33 U.S. 271
8 Pet. 271
8 L.Ed. 941
THE UNITED STATES, PLAINTIFFS IN ERROR
ANDREW HACK, THOMAS SEWALL, AND JAMES WILKES, JUN.,
ASSIGNEES OF JOHN STOUFFER.
January Term, 1834
IN error to the circuit court of the United States for the district of Maryland.
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 non assumpsit, 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 customhouse 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 the 19th day of May 1832, executed a deed of trust to and in favour 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 nine hundred and seventy-four dollars and seventy-one cents.
'It is also agreed that the amount of the unsatisfied judgments of the United States against the said John Stouffer is, at this date, two thousand one hundred dollars, 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 one thousand nine hundred and forty-nine dollars forty-two cents, one half of which is nine hundred and seventy-four dollars seventy-one cents.
'Upon the foregoing statement of facts, the district attorney contends that the plaintiffs are entitled to receive from the defendants the sum of nine hundred and seventy-four dollars and seventy-one cents, 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 any thing 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 nine hundred and seventy-four dollars and seventy-one cents, 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. The case was argued by the Attorney-General, for the United States. No counsel appeared to argue the cause for the defendants.
For the United States, the Attorney-General contended, that, under the provisions of the acts of congress, the United States, as judgment creditors of John Stouffer, were 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; and that the judgment of the court below ought, therefore, to be reversed.
The Attorney-General conceded that, by the general law of partnership, both in the United States and in England, the property of the partnership was first liable to the debts of the firm; and although an execution may go against such effects in favour of a separate creditor of one of the partners, yet the purchaser under such proceedings, could only take the property of the partner subject to such debts. He referred to the authorities on this point in the reports of cases decided in the United States. 1 Gallison 367; 1 Peters's C. C. R. 460; in the matter of Smith, 16 Johnson 102, and the cases in the notes; 15 Mass. Rep. 82; 1 Wendell's Rep. 311; 2 Wendell's Rep. 554.
This being the general law of partnership, and this court having decided in the case of Conard v. The Atlantic Insurance Company, 1 Peters 489, that the priority of the United States does not divest anterior liens, the foundation of the claim of the United States in this case can rest only on the local law of Maryland.
The case of Patterson, 2 Harris and M'Henry 463, arose under the act of the legislature of Maryland, and was decided in 1790. That act is now in force. The act was passed in 1715, chap. 4 of the laws of that year, and it authorizes a debtor to pursue the property of his creditor wherever it may be found. If, in the state of Maryland, a debtor may proceed under this law against partnership property, may not the United States? No case entirely applicable to the case before the court, has been found in the Maryland reports. In a case where the private property of the parties had gone into the partnership effects, would not the rights of the creditors be equal? Suppose an importation of goods liable to duties had been passed over to a partnership, would not the United States have a right to call on the partnership for the unpaid duties?
The Attorney-General stated that he had found this case on the docket of the court; and had felt himself bound to submit it for decision with these remarks.
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 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 customhouse 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 the 19th day of May 1832, when they became embarrassed and insolvent, and executed a deed of trust, to and in favour 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 nine hundred and seventy-four dollars and seventy one cents.
Upon this state of facts, the question submitted to the circuit court was, whether the United States were entitled to recover from the defendants the sum of nine hundred and seventy-four dollars and seventy-one cents, 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, sect. 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 the United States v. Fisher and others, 2 Cranch 358, 1 Cond. Rep. 421, in the construction of a similar clause in the act of 3d 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. The Atlantic Insurance Company, 1 Peters 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 favour 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 The King v. Sanderson, 1 Wightwick's Ex. Rep. 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 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. Rep. 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.