Emerson v. Senter/Opinion of the Court

The court below proceeded upon the ground, in part, that a sole surviving partner of an insolvent firm, who is himself insolvent, cannot make a valid assignment of partnership assets for the benefit of the joint creditors, with preference to some of them. We are unable to concur in this view. Some of the cases hold that one partner cannot, either during the continuance of the partnership or after its dissolution by agreement, make such an assignment. It cannot, however, be doubted that, in the absence of a statute prohibiting it, such an assignment, whether during the continuance of the partnership or after its dissolution by agreement, would be valid where the partners all unite in executing it, or where one of them executes it by the direction or with the consent of the others. Partnership creditors have no specific lien upon the joint funds for their debts. 3 Kent, Comm. 65; Story, Partn. § 358. They have no such relations with the partnership as entitles them to interfere with the complete control of the joint property by the partners during the existence of the partnership, or with their right, after a dissolution by agreement of the partnership, to dispose of it for the payment of their joint debts, giving such preference as they deem proper.

When the partnership is dissolved by the death of one partner, the surviving partner is entitled to the possession and control of the joint property for the purpose of closing up its business. Wickliffe v. Eve, 17 How. 469; Shanks v. Klein, 104 U.S. 18. To that end, and for the purpose of paying the joint debts, he may, according to the settled principles of the law of partnership, administer the affairs of the firm, and, by sale or other reasonable disposition of its property, make provision for meeting its obligations. He could not otherwise properly discharge the duty which rests upon him to wind up the business, and pay over to the representative of the deceased partner what may be due to him after a final settlement of the joint debts. It is true that, in many cases,-where, for instance, the surviving partner is not exercising due diligence in settling the partnership business, or is acting in bad faith,-the personal representative of the deceased partner may invoke the interference of a court of equity, and compel such a disposition of the partnership effects as will be jest and proper; this, because, as between the partners, and therefore as between the surviving partner and the personal representatives of the deceased partner, the joint assets constitute a fund to be appropriated primarily to the discharge of partnership liabilities; though not necessarily, and under all circumstances, upon terms of equality as to all the joint creditors. But while the surviving partner is under a legal obligation to account to the personal representative of a deceased partner, the latter has no such lien upon the joint assets as would prevent the former from disposing of them for the purpose of closing up the partnership affairs. He has a standing in court only through the equitable right which his intestate had, as between himself and the surviving partner, to have the joint property applied in good faith for the liquidation of the joint liabilities. As with the concurrence of all of the partners the joint property could have been sold or assigned for the benefit of preferred creditors of the firm, the surviving partner-there being no statute forbidding it-could make the same disposition of it. The right to do so grows out of his duty, from his relations to the property, to administer the affairs of the firm so as to close up its business without unreasonable delay; and his authority to make such a preference-the local law not forbidding it-cannot, upon principle, be less than that which an individual debtor has in the case of his own creditors. It necessarily results that the giving of preference to certain partnership creditors was not an unauthorized exertion of power by Moores, the surviving partner.

It is, however, contended that the assignment in question was void because of the fraudulent omission from the schedule by Moores of certain property which constituted a part of the partnership assets, and was appropriated by him to his own use. But this fraud upon the part of Moores did not affect the rights of the assignee and of the beneficiaries of the trust, who were ignorant of the fraud of the grantor. Such seems to be the established doctrine of the supreme court of Arkansas. In Hempstead v. Johnston, 18 Ark. 140, it was said that a deed of trust or other conveyance is not necessarily void 'because its effect is to hinder and delay the creditors of the grantor in the collection of their claims; but such must be its object. It must be a fraudulent contrivance for that purpose, and the grantee, or person to be benefited by the conveyance, must be party privy to the fraudulent design.' Referring to the facts which existed in that case,-that the grantor was in failing circumstances when the deed of trust was made; that suits were pending against him; and that some of the beneficiaries were his near relatives,-the court said: 'But all these facts may and do exist in many cases consistently with the hypothesis that the conveyance was made in good faith to secure preferred creditors whose demands are just.' In Cornish v. Dews, 18 Ark. 181, the court said: 'As held in the case of Hempstead v. Johnston, supra, if the deed was valid when executed, no subsequent conduct on the part of the grantor, or the trustee, however fraudulent, could avoid the deed, and deprive the creditors, accepting it in good faith and not participating in the fraud, of their rights under it. And even if Cornish(the grantor) had the purpose, when he made the deed, of hindering and delaying creditors not provided for by it, yet if the preferred creditors were not parties or privies to his fraudulent purpose, but accepted the deed in good faith to secure the debts really due them, it would be valid as to them.' See, also, Mandel v. Peay, 20 Ark. 329; Hunt v. Weiner, 39 Ark. 75. The rule announced by the supreme court of Arkansas is in harmony with the settled doctrines of this court, and accords with sound reason. Marbury v. Brooks, 7 Wheat. 556, 577; Brooks v. Marbury, 11 Wheat. 78, 89; Tompkins v. Wheeler, 16 Pet. 106, 118. There was nothing upon the face of the deed to Emerson to indicate that it was made for any other purpose than, in good faith, to make provision for the payment of certain debts held against the grantor as surviving partner,-first, debts due to the preferred creditors, and, then, debts held by other creditors. If the intentional omission by the grantor of certain property from his schedule, and his appropriation of it to his own use, was such a fraud as would vitiate the deed, where the assignee or the preferred creditors have previous notice of such omission, that result cannot happen when they were ignorant of the fraud at the time they accepted the benefit of the conveyance.

The judgment is reversed, with directions to enter judgment on the special finding of facts in favor of the plaintiff in error.