The court below instructed the jury that it was the duty of a
surviving member of a firm to convert its property into money,
collect debts due to it, and first apply them to the payment of its
debts due, and that if he mingled the goods of the firm with his
own so that they could not be identified, he rendered his own
liable for the firm debts, and that the application of the proceeds
of the goods to the payment of his individual debts was a fraud
upon the firm creditors.
Held that the instruction was
erroneous.
The case is stated in the opinion of the Court.
MR. JUSTICE MATTHEWS delivered the opinion of the Court.
This is an action which arose in the course of the proceedings
considered in
Fitzpatrick v. Flannagan, ante, p.
106 U. S. 648.
Edward McGinty, the plaintiff in error, having in that cause
appeared as a claimant of the property seized under the attachment,
the same was delivered by the marshal to him on his giving a bond
conditions, should his claim not be sustained, to pay to the
plaintiffs in the attachment such damages as might be awarded
against the claimant in case his claim should not be sustained, or,
in that event, to return the goods to the marshal. Thereupon, in
accordance with the statutory practice in such cases in
Mississippi, an issue was joined between the plaintiffs in
attachment and the claimant to try their respective titles to the
property. Upon this issue, evidence was submitted by the parties
tending to show substantially the same state of facts as appears in
the principal case.
The court refused to give instructions asked on behalf of the
defendant, and in lieu thereof, among others not necessary to be
considered, gave the following:
"2. It was the duty of J. J. Fitzpatrick, as such surviving
partner, to sell and convert into money the goods and property
belonging to said firm, and to collect the debts due the firm, and
first apply the same to the payment of the debts due by the firm,
and not to mingle the same with his own goods so
Page 106 U. S. 662
that they could not be identified, he being by law created a
trustee for this purpose; but if he mingled them with other goods
so that they could not be identified, he thereby rendered his own
goods liable for the debts of the firms, or [as?] those originally
owned by the firm, and if he applied the proceeds of the sale of
such goods, either originally owned by the firm or those afterwards
purchased and mixed up with them, so that they could not be
identified, to the payment of his private debts, such disposition
operated as a fraud upon the rights of the creditors of the firm of
which he was surviving partner and as to him rendered the sale
void."
There was a verdict and judgment for the plaintiffs in the
attachment, which are brought into review by this writ of
error.
The charge above quoted goes further than that which was
considered and adjudged to be erroneous in the principal case. For
here, the jury were instructed that it was a fraud upon partnership
creditors to apply to the payment of individual debts goods
belonging to the surviving partner which never belonged to the
partnership, but were his own individual property, merely because
they had been mingled with the stock formerly belonging to the
firm. This is an error in any view that can be taken of the rights
of the parties. Even on the supposition that the partnership stock
was held under an express and positive trust for partnership
creditors, equity would give the latter only so much of the fund as
represented the partnership property, and would divide it as to
values between the parties beneficially interested, even although
the specific goods might not be separable.
This being so, it could hardly be charged as a matter of law
that an appropriation of the mingled stock to the extent of a value
no greater than would be allowed in equity to individual creditors,
in marshaling the assets for distribution between them and the
creditors of the partnership, amounted to a fraud upon the
latter.
For this as well as for reasons stated in the opinion in the
former case between the original parties, we hold this instruction
to be erroneous.
Judgment reversed and the cause remanded, with instructions
to grant a new trial.