Cox v. Platt , 19 How. Pr. 121 ( 1860 )

Hogeboom, J.

As to the third, fourth and sixth grounds above mentioned, I think the plaintiffs’ allegations are unsupported by the evidence ; and the last named ground would afford a better reason for removing the assignee, and appointing another trustee in his place, than for breaking up the assignment itself.

As to the fifth ground, it seems to me that if it were true, as a question of fact, it would not of itself furnish a sufficient reason for setting aside the assignment, or even for removing the assignee. But I think the allegation as to the entire absence of any personal supervision and control of the assigned property, on the part of the assignee, is not unqualifiedly correct.

As to the first ground of alleged fraud above mentioned, the proof does not support the allegation of fact upon which the legal fraud is supposed to rest. Platt and Holroyd were not partners at the time of the assignment, and had not been such for about two months immediately preceding. The assignment was made in October, 1857. In August preceding, Holroyd had sold out to one Oheeseman his interest in the partnership property, and in September, 1857, Oheeseman had sold out to Platt his interest in so much of the partnership property as was attempted to be conveyed by the assignment. The whole legal interest in the property was vested in Platt; and it was not legally necessary for Platt to consult his former partner, Holroyd, as to the disposition of the partnership property, in order to make a lawful and effectual assignment thereof. As the supposed invalidity of the assignment, so far as this ground of fraud is concerned, rests upon an erroneous assumption of fact, it is not necessary to be further considered.

The second is the only remaining ground of alleged fraud; and without discussing the question whether one of two former partners, who has by successive changes of the interest óf the other of said partners, become ultimately, in good faith, the sole owner of the partnership property, may not by assignment dispose of the same so as to give a preference to what were originally his own individual debts, I am not clear, upon the evidence in the case, that there was in fact any appropriation of partnership property to the payment of individual debts. There doubtless was an application of the partnership property, by means of the assignment, to the payment of debts, for which, or in the incurring of which, Platt’s individual name or responsibility was alone given ; but Platt claims, and with some reason, upon the evidence, as to many of them, that all of these were in reality partnership debts or claims, for which the partnership was equitably liable, upon the ground that the moneys or property thus realized were used in the partnership business, or for the benefit of the partnership. I have not deemed it necessary to investigate this part of the case, so as to arrive at a final conclusion on this subject perfectly satisfactory to my own mind, because I have concluded that no actual fraud was intended by Platt, in reference to this matter; that is, so far as he gave some debts a preference over others, he did not direct the appropriation of partnership property to the payment of debts which he did not suppose were either legally or equitably the debts of the partnership.

It appears from the assignment that in the introductory part of it not only Platt, and Platt & Holroyd, but James Holroyd are named as the assignors, but it never was, in fact, executed by the latter. It further appears that in one clause of the assignment the individual debts of Holroyd were preferred to some of the partnership debts. If this were intentional, it would be evidence of fraud ; but I think this clause was inserted by mistake, and under the expectation that Holroyd would unite in the assignment. As to the question previously considered, I am of opinion that, as a matter of law, a postponement of certain debts, confessedly partnership debts, to others, which are really individual debts, but are innocently or mistakenly supposed to be partnership debts, will not avoid an insolvent’s assignment. The remedy is a different one. Indeed I think I might go further, and hold that a provision in an assignment, preferring individual debts, known to be such, over partnership debts, out of partnership property, if made without actual fraud, that is, upon a mistaken supposition that the law sanctioned such an appropriation of partnership property, would not make the whole assignment void ; though it might furnish occasion, in a proper case, for seeking the aid of this court in preventing the misappropriation of the property, and enforcing its distribution among the parties properly entitled to participate in it. Such a proper case is not presented in this suit. The complaint is not filed for such a purpose, nor with such" an aspect; and I incline to think, under the authorities, the action must in such case be brought so as to make all the partnership creditors parties, or expressly for the benefit, not only of the plaintiff, but of all the partnership creditors who will come in and contribute to the expenses of the litigation. In such a contingency, where the assignment is only partially objectionable, for making, to some extent, inequitable preferences, it is only partially broken up, and then only in a way which shall enable the court to carry out the principle that equality is equity. This complaint is filed to set aside the assignment altogether, and not to carry it into effect, either in whole or in part; to break up the entire transaction, and not for an account and distribution of the assigned property ; to satisfy the plaintiffs’ debt alone, and not to divide the property equitably among all those who have a fair and equal claim to participate in it. I am therefore of opinion that the plaintiffs are not entitled to the relief which they seek in this action.

[New York Special Term, May 7, 1860.

Hogeboom, Justice.]

At the same time I am not satisfied that the action was commenced in bad faith, or without some reason to suppose, not merely that there was legal, but actual fraud, in the attempted disposition of the property in question. I am not inclined to charge the plaintiff with costs, or to give either of the parties costs, as against the others. The defendant Brown is entitled to his costs out of the funds in his hands, and the complaint must be dismissed, without prejudice to a suit in which all the partnership creditors shall be parties ; or to a suit commenced as well for the benefit of the plaintiff as for such others, similarly situated, as choose to come in and make themselves parties thereto; or to a suit for an account and distribution of the partnership funds, and avoiding illegal or inequitable preferences, if such there be. If an injunction has been issued, it must be dissolved, and if a receiver has been appointed, the appointment must be vacated.

A decree or judgment must be entered in conformity with these suggestions, and may be settled upon two days’ notice.