Court Opinion

ID: 8268010
Source: CourtListenerOpinion
Date Created: 2022-10-16 19:14:07.011775+00
Date Added: 2024-06-11T16:43:25.959675
License: Public Domain

Magie, J.
(dissenting).
I agree that the decree below, which set aside the transfer of ;the partnership property, made by Hagerman and Fielder to Farr, should be reversed.
The bill attacked that transfer on the ground of deceit and misrepresentation by Farr, and a fraudulent conspiracy between ¡him and Arnold, his assignee, to hinder and delay partnership *205creditors, by converting the partnership assets into Farr’s separate property.
I have not been able tc find sufficient evidence of the truth-of these charges to sustain the decree.
But if there had been evidence sufficient to induce me to decline to reverse a decree founded thereon, I should still think, the decree indefensible. In my judgment, the bank was not entitled to such relief, because of its laches.
Farr’s assignment for the benefit of creditors was made November 80th, 1883. The bank -obtained its first judgment against t-he firm January 3d, 1884. It afterward obtained several other such judgments, the last being entered March 5th, 1884. Its bill was not filed until March 10th, 1884.
After the statutory notice of Farr’s assignment was given, his individual creditors exhibited to his assignee claims amounting, to over $80,000.
The bank could have filed its bill earlier, at least after January 3d, 1884. Had it acted with' reasonable diligence, it would; have anticipated the action of Farr’s creditors, for the first claims was not filed until January 28th, 1884. Before the bill was-filed, claims amounting to over $50,000 were presented, and on-that day the remaining claims were filed.
This delay obviously operated to the prejudice of Farr’s individual creditors who exhibited claims. By force of our statute, they thereby became debarred of any future action against Farr, except in respect to property fraudulently concealed &c. In determining whether to make claim under the assignment,, each creditor was doubtless influenced by the assets inventoried by the assignee. The property in question constituted a large-part of the assets so shown. Whoever, therefore, intended to-assert an equitable right thereto was bound to be diligent in asserting it, and a delay which would induce innocent persons to-subject themselves to the statutory restriction, ought to bar a. claim which, if successful, would materially prejudice them.
The learned vice-chancellor concluded that such creditors, by-resorting to a court of equity, could have the exhibition of their-claims avoided and annulled. I have not been able to discover-*206any jurisdiction in equity to relieve against a result prescribed by the positive terms of the statute. If such power exists, the fact that such creditors would be compelled to resort to an action for relief would be such prejudice as, in my judgment, to require the delaying claimant to be barred of the relief he seeks.
But while I concur in a reversal, I am unable to agree to the relief which a majority of the court think ought to be accorded to the bank. That relief is, as I understand, to be afforded by a decree marshaling the assets in the hands of Farr’s assignee, and applying such as once belonged to the firm to the satisfaction of the firm debts, and the remaining assets to Farr’s individual debts.
In the first place, I think this objectionable because such relief is not germane to, but inconsistent with the case made by the bill.
The bill was not filed for the benefit of creditors, but in the sole interest of the bank, and it sought to subject to its judgments and the executions issued thereon, the property which had belonged to the firm and had been transferred by Hagerman and Fielder to Farr. Success upon the pleadings would result in the benefit of the bank alone. The proposed relief would only be germane to a bill in the interest of all the firm creditors, and praying for the marshaling of assets in which they, as creditors, had an interest.
In the next place, I think the individual creditors of Farr, or, if too numerous, some as representatives of all of them, ought to be parties to any proceeding in which such relief is granted. In the case made by the bill, viz., a claim to property in the hands of the assignee, he no doubt so represented Farr’s creditors as to justify a decree upon sufficient evidence. But the proposed relief goes upon an equity to admit to a share of the assigned assets other claimants, and to so marshal the assets as to give them a preference. Under such circumstances, I think the creditors necessary parties. Read v. Patterson, 17 Stew. Eq. 211.
Finally, if these objections were overcome, I think the facts would not justify the proposed decree.
It can only be made upon the theory that Farr’s assignment *207■•to Arnold had a double effect, and transferred to him the former •assets of the partnership for payment of the firm debts, and the ■other assets for the payment of Farr’s individual debts. Otherwise Arnold has nothing to do with firm debts.
In Scull v. Alter, 1 Harr. 147, an assignment for the benefit ■of creditors under our statute was claimed to have such an effect and to be, what Chief-Justice Hornblower called, a compound assignment. It was not determined whether the statute authorized such an assignment which, as was pointed out, would require an assignee to give separate bonds, and to proceed as if separate assignments had been made. The'instrument before the court in that case, however, indicated a clear intent to transfer •both partnership and individual property. In the case before us the question of power under the statute to make such a duplex assignment is not raised, because Farr’s assignment passes his individual property only, and is incapable of a construction which would pass firm property.
Moreover, when Parr made the assignment, the property in -question had been converted into his individual and separate property.
No doctrine of the law of partnership is better settled than that a dissolving firm, one of whose members proposes to continue the business, may, by agreement, alter the character of the partnership property, and convert that which was joint into the separate property of him who continues the business. If the agreement is free from fraud, is not executory, and the property is not thereby left subject to liens of the retiring partners for their indemnity, the conversion is effected. If such an agreement is made before an act of bankruptcy, the property will be ■distributed, not as the joint estate of the firm, but as the separate ■estate of' the continuing partner. And such conversion will not be hindered by the mere existence of debts due by the dissolving firm, for the general creditors have no lien on the property. Judge Story and Mr. (now L. J.) Lindley, both state the doctrine without reserve, and refer to the cases in which it was established. Story Part. §§ 358, 359; 1 Lind. Part. *334; 2 Lind. Part. *697. In the notes to the late editions of the latter *208book) many cases are collected, none of which indicate any dissent.. It has been held in this court, that when such a conversion was-tainted with fraud, so that the defrauded partners could avoid it in equity, the general creditors could obtain relief but by means-of that equity. Harrison v. Cooley, 7 Stew. Eq. 283. The same-doctrine was also here applied to the cognate ease of the conversion of individual into partnership property. Clements v. Jessup, 9 Stew. Eq. 569. The doctrine, with the reasons therefor, is well set forth in the following cases in the United States supreme court: Case v. Beauregard, 99 U. S. 119; Fitzpatrick v. Flannagan, 106 U. S. 648; Huiskamp v. Moline Wagon Co., 121 U. S. 310.
Now, the transfer from Hagerman and Fielder to Farr was-completely executed. The retiring partners retained no lien on the property transferred for their indemnity j on the contrary, the transfer was absolute and unconditional, and the agreement of dissolution shows that they relied for indemnity solely on Farr’s personal covenant. When, therefore, the transfer is held not to be fraudulent, it results that the firm property became then converted into the individual property of Farr, and the-firm’s general creditors cannot follow it.
I shall therefore vote, not only to reverse the decree below, but for a decree dismissing the bill.
Mr. Justice Depue concurred with Mr. Justice Magie.

Decree unanimously reversed.