Court Opinion

ID: 6133006
Source: CourtListenerOpinion
Date Created: 2022-02-04 21:25:18.797159+00
Date Added: 2024-06-11T08:54:19.674461
License: Public Domain

Haight, J.
(dissenting):
In April, 187-7, George M. Whedon and James Ren wick entered into an agreement by which they became copartners, and as such carried on a business in coal, lumber and produce, at Stanley, N. Y., until the fall of 1883, when the copartnership was terminated by the death of Ren wick. On the 14th day of January, 1884, Whedon, as the surviving member of the firm, made a general assignment for the benefit of creditors of all the copartnership property and assets, with preferences, to the defendant Cross. Subsequently, the plaintiffs, as judgment creditors of Whedon as surviving partner, brought this action to set aside the assignment as fraudulent and void.
The only question presented is whether a surviving partner can make a general assignment, giving preferences, of the copartnership property to a. trustee for the payment of the debts of the copartnership. The question thus presented is not free from difficulty. It has often received the attention of the courts and has been the subject of considerable discussion, resulting in a conflict in the authorities in our own and several of the other States. In the case of Egberts v. Wood (3 Paige, 517), Chancellor Walworth appears to have reached the conclusion that one partner could, during the lifetime of the copartnership, make a general assignment for the benefit of creditors, and that in case of the death of one of the partners, the survivor could make the assignment; and this case seems to have .been followed in the case of Hutchinson v. Smith (7 Paige, 26) and in Palmer v. Myers (43 Barb., 509). In these latter cases, however, the precise question does not appear to have been involved, and consequently they cannot be considered as controlling upon the question. In the case of Havens v. Hussey (5 Paige, 30), the chancellor takes occasion to review his decision in the case of Egberts v. Wood, and upon a more deliberate examination of the question reached the conclusion that his opinion-in that case should be modified, and that it should be held that the implied authority, arising from the ordinary contract of copartnership, does not authorize one of the partners, without the assent of his copartners, to make a general assignment of the copartnership effects to a trustee for the benefit of creditors, giving preference to one class of creditors. This latter question appears to be now well settled in this State, the courts uniformly holding that one member *105of the firm has not the power to make a general assignment for the benefit of creditors without the consent of the other members. ( Welles v. March, 30 N. Y., 344, 350 ; Fisher v. Murray, 1 E. D. Smith, 341; Deming v. Colt, 3 Sanford’s R., 284, 291; Haggerty v. Granger, 15 How., 243 ; Pettee v. Orser, 18 id., 442; Kelly v. Baker, 2 Hilton, 531.)
The question received elaborate discussion by Vice-Chancellor Hoffman in the case of Hitchcock v. St. John (1 Hoffman, 511-518); he reviewed the case of Egberts v. Wood and numerous other cases, and reached the conclusion that an assignment by one member of the firm is not authorized, because of the want of power in any one partner to make it; that there is no such power during the existence or after the dissolution of the copartnership. In the case of Deckert v. Filbert (3 Watts & Serg. [Pa.] R., 454), it was held that after a dissolution of a partnership one of the firm has not power to make a voluntary assignment of the effects of the partnership for the benefit of creditors against the express consent of his copartner. In the case of Bancroft v. Snodgrass (1 Coldwell, 430, 441), it was held that after the dissolution of a partnership by the death of one member, the surviving members had no authority to make an assignment of the partnership effects to a trustee with preferences.
In the case of Nelson, as Executor, etc., v. Tenney (36 Hun, 327), the General Term of the First Department recently held that a surviving partner has no power, without the consent and concurrence of the representatives of the deceased partner, to make an assignment to a trustee for the benefit of creditors of the firm, and to create preferences among the creditors by such an assignment, and that a court of equity will take possession of the estate by a receiver at the suit of the personal representatives, if such an attempt has been made.
It will be observed from an examination of the authorities to which I have referred, that the question is one of power. One member of a copartnership cannot make a general assignment of the copartnership effects without the consent of the other members, for the reason that he has not the power; that the act is not within the scope and object of the partnership. If the individual partner has not the power during the existence of the copartnership, can he have it after the partnership has been term-*106mated by the death of one of the members? The survivor takes title to the copartnership effects it is true; but the survivor takes title for the purpose of closing up the copartnership business and distributing the surplus after paying the debts. The title of the survivor is not absolute but is in the nature of a trust. He is. given no other or greater powers than he had during the existence of the copartnership. It may' be argued that he has the power, as survivor, to sell the copartnership property ; that he may pay such creditors as he chooses in whole or in part. True, but he had this power during the existence of the copartnership. Each partner possessed an equal general power and authority in behalf of the ^ firm to dispose of the partnership property and effects for any and all purposes within the scope of the partnership, and in the course of its trade and business. As agent of the firm, one partner could sell, mortgage, pledge or otherwise dispose of the firm effects for partnership purposes; and yet, notwithstanding this power, he could not make a general assignment for the benefit of creditors, with preferences. And why? In entering into the contract of partnership the parties confide in the skill, capacity and integrity of each other. Each is entitled to the experience, management, judgment and discretion of the other. It was not the skill, capacity, integrity, experience, management or judgment of a third person that was contracted for, but it was of the individual members composing the firm, and neither member has the right, without the concurrence of the other members, to do any act which would defeat the object or purpose of the copartnership. Consequently the authority of each of the partners, as agent of the firm, is necessarily limited to transactions within the scope of the partnership, and a general assignment to a trustee of all the funds and effects of the partnership for the benefit of creditors is the exercise of a power without the scope of the partnership enterprise, and amounts of itself to a suspension or dissolution of the partnership. It would be the transfer to another person of the power to manage and control the copartnership property. It would deprive the other members of the firm of the skill, experience, judgment and integrity in the management of the property of the firm, of their copartner, and commit the same to a stranger in whose selection they had had no choice. In entering into the copartnership it must *107be assumed that the parties contemplated the possible contingency of the death of one, and the title of the effects vesting in the survivor, who is then permitted to act without the judgment and advice or the watchful eye of the former partner. If the survivor could not, during the existence of the copartnership, by assignment transfer to another his skill, integrity, experience, management, judgment and discretion, it does not appear to me that he has power to do it after the death of his copartner. If he cannot delegate before the death of his copartner, he ought not to be permitted to after. If his living partner had the right to have the personal exercise of these powers the representatives of the deceased have the same rights, and that he should personally administer the trust which the law has placed in his hands.
Again, if an action can be maintained by the personal representatives of the deceased partner to set aside an assignment, as was held in the case of Nelson v. Tenney, 1 see no reason why the action may not also be maintained by the judgment creditors of the firm. The creditors are interested before the personal representatives. Whilst the survivor may not hold the property of the firm as trustee for the creditors, I see no reason why they may not be permitted to protect themselves from any illegal act of the survivor that would result in injury to them. To hold that the assignment would be valid as to the creditors, and void as to the personal representatives, would present an anomaly not contemplated by any rule of law with which I am familiar. The creditors would then be bound by the assignment, and would have to await the action of the assignee in converting the property into money to pay their debts. After waiting years without redress the personal representatives may see fit to restrain the assignee from further acting in the premises, and thus the rights of the creditors may be postponed and indefinitely delayed. It does not appear to me that such can be the law.
The judgment should be reversed and a new trial ordered.
Judgment affirmed, with 'costs.