Court Opinion

ID: 6576014
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:34:21.879013+00
Date Added: 2024-06-11T15:57:06.052221
License: Public Domain

Waite, J.
The question in this case, is, in what manner the partnership funds of E. Phelps and Fay, are to be divided among the several claimants.
No rule in the law of partnership is more firmly established, and can be sustained by a greater array of authorities, than that partnership debts are to be paid out of partnership funds, in preference to debts against any individual member of the company. Witter v. Richards, 10 Conn. R. 37. Barber v. Hartford Bank, 9 Conn. R. 410. Brewster v. Hammet & al. 4 Conn. R. 340. United States v. Hack & al. 8 Pet. R. 275.
The interest of one partner in the partnership property, is his share in the surplus, remaining after the payment of the claims against the partnership; and that surplus alone is liable for his individual debts. United States v. Hack & al. 8 Pet. R. 275. Witter v. Richards, 10 Conn. R. 37. Holderness & al. v. Shackles, 8 B. & Cress. 612. (15 E. C. L. 315.)
Any appropriation of the partnership property, by him, in *301payment of his individual debts, without the knowledge or consent of his copartners, would be a violation of his duty,- and a fraud upon them. Rogers v. Batchelder & al. 12 Pet. R. 221. Yale v. Yale, 13 Conn. R. 185.
A creditor of one partner can only attach or levy his execution upon the common property, in such manner as to take that partner’s interest in the property, subject to the claims of all the partnership creditors. Witter v. Richards, 10 Conn. R. 37.
These are familiar principles, and we have only to enquire what debts are still due from the partnership, and what from one partner alone, and then apply the principles.
And first, with respect to the two notes given to Goodwin, by the three individuals composing the original partnership, and which still remain unpaid. They were given by them jointly and severally, and not in their company name. Bit the committee have found, that those three individuals had entered into a copartnership, and as such partners purchased certain property, and for it, gave the notes in question.
The property thus purchased, constituted their only capital, in which they were equally interested. And when ;two of the notes to Goodwin were paid, by the two surviving partners, they were paid out of the partnership funds, and the payments charged in their accounts. The notes, therefore, given to Goodwin, notwithstanding their form, constituted a partnership debt, and, as such, was recognized by the surviving partners.
The death of Ansel D. Phelps, one of the three original partners, dissolved the partnership then existing. Pitkin v. Pitkin, 7 Conn. R. 307. Sturges v. Beach, 1 Conn. R. 507. Burwell v. Mandeville’s exr. 2 How. R. 576, Chapman v. Beckington, 3 Ad. & Ell. N. S. 703. (43 E. C. L. 934.)
All the effects of the company, upon his death, by law vested in the two survivors, who became bound to apply them in payment of the partnership debts, so far as they were needed for that purpose. And had there been any creditors of the partnership, holding any joint obligations against them, they would be obliged to resort, in the first instance, to the surviving partners for the payment of their claims, and could resort to the estate of the deceased only in case of their insol*302vency. Sturges v. Beach, 1 Conn. R. 507. Alsop v. Mather, 8 Conn. R. 584. Egberts v. Wood & al. 3 Paige 517. 526.
Had, therefore, the notes to Goodwin been only joint notes, his remedy upon them would have been against the two survivors, and he could not resort to the estate of the deceased, until they had beconie insolvent. But the notes having been given by the makers severally, as well as jointly, he acquired a more extended remedy, and could sue the administrator of the deceased, without making any efforts to enforce his claim against the survivors.
But although the form of the notes gave the creditor an immediate remedy against the estate of the deceased, it did not vary the equitable rights of those interested therein. They continue the same, whatever may be the form of the security.
f Whenever the creditor of a firm attempts to appropriate the estate of a deceased partner to the payment of his debt, those interested therein are entitled to the aid of a court of chancery, for the purpose of having the partnership effects applied in payment of the debt, and in exoneration of the estate.| Such was the law, applicable to the case, upon the death''of Ansel D. Phelps. Has any thing been done since, to affect or impair the rights of those interested in his estate ?
In the first place, a considerable period has elapsed since his death, and the business of the original company has not been closed. But it is to be remembered, that the notes in question were not payable until long after his decease. He died in August, 1842, and one of the notes was payable in February, 1845, and the other in February, 1846. The creditor was not entitled to payment until his notes became due; nor were the surviving partners under any obligation to pay them, before that time.
Filley, who married one of the sisters and heirs of the deceased, and acted as the agent of the other, assented to a delay until 1844, wishing doubtless to avoid loss to the estate, by any sacrifice of their interest in the company property. But even that delay was productive of a very serious loss. For the committee have found, that upon the death of Ansel D. Phelps, the property of the company was sufficient for the payment of their debts. And yet the administrator, in his account settled with the court of probate in 1844, has charged *303the estate with upwards of 3000 dollars, on account of the Goodwin notes, and credited less than 2,100 dollars, for all. the avails of the partnership property belonging to the estate, thereby, in effect, charging to the estate a loss of more than 900 dollars, on account of the partnership concern.
We do not, therefore, see how the delay in the payment of the notes to Goodwin, under the circumstances, can impair the rights of the heirs of the deceased partner. The surviving partners clearly have no right to complain ; for they at all times possessed the power of closing up their business, and disposing of their effects.
We come next to the sale to E. Phelps in 1844, through the agency of Fessenden. It is insisted, on the part of the plaintiffs, that the sale was void, as Phelps could neither directly nor through the agency of another, become the purchaser of property sold by him as administrator ; and consequently, the rights of these plaintiffs remain the same as if no change had been made in the partnership concern, subsequent to the death of Ansel D. Phelps.
It is undoubtedly a general rule, that an executor or administrator, selling property belonging to the estate of a deceased person, cannot become the purchaser for his own use, at least without the assent of those interested in the estate. Johnson v. Blackman, 11 Conn. R. 357. Banks v. Judah, 8 Conn. R. 157. Michoud & al. v. Girod & al. 4 How. R. 503.
But it is very questionable whether it is not now too late for these plaintiffs to avail themselves of the application of that rule, after all that has been done by those interested in the estate, with knowledge of the circumstances attending the sale, and after the settlement made before the court of probate.
We deem it, however, unnecessary to determine this question, or the effect of the rule, if applied to the case, because, in our opinion, the result will be the same, whether it be so applied or not.
It is apparent from the report of the committee, that E. Phelps, upon the purchase of the company property, assumed the payment of that portion of the notes to Goodwin, which belonged to the deceased in his life-time, to pay. Indeed, his administration account clearly shows that. The estate received nothing from that property; but on the contrary, he received more than 900 dollars from the estate, on account of *304⅛ taking the property and assuming the partnership debts. He therefore took the property subject to the incumbrance of the notes to Goodwin,
And why should he not fulfill the contract which he has thus voluntarily assumed ? If he does, who will be injured ? Fay, the other partner, will not; because his share will be no further liable than it originally was. He has one third part of the property, and is liable for only one third part of the debt. E. Phelps has two thirds of the property, and is liable for the remaining two third parts of the debt — one third, by virtue of the original purchase from Goodwin, and the other, by virtue of the purchase from the estate of Ansel D, Phelps.
The subsequent partnership creditors will not be affected, by the substitution of E. Phelps, in the place of the heirs of the deceased partner: for in neither case, will the heirs be liable for their debts. Pitkin v. Pitkin, 7 Conn. R. 307. Burwell v. Mandeville's exr. 2 How. R. 576.
The notes, therefore, remaining due to Goodwin, still remain in equity a debt due from Phelps and Fay, the surviving partners. To meet which, they have the avails of all the original partnership effects, except so far as they have become diminished, by their own acts, in continuing their business. And these effects are liable for this debt, in the same manner as they would be for any other partnership debt by them contracted. Deveau v. Fowler, 2 Paige 400.
But the report of the committee shows, that there are other partnership debts contracted since the death of Ansel D. Phelps. We see no reason why these creditors are not entitled to share in the joint effects. The property received from them may have gone to increase the funds now on hand, in the same manner as the property purchased of Goodwin. These plaintiffs, by lying still and suffering the surviving partners to continue the business, and contract other debts, thereby increasing their property, as well as their liabilities, have no right to exclude such creditors from a participation in that property. While they are not to suffer, by their delay, they are not to gain, at the expense of others, who dealt in good faith with the partners.
The debts due to the Hartford Bank and to Goodwin, require further consideration. The committee have found, that they are due from E. Phelps and Fay, as partners; and yet *305these creditors have brought their suits against E. Phelps alone, and attached only his interest in the partnership property.
Had they brought their suits against both, instead of one, and attached their joint property, they would have acquired, under our attachment law, liens upon the property so attached, which would give them a priority over all the other creditors, and of which a- court of chancery could not deprive them. But instead of bringing suits in that form, they have sued E. Phelps alone, and attached only his interest. So far as the liens, thus acquired, are concerned, they stand precisely in the same situation as the other creditors of E. Phelps, who have, in like manner, brought their suits against him, and attached only his interest in the property.
Had these suits in favour of the Hartford Bank and of Goodwin actually gone into judgment against Phelps alone, a question might arise, whether their debts against the partners, would not have become merged in those judgments, and whether they could afterwards resort to the partnership funds. Pierce v. Kearney, 5 Hill 82, Ward v. Johnson & al. 13 Mass. R. 148. But the committee have found, that those suits are still pending, and that no such judgments have been rendered ; consequently, the effect that would be produced by such judgments, need not be considered. We therefore see no reason why these creditors are not entitled to share in the partnership funds, in the same manner as if they had never brought their suits.
As it regards the creditors of E. Phelps alone, they can take nothing, either by virtue of their attachments, or in any other manner, except his share in the joint property remaining after the payment of the partnership debts. The same rule applies to those defendants, who claim under the mortgages given by Phelps.
Our advice therefore to the superior court, upon the facts presented to us in the report of the committee, in this case, is, that the partnership funds in the hands of E. Phelps and Fay are to be applied in satisfaction of the partnership debts, in proportion to their respective amounts, including in such debts the amount of the two notes given to Goodwin, his book account, and the debt due the Hartford Bank. And if any surplus should remain, after the payment of such debts, the *306attaching creditors and mortgagees of E. Phelps, will be entitled to his interest in the same, in the order of their respective liens, to be applied in satisfaction of their respective claims.
In this opinion the other judges concurred, except Ells-worth, J., who gave no opinion, having been of counsel in the cause.