Court Opinion

ID: 5564201
Source: CourtListenerOpinion
Date Created: 2022-01-11 00:56:47.576136+00
Date Added: 2024-06-11T08:35:33.828919
License: Public Domain

Lumpkin, Justice.
1. It was held by this court in the ease of Veal v. Veal et al., 86 Ga. 130, 12 S. E. Rep. 297, that a mortgage given by a partnership on partnership property to secure a debt due by one of the partners was valid against creditors of the firm, and that this was especially true when the debt due by the individual member had, by consent of the partners, been made a debt of the firm. This doctrine, irrespective of the qualification as to making the debt that of the firm, is supported by Jones on Chattel Mortgages, §44, there cited. In Veal’s case, the question as to how the solvency or insolvency of the partnership would afiect the transaction was not made or considered. Our code, §1953, *226gives every debtor the right to prefer one creditor to another, and to that end he may give liens or sell property in payment of the debt. No distinction is made as to the kind of creditors who may be preferred or as to the kind of property which may be used for this purpose . In this case it appears that the transfer of the partnership property to Cohen was signed by Lucas and McDuffie as a firm, and by each of the members individually. ¥e think, under the section of the code cited, and uuder the law generally, each of these members had the right, with the consent of his partner, to sell his share in the firm assets in payment of his individual indebtedness. As stated in the section above cited from Jones on Chattel Mortgages : “The rule preferring partnership property for the payment of partnership debts is for the benefit of the partners, and they may wave it. . . The partners, while the partnership property is still under their control, have power to appropriate it to secure their individual debts. The mere preference of individual debts . . over partnership debts is not such a fraud upon partnership creditors that a court of equity will set it aside. The partnership creditors have no lien on the property of the partnership, if the partners themselves have none.” See, also, Story on Partnership, §858.
It must not be overlooked that under our own statute, the right to prefer creditors is secured as well to insolvent as to solvent debtors, provided, of course, they exercise this right in good faith and without fraud on the rights of others. The doctrine is laid down in Bates on Partnership that it is not uncommon for a partnership to use the right of absolute disposition of its property by employing firm funds to pay the separate debt of a single partner; and it is said, in efiect, that this right is unlimited except as controlled by statutes against voluntary conveyances in fraud of cred*227itors and the similar provisions of the bankrupt law. Of course, where this right is exercised for fraudulent purposes, the transaction will be void. Bates on Partnership, §§565, 566. In Marks et al. v. Hill et al., 15 Grat. 400, it was held that: Partnership effects may be applied, by the concurrence of the partners, to pay an individual debt of one of them, if the other receives a sufficient consideration therefor, though they may be unable to pay all their partnership debts.” In Woodmasie v. Holcomb, 34 Kan. 35, it was held that while the partnership remains in existence, and in a solvent condition, it may, with the consent of all the partners, transfer firm property in payment of the individual debt of one of its members; and in the opinion, on page 38, Johnson, J., says: “The decisions of the courts have gone further than this, and although not unanimous, the weight of authority seems to be that mere insolvency, where no actual fraud intervenes, will not deprive the partners of their legal control over the property and of the right to dispose of the same as they may choose; and where the separate creditor purchases from the firm in good faith, and the individual indebtedness is a fair price for the property purchased, such purchase eannot of itself be held fraudulent as against the general creditors of the firm.” The following cases are there cited in support of this assertion: “ Sigler & Richey v. Knox County Bank, 8 Ohio St. 511 ; Schmidlapp & Bros. v. Currie & Co., 55 Miss. 597 ; Case v. Beauregard, 99 U. S. 119 ; National Bank of the Metropolis v. Sprague, 20 N. J. Eq. 13 ; Wilcox v. Kellogg, 11 Ohio, 394 ; Gwin v. Selby, 5 Ohio St. 96 ; Allen v. Center Valley Co., 21 Conn. 130 ; Rice v. Barnard, 20 Vt. 479 ; Haben v. Harshaw, 49 Wis. 379 ; White v. Parish, 20 Tex. 688 ; Schaeffer v. Fithian, 17 Ind. 463 ; McDonald v. Beach, 2 Blackf. 55 ; Ruffin, ex parte, 6 Ves. 119 ; Whitton v. Smith, 1 Freeman’s Ch. *228231 ; Freeman v. Stewart, 41 Miss. 138 ; Potts v. Blackwell, 4 Jones (N. C.) Eq. 58.” See, also, the notes to the ease of Schmidlapp & Bros. v. Currie & Co. in 30 Am. Rep. 533, in which reference to many cases bearing on this subject will be found, and among them that of Sigler v. Knox Co. Bank, 8 Ohio St. 511, above cited, in which it was held that where a creditor of a firm and one of its members,- with the assent of all the partners, bought of the firm in good faith, and at a fair price, goods to the amount of such joint and separate indebtedness-, though with knowledge that the firm was insolvent in the proper sense of the term, such purchase was not fraudulent as against other creditors of the partnership. As will he seen above, in the quotation from the opinion of Johnson, J., in the case cited from 34th Kansas, he remarks that the decisions are not unanimous in holding “ that mere insolvency, where no actual fraud intervenes, will not deprive the partners of their legal control over the property,” etc. Accordingly we have found, in support of the contrary doctrine, the following cases: Wilson v. Robertson, 21 N. Y. 591 ; Menagh v. Whitwell, 52 N. Y. 146 ; Clements v. Jesup, 36 N. J. Eq. 572 ; Arnold v. Hagerman, 45 N. J. Eq. 186 ; and Phelps v. McNeely, 66 Mo. 554. See, also, Davies v. Atkinson, 124 Ill. 474, and Story’s Eq. Jur. §1253. Nevertheless we are of the opinion that the true law of the case is as stated in the language taken from page 38 of 34th Kansas, and that the current of authority is in that direction. Indeed, this doctrine was recognized by the learned counsel who argued this case for the plaintiff in error, who conceded that if the value of Lucas’ share in the partnership assets was not materially greater than the amount of his individual indebtedness to Cohen, the transaction would be legal and valid. He rested his case upon the law that a voluntary deed o-r conveyance by an insolvent debtor is void as to his creditors, and contended *229that under the agreed statement of facts, it appeared that Lucas’ half of the partnership assets, which he transferred to Cohen, was actually worth about $500.00 more than the amount Lucas owed Cohen, and consequently, that Lucas had donated to his partner, McDuffie, without any valuable consideration therefor, about $500.00 worth of the property. We will now consider whether this position has merit in it.
2. The assignment of Lucas & McDuffie to Cohen recites that it is made for and in consideration of the sum of $>4,331§, and in the agreed statement of facts it appears that full value was paid by Cohen for the property. Lucas’ debt to Cohen was $1,600.00 and some interest thereon. McDuffie’s debt to Mrs. Reese, assumed by Cohen, was $2,625.00 and interest. These sums added together make the consideration expressed in the assignment. The facts stated amount to prima facie proof that this consideration was the actual value of the property sold to Cohen. From no other source in the record is any light thrown upon this question, except the statement that all these parties acted in perfect honesty and without fraud. These things being true, the presumption arises that the goods were bought at a fair price. To assume otherwise, m the light of the facts, would be mere conjecture. Moreover, if Cohen actually paid more for the goods than they were worth, it is quite certain he would have taken pains to make .this exceedingly important fact appear. Taking the case, therefore, as it stands, it seems that Lucas parted with his half of the firm assets for a consideration materially less than its actual value; and to the extent of the difference between such value and the amount of the debt he owed Cohen, this action on his part amounted in law to a donation of so much of his property to his partner, McDuffie, and was void as to creditors.
The entire record of the case was not sent up, and *230we are therefore unable to ascertain what the pleadings contain ; but for the reasons stated above, we think the verdict was wrong, and that the court erred in refusing a new trial. Judgment reversed.