A sole surviving partner of an insolvent firm, who is himself
insolvent, may make a general assignment of all the firm's assets
for the benefit of all joint creditors, with preferences to some of
them, and such assignment is not invalidated by the fact that the
assignor fraudulently withheld from the schedules certain
partnership property for his own benefit without the knowledge of
the assignee or of the beneficiaries of the trust.
This suit was commenced by the defendants in error as
plaintiffs, creditors of the firm of A. Butler & Co. One
Moores, sole surviving partner, was defendant, and property which
had belonged to the firm was attached. The plaintiff in error
interpleaded, setting up title to the attached property under an
assignment from Moores for the benefit of the creditors of the
firm. Judgment for plaintiffs, to review which the interpleading
creditor sued out this writ of error. The facts are stated by the
Court as follows:
Butler and Moores constituted a mercantile firm doing
business
Page 118 U. S. 4
in the State of Arkansas under the name of A. Butler & Co.
The former died on the 17th day of December, 1881, and thereafter,
February 23, 1882, Moores, as surviving partner, executed a deed of
assignment to Emerson, the plaintiff in error. The deed recited the
death of Butler, the insufficiency of assets to discharge the
partnership debts, and the desire of Moores, as surviving partner,
to provide for their payment, so far as in his power, "by an
assignment of all the property belonging to him as such surviving
partner." The grantor, for the purposes named, and in consideration
of one dollar paid by the grantee, transferred and assigned to
Emerson, his successors and assigns,
"all the stock in trade, goods, wares, and merchandise, debts,
choses in action, property, and effects of every description,
belonging to the said firm of A. Butler & Co.,"
or to the grantor, "as such surviving partner, mentioned,
contained, or referred to in the schedule hereunto annexed." The
conveyance was in trust that the assignee take possession of the
property described, "sell the same as provided by law, and, with
all reasonable dispatch," collect the debts and demands assigned,
and apply the proceeds 1. to pay all the just and reasonable
expenses, costs, and charges of executing the assignment, and
carrying into effect the trust thereby created; 2. to pay in full,
if the residue of the proceeds is sufficient for that purpose, all
the debts and liabilities then due, or to become due, from Moores,
as surviving partner, with interest thereon, to certain preferred
creditors, among whom were the defendants in error, Senter &
Co.; 3. to apply to balance to all other debts and liabilities of
A. Butler & Co., or of Moores, as surviving partner; 4. to
repay the latter, as surviving partner, whatever may remain after
meeting the costs and expenses of the trust, and the amounts due
respectively to other creditors.
The deed invested the assignee with all the power and authority
necessary to the full execution of the trust created by it. It was
accepted by Emerson and by some of the preferred creditors therein
mentioned.
The debts of the firm largely exceeded its assets, and Moores,
individually as well as surviving partner, was insolvent when he
made the assignment. In addition to the recitals in the deed of a
desire to make an assignment of all the property in his hands as
surviving partner, Moores represented to his creditors that he had
done so. Nevertheless, for the purpose of hindering and cheating
his creditors, he omitted from his schedule five hundred dollars
worth of goods which belonged to him as surviving partner, and with
like intent, left out of the schedule and withheld from his
assignee one thousand dollars in cash and other property which he
held as surviving partner, appropriating to his own use the
property so omitted from the schedule.
Neither the assignee nor the preferred creditors who accepted
the deed had any knowledge of the alleged fraud of the grantor
until after their acceptance of its provisions. Upon an issue
formed between Emerson, asserting the validity of the deed, and
Senter & Co., who as creditors of the firm attached the
assigned effects as the property of the surviving partner, the deed
of assignment was held to be void and the claim of the assignee
denied.
Page 118 U. S. 7
MR. JUSTICE HARLAN, after stating the facts in the foregoing
language, delivered the opinion of the Court.
The court below proceeded upon the ground, in part, that a sole
surviving partner of an insolvent firm who is himself insolvent
cannot make a valid assignment of partnership assets for the
benefit of the joint creditors with preference to some of them. We
are unable to concur in this view. Some of the cases hold that one
partner cannot, either during the continuance of the partnership or
after its dissolution by agreement, make such an assignment. It
cannot, however, be doubted that in the absence of a statute
prohibiting it, such an assignment, whether during the continuance
of the partnership or after its dissolution by agreement, would be
valid where the partners all unite in executing it or where one of
them executes it by the direction or with the consent of the
others. Partnership creditors have no specific lien upon the joint
funds for their debts. 3 Kent Com. 65; Story Partnership ยง 358.
They have no such relations with the partnership as entitles them
to interfere with the complete control of the joint property
Page 118 U. S. 8
by the partners during the existence of the partnership or with
their right, after a dissolution by agreement of the partnership,
to dispose of it for the payment of their joint debts, giving such
preference as they deem proper.
When the partnership is dissolved by the death of one partner,
the surviving partner is entitled to the possession and control of
the joint property for the purpose of closing up its business.
Wickliffe v.
Eve, 17 How. 469;
Shanks v. Klein,
104 U. S. 18. To
that end and for the purpose of paying the joint debts, he may,
according to the settled principles of the law of partnership,
administer the affairs of the firm and, by sale or other reasonable
disposition of its property, make provision for meeting its
obligations. He could not otherwise properly discharge the duty
which rests upon him to wind up the business and pay over to the
representative of the deceased partner what may be due to him after
a final settlement of the joint debts. It is true that in many
cases -- where, for instance, the surviving partner is not
exercising due diligence in settling the partnership business or is
acting in bad faith -- the personal representative of the deceased
partner may invoke the interference of a court of equity and compel
such a disposition of the partnership effects as will be just and
proper; this because, as between the partners and therefore as
between the surviving partner and the personal representatives of
the deceased partner, the joint assets constitute a fund to be
appropriated primarily to the discharge of partnership liabilities,
though not necessarily and under all circumstances upon terms of
equality as to all the joint creditors. But while the surviving
partner is under a legal obligation to account to the personal
representative of a deceased partner, the latter has no such lien
upon the joint assets as would prevent the former from disposing of
them for the purpose of closing up the partnership affairs. He has
a standing in court only through the equitable right which his
intestate had, as between himself and the surviving partner, to
have the joint property applied in good faith for the liquidation
of the joint liabilities. As with the concurrence of all of the
partners the joint property could have been sold or assigned for
the benefit of preferred creditors of the firm, the surviving
Page 118 U. S. 9
partner, there being no statute forbidding it, could make the
same disposition of it. The right to do so grows out of his duty,
from his relations to the property, to administer the affairs of
the firm so as to close up its business without unreasonable delay
and his authority to make such a preference, the local law not
forbidding it, cannot upon principle be less than that which an
individual debtor has in the case of his own creditors. It
necessarily results that the giving of preference to certain
partnership creditors was not an unauthorized exertion of power by
Moores, the surviving partner.
It is, however, contended that the assignment in question was
void because of the fraudulent omission from the schedule by Moores
of certain property which constituted a part of the partnership
assets, and was appropriated by him to his own use. But this fraud
upon the part of Moores did not affect the rights of the assignee
and of the beneficiaries of the trust who were ignorant of the
fraud of the grantor. Such seems to be the established doctrine of
the Supreme Court of Arkansas. In
Hempstead v. Johnston,
18 Ark. 140, it was said that a deed of trust or other conveyance
is not necessarily void
"because its effect is to hinder and delay the creditors of the
grantor in the collection of their claims; but such must be its
object. It must be a fraudulent contrivance for that purpose, and
the grantee or person to be benefited by the conveyance must be
party privy to the fraudulent design."
Referring to the facts which existed in that case -- that the
grantor was in failing circumstances when the deed of trust was
made, that suits were pending against him, and that some of the
beneficiaries were his near relatives -- the court said:
"But all these facts may and do exist in many cases consistently
with the hypothesis that the conveyance was made in good faith to
secure preferred creditors whose demands are just."
In
Cornish v. Dews, 18 Ark. 172, 181, the court
said:
"As held in the case of
Hempstead v. Johnston, supra,
if the deed was valid when executed, no subsequent conduct on the
part of the grantor or the trustee, however fraudulent, could avoid
the deed and deprive the creditors, accepting it in good faith and
not participating in the fraud, of their rights under it. And even
if Cornish
Page 118 U. S. 10
(the grantor) had the purpose when he made the deed of hindering
and delaying creditors not provided for by it, yet if the preferred
creditors were not parties or privies to his fraudulent purpose,
but accepted the deed in good faith to secure the debts really due
them, it would be valid as to them."
See also Mandel v. Peay, 20 Ark. 329;
Hunt v.
Weiner, 39 Ark. 75. The rule announced by the Supreme Court of
Arkansas is in harmony with the settled doctrines of this Court,
and accords with sound reason.
Marbury v.
Brooks, 7 Wheat. 556,
20 U. S. 577;
Brooks v.
Marbury, 11 Wheat. 78,
24 U. S. 89;
Tompkins v.
Wheeler, 16 Pet. 106,
41 U. S. 118.
There was nothing upon the face of the deed to Emerson to indicate
that it was made for any other purpose than in good faith to make
provision for the payment of certain debts held against the grantor
as surviving partner -- first, debts due to the preferred
creditors, and then debts held by other creditors. If the
intentional omission by the grantor of certain property from his
schedule, and his appropriation of it to his own use, was such a
fraud as would vitiate the deed where the assignee or the preferred
creditors have previous notice of such omission, that result cannot
happen when they were ignorant of the fraud at the time they
accepted the benefit of the conveyance.
The judgment is reversed, with directions to enter judgment
on the special finding of facts in favor of the plaintiff in
error.
