Kemp v. Carnley — 10 N.Y. Super. Ct. 1

Majority

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Rufus G. Kemp, Assignee, &c., v. Thomas Carnley, Sheriff, &c.

Headnote

An assignment made by one of two partners of all the partnership property and effects is valid, when it is proved that at the time of its execution the other partner was absent and had relinquished all control and management of the business of the firm.

Such an assignment is not rendered wholly void by a preference given to an individual creditor of one of the partners, but the preference so given is void as against the creditors of the firm.

A mortgage on “ all the stock in trade of any nature or kind whatever” of a partnership, does not cover debts due to the firm.

(Before Oakley, 0. J., Emmet and Hoffman, J.J.)

Nov. 18 ;

Dec. 24, 1853.

This was an action to recover the possession of certain goods and chattels particularly described in a schedule annexed to the complaint, and was brought by the plaintiff as assignee of George Stewart and James W. Patterson, composing the firm of George Stewart & Co., against the defendant as Sheriff of the City and County of New York. The defendant justified under certain executions and attachments particularly referred to in his answer against the property of George Stewart.

The cause was brought to trial before the Chief Justice and a jury in February, 1852.

The counsel for the plaintiff, upon the trial, produced and read

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in evidence an assignment dated May 29, 1850, from George Stewart and James W. Patterson, composing the firm of George Stewart & Co., merchants, to the plaintiff, of all and singular the partnership property, together with all the debts, promissory notes, and demands due and owing to the firm, subject to a mortgage to one William Day for $6000 upon the following trusts; “ To take possession of such property, goods, and chattels, subordinate to the right of said William Day, and as soon as may conveniently be done, to sell and dispose of the same at public or private sale, in the manner he shall deem most conducive to the interests of this trust, either in conjunction with said Day or otherwise, and after satisfying the full amount of the balance of said $6,000 now due and owing to said Day, with interest thereon according to the terms of the mortgage aforesaid, to him,—In the first place to pay all the expenses of executing said trust, including the expenses of drawing this instrument, and all other expenses of employing counsel, and all auction expenses and clerk hire, together with a reasonable compensation to said party of the second part for discharging the duties of this trust. In the next place to pay all and singular the debts of the said firm of George Stewart & Co., contracted since the commencement thereof, on the first day of May instant, ratably and proportionably. In the third place, if there shall be any surplus, to divide the residue ratably and proportionably, to the extent of their respective claims, among those creditors of the said George Stewart whose debts were contracted prior to the first day of May instant.”

The assignment was under seal, and was signed, “ George Stewart & Co., by J. W. Patterson ;” and it was proved that previous to its execution Stewart had absconded.

The counsel for the plaintiff also produced and read in evidence the mortgage to Day, referred to in the assignment, which bore,date on the first of-May, 1850, and was signed and sealed by both partners. It covered the shawls, laces, &c., and the entire stock in trade of every name and nature now in the store, Ho. 379 Broadway, in the city of Hew York, the.store occupied by the firm, and was conditioned to be void upon the payment of $6,000 with interest, thirty days from its date.

A witness on the part of the plaintiff proved that on the day''

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of the execution of the mortgage, the goods in the. store were delivered to Day, the mortgagee, by both the partners, and that Day put a Mr. Humbert in possession as his agent, and that the plaintiff took possession on the same day that the defendant seized the property, as sheriff, but at an earlier time of the day; that he was in possession when the levy was made.

Day, the mortgagee, was produced as a witness on behalf of the plaintiff, ánd was objected to as incompetent. The objection was overruled, but as the Court, in giving judgment, laid no stress upon his testimony, it is deemed unnecessary to state it.

When the testimony on the part of the plaintiff was closed, the counsel for the defendant moved to dismiss the complaint, upon the grounds that the assignment was void, as executed by one only of the partners; that it was also void as giving a preference, and that it had not been shown that the plaintiff was in possession, as assignee, when the goods were seized by the defendant. He held the possession for Day, the mortgagee, who alone, if any one, had á right of action.

The motion was denied, and the counsel for the defendant excepted.

The defendant’s counsel then read in evidence the several executions and attachments referred to in the answer, and proved that the defendant made a levy upon the goods in question under one of the executions, on the 23d of May. Other testimony was given, which was relied on as proving that the levy was made before the execution of the assignment, and also as showing that the assignment was fraudulent in fact.

■ Further proof was also given on the part of the plaintiff, to show that the whole sum of $6000, secured to be paid by the mortgage, had been advanced to Stewart by the plaintiff and by Day in notes and in cash.

When the cause was rested, the judge suggested that a verdict should be taken generally for the plaintiff, subject to the opinion of the Court, and that the jury should find upon certain questions of fact, which was agreed to by the counsel of the parties.

Hpon the questions of fact submitted to them, the jury

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found that the assignment was not fraudulent, and that it was executed and delivered to the plaintiff before the receipt by the Sheriff of the execution under which the levy was made. They also rendered a general verdict for the plaintiff.

D. D. Field, for the plaintiff,

moved for judgment upon the verdict upon the following grounds..

I. The plaintiff, under the assignment and mortgage in evidence, had a right to claim the possession of the property in suit, and could therefore bring this action.

II. The assignment to the plaintiff was a valid- instrument, and conveyed to him the property subject to the mortgage. (Cunningham v. Freeborn, 11 Wend. 241 ; Same Case, 1 Edwards’ Ch. R. 256; Egberts v. Wood, 3 Paige, 517; Havens v. Hussey, 5 Paige, 30 ; Harrison v. Sterry, 5 Cranch, 300 , 289.)

HI. Day was a competent witness.

IV. Hone of the defendants’ exceptions were well taken.

A. J. Vanderpoel, contra,

insisted that the defendant was entitled to judgment upon the following among other grounds.

I. The assignment under which the plaintiff claims title to the goods taken under the execution was void. 1st. It was executed by one partner only, and is preferential. (Havens v. Hussey, 5 Paige, 30; Hitchcock v. St. John, 1 Hoff.) 2nd. It is the settled law of this court that one partner cannot make a general' assignment of-the partnership property, even without preferences, where the partner is present and capable of acting. (Dearing v. Colt, 3 Sandf. S. C. R. 284; Hayes v. Heyer, Id. 293.)

The principle of the decision is, that it is no part of the business of the co-partnership, nor incident to it, that one partner should have the right “ to appoint a trustee of all the partnership effects for the purpose of selling and distributing the proceeds.”

H. The plaintiff’s title is not aided in any way by the mortgage.

HI. Day was an incompetent witness, the action was prose

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cuted for his “ immediate beúefit.” 1st. By the terms of the assignment the proceeds of the recovery must- first be applied to the payment of Day’s mortgage debt. 2nd. He was surety in the action for Kemp, and was estopped from bringing an action to recover the same goods. 3rd. The witness alleged that Kemp was his agent, and as such held possession of the goods until the assignment was executed; he resigned his position as mortgagee to Kemp as assignee. A recovery by Kemp, would secure the fund out of which this mortgage debt was payable, instead of allowing it to go to other creditors. (Fitch v. Bates, 11 Barb. S. C. R. 471.)

In this case, under the suggestion of the judge at the trial, a general verdict was taken for the plaintiff, subject to the opinion of the Court upon certain questions of law. The jury also found specially upon some questions of fact submitted to them, and the case is now before the Court for judgment.

The defendant seized the goods in question under warrants of attachment issued in favor of White and Thurger against George Stewart, one of the firm of Stewart & Patterson, as well as under executions against him. This possessory action is brought against the Sheriff to recover such goods, and damages for the detention. Security having been given under the Code, the goods were delivered.

In the first place the plaintiff’s claim' is placed upon an assignment executed to him on the 29th of May, of the property seized. The levy was made on the same day, but evidence warrants the belief that the plaintiff was in possession, claiming as assignee, some hours before the levy was made. The jury have also found that the assignment was not fraudulent, and that it was delivered to the plaintiff, before the receipt, by the Sheriff, of the execution under which the levy was made.

The defendant, to meet this view of the case insists, that the assignment is void. It is made by only one partner of the firm, and it is aEeged that the other partner had absconded at the time.

The law is definitively settled, in this Court at least, that one partner cannot-execute an assignment of all the partnership

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property, and appoint an assignee of all the property, even providing for a-ratable distribution of the funds, when his associate is present and capable of acting. (Denning v. Colt, 3 Sand. S. C. Rep. 284; Hayes v. Heyer, Ibid.) An assignment under such circumstances, giving preferences, would be even more objectionable ; and this was the decision in St. John v. Hitchcock, Hoffman’s Reports ; although the partner who did not join, resided in Savannah, where he was carrying on at the time the business of the firm.

One question on this subject remains without any judicial decision, that we are aware of. It is, whether an assignment by one partner, when the other has abandoned all control of the business, is valid or not; and as a branch of this question, whether a distinction exists in such a case, where preferences are given in the instrument, and where they are not.

We are of opinion that the decisions, and the principles of the decisions, lead to the conclusion, that in such a-case the assignment is valid, if an equal distribution of all the funds is directed. We do not feel called upon now to decide the question where a plain case of preferences is made, for reasons hereafter stated.

In the present case the evidence of an actual abandonment of the business, and relinquishment of all control and participation in the management, is sufficient.

We come then to the question, whether any preference of a creditor is given in the assignment, and the nature of such preference, if any.

Day was a mortgagee of property of the firm, upon an unquestioned mortgage. The assignment, after providing for the expenses of the trust, directs the amount of the mortgage held by Day to be paid from the proceeds of the property. That property comprises “ all and singular the partnership property of the said firm of George Stewart & Co., and especially all and singular the articles of dry-goods, and all other goods and chattels now in said store, together with all the debts, promissory notes, and demands due and owing to such firm.”

But the mortgage transfers only “ the shawls, laces, embroideries, silks,, hosiery, other fabrics, and the entire stock in trade of every name and nature, now in the store, Ho. 379 Broadway.”

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The notes and debts owing to the firm, do not pass under the phrase, “ all the stock in trade of any nature or kind whatever.” Lord Eldon pointed out the distinction between capital and stock in trade, in the contested case of Crawshaw v. Collins (Jacob and Walker, 278 ; 2 Russell, 339). Neither in legal nor mercantile acceptation would these words comprehend the debts of the firm; and if they were doubtful, yet the phrase, “ now in the store, 379 Broadway,” would be decisive.

The assignment may operate to enable the assignee to take all the property not mortgaged, and apply it to the mortgage debt, leaving the avails of the mortgaged property to the other creditors.

It also operates so as to apply the avails of such other property to pay, in the first place, any deficiency which may occur upon the sale of mortgaged stock. It is a preference in favor of this creditor over all others so far as respects this property, and for this deficiency.

But we do not consider that such a preference renders this assignment wholly void. The jury have found that it was not fraudulent. It is true that under a series of cases this is not decisive of the question, if the illegality appears upon the face of the instrument.

The assignment transfers property covered by a valid mortgage, together with other property, for its payment. The parcels of property are entirely distinct. We cannot conclude that such a preference proves of itself a fraudulent intent which shall avoid this assignment.

The better opinion appears to be that a preference, in an assignment by partners of their property, given to a debt due by one of them, is not enough to vitiate the instrument, but affects the preference only. (Nicholson v. Leavett, 4 Sand. S. C. Rep. 302, affd cases cited.) This shows that it is not every preference apparently interfering with specific creditors’ rights, that will avoid the assignment. The character of the preference may be inquired into. Our opinion, therefore, is, that in the case of an absconding partner, or one who has abandoned all interference with the concern, the other partner has the power to make any assignment of the property which is not

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fraudulent, and that the preference given in the present case does not render it so.

It is urged, however,' on' the part of the defendant, that the assignment was found free from fraud by the- jury, by reason of the evidence of Day as a witness; and the argument is this—that the assignment is fraudulent because it gives a preference to the mortgage, which mortgage is fraudulent apart from Day’s evidence; and is only sustained, or it must be considered as sustained solely or chiefly, by Day’s evidence.

In the first place, it is to be noticed that the verdict was taken generally for the plaintiff, subject to the opinion of the Court upon the whole case, and upon certain facts specially •found.

In the.next place, the jury have found the assignment not to be fraudulent; and there was evidence enough before them to sustain the position that the assignment was executed and delivered, and possession taken under it, before the levy. • At any .rate, it was a point entering into the question of fraud in the assignment, and they have passed upon it.

Under such circumstances, it would be incumbent upon the defendant to show actual fraud in the mortgage or debt secured thereby, to protect which chiefly the assignment was made. Instead of. doing this successfully, the mortgage and debt are thoroughly sustained by testimony entirely independent of Day.

The following facts-relating to it appear. The mortgage was payable in thirty days; but the mortgagee was émpowered to put an agent in the store, who should keep the keys; the mortgagor was to continue to sell by retail, but the daily proceeds were to be paid over to the mortgagee. Humbert went there as such agent, about the date of the mortgage, and continued there until the Sheriff came. There was a delivery of the goods to Day who was present, and Humbert was put in possession by Day.

The advance of the money secured is distinctly proven by Brown. The mortgage was duly filed in the Eegister’s Office „ of the county, under the statute, on the day of its date. Under

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such circumstances, the mortgage and the debt mentioned in it were not merely not assailable, but entirely supported by evidence without that of Day. We do not, therefore, deem it necessary to decide the question as to the admissibility of Day as a witness.

The judgment will be entered for the plaintiff.