Kirby v. Ingersoll

1 Doug. 477

• Court: Michigan Supreme Court
• Decided: January 15, 1844
• Status: Published

Opinions

Felch, J.

delivered the opinion of the Court.

The partnership between Justus Ingersoll and Zebuloa Kirby was a limited one, being confined to the trade and business of tanners, curriers and dealers in leather, in the city of Detroit. The power of a partner in such firms, over the partnership property, is stated in general terms, in all the books, and would seem to be well settled. Within the scope of the partnership business, and for the purpose of carrying on that business, with a view to-the making of profit for the benefit of the firm, the power of disposing of the property or effects is undoubted. So, also, within the same legitimate scope of such power, is the contracting of debts in the regular course of business of the firm, and the payment of debts, either by the use of the money or the property of the firm. The disposition of property in such case and for such object, is in accordance with the interest of the firm, is within the acknowledged power of a partner over it, and must be presumed to be done to advance the interests, and to continue the business of the firm. But when a conveyance is made by one partner, of all the partnership effects, to a third person, in. trust, without the knowledge or consent of his partner, the effect of which must almost necessarily be to close the copartnership business, another and more difficult question is presented.

In looking at the decisions of courts on this question, I shall inquire—

1. Whether one partner has the power thus to dispose of the partnership effects ; and,

■2. If so, is the case presented one in which there has been a proper bona fide exercise of that power ?

1. In Story on Partn. § 101, it is said that it may well admit of some doubt, whether the power of a partner extends to a general assignment of all the funds and effects of the partnership, for the benefit of creditors. In Pierpont v. Graham, 4 Wash. R. 232, the same doubt is,expressed, and the point left undecided. In Anderson v. Tompkins, 1 Brock. R. 456, Chief Justice Marshall held that such an assignment was good, if the transaction was free from fraud. The general doctrine that such power Was an incident to the partnership relation, is asserted by the court; but the point decided was, that, under the circumstances of that case, the pow'er, by assent of the other partner, must be presumed. Murray, the partner who did not join in making the assignment, was beyond seas when it was executed ; and it is stated by the court that he “ had a right to be consulted. Had he been present he ought to have been consulted. The act ought to have been, and probably would have been, a joint act. Pie had, by leaving the country, confided every thing respecting their joint business to Tompkins, who was under the necessity of acting alone.” And again — it is said that, “ should goods be delivered to trustees for sale, without necessity, the transaction would be examined with scrutinizing eyes, and might, under some circumstances, be impeached. But if the necessity be apparent, if the act is justified by its motives, if the mode of sale be such as the circumstances require, I cannot say that the partner has exceeded his power.” And, in another part of the opinion, it is asserted of the absent partner that, “ in leaving the country, he must have intended to confide all his business to the partner who remained for the purpose of transacting it.”

In Dickinson v. Legare, 1 Dessaus. R. 537, the Court of Chancery of South Carolina, decided against the validity of such an assignment. That assignment, however, was made by one of the partners, then in England, a prisoner of war, while the other partners and the property assigned were in this country, to secure the payment of a particular debt. This decision is said to be overruled in Robinson v. Crowder, 4 M’Cord’s L. R. 519. I have befen unable to obtain the report of the last case, or to ascertain the precise point which was decided by the court.

Mills v. Barber, 4 Day’s R. 428, decides simply that one partner has power to transfer a chose in action to a creditor of the firm, with authority to collect and apply the proceeds to his own use.

In Harrison v. Sterry, 5 Cranch’s R. 289, an assignment of certain partnership property and choses in action, to a trustee, was made by one partner in New York, the others being and residing in London. The object of the assignment was to sustain the firm in the embarrassments into which they had fallen, and to enable them to continue their partnership business. The objection that the partner had no power to make the assignment, was overruled ,by the court. They put their decision on the ground that the whole commercial business of the company in the United States, was necessarily committed to Robert Bird, the only partner residing in this country, and he had the power to collect or transfer the debts due to them. They declare the assignment to be an act of this character, and within his power as managing partner.

In Egberts v. Wood, 3 Paige’s R. 517, the Chancellor of New York held, that it was the better opinion that one partner might assign the partnership effects, in the name of the firm, for the payment of the debts of the company, although by it, a preference was given to one set of creditors over another; but he declined deciding the question as to the validity of an assignment made to a trustee by one partner, against the wishes and without the consent of his copartner.

In Havens v. Hussey, in the same court, 5 Paige’s R. 30, the question received a direct adjudication. An assignment was made of all the partnership effects to a trustee, in trust, to pay certain preferred creditors of the firm. It was made in the name of the firm, by one of the partners, without the consent of the other, and against the known wishes of her son, who was present, and attended to her interests. The Chancellor held that the implied authority arising from the ordinary contract of partnership, did not authorize such an assignment. The assignment was declared void, and a receiver appointed.

In Hitchcock v. St. John, 1 Hoffm. R. 511, Mr. Vice Chancellor Hoffman examined the same question very fully, and decided that there was no power in one partner, to make an assignment of the character above indicated.

In the argument of this cause it was strongly urged in support of the power of one partner, to make the assignment in question, that the authority of each partner extended to the full right of disposition of all the partnership property; — that he might sell the whole, even though it should render a dissolution necessary; and that, in fact, a sale of the whole property would not be, or necessarily cause a dissolution of the partnership. This general power is not denied, but it must be confined to the legitimate scope of the partnership business. Within the limits of the regular business of the firm, the power is undoubted. One partner in a store may sell to purchasers every article of the stock in-trade, either for cash or in payment of a creditor or creditors. He may do this although it should be out of the power of the firm to replenish the stock, and a dissolution would be the consequence. The inquiry is not what is the consequence of the act, — for each has trusted the other to exercise his own judgment, — but is the act itself within the limit of hi3 power? Is it within th'e scope of that agfincy, which eaeh partner bestows upon his fellow, with a view to carry on the business of the firm, for the mutual benefit of all ? The power in all of these acts of one for all, has its origin in the consent, or presumed consent, of the other partners. But what consent is presumed to be given to one partner to make an assignment of all the property and effects of the firm, which withdraws the property from the control of his copartner, and places it in the hands of a trustee of his own choice, with a view to a distribution of the proceeds among creditors preferred by him? Can it be said that, in an ordinary partnership, without special stipulations, and without a showing of acts of the parties,- or of special circumstances, to warrant the presumption of the assent of the other partners, each is invested with full power to bind the others, by such a transaction? ^While both partners are present,^ and attending to the ordinary business of the firm, will it be said that each is entrusted by the other with this extraordinary power of closing, at the same time, the business of the firm, and depriving his copartner of all participation in the sale of the property ? I can scarcely think that such power is ever intended, or understood to be given, by one partner to another. The law has fixed the rights and powers of partners on the dissolution of a firm, with as much precision, as in carrying on the business of the firm. Under the partnership existing between Ingersoil and Kirby, either had the power at will to dissolve the connection. In that event, the law fixed the rights of the individual partners to the property ; it contemplates its application to the payment of the debts of the firm. It presupposes the individual exertions, and the exercise of the judgment of the former partners, in the sale and application of it; and it affords to each a full remedy for any misconduct, or fraudulent act of the others in reference to it, by enabling him to procure the appointment of a receiver, and through him a proper application of the assets.

The partnership relation implies, then, the full right in each partner of disposing of the entire property of the firm, in all the ordinary methods pertaining to the business, for ready pay, on credit, or in payment of the debts of the firm. It implies, also, the power, in the manner recognized by law, to dissolve the firm ; and the right to have the assets duly applied, either by the mutual acts of the parties, or by the interference of a court of chancery. But the power of dissolving the firm, and at the same time excluding the other partners from all participation in the administering of the' property, by the appointment of a trustee for preferred creditors, it seems to me can hardly be presumed among the powers granted by the partners to each other. It would rather seem that the contract was made in reference to the rights of parties as secured by law on a dissolution, than that a power was given so totally at variance both with the law and the rights of parties.

I speak here of the power of one partner, implied by law from the mere partnership relation. Power beyond this may be given, in a particular instance, or may be inferred from the conduct and course of business of the partners. The circumstances in which one partner is placed, may sometimes give him powers to do what otherwise the law would not imply. The circumstances must, in such case, be such as to authorize the presumption that such power was conferred by the other partners. Of this class appears to have been the case of Anderson v. Tomp-Jcins, above cited, where the partner who did not join in the conveyance, was abroad. It is expressly declared that, if he had been present, he should have been consulted ; and, by leaving the country, he had confided full powers, in the acting partner, to manage the joint business. The case of Harrison v. Sterry, cited above, was also of the same class; and the power was sustained with similar remarks from the court. This case, however, was not an assignment of all of the partnership property, nor was the assignment made with a view to dissolve the .firm.

In case of the absence of one partner out of the country, confiding the whole management of the business of the firm to another, who remains in full charge, it does not seem to me to violate any rule, to presume that the former has given to the latter more ample power than he would possess if both were present, personally overseeing the business. The absent partner, having withdrawn both his personal services and advice, may well be supposed to have invested the other, not only with the ordinary power of managing the affairs, but also with all powers necessary to be exercised in the case of any extraordinary emergency. When embarrassments had fallen upon a house thus situated, and an assignment had been made by the acting partner, which was dictated by prudence, justified by its motives, and unexceptionable in its mode, I see no reason to quarrel wdth the inference, that such power was conferred by the absent, upon the acting partner. It would be, however, not upon the principle that such power was necessarily conferred or implied, in the very relation of partners, but that the extraordinary circumstances of the case showed a power to manage' the partnership concerns, conferred by the absent partner, which would extend to the act in question. And it is not a little remarkable, in the extensive investigation which this cause has received, that no case is cited in which an assignment has been sustained, which was made by one partner while both partners were present, attending to the business of the firm; while the adjudications cited from 5 Paige’s R. and 1 Hoffrn. R. directly decide the question, and deny the validity of such an assignment.

It seems to me to follow from this view of the law of the case, that it is not within the ordinary powers arising from the partnership relation, while the business of the firm is proceeding in the usual mannerj(and both partners are present and attending to the affairs of the firm in the ordinary manner contemplated by their joartnership agreement^for one partner to make an assignment to a trustee for the benefit of preferred creditors, with the design of putting an end to the partnership, and closing up its concerns. But the power to make such assignment may be conferred by one partner on another, or may, like any other power, be inferred from the conduct of the partners, their manner of doing business, and the circumstances in which they place themselves in reference to the business of the firm.

2. If it be admitted, however, that the power of one partner is perfect to convey the whole partnership effects, to a trustee, to pay preferred creditors, that power could only be exercised in a case free from all fraud. In the exercise of all the powers conferred by one partner on another, to bind the firm by his acts, perfect good faith in regard to each is required; and if a third person knowingly participates in, a transaction with one partner not in good faith to another, the transaction cannot be sustained. Thus, the power to buy goods to an unlimited amount, in the name and on the credit of his firm, exists in each partner of a mercantile house ; yet, if such goods were bought by one partner to apply to his jirivate purposes in fraud of the firm, and the vendor knew it, he could not recover the amount of partners. So, the power to give the notes or bills of exchange of a firm, is within the authority of each partner; still, if he fraudulently gives them for his own private purposes, and the payee knows of the fraud on the firm, the latter will not be bound. These are familiar instances of the principles applicable in such cases.

In the case before us, it is evident from the pleadings, that the assignment was made by the partner who had not usually been the acting partner; that it was of all, or nearly all, the effects of the firm, with the lease of their place of business; that it was made to the brother of the assigning partner, who resided in the same place; that it was made with a view to dissolve the partnership, and had the effect to prevent their proceeding with business; that the complainant was excluded from examining the books of the firm or controlling the property ; that the assigning partner had control as the agent of the assignee; that the complainant was present and attending to the business of the firm, but was not consulted nor did he Consent to this assignment, although some general conversation about an assignment is stated to have been had with him at previous times.

Two things, it is said in Pothier, must concur to enable a partner to dissolve a partnership ; 1. The renunciation must be made in good faith; and, 2. It must not be made at an unreasonable time. Story on Partn. 271. A transaction dissolving a partnership in so extraordinary a manner, and excluding the other partner from all enjoyment of the right to participate in the distribution of the effects, and giving to the brother control of all the property for the benefit of preferred creditors, appears to me to be clearly a fraud on the rights of the complainant. No necessity justified it, and no authority was given by the complainant, and no act appears to have been done from which such authority can be inferred. (The complainant was present, and might have been consulted.^ The very object was evidently to shut out the complainant from the power over the partnership property and concerns, with which the law has invested each partner on such dissolution. If sustained, the effect is not only to exclude the complainant from such control over the property, but also to deprive him of the usual right to have his interests protected, and the affairs of the firm settled, under the impartial administration of officers appointed for that purpose by a court of equity.

From the very nature of the transaction, the trustee cannot be deemed ignorant of the object or effect of the assignment. His aid in carrying out the design of the assigning partner, was but to exclude the complainant from his legal rights, and must be deemed to be in fraud of those rights. I would not be understood as imputing to the highly respectable parties in this case, a premeditated or wicked intention to destroy or injure the interest of the complainant; both the assignor and assignee might have supposed that the assignment was clearly within the powers conferred upon the former by the partnership relations; but we are here to settle a general principle respecting the legal rights of partners, which shall apply to all cases as well as to the present. And when we are satisfied upon the facts appearing in the case, that such an assignment made and accepted must operate as a fraud on the com-, plainant’s rights as a partner, it is our duty to declare such an assignment both unauthorized and void.

It is contended by the defendants that the. assignment is at least good for the share of the party who executed it, in the property of the firm. But the property must first be applied to pay the debts of the-firm. It is a fund especially devoted to that purpose; and the separate interest of each partner is only such as remains after the partnership debts are discharged. For this purpose the complainant asks that it go into the hands of a receiver. There can be no claim to the individual share of the other partner which should prevent this application. Story on Partn. 135 ; Coll, on Partn. 77.

Again — it is urged that the assignee was a hona creditor of the firm, and that the assignment should be sustained so far, at least, as to give him security for the payment of his debt, out of the assets, in preference to other creditors. The assignment in trust is entire; and we have already seen that it must be regarded as fraudulent,'in its effects upon the rights of the complainant. This has tainted the whole transaction, and rendered it ineffectual to sustain rights attempted to be secured by it, to the assignee. It is not the case of an instrument good in part and bad in part; the fraudulent design attaches itself to the entire transaction, and he who participates in it, can take nothing under it. If the law was otherwise, the principle asserted, as to the right of one partner to make such a conveyance, would be ineffectual to secure the interests of the other partners. A creditor, or a pretended creditor, might always be chosen as the assignee, if that alone was sufficient to sustain the assignment, and if it was sustained for that purpose, and the trustee allowed, as is here claimed, to retain the property for the purpose of selling and applying the proceeds to the discharge of his claim, the whole evil of such a conveyance would be sanctioned.

The decree of the Chancellor was, in the opinion of this Court, correct, and it must be affirmed, setting aside the assignment and declaring it void, ordering a reference to a master to appoint a receiver, and that the trustee deliver over tbe property to the receiver, and account for whatever has come to his hands by virtue of said assignment. And for the purpose of carrying into effect this decree, the cause must be remanded to the Court of Chancery.