Stanton v. Westover

Finch, J.

The judgment in this action is fully sustained by the case of Dimon v. Hazard ( 32 N. Y. 65 ). It was there held that where one of two partners retires from business, relinquishing to the other all his interest in the partnership property, the remaining partner acquires the same dominion as. if it had ever been his own separate property; that the transfer being made in good faith, the title vests in the remain *268 ing partner as his own private estate, free from any lien or equity in favor of partnership creditors; and that such remaining partner may lawfully transfer such property in payment of his individual debts. In this case, the good faith of the transfer is abundantly proved, and found as a fact by the trial court. The partnership was perfectly solvent; its debts being only about $1,500, and its assets $9,000. The retiring partner received $3,800 in outside securities, except to the extent of $900, which was paid to him in firm notes and accounts, and agreed to pay one-half of the firm debts, the remaining partner agreeing to pay the other half. For a period of five months the situation 'remained unchanged, and the property open to levy; and during that time the retiring partner offered to pay one-half of the debt here in question upon being fully released. The creditor had a right to decline the offer, but the fact that it was made bore strongly upon the question of good faith. By force of this arrangement neither party retained any equity against the other. By their joint consent the goods became the individual property of the remaining partner, and the $900 in notes and accounts the individual property of the retiring partner, and no partnership property remained. Each by the agreement of transfer substituted for the partner’s equity the personal contract of the other to pay, and had left only the right to enforce that contract against the individual contracting. The property of O. M. Westover thus lost its character of partnership property, and became the separate property of the individual. This result is claimed to have been changed by the doctrine of this court in Menagh v. Whitwell ( 52 N. Y. 146 ). We do not so understand it. It was there distinctly said that “ there is another class of cases in which the partnership effects have been held to be liberated from liability to be applied to partnership debts, in preference to the separate debts of one partner; that is where a bona,fide, sale has been made by a retiring partner in a solvent firm of two members to his copartner, the latter assuming the debts. In such a case it is settled that the property formerly of the partnership becomes the separate property of the purchasing partner, *269 and that the partnership creditors are not entitled to any preference as against his individual creditors in case of his subsequent insolvency. But in those cases the joint property was converted into separate property by the joint act of all the members of the firm. They had power to dispose of the corpus of the joint property, and the exercise of that power, when free from fraud, divested the title of the firm as effectually as if they had united in a sale to a stranger.” The question in the case, from which we have made the foregoing citation, was further said to be the effect upon the title of the firm, as between it and its creditors, of several transfers by the partners to third persons. Two circumstances only mark a difference in the case before us from those supposed in the doctrine thus established. Here the debts were not all assumed by the purchasing partner, and the latter was in fact insolvent as an individual at the date of the transfer. But, as we have already seen, each assumed one-half of the debts in severalty as between themselves, and in reliance upon the individual responsibility of each other; neither retaining any partnership equity since no partnership property remained. The insolvency of the purchasing partner, if known to him and to the seller, might very well be strong evidence of an intent to defraud the partnership creditors, and become conclusive upon that question if there was no explanation. But here the purchasing partner supposed himself to be solvent, .and was so believed to be by the seller. The former continued in business for five months before his failure, during which period he stood open to a levy by the firm creditors, and the offer of the retiring partner to pay the half he had assumed tended to rebut any fraudulent intent.

On this state of facts it is found .that there was no fraud, and we think correctly. The contrary could not be held as matter of law.

The judgment should be affirmed, with costs.

All concur.

Judgment affirmed.