Roe v. Hume — 55 N.Y. St. Rep. 336

Majority

p. 336

William H. Roe, Resp’t, v. Alexander W. Hume et al., App’lts.

(Supreme Court, General Term, First Department,

Filed October 13, 1893.)

Headnote

1. Assignment eor creditors—Firm: debts.

An assignment for the benefit of creditors made by defendant individually and as surviving partner directed payment pro rata from the firm property of an indebtedness alleged to be defendant’s individual obligation, before providing for payment in full of the firm debts. The obligation in question was scheduled as an individual one, but defendant testified that it was incurred for the firm’s benefit. Held, that the court was justified in finding that it was not a firm obligation, and in setting the assignment aside.

3. Same—Action to set aside—Judgment.

In an action against a surviving partner by a firm creditor, the fact that judgment was only entered against defendant as survivor, instead of individually and as survivor, does not prevent the execution lien from attaching both to the defendant’s individual property and the firm property, so as to maintain an action by the creditor to set aside, on the ground of fraud, an assignment for the benefit of creditors by defendant individually and as surviving partner.

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Appeal from judgment entered in a judgment creditor’s action, -setting aside a general assignment.

Merrill & Rogers (Payson Merrill, of counsel), for app’lt, Spear; Putney & Bishop (James L. Bishop, of counsel), for app’lt, Hume; Alex. Thain, for resp’t.

The general assignment for the benefit of creditors was made by Hume to Spear, and this action was brought to set it aside upon two grounds: (1) Fraud appearing on the face of the assignment itself; and (2) fraud appearing outside of the assignment, as matter of fact The assignment- recited that it was made by Hume individually, and as surviving partner in the late firm of A. W. & T. Hume. It first provided for the payment of certain preferred partnership debts, and thereafter directed, by the fourth paragraph, payment pro rata of the individual debts of A. W. Hume out of the firm property, without first providing for the payment of firm debts in full. This has been held, in the leading case of Wilson v. Robertson, 21 N. Y., 587 , which has been approved and followed in many subsequent cases, to be fatal to the validity of an assignment. Crook v. Rindskopf, 105 N. Y., 476 ; 8 St. Rep., 66 ; Booss v. Marion, 129 N. Y., 541 ; 42 St. Rep., 265 ; Haynes v. Brooks, 116 N. Y., 487 ; 27 St. Rep., 478 . It is insisted, however, by the appellants, that, even if the language of the assignment permitted an illegal appropriation of the firm property to the payment of individual debts, the impossibility of an advantage from the supposed fraud, appearing from the facts in this case, repels the idea of any fraudulent intent. Thus, it is urged that there are no individual debts which are not also firm obligations, and that, therefore, no prejudice can arise to the partnership creditors. In Booss v. Marion, supra, it is said: “ In case of such an assignment it has been held, Hurlbert v. Dean, * 41 N. Y., 97 , if it be shown and found as a fact that there are no individual debts thus provided for, the presumption of fraud may be repelled, and the assignment upheld. * * * And in Crook v. Rindskopf, supra, the assignment having provided first for the full payment of firm creditors, such creditors, it was held, were not aggrieved, for the intention could not have been to defraud them by providing for the payment of individual creditors thereafter, even though the individual partners owned unequal amounts of individual property, which might be affected by a provision to pay the debts with the surplus pro rata. It never has been held that in a case where partnership assets have been by the assignment devoted, in certain contingencies, to the payment of individual debts, while a portion of the partnership debts remained unpaid, the stamp of fraud which the law places upon such a transaction can be rebutted by any evidence that the parties did not intend to commit a fraud.”

In this case there is a finding that there are individual debts amounting to about $25,000, and this finding is sustained, not only by the testimony, but by the verified schedules made by the defendants. But the appellants insist that these were, in addition,

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obligations of the firm, and that, therefore, no injury resulted. We think, however that the refusal to find that' these were also firm, obligations was justified. It is true that it was testified to by the defendant Hume that this indebtedness of $25,000 fox money loaned to him individually, and which, for the most part, was secured by mortgages upon his individual property, was applied to the benefit of, and used by the firm. This, however, did not necessarily make it a firm obligation, because it might well have been that this was a contribution by the individual member of the firm to the firm’s capital, or a payment of an indebtedness of the individual to the firm. But, whether it was or not, it is clear that all of this money was not loaned by the creditors to the firm, or upon the credit of the firm, but was loaned to Hume individually ; and in view of the verified statement that these were individual debts, secured by mortgages on individual property, we think the judge below was right in his refusal to find that they were firm obligations. The appellants are not, therefore, in a_ position to avail themselves of the plea that there was no possibility of the firm creditors being injured by this provision in the assignment. Our conclusion upon this branch of the case renders it unnecessary to pass upon the question whether or not the failure to properly state the Feeter indebtedness, and the security therefor, or the additional indebtedness of $5,000 omitted from the schedules, and which would appear to be a debt of the son, which was assumed by the defendant Hume, rendered the assignment fraudulent as matter of fact

Appellants’ further contention that the plaintiff cannot maintain this action for the reason that no execution has been issued as required by law, and, therefore, that the creditor has not exhausted his remedy, is not, we think, tenable. It is true the execution recites a judgment recovered against A. W. Hume “as survivoi',’’ and directs the sheriff to satisfy the same out of the property of the judgment debtor. The use of the phrase “ as survivor ” in no way limited the remedy of. the judgment creditor against the partnership property and the individual property of Alexander W. Hume. A judgment entered against him as survivor, and an execution issued thereon, became alien immediately upon his individual property, and that which, by reason of the death of his partner, became his by virtue of his survivorship. That this is so becomes evident when we consider the obligation resting upon the surviving partner, and his right to the assets of the firm. Upon such death, not only did the survivor continue his personal liability for the debts of the firm, but he became the owner of the property belonging to the firm, and primarily liable for its debts. We do not think, therefore, that the judgment on execution was defective, in the former not halving been entered, or in the latter not having been issued against Hume individually, and as survivor; but we think that the form in which the judgment was entered, and the execution issued thereon, made it a lien upon his individual property and that which, by virtue of his survivorship, he obtained.

There is one provision, however, in the judgment which should

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be modified. It provides “ that any judgment creditor of the defendant * * * may come in and have the benefit of this decree upon application to the court, previous notice of such application being first given to the plaintiff’s attorney.” It should have provided that a notice should be given to Alexander W. Hume, as well as the plaintiff. The judgment appealed from should be modified accordingly, and, as so modified, affirmed, with costs.

Follett and Parker, JJ., concur.