Clements v. Jessup

The opinion of the court was delivered by Depue, J.

The controversy is between Clements, a creditor of the firm holding a chattel mortgage executed by both partners for a firm debt, and Jessup, the purchaser at a sale under an attachment, against one of the partners for an individual debt, the attachment being prior to the chattel mortgage in point of time.

The interest of a partner in partnership property is only his share on a division of the surplus, after payment of partnership debts; and partnership property must be applied first to the payment of firm debts. 3 Kent 37; Cammack v. Johnson, 1 Gr. Ch. 163; Matlack v. James, 2 Beas. 126. A purchaser directly from a partner of his interest in the firm property acquires no-title in partnership property except the vendor’s share in the surplus after an accounting and adjustment of the partnership affairs. Tarbell v. West, 86 N. Y. 280; Hill v. Beach, 1 Beas. 31; Cavander v. Bulteel, L. R. (9 Ch. App.) 79. A sheriff having process of execution or attachment against one partner may seize and sell the latter’s interest in partnership property ; but a sale under such process will convey only the interest of the partner in partnership property after the firm debts are paid and the affairs *572 of the partnership, are settled up. Brown v. Bissot, 1 Zab. 46; James v. Burnett, Spen. 635; Linford v. Lent, 4 Dutch. 113; Atwood v. Impson, 5 C. E. Gr. 150; Johnson v. Evans, 7 Man. & G. 240; Garbelt v. Veale, 5 Q. B. 408. Indeed, partnership creditors, in equity, have an inherent priority of claim upon partnership property over individual creditors, and a transfer of partnership property by one’ partner, with the consent of the other partners, or by all the partners, to pay individual debts, is fraudulent and void as to firm creditors, unless the firm was then solvent and had sufficient property remaining to pay the partnership debts. Menagh v. Whitwell, 52 N. Y. 146; Wilson v. Robertson, 21 Id. 587; Ex parte Snowball, L. R. (7 Ch. App.) 534; 2 Lind. on Part. 658. The appellant, by his purchase at the sale under the attachment against Shea, acquired, by virtue of the levy and sale under that proceeding, only the interest of Shea in the property, and the receiver’s report shows that this property is required to pay the debts of .the firm. In either aspect of the case, Jessup, as a partnership creditor, holding a chattel mortgage on the same property, executed by both partners for a firm debt, is entitled to priority, though his'mortgage is subsequent in date to the attachment, if the property attached and sold was in fact partnership property.

The goods and chattels with respect to which this controversy has arisen, were the individual property of Shea before the partnership was formed. The contention is that they continued to be Shea’s individual property during the partnership, and that the firm had no property in them or control over them except for use in the course of the partnership business.

Sometimes it happens that property which is in individual ownership is used for partnership purposes or in a joint adventure upon a community of profits, and it remains the sole property of the individual owner during the continuance of the partnership. In other words, there may be a partnership in the profits or in the business, and none in the property with which it is carried on. 2 Lind. on Part. 648, 649; Parsons on Part. 48. This condition of affairs arises generally where the property consists of lands used for partnership purposes, and less fre *573 quently with respect to chattels, such as office furniture or utensils of trade actually used by the firm. Ex parte Owen, 15 Jur. 983; Ex parte Smith, 3 Madd. 63. Cases of this description give rise to questions of considerable nicety, especially where the property consists of chattels necessary for use in the firm business, and the claims of partnership creditors are in the issue. This case, however, is free from all difficulty in that respect, for if one partner brings such property into the common stock as part of his contribution to the capital, it becomes partnership property. 2 Lind. on Part. 649; Robinson v. Ashton, L. R. (20 Eq.) 25; Cavander v. Bulteel, L. R. (9 Ch. App.) 79; Ex parte Morley, L. R. (8 Ch. App.) 1026.

By the articles of partnership, Shea agreed to furnish all the capital stock to be used in the partnership business, Schnorr contributing only his personal services. The capital to be furnished by Shea was fixed at the sum of $5,000. Instead of advancing the money to buy the horses, wagons and implements necessary for the business, Shea provided them from stock which he had on hand. It does not appear that any credit for these articles as capital furnished by Shea was made in the firm book. But that circumstance is of little importance, inasmuch as Shea was to provide all the capital, unless there should be an increase of capital, as stipulated for in the articles of partnership, and, therefore, there was no need of an account to be kept of the contributions of the partners to the capital, in the situation the business was-in. It is manifest from the kind of property, the use made of it for partnership purposes, the need of property of that description to be bought with money or provided otherwise, and the manner in which it was treated by the partners, that the chattels in controversy were considered as part of Shea’s contribution to the capital, as much so as if he had furnished money out of pocket to purchase them. Ex necessitate rei, the capital of a partnership, like the capital of a corporation, becomes firm property though it was once the property of an individual partner, and was put in in specie, and as such is liable to the payment of firm debts in priority over the debts of the individual partner, whose property it formerly was. Having become part *574 nership property, it could not be taken out of the firm under any agreement to that effect relative to the dissolution, until the partnership debts were paid. Ex parte Morley, L. R. (8 Ch. App.) 1026; Ex parte Dear, (1 Ch. Div.) 514.

The decree should be affirmed.

Decree unanimously affirmed