Case v. McGill

60 A. 569, 69 N.J. Eq. 354, 3 Robb. 354, 1905 N.J. Ch. LEXIS 115

• Court: New Jersey Court of Chancery
• Decided: April 8, 1905
• Status: Published

Opinion

Bergen, Y. C.

September 14th, 1903, Timothy Byan entered into a contract with the city of Trenton for the paving of certain streets, and on the 2d of November following a copartnership was formed, the terms of which were reduced to writing, between Byan and Charles D. Ginder, for the fulfillment of this contract. The work has been completed, and as the partnership was limited to this particular work the active part of it is at an end. The present proceedings relate to the distribution of the unpaid portion of the money due thereon from the city, which is represented by two city Avarrants, directed to the city treasurer for the payment of $1,885.98 and $518.|'/9, respectively, issued to and held by the complainant as receiver of the copartnership, and by two other Avarrants issued to Timothy Ryan, and by him endorsed to and now held by the defendant McGill for $1,000 each. The complainant was appointed receiver of the copartnership of Ryan and Ginder under proceedings instituted for that purpose in this court, on November 2d, 1903, and as such has filed his bill in this cause to establish his right to the moneys due from the city, insisting that it is firm property, and should be first applied toward the payment of the partnership debts. The defendant, the '.Trenton Fire Brick Company, has ansAvered and claims an equitable lien upon the funds to the extent of about $1,200, prior to the rights of the partnership creditors, and to sustain its claim shows, that previous to the bidding for the'contract, Ryan had applied to it for a price at which it would agree to furnish all the brick necessary to perform the contract if awarded to him; that Ryan, being the successful bidder, notified them that he accepted their proposition, and under this agreement the brick company furnished all the bricks required to complete the contract; that all of the goods Avere furnished to Ryan in his name and on his credit, and that it had no knowledge of any partnership between Ryan and Ginder. I am satisfied from the evidence, and so find, that so far as the brick company is concerned it had no knowledge of the partnership, and that as to it Ginder was a dormant partner. Nor does it appear that this partnership was acknowledged or disclosed to anyone, at least not until long after it was formed. The city Avarrants were all issued payable to the order of Ryan and by him in most, if not all instances, endorsed to the brick company, it returning to him by check drawn to his order the difference between the account he owed it at the time and the amount of the Avarrants, all of which was within the knowledge of Ginder, the partner, ayIio took no steps to correct the impression entertained and acted upon by the brick company that Eyan was carrying on the work on his own account. There is some proof that about May 1st, 1904, the officers of the brick company had knowledge of this partnership, and it was urged on the argument that, as that company had furnished to Eyan after that date a sufficient quantity of brick to represent in money the balance due them, it should be charged with having furnished them with knowledge of the partnership. But this claim is sufficiently disposed of by the fact that the brick company had entered into an agreement with Eyan to furnish the whole quantity required, and it was bound to complete its contract with him. On August 23d, 1904, the brick company recovered a judgment against Eyan in the supreme court of this state for $1,244.69 damages and costs, and the execution issued thereon having been returned unsatisfied for want of property to> be levied on, the brick company, on October 25th, 1904, filed its bill of complaint in this court, setting forth the facts above stated, and also^ that the city of Trenton was indebted to Eyan in a large amount for the performance of said contract, and thereupon prayed for a discovery of the amount due, and the application of so much of the money due by the city to Eyan as might be necessary for that purpose towards the payment of their judgment. These proceedings established an equitable lien in favor of the brick company upon the money in the hands of the city belonging to Eyan. Taylor v. Taylor, 59 N. J. Eq. (14 Dick.) 86. The complainant, however, insists that as Eyan and Q-inder were partners, the money due belonged to the firm and must first be applied to the satisfaction of the partnership debts, and that, as it was not the property of Eyan, no equitable lien could attach. This claim, in my judgment, is not well founded, for it would be most inequitable, after it had made its agreement with Eyan and fulfilled it, giving credit to him as an individual upon the strength of this very contract with the city from the proceeds of which they expected him to pay it, to now deprive the brick company of the benefit of a right which it had a right to rely upon.

It is undoubtedly true that where the partnership is an open one the creditors of a partnership have a right to be paid first

out of the partnership property in preference to those of the individual partners; but a different rule prevails when the partnership is a silent one, and the business is conducted in the individual name of one of the partners. As was well said Chancellor Pennington in Cammack v. Johnson et al., 2 N. J. Eq. (1 Gr.) 163, 169, “After dealing with a man under the idea that he was carrying on business on his own account, and prosecuting demands to judgment and execution, if a secret partner may then, for the first, announce the fact of his being a member of the firin, and claim all the rights of an open partner, there would be no security in trade, * * .* and a creditor may, at his election, sue either the visible partner alone or join any latent partner he may discover.”

It therefore follows, under the circumstances of this cas'e, that the brick company having recovered its judgment and filed its bill, obtained an equitable lien as a reward for its diligence upon the money due from the city, which lien is prior to any claim of the members of the partnership, their representative, the receiver, or the creditors of the partnership, for claims, none of which, so far as this case shows, have been reduced to judgments, and I will advise that it is first entitled to be paid out of the moneys due from the city the amount due to it on its judgment, together with its costs of this suit.

There yet remains to be disposed of the question between the receiver and the defendant McGill. It appears that in July, 1904, Ryan obtained from the city two warrants for $1,000 each payable to his order; that he endorsed these warrants to the defendant McGill, who testifies that he bought the warrants from Ryan at a discount of $150, but he admits that he was only to pay for them at his convenience, and has paid but $877.10. I am not disposed to credit the story of McGill that he really purchased these warrants, nor is it sustained by the evidence. It is not reasonable to suppose that Ryan, being so greatly in need'of money as to sacrifice by way of discount $150, actually sold these warrants upon any such terms of payment as McGill testifies to. However that may be, he yet owes to Ryan the difference between the amount he has advanced and the amount due from the city as represented by these warrants, without allowance for the alleged discount. As between the partners, Ryan and Ginder, this money is partnership funds, and the attempt of l-tyan to place the amount due beyond the reach of the partnership creditors, or to waste it by allowing unusual discounts by this protended sale, cannot be sustained. While some question has been raised as to the actual amount advanced by McGill, I think the evidence justifies me in finding that he pant on account of these warrants and advanced to Ryan on their security different sums which amount to $877.10, and he will be decreed to deliver to the complainant as receiver, With such assignment as may be required to transfer the title, the two warrants, upon being paid by the receiver $877.10 with interest from the date of the respective payments by him to Ryan, and if the amount cannot be agreed upon when the decree is presented I will fix it.