Lts Gbaud, C. J.,
delivered the opinion of the court.
This is the second appeal growing out of the case of Potter vs. Kerr. The former opinion of the Court of Appeals will be found reported in 6 Gill, 404. After that decision the appellant filed his petition in the case, alleging, that he is the permanent trustee of Edward M. Kerr, and as such, has given bond, with approved security, and praying an order be passed requiring the receiver to pay and hand over to him all the effects in his hands as receiver. At the hearing the chancellor dismissed the petition of appellant, and it is from the order of dismissal that this appeal is taken.
Moses Potter filed his bill in chancery, on the 8th of September 1846, alleging, that he was a partner of Edward M. Kerr, and praying, for reasons therein set forth, that an injunction should be granted as against Kerr, and a receiver appointed to take charge of the alleged partnership assets. The chancellor granted the prayer of the bill, upon the ground that Potter and Kerr were partners as to third persons, and that the liability of Potter, for the debts of the concern, entitled him to have the assets administered under the direction of the court. George M. Gill, Esq., was accordingly, on the 1st day oí February 1847, appointed receiver, and was continued as such at the final hearing. Kerr appealed to this court, which, at June term 1848, reversed the chancellor’s orders, by which injunction had been granted and receiver appointed, and remanded the case to chancery. At December term 1848, an opinion was filed, whereby it appears that the reversal rested on the ground, that there was no partnership [14] existing between Kerr and Potter inter sese, and that, in such a state of facts, Potter had no right to the relief the chancellor had given him.
In the meantime Kerr applied for the benefit of the insolvent laws, and the appellant was appointed his permanent trustee. The answer of the receiver to the petition of the appellant admits the facts set forth in the petition, but alleges, that on the 11th of February 1848, Potter also applied for the benefit of the insolvent laws, and that Samuel Webb had been appointed and qualified as his trustee. The answer further alleges, that while the appellee was receiver, and before the reversal by the Court of Appeals of the order appointing him, viz: on 28th April 1847, an attachment had issued out of the circuit court of the United States, and was still pending, at the suit of Sampson Tams, which had been laid in the hands of the appellee, as garnishee of Kerr, for the sum of $5370.75, and costs. The answer further states, that after the reversal of the orders of the chancellor, at different times, ten several attachments were issued by non-resident creditors, out of Baltimore county court, on judgments against Kerr individually, and Kerr and Potter as partners, and were laid in the appellee’s hands to cover, as he alleges, the funds collected by him officially as receiver, under the court’s appointment. These, appellee submits, are good and sufficient grounds why he should not be compelled to pay over any moneys in his hands during the pendency of such attachments.
' The original bill of Potter, in addition to a prayer for an injunction and the appointment of a receiver, asks, “that the partnership may be declared to be dissolved, and that an account of its business may be taken under the direction of this court, and that its effects may be applied to the payment of its debts and liabilities, and the residue thereof be distributed between the complainant and the said Edward M. Kerr, in proportion to their respective interests.”
From this statement it appears, that this case has now become a controversy between the creditors of Kerr and Potter and the creditors of Kerr. The trustee of Kerr contends, he [15] is entitled to the administration of the assets, according to the insolvent laws of the State, as the separate property of his insolvent; whilst, on the other side, it is insisted, that the property is joint and not separate, and should therefore be administered in chancery, applying it first to the payment of the partnership debts.
The first question for this court to determine is the character of the assets, that is, whether they be joint or separate property ?
There is not, nor can there be, any difficulty as to the manner of the distribution wrhen the character of the property is ascertained. Joint property must be first applied to partnership debts, and separate property to the individual debts of the particular partner to whom it may belong. McCulloh vs. Dashiell, 1 Harr, & Gill, 106. But the question, what is joint and what separate property, is not of easy solution in every case. From the nature of the question it might be supposed, it had been so frequently before the courts, both in England and this country, that rules had been established by which all difficulty could be readily removed, but such is not the case. ,
In this case, however, we encounter no such difficulty in disposing of the question. Although the Court of Appeals, in 6 Gill, 424, say, that the case they were then considering was “not a controversy between creditors, involving the question of joint and separate claims, but simply one involving the question, whether Potter was the actual partner of Kerr, and had a lien on the stock and effects of the concern;” they, nevertheless, according to our apprehension, decide, in fuel, the character of the property, so far as the rights of creditors are concerned, by deciding that Potter was not a partner, and that he had no lien under the hill filed in the cause.
The court did not consider themselves authorised, in the' then condition of the case, to dispose of the rights of the creditors, but notwithstanding this, in deciding the case, they established certain conclusions, which, according to the well , [16] known principles of law, must control the equities and rights of the joint creditors.
The principle is well established, that the lien which the creditors have is derived entirely through the partners. The doctrine and the authorities on which it rests, are very clearly stated in the case of Reese and Heylin, vs. Bradford, 13 Alabama, 846. In lhat'case the court use the following language: “The partnership creditors, as such, have no lien on the partnership effects, for the payment of their debts, and they stand in respect to partnership property, as individual creditors do to the properly of individual debtors, without having any lien thereon, until their debt is reduced to judgment, which will create a lien on real estate, and when execution is issued thereon, a lien is created on the personalty. See Story on Partnership, 509 and 510. But as the partners themselves have a lien on the partnership effects, to pay the partnership debts, this lien may, in many cases, be made available in favor of the creditors. But the equity or lien of the creditors is to be worked out through the partners themselves, and when they can, by this lien, reach the partnership effects, and subject them to the satisfaction of their debts, it is because they are considered as subrogated to the rights and equities of the partners themselves, and not as having any lien or equity upon the joint effects, by virtue of their debts merely, independent of this equity of the partners. _ *
Free access — add to your briefcase to read the full text and ask questions with AI
Lts Gbaud, C. J.,
delivered the opinion of the court.
This is the second appeal growing out of the case of Potter vs. Kerr. The former opinion of the Court of Appeals will be found reported in 6 Gill, 404. After that decision the appellant filed his petition in the case, alleging, that he is the permanent trustee of Edward M. Kerr, and as such, has given bond, with approved security, and praying an order be passed requiring the receiver to pay and hand over to him all the effects in his hands as receiver. At the hearing the chancellor dismissed the petition of appellant, and it is from the order of dismissal that this appeal is taken.
Moses Potter filed his bill in chancery, on the 8th of September 1846, alleging, that he was a partner of Edward M. Kerr, and praying, for reasons therein set forth, that an injunction should be granted as against Kerr, and a receiver appointed to take charge of the alleged partnership assets. The chancellor granted the prayer of the bill, upon the ground that Potter and Kerr were partners as to third persons, and that the liability of Potter, for the debts of the concern, entitled him to have the assets administered under the direction of the court. George M. Gill, Esq., was accordingly, on the 1st day oí February 1847, appointed receiver, and was continued as such at the final hearing. Kerr appealed to this court, which, at June term 1848, reversed the chancellor’s orders, by which injunction had been granted and receiver appointed, and remanded the case to chancery. At December term 1848, an opinion was filed, whereby it appears that the reversal rested on the ground, that there was no partnership [14] existing between Kerr and Potter inter sese, and that, in such a state of facts, Potter had no right to the relief the chancellor had given him.
In the meantime Kerr applied for the benefit of the insolvent laws, and the appellant was appointed his permanent trustee. The answer of the receiver to the petition of the appellant admits the facts set forth in the petition, but alleges, that on the 11th of February 1848, Potter also applied for the benefit of the insolvent laws, and that Samuel Webb had been appointed and qualified as his trustee. The answer further alleges, that while the appellee was receiver, and before the reversal by the Court of Appeals of the order appointing him, viz: on 28th April 1847, an attachment had issued out of the circuit court of the United States, and was still pending, at the suit of Sampson Tams, which had been laid in the hands of the appellee, as garnishee of Kerr, for the sum of $5370.75, and costs. The answer further states, that after the reversal of the orders of the chancellor, at different times, ten several attachments were issued by non-resident creditors, out of Baltimore county court, on judgments against Kerr individually, and Kerr and Potter as partners, and were laid in the appellee’s hands to cover, as he alleges, the funds collected by him officially as receiver, under the court’s appointment. These, appellee submits, are good and sufficient grounds why he should not be compelled to pay over any moneys in his hands during the pendency of such attachments.
' The original bill of Potter, in addition to a prayer for an injunction and the appointment of a receiver, asks, “that the partnership may be declared to be dissolved, and that an account of its business may be taken under the direction of this court, and that its effects may be applied to the payment of its debts and liabilities, and the residue thereof be distributed between the complainant and the said Edward M. Kerr, in proportion to their respective interests.”
From this statement it appears, that this case has now become a controversy between the creditors of Kerr and Potter and the creditors of Kerr. The trustee of Kerr contends, he [15] is entitled to the administration of the assets, according to the insolvent laws of the State, as the separate property of his insolvent; whilst, on the other side, it is insisted, that the property is joint and not separate, and should therefore be administered in chancery, applying it first to the payment of the partnership debts.
The first question for this court to determine is the character of the assets, that is, whether they be joint or separate property ?
There is not, nor can there be, any difficulty as to the manner of the distribution wrhen the character of the property is ascertained. Joint property must be first applied to partnership debts, and separate property to the individual debts of the particular partner to whom it may belong. McCulloh vs. Dashiell, 1 Harr, & Gill, 106. But the question, what is joint and what separate property, is not of easy solution in every case. From the nature of the question it might be supposed, it had been so frequently before the courts, both in England and this country, that rules had been established by which all difficulty could be readily removed, but such is not the case. ,
In this case, however, we encounter no such difficulty in disposing of the question. Although the Court of Appeals, in 6 Gill, 424, say, that the case they were then considering was “not a controversy between creditors, involving the question of joint and separate claims, but simply one involving the question, whether Potter was the actual partner of Kerr, and had a lien on the stock and effects of the concern;” they, nevertheless, according to our apprehension, decide, in fuel, the character of the property, so far as the rights of creditors are concerned, by deciding that Potter was not a partner, and that he had no lien under the hill filed in the cause.
The court did not consider themselves authorised, in the' then condition of the case, to dispose of the rights of the creditors, but notwithstanding this, in deciding the case, they established certain conclusions, which, according to the well , [16] known principles of law, must control the equities and rights of the joint creditors.
The principle is well established, that the lien which the creditors have is derived entirely through the partners. The doctrine and the authorities on which it rests, are very clearly stated in the case of Reese and Heylin, vs. Bradford, 13 Alabama, 846. In lhat'case the court use the following language: “The partnership creditors, as such, have no lien on the partnership effects, for the payment of their debts, and they stand in respect to partnership property, as individual creditors do to the properly of individual debtors, without having any lien thereon, until their debt is reduced to judgment, which will create a lien on real estate, and when execution is issued thereon, a lien is created on the personalty. See Story on Partnership, 509 and 510. But as the partners themselves have a lien on the partnership effects, to pay the partnership debts, this lien may, in many cases, be made available in favor of the creditors. But the equity or lien of the creditors is to be worked out through the partners themselves, and when they can, by this lien, reach the partnership effects, and subject them to the satisfaction of their debts, it is because they are considered as subrogated to the rights and equities of the partners themselves, and not as having any lien or equity upon the joint effects, by virtue of their debts merely, independent of this equity of the partners. _ *
“Having, then, no lien by virtue of their debts merely,-the partners may sell and dispose of the effects of the firm as they please, or as individual debtors may, for a fair and bona fide consideration, and their sales cannot be set aside by the creditors.- One partner may sell to his co-partner, and if the sale is fair, it will vest the exclusive title in his co-partner. Story on Part., 510. Ex-parte Ruffin, 6 Vesey, 119, 126; and 1Vesey, 3, 5, 8.”
From this it clearly appears, that a sale made by one partner to another, immediately converts what was joint into separate property, and exempts it from all lien of partnership creditors. If a sale can produce this result, why should not [17] the fact of the property being exclusively, at all times, that of hut one of the partner’s, work out the same consequence? The sale in the one instance merely brings about a state of case, which, in the other, always existed. Now, the late Court of Appeals have decided that Potter had no such lien or interest in the property, as entitled him to the relief which he sought. What was that relief? He asked that Kerr should be restrained from applying the partnership effects to the payment of his individual debts; that a receiver should be appointed to take charge of them, for the benefit of all parties interested; and that they might be “applied to the payment of its (the partnership’’s) debts and liabilities.”
In thus deciding, although there was a disclaimer of any such intention, the court did, in point of fact, decide what is conclusive in this controversy, of the rights of the joint creditors. We have seen that the equity of the creditors is worked out through that of the partners; “that as ihe partners themselves have a lien on the partnership effects to pay the partnership debts,” this lien may be availed of by the creditors, and that the “partnership creditors, as sack, have no lien on the partnership effects for the payment of their debts.”
The court in deciding under the hilt of Potter, that he had no right to have the effects applied to the payment of the partnership debts, did in fact decide, that the joint creditors could have no such right, for they have none other than such as is derived through the partners. If Potter had no such right, they had none.
The whole of the equity of the joint creditors is purely derivative, and as the court have decided that Potter had no lien, they also, as a necessary legal corollary from it, also established that the creditors had none.
The effect of the decision was to pronounce the property the separate estate of Edward M. Kerr, and as he is an insolvent, under our laws, it must be administered in conformity with them. It is the policy of those laws, to have all the claims settled by the decisions of the same tribunal. In the case of Alexander, et al., vs. Ghiselin, et al., 5 Gill, 179, it [18] is said: “The leading and general design of all bankrupt and insolvent laws, is to insure a prompt and complete settlement of all the affairs of the party, and an early distribution amongst the creditors, as nearly in equal proportions as a regard to positive and acknowledged preferences will admit. To facilitate these objects, our law has wisely given to the trustee, to be appointed by the court, the entire management of the estate, subject of course to the control of the court by whom he is appointed, charging him with the duty of paying off liens and incumbrances, to which the estate might be subject. His duty requires him to make the earliest disposition and settlement regarding the interests of all the creditors—the particular lien creditors included—and brings all the claimants before one tribunal; whereas, by allowing sheriffs and mortgagees to participate in the administration of the trust', adverse interests are created, delays endangered if not ensured, and probably different, and possibly conflicting tribunals, consulted.”
Whatever liens, therefore, if there be any on the fund, must be settled by the decision of the tribunal to whom the trustee of Kerr owes obedience. Although in the case of Larrabee vs,- Talbott, 5 Gill, 426, it was held, that a non-resident creditor might attach in the hands of a trustee of an insolvent any undistributed fund, wre do not feel ourselves called upon to extend the principle any farther than we are actually compelled. It is the general rule of the law, that goods in custodia legis, cannot be replevined, Cromwell et al., vs. Owings, 7 Harr. and John, 55, and'in the case of the Farmers Bank of Delaware vs. Braston, Garnishee of the Elkton Bank of Maryland, 7 Gill and John, 421, it was decided, that funds in the hands of the trustee or assignee of a bankrupt cannot be attached. We understand that it has been decided by the circuit court of' the United States, for this district, that funds in the hands of a receiver, cannot be attached by a non-resident creditor of an insolvent. This case has gone up to the Supreme Court, and considering the great importance of the question to the people of Maryland, we deem it proper to adhere to the general doctrine, that funds in custodia legis can[19] not be attached, until the Supreme Court shall otherwise determine. In this case, no inconvenience, or injustice, can be done to such of the creditors of Kerr, as claim priorities because of alleged liens. If any such exist, they will be respected by the court to which the trustee of Kerr is to account, and before distribution is ordered, there is every probability the Supreme Court of the United States will have settled, definitively, the question. Until it is disposed of by that tribunal, we are indisposed to recognise any other doctrine than that which has universally obtained in our courts of judicature.
We do not think the objection, that there were not proper parties made to the petition of the appellant, tenable. The Court of Appeals by its decision, had discharged the receiver and dissolved the injunction. Had no other proceedings been had, Kerr would have been entitled to the funds, and his rights have devolved on his trustee under his application, for the benefit of the insolvent laws of the State. The petition claimed the money, and was in point of fact answered by the appellee, Gill. He cannot deny that he had notice of it, nor that he has had an opportunity to fully exhibit his case.
Looking to the character of this controversy we are of opinion, that the costs ought to be paid out of the fund, and shall accordingly so decree.
Decree reversed.