Court Opinion

ID: 6961510
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:46:21.393947+00
Date Added: 2024-06-11T16:08:27.402083
License: Public Domain

Mr. Justice Mulkey, dissenting: Ordinarily, when I am unable to agree with the majority of.the court in the decision of a case, I am content to simply place myself upon the record as dissenting, and sometimes I do not even do that. But inasmuch as the conclusion reached in the present case seems to me to be not only destitute of any authority even tending to support it, but in direct conflict with well recognized principles founded upon an unbroken current of authority, I feel it due to myself, as a member of the court, to do something more than merely mark myself as dissenting. With respect to the collaterals given with the note of the 28th of December, there is no ground for controversy. It is conceded that the note was given for money loaned by Wallace to Frisbie & Rappleye, in the usual course of business, and the makers had a perfect right to secure it in the manner they did. Indeed no question is made upon the argument with respect to Wallace’s right to the collaterals given with this note. The whole controversy is confined to the right to give the subsequent note, and the disposition sought to be made of the collaterals accompanying it. This note, it will be remembered, was executed by Rappleye in the name'of the firm, two days after the dissolution of the partnership between Frisbie and Rappleye, Wallace at the time having notice of such dissolution. It is conceded the note was given for loaned money, which was used by Rappleye in the payment of a partnership debt, yet defendant in error questions the power of Rappleye to execute it so as to bind the firm or the partnership effects. While the authorities are not altogether harmonious as to the power of partners after dissolution to bind one another by new engagements, yet the general doctrine, as shown by the decided weight of authority, unquestionably is, that notwithstanding the dissolution the partnership still exists, sub modo, for the purpose of collecting and paying the debts of the firm, and of doing such other acts in the regular course of business as are necessary to winding it up. The power of disposing of the partnership effects for these purposes exists practically to the same extent as it did before dissolution. Whatever is essential to the winding up of the business of the firm, as contradistinguished from what might be deemed politic, desirable or expedient, may be done, and nothing more. Parsons on Partnership, (2d ed.) 388, side page; Hicks v. Russell, 72 Ill. 230. As contracts of sale are essential to the disposition of the partnership property, whereby the necessary means may be raised for the payment of debts, they may be made as well after as before dissolution; and this power to sell, as a general rule, includes the power to mortgage or pledge the partnership property, yet this power may, and often is, modified or limited by agreement of the parties. Herman on Chattel Mortgages, sec. 118; 5 Wait’s Actions and Defences, 127. In the application of the general rule that each partner, after dissolution, has the right, where the same has not been relinquished by special agreement, to enter into such contracts and engagements as are necessary to the closing up of the partnership business, it is generally held that á partner, after dissolution, has no implied power to give a note or other negotiable security in the firm name, even for a preexisting debt, and such is the doctrine of this court. .Parsons on Partnership, 391; Hicks v. Russell, 72 Ill. 230. If such be the rule with respect to antecedent indebtedness, it must be conceded that it applies with greater force to ani indebtedness created after such dissolution. It is believed that no decision of any respectable court can be found holding that a partner, after dissolution, can, by virtue of any implied authority arising out of his relation to the dissolved. partnership or the partnership effects, go into the market, borrow money, and execute in the partnership name a note or other negotiable security therefor, so as to bind the other partners or the partnership effects, where the party advancing the money and taking the note or other security has notice of the dissolution of the partnership. Whether in such case, where the money thus procured has been applied in the discharge of a preexisting firm debt, the party lending it will in equity be subrogated to the rights of the creditor, as against the firm whose debt has been liquidated by the loan, is a question which does not arise upon this record, and about which it would be useless to express an opinion. It follows, from what I have already said, that Rappleye had no authority either to borrow the money advanced by Wallace on the 20th of April, or to execute the note given therefor, and if the partnership was not bound thereby, it is difficult to see on what principle Wallace could hold the collaterals. The note in question, then, was in law simply the individual note of Rappleye, and Wallace, having actual notice of the dissolution of the partnership, is ■ conclusively presumed to have known that Rappleye, after such dissolution, had no implied power, by reason of existing relations to Frisbie, to execute a note or borrow money so as to bind the latter, and that under the circumstances Rappleye alone was bound. This being so, Wallace was not warranted in relying upon the firm for payment, except so far as he might be subrogated-to the rights of the insurance company, whose debt against the firm was liquidated with the money advanced by him to Rappleye; nor was he authorized to receive in pledge, the securities or collaterals given to him by Rappleye with that note. It was a misappropriation of the partnership effects, in which Wallace personally participated, with express notice of such facts as in law showed the transaction unwarranted. . There is another view of this ease, however, equally unfavorable to plaintiffs in error. At the time of the dissolution the partnership was insolvent, and Frisbie had an unquestioned right to provide for an equal division of the assets of the concern among the creditors, according to their respective demands. As a partner he had a lien in equity upon these assets, as well for his own indemnity against personal liability for the debts of the firm, as for his proportion of any surplus that might be coming to him after payment of the debts. Having these rights, by the articles of dissolution he “transferred” and “assigned” to Rappleye, “as trustee, ” his entire interest in the partnership effects “in trust,” to “collect the assets of the firm, and from the proceeds thereof pay the. firm debts in full, ” provided the assets were sufficient for such purpose. It will be observed that this instrument contains apt and appropriate words of conveyance and transfer, and by it Rappleye clearly acquired the exclusive legal title to all the partnership property, subject to the trusts upon which the transfer was made. Upon the execution and delivery of this instrument an express trust was thereby created, not only in favor of Frisbie himself, but also in favor of all the creditors of the firm. By virtue of it ea.ch creditor became entitled to share in the proceeds of the partnership estate in proportion to the-amount due him, and it was not in the power of the trustee to hypothecate to one having notice of the trust, a portion of the assets, to secure the claim of one creditor so as to give him a preference over the others. Wallace himself states that he knew of the dissolution at the time of the giving of the last note and. the transfer of the collaterals accompanying it, and the evidence satisfactorily shows that he was made acquainted with the terms of the dissolution. Indeed, there is no claim on the part of either Rappleye or Wallace that the latter did not fully understand the terms upon which the partnership was dissolved, and by which Rappleye was given exclusive control of its affairs for the benefit of the creditors, as already shown. Assuming, then, that these collaterals were given, as is claimed by Wallace and Rappleye, to secure the first as well as the last note, it is manifest that in so far as they were given to secure the first note, it was in effect giving Wallace a preference over other creditors, which was a violation of the trust, in which Wallace personally participated, and from which he is not permitted to derive any advantage. There is nothing in the instrument to warrant the attempted preference. By its terms all the creditors are put upon terms of perfect equality, and it was the duty of the trustee to so execute the trust as to effectuate the clearly expressed intention of the parties in that respect. The partnership effects having been conveyed in trust to Rappleye in the manner and for the purposes we have seen, it was not necessary for a creditor of the firm to first go ¡into a court of law to establish his claim, and could not by doing so thereby obtain an advantage over other creditors who did not see proper to take that course. The assignment in question brings the case directly within one of the exceptions to the general rule that a party must first exhaust' his remedy at law before going into a court of equity.-2 Perry on Trusts, sec. 594; Steere et al. v. Hoagland et al. 39 Ill. 264; Hill on Trustees, 518, side page. The members of a partnership, either before or after dissolution, may, where no statutory provisions intervene, like other persons who sustain no such relation to each other, make a partial or total assignment of the partnership effects in such manner as to give a preference to one or more of their creditors. This right of partners to prefer creditors in disposing of their property, rests upon the ground that their -ownership and power of disposition are as unlimited and absolute as that of persons sustaining no such relation to each other. (2 Leading Cases in Equity, 395, and authorities there cited; Reeves v. Ayers, 38 Ill. 418.) It has been supposed that the creditors of a partnership, particularly, after dissolution, have something in the nature of an equitable lien upon the partnership effects; but such is not the case. (2 Leading Cases in Equity, 396.) But where the partnership has been dissolved by the death of one of the partners, the survivor will in equity be regarded as a trustee of the partnership property, for the benefit of the partnership creditors as well as the legal representatives of the deceased partner, and in such case the former have an equity, arising out of the lien of the partners upon the partnership effects, as above mentioned, by which they are entitled to payment of their claims before any part of the partnership assets can be applied to the payment of the individual creditors of the partners. And in such cases the assets being insufficient to pay the full amount of the claims of the partnership creditors, they are to be paid pro rata. Reeves et al. v. Ayers, supra; 2 Leading Cases in Equity, 396; Parsons on Partnership, 441, et seq.; Hapgood v. Cornwell, 48 Ill. 64; Ladd v. Griswold et al. 4 Gilm. 25. The Superior Court, in disposing of this case, doubtless proceeded upon the theory that Bappleye had authority to make the loan and hypothecate the collaterals for the payment of both notes, but found, as a matter of fact, they were pledged for the payment of the last note only, and admitting the law to be as is assumed upon that theory, the decree was clearly right. Upon that theory, the whole-case turned upon a pure question of fact, which the court found adversely to plaintiffs in error, and upon a careful consideration of the evidence it is difficult for me to conceive how they could have reached any other conclusion. It is true that in this suit, near three years after the alleged hypothecation, Wallace and Bappleye both swear positively that the collaterals in question were given to secure both notes; but it is equally true that they both swore just as positively, in another proceeding only a few months after the transaction occurred, when the circumstances must have been fresh in their minds, that they were given to secure the second note only. Besides, Mr. Young, who was present when it is claimed that there was a verbal understanding between them that the collaterals were to apply to both notes, swears that he heard nothing of the kind pass between them, and that it was not till months afterwards he heard Rappleye say there was some kind of an understanding to that effect, but that he, Rappleye, could not tell whether it was in writing^ or otherwise give any distinct or satisfactory account concerning it. Moreover, the instrument of hypothecation which was executed at the time, shows upon its face that these collaterals apply exclusively to the last note, and that no reference whatever is made to the first note. In view of these facts I am at a loss to see how the Superior Court could have come to any other conclusion than that which it did, upon that question. But the consideration which, in my judgment, is absolutely conclusive of this case, is the fact, already shown, that upon the dissolution of the partnership Frisbie conveyed the entire partnership effects to Rappleye in trust, for the benefit of the partnership creditors, and under such assignment Rappleye had no power to so dispose of the assets of the firm as to give orle creditor a preference over another, especially when such preferred creditor had notice of the assignment, as is shown to have been the case here. It is true, the mere retirement of one partner upon the dissolution of the firm, with the understanding that the other partner shall collect and pay all debts, and have the exclusive control and management of the partnership effects in winding up the business of the partnership, will not have that effect, for the reason such an agreement as that does not transfer the legal title in the partnership effects from one partner to the other, and hence no express trust is thereby created. But in the present case the legal title of Frisbie to the partnership effects passed to Rappleye, and the latter became thereby converted into a trustee, like any other assignee, for the benefit of creditors. That such is the legal effect of the assignment to Rappleye, is fully sustained ■ by a number of well-considered cases, and no authority has been produced, nor is it claimed that any such exists, even tending to sustain a contrary view. Sedam et al. v. Williams et al. 4 McLean, (Mich.) 51; Wilds et al. v. Chapman et al. 4 Edw. Ch. 669. . It follows, therefore, that Eappleye had no power to hypothecate the collaterals in question to secure the first of said notes. To do so was a fraud upon the other creditors of the firm, in which Wallace knowingly participated. If any error at all was committed by the Superior Court, it was in favor of plaintiffs in error, and they therefore have no right to complain of it. For the reasons stated, I am clearly of opinion the judgment of the Appellate Court should he affirmed. Craig and Bcholfield, JJ.: We dissent from the opinion of the court, and concur in the foregoing opinion, of Mr. Justice Mulkey.