Rogers v. Nichols

Wheeler, J.

Although by the contract of the 5th of September, 1855, Davis alone was to become the purchaser of the house and-lot, and drugs, medicines, &c., mentioned in the agreement ; yet, by the contract of partnership of the 6th of September, between himself and the plaintiffs, they all joined in the *724 purchase for. the purposes of the partnership. The property thereby became the partnership means for the purpose of carrying on the business of the firm. The purchase was on their joint account, and the property became partnership property. Although a purchase be on separate, and not on joint account, yet if the interests of the purchasers are afterwards mingled, with a view to a joint sale, a partnership exists from the time that the shares aré brought into a common mass. (3 Kent, Com. 26; 8 Serg. & Rawle, 103 .)

By the agreement of the 11th of July, 1856, the plaintiffs contracted to convey to Davis their interest in the partnership property, and he contracted to secure them against the liabilities of the firm; and for the performance of these and other stipulations, they expressly retained a lien upon the property. This agreement, if consummated, operated as a dissolution of the partnership. It completely severed the interests of the partners, and gave them distinct rights and remedies. If the plaintiffs had not retained a lien upon the property, it would undoubtedly have been liable to be taken in execution in satisfaction of the individual debts of Davis, free from any claim of theirs or their joint creditors. (3 Kent, 65 ; 6 Vesey, 119 ; 11 Id. 3, 5 ; Story on Part. Sec. 358.) But it was certainly competent for them to retain such lien. They had the power of. absolute disposition of their interest, and they, of course, could make a qualified disposition. Having retained a lien upon the property, they must have a remedy to enforce it; and it would seem that they must have the same remedy, which they would have during the partnership or upon its dissolution, without a sale of the partnership effects ; for upon such dissolution each partner has a lien upon the partnership effects, as well for his indemnity as for his proportion of the surplus. (3 Kent, 65.) Where, upon a dissolution and alienation of the property, the lien is retained, the rights and remedies of the partners, to the extent of the interest thus retained, must remain unchanged. In respect then to the rights of separate creditors of the individual partners, the law is, that partnership effects cannot be taken and sold on execution to satisfy a creditor of one only of the partners, except it be to the extent of the interest of such separate partners in the effects, after settlement of all accounts. “ In cases of this sort (says Judge Story) the real situation of the parties, relatively to each other, seems to be this : The partnership property may be taken in execution, upon a separate judgment and execution *725 against one partner; but the Sheriff can only seize and sell the right of the judgment partner therein, subject to the prior rights and liens of the other partners and the joint creditors therein. By such seizure the Sheriff acquires a special property in the goods seized; and the judgment creditor himself may, and the Sheriff, also, with the consent of the judgment creditor, may file a bill against the other partners for the ascertainment of the quantity of that interest, before any sale is actually made under the execution. The judgment creditor, however, is not bound, if he does not choose, to wait until such interest is so ascertained ; but he may require the Sheriff immediately to proceed to a sale, which order the Sheriff is bound by law to obey. In the" event of a sale, the purchaser at the sale is substituted to the rights of the execution partner, quoad the property sold, and becomes tenant thereof, and he may file a bill, or a bill may be filed against him by the other partners, to ascertain the quantity of interest which he has acquired by the sale.” (Story on Part. Sec. 263.) And the better opinion seems to be, that in cases of seizure of the joint property for the separate debt of one of the partners, upon a bill for the account of the partnership, an injunction will be granted to restrain the Sheriff from the sale until the account is taken, and the share of the partner ascertained. (Id. 264.)

It then was the right of the plaintiffs in this case, to have an auditor appointed to take an account, or to go into proofs upon the trial, to ascertain the share of the partner for whose debt the execution was levied. If the plaintiffs’ lien was reserved bona fide, and if, as they allege, the partnership effects were not sufficient to satisfy the partnership debts, and the other partner would have, upon a final adjustment of the accounts, no interest in the partnership effects, the sale by the Sheriff ought to be restrained. But if, as the defendant alleges, -the sale by the plaintiffs to the other partner was absolute, and the lien reserved was only colorable and for the purpose of defrauding creditors, then, unquestionably, the property was liable to be taken and sold upon the defendant’s execution. These, then, were the issues which, under the pleadings and proofs, should first have been submitted to the jury.

But the issue first submitted by the Court was, whether the partnership was dissolved by mutual agreement, before the levy of the execution. And the jury were instructed that if they found the affirmative of this issue, they need not inquire further. *726 And upon their' so finding, the Court gave judgment for the plaintiffs. This was error. The mere dissolution of the partnership did not have the effect to subject the property to be taken in execution for the separate debt of one partner. The partnership creditors must first be satisfied ; unless there was a transfer of the right of property absolutely to the other partner. And although there was an agreement to make such transfer, yet the reservation of a lien, if bona fide, entitled the plaintiffs to interpose for their own protection, and enjoin the sale.

The Court may have proceeded upon the ground that, as the sale under the execution would only pass the interest of' the separate partner, in the property of the partnership, no harm would thereby be done to the other partners, and therefore they had no right to interpose by injunction to restrain the sale. And so it was formerly held at Common Law, and' such appears to have been the opinion of Chancellor Kent. (2 Johns. Ch. R. 548, 549.) But, as Judge Story justly observes, if the debtor partner will have, upon final settlement, no interest in the partnership funds, and if the other partners have a lien upon the funds not only for the debts of the partnership, hut for the balance ultimately due to them, the sale may most materially affect their interest. For it may be very difficult to follow the property into the hands of the various vendees; and the lien of the other partners may be displaced or other equities arise by intermediate bona fide sales of the property to purchasers without notice; and the partners may have to sustain all the chances of supervening insolvencies of the immediate vendees. To prevent multiplicity of suits, and irreparable mischief, and to protect and insure the lien of the partners, it seems entirely proper in such cases to restrain any sale by the Sheriff. And such appears to be the established doctrine of the Courts of Equity. (Story on Part. 264, and numerous cases cited.) We conclude that the Court erred in restricting the inquiries of the jury to the two issues as to the dissolution of the partnership before the levy of the execution, and the solvency of the partnership; and in giving judgment for the plaintiff upon the finding of the affirmative of the first of these issues. The judgment is therefore reversed, and the cause remanded for further proceedings.

Reversed and remanded.