Court Opinion

ID: 6412036
Source: CourtListenerOpinion
Date Created: 2022-06-25 11:53:24.989468+00
Date Added: 2024-06-11T15:51:24.340793
License: Public Domain

Bigelow, J.
1. It can make no essential difference in these cases, that the copartnership was not declared insolvent. Bach of the copartners had declared himself insolvent, and had surrendered his joint and separate property for the benefit of his joint and several creditors. The assignees of both estates are the same persons, and must make up separate accounts with the estate of each copartner. In doing so, in order to ascertain whether there will be a surplus of the joint estate, to be divided between the two separate estates, and the amount of such surplus, it is necessary that the assets should be marshalled, and a proper application made of the joint and separate property.
2. The facts proved do not show an absolute conversion of the partnership property into the separate estate of King at the time of the dissolution of the firm. It is true that the legal title was vested in him; but he did not take it to be dealt with as his own, irrespectively of the right of his copartner to have it applied in payment of the debts of the firm, or of the claims of the joint creditors to insist, in case of insolvency, that the equities between the partners should be worked out for their benefit by its appropriation in payment of their debts. The conveyance was accompanied by an agreement on the part of King, which bound him to hold the property for the purpose of paying the debts of the firm, and, after their payment, to convey one undivided half thereof to his retiring copartner. The effect of this agreement was to fix a trust on the property in the hands of King for the benefit of his copartner. He could not fulfil his agreement to convey one half of the property to Flagg after the debts of the firm were paid, without first appropriating it fairly and fully *121to the payment of these debts. This created a clear equity in favor of the retiring copartner. He did not assign all his interest in the property of the firm, leaving no duty on the property, and taking only the personal agreement of his copartner to pay the debts of the firm. The transfer did not convert the property into separate estate, so as to place it beyond the reach of the equity which belongs to a retiring copartner to have it appropriated toward the payment of the debts of the firm. But this equity, in the nature of a lien on the joint property, was saved by the agreement under which the property was held by King.
This therefore is not a case where the right and interest of one copartner in the partnership property have been sold absolutely and in good faith to the other copartner, in consideration of a personal agreement by the latter to assume and pay the debts of the firm; and where no right or interest in the joint property, or in its appropriation to the payment of the debts of the firm, is retained by the retiring copartner. Such a transfer would be a conversion of the joint estate of the firm into the separate estate of one of the copartners, with all the incidents which follow on such conversion in case of insolvency. Howe v. Lawrence, 9 Cush. 553. But this is a case where a trust is fastened on the joint estate in the hands of the copartner in whom the legal title and possession is vested. The right to enforce the trust thus created in favor of the retiring partner devolves, in case of insolvency, on the joint creditors, who can insist that the equitable claim of one partner on the joint estate as against the other shall be worked out and administered in their favor by a proper application of the joint estate in the hands of one partner to the payment of the debts of the firm. Story on Part. §§ 97, 326, 360. Ex parte Ruffin, 6 Ves. 126. Ex parte Fell, 10 Ves 347. Ex parte Williams, 11 Ves. 7. Allen v. Center Valley Co. 21 Conn. 130.
Upon this ground we are of opinion that the claim of the separate creditors of King, that the partnership property conveyed to him by his copartner on the dissolution of the firm should be treated as his private estate and distributed among his separate creditors, cannot be supported; and that the assignees. *122in stating their accounts, are bound to carry the amount received by them for the sale of the partnership property to the credit of the joint estate.
3. The other question raised in these cases is, whether the joint creditors can have any relief against the private estate of King, by reason of the diminution of the joint estate, occa sioned by the payment by the assignees of two mortgages on the partnership property. It appears that these mortgages were made by Flagg and King prior to their insolvency, in their individual names, and not as copartners, to secure joint and several notes signed by them individually; and that the larger part of the money obtained by these notes and mortgages was used by King for his own private use in a separate trade. The legal effect of these transactions was to transfer partnership property to secure the separate and individual debts of the two copartners. Although the mortgages were not made or executed in the name of the firm, yet being signed by both the copartners, the entire title to the property passed by the conveyance; and thereby in fact the partnership property was lawfully pledged before insolvency to secure the payment of debts which were not the debts of the firm ; for the notes, being signed by the members of the firm individually, were not partnership debts. Ex parte Weston, 12 Met. 1. In this state of things, when both the debtors became insolvent, the creditors who held these notes and mortgages had their election, either to prove their entire debts against the private estates of both copartners, and relinquish their security under the mortgages; or to apply the partnership property included in the mortgages to the payment of the debts thereby secured, and prove for the balance. In either case, they could prove against the private estates only. They in fact elected to resort to the security alone, and not to prove their debts at all. It is clear therefore that nothing has been paid by the assignees on these claims as debts proved against the joint estate. And if any such payment had been made, it would give no right to the assignees to prove the claim against the separate estate of King. Somerset Potters’ Works v. Minot, 10 Cush. 592
*123The real ground of the claim made by the assignees in behalf of the joint estate is, that the property of the partnership has been appropriated to pay the private debts of one of the firm, and that thereby an equitable claim exists in favor of the joint estate, to be reimbursed for such payment out of the separate estate of the copartner whose debt has thus been paid. But this appropriation of the partnership estate was not made by the • assignees, nor was it the result of the operation of any provision of the insolvent laws. It was the legitimate consequence of carrying out a valid act of the insolvents, which they had done prior to their insolvency, when they had entire control over the partnership property, with power to convert it into separate property, or appropriate it to the payment of their several and separate debts. The creditors of the firm, during the continuance of the partnership and before its insolvency, had no equity against the property of the firm. They could not-interfere in any way with its disposition, nor enforce any claim against it except by a common action at. law. All that they can do, in case of insolvency, is to avail themselves of any equity which may exist in favor of one partner against another in relation to the disposition of the joint estate. But no such equity exists in this case between the copartners as to the property included in these mortgages. They had both parted with all their interest to it so far as it was necessary to secure the debts for which it was pledged. To that extent, neither of the partners has any control over the property, nor as between themselves any equitable claim or lien upon it. It is clear therefore that this case falls within the reason and principle of that" class of decisions in which it has been held that property, transferred by copartners bona fide before insolvency, cannot be reclaimed for the benefit of the joint estate. Howe v. Lawrence 9 Cush. 553, and cases cited. Decree accordingly.