Burhans v. Kelly — 17 N.Y. St. Rep. 552

Majority

p. 552

Henry Burhans, Resp’t, v. Hugh Kelly et al.. App’lts.

(Supreme Court, General Term, Third Department,

Filed July 8, 1888.)

Headnote

1. Evidence—Competency of—Declarations of assignor subsequent-to assignment not competent against assignee.

This plaintiff recovered a judgment against a partnership, one member of which subsequently, sold out to the other, the latter thereafter making-an assignment. After the return of execution unsatisfied, this action was-brought to set aside the assignment as fraudulent. It was claimed that, the firm was insolvent when the business was sold out, that the alleged sale was fraudulent and that the assignment preferred the individual debts, of the assignor to those held by partnership creditors. The examination, of the several partners in supplementary proceedings was received in evidence at the instance of plaintiff against objection, Held, that the assignee was the real party in interest, and that the statements made by the parties, through whom he derived his title, made subsequent to the assignment, were not competent against him.

2. Partnership—Creditors entitled to payment from assets of, before INDIVIDUAL CREDITORS.

Held, that the equity of partnership creditors to have partnership property applied to their debts is derived from a similar equity of the partners, and comes by subrogation, and that in case of the transfer of his interest, in such property by one partner to the other, it is lost, but not if such transfer is fraudulent.

Appeal from a judgment in favor of plaintiffs, entered in. St. Lawrence county clerk’s office, February 3,1887. Action-tried at St. Lawrence circuit May 2, 1886, before the court, without a jury.

John C. Keeler and H. D. Ellsworth, for app’lts; Samuel R. Stern and Thomas Spratt, for resp’t.

Braithwaite and Kelly were partners. December 1, 1884, Braithwaite sold out to Kelly. May 25, 1885, Kelly assigned to Chandler. Plaintiff recovered a. judgment against Braithwaite and Kelly June 23, 1885. After return of execution unsatisfied they brought this, action against Chandler, Braithwaite and Kelly to set aside-the assignment as fraudulent.

They claim that the firm was insolvent when Braithwaite sold out; that his alleged sale was fraudulent; that the as

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signment preferred individual debts of Kelly to the injury of part P creditors.

The court held the assignment fraudulent, and defendants. Kelly and Chandler appeal.

On the trial the plaintiff called as witnesses Kelly, Braithwaite and Chandler. The defendants called^ none. After examining Braithwaite. the plaintiff offered in evidence Braithwaite’s examination on proceedings supplementary to execution. To this, defendants Kelly and Chandler objected. The objections were overruled and defendant excepted. After examining Kelly, the plaintiff' offered in evidence Kelly’s examination in proceedings supplementary. To this defendants objected. The objections were overruled and defendants examined. Both examinations were read in evidence. They were taken in November, 1885.

No explanation is made by the plaintiffs in their points' as to the ground on which they consider these examinations admissible.

Chandler is the real party in interest here, as he holds the title to the property under the assignment which the plaintiffs allege to be fraudulent. We are at a loss to see-how statements made by his assignors six months after the assignment can be evidence against him. Flagler v, Wheeler, 40 Hun, 127 ; Clews v. Kehr, 90 N.Y., 634 ; Truax v. Slater, 86 N. Y., 632

It is true that, as against Kelly and Braithwaite respectively, their statements were evidence. Perhaps, therefore, they could not be altogether excluded ; but the admission of the evidence was in no way qualified, and Chandler-objected. Braithwaite, too, had not answered, so there was no issue with him.

We must then, so far as Chandler is concerned, take the testimony given on the trial, and exclude the examination under proceedings supplementary Looking at this testimony above, we think the conclusion of the learned justice was correct that, at the time of the sale by Braithwaite to> Kelly, the firm was insolvent, and each partner was insolvent, and that they knew, or at least were bound to have known, that they and the.firm were insolvent. Their condition did not come from some secret and unsuspected cause ; it was plain and open.

They may not have intended any fraud, as they say they did not, but their intention is not conclusive.

In the assignment to Chandler, Kelly preferred an individual debt, or, perhaps, more than one such debt. It is. on this that the question arises.

The equity of part P. creditors to have part P. property applied to their debts, is said to be derived from a similar

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equity of the partners, and to come by subrogation. Sander v. Reilly, 105 N. Y., 12 ; 6 N. Y. State Rep., 452; Fitzpatrick v. Flannagan, 106 U. S., 648 . It is on this ground that this equity has been held to be lost by a transfer from one partner of his interest in the part P. to another partner, because he has lost his equity. Stanton v. Westover. 101 N. Y., 265 . So it would seem to be lost by the death of a partner. Fitzpatrick v. Flannagan {ut supra), at 657 See the case of Locke v. Lewis, 124 Mass., 1 , on this general subject.

Of course, where the courts speak of a transfer by one partner to another, they mean a transfer valid, and not fraudulent. And whether any transfer is fraudulent or not, must depend on the facts of the particular case.

In Crone v. Rosa (23 W. Dig. 440), we held that it was not error for a court to refuse to charge that if a firm was insolvent when one partner bought out another, and so continued till the assignment by the continuing partner, the •assignment was fraudulent. The court had submitted to the jury the question, whether the object of the sale by one partner to the other was to put the property in his hands so that he might pay individual, and had charged that, if so, the transaction was fraudulent.

That case was unlike the present. Here the judge has found that the partnership was insolvent, and that each partner was insolvent. And it appears that by the terms of the assignment, Kelly was. to pay not only the part, P.’s debts, but also Braithwaite’s individual debts, and was besides to give him $1,000. We think that the judge correctly found on these and other facts, that the transfer was fraudulent. And in this view he properly held the assignment, preferring Kelly’s individual debt to be also fraudulent as to creditor of the part, P. In considering the question, we have excluded the examinations of defendants Braithwaite and Kelly as to any effect on defendant Chandler’s rights, as very possibly the learned justice did on the trial. And it seems to us that the findings are sustained. Judgment affirmed with costs.

Landon and Ingalls, JJ., concur.