Court Opinion

ID: 5433456
Source: CourtListenerOpinion
Date Created: 2022-01-08 17:49:35.250473+00
Date Added: 2024-06-11T08:31:43.782367
License: Public Domain

Murray, C. J., delivered the opinion of the Court—Burnett, J., concurring.
The bill is carefully drawn, and the facts constituting fraud are distinctly stated. The Court below permitted the intervention to be filed, but refused to stay proceedings in the case, or afford the parties any affirmative relief, but directed the receiver to proceed and distribute the money in his hands pro rata among the creditors; from which orders and rulings the intervenors have appealed.
The case made, involves two propositions :
1. Whether a creditor of the firm could pursue his remedy at law after the bill was filed and the receiver appointed, but before a decree of dissolution.
2. Whether a creditor could attack the whole proceeding on the ground of fraud and collusion between the parties.
It may be premised, in limine, that the bill filed by Alvin *156Adams, did not warrant the appointment of a receiver. It does not allege insolvency or fraudulent conversion of the partnership assets, or danger of loss of the same, in the hands of the firm. It is true that equity has jurisdiction in matters of account, but it ought not, except in a clear case, to step between a debtor and his creditors3 neither should' it assume the position of banker and bailee, for those who, by their own showing, are sufficiently competent to manage their own affairs.
It will not be denied that the creditors of a partnership have no interest in a partnership suit or proceeding for account and dissolution, until after a decree of dissolution, and that, in the mean time, they may pursue their remedies at law, and thereby secure a preference or lien upon the partnership assets.
That until a decree of dissolution, it is not certain that the firm is insolvent, or that the Court will administer the assets. Under such circumstances, it would be obviously unjust to deny a creditor who was not a party to a suit, the right to prosecute an action for the recovery of his claim. There is another reason for this rule which is conclusive. These proceedings are under control of the partnership alone 3 they may be protracted indefinitely, or they may be dismissed at the will of the parties, and a Court of Equity would not allow itself to become an asylum for bankrupt and fraudulent debtors. It is contended, however, that the assignment by all the parties to Cohen, the receiver, was a voluntary surrender of the assets into the hands of the Court, to be administered for the benefit of all the creditors, and that this proceeding was thus turned into a creditor’s bill.
This leads us to inquire into the effect of this assignment. Under the statute of this State concerning insolvent debtors, every species of assignment, except those made in conformity with the act, are declared void. This relates as well to judicial as to other assignments. If such were not the case, then the Legislature would have failed entirely in the object designed by the act 3 for the temples of justice would be converted into a den of thieves and money-changers, and the judges compelled to become accessories to the grossest frauds. In the case of Warring v. Robinson et al., which is relied on by the counsel of the respondents, the Court say:
“ There is another rule of law bearing on this question: an assignment by one partner, of his share in the property, operates as a dissolution of the firm. The partners may have no confidence in the assignee, nor may the assignee choose to be concerned in the trade. Mow the bill and appointment of a receiver on the application of Smith, is, in equity, equivalent to an actual assignment of the property so far as he could assign it.”
And upon this ground it was held that Smith could not, after such an equitable assignment, confess a judgment, so as to give a creditor a priority against the property of the partnership. *157Our statute having prohibited these assignments, it results that the possession of the receiver was only of such a character as the Court could invest him within the case made by the bill. This is not a creditor’s bill; for, as we understand the law, a creditor’s bill is a suit brought by creditors against executors and administrators to settle an estate. A New York creditor’s bill is the creature of statute, and intended to reach equitable assets, after all legal remedies are exhausted.
The only proceeding at all analogous, is where an administrator institutes a suit against all the creditors, for the purpose of having all their claims adjudicated. “ These suits,” says Judge Story in his work on Equity Jurisprudence, section 544, “ are not encouraged, because they have a tendency to take away the preference which one creditor may gain over another by his legal diligence. Besides, it has been said that these bills may be made use of by executors and administrators to keep creditors out of their money longer than they otherwise would be.”
In the following section, it is said, that upon such a bill, “ the Court will not interpose, by way of injunction, to prohibit creditors proceeding at law, until there has been a decree against the executor or administrator to account in that suit, for otherwise the latter might, without reason, make it a ground of undue delay of the creditors.”
In the case before us, the creditors are not parties. It is not an administrator’s bill against creditors, nor a creditor’s bill seeking equitable offsets. It is a suit between the members of the partnership, and, until a decree of dissolution, the plaintiff is dominus litis, and may deal with it as he pleases. The cases of Warring v. Robinson et al., 1 Hoffman Ch. R., and Williamson v. Wilson, 1 Bland Ch. R., do not sustain the respondents’ position. In the first case, the Vice-Chancellor remarks, that in the case of Pratt v. Robinson, he had decided, that a judgment obtained before decree of dissolution had priority. Again, he remarks : “Prior to the decree, by analogy to a suit for the administration of the assets of a deceased person, no creditor could be restrained from proceeding at law.”
The whole case distinctly recognizes the principle contended for by the appellant, and the decision seems to have gone off on the ground that the filing of a bill, and the appointment of the receiver, were an equitable assignment, of which the plaintiff had notice. In the case in Bland, the Chancellor held, that the insolvency of a firm operated a dissolution in itself, and that, upon a bill being filed, stating such insolvency, a receiver would be appointed. It was stated, in the opinion, that at the time the Court had ordered the creditors to come in and present their accounts, no creditors had acquired any priority. But it is not decided that a creditor could not have got an advantage previous to the order for the creditors to come in and have distribution. *158Whether insolvency would, of itself, work a dissolution so as to enable a Court immediately to proceed with the equitable distribution of the assets, is a proposition which it is not necessary to decide, as there is no such allegation in the bill. These cases, together with the leading authorities on this subject, have been so fully examined by Burnett, J., in the case of Adams & Co. v. Hackett & Casserly, January Term, that further comment is deemed unnecessary, and his conclusions upon this branch of the case are adopted.
From this, it must necessarily result that the intervenors, having acquired a lien upon the property of Adams & Co. by attachment and judgment, prior to the decree of dissolution, are entitled to the fruits of their judgment, and must be first paid.
It is contended that this question was substantially decided in the case of Adams v. Woods, Haskell, and others. I do not so understand that decision. The simple question involved in the ease was, whether the Court could compel parties who were the custodians of a fund which they had received from the Court, to pay the same over to an officer or receiver of the Court. In that case, the parties claimed the fund, on the ground that it had been attached in their hands, and that they might be made ultimately liable therefor; but this Court held that no liability would attach on their part, and that, having received the money by order of the Court, they could not be allowed to deny its authority over it. It was a proceeding between the Court and its officer, to which the appellants were not parties, and all that was said by this Court, with reference to the power of the Court below to seize the assets for the purposes of equitable distribution, may be regarded as mere dictum, as the point was neither involved nor discussed. Even if we were wrong in this, the appellant alleges that the whole proceeding is void, under the provisions of the twentieth section of the act concerning fraudulent conveyances, and his bill shows a state of facts which, if true, would vitiate it. For the purpose of this investigation, it makes no difference whether he obtained his judgment before the decree of dissolution ; for, if the proceeding was instituted for the purpose of hindering, delaying, or defrauding creditors, it may be attacked, on that ground, any time before a final distribution of the assets.
Judgment reversed, and cause remanded.