State ex rel. Richardson v. Withrow

41 S.W. 980, 141 Mo. 69, 1897 Mo. LEXIS 280

• Court: Supreme Court of Missouri
• Decided: July 17, 1897
• Status: Published

Opinion

G-oode, Special Judge.

— Jurisdiction of general assignments for the benefit of creditors is vested by the statutes of this State in the circuit courts, which are expressly charged with the supervision and control of assignees in the execution of their trusts. If the deed of Murdock as surviving partner of the firm of Murdock & Dickson to Priest effected an assignment of the partnership estate, the duty of the respondents as judges of the circuit court of St. Louis to assume and continue to exercise jurisdiction by all proper orders and judgments until the final settlement of the assignee is unquestionable.

The power of a surviving member of a partnership to assign the firm property for the benefit of its creditors in the absence of an inhibitory statute, has been generally upheld. Shanks v. Klein, 104 U. S. 18; Emerson v. Senter, 118 U. S. 3; Williams v. Whedon, 109 N. Y. 333; Riley v. Carter, 25 Atl. Rep. (Md.) 667; Atchison v. Jones, 1 S. W. Rep. (Ky.) 406; Patton v. Leftwich, 86 Va. 421; Hanson v. Metcalf, 46 Minn. 25; Hill v. Draper, 54 Ark. 395; Burnside v. Merrick, 4 Metc. 537; Moody v. Downs, 63 N. H. 50; White v. Union Ins. Co., 1 Nott. & McC. 556; 9 Am. Dec. 726; Gratz v. Bayard, 11 S. & R. 41.

Sometimes, but not usually, the ruléis qualified by requiring the consent of the administrator of the deceased partner to render the assignment valid. Nelson v. Tenney, 36 Hun. 327; Barcroft v. Snodgrass, 1 Cold. 431. In Salisbury v. Ellison, 7 Colo. 167, 2 Pac. Rep. 906, it was denied that the survivor can make an assignment with preferences unless the estate is solvent, on the ground that he is a trustee for all the creditors and can not sacrifice the interests of some by showing favoritism to others. The opinion declares that in the cases allowing assignments, with one exception, the question of insolvency and preference was not mooted.

But the weight of authority favors the plenary right of the survivor in all respects. Subject to the fundamental requirement that the assets shall be primarily devoted to the discharge of partnership obligations, he is recognized as having the same authority in disposing of them by sale, mortgage, pledge or assignment, the same right to prefer or secure creditors in the various modes permitted by the law, that the partners enjoyed jointly while both were living. Bohler v. Tappan, 1 Fed. Rep. 469; Wilson v. Soper, 13 B. Mon, 411; Barry v. Briggs, 22 Mich. 201; Stearnes v. Houghton, 38 Vt. 583; Roys v. Vilas, 18 Wis. 169; Milner v. Cooper, 65 Iowa, 190; Herd v. Delp, 1 Heisk, 530; Fulton v. Thompson, 18 Tex. 278; Allen v. Hill, 16 Cal. 113; Hogg v. Ashe, 1 Hayw. (N. C.) 472; Knott v. Stephens, 3 Or. 269. The theory underlying the rule is that full power of disposition is a necessary incident to the survivor’s ownership of the property, the title of which in legal contemplation is in him for winding up purposes. Bates on Partnership, sec. 731. Courts have sometimes gone to the length of holding him the owner in so absolute a sense that when sued individually he may set off a debt due him as surviving partner (Smith v. Barrow, 2 T. R. 476; Adams v. Hackett, 7 Foster (27 N. H.), 289; Quillen v. Arnold, 12 Nev. 234; Nehrboss v. Bliss, 88 N. Y. 600), or if sued on a firm liability may set off an individual demand. Stafford v. Gold, 9 Pick. 533. This extreme view of his ownership and title does not obtain in this State. Weil v. Jones, 70 Mo. 560.

II. But it is contended that as Murdock had given bond as surviving partner, and had been acting under the orders of the probate court for two years or more before the deed to Priest was executed, the jurisdiction of that court over the partnership estate was in full force at the date of said deed; that it could not be disturbed or ousted by any act of Murdock, and that hence the deed passed no estate to Priest and created no assignment of which the circuit court could assume jurisdiction. This argument is unsound. It appeals to the court to declare the deed void by reason of facts dehors the instrument in a proceeding to which neither Priest nor the beneficiaries are parties. Before so fatal a step could be taken all parties in interest should be afforded an opportunity to be heard and to prove that the facts alleged to invalidate the assignment under which they claim, in reality do not exist. To restrain the court on this theory from proceeding further and hold the deed a nullity would be to find facts which conclude absolutely the rights of the parties to it without allowing them a day in court or chance to defend.

For kindred reasons the circuit court can not be prohibited from proceeding with the assignment on that ground. The remedy by prohibition lies when the matter or cause in which the court is acting does not fall within. the classes of which the law gives it jurisdiction, or when it acts in excess of its jurisdiction. Thomas v. Mead, 36 Mo. 232; Howard v. Pierce, 38 Mo. 296; Washburn v. Phillips, 2 Metc. 296.

The deed to Priest, if void or voidable only because Murdock had previously given bond and undertaken a settlement of the partnership affairs in the probate court, would present a prima facie valid assignment for the benefit of creditors of which the circuit court would be bound to take cognizance and constitute Priest prima facie an assignee whom it would be bound to control until the circumstances which avoided the instrument were made to appear by some form of pleading and proof. A court is not charged with the duty of inquiring whether there are facts aliunde which make an assignment void before taking jurisdiction of it. Its chart in the matter of jurisdiction is the law — the statutes of the State. If it finds conferred on it therein the right to hear and determine a case or proceeding of the kind presented, its duty, until more appears, is clear. It must entertain the matter. So courts of last resort, in ascertaining whether inferior tribunals are transgressing their jurisdiction, look to the law to see what class of proceedings fall within the cognizance of the court below, and whether the one in question is of the prescribed class.

Objections to jurisdiction which depend on matters in pais can not be considered on an application for this writ. Joseph v. Henry, 1 L. M. 388; 19 L. T. Q. B. 369; Brown v. Cocking, 9 B. & S. 503. They must be raised in the lower court, saved by exception and carried up by appeal.. All this was clearly elucidated in State ex rel. v. Withrow, 108 Mo. 1.

III. But if the surviving partner is without power to make an assignment of partnership effects, the case is altogether different. ' The deed to Priest shows on its face that Murdock executed it as the surviving member of his firm. If the statutes denied him the right to so disposé of the firm’s estate, then the instrument was void from its inception, not on account of matters in pais peculiar to it, but because every attempt of the kind, whatever the surrounding circumstances, violates the policy of the law. Of course these remarks are to be understood as applying to the deed only in so far as it undertook to transfer partnership property. This brings us to consider the question whether the legislation in this State respecting the settlement of partnership estates at the death of a member abrogates the survivor’s common law right to assign the assets for the benefit of creditors. I can not escape the conviction that it does. The authorities on the subject are not altogether harmonious. In Indiana, under a statute which provides that if the surviving partner does not give bond, the probate court may appoint a receiver of the estate, it was held that the survivor might still mortgage or assign the property. Havens & Geddes Co. v. Harris, 39 N. E. 49. The statute construed was not compulsory. The Supreme Court of Kansas, interpreting legislation in all respects similiar to ours, denied absolutely the right of assignment. Shattuck v. Chandler, 40 Kan. 516. The decisions in Maine under identical statutes, are inconsistent with the right, it being held that a sale by the survivor before he gives bond is void. Cook v. Lewis, 36 Me. 340; Putnam v. Parker, 55 Me. 235; Hill v. Treat, 67 Me. 501. The question is one of first impression in this State. Both the letter and the spirit of the statutes appear plainly to require that when a partnership is dissolved by the death of a member, its affairs shall be wound up under the auspices of the probate court. Ample provisions are found to secure and facilitate this purpose. Priority of right in administering remains with the survivor. But if he fails to act by giving bond within the time limited —that is, within thirty days after letters are granted on the estate of the deceased, the administrator of that estate is commanded to give bond, and on doing so he becomes entitled to all the partnership property, books and papers. The statutes provide for the allowance of demands by the court which the survivor rejects, for the classification of demands, for citing the survivor, for the refusal by the court to allow him credit for unjust payments, and for general conformity in the administration to the course pursued with individual estates. To say that all this means no more than that the probate court shall have jurisdiction, and that the estate shall be settled under its direction, provided the surviving member does not choose to make a general assignment that would render any proceeding in that court useless, would in my opinion entirely defeat the purpose of the law which intends to secure to the heirs, devisees and creditors of the deceased the guardianship and protection of the probate court in the settlement of his partnership as well as his private estate. Pormer decisions of this court have recognized the common law right of the surviving member to pay off demands without their allowance, to prefer creditors, add sell the property without an order. Bredow v. Mutual Savings Institution, 28 Mo. 181; Crow v. Weidner, 36 Mo. 412; Denny v. Turner, 2 Mo. App. 52; Easton v. Courtwright, 84 Mo. 27; Hargadine v. Gibbons, 114 Mo. 561. Perhaps all the powers which the survivor enjoyed at common law, except to assign, at least all that are recognized as still belonging to him in the foregoing cases, may be exercised consistently with our administration law. The essential duty laid on the survivor, where there is no statute on the subject, is that he apply the assets to the payment of the firm debts. Our statutes require in addition that he furnish bond for the faithful performance of his trust. If he complies by giving bond and honestly using the property in his hands to discharge the partnership obligations, it may be that he can still prefer creditors, pay some before others, secure some by mortgage or otherwise, sell the property without an order from the court, and use the proceeds to pay just demands according to his preference and pleasure. All these things might be done consistently with the winding up of the estate in the probate court, for he could make report of them in his settlements, and be allowed credit for the proceeds disbursed in payment of valid claims whether distributed pro rata or by preference. The requirement of the law that the estate be settled in that court would not thereby be evaded, nor its jurisdiction ousted, though the doctrine in Maine by which he is refused power to act until he gives bond, and is placed from the outset under the direction of the courts of probate, more perfectly accomplishes the intention of the statutes. But if the surviving partner executes a general assignment of the partnership property, an entirely different situation arises. He puts it out of his power to wind up the estate in probate in any mode, and likewise puts it out of the power of the administrator of the deceased member to perform the duty imposed on him by the law of taking charge of the property and making settlement when the survivor does not. He devolves on a stranger the trust which the law devolves on him or, in case of his default, on the administrator of the deceased member’s estate. For he is a trustee and is expressly recognized as such in the cases above cited from this court. Bredow v. Mutual Savings Institution, 28 Mo. 181. “The right of the survivors to take the estate and pay the debts has ever been construed as a trust.” Hargadine v. Gibbons, 114 Mo. 561, loc. cit. 566. By assigning, he shifts the duty of allowing demands, the ownership of the property, payment, distribution, giving bond, in short, the entire responsibility to an assignee who will not and can not recognize the probate court; he shifts jurisdiction of the estate, the allowance of demands, the approval of bonds, the passing of his accounts, the protection of the interests of ■creditors and heirs to another forum. A general assignment has the peculiar effect of rendering an administration in a court of probate impossible, which is not done even when the survivor proceeds to settle without bond; for then he is liable to be ousted at any time by the representative of the deceased.

If a surviving partner may assign, then, whether partnership affairs shall be settled in the statutory forum, depends on the will.of the survivor instead of the law. This result was illustrated in tlie Indiana case, supra. The language of the Supreme Court of Kansas in Shattuck v. Chandler, 40 Kan., supra, is appropriate on this point: “We think the legislature intended by this provision to provide a trustee to close up the partnership upon the death of a member of the firm, and that the statute creates a trust in the surviving partner which he has no power to transfer to another, except as it is transferred by his refusal to administer upon the partnership estate, in'which event it is transferred by operation of law to the administrator of the deceased partner’s estate. It was said in Carr v. Catlin, 13 Kan. 395, in speaking of this class of administrators: “He is neither more nor less than a special trustee as to this property and this class of debts. The rule is that where a form of procedure is provided by statute, and the manner of doing a particular act or thing is pointed out, it precludes the doing of it in any other manner or form. If the surviving partner under our statutes may transfer his trust to an assignee, then the assignee would close up the entire partnership business in the court having jurisdiction of the assignment and estate thereunder, and would be entirely free from the jurisdiction of the probate court, and the statute above cited would be without any force or effect. Did the legislature intend that this statute might be regarded or not, at the pleasure of the surviving partner! We think not. This means of winding up a partnership business has been prescribed by the legislature, and in the absence of any proof of the statutes of Illinois to the contrary, we must presume that this is the manner of closing up partnership estates in that State. We therefore think the court erred in permitting the second assignment t-o be given in evidence, as it gave the plaintiff no authority or right to commence the action.”

The same argument received convincing support from the Supreme Court of Maine in treating statutes even verbally like ours: “It is thus evident that the object and intent of the statute was, that ample security should be given for the protection of all interested as a preliminary to granting administration on the partnership estate, whether its affairs were to be closed by one of its surviving members or by the administrator on the estate of the deceased partner. The necessity of applying to a court of equity is obviated by giving the judge of probate the same powers in the case of a partnership administration as in any other'case of administration. It places the property under the control of an administrator, who has given security for the faithful performance of his duties, and who may be removed upon proof of misconduct. It thus most effectually protects the rights of the creditors and the representatives of the deceased partner, which before were in peril from the fraud or negligence of the survivor, and affords a jurisdiction where all controversies may be summarily determined and speedily enforced. It substitutes an administration with security for its due performance for one without. It requires not merely that the estates of the deceased partner but of the firm of which he was a member should be settled through the probate office and under the supervision of the judge of probate.” Cook v. Lewis, 36 Me. 340.

These views commend themselves as sound and tending to prevent confusion in the law governing the settlement of firm affairs. That partnership estates must be administered in the probate court when the relation has been dissolved by death, has been determined by explicit decisions in this State. James et al. v. Dixon, 21 Mo. 538; Ensworth v. Curd, 68 Mo. 282. So, if the clear letter of the statutes could be strengthened by construction, it has been done.

If the foregoing views are correct, then Murdock’s deed to Priest, in so far as it attempted to convey the partnership property, was void from the first and on its face. It created no assignment of which the circuit court could take jurisdiction and left the estate in the probate court with the jurisdiction of that tribunal unimpaired. It results that all the proceedings of the circuit court with reference to the partnership property which Priest assumed to take under the pretended assignment were outside of its jurisdiction, and that the writ prayed for to prohibit it from proceeding further ought to be granted. It is accordingly so ordered.

Per Curiam. — The foregoing opinion of R. L. G-oode, Special Judge, is adopted as the opinion of t-he Court in lane,

Macearlane, Sherwood and Robinson, JJ., concurring therein. GIantt and Burgess, JJ., concur in the first and second paragraphs but dissent from, the third and the result reached. Brace, J., concurs in the first paragraph, expresses no opinion on the second, and dissents from the third and the result. Barclay, C. J., did not take part in the decision of the case.