Hyman, Lichenstein & Co. v. Max Stadler & Co.

63 Miss. 362

• Court: Mississippi Supreme Court
• Decided: October 15, 1885
• Status: Published

Opinion

Cooper, C. J.,

delivered the opinion of the court.

This is a bill filed by the appellees, creditors of the firm of H. Lewenthall, which firm was composed of H. & L. Lewenthall, against the members of that firm and also against the firm of Hyman, Lichenstein & Co. The purpose of the bill is to charge Hyman, Lichenstein & Co., as trustees of certain assets of the firm of H. Lewenthall, for the creditors of that firm.

The allegations of the bill, in effect, are: That in January, 1884, the firm of H. Lewenthall was indebted to Hyman, Lichenstein & Co. in about the sum of four thousand dollars and no more; that Hyman, Lichenstein & Co. and L. Lewenthall, conspiring and confederating to defraud the other creditors of the firm of H. Lewenthall and impoverish Henry Lewenthall, agreed that Hyman, Lichenstein & Co. should sue out an attachment against H. Lewenthall, and under it seize all the property of the firm and by a forced sale for cash obtain the assets of that firm at much less than their real value, and thus make a profit which was to be divided between them that in pursuance of this scheme an attachment was sued out and levied on the entire assets, worth not less than thirteen thousand dollars; that Henry Lewenthall, against whom alone the attachment was sued out, in disregard of the rights of the other creditors of the firm, consented to a sale on a short notice of the entire assets, including the books of account •, that ou the written agreement, signed by Hyman, Lichenstein & Co. and Henry Lewenthall, the defendant in attachment, the judge of the Circuit Court of the United States for the Southern District of Mississippi, in which court the attachment suit was pending, made an order of sale which was executed by the marshal, and that at this sale Hyman, Lichenstein & Co. became the purchasers of all the assets of the firm at and for the price of four thousand one hundred dollars, the same being not more than one-third of their real value; that Henry Lewenthall, who had not assented to the attachment, defended the suit as he ought to have done, and that on a trial of the issue in attachment the same was decided by the jury to have been wrongfully and collusively sued out by the plaintiffs, and damages were awarded against them to the extent of more than six thousand dollars, but that on a motion for a new trial the defendant was required by the judge to remit all damages awarded except two thousand dollars, which was done ; that on the trial of the issue of indebtedness judgment was rendered in favor of the plaintiffs for the sum of four thousand nine hundred dollars, by consent of parties, of which sum two thousand dollars was credited on account of the damages awarded for the wrongful suing out of the attachment, and the remainder was paid from the funds in the hands of the marshal arising from the sale of the assets of the firm. The bill avers that no other creditor of the firm of H. Lewenthall, except Hyman, Lichenstein & Co., had knowledge of the fact that L. Lewenthall was a member of the firm; thahHyman, Lichenstein & Co. knew that fact because the partnership articles were in their keeping, but that they failed to make L. Lewenthall a defendant in their attachment suit in order that he might be protected against the other creditors of the firm. The bill further charges that Hyman, Lichenstein & Co. realized much more from the sale of the property purchased than their debt.

Complainants submit to the court that by proceeding against Henry Lewenthall alone, Hyman, Lichenstein & Co. merged their debt against the firm in the judgment against him, and having done so the purchase of the goods of the firm is to be taken as a purchase under an attachment against Henry for his individual debt, and that under such sale and purchase Hyman, Lichenstein & Co. acquired only so much as remained after payment of all partnership debts.

Hyman, Lichenstein & Co., answering the bill, admitted the proceedings in the federal court as stated, and that the sale and purchase of the goods was made. They deny all fraudulent combination, or that their attachment was sued out by collusion with L. Lewenthall; they aver that their sole object in suing out the attachment was to collect their debt.; that the purchase of the goods was made in good faith and solely for the purpose of getting the money due them, and that at the sale a fair price was paid and the money realized was applied by the order of the court. They admit that by the verdict of the jury it was determined that their attachment was wrongfully sued out, but deny that it was decided that there was a fraudulent collusion between them and L. Lewenthall, and insist that by their purchase they became owners of all the assets of the firm without liability to be called to account by other creditors of the firm of H. Lewenthall.

From this statement of the material allegations of the bill and answer it appears that the complainants base their right to recover on two propositions; first, that there was a fraudulent scheme between L. Lewenthall and Hyman, Lichenstein & Co., or, secondly, that by purchasing at the sale made under the attachment proceedings the defendants acquired only the interest of H. Lewenthall in the firm property, and by reason of the fact that they have disposed of the same are liable to the creditors of the firm to the extent of the sum realized out of the firm assets.

A careful examination of the very voluminous record fails to disclose any evidence to support the allegation of a fraudulent combination between Hyman, Lichenstein & Co. and L. Lewenthall. It does appear that L. Lewenthall desired to secure the payment of the sum due to them in preference to debts due to others, and had agreed at the commencement of the business between his firm and theirs to see that the debt due them should be paid, and that in accordance with this undertaking he notified them of the condition of his firm and of his inability to control his partner and pay or secure their claim. It is also manifest that he expected Hyman, Lichenstein & Co. to resort to some summary remedy for the collection of their debt, and that he endeavored as a witness, and probably as an adviser, to support the attachment which they sued out against Henry. But their debt was an honest one, and he had the right to prefer them, and being unable to do so by the consent of his partner, he might with equal right lend them his aid in any lawful effort to secure priority over other creditors. The remedy by attachment to which the creditors resorted was neither an unlawful nor a secret one. Henry Lewenthall was by the proceeding placed in an adversary position to them, and the question for decision was whether he had done those things which the law recognized as cause for attachment. If he had, the plaintiffs in attachment were entitled to recover, whether Lewis Lewenthall wished them to recover or not; if he had not, then the fact that he desired them to succeed, or that he furnished the information on which the writ was sued out, or that he testified in their favor, could not have supported the action. A collusive suit is one in which the parties who occupy ostensibly adverse positions are, in fact, in accord, and whose real though concealed purpose is to accomplish the same result.

That Henry Lewenthall, the defendant in the writ, did not act in collusion with the attaching creditors is evident; he successfully defended the issue, and claimed and recovered heavy damages against them. Nor was there any fraud in the sale of the assets of the firm under the order of the court. The goods seized under the writ were many of them of a perishable nature, and it was within the discretion and power of the court to direct their sale to prevent loss; the sale was public, made by the order of the court having jurisdiction, and in conformity with the agreement of the parties and the directions of the court. If the purchase was in good faith the purchasers held as their own whatever interest in the property could pass by a sale made under such circumstances, and their right to retain it was not affected by the final result of the litigation between themselves and the defendant. After the sale the proceeds represented the property attached and sold, and these proceeds were, in fact, applied by the court in its final judgment either to the defendant in the suit or to the debt on which final judgment had been rendered. The fallacy in the argument of counsel for the appellees is that it deals with the purchasers as fraudulent purchasers, because as plaintiffs they sued out a writ of attachment to which they were not entitled. If the attachment had been sued out by collusion with the defendant and the sale had been but a part of the fraudulent scheme by which the assets were to be acquired, the fraud of the suit would have attached to the sale made in it and the purchasers could be dealt with as fraudulent vendees. But the record contains no suggestion of the existence of any collusion or agreement between the plaintiffs and defendant in attachment; on the contrary, it unquestionably shows that the parties are now and continuously have been adverse and bitterly hostile.

The remaining question is whether at the sale the purchasers acquired only the interest of Henry Lewentháll in the partnership assets, becoming tenants in common therein with Lewis Lewenthall and holding the partnership effects subject to the prior right of partnership creditors. The rule is well settled, that under an execution sale against one partner for his individual debt a purchaser acquires only such rights as the defendant has, becomes tenant in common with the other partners, and takes in distribution only what remains after a settlement of the partnership accounts. Formerly, before the equities of the partners were well established, a purchaser of a partner’s interest took as tenant in common with the other partners a relative portion of the partnership property regardless of the debts of the firm, but the equity of the other partners to have the firm property applied first to the payment of firm debts was soon recognized by courts of equity and has always since been steadily preserved and enforced. We cannot concur in the view urged by counsel for appellees that a firm creditor who proceeds to judgment against' one member of the debtor firm thereby waives his right to sue in another action the other members, or that the liability of the party not sued is merged in the judgment against the other. The effect of § 1134 of the Code of 1880 is to make all liabilities of partners joint and several, and such being the case a judgment against one not satisfied is not a bar to an action against the other.

It is not true, therefore, that the' partnership property was, by the proceedings in the federal court, applied to the payment of the individual debt of H. Lewenthall. It was applied to the satisfaction of a firm debt, for the payment of which the partner not sued remained as before bound, notwithstanding the judgment which had been rendered against his partner. It is well settled in this State that the right of partnership creditors to priority of payment out of partnership assets is not an original, independent right existing in the creditor, but is derivative and springs from the equity of the partners. Freeman v. Stewart, 41 Miss. 138; Schmidlapp v. Currie, 55 Miss. 597.

After the sale under the order of the court, H. Lewenthall had no right to insist upon an application of the partnership property to the debts due the appellees, for his entire interest in the partnership property passed by the sale ; nor could Lewis Lewenthall insist upon such application, for the reason that he had by his conduct and approval consented to its application to the payment of the debt due to Hyman, Lichenstein & Co., which was a debt due by his firm. He assigned to them his supposed interest in the excess of the proceeds of the sale after payment of their judgment against H. Lewenthall, and though this assignment was not recognized by the court, it was, in connection with his other acts, a waiver of any supposed equity which he had to divert the property from them to other creditors. As there is no equity in either of the partners to fix upon the property which passed into the hands of Hyman, Lichenstein & Co. a liability to other firm debts, there cannot be, in the absence of fraud, an independent right in the creditors themselves to such priority. As we have said, we see nothing in the transaction except an endeavor on the part of Hyman, Lichenstein & Co. to secure priority over other creditors. These creditors are now attempting to attain the same priority for themselves. The equity of the defendants is as great as that of the complainants, and under such circumstances they ought not to be disturbed.

The decree is reversed and bill dismissed.