Williams v. Whedon

46 N.Y. Sup. Ct. 98

Opinions

Bradley, J.:

The trial court found that the assignment was in fact made in good faith and without any intent to defraud the creditors of the firm of George M. Whedon & Co. The only question here is whether the assignment was.invalid and fraudulent against such creditors by reason of want of power to make it. Our attention is called to no case heretofore determined in this State, distinctly pre-; senting and deciding that proposition.

In Nelson v. Tenney (36 Hun, 327) it was held that as against the personal representatives of a deceased partner, the survivor-could not, as such, without their consent, make an assignment of the partnership property in trust for the benefit of' its creditors.

And this was put upon the ground that as between the survivor and such representatives, a trust existed which in -equity imposed upon him the duties of that relation in respect to the disposition of the assets, and the»closing up the partnership affairs which he was not, as against them, permitted to delegate to or devolve upon another. This has the support of the reason applicable to a trust relation in all cases which involve -the exercise of personal care, judgment and discretion of the trustee in the performance of the duties and obligations created by it. By the death of his partner the defendant, as survivor for the purposes of the liquidation of the partnership, business, took the place and assumed the responsibilities of the firm, but he was so far subject to the supervision of the representatives of the decedent, that interposition in equity might be had in their behalf to prevent or defeat abuse by him of the trust, with a, view to the protection of the liability of the estate they represented by having a faithful application of the firm assets in payment of its debts, and for the preservation of the rights which might ultimately arise upon an accounting with him. They may, however, by their assent to the assignment by the survivor make it effectual as to them. (Hutchinson v. Smith, 7 Paige, 26.) And the personal representatives of the deceased partner may not desire or care to object to an assignment made without first having their consent. It cannot be assumed that they object to it until some action is taken by them for relief against it.

The question arises here whether the relation of the creditors is such as to enable them to raise the objection to the execution of the trust by the assignee. And this depends upon the question of power of the survivor. Tire primary liability for the payment of the partnership debts is his, and he is chargeable as effectually as if they were his individual debts, and for the purposes of the remedy at law of the creditors not distinguishable from them. (Nehrboss v. Bliss, 88 N. Y., 600; Shale v. Schantz, 35 Hun, 622.) And he has all the power which had been possessed by the firm to sell the property and pay the liabilities, and may pay some to the exclusion of others if it is not sufficient to discharge all, and in that manner accomplish such preferences as he may desire, leaving for others his liability only. The firm assets are not by reason of the death of a partner in any sense deemed the estate of a deceased person so as to permit the application of the statute prohibiting in such case preferences in distribution. And the suggestion of the chancellor to that effect in Hutchinson v. Smith (7 Paige, 35), is not supported. (Loeschigk v. Hatfield, 5 Robt., 26; S. C., sub nom. Loeschigk v. Addison, 4 Abb. [N. S.], 210; affirmed, 51 N. Y., 660.)

This power to dispose of property and give preferences in payment of partnership debts is also possessed by the respective partners during the continuance of the firm. (Mabbett v. White, 12 N. Y., 442; Graser v. Stellwagen, 25 id., 315; Van Brunt v. Applegate, 44 id., 544.) But one or more partners, without the consent of all the members of the firm, cannot make an effectual assignment of the partnership property in trust for the benefit of its creditors. And this inability rests upon the want of power. The relation of each member to the firm, for the purposes of its legitimate business, is that of agency. And the introduction of a trustee into the place cf the firm to take charge of the disposition of its property, and the payment of its debts is subversive of the business purposes of the partnership, and is not within the power ■ of any partner or number of partners less than the whole to aecomjplish. (Havens v. Hussey, 5 Paige, 30; Deming v. Colt, 3 Sandf., ; Coope v. Bowles, 42 Barb., 87; Welles v. March, 30 N. Y., 344.) But as this is wholly a question of authority, it is held that there may be circumstances under which the requisite consent may be implied in support of the assignment. (Sheldon v. Smith, 28 Barb., 593; Palmer v. Myers, 43 id., 509; Lowenstein v. Flauraud, 11 Hun, 399; Welles v. March, supra.) The fact of authority depends upon evidence, and will not be presumed as against a judgment creditor who may bring an action to set it aside as an unlawful disposition of the property having the effect to hinder and delay creditors, and therefore as against them fraudulent. (Hitchcock v. St. John, 1 Hoff. Chy. R., 511 ; Pettee v. Orser, 18 How., 442 ; S. C., 6 Bosw., 123; affirmed, sub nomine Potter v. Orser, 28 How., 581; Welles v. March, 30 N. Y., 344, 349.)

This remedy is not founded in any relation of trust or confidence as between the firm and its creditors, but wholly in the want of power of a partner to thus dispose of the firm property. And as between the survivor and the creditors of the firm there is no defined relation of trust. And when it is said that he holds the partnership property in trust for that class of creditors, it is understood that they have in equity a preference over his individual creditors in respect to it, and that he is not at liberty to withdraw it from application in behalf of such creditors, and the same rule applies to the property of any individual debtor in so far that it is his duty to appropriate it or its proceeds to the payment of his debts, and he is not permitted to place his property beyond their reach, but they have the right to insist that it shall be immediately and unconditionally devoted to the payment of his debts, and it is only on those terms that he is permitted to withdraw it from the ordinary process of the law. And to that extent and for such purpose his duty has the nature of a trust. This does not qualify his right to exhaust his property by preferential payment, and he may for that purpose create a trust and thus direct its execution. But the trust relation in fact which imposes the duty of payment of the partnership debts is between the survivor and the representatives of the deceased partner, and that is the trust referred to in the cases cited by the plaintiff’s counsel. (Case v. Abeel, 1 Paige, 393 ; Egberts v. Wood, 3 id., 517; Skidmore v. Collier, 8 Hun, 50; Hooley v. Gieve, 7 Abb. N. C., 271.) The case of Mills v. Argall (6 Paige, 577) has no application. It had relation to a limited partnership which in the respect in question was governed by the statute. (1 P. S., 767, § 21.) The relation of the partnership creditors to the partnership property or their right in respect to it, has been in no manner improved or changed by the death of the partner, and their relation to the survivor is not, nor is his to them, any different from that which existed before the death, between them and the firm in any important respect. The debts then became those of the survivor as they had before been the debts of the firm, with the ultimate right of the creditors on failure to collect of him to seek the estate of the decedent. The power to sell the property and right to make preferential payment of debts are complete in the survivor, and there is no relation between him and the creditors in the way of the right to devolve the power of disposition of the property and payment of the debts of the firm upon a trustee as effectually as the firm may have done it. He owes them no duty which requires his personal supervision and care in the business in their behalf and which he cannot delegate for execution to another. There seems no reason which permits the creditors to assert in their behalf the rights of the personal representatives of the deceased partner. The rights of the latter depend alone upon their wishes and action and are personal to them. It may be as necessary for a survivor, as a firm, to protect by assignment in trust the property from undesirable appropriation and sacrifice by litigation and legal process, and for the purpose of distribution amongst creditors. It is no less liable to such consequences in the hands of the survivor than if held by the firm. And no reason appeal’s to us why this power as against the creditors may not be effectually exercised by the survivor. It is not a question of power, strictly as such, which enables the representatives to defeat the operation of an assignment in trust of the survivor, but is rather a violation of duty which he owes to them by reason of his trust relation and has the nature of disability which they alone may assert.

The matter of preference has no importance as bearing upon their right. The personal representatives have no legal interest in that question. Their right rests wholly upon the personal duty of the survivor, and that he is disabled from voluntarily delegating it to a trustee; and there is no principle to support the objection of the creditors to preferential payments. If the plaintiffs can in this action succeed in setting aside the assignment they will be entitled to a judgment that their debt be first paid out of the property, and properly so, but this is not consistent with a trust in behalf of the creditors of the firm, which, if it existed, would require a pro rata distribution of the assets. There is no rule requiring this as before mentioned. We think there was not a want of power in the survivor to make the assignment.

In White v. Union Insurance Company (1 Nolt & McCord, 556; S. C., 9 Am. Dec., 726), the plaintiff, as assignee of the surviving partner of a firm, sought to recover of the defendant dividends due the firm, and the question was whether, first, the assignment was valid, and, second, the defendant could set off a note held by it against the assignor. The court held with the plaintiff on both questions and he recovered. That case only went to the question of power to make the assignment. Neither the rights of creditors or personal representatives were involved.

In Egberts v. Wood (3 Paige, 517), the question here was not necessarily considered; and later a non-committal expression of the ' chancellor in that case in respect to the right of one partner to assign the firm property in trust for creditors was converted into a contrary conclusion. (Havens v. Hussey, 5 Paige, 31.)

In Haynes v. Brooks (8 N. Y. Civ. Pro. R., 106) it was held that the plaintiffs could not raise the question because they were not partnership creditors. In Bancroft v. Snodgrass (1 Coldwell [Tenn.], 431) it was held that, as against a creditor of the firm, the assignment of a survivor in trust for creditors was fraudulent and void; and one of the reasons given was to the effect that he had no power to make it. The reasoning of the court there goes in support of the right of the representatives of the deceased partner to assert the want of such power. Beyond that we see no occasion to adopt its application.

These views lead to the conclusion that the assignment was valid. None of the exceptions are well taken.

The judgment should be affirmed.

Smith, P. J., and BaiíKeií, J., concurred.