Huiskamp v. Moline Wagon Co.

121 U.S. 310, 7 S. Ct. 899, 30 L. Ed. 971, 1887 U.S. LEXIS 2054

• Court: Supreme Court of the United States
• Decided: April 18, 1887
• Docket: 194
• Status: Published

Opinion

Mr. Justice Blatchford,

after stating the case as reported above, delivered the opinion of the court.

Although the transaction between Kummel and Huiskamp Brothers may have been the subject of the trial on the plea in abatement, we are of opinion that .the evidence in question was improperly admitted. In order to invalidate the mortgage' of Kummel to Huiskamp Brothers it must have been made with the intent, on the part of Kummel, to hinder and delay his other creditors, and Huiskamp Brothers must have • accepted it with the intent of assisting Kummel to hinder and delay his other creditors. A debtor in failing circumstances having the right to prefer a creditor, if the preferred creditor has a bona fide debt, and takes a mortgage with the intent of securing such debt, and not with the’purpose of aiding the debtor to hinder and delay other creditors, the mortgage is valid, even though the mortgagee knows that the debtor is insolvent and that the debtor’s intention is to hinder and delay other creditors. It was necessary, therefore, for the plaintiff, on the trial of the issue with the interpleaders, to make proof of the unlawful intent of Kummel in making the mortgage, irrespective of any intent of Huiskamp Brothers in accepting it. Such proof could not be made as against the interpleaders, in view of what the evidence which they offered tended to show, by proving that. the issue as to the intent of Rummel had been tried and found against him in the trial on his plea of abatement. That was an issue to which the interpleaders were not parties, and the record of its trial was wholly inadmissible as against the interpleaders. The bill of exceptions states that the papers were admitted to show “ that the conveyance and transfer of the stock of merchandise in controversy to the interpleaders was fraudulent on the part of Jacob Rummel.” The interpleaders were not parties to the proceedings, did not appear in them, did not control them, and cannot be affected by them. For this error there must be a new trial; but, as there were other parts of the charge of the court, and refusals of the court to charge as requested by the interpleaders, which were excepted to, and which we think were erroneous, and which may recur upon a new trial, it seems proper to consider them.

The following portion of the charge of the court was excepted to: “ But if no legal dissolution of the partnership took place in January, 1878, or since, and the partners continued to hold the property in controversy as partnership property, bought, sold, and advertised it as firm property, such property remained partnership property, so far as creditors are concerned, who knew nothing of the division and who trusted the firm. Under the view of the case last presented you will have to determine whether there was a dissolution of the partnership. As already stated, it is an undisputed fact, that, up to January, 1878, a partnership between Rummel and Cutler did exist; that that partnership dealt in general merchandise, including farming implements, wagons, etc., and that dealings prior to that time were had between the Moline Wagon Company and the firm of “Rummel & Son. The Moline Wagon Company had a right to presume that the persons once composing a firm, and who continued doing business under the firm name, are still partners, and that the partnership continues to exist until notice of a dissolution was given. No agreement or understanding between the partners — no division of the property of the firm —■ can relieve either the firm or the partners of their legal liability as to creditors who extend credit to the firm, nor are creditors who extend credit to the firm bound to regard public rumors, even if thay heard them, if the partners continue the partnership' name 'and avail themselves of the partnership credit. You are, therefore, instructed that the partnership between Bummel and' Cutler existing in 1878 continued to exist up to the time'of the creation of the debts sued-on by the Moline Wagon Company, unless public notice of the dissolution of the partnership was given, or actual notice of such dissolution was brought home, to the Moline Wagon Company. If, under this view of the law, you shall find, from the evidence, that plaintiff, the Moline Wagon Company, gave credit to the firm of Bummel & Son, composed of Bummel and Cutler, then the firm and each of the partners are liable for the debt thus contracted. All of the assets of the partnership^ both merchandise, notes, and accounts, as Avell as all Avages and property of the partnership which Cutler ” [Bummel?] “may have handled in his division of the partnership, as avuII as all notes and accounts which Cutler may have taken, togetherAvith all property of the partners, in case of insufficiency of partnership assets, are hable for debts created by the partnership. • If you shall find that the partnership once, existing between Bummel and Cutler had not been dissolved, and the property-in dispute to be partnership property, then Bummel could not take such partnership property and pay an individual debt Avith it, such as Huiskamp Brothers claim to have, and the-mortgage read in evidence, given them, is void as against creditors of the firm.”

In connection Avith this portion of the charge, the inter-pleaders, requested the court to giAye the following instructions to the jury-:

, “ 3. H the jury find, from the evidence, that Bummel and Cutler led Huiskamp Brothers to believe that the goods, belonged to Bummel, and they accepted the mortgage and took the goods under such belief, then they are entitled to-the-same rights, by virtue of the mortgage and their possession; as if the goods actually belonged to Bummel at the time the mortgage was made, and when they took possession of the goods.”

“ 4. If the jury find, that, as betAveen Bummel and Cutler, the goods belonged tq Bummel at the time he made the mortgage and Huiskamp Brothers took possession of the same, then the interpleaders are entitled to recover, .although, , as to the plaintiffs in this case, the firm of Bummel Son, was in existence by reason of the fact that the plaintiffs had never been noth, fled of any change of the firm of Bummel & Son. In such ease, Bummel & Son would be hable to the plaintiffs, but the plaintiffs would have no lien on the stock of goods, and Huiskamp Brothers could acquire title thereto by a valid mortgage from Bummel.”

“5. There is a. difference between the dissolution of a firm and the settlement of the accounts of the partners between themselves and the firm. A partnership may be dissolved and the property divided' in part, leaving the settlement of the accounts between the partners to be effected in the future;'1 and', in' this case, if the firm of Bummel & Son was dissolved in 1879, and Bummel took the stock of merchandise, with the consent of his copartner, and was to be charged therewith, .then from that time, as between Bummel and Cutler, the fon nier would be the owner of the goods, arid could make a valid mortgage of the same in his own name.”

. “ 7. The test of a partnership, as between the partners, is the sharing of the profits and the losses of the business; and, in this' case', if, after January 18, 1878, Cutler was riot to .share the profits and losses of the store business, but Bummel alone was to have such profits and bear such losses, then after that time, as between themselves, they were not partners in fact. If ,they should lead others to believe that they were partners,, then they would be hable to whoever acted on such belief and gave them credit. ' Such creditors would not, however, have a lien on the property belonging to one of the partners, as between themselves, and could not claim the same from a party who, in good faith, for value, took such' property from the partner really owning it.”

' The court refused to give these instructions, and to its action in respect to each the interpleaders excepted.

The substance of the concluding sentence of the portion of the charge, last above recited is, that, even though the partner ship between Rummel and Cutler was not dissolved, and the property continued to be partnership property, it. was not in the power of Rummel,' even with the consent of Cutler, .to take any of such property and pay with it the individual debt of Rummel to'Huiskamp Brothers, and, therefore, the mortgage to them was void, as against the plaintiff. The plaintiff had introduced testimony on the trial 'tending to show that there was no dissolution of the firm of Rummel & Son, nor any division of the firm property, in January, 1878, or after-; wards; and the instruction referred to was based upon the view that the jury might find that the partnership Was never, .dissolved, and its property never divided. But the instruction was contrary to the ruling in the case of Fitzpatrick v. Flannagan, 106 U. S. 648, 654, where this court, speaking by Mr.Justice- Matthews, said: “The legal right of a partnership creditor to subject the partnership property to the payment of his- debt consists simply in the right to reduce his claim to judgment, and to sell the goods of his debtors on execution. -His right to appropriate the partnership property specifically to the payment of his debt, in equity, in preference to creditors of an individual partner, is derived through the otbier partner, whose, original right it is to háve the partnership assets applied to the payment of partnership obligations.

And this' equity of the creditor subsists as long as that of the partner, through which it is derived, remains; that is, so long as- the partner himself, in the language of this court in Case v. Beauregard 99 U. S. 119, 125, ‘retains an interest-in the firm assets, as-a partner, a court of equity will allow the creditors of the firm to avail themselves of his equity, and enforce, through it, the application of those assets primarily to payment of the debts due them, whenever the property comes under its administration.’ ”

It follows, from this viéw, that, even though the partnership of Rummel & Son was not dissolved, Rummel had the right, with the consent of Cutler, to appropriate the property to the payment of his individual debt to Iluiskamp Brothers, because the plaintiff, at the time the mortgage was made by Rummel to Huiskamp Brothers, had no specific lien upon the property, and there was no trust impressed upon it at that' time, which could be enforced by the plaintiff. It was only necessary that the disposition of the property should have been bona fide on the part of both parties, and without any intent to hinder. ,or delay the plaintiff. Howe v. Lawrence, 9 Cush. (Mass.) 553, 1 and cases there cited; Locke v. Lewis, 124 Mass. 1.

It was also error in the court to refuse to charge as requested in the 4th prayer of’ the interpleaders, that if, as betwéen Eummel and Cutler, the goods belonged to Eummel, the interpleaders were entitled to recover, although the plaintiff .had not been notified of any change in the firm of Eummel & Son; and error to charge as it did, the converse of this •proposition. The fact of notice or no' notice to the plaintiff could.hot affect the question in issue, so long as the' plaintiff had acquired no lien on the goods prior to the' mortgage by Eummel to-the interpleaders, and that mortgage was made in good faith.

It was also error in the court to refuse to charge, as requested in the 5th prayer of the interpleaders, that “if the firm of Eunlmel & Son was dissolved in 1879, and Eummel took the stock of merchandise, with the consent of his "copartner, and was tó be charged therewith, then, from that time, as between Eummel and Cutler, the former would be the owner of the goods, and could make a valid mortgage of the same in his own name.” The proposition involved in this request presupposes, of course, that the transaction between Eummel and Cutler was made in good faith, and in that view, the instruction requested was in accordance with the rule laid down by this court in Case v. Beauregard and approved in Fitzpatrick v. Flannagan, to the effect, that “if, before the interposition of the court is asked, the property has ceased to belong to the partnership, if by a bona fide transfer it has become the several property either of one partner or of a third person, the equities of the partners are extinguished, and consequently the derivative equities of the creditors are at an end.” See also Howe v. Lawrence 1 and Locke v. Lewis, (above cited).

The judgment of the Circuit Coxort is reversed, and the case is remanded, with a direction to award a new trial.

1 S. C. 57 Am. Dec. 68.