Court Opinion

ID: 5456051
Source: CourtListenerOpinion
Date Created: 2022-01-09 19:19:37.517193+00
Date Added: 2024-06-11T08:32:39.704202
License: Public Domain

By the Court.—Davies, J.
The plaintiff is a creditor of a special or limited partnership, composed of the defendants Odiah *132L. Sheldon, Horace B. Sheldon, and William L. Harris as general partners, and Lucius B. Sheldon as special partner.
The other defendants, then creditors of this limited partnership, and under circumstances not free from suspicion as to its fairness, commenced suits against the general partners in September, 1858, and no defence being interposed, at the expiration of twenty days from the service of the summons obtained judgments against the general partners for about the sum of $80,785. All these judgments'were .perfected on the same day and by the same attorney for all the plaintiffs therein, and on the next day following, after the issuing of execution thereon, and a levy on the goods of the defendants, they made a general assignment for the benefit of all their creditors. This was the only assignment or transfer of'their property which the law permits, and if the judgments obtained by their relatives, on the 29th of September, and which operated as an effectual transfer of their property, and a preference of those creditors, were obtained collusively, or in violation of the spirit and intent of the statute, then they fall within its prohibition, and must be held to be in fraud of it, and therefore void.
That at the time these judgments were obtained the partnership was insolvent, there cannot be any question.
How the provisions of the statute are, that any sale, assignment, or transfer of any of the property or effects of such partnership, made by such partnership when insolvent, with intent of giving a preference to any creditor of the partnership over other creditors of such partnership, and every judgment confessed, lien created, or security given by such partnership under the like circumstances, and with the like intent, shall be void as against the creditors of the partnership. (3 Rev. Stats., 5th ed., p. 64)
Nearly the same language is used in reference to the insolvency of moneyed corporations. The statute in reference to them declares, thatmo conveyance of the property of a moneyed corporation, assignment, or transfer thereof, nor any payment made, judgment suffered, lien created, or security given, by any such corporation when insolvent, with the intent of giving a preference to any particular creditor over other creditors of the company, shall be valid in law. (2 Rev. Stats., 5th ed., p. 519.) It is apparent that the object and intent of the statute in both *133cases, in the event of insolvency, was to secure equality among the creditors of either the partnership or of the corporation: It has sought to prohibit, in the most emphatic terms, the doing of any act whereby one creditor should obtain a preference over others, and that if any such act is done or suffered it shall be ineffectual to carry out the intent of a preference.
The plaintiff in this cause is a creditor of this partnership, and as such is entitled to have the funds of it applied to the payment of all its debts pro rata.
And Chancellor Walworth, in Inmes a. Lansing (7 Paige, 586), says: “ That if the insolvent partners neglect to place the partnership effects in the hands of a proper and responsible trustee, to be distributed without delay among all the creditors of the firm, other than the special partner, ratably, in proportion to the amounts of their several debts, either due or to become due; any creditor may file a bill in this court in behalf of himself and the other creditors of the firm, and may have a receiver appointed to protect the trust-fund, and to distribute it among the several creditors who may come in and prove their debts, under the decree to be obtained on such bill.”
The chancellor also says, in this case, that this court is bound to carry into effect the principle of the statute, namely, “ an equal distribution of the partnership effects among all its creditors, by treating the property of the limited partnership after insolvency, as a trust-fund for the benefit of all the creditors.” The same principles are reaffirmed in Hayes a. Heyer (3 Sandf., 203); see also Whitewright a. Stimpson (2 Barb., 379).
These cases, therefore, fully sustain the proposition, that as soon as the special partnership becomes insolvent, it is the duty of the general partners to place the assets of the firm in the hands of a competent trustee, to divide the same equally among its creditors. The question presented in this case is, whether having neglected that duty, the court will permit them, by reason of such omission to accomplish indirectly, what they are prohibited from doing directly—give a preference among their creditors. I think, clearly not. The moment the firm became insolvent, their effects became trust-funds, to be divided equally among all their creditors. Ho one creditor could obtain a preference over another, for payment out of this fund, by reason of any act of omission or commission on the part of these, *134whose duty it was immediately to place the funds and assets in the hands of a competent trustee. On the happening of insolvency, the assets of a limited copartnership, equally with those of a moneyed corporation, have attached to them the character of trust-funds, in which all creditors are entitled equally to participate, and in which no one can share to the disadvantage of the others. There is no hardship in this, for all dealing with a limited partnership or a moneyed corporation are assumed to know the law. They must be held to deal with their debtor, whether it be the one or the other, with full knowledge of the fact; that if it becomes insolvent, from that moment all its assets and effects are irrevocably pledged and devoted to an equal distribution among its creditors. No act of any creditor, by vigilance or otherwise, in collusion with the debtor, or by his remaining passive, can obtain a preference or priority, which the law prohibits and makes void. The law does not permit one cestui que trust to obtain or retain a trust-fund for his benefit, to the exclusion of the other cestuis que trusts.
The general partners of this special partnership, not having discharged the duty which the law casts upon them, on the happening of the insolvency of the partnership, by placing the trust-funds in the hands of a competent trustee, for equal distribution among all the creditors, it is entirely competent for this plaintiff to invoke the aid of this court, to accomplish the same result. It is the duty of this court to appoint a receiver for that purpose, who will be entitled to take charge of and possess himself of all the assets, funds, and effects of said partnership as they existed at the time of its insolvency, discharged of all liens, suffered or created since the happening of that event, and to collect in the same, and to distribute the same equally among all the creditors of the partnership.
The injunction and receiver as prayed for in the complaint should have been granted, and the order appealed from denying the same, must be reversed, with costs.
Roosevelt, P. J.—concurred.