Saunders v. Reilly

the next day they issued and placed in the hands of the sheriff an execution on that judgment. Later on the same day Jane Irwin issued an execution to the sheriff on a judgment recovered by her for upwards of $7,000 against the firm of Looker, Arnold & Co. Lhe sheriff under these executions levied on the personal property of Looker & Irwin and advertised the same for sale. Lhe plaintiffs then having a further claim for goods sold to the firm of Looker & Irwin, which was not then in judgment, gave notice to the sheriff on January 23d, that as creditors of the firm of Looker & Irwin they claimed the application of the firm property to the payment of the firm debts, and they forbade any sale of the assets of the firm under the execution issued by Jane Irwin on her judgment against Looker, Arnold & Oo. On February 7th, the sheriff, after selling enough of the firm property to satisfy the executions then in his hands against the firm of Looker & Irwin, proceeded to sell the balance of the property on the execution in his hands in favor of Jane Irwin. In making that part of the sale he announced that he sold the right, title and interest of Looker & Irwin, or either of them, in the property. _ On the 17th day of February, 1879, the plaintiffs recovered judgment against the firm of Looker & Irwin on their second claim against that firm, which was duly docketed and execution thereon issued on the same day to the sheriff. At the same time their attorney wrote to the sheriff that they required him under that execution to levy on any of the assets of the firm of Looker - & Irwin, of which he had only sold the interest of William L. Looker individually, and Lhomas J. Irwin individually, under the execution issued by Jane Irwin, and that if he had sold under the execution issued to him by Jane Irwin any of the assets of the firm, notwithstanding the notice which the plaintiffs had given him, then they required him to apply the proceeds of such sale to their exécution. Lhat execution he returned unsatisfied, and that is the return which the plaintiffs complain of as false.

Lhe property sold on the execution issued by Jane Irwin, or some of it, was still accessible to the defendant, and ample to satisfy the plaintiffs’ last execution, if the de-, fendant had the right, and was bound to seize it, notwith-' standing the prior sale.

Lhe claim of the plaintiffs, which has been sustained by the court below, is that the sale upon the execution issued upon the judgment of Jane Irwin simply operated as a sale of the separate interests of Looker & Irwin in the firm property, and not as a sale of the corpus of the firm property; and thus no greater effect was given to the sale than if it had

been made by virtue of two executions upon judgments separately recovered against Tooker and against Irwin.

The decision below was based upon the authority of Menagh v. Whitwell ( 52 N. Y., 147 ). But we are of opinion that that case cannot be properly invoked as an authority for the decision made below, and that the principle there decided was misapplied by the learned court.

A mere general creditor of a firm, having no execution or attachment, has no lien whatever upon the personal assets of the firm. But when a firm becomes insolvent, and thus it becomes necessary to administer its affairs in insolvency, or in a court of equity, then the rule is well settled that firm property must be devoted to firm debts, and individual property to the payment of the individual debts of the members of the firm. If one member of a firm conveys to a person, not a member of the firm, all his interest in the firm property, the purchaser takes no part in the corpus of the firm property, but only such interest as remains after the equities between the partners have been adjusted, and the firm debts have been paid and satisfied. So, too, it was decided by the case above cited that if all the members of a firm should severally convey to different persons each his interest in the firm property, the persons so purchasing would not take any of the corpus of the firm property, but only the interest of each partner, after the firm debts were paid, and the equities between the partners adjusted. It is also settled that it would be a fraud upon firm creditors for a member of a firm to take firm property and apply it upon the individual debts of any member of the firm. Ransom v. Van Deventer, 41 Barb., 307 ; Wilson v. Robertson, 21 N. Y., 587 . But one of two partners may transfer all of his interest in the partnership property to his co-partner, and the purchasing partner wifi be vested with the absolute title to the corpus of all the partnership property as if it had always belonged to him. Stanton v. Westover, 101 N. Y., 265 .

And all the members of a firm may sell the partnership property, even if wholly insolvent, to a purchaser in good faith, and thus convey free from the claim of firm creditors a good title to the firm property. Instead of selling for cash, they may transfer firm property to pay a firm debt. And they may transfer the firm property to pay a joint debt for which they are jointly liable outside of the business of the firm, and the joint creditor will obtain a good title to the firm property. Therefore, while firm property will not pass under successive sales upon executions issued against the individual partners, we can see no reason to doubt that such property will pass under a sale upon a joint

execution against all the partners, issued upon a judgment recovered for any joint debt whatever.

Upon the facts of this case, it is entirely clear that Tooker & Irwin could have taken their firm property and applied it upon this joint judgment against them, and inasmuch as they had the power and right to do that, they could have turned it out to the sheriff when he came with the joint execution against them; and, as they could have turned it out upon the debt before judgment, or upon the execution, after judgment, there can be no reason to doubt that the sheriff could take and sell it upon the execution free from the claim of their firm creditors. After this sale of the firm property upon a joint judgment against both members of the firm, no equity was "left in either member of the firm to have the property thereafter applied in discharge of the firm debts. Having been applied in discharge of the joint debt against both members of the firm, all the equities of both members in the property as against each other was wiped out, and it is only through the equity which one member of a firm has in the firm property as against his co-partners, that firm creditors, on the principle of subrogation, can enforce their •claim against the firm property. And so, in effect, it was held in the cases of Menagh v. Whitwell, and Stanton v. Westover (supra).

In 3 Kent Com. 65, it is said that “creditors have no lien upon the partnership effects for their debts. Their equity is the equity of the partners operating to the payment of the partnership debts.” In Kirby v. Schoonmaker ( 3 Barb. Ch., 46 ), it was said by the chancellor: “The co-partners, however, have certain equitable rights between themselves arising out of the co-partnership by which either can compel the other to have all the effects of the firm applied in the first place to the payment of the debts du'e from them as co-partners. And this, as is said in the books, gives the joint creditors a quasi equitable lien upon the property of the firm, to be worked out through the medium of the equity of the co-partners as between themselves, and with their assent, or at least with the assent of one of them.” In Case v. Beauregard ( 99 U. S., 119 ), Mr. Justice Strong said: “No doubt the effects of a partnership belong to it so long as it continues in existence and not to the individuals who compose it. The right of each partner extends only to a share of what may remain after payment of the debts of the firm and the settlement of its accounts. Growing out of this right, or rather included in it, is the right to have the partnership property applied to the payment of the partnership debts in preference to those of any individual partner. • This is an equity

the partners have as between themselves, and in certain circumstances it inures to the benefit of the creditors of the firm. The latter are said to have a privilege or preference sometimes loosely denominated a hen, to have the debts due to them paid out of the assets of the firm in course of liquidation to the exclusion of the creditors of its several members. Their equity, however, is a derivative one. It is not held or enforceable in their own right. It is practically a subrogation to the equity of the individual partner, to be made effective only through him. Hence, if he is not in a condition to enforce it, the creditors of the firm cannot be. But so long as the equity of the partner remains in him, so long as he retains an interest in the firm assets, as a partner, a court of equity will allow the creditors of the firm to avail themselves of his equity, and enforce through it the application of those assets primarily to payment of the debts due them, whenever the property comes under its administration. ”

In Fitzpatrick v. Flannagan ( 106 U. S., 618 ), Mr. Justice Matthews said: “The legal right of a partnership creditor to subject the partnership property to the payment of his debt consists simply in the right to reduce his claim to judgment, and to sell the goods of his debtors on execution. His right to appropriate the partnership property specifically to the payment of his debt in equity, in prefer-. ence to the creditors of an individual partner, is derived, through the other partner, whose original right it is to have the partnership assets applied to the payment of partnership obligations. And this equity of the creditor subsists, as long as that of the partner through which it is derivecl remains ; that is, so long as the partner himself retains an interest in the firm assets as a partner, a court of equity will allow the creditors of the firm to avail themselves of his equity and enforce through it the application of those assets primarily to payment of the debts due them whenever the property comes under its administration.”

Therefore, after the sale of the joint property upon a - joint judgment, although the judgment was not recovered upon a debt against the separate firm of Tooker & Irwin, there were no rights, legal or equitable, left to either member of the firm in the property, and, therefore, no equity in the firm property to be worked out under them by any of the firm creditors.

The statute (Code, § 1369) requires the sheriff to satisfy an execution against property “out of the personal property of the judgment debtor,” and if sufficient personal property cannot be found, then out of the real property belonging to him. There is no statute or rule of law which requires the sheriff to satisfy a joint execution out of the

joint property of the execution debtors, or out of the separate property of each debtor. He may satisfy such an execution out of the joint property, or out of the separate nroperty of any one or more of the debtors. In 1 Lindiey Partnership, 515, it is said that “although the writ of execution on a joint judgment must be joint in form, it may be levied upon all or any one or more of the persons named in it,” and that “the consequence of this is that the sheriff may execute a writ issued against several partners jointly, either on their joint property, or on the separate property of any one or more of them, or both on their joint or their respective separate property, and so long as there is within the sheriff’s bailiwick any property of the partners, or any of them, a return of nulla bona is improper.” And these rules have now been embodied in section 1935 of the Code.

As between themselves, Tooker & Irwin were jointly liable for the debts of Tooker, Arnold & Co., and neither can complain that their joint property has been taken to satisfy such joint liability.

The fact that the sheriff, when he made the sale of this property on the execution in favor of Jane Irwin, announced that he had sold the right, title and interest of Tooker & Irwin, or either of them, in the property, can make no difference. He sold all he had the right to sell by virtue of the execution, and if he sold all the right, title and interest of Tooker & Irwin in that property, he sold the whole of it, and gave a good title to the purchaser. He, therefore, had no right to seize any of that property again, and sell it by virtue of the plaintiffs’ execution, and his return was not false.

The general denial contained in the defendant’s answer put in issue the material allegations of the complaint, and was sufficient to authorize the defense asserted by the defendant.

The judgment should, therefore, be reversed, and a new trial granted, costs to abide event.

All concur (Andrews, J., in result), except Huger, Ctu J., not voting. _