Court Opinion

ID: 6133547
Source: CourtListenerOpinion
Date Created: 2022-02-04 21:29:48.542312+00
Date Added: 2024-06-11T08:54:24.107749
License: Public Domain

Learned, P. J.:
If a man carrying on business as a merchant becomes insolvent and malms an assignment for the benefit of creditors, there is not, so far as I know, any rule which requires him to provide that his business creditors should be paid out of the property used in his business and other creditors should be paid out of other property. But if two men are carrying on such business as partners, a contrary rule has grown up. For as A does not owe 'B’s-individual debt, it is held to be fraudulent as against the creditors-of A and B to assign property which belongs to both as partners.Insecure B’s debts. ( Wilson v. Robertson, 21 N. Y., 587.) But one partner may sell out to the other, and if that other partner agrees to pay the debts, the partner who goes out may have an equity in seeing that the partnership property is applied to those debts, to relieve himself. And “ the equities of creditors are to be worked out through the medium of that of the partner.” (Story’s Part., §§ 360, 361, 358.) Yet where a partner-transferred his interest to his partner and the latter received the assets, continued the business, and two months later failed and made an assignment preferring individual debts, the assignment was held to be valid, the trial court having found that the sale was bona fide.. The sale made the property of the firm the individual property of *458the continuing' partner, and he could lawfully assign it- in payment ■of individual debts. (Dimon v. Hazard, 32 N. Y., 65.) This is the doctrine of Collyer’s Partnership (§ 894); Ex parte Ruffin- (6 Ves. [Sumner’s ed.], 119, note 8); Howe v. Lawrence (9 Cush., 553), where the court say that the liona- fides of the transaction is the only test by which to determine the rights of the- joint creditors to have property, which has been transferred on dissolution to an individual member, applied to joint debts. The same doctrine is in Robb v. Mudge (14 Gray, 544), and, in the Court of Appeals, Stanton v. Westover (23 Weekly Dig., 12). But the defendant insists that if the firm of Johnson & Yan Broeklin was insolvent at the time of the1 sale, and was known to Yan Broeklin SO' to be, and continued to be insolvent till the assignment, then the assignment was fraudulent.
Now, it is evident that the- validity and effect of the sale must -depend on the state of affairs at the time and not on what happened .afterwards. Whether, therefore, the firm continued* insolvent (or, more accurately, whether' the assets continued' insufficient) until the assignment cannot' affect' the 'question whether the transfer by Johnson to Yan Broeklin-, when- made, did or did not have the-effect to make the property of the- firm the individual property of Yan Broeklin. So that the defendant’s position must be; that when a firm is insolvent' one partner cannot sell out to the other, who knows of vsu.ch insolvency, with the effect of making the property the individual’ property of the continuing partner, even though the transaction wag made in good faith. And this is not exactly the case of selling out to an insolvent or irresponsible partner, nor is it the case ■of selling Out in- order- that the purchaser may pay individual debts'. The court charged that that would be fraudulent.
It may be that' when a partnership is- insolvent, one of the partners may believe that by buying out the others, and thus perhaps lessening expenses, he may be able to carry the business through successfully. Now, if this is done in good faith, We cannot say that it is a fraudulent transaction. Yet, in Order fcliat the partner may do this successfully, it is' necessary that the property Shall become his -Own. If the defendant’s'contention is sound, a-partner could, practically, never make Such an arrangement.
But we may notice that in this present casé Yan Broeklin- paid *459Johnson $500 for hissliare and subsequently paid some $800 on the indebtedness of the firm, part thereof to the very plaintiffs in the attachment action, showing thus that the transaction might benefit the creditors. The defendant cites Calkin v. Conner (18 Weekly Dig., 24), but, on looking at that case, it will be seen that there was no •question of fraud in the case, and the court submitted to the jury only the question of the value of the property. That was undoubtedly incorrect; and that was not the course of the trial court in this case.
The defendant also cites Menagh v. Whitwell (52 N. Y., 146). Now if we examine that case to discover what is actually decided, we shall see that several of the transactions were sales or mortgages by individual partners of their respective interests in the partnership property to strangers. In two instances two individual partners severally sold out to the remaining three. And in those eases the •opinion recognizes the doctrine of Ex parte Ruffin and other cases above cited. (See pp. 160, 167.) And this case is noticed and distinguished in Stanton v. Westerner (ut supra).
We are of the opinion, therefore, that the court was right in •submitting to the jury the question of bonafides, and that there was no error in his refusals. Nor do we see any error in the refusal to •charge as to delivery and change of possession. The matter had been sufficiently explained by the court in the charge. Some •objections to the admission of evidence are mentioned. We have examined them and find nothing which is ground of error. The defendant urges that the verdict was against the weight of evidence. But if we are correct in our view of the law there was certainly evidence on the question of bonafides sufficient to justify the verdict.
The judgment and order are affirmed, with costs.
Bockes, J., concurred.