316
FEDERAL REPORTER.
I]riminat;on against the phtintiff in the operation of its telegraph lines. Other telegraph companies are using similar poles, and with wires strung upon them, and I do not see why, until the city adopts some decided policy in relation to poles and wires, which are now existing in our streets, the plaintiff cannot be permitted to use these poles as Jong as they stand for other purposes. If they stand for fire-alarms, why cannot they stand for the purpose of communicating by telegraph between different persons in and out of the city? I would say in conclusion that I agree if there has anything been done which constitutes an irreparable wrong to the plaintiff, which can only be protected by a bill in equity, then the court might feel inclined to issue an injunction; but all that has been done, according to the view of the court; is an act of trespass; that has been done improperly, illegally, as I think, which could be done lawfully. The has stated that it only decides as to the rights of the plaintiff under the ordinance, and the action connected therewith. It is alleged in the bill, as I have already said, that wires have been put up by the plaintiff upon the poles of the Ohicago & Milwaukee Telegraph Company. If there were pl'Oper allegations in the bill in relation to the rights of the Chicago & Milwaukee Telegraph Company in the city, then I think the principles which I have stated would not apply, because I am not prepared to say but that if the Chicago & Milwaukee Com!1any has the right to erect its poles and to place wires upon them, that it could not give that permission to the plaintiff; but . there are no allegations in the bill upon the subject, except the fact is shown that the poles are erected. How, or why, or under what authority, does not appear.
GOODBAR
and others v. CARY
and
otners.
(District Court, N. D. Mi8Si88ippi.
December Term, 1882.'
1.
PARTNERSHIP-PAYMENTS, OF DEBTS OF :M:EMBEUB BY FIRM-DEED
Vom
AS
TO
Where one loans ID?ney to the individual memhers of a firm, taking their individual notes therefor, a conveyance of land owned by the firm in part payment of such notes is an appropriation of partnership property to the payment of the debts of its memhers; and if, at the time of such conveyance, the firm is insolvent, it is fraudulent as to existing creditors, although valid as between the the parties thereto, and will be set aside at the suit of a creditor who lla" outa.lieu a judgment against such firm.
GOODBAR V. CARY.
817
2.
SAMI':-INSOLVENCY
of FIRM. So long as a firm is solvent, all its members Msenting, the individual debts of the parties may be paid out of the firm assets; but if the firm is insolvent at the time a transfer of the firm property to make such payment is made, it is fraudulent and void as to existing creditors of the firm.
In Equity. Taylor <t Barr, for complainants. Mayes <t Hall, for defendants. HILL, J.The questions for decision in this cause arise upon bill, answers, exhibits, and agreed state of facts, and from which the facts' appear:
Cary & Richardson were merchants doing business at Courtland, in this state. Defendant E. Richardson loaned to Cary, in 1874, the sum of $2,000, for which Cary gave his two notes for $1,000 each,-one payable in one and the other in two years, with 10 per cent. interest from date; and also on the seve'lth of February, 1875, said E. Richardson loaned to defendant R. P. Richardson the sum of $4,771.24, and took a note therefor payable one day after date, with 10 per cent. interest from date. These notes remained due and unpaid on the seventh day of January, 1881. The firm of Cary & Rip-hardson at that time were embarrassed and involved, and largely indebted to the firm of Richardson & May, of which said E. Rich· ardson was and is a member-the amount of said indebtedness being the sum of$14,239.22; and being at the same time indebted to other creditors, as shown by their schedule, to the amount of $13,884, on the same day and about the same time executed, first a deed of conveyance to the real estate described in their deed to E. Richardson, at the estimated price of $2,500, in part"payment of the notes mentioned above, and soon after a trust deed conveying,all their remaining property and choses in action to a trustee, in which they admit their inability to pay their debts in full, and provided for the full payment of the debt due Richardson & May, and the remainder to their other creditors, pro rata; the two conveyances being made near the same time, and E. Rich. ardson being interested in the trust deed, though the deed for the land was in point of time executed first, yet with a knowledge of the insolvency of the firm, and of the intended trust deed and its provisions. The money borrowed from E. Richardson was borrowed for the purpose of being used by the firm, and it was known to said Richardson that all the means which the members of the firm owned was employed in the firm, and said Richardson looked to the interest which his said debtors respectively had in the firm property and assets for payment.
The fraud charged in the bill is denied by the answer, and there is no proof to sustain the allegations of fraud, outside of what appears upon the face of the pleadings, exhibits, and agteed facts, as stated above. The complainants have obtained judgment npon their rlebt, and have had a return of nulla bona, and file this bill to set aside the con.
"eyance to the lands as above described, on the allegation that the title so conveyed, though good and binding between the parties themselves, is fraudulent and void as to them. Among other allegations of fraud, and that now relied upon, is that the debts due E. Richardson, the grantee, were individual obligations, and that due to complainants is a debt due by the firm, and that the lands conveyed belonged to the firm and are primarily liable for the firm's debts. That the real estate was firm property before this conveyance is admitted. The question is, was the conveyance of the land described in the bill, under the circumstances, a fraud upon the rights of complainants and the other creditors holding firm debts against Cary & Richard. son? It is insisted for defendants that the money loaned to each of the members of the firm was understood at the time as intended to become a part of the capital of .the firm, and that the loan of part to' one and part to the other was to enable them to equalize their capital stock,and that, as they had no individual property, E. Richardson looked to the property and business of the firm for payment, and that he has an e·quitable claim on the firm and its assets, and that the payment to him by the conveyance of the land was in good faith a:ld free from fraud, and vested in the grantee a valid title. If it were true that money had been loaned to the firm, and that the individual notes of the members of the firm, each for a portion as a security for the payment of the firm liability, then it would have remained a firm: liability, and this conveyance, being free from fraud, would have conveyed a good title. The fact that it was understood between the pa.rties that the money after the loan wa.s made was to be used in the firm business, could not of itself, according to the weight of authority, at least, create a liability upon the firm, nor could the fact that E. Richardson knew that the partnership had no individual means, and that if repayment was made it would be out of the interest which the makers of the respective notes had in the business and property of the firm, have the effect to bind the firm; and this is all that appears from the answers of the defendant, relied upon to create any equity in favor of E. Richardson upon the firm property and assets. He had the right to obtain judgment against the maker of the note, his individual debtor, and have his execution levied upon the interest of the defendants in the execution, in the property and a.ssets of the firm. That interest was the share to which the defendant might be entitled after the payment of the firm debts, and the amount due his copartner. This is elementary law, and sustaiIied by the adjudications. Without considering this qnestion further, I am satie-
v.
C&RT.
319'
fiedthat these notes al'elUdividual obligatioJlIi, arta have 110 other claim or equity to the firm property and assets than that of any other individual creditor. It iaa well-settled ru:e of law in this state that, so long as a firm is st)lvent, 0.11* members asaenting, the debts of the parties may be"paid out of the firm as,aets, 8;$ no one would be injured thereby. It. iS7.also settled by the supreme court of the United States, on. the case of Oase v.Beauregard,.99 U. S. 119, that simple contract creditors havena lien upon the,j,oint assets of a fum until th,e property has passed in:custo.dia legis, and that if, before the interposition ,of.the'court is aske,d,the property has passed into the hands of a bona fide purchaser, or by a bona fide, transfer hal'! ceased to be the property of the firm,. be held liable to the firm creditors' demands, and that. the equities of the firm creditors to satisfaction out of the firm assets are derived ,through the equity which Ellloch partner has upon the firm assets to ha.vethe same applied to the payment of the'firm liabilities, a.nd thenJor the'pa,yment of ever may,bedue the partners upon a settlement of the af,;airs of 'the partnership. In this case the bill was not filed so as to bring the lands within the jurisdiction of thisc(lourt until ,after the conveyance to Richardson, and if that transfer, under the circumstances, was free from fraud in law or fact, there remained no .such equity in complainants as to entitle them to the relief prayed for, which leaves the question as to whether or not the conveyance, u:uderlthe circumstances, was fraudulent. .1£ fraudulent, it being in payment of: antecedent debts, it would be void as against existing creditors of the firm whether the knew it was fraudulent or llQt, This rule is sustained by a current of unbroken decisions by the supreme court of this state, and recognized and adopted by .the .supreme court of the United States as a general rule in the case above referred to, so that if this bill is maintainable it cannot be upon the idea that complainants had any, lien upon the firm property, and" the lands in question in particular, which this court can as a court of equity enforce, if there was no fraud in fact orin law in the transfer. If, however, there WfI,B such fr.aud in law or in fact as against complainants, who were at the time of the transfer existing creditors of the firm, thEln the conveyance was void as to them, and they are entitled to the relief 'prayed for, in the bill. It is apparent, from what is stated in the pleadings and in the agree ment, that Richar-dson, the gra.ntee, knew at the time the deed was executed that Cary & Richardson, the grantors, were insolvent, both a
820
as a firm and individually, and that, as part of -their transaction then to be made, they would divest themselves of all their property and left with which they could make volun. assets, and would have tary paJments, or upon wpich their firm creditors could obtain satisfac· tion of that which was due them, provided the assignment to their trustee was valid. And, further, the conveyance acknowledged their insolvency upon its face. This conveyance placed Cary & Richardson in the same condition they would have been under an adjudication of bankruptcy or insolvency under judicial proceedings. It is held by the supreme court of the United States in the case of Shanks v. Klein, 104 U. S. 18, that in case of the death of one of the partners the real estate held by them as firm property will be treated as personal assets and applied to the payment of the debts of the firm; and Justice MILLER, delivering the opinion of the court, quotes approvingly from Story's Equity, in which it is held that the creditors have an interest indirectly in the appropriation of such property; not that they have a lien, legal or equitable, upon the property itself, but upon the equitable principle that the real estate so held shall be deemed to constitute a part of the fund from which their debts are -to be paid before it can be legally or honestly divertfld to the private use of the parties. It is held by the court of appeals of New York, in the case of Wil· son v. Robertson, 21 N. Y. 589, that the appropriation by an insolvent firm of partnership property to the payment of the individual debts of one partner, is not simply void, but is fraudulent, and avoids the deed of assignment. The same court, in the case of Menagh v. Whitwell, 52 N. Y. 146, holds that a "transfer by one of the partners or a lien given by him upon the corpus of the partnership property to pay an individual debt, although made with the consent of the other partners, is fraudulent and void as to the creditors of the firm, unless the firm was at the time solvent, and sufficient property remained to pay the partnership debts;" that is, if the firm is insolvent at the time of the transfer it is fraudulent and void. The same doctrine is held by the supreme court of Illinois, in Keith v. Fink, 47 Ill. 272, referring approvingly to the case of Wilson v. Robertson, in 21 N. Y., above referred to, in which it is held that to pay the individual debt of one of the partners is in effect a gift from the firm to one of the partners,.-a reservation for the benefit of such partner or his creditors to the direct injury of the firm creditors." The fact that the partners joined in a conveyance of the firm assets to pay the individual debts of each, though to the same creditor,
821
would, nnder tbe above rule, be but a gift by each to the other, or his individual creditor; and the cases of Schmidlapp v. Currie, 55 Miss. 597; Roach v. Brannon, 57 Miss. 490 and 5 Ohio, - , and other cases referred to and relied upon as maintaining the opposite rule, when examined, do not apply to a case in which the parties are bankrupt or insolvent, so declared by their deed of assignment, in which they divest themselves of all their property and rights in action, as in this case. After a careful examination of the question, and the authorities relied upon on both sides, I am unable to come .to any other conclusion than that this conveyance, under the circumstances, was a fraud in law upon the rights of complainants and the other firm creditors, who were such at the time of the execution of the deed, and that complainants, having obtained a judgment, with a return of nulla bona, have the right by their bill to have a decree setting aside the conveyof their judgment out of ance as to their claim, and to the the proceeds of the sale of the land, unless the same shall be paid within a reasonable time. The sale being valid as between the parties, Richardson, the grantee in the deed, has a right to discharge the complainants' judgment and costs, and retain the land. I regret that there is not an appellate tribunal by which this ruling can be reviewed and the errors, if anv.corrected. Mr JustIce LINDLEY, in his valuable work on Partnership,{a) justly says: .. It is an erroneous but popular notion that if a firm obtains the benefit of a can· tract made with one of its partners, it must needs be bound by that contract. Now, although the circumstance that tile firm obtains the benefit of a contract entered into by one of its members tends to show that he entered into the contract as the agent of the firm,( b) such circumstance is no more than evidence that this was the case; and the question upon which the liability or nonliability of the firm depends is not, has the firm obtained the benefit of the contract? but, did the firm, by one of its partners or otherwise, enter into the contract ?"(c) "In ordinary cases, where one partner borrows money without the authority of his copartners, the contract of loan is with him and not with the firm; and the nature of that contract is not altered by bis application of the money."(d) (II) Page 361.
(6) Per Rolfe, B., In Beckbam Y. Drake, 9 M·· W.l00. (c) Rolfe, B., In Beckham Y. Drake, IOpra; Kingsbridge Floor MlII Co. v. Plymooth Grind. Ing- Co. 2 Ex. 718; Ernest v. Nlcbolls, 6 H. L. O. 423; Ex parte Bonbonos, 8 Ves. 544; EmIr Y.
Lye, 16 East. 1; Bevan Y. Lewia, 1 Sim. 316; Union, etc., Bank v. Day, 12 Heisk. 413; PetersOO Y. Roach, 32 Ohio St. 374. Bevan v. Lewis Is an Instructive case upon this pOInt. (It) 1 Lind. Part. -a62; Smi&b v. Oraven, 1 Cr. & J. 600; Hawtayne v. Bourne, 7 M. & W. &.16; Burmester Y. Norria, 6 Ex. 79Cl; Ricketts v. Be...
v.16.n<l.3-21
, ,322
REPORTER,
.. It is competent for partners, by agreement among themselves, to convert that which was partnership property into the separate property of an individual partner, or 'Vice 'Versa."(e) "As the ordinary creditors of an individual have no lien on his property, and cannot prevent hini from disposing of it as he pleases, so the ordinary creditors of a firm have no lien on the propel'ty of the firm so as to be able to prevent it from parting with that property to whomsoever it chooses."(f) "Agreements come to between partners converting the property of the firm into the separate estate of one or more of its members, and 'Vice versa, are, unless binding not only as between the partners themselves, but also on their joint and on their respective several creditors; and. in the event of bankruptcy, the trustees must give effect to such agreernents."(,g) So, during the existence oia partnership, which is neither bankrupt nor contemplating bankruptcy, one of the members of the firm may, with the consent of the other partner or partners, upon a bona fide cOllsideration, with no benefit reserved, assign and tra,nsfer the assets of the partnership in payment of his individual deQt, it no lien' has attached to such assets; and such transfer is good against the firm creditors.(h) But a transfer by one partner of an interest in,or a lien given by him upon, the corpus of the partnership property to pay an individual debt, although made with the consent of the other part,;ners, is fraudulent and void as to the creditors of the firm, unless the firm was at the time solvent, and property remained to pay the firm debts.(i) Nor can the members of an insolventpa):tnel'ship, by mutual consent, divide the partnership funds between so as to enable each member to apply the part allotted to him in a preferred payment of his separate debts, leaving the joint debts unsatisfied;' and a transfer of such partnership property to an individual creditor in payment of an antecedent debt, with a knowledge on the part of the creditor of such design, will not enable him to hold it discharged from the .equitable lien of the partnership creditors.(j) In Fe1'son v. Monroe(k) it was held that if partners sell their stock in trade in order that the proceeds may be applied by the purchaser to pay the separate debt of one partner, with the intent thereby to prevent the creditors of the firm from having the remedy which the law would otherwise give them on the property of the firm, such sale is void as to the creditors of the firm, although the separate debt of the partner was contracted for money which was put by him into the business and capital of the firm. Partners in fact insolvent nett, 4 C. B. 686; In re Worcester Corn Ex, Co. 3 De G., M. & G. 180; Fisher v. Taylor. 2 Ha, 218; Union, etc., Bank v. Day, and Peterson T. Roach, supra. (t) 1 Lind. Part. *654; Bullitt v, M. E. Church, 26 Pa. St. 108; Hickson v, 1 8wan, 258; Dimon v' Hazzar,], :32 N. y, 65; Evans v. Hawley, 35, Iowa, 83; Whitworth v, Benbow, 66 Ind. 194; Upson v. Arnold, Ga. 190. (f) See Wilcox v. Kellogg, 11 Ohio. 394; Sigler v. Knox Co. Bank, 8 Ohio St. 511; White v, Par. Ish,20 Tex. Potts v. Blackwell, 4 Jones, Eq. 58; Field v. Chapman, 15 Abb, PI'. 434; Robb v. MUdge, 14 Gray, 534; Alle\l T, Centre Valley Co. 21 Conu. 130; Schmidlapp v. Cnrrie, 55 Miss. 691; Reeves v. Ayers, 38 111. 419; Reese v. Bradford, 13 Ala. 83?; State v. Thomas. 7 Mo. App, 205; Shackleford v. Shackleford, 32 Grat. 481. (8') 1 Und, Part. *655. (h) Schmidlapp v. Currie, 55 Miss, 597; Reeves v. Ayers. 38 111. 418. (!) WilHOil v. l(obert80u, 21 N. Y.58?; Menagh v. Whitwell, 52 N. Y. 146; Keith v. Finl<, 47111. 272; COX V. Platt, 32 Barb.126; Kna'nth V. Bassett,34 Barb. 31; Henderson v. Handen, 12 Rich. Eq, 3\"3; F'rench v. Lovejoy, 12 N. H. 45S. (j) Burtns v. Ti,nall,4 Barb. 671; Ransom v. Van Deventer. 41 Barb. 301. (I<) 21 N. H. 462.
SCHOOL-DIST. NO.
1'3
V.LOVEJOY.
are considered in eqnity as holding the pattnership effects in trust for the benefit of the firm creditors, and· eannot.'bya. transfer' of the interest of one to the other, defeat this trust.(l) A division, however" of partnership .proJr erty between the partners in proportion to their interests, f0F. the purpose of protecting the property from seizure by the individual creditors of one of the partners, is not unlawful, and cannot be avoided as a fraud upon the in· dividual creditors.(m) . · Were authority necessary to support an opinion so eminently reasonable as that rendered by the learned judge who dj30ided the principal casEl, it is believed that the perusal of the cases above cited in this note will convince the reader of the correctness of that decision M..D. EWELL. Ohicago, May 21, 1883. (I) III re Oook, a Bias. 122. (m) Atkins y. Saxton, N. Y. 196.
SCHOOL-DISTRICT
No. 13,
SHERMAN COUNTY,
LOVElOY.
(Oircuit Oourt, D. Nebraska. May, 1882.) JUDGMENT BY DEFAULT-SERVICE ON PARTy-BILL TO BET ASIDE.
A judgment by default against a party who has been regularly served with summons in the action, will not be set aside after the term, on the ground that such party had a good defense to such action lind wrote to an attorney to appear for him, but did not disclose his defense, and that he had no knowledge that such letter WllS not delivered to the attorney until after the iudgment was rendered and the court had adiourned line die
In Equity. Groff ct Montgomery,for complainant. Mr. Pritchett, for respondent.
MCCRARY, J. It may be conceded that the letter to Marqnett was mailed as alleged, and that it was lost in the mail by aecident, and still there is no sufficient showing of diligence in the defense of the action at law. Litigants are, for reasons of great public importance, required to exercise due diligence in prosecuting or defending suits in which they are parties. Courts cannot make rules to aid or relieve those who are guilty of negligence. If Marquett had received the letter, he would have been under no legal obligation to defend the action. Moreover, it does not appear that he was furnished 'with the facts constituting the defense, nor with the names of witnesses relied upon to prove them, nor that any fee was paid or tendered him. Under such circumstances,and having received no answer to its communioation, the complainant had no right to rely upon Mr. Marquett to
