Hyperlawhypertext legal database In re the Judicial Settlement of the Estate of Gray 19 N.Y. St. Rep. 147

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In re the Judicial Settlement of the Estate of Gray

19 N.Y. St. Rep. 147 Court N.Y. Decision date 1888-11-27 English

Delivered by Andrews, J.

Contents

Majority

p. 147
In the Matter of the Judicial Settlement of the Estate of Charles D. Gray, Deceased.[1]
(Court of Appeals,
Filed November 27, 1888.)

Headnote

1. Distribution op insolvent estate—Rules—Court op equity.
The rules governing courts of equity in distributing the separate estate of an insolvent, as between his separate creditors and the creditors of the copartnership of which he was a member, is that the separate creditors-are entitled to be first paid.
2. Same—When creditor entitled to share in individual assets.
Gray & Lockwood in their individual names and not in the name of the firm which they composed, executed together with Mrs. Lockwood their joint and several promissory notes for $2,000, payable
p. 148
to one P., in consideration of a loan for that amount, made by the payee to Gray & Lockwood at that date. Mrs. Lockwood signed the note at the request of the other makers for their accommodation. She was subsequently compelled to pay the note. The money was procured for the use of the firm of Gray & Lockwood and was used in the firm business, which fact was known to all the parties. Gray died and the surviving partner was insolvent. Held, that the debt of Mrs. Lockwood for the money paid in discharge of her obligation on the note was provable against Gray’s individual estate and entitled her to share pro rata with the other separate creditors of the decedent in the distribution of his estate.
Appeal from a judgment of the supreme court, general derm, second department, affirming a decree of the surrogate’s court of Orange county entered on a final settlement of the estate of Charles B. Gray, deceased.
The facts not found in the opinion will be found in 6 N. Y. St. Rep., 97 , where the .general term opinion is reported.
Lewis E. Carr, for app’lt; C. E. Cuddeback, for resp’t.

It is conceded that the right of Mrs. Lockwood to share in the distribution of the assets of the estate of Charles B. Gray, in the hands of his administrator, is governed by the rules by which courts of equity are guided in distributing the separate estate of an insolvent, as between his separate creditors and the creditor of a copartnership of which he was a member.

The general rule in such cases is that the separate creditors are entitled to be first paid, on the ground that their debts were contracted on the credit of the separate estate, while partnership debts are contracted primarily on the credit of the joint estate. But as a partnership debt is regarded in equity as both joint and several, there is an apparent inconsistency in excluding in equity the right of the partnership creditor to share with the separate creditor, where as in this case there is no joint estate and the surviving partner is insolvent. But the doctrine stated is the settled law of this state, and is not open to question. The main debt of Mrs. Lockwod never in form at least was the copartnership debt of Gray & Lockwood.

In February, 1875, Gray & Lockwood in their individual names, and not in the name of the firm, executed together with Mrs. Lockwood their joint and several promissory note for $2,000, payable to one Farnum, in consideration of a loan for that amount made by the payee to Gray & Lockwood at that date. Mrs. Lockwood signed the note at the request of the other makers for their accommodation, and as between themselves she was a surety merely.

She was subsequently compelled to pay the note, which is the foundation of her principal claim against the estate. It is found that the money was procured for the use of the firm of Gray & Lockwood, and was used in the firm business, and that this was known to all the parties. Upon these facts is it a conclusion of law that the debt represented Iby the note was a firm debt, or that the claim of Mrs. Lock

p. 149
wood is to be ranked on the distribution of the separate estate of the decedent as a firm debt, and excluded from participation until the concededly separate debts are paid. We are of opinion that no rule of marshaling assets requires such a determination. The payee of the note had a right to prescribe the security which he would accept for the loan. He chose to take the joint and several individual note of the parties, with the name of Mrs. Lockwood added. By the contract it was made the several debt of each of the makers, and we perceive no ground in abstract justice why Farnum, or his successor in interest, cannot have the benefit of the security according to its terms, and the right to prove the debt against the separate estate of the decedent, and share equally with the other separate creditors in the distribution. The fact that he knew that the money was borrowed for the use of the firm, makes, we think, no difference.

If he had required separate security by mortgage, or otherwise, on the individual property of one of the firm, there could be no doubt that it would be valid against the separate creditors of the individual partner, notwithstanding he knew for what purpose the money was borrowed. See Meech v. Allen, 17 N. Y., 300 .

It is plain that Mrs. Lockwood has the same equity that Farnum would have had if he still owned the note and presented it as a claim against the estate of Gray. He did not lend the money on the credit of the firm, or on the firm obligation, but on the joint and several promise of the individuals who composed it, and of Mrs. Lockwood. We need not consider whether he could have proved it in bankruptcy as a firm debt on showing the circumstances.

This has not been done, and there can be no question of election as between the joint and separate estate, as there is no joint estate.

We think the authorities sustain the view above stated, and show that the debt of Mrs. Lockwood for the money paid in discharge of her obligation on the note was provable and entitled her to share pro rata with the other separate creditors of the decedent in the distribution. Wilder v. Keeler, 3 Pai., 167 ; Morris v. Morris, 4 Grat, 293; Ex parte Rowlandson, 3 P. Wms., 405; Ex parte Bond, 1 Atk., 98, Ex parte Honey, L. R., 7 Ch. Ap., 178; 2 Lindley on Part., 1095, 1232, 1245, note.

The conclusion we have reached on the main question makes it unnecessary to consider the other questions. It follows that the judgment should be affirmed and judgment absolute rendered for the respondent on the stipulation.

All concur.