The priority of the United States does not extend so as to take
the property of a partner from partnership effects to pay a
separate debt, due by such partner to the United States, when the
partnership effects are not sufficient to satisfy the creditors of
the partnership.
It is a rule too well settled to be now called in question that
the interest of each partner in the partnership property is his
share in the surplus after the partnership debts are paid, and that
surplus only is liable for the separate debts of such partner.
The United States instituted an action of assumpsit against the
defendants in the Circuit Court of the United States for the
District of Maryland. The defendants pleaded
nonassumpsit,
and the case was submitted to the court by the counsel for the
plaintiffs and the defendants on the following statement of facts
agreed.
"It is agreed between the parties in this case by their counsel
that John Stouffer is largely indebted to the plaintiffs on sundry
judgments rendered against him on custom house bonds; that the said
John Stouffer was, at the date of the said bonds and of the
rendition of the said judgments, a partner in trade with his
brother Jacob Stouffer, and so continued until the execution of the
deed of trust hereinafter referred to; that the said John and Jacob
Stouffer, becoming embarrassed and insolvent in their affairs, on
19 May, 1832, executed a deed of trust to and in favor of the
defendants, of all their joint and partnership property for the
benefit of their joint and partnership creditors, having no private
or undivided estate; that the said property is not sufficient for
the payment of all said creditors, but that the said John
Stouffer's undivided half, now in the possession of the said
trustees, amounts to $974.71."
"It is also agreed that the amount of the unsatisfied judgments
of the United States against the said John Stouffer is at
Page 33 U. S. 272
this date, $2,100 and upwards, after exhausting his private and
individual estate. And the amount now in the possession of the
aforesaid trustees, being the proceeds of the said partnership
estate, is $1,949.42, one-half of which is $974.71."
"Upon the foregoing statement of facts, the district attorney
contends that the plaintiffs are entitled to receive from the
defendants the sum of $974.71, being the proceeds of John
Stouffer's undivided half of, in, and to the aforesaid partnership
estate, to be applied to the satisfaction of the aforesaid
judgments recovered against the said John Stouffer."
"The counsel for the defendants contends that the plaintiffs are
not entitled to receive anything from the defendants in this
action, on the ground that the money in their hands is the proceeds
of partnership property, the whole of which is inadequate to the
entire payment of the partnership debts, and that the plaintiffs
are creditors of John Stouffer only, and not of the said partners.
The question submitted to this Court is whether the plaintiffs are
entitled to recover from the defendants in this case the said sum
of $974.71, being one-half of the aforesaid partnership estate. It
is finally agreed that all errors in pleading be mutually released,
and that either party shall have the privilege of prosecuting a
writ of error to the Supreme Court of the United States."
The circuit court gave judgment for the defendants, and the
United States prosecuted this writ of error.
Page 33 U. S. 273
MR. JUSTICE THOMPSON delivered the opinion of the Court.
This cause comes up on a writ of error from the Circuit Court of
the United States for the District of Maryland. The action in the
circuit court was for the recovery of a sum of money which came
into the hands of the defendants as
Page 33 U. S. 274
assignees of John and Jacob Stouffer, who were partners in
trade, and had become insolvent.
The material facts in the case, as agreed between the parties
are that John Stouffer, one of the partners, is largely indebted to
the United States on sundry judgments rendered against him on
custom house bonds. That at the date of said bonds and at the time
of the rendition of the judgments, he was a partner in trade with
Jacob Stouffer, and so continued until 19 May, 1832, when they
became embarrassed and insolvent and executed a deed of trust to
and in favor of the defendants for all their joint and partnership
property, for the benefit of their joint and partnership creditors,
they having no private or individual estate. The property then
assigned is not sufficient to pay the partnership creditors, but
the undivided half of John Stouffer, now in the possession of the
defendants, amounts to $974.71.
Upon this state of facts, the question submitted to the circuit
court was whether the United States was entitled to recover from
the defendants the sum of $974.71, being John Stouffer's half of
the proceeds of the partnership estate. Upon which the court gave
judgment for the defendants.
It is claimed on the part of the plaintiffs in error that under
the provisions of the acts of Congress, the United States, as
judgment creditors of John Stouffer, are entitled to be first paid
to the extent of his share of the property, assigned to the
defendants in preference to the creditors of the partnership.
The Act of Congress, 3 vol. L.U.S. 197, sec. 65, declares
"That when any bond for the payment of duties shall not be
satisfied on the day it becomes due, the collector shall forthwith
cause a prosecution to be commenced, &c. And in all cases of
insolvency or where any estate, in the hands of the executors,
administrators, or assignees shall be insufficient to pay all the
debts due from the deceased, the debt or debts due from the United
States on such bonds shall be first satisfied,"
&c.
The construction of this clause of the act of Congress has
frequently come under the consideration of this Court, although not
under the circumstances in which it is now presented. It was held
at an early day in the case of
United States
v.
Page 33 U. S. 275
Fisher, 2 Cranch 358, 1 Cond. 421, in the construction
of a similar clause in the Act of 3 March, 1797, ch. 74, that no
lien is created by this law. No
bona fide transfer of
property in the ordinary course of business is overreached.
And in a late case of
Conard v. Atlantic
Insurance Company, 1 Pet. 439, this question
received a very full examination, and explanation of some former
decisions which seem not to have been fully understood, and in the
course of which it is observed:
"What then is the nature of the privity thus limited and
established in favor of the United States? Is it a right which
supersedes and overrules the assignment of the debtor as to any
property which the United States may afterwards elect to take in
execution, so as to prevent such property from passing by virtue of
such assignment to the assignee? Or is it a mere right of prior
payment out of the general funds of the debtor in the hands of the
assignee? We are of opinion that it clearly falls within the latter
description."
If then the debt of the United States is not a lien, but only
entitled to priority of payment out of the general funds of the
debtor in the hands of the assignee, what are the funds out of
which this priority is set up in the present case? They are not the
funds of John Stouffer, the debtor of the United States, but of
John and Jacob Stouffer, who have become insolvent, and having no
separate property, and the partnership property is insufficient to
satisfy the partnership creditors. It is a rule too well settled to
be now called in question that the interest of each partner in the
partnership property is his share in the surplus after the
partnership debts are paid, and that surplus only, is liable for
the separate debts of such partner. And this is the rule in the
Exchequer in England with respect to debts due to the Crown. In the
case of
King v. Sanderson, 1 Wightwick's Ex. 50, it was
held that upon an extent against one partner, the Crown, like a
separate private creditor, took the separate interest of the
partner, subject to the partnership debts.
It has been a question very much litigated in England and in
this country both in the courts of law and equity as to the manner
in which the separate creditor of one partner was to avail himself
of the share of such partner in the joint property of the firm
where the partnership is solvent. But whatever
Page 33 U. S. 276
course is adopted, it is the interest only of the separate
partner that is taken, and always subject to the rights of the
partnership creditors; 16 Johns. 106, and cases in note; 2
Johns.Ch. 548; 4 Johns.Ch. 525; 2 Cond. 516. But that question does
not arise here, as it is admitted that the partnership property is
insufficient to pay the partnership debts. We entertain no doubt,
therefore, that the United States are not entitled to recover the
nine hundred and seventy-four dollars and seventy-one cents.
The judgment of the circuit court is accordingly
Affirmed.
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the District of
Maryland, and was argued by counsel, on consideration whereof it is
ordered and adjudged by this Court that the judgment of the said
circuit court in this cause be and the same is hereby affirmed.
