Burpee v. Bunn

Eoskett, Craig & Crandall were carrying on business as partners in Placer County, when Burpee, a creditor, having an individual debt against Crandall, commenced an action thereon and attached the partnership property. After the attachment, and before judgment, Crandall conveyed the property to Bunn, as trustee for his wife, and Burpee and Bunn enter into an agreement by which Bunn agrees, in consideration of a stay of execution, to pay the judgment out of the first moneys coming into his hands as trustee not covered by “ expenses and prior claims.” Burpee recovered judgment for eight hundred and thirty-seven dollars and sixty-five cents against Crandall. Eoskett and Craig afterwards purchased the property of Bunn, and paid him $1,000 therefor. McWilliams, a creditor of the partnership firm of Eoskett, Craig & Crandall, then sued the members of that firm, and attached these funds in the hands of the trustee, by serving a copy of the attachment, with notice of garnishment. Burpee then commenced this action against Bunn on the agreement. Bunn set up the foregoing facts, and paid the money into Court, after deducting two hundred and forty-nine dollars and seventy-five cents as his expenses. McWilliams and Mrs. Crandall were made defendants by order of Court, and they appeared and answered,' each claiming the money paid into Court. McWilliams recovered judgment for $1,082 83 in his attachment suit. The cause was tried by the Court, and a judgment rendered that the seven hundred and fifty dollars and twenty-five cents paid into Court by the trustee be paid to Mrs. Crandall, and that she recover her costs against McWilliams and the other parties. McWilliams moved for a new trial, which was overruled, and Burpee and McWilliams appeal from the judgment and the order overruling the motion for a new trial to this Court.

In this case there are three parties who claim the fund paid into Court, and the question to be determined is, which one of the three is entitled to it ? Eirst—Burpee claims it under the agreement made between him and Bunn, the trustee. Second—McWilliams claims it because the fund is the proceeds of the sale of partnership property, and his debt being a partnership debt, he has a prior right thereto. Third—Mrs. Crandall claims it as her property under the trust deed.

First, as to the claim of Mrs. Crandall. It is clear that she is not entitled to the property described in the trust deed, or its proceeds, as against the claims of either Burpee or McWilliams, the former being a creditor of Crandall individually, and the other a creditor of the partnership firm of Foskett, Craig & Crandall. Sec. 20 of the Act concerning Fraudulent Conveyances (Wood’s Digest, 107) provides, that “ every conveyance or assignment, in writing or otherwise, of any estate or interest in lands, or in goods in action, or of any rents or profits issuing therefrom, and every charge upon lands, goods or things in action, or upon the rents and profits thereof, made with the intent to hinder, delay, or defraud creditors or other persons, of their lawful suits, damages, forfeitures, debts, or demands, and every bond or other evidence of debt given, suits commenced, decree or judgment suffered, with the like intent, as against the persons hindered, delayed, or defrauded, shall be void.” The deed of trust in this case, made for the use and benefit-of the wife of the debtor, at a time when he was insolvent and his property under attachment, is clearly in violation of this statute, and fraudulent and void as to his creditors. (1 Story’s Equity, Secs. 355, 357, 359.) The Court therefore erred in decreeing the fund to Mrs. Crandall.

The next question is, which of the two claimants, Burpee or McWilliams, has the better right to the fund. The former claims it under his agreement with Bunn, but it is very doubtful whether he has any right, under that agreement, to follow and reach the particular fund, or has any lien upon the money arising from the proceeds of the property named in the trust deed, and is not confined to his personal action against Bunn for breach of agreement. But we do not deem it necessary to determine this point, for the agreement itself subjects Burpee’s claim upon the proceeds of the trust property to expenses and “ prior claimsand if McWilliams has a better right to these proceeds, it may well be questioned whether Burpee has any right thereto until the claim of McWilliams is satisfied. At all events, Burpee cannot set up the agreement between himself and Bunn as a defense to any claim of McWilliams, who was not a party and seems never to have consented thereto. The question then narrows itself down to this: Has McWilliams a

better legal or equitable right to the proceeds of the sale of this partnership property, he holding a partnership debt, than Burpee, who holds but a separate, individual debt against Crandall ? We think he has, and that the District Court erred in not rendering judgment in his favor. In Chase v. Steel ( 9 Cal. 64 ) it was held, that partnership debts must be first paid from the partnership property before any portion of it can be applied to the payment of the individual debts of the partnership. In Conroy v. Woods ( 13 Cal. 626 ) the same principle was decided, and it fully determines the question now before us. In that case the Court say that the mere fact of the separate creditor’s “ getting his separate judgment, issuing execution and making a levy, gave him no title to this (partnership) property, as against the superior equity of these firm creditors.” So in this case, the mere fact that Burpee, a separate creditor of one of the partners, had levied his attachment on the partnership property, and had made an agreement with the trustee to receive the proceeds of its sale, gave him no title to the partnership property or the proceeds of its sale as against the superior equity of McWilliams, a creditor of the partnership. These principles have also been reaffirmed in Dupuy v. Leavenworth ( 17 Cal. 262 ).

Judgment reversed and cause remanded, with directions to enter a judgment in accordance with this opinion.

In the petition for a rehearing filed in this case, it is urged that the conveyance from Crandall to Bunn, as trustee for his wife, was only of the interest of Crandall as a member of the firm of Crandall, Foskett & Craig, and that it only operated as a transfer of the interest he might have left after the payment of the debts of the firm, and a full settlement between the partners. We view it as a conveyance of his undivided share of the partnership property, and that, as to partnership creditors, it still continued partnership property in the hands of Bunn, liable to the partnership debts. It could not be changed from partnership to individual property, so as to affect the rights of partnership creditors in any such way. The

purchase money paid to Bunn for this partnership property, whether paid with partnership means or not, stands in the place of the property'as the proceeds thereof, and as a fund derived therefrom, and liable to the partnership debts the same as the property for which it was paid.

The rehearing is therefore denied.