner. But it is equally clear that the money, though obtained on the personal credit of Siegel, Jr., went into the partnership funds, and was used for the exclusive benefit of the firm of Field & Siegel. Now although this circumstance would not, of itself, make the firm liable to the creditor, 5 Watts 454, 6 Harris 412, yet it would be a consideration to support the firm’s subsequent promise to pay. The single bill of 23d March, 1852, was such a promise. It was an express undertaking on the part of the firm, upon a sufficient consideration, to pay this debt out of the partnership assets. It *286became at that moment a partnership debt for all intents and purposes.
This was not the application of partnership effects to the private debt of one member of the firm, but it was the honest and fair assumption by both members of the firm of a debt which had been created for their benefit, and which in equity and conscience they were both equally bound to pay. Field swore that the money had always been treated as a partnership- debt — that the interest was paid out of the drawer of Field & Siegel, and that we gave the note of March, 1852, for that of August, 1847. The creditor advanced his money for the purposes of the firm — it went to their use, it was represented in the effects which they possessed, and both members of the firm, with a full knowledge of the facts, concurred in giving it the form of a partnership debt.
It is impossible to think of such a transaction as fraudulent. Fraudulent as to whom ? Not as to Field, because he assented to all that was done, and all the authorities agree that where a creditor receives partnership paper from one partner in discharge of his separate debt, he will repel the presumption of fraud by showing that it was given with the consent of the other partners. See Story on Part. 202, and the cases cited in notes.
Nor could it be a fraud on partnership creditors, for they have no lien on partnership effects, and whatever equities are available to them must be worked out through the partners. We held in Baker’s Appeal, 9 Harris 82, that the right to confine a partner, or those who claim under him, to his interest in the surplus after payment of the partnership debts, is an equity which rests in the other partners alone, and not in the creditors of the firm, and therefore, that where one partner sells his interest in the firm to another partner, upon an express engagement of the latter to pay the partnership debts, he may make a different disposition of the assets, and leave the creditors only his personal responsibility. This is a much stricter rule, as to the equities of partnership creditors, tha,n any that we have occasion to invoke in this case.
If as between the partners there was no equity to forbid the assumption of Siegel’s debt, the creditors of the partnership could have none. If it was not a fraud on the firm, it was not a fraud against the creditors of the firm. But that it was not a fraud on the firm, I have shown already, for both members assented to the assumption. And what possible equities can partnership creditors be thought to possess which do not belong equally to old Mr. Siegel ? True, he advanced his money to his son, but it was for the partnership. It entered into the business of the firm, and purchased just as large a portion of the assets as he now claims to take out of the firm. What more did the money of any other creditor do ? As partnership property has been acquired by means of partnership debts, it ought first to be applied to the discharge *287of them. This is the ground on which text writers rest the primary claims of joint creditors, and it is evident that Siegel is as clearly on this ground as Ohidsey. If not a joint creditor at first he was only not so in form, and equity regards substance rather than form; but he became a joint creditor in form as well as substance before distribution commenced or any counter legal rights had vested. He stands, therefore, a partnership creditor among partnership creditors.
But it is objected that he was made so — that his claim was assumed by the firm after they were insolvent. The point put to and affirmed by the court, was that “ if at the time of the giving this judgment-note to John Siegel, Sr., by Field & Siegel, the firm was insolvent, &c.” Now the jury could not fail to understand, from the affirmance of this point, that if Field & Siegel were unable to pay all their debts, they-had no right to assume the debt to Siegel, Sr. Is this law ?
Under the statutes of bankruptcy the judicial declaration of the fact relates back to the first act of bankruptcy, so that from that period the bankrupt is deemed divested of all of his property and effects, and, by operation of law, as soon as assignees are appointed, it is vested in them by relation from the same period. It is clear that after an act of bankruptcy, partners could not pledge their effects to the payment of a debt of one of their number; but it was not made a point in this case, nor found by the jury, that any act of bankruptcy had been committed before the 23d March, 1852. Simple insolvency, however, without stoppage of payment, without an assignment, or any judicial process, does not work a dissolution of the partnership nor divest the partners of their dominion over the partnership property. They may not make a fraudulent disposition of it, but the confession of judgment to a bona fide creditor, even though it have the effect of giving him a preference over other creditors, is not a fraudulent disposition of an insolvent estate. It would not be questioned that an insolvent firm might make a valid sale of goods, or pay a debt, or make an assignment, or exercise the jus disponendi in any form that was consistent with good faith and fair dealing. Why then may they not confess a judgment to a bona fide creditor ? The whole force of the argument on the part of Ohidsey, consists in the assumption that this was an application of partnership effects to the separate debt of one of the partners. If such an application by an insolvent firm would indeed be fraudulent as to partnership creditors (a conclusion which I am not prepared to admit), the assumption is unwarranted that this was a separate debt after the 23d March, 1852. Regarded by both partners as essentially a partnership debt from the first, -it became, on that day, a partnership debt in form and effect, and from that time to this, Siegel, Sr., has been a partnership creditor.
*288The only peculiarity which the record discloses is that he acquired, by superior diligence, the first lien on the debtors’ goods. This he had a right to assert, and the court ought to have rendered such answers to the points propounded as would have secured to him his rights.
There are several questions of evidence on the record, but the view that has been taken of the main points in controversy renders it unnecessary to-notice the bills of exception to evidence.
The judgment is reversed and a venire de novo awarded.