Court Opinion

ID: 8637642
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:47:54.546025+00
Date Added: 2024-06-11T16:55:37.037088
License: Public Domain

WOODS, Circuit Judge.
It is claimed by defendants that the case made by the bill does not fall within the equity jurisdiction of the courts of the United States. As the complainants are all citizens of Florida, and Sanborn, the assignee, who is one of the principal defendants, is also a citizen of Florida, the jurisdiction is not based upon the citizenship of the parties, but must be conferred, if at all, by the bankrupt act. The complainants rely on section 4970 of the Revised Statutes as their warrant for bringing the suit in the United States court. That section declares: “The several circuit courts shall have within. each district concurrent jurisdiction with the district court * * * of all suits at law or in equity brought by an assignee in bankruptcy against any person claiming an adverse interest, or by any such person against an assignee, touching any property ór rights of the bankrupt transferable to or vested in such assignee.” Now it is perfectly clear that this is a suit in equity brought against the assignee by persons claiming an adverse interest touching property or rights of the bankrupt transferable to or vested in such assignee. The charge is that the assignee has possession of property, which he holds as the individual property of F. S. Chester, and which he is about to apply to the payment .of the individual debts of F. S. Chester, which in fact belongs to the firm of Chester & Co., of which they are creditors, and which should be first applied to the payment of the debts of that firm. Clearly, this is the very case provided for by the section first cited. The case of Stickney v. Wilt, 23 Wall. [90 U. S.] 150, sustains the jurisdiction in a similar case. The objection made by counsel for defense seems to be more to the decree of the district court than to the purview of the bill. The court may have exceeded its jurisdiction in the making of the decree. That, however, is not the question made. The real question is, has this court the jurisdiction to grant the relief or any of the relief prayed for V If it has, it must retain the bill for that purpose. It is conceded that the court has jurisdiction to- decide, in this case, upon the claims of the complainants to have this property, as the property of Chester & Co., applied to the payment of their debts. It is therefore the duty of the court to pass upon this question, at least, and if the district court went further by its decree than was warranted by its jurisdiction, that fact does not change the duty of this court. The decree of the district court is vacated by the appeal. The case comes here for trial de novo, and the question is entirely open in this court what decree it shall make. But this objection to the decree does not seem to me well founded. It was the duty of that court, sitting as a court of equity, having jurisdiction of the parties and subject-matter, to do complete justice, and not, having decided that the complainants were entitled to have the property in controversy applied first to the payment of their debts, to turn them over to another forum to complete the relief to which they were entitled. I am of opinion, therefore, that the objection made to the jurisdiction of this court is not well taken.
I proceed to consider other questions raised by the record. The bill appears to be de*514fective for ■want of a sufficient averment that the complainants have reduced their claims against the alleged firm of Chester & Co. to judgment. Without judgment the complainants have no right to insist on payment of their claims out of any specific property of their debtors. They have a right to be paid so much money by their debtors, but have no lien or claim upon any property of their debtors. The bill does not allege the recovery of judgments by the complainants. It is true it refers to an exhibit which contains a list of the creditors of the alleged firm of Chester & Co., giving amounts, and opposite some of them is written the word “Judgment” and a date. If this is intended as an averment that such claims have been reduced to judgment, it is a very ineffectual and insufficient way of making such an averment.
Passing over this defect in the bill, I proceed to a consideration of its merits. The first claim I shall notice is that there was a partnership under the firm name of Chester & Co., of .which Horace Stillman was a member. Prom this the inference is drawn that the firm could not be indebted to him, and he could not hold liens upon its property executed by another member of the firm in his own name. Without deciding whether this conclusion follows from the premises, I am entirely satisfied that the proof fails to show that Stillman was a partner in the alleged firm. There is no evidence'to show that, as between Stillman and the other, alleged partners, there was any partnership. The proof is clear and uncontradicted that he was not. But it is claimed by complainants that he was a partner as to strangers. He could only be made such by holding himself out as a partner, or allowing the other partners, with his knowledge, to hold him out as a partner. That he never held himself out as a partner is clear. The evidence is all on one side upon that issue. There is no evidence that he knew that-the other so-called partners were holding him out as a partner, and no evidence that they did hold him out as such partner, with the exception of two instances. These are that Town took a bill of sale of the engine and mill in the name of P. S. Chester and Stillman, and the other that the lease by Cone for a mill site was made to F. S. Chester and Stillman as partners. As to the first, there is no evidence that it ever came to the knowledge of Stillman; and as to the second, it is in evidence that, when Stillman discovered, in February, 1872, the terms of the lease, he at once denounced it as implying a falsehood, and required the lease to be canceled, and a new one executed in the name of P. S. Chester alone, and that he required the cancellation of the first lease, and that the new lease and the cancellation of the old lease should be put upon the public records of the county, and supposed it had been done. The bill avers, it is true, that with the business public, in the vicinity of the mills and in Pernandina, the general impression was that Stillman was a partner in the firm of Chester & Co. Upon this averment the proof is conflicting. But it is not pretended, nor does the bill aver,- that Stillman knew that any such idea existed. He did not represent himself to be a partner, nor did any of his alleged partners so represent him. But it is claimed that the bond for $6,000, given by P. S. Chester to Stillman, in which the former agreed, in lieu of interest, to pay Stillman a sum equal to the fourth part of the net profits of the sawmill and business, made Stillman a partner in the' business. Whether this made Stillman a partner it is unnecessary to decide. It could only make him a partner while this bond was in force, and only those persons who credited the firm while Stillman retained this bond could hold Stillman as a partner. There is no averment in the bill, and no proof, that any of the complainants became creditors of the firm while Stillman held the bond, or'that they ever knew of the existence of the bond, and no proof in the record to sustain such an averment, if there were. In short, the at-tempt to hold Stillman as a partner of the alleged firm of Chester & Co. has failed.
As to the claim, made by the bill, that E. N. Chester and P. E. Town were partners in the firm of Chester & Co., the evidence shows conclusively that they were not in fact partners; but it shows that, with the knowledge of F. S. Chester, they held themselves out as such. The truth is that there was, in fact, no such firm. The property all belonged to P. S. Chester. It was bought with his money, and owned by him exclusively. Now, under this state of facts, which class of creditors is entitled to priority of payment out of this property, — the creditors of P. S. Chester, or the creditors of the supposed partnership? P. S. .Chester never reported that E. N. Chester and Town were part owners of the mill and other property of Chester & Co. His exclusive title to this property could not be divested by any statements made in relation thereto by E. N. Chester and Town. If the firm of Chester & Co. existed as to strangers, it was a firm in which P. N. Chester owned all the property, and the other partners were interested only in the business, in its gains and profits. All the products of the business — all the lumber made, for instance — were liable for the partnership debts; but the individual property of one of the partners, even though used by the partnership to carry on its business, was liable in the first instance for the individual debts of the owner. Murrill v. Neill, 8 How. (49 U. S.) 414. If I am right upon this proposition, the prayer of the bill, that this property may be first subjected to the payment of the partnership debts, cannot be sustained. It is individual, and not partnership, property, and must be first applied to the individual debts of the owner. The fact is that the complainants gave credit to the • supposed firm of Chester & Co. without any inquiry as *515■to- the condition of the partnership or the title to the property "with which the partnership business was carried on. Any inquiry, addressed either to IT. S. Chester or to Still-man, would no doubt have elicited the truth. No such inquiry was made. The rights of these men are not to be denied because the complainants have blindly bestowed credit on a supposed firm which had no means except what it might make in carrying on its business. The conduct of F. S. Chester in allowing the lease of the mill site to become forfeited, and the conveyance of the property to Mrs. Stillman, is a matter entirely immaterial to these complainants.. The lease itself, burdened with a yearly rent reserved of $100, was of little or no value; and even if its value had been considerable, it appears very clearly by the averments of the bill that the property of F. S. Chester, including the lease of the mill site, would be insufficient to pay the mortgages to Stillman. Without an averment that there would be a surplus after paying Stillman his claims, the disposition of the lease is a matter in which complainants have no concern. The case is that Stillman loaned $30,000 to F. S. Chester, to be used for the erection of his mill and the carrying on of the business. F. S. Chester was the only one of the three persons engaged in any way in the enterprise who had any money. The property used in the business was all his individual property, and did not belong to the firm. The property was bought with money furnished by Stillman, under an agreement that he. should be secured by mortgages upon it. He has mortgages of record to the amount of $23,000, which appears to be the full value of the property. The as-signee of F. S. Chester is entitled to this property, for it is the individual property of F. S. Chester, and cannot be taken for his partnership debts until his individual debts are paid. The property will not pay these debts. The complainants’ partnership creditors have, therefore, no claim to this property, and their bill seeking to subject it to their debts must be dismissed, at their costs.
Decree accordingly.