Field v. Hunt — 24 How. Pr. 463

Majority

p. 463

SUPREME COURT.

Alfred Field and others agt. Isaac L. Hunt and others. John Askham and others agt. The Same.

Headnote

Each member of a copartnership has a right to dispose of his interest in the partnership property, in good faith, and for a valid consideration, unless some creditor has acquired a lien thereon. And the right of the creditor is subordinate to this power of the partner to dispose of the property until it is subjected to the creditor's lien.

Where one partner thus transfers his interest in the partnership assets to his copartner, the property so transferred cannot be reached by execution on a judgment recovered against the firm, where the latter has not been personally servedwith process.

The remedy at law has not been exhausted as against the partner not served with process, and of course a creditor's suit against the defendants cannot be maintained. (This affirms the decision S. C. at special term, 22 How., 329 .)

It is held in the first judicial district that it is not necessary to wait sixty days— the return day of an execution—before commencing equitable proceedings on a judgment at law, if the execution has actually been returned before the sixty days have expired. (There are adverse decisions in other districts.)

New York General Term,

February, 1863.

Ingraham, Leonard and Barnard, Justices.

Appeal by plaintiffs in each action from a judgment of the special term. The facts of this case will be found in full in the report of the case at special term. (22 How. Pr. R., 329.)

p. 464

George N. Titus, for plaintiffs.

Wm. Curtis Noyes and Chapman & Hitchcock, for defendant Chapman.

Each member of a copartnership may require the assets of the firm to be applied to the satisfaction of the partnership debts. Each member may also dispose of his interest in the partnership» property in good faith, and for a valid consideration, unless some creditor has acquired a lien thereon. The right of the creditor is subordinate to this power of the partner to make a bona fide disposition of "the property until it is subjected to the creditor’s lien. (3 Kent’s Com., 65, and note; Story’s Eq. J., 675, 1243, 1253; Story on Partnerships, If 373, 402; Gow on Partnerships, 275; Ex parte Rowlandson, 1 Rose R., 416, 419; Greenwood agt. Brodhead, 8 Barb. S. C., 593 ; Crippen agt. Hudson, 13 N. Y. R., 161; Sage agt. Chollar, 21 Barb. R., 596; Ketchum agt. Durkee, 1 Barb. Ch. R., 480; Kirby agt. Schoonmaker, 3 Barb. Ch. R., 46.)

In the present case Hunt transferred to Julia M. Chapman, all his interest in the partnership assets. ' There is no allegation that this transfer was fraudulent. No creditor had any lien to prevent it. Hunt has made no stipulation for the benefit of the creditors of the firm, requiring Julia to pay the partnership debts, and she came under no obligation to her partner Hunt to apply those assets to any particular purpose, or to indemnify him against the partnership liabilities. The creditors have no equities here to be worked out through the retiring partner. That partner reserved none for them or for himself. His disposition of the assets was absolute and complete, and Julia became vested with the entire and separate ownership thereof.

This property so transferred cannot be reached by execution on a judgment recovered against the firm composed of Hunt and Julia M. Chapman, where she has not

p. 465

been personally served with process. The property belongs to her individually, and the execution to be issued on such judgment must direct the sheriff not to levy on her separate property.

It is quite clear that in such a case the remedy at law has not been exhausted as against Julia, and that creditors having judgments recovered by the service of process on Hunt only, with executions thereon, cannot maintain an action to inquire into or set aside any transfer made by her of such partnership property or assets as were conveyed to her by her former partner, Hunt, in the manner above mentioned.

The order appealed from should be affirmed.

There can be no doubt that the judgment in this case would not be sufficient to warrant an execution against the defendant Chapman, who was not served, so as to reach her individual property.

Nor would it form the foundation of an action against her if she had been sued upon it; that.would only furnish the amount of recovery after her liability was established by other evidence. (Mervin agt. Kumbell, 23 Wend., 293 ; Oakley agt. Aspinwall, 4 Comst., 513.)

Nor would it be a cause of action upon which an attachment against the debtor not served could be issued. (Id.)

In the Commercial Bank, &c. agt. Meach, (7 Paige, 468,) the Chancellor held that, upon a joint judgment against several defendants, some of whom were -not served with process, all must be made defendants in a creditor’s bill, to enable those whose property was taken to satisfy the debt to claim contribution against their co-defendants; and in Howard agt. Sheldon, (11 Paige, 558,) he held that in an action on a judgment against joint debtors, where process was not served- on one defendant, but an execution issued against the joint property of all and the separate property of the one served, the creditor had not by

p. 466

such execution exhausted his remedy at law so as to entitle him to a creditor’s bill against the defendant who was served with process in the last suit.

In that case it was also held that the complainant had not exhausted his remedy at law for the recovery of his debt until execution had been issued against each of the defendants as to their individual property .as well as the joint property of the firm.

This rule, applied to the present case, shows that the order appealed from was correct. (See, also, Childs agt. Brace et al., 4 Paige, 309.)

There is no force in the objection that the execution was returned before sixty days had expired! All the judges in this district have held that it was not necessary. The Chancellor also so held in Platt agt. Cadwell, (9 Paige, 386.)

Note.—As there is considerable diversity of opinion in reference to this question, perhaps it may not be considered out of place, or improper, to-briefly review some of the decisions of the late court of chancery on this point. In this same case at special term, (22 How. Pr. R., 329,) W. F. Allen, J*., said: “Had the objection been urged that sixty days had not elapsed between the issuing of the executions upon the judgments at law and the commencement of these actions, I should have felt constrained to hold the objection well taken, following the decision at general term in the fifth district, and the construction given by the Chancellor to the statute regulating this equitable remedy.” ( Cassidy agt. Meacham, 3 Paige, 311; Strange agt. Longley, 3 Barb. Ch., 650 .)

In the case of Platt agt. Cadwell, (9 Paige, 386,) the Chancellor said: “ This court does not inquire into the regularity of the proceedings of courts of co-ordinate jurisdiction. And the return of the executions in this case, even if they were liable to be set aside for irregularity by the court out of which they issued, were not void. The complainant, therefore, after the return day was past, had a right to consider his remedy at law exhausted,'and to filehis bill here to reach the effects of the defendant, which could not be levied on by the sheriff. And if the filing of the executions, with the return indorsed thereon, before the expiration of sixty days, was irregular, the defendant must apply to the court of law to set aside the returns. (Williams agt. Hogeboom, 8 Paige, 469.) All that this court can do in such a case is to compel the complainant to wait until after the return day of the execution is past before he files his bill here. ( Cassidy agt. Meacham, 3 Paige, 311.) And" it will, when necessary, stay the proceedings here a sufficient length of time to give the defendant an opportunity to apply to the court of law for relief, where there is a probability that such relief will be granted.

To the same effect is the case of Williams agt. Hogeboom, supra, where the execution was made returnable on a day certain, which was only five days after its

p. 467

teste; the Chancellor says: cel am satisfied that a neglect to make an execution returnable at the end of sixty days, from the receipt thereof by the sheriff, renders it irregular merely; and that the execution is not void, so as to make the attorney issuing it, and the party in whose favor it is issued, trespassers, without the necessity of an application to the court to set aside the execution for the irregularity.33

In Cassidy agt. Meacham, supra, the Chancellor said: eePerhaps a return made by the sheriff on an execution before the return day, may be valid by relation, after the expiration of the time the execution has to run. Until the return day, however, it would bo the duty of the sheriff to seize and sell any property of the defendants which could be found within his bailiwick. The execution cannot> therefore, be considered as legally returned unsatisfied until after the return day. The creditor must, in his bill, set out the issuing of the execution, the time at which it was returnable, and the actual return of the sheriff thereon, in such a manner that the court can see that the remedy at law has been legally exhausted. The intention of the legislature was to adopt the principle settled by the court for the correction of errors in Hadden agt. Spader, (20 John. R.} 554,) and not to establish an arbitrary rule, by which the defendant might he harassed by a suit in chancery when he had sufficient property which could be reached at law during the life of the execution. In the case under consideration the court cannot legally know, or presume, previous to the return day of the execution, that the judgment will not be satisfied. Although the sheriff cannot now find property, the defendants may, before that time, satisfy the execution out of the equitable funds in their hands, which cannot be levied on by him.33—Rep.