Hill v. Draper

¶1Sf débts.ayi°ent The real question in this case is, When an insolvent partnership has been dissolved by the death of one of its members, can the surviving partners transfer the firm property in payment of their individual debts, and can a transferee who takes with notice be charged as trustee at the suit of partnership creditors ? The question cannot be determined by the rule in cases cited as to the power of one partner, with the assent of his associates, to transfer joint effects in payment of individual debts; for the assent of the associates is a material element in such cases, which, on account of the death of one of them, can never enter into cases like this. The question stated must be determined from the relation which the surviving partners sustain toward the partnership property and creditors, and toward the representatives of the deceased partner.

¶2A surviving partner is entitled to the possession and management of the firm property, but only for the purpose of settling the firm business. Cline v. Wilson, 26 Ark., 154; Adams v. Ward, ib., 135; Pars. Part., 441. He holds as trustee for the representatives of the deceased partner, for the firm creditors, and for himself; and he is bound to manage the firm property with a view to the best interests of all concerned. 1 Lindley on Part., p. 342, and n:, Pars, on Part., p. 442; Story on Part., secs. 344-7. He has such powers as are reasonable and proper to enable him to execute the trust, and, like other trustees, is prohibited from dealing with the property for his personal advantage. Pars. Part., p. 442. It is strictly within the scope of his powers to apply the assets to firm debts, but wholly without such scope to apply such assets to his own debts. In the latter case he devotes them to his personal gain, which iie may not do to the detriment of the trust which he is bound to execute.

¶3Each partner, while the relation continues, has a lien on the firm property to provide for the payment of its debts, which descends upon his death to his personal representatives ; and where the survivor neglects or violates his trust, such legal representatives may have the property administered in equity, and through his right, if not otherwise, the creditors of the firm are enabled to resort to a like proceeding. Jones v. Fletcher, 42 Ark., 422 ; Couchman v. Maupin, 78 Ky., 33 ; Shanks v. Klein, 104 U. S., 18 ; Story on Part., sec. 347.

¶4The very question stated has been decided by other appellate courts, and the result of the adjudications is a denial of the right of the surviving partner to transfer firm property in satisfaction of his individual debts, and an affirmance of the right of firm creditors to subject the property in the hands of such transferee with notice. And this rule prevails in jurisdictions that affirm the right of a partner with the assent of his associates to apply joint property to individual debts, as well as in those that deny such right. Scott v. Tupper, 8 S. & M. (Miss.), 280; Allen v. National Bank, 6 Lea (Tenn.), 558 ; Hutchinson v. Smith, 7 Paige, 26; Holland v. Fuller, 13 Ind., 195; Roach v. Brannon, 57 Miss., 490.

¶5As the surviving partner’s interest in the partnership property consists only of his portion of it after all its debts are paid, one who holds under him by an unauthorized transfer, with notice, can have no greater interest. Scott v. Tupper, 8 S. & M., supra.

¶6If the principles herein announced are correct, it would follow that the demurrer to the complaint should have been overruled.

¶7The judgment will be reversed and the cause remanded, with directions to overrule the demurrer.