Robinson v. McIntosh , 3 E.D. Smith 221 ( 1854 )

By the Court. Woodruff, J.

The demurrer admits that the defendant united with Thomas and' James McIntosh and George Henderson in a certificate, stating that the parties had formed a limited partnership under the name or firm of “ McIntosh & Henderson,” in which the other parties were general partners and the defendant was special partner, and as such had contributed $20,000 to the common stock.

That such certificate was duly acknowledged and filed, accompanied by the affidavit of Thomas McIntosh that the defendant had paid in the said sum of $20,000 in cash; that the business contemplated was begun and continued about two months when the partnership failed and became insolvent, and being insolvent the persons named in the said certificate as general partners executed and delivered to the plaintiff an assignment of all the co-partnership property, and all claims and demands belonging to such firm or the said general partners as co-partners therein, in trust for the payment of all the debts owing by the firm (exclusive of any claim by the defendant as creditor) without any preference being given to any creditor;

That in truth the defendant never paid in the $20,000 mentioned in such certificate and affidavit;

And that the co-partnership'was at the time of such assignment, and still is, insolvent to an amount exceeding the sum of $20,000, which the defendant falsely certified he had contributed.

The complaint demurred to insists that the plaintiffs are entitled to compel this contribution, that the money may be applied to the payment of the debts.

Upon the defendant’s admission of the foregoing facts, the question is raised, Whether the plaintiffs are entitled to the relief which they seek ?

An objection is urged, which goes to the foundation upon which the exercise of any jurisdiction of the court over the subject is said to depend, viz. that the creditors for whose benefit these plaintiffs profess to bring the action have an ample remedy in their own hand; the defendants not having complied with the statute relating to limited partnerships is liable to the creditors directly as a general partner. (1 Rev. Stat. p. 765, § 8.) There is, therefore, it is argued, no occasion for the equitable interference of this court to enforce their rights, even if it be conceded that the defendant is bound to pay the $20,000.

The argument, assuming as it does the liability of the defendant, and resting solely on the idea that there is no ground for equitable interference, amounts to this :

Although it be true that the plaintiffs are trustees, for the benefit of all the creditors, and have assumed the trust, and come here for aid in recovering the assets to which the creditors are entitled, and for the purpose of dividing those assets among the parties beneficially interested in the trust, the bill shall not be entertained, because each one of the cestui que trusts may maintain a separate action to recover his own debt, and this although the effect of such separate suit may be to prevent that equal distribution among creditors which equity so highly approves and encourages. The creditors must be left to a race among themselves after judgments, without regard to costs or multiplicity of suits.

I cannot concur in this view of the subject. The duty of the plaintiffs (if trustees duly appointed) is to gather in all the assets which legally or equitably belong to the co-partnership, and divide them among the creditors ; and the creditors have a right to require this without being put to the necessity of prosecuting various suits in a strife for precedence and at an uncertain cost, which (upon the admitted facts) is wholly unnecessary.

The case of Innes v. Lansing, 7 Paige, 583, I think fully sustains the complainants in this. There the chancellor sustained a bill filed by a creditor at large for the appointment of a receiver, who, as trustee, would stand in the same relation to the creditors and to the assets as the present plaintiffs. If the present partnership is to be taken as against this defendant, as a limited partnership, then all the reasoning in the opinion in that case applies to this, and the present objection is there considered. And if it be not treated as a limited partnership, still trustees having been in fact appointed, they are entitled to the same protection in a court of equity for the benefit of the cestui qua trusts, who by the terms of the assignment are as much entitled to have the fund—-appropriated for their equal benefit—protected and secured to that object as they would be if their claim to equal distribution rested on the statute alone. And the case of Whitewright v. Stimpson, 2 Barb. S. C. R. 379, not only affirms the decision in Innes v. Lansing, but makes the neglect of the firm to place the assets in the hands of an assignee for the benefit of creditors the very ground of the interference of the court to appoint a receiver.

But it is said that the assignors of the plaintiffs could not have maintained this action, and they can give the plaintiffs no better title to sue than they had themselves; and this proposition is urged,

First. Because no action will lie by one or more partners against another without a previous accounting and settlement of the co-partnership affairs. It may he conceded (12 J. R., 401; 1 Wend., 532; 1 Hall, 180) that no action at law will lie between partners to recover moneys accruing in the actual conduct of the co-partnership business. But it is by no means settled that even an action at law might not be sustained upon the articles of co-partnership to enforce the express stipulations made by one to the others. Those stipulations are made to the respective partners as individuals and not as partners, and, actions are brought and sustained for the breach thereof. Such, was Venning v. Leckie, 13 T. R. 7, where the action was brought for a refusal to contribute the sum stipulated to the joint capital, and the full amount recovered; and the cases of Townsend v. Goewey, 19 Wend. 424, and Paine v. Thatcher, 25 Wend. 450, support an action even at law to compel the payment of moneys expressly agreed to be paid by an individual co-partner.

But whatever limitations may apply to an action at law, I have no doubt of the power of a court of equity to compel a partner to contribute the sum stipulated as capital, or to restore it to the common fund if he have withdrawn it before' the debts are paid. In equity the contracting party is a debtor to the firm to the full amount agreed to be contributed. In' the language of Story, “ he stands in equity as to such a debt precisely in the same relation to the firm as if he were a third person who was a debtor thereto.” (See Buxton v. Lister, 3 Ark. 385; Crawshay v. Maule, 1 Swanst. 511, 12, and note on p. 513; Story on Part. § 203 and onward.)

The want of title in the plaintiffs is further urged on the' ground that by the filing of the certificate and by the affidavit, all the parties thereto are concluded. Neither can allege as against the other that the certificate was false, since that would be to suffer a party to allege a fraud in which he was a partaker with the rest, and therefore the assignees claiming through some of the fraudulent parties are also concluded.

On this subject it should first be observed that this is not a claim founded in a fraudulent contract, which contract was itself illegal, and which for that reason cannot be enforced by either party against the other. The undertaking to form a co-partnership and on the defendant’s part to put in $20,000 was not illegal nor fraudulent. Such an arrangement was proper and lawful, and that is the arrangement which is now-sought to be enforced. The estoppel, if any, which’concludes the original parties is a mere rule of evidence. The certificate and affidavit, if they are conclusive upon the parties, are so as admissions that the $20,000 were paid in, which they may not now deny. The point is not that the general partners were not entitled toj’equire the defendant to pay in the money, but that they have, admitted that he did pay it by acts which, as against them, are conclusive evidence-that he did so. In my judgment the question whether the original parties are as matter of evidence concluded by the admission, does not and cannot arise upon this demurrer. Had the defendant by an answer, put in .issue the question whether the money was paid or not, it may be that the parties to the fraud, -if any, would not be permitted to deny the truth of the certificate—it might have been deemed as against them conclusive. But here the defendant by his. demurrer has made an admission upon the record that the money was not in fact paid; and that being admitted the only inquiries are, what is the effect of the admitted fact ?

It is not, however, necessary to rest the disposition of the objection upon this view. It does not follow that-this admission is conclusive upon the plaintiffs. -It clearly is not upon the creditors. This is conceded on all hands. It is claimed that although the plaintiffs are trustees for the benefit of creditors, they cannot deny the payment of the-$20,000, because the assignors could not—i. e. that the plaintiffs cannot compel the defendant to do what is just and equitable towards the creditors, because the assignors have falsely, but conclusively as to them, admitted that he has done it. This is by no means so strong a case for the defendant in this respect, as would be an endeavor by- trustees to recover property which had been transferred .to defraud creditors. It may be. that where the assignor cannot impeach the title of a vendee or transferee on the ground of fraud, he cannot by a voluntary assignment enable his assignee to do so, and in general it is unquestionably true that he cannot. And yet where there is utter insolvency, and the equal protection of creditors demands it, it seems to me that in equity the assignor should be permitted to take the locus penitentice, and by doing all in his power to repair the injury his fraud would, if left to operate, occasion to a third person, enable the trustees for their benefit to recover back the assets to which they are confessedly entitled.

A receiver of the court may do this. (Parker v. Browing, 8 Paige, 391.) An executor or administrator who under our own statutes is now held to be, so far as assets are required for the payment of debts, a trustee for the benefit of the creditors, may do so likewise. (2 Hill, 181, and see cases cited.)

But this is not such a case. This defendant was bound to pay in the capital he was to contribute. That fund was the common fund for the payment of debts. Though it remains in his possession it is liable for those debts, and I cannot concur in the opinion that he can protect himself by saying that he and his co-partners united in an attempt to deceive the public and those who might give credit to the firm, by a false certificate that the money had been paid into the common stock when in truth it had not.

And it should also be observed that it stands admitted that the whole §20,000 will not suffice for the payment of the debts, so that there can be no resulting trust in favor of any of the parties to the supposed fraud which can entitle them to a surplus, in consequence of the judgment against the defendant which is now sought.

It is further urged that the assignors could not make an assignment without the consent of the defendant that should vest in the plaintiffs a title to the assets of the firm, and that, at most, they hold jointly with him.

If this co-partnership be deemed and taken against the defendant as a limited co-partnership (and it is by no means clear that, although he has not so complied with the statute as to entitle himself to the immunities provided for a special partner, he may not have subjected himself to all the disabilities which the statute annexes to that character) then the assignors of the plaintiff have done just what it was their duty to do when they found that the firm was insolvent—viz. provide for the equal distribution of the assets. And just what in the case above referred to (Innes v. Lansing) the court of chancery compelled at the instance of a creditor. Their act in this respect is in accordance with the provisions of the statute and agreeable to the rules of equity. It was an act eminently for the benefit of creditors, and to which in my judgment the assent of the defendant was in no wise necessary. Surely a court of equity will not for the defendant’s benefit declare such an act void.

And if the co-partnership be not deemed a limited partnership so but that in the language of the statute “ all the persons interested are liable as general partners,” still the control and management of the co-partnership affairs was vested in the other members of the firm. The defendant was not an active partner. He was only liable as a general partner. And whatever doubt there may be in ordinary cases of the power of some of the members of a firm to make such a disposition of the property while other members are present j and equally entitled to a voice in that disposition, I do not doubt that we ought to sustain an assignment in all respects equitable and just to all parties, made in a condition of hopeless insolvency, by all of those who by the terms of the actual arrangement between the members are the active, managing partners in the business. The defendant may be regarded as a dormant, if not a special partner, in such a sense as warranted them in the exercise of the authority they assumed. And the cases referred to by the defendant’s counsel do not conflict with this view (Harris v. Hussey, 5 Paige, 30; Mills v. Argall, 6 Paige, 582) except the intimation that there might be some doubt of the power of the general partner when the partnership was formed in accordance with the statute, and its requirements were complied with.

My conclusion is that the demurrer ought not to have been sustained.

Judgment for the defendant on demurrer reversed, and judgment ordered for the plaintiff, with leave to the defendant to answer upon payment of costs.