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Opinion of the Court, per ALLEN, J.
cannot charge the burthen of his acts upon the citizen. In such case there would be no substantial compliance with the act granting the power to tax property, which in all cases is a condition precedent to the right of taxation by public officers. It would seem that four of the eight judges of the court were of the opinion that the act under which the commissioners acted in entering upon property making ditches and assessing the cost upon the property benefited was unconstitutional, and yet the proceedings of the commissioners were affirmed. I can discern no sufficient reason for this judgment, except as it may be found in the enabling act of 1860 (chap. 258) which authorizes a new assessment to be made for the work done under the original act of 1858, and that the assessment was regarded as the proper exercise of the taxing power by the legislature.
There has been no such enabling act passed in respect to this assessment, and it is not therefore necessary to consider how far or to what extent the case cited would be followed as an authority in a case in all respects like it in circumstances. This assessment cannot be sustained upon any principle or upon the authority of any well considered case.
The judgment of the Supreme Court and the assessment of the commissioners and all proceedings under it must be reversed.
Statement of case.
JOHN KELLY, as late sheriff, etc., Appellant, v. WILLIAM C. 115
Scorr et al., assignees, etc., Respondents.
SAME APPELLANT V. SAME RESPONDENTS.
8., M. & P. advertised themselves as copartners under the firm name of
J. E. S. & Co. S. in fact owned the entire interest in the property nominally of the firm and in the profits of the business. S. failed and went into bankruptcy. In a contest between attaching creditors of the firm and the assignees in bankruptcy,—Held, that while, as matter of law, M. & P., having none of the rights of partners, could transmit none to creditors, and the property being the individual property of S., passed to his assignees; yet, that inasmuch as the creditors of the firm, who dealt with it in ignorance of the real state of facts, had a right to rely, and were presumed to have relied, not only upon the personal responsibility of the nominal partners, but upon the equitable lien upon the property resulting from that relationship; both S. and his assignees were estopped from denying that M. & P. were actual copartners; that the firm creditors were entitled to all the rights which they would have had if such had been the fact, and therefore, to a preference in the
payment of their debts out of the assets nominally of the firm. Secret arrangements between copartners at variance with the apparent
ones, and to the injury of third persons, are against public policy and void,
(Argued June 4, 1872; decided June 11, 1872.)
APPEALS from judgments of the General Term of the Supreme Court in the first judicial department, affirming jndgments entered in favor of defendants upon the reports of a referee.
These actions were brought by plaintiff, as sheriff of the city and county of New York, to reach the avails of certain property alleged to belong to the firm of John E. Shawhan & Co., which plaintiff claimed under and by virtue of attachments against said firm in suits brought against it by firm creditors.
On the first of July, 1867, John E. Shawhan, C. Mendall and A. H. Palmer, of St. Louis, Missouri, advertised themselves as copartners, under the firm name of John E. Shaw
Statement of case.
han & Co., and they continued business in St. Louis ostensibly under that name until October, 1867. In reality, Mendall and Palmer were not partners, but merely clerks in the employ of Shawhan, receiving salaries as such. The latter owned all the property. This secret arrangement was unknown to the creditors of the nominal firm. Shawhan failed in October, 1867; instituted proceedings in bankruptcy, and was adjudged a bankrupt in the District Court of the United States for the eastern district of Missouri. The defendants were appointed his assignees. At the time of the failure, certain agents in New York, of the nominal firm, had in their hands the avails of property shipped to them to sell on commission. The proceeds of this sale were included by Shawhan in the schedule of assets filed in his proceedings in bankruptcy. Certain of the firm creditors thereupon commenced suits by attachment against the members of the firm, which writs of attachment were placed in plaintiff's hands for execution, and by virtue thereof he attached the moneys arising from the sales in the hands of the agents, and after the obtaining of judgments, these actions were brought against the agents to compel the payment of the funds in their hands as aforesaid. By orders of interpleader in the actions, the present defendants, the assignees in bankruptcy, were substituted as defendants, and the moneys were paid into the United States Trust Company to abide the judgment.
The referee found, in substance, that Shawhan, when he became bankrupt, was the sole owner of the funds in controversy, and that the same passed, by the assignment in bankruptcy, to his assignees, and the subsequent levies by plaintiff were inoperative and void, and he thereupon directed judgments in favor of defendants, which were accordingly entered.
John C. Dimmick for the appellant. Shawhan was estopped from denying the partnership and the rights resulting therefrom. (De Zell v. Odell, 3 Hill, 215.) His assignees take no other or different interest than Shawhan possessed.
Opinion of the Court, per CHURCH, Ch. J.
(Ex parte Newhall, 2 Story, 360; Mitchell v. Winslow, 2 id., 630; Bankrupt Law, 1867, by Edwin James, p. 36, and cases cited.) Defendants had nothing to do with the copartnership property. (In re Shepard, 3 Benedict's U.S. R., 347.)
Benjamin Odell for the respondents. Mendall and Palmer became liable as partners. (Burns v. Rowland, 40 Barb., 368; Conklin v. Barton, 43 id., 435; Vibbard v. Roderick, 51 id., 616.) They were not partners, inter sese. (Burckle v. Eckhart, 3 N. Y., 132; Pattison v. Blanchard, 5 id., 186 ; Conklin v. Barton, 43 Barb., 437; Salter v. Ham, 31 N. Y., 321; Hanson v. Paige, 3 Gray, 239; Irvin v. Conklin, 36 Barb., 68.) The funds in question belonged to Shawhan and passed to his assignees. (Bankrupt act, $ 14; Matter of Ellis, 1 B. Reg., 154; Pennington v. Lowenstein, 1 id., 157; Matter of Homberger, 2 id., 33; Bump on Bankruptcy, 3d ed., 282, 289.)
CHURCH, Ch. J. This case presents a somewhat novel phase to the disputed and much litigated questions growing out of the respective rights of individual and partnership creditors to partnership property, and the remedy for enforcing such rights. As between themselves, Mendall and Palmer, were nominal partners merely, Shawhan having the entire interest in the property and in the profits of the business.
There is no dispute that Mendall and Palmer by holding themselves out as partners were personally liable for the debts of the firm, although they in fact had no interest in it. (Story on Part., $ 64.) But there is no question of personal liability in the case.
The firm failed and Shawhan went into bankruptcy, and this is a contest between his assignees in bankruptcy to property nominally held by the firm, but really belonging to Shawhan by virtue of the original arrangement between him and Mendall and Palmer by which they were to be nominal partners and an attaching creditor of the firm. I fully concur with the legal propositions in the opinion of the learned referee, and if they are decisive of the case the
Opinion of the Court, per CHURCH, Ch. J.
judgments must be affirmed. According to the authorities upon the subject as they now exist, each partner by virtue of his community of interest, in case of insolvency or dissolution of the firm, has a lien upon the partnership effects for the discharge of all the partnership debts, and this equity may be made available for the benefit of creditors to secure a preference in the payment of partnership debts. It is said that although the creditors have no lien they have “something approaching to a lien" of which they may avail themselves to secure an equitable preference. (Story on Partnership, $ 360.) And an attachment or execution for a partnership debt will take precedence over process on an individual debt by virtue of this quasi lien derived through and dependent upon the lien of each partner upon partnership effects to have the partnership debts paid. (Id., 361, and cases cited.) It is a part of the same theory that this equitable lien of each partner is for his benefit only, and that by a transfer bona fide of his interest in the partnership effects to his copartner, the lien or equity is gone and the creditors can derive no rights through or by reason of it. In other words, the creditor's right is derivative only, and if by any valid arrangement or agreement the partner deprives himself of it, the creditors can derive none through him. It has accordingly been held, that if one of two partners transfers in good faith to the other all his interest in the partnership effects, and in consideration of the payment of partnership debts, his equity or lien to have the partnership debts paid is gone, and he has only the personal security of his copartner, and that the latter becomes the absolute owner of the property, which is equally subject to individual as to partnership debts, and the partnership creditors lose their derivative right of lien by the transfer of the partner through whom alone they could derive it. (32 N. Y., 65; 8 Barb., 593.) This theory, it must be confessed, seems artificial and indefinite, but it has been generally adopted by the courts, and is a modification in favor of partnership creditors of the old notion of a tenancy in common.
Mr. Parsons in his work on Partnership (p. 355), in an