Tracy v. Tuffly

The principal questions in this case arise under the laws of Texas relating to limited partnerships, and to assignments for the benefit of creditors. Before examining those laws, the facts out of which this litigation arises will be stated.

Prior to March 26, 1884, R. W. McLin and W. T. Tuffly were partners doing business at Houston, Tex., under the name of R. W. McLin & Co. On that day McLin died, his widow and two minor children surviving him. No administration was had upon his estate. At the time of his death the firm was largely indebted to various individuals and partnerships. Among the latter were Morrison, Herriman & Co., Dunham, Buckley & Co., and W. H. Lyon & Co., who are plaintiffs in error. After consultation with the agent of many of the creditors,-the firms just named among the number,-the surviving partner and the widow determined to form a limited partnership under the name of 'W. T. Tuffly,' which should assume the debts of R. W. McLin & Co., in consideration of the release, by creditors of the old firm, of the estate of R. W. McLin from liability for their debts. From a trial balance of the accounts of the old firm which Tuffly caused to be made, it appeared that after the payment of its debts the share belonging to R. W. McLin's estate was $6,419.36. Mrs. McLin having sold and transferred to Tuffly all the goods and merchandise belonging to the old firm, they executed the following certificate of the formation of a special partnership:

'State of Texas, County of Harris:

'We, W. T. Tuffly and Mrs. Christine E. McLin, hereby certify that we have formed a copartnership, under the firm name of W. T. Tuffly, under which firm name the business of such copartnership shall be conducted.

'The general nature of the business intended to be transacted is a general retail, and wholesale, if they see proper, fancy and staple dry-goods and notion establishment, in the city of Houston, Texas. W. T. Tuffly is and will be the general partner of such partnership, resident of the city of Houston, Texas; and Mrs. Christine E. McLin is and will be the special partner of such partnership, whose residence is also in said city of Houston, Texas.

'The said Mrs. Christine E. McLin has contributed the sum of six thousand four hundred and nineteen and 36-100 dollars to the common stock. The said partnership is to commence on the 16th day of April, 1884, and to continue for the space of two years, to end on the 16th day of April, 1886.

W. T. Tuffly.

'CHRISTINE E. McLin'

This certificate was duly acknowledged by Tuffly and Mrs. McLin on the day of its date, before a notary public of the county, who certified the fact under the seal of his office. And on the same day, as appears from the official certificate of that officer, W. T. Tuffly, as the general partner named in the certificate of partnership, certified, under oath, that Christine E. McLin, the special partner therein, 'has contributed to the common stock of said partnership the sum specified in said certificate, and the said sum has in good faith actually been paid in cash.' The record also contains the certificate of the county clerk, under the seal of his office, to the effect that the certificate of partnership, with the certificate of its authentication, was filed for registration in his office on the 25th day of April, 1884, and was duly recorded on the 26th day of May of the same year.

In conformity with the direction of the clerk of the county court, the following notice was published in a designated newspaper for six successive weeks from April 26, 1884: 'The undersigned give notice that they have formed a copartnership under the firm name of W. T. Tuffly, having the following terms, as will appear by their executed and recorded certificate: W. T. Tuffly is the general partner. Mrs. Christine E. McLin is the special partner, and has contributed to the common stock the sum of six thousand four hundred and nineteen 36-100 dollars. W. T. TUFFLY. CHRISTINE E. MCLIN.'

On the day of the formation of this partnership, April 24, 1884, numerous creditors of R. W. McLin & Co.-among the number, Morrison, herriman & Co., Dunham, Buckley & Co., W. H. Lyons & Co. executed cuted a written release in these words: 'The undersigned creditors of the late firm of R. W. McLin & Company, in consideration of the assumption of all the indebtedness of said late firm by the firm of W. T. Tuffly, composed of W. T. Tuffly, general, and Christne E. McLin, special, partner, as appears by the certificates by them signed, hereby release the estate of R. W. McLin, deceased, from any and all liability on account of the obligations of said firm of R. W. McLin & Co., either by note or open account or otherwise.'

W. T. Tuffly entered upon the business contemplated by the partnership between himself, as general partner, and Mrs. McLin, as special partner, and continued in its prosecution until the 23d of March, 1885, when he executed a writing of assignment, upon the construction and legal effect of which the decision of some of the questions in this case depends. It is in these words:

'State of Texas, County of Harris:

'Whereas the firm of W. T. Tuffly, composed of W. T. Tuffly, the general partner, and C. E. McLin, as special partner, finding it impossible to pay its debts as they mature, and being desirous to have a distribution of all the property of said firm and the property of the said W. T. Tuffly, partnership and individual, and wishing to avail himself of the provisions of the general assignment law in such cases made and provided: Now, therefore, in consideration of the premises, and one dollar to me in hand paid, I. W. T. Tuffly, hereby assign and convey and deliver possession of all and singular my property and effects, of whatever name and nature, both personal and real, which I own as copartner and individually, and intend to include all property of which or in which I have any interest whatever, wherever the same may be, to Louis Tuffly, as assignee, for the purposes aforesaid, taking possession of the same and sell the same, collect and convert the same, and when so sold, collected, and converted, to appropriate the same ratably, or in full payment, as the case may be of all my debts, and the debts of the firm of W. T. Tuffly; said assignee to proceed under the law aforesaid. This assignment is intended for the benefit of all such of my creditors only as will consent to accept their proportional share of said property and estate so hereby conveyed, and discharge me, as aforesaid, from their respective claims; said assignee to take lawful compensation for his services herein, and expenses and counsel fees, necessary to aid him and enable him to carry out the purposes of this conveyance.

'Schedules are hereto attached, and made as particular as I can do at this time; but, in any particular where they may be incorrect or insufficient in detail, they will be corrected by me.

'In witness whereof, I hereunto set my hand, at Houston, this March 23d, 1885.

'W. T. TUFFLY.'

That deed of assignment was duly acknowledged, and to it were attached exhibits duly verified by the oath of W. T. Tuffly. These exhibits consisted of an inventory of the estate assigned and a schedule of the debts. In the latter appears a claim of Mrs. McLin of '$7,798, notes, borrowed money' Louis Tuffly, the assignee, indorsed his acceptance of the trust on the back of the deed, and gave bond as assignee, which was approved by the judge of the eleventh judicial district of Texas, March 23, 1885, on which day the deed of assignment and bond were filed for record in the proper office. The assignee took immediate possession of the stock of goods, wares, and merchandise belonging to the firm of W. T. Tuffly; also, of the furniture, shelves, counters, and stationery in the store-house. The assignment was accepted by creditors, exculuding Mrs. McLin, whose debts aggregated $7,116.26. It was not accepted by Morrison, Herriman & Co., Dunham, Buckley & Co., or W. H. Lyon & Co. The assignee remained in possession of the property until March 31, 1885, on which day, under attachments sued out from the circuit court of the United States for the eastern district of Texas by the three firms just named, against the property of W. T. Tuffly, they were levied upon and taken by Tracy, marshal of the United States for that district. The latter refused to make a levy, and did not levy, until indemnifying bonds were executed in behalf of the attaching creditors; the latter knowing, when they sued out the attachments, that the property was in the possession of the defendant in error in virtue of the above deed of assignment.

Under the order of the court, the attached property was sold, and the proceeds of sale were brought into court, and paid into its registry.

The present suit was brought by the assignee, in one of the courts of the state of Texas, against the marshal and the sureties on his official bond; the breach alleged being the illegal and wrongful seizure of the property in question, which was alleged to be of the value of $29,972.22. It was removed, upon the petition of the defendants, into the court below, upon the ground that their defense arose under, and involved the construction of, the constitution and laws of the United States. Bachrack v. Norton, 132 U.S. 337, ante, 106. The plaintiffs in the attachment suits were upon their motion made parties dee ndant, as were also the various parties who executed indemnifying bounds to the marshal.

The result of a trial before a jury was a verdict and judgment for $17,000 against Tracy and the sureties on his official bond, and against the attaching creditors. There was also a verdict and judgment in favor of Tracy upon the several indemnifying bonds given to him by those creditors, for the following amounts: $2,500 against Dunham, Buckley & Co., and their sureties; $2,600 against W. H. Lyon & Co., and their sureties; and $17,000 against Morrison, Herriman & Co., and their sureties. A motion for a new trial having been overruled, the defendants have brought the case here, and assign various errors of law as having been committed by the court below in its instructions to the jury, and in its refusal to grant instructions asked by the defendants.

Our attention will be first given to the statutes of Texas relating to limited partnerships, and to assignments for the benefit of creditors.

By the Revised Statutes of that state, which went into effect on the 1st day of September, 1879, it is provided that limited partnerships for the transaction of any mercantile, mechanical, manufacturing, or other business, except banking or insurance, may be formed by two or more persons, with the rights and powers, upon the terms, and subject to the conditions and liabilities, prescribed in title 68 of that revision.

Such partnerships may consist of one or more persons as general partners, and of one or more persons as special partners; the latter contributing in actual cash payments a specific sum to the common stock, but without liability for the debts of the partnership beyond the fund so contributed by him or them to the capital. Article 3443. 'The general partners only shall be authorized to transact business and sign for the partnership, and to bind the same.' Article 3444. Persons desirous of forming such partnership are required to make and severally sign a certificate, containing: '(1) The name or firm under which the partnership is to be conducted; (2) the general nature of the business intended to be transacted; (3) the names of all the general and special partners interested therein, distinguishing which are general and which are special partners, and their respective places of residence; (4) the amount of capital which each special partner shall have contributed to the common stock; (5) the period at which the partnership is to commence, and the period at which it is to terminate.' Article 3445.

The certificate must be acknowledged before, and certified by, an officer authorized to take acknowledgments of conveyances of land, be filed in the office of the clerk of the county court of every county in which the partnership shall have places of business, and be recorded at large in each of such counties, in a book to be kept for that purpose open to public inspection. With the original certificate, and the evidence of its acknowledgment, must be filed an affidavit of one or more of the general partners, stating that the sums specified in the certificate to have been contributed by each of the special partners to the common stock have been actually and in good faith paid in cash. Articles 3446-3448. 'No such partnership shall be deemed to have been formed until a certificate shall have been made, acknowledged, filed, and recorded, nor until an affidavit shall have been filed as above directed, and, if any false statement be made in such certificate or affidavit, all the persons interested in such partnership shall be liable for all the engagements thereof as general partners.' Article 3449. 'The partners shall publish the terms of the partnership, when registered, for at least six weeks m mediately after such registry, in such newspapers as shall be designated by the clerk in whose office such registry shall be made, and if such publication be not made the partnership shall be deemed general.' Article 3450. The affidavit of the publication, by the publisher of the newspapers in which the notice is published, filed with the clerk, is evidence of the facts therein contained. Article 3451. 'Every alteration which shall be made in the names of the partners, in the nature of the business, or in the capital or shares thereof, or in any other matter specified in the original certificate, shall be deemed a dissolution of the partnership; and every such partnership which shall in any manner be carried on after any such alteration shall have been made shall be deemed a general partnership, unless renewed as a special partnership according to the provisions of the last article.' Article 3453. 'The business of the partnership shall be conducted under a firm in which the names of the general partners only shall be inserted, without the addition of the word 'company,' or any other general term; and, if the name of any special partner be used in such firm, with his privity, he shall be deemed a general partner.' Article 3454. 'Suits in relation to the business of the partnership may be brought and conducted by and against the general partners in the same manner as if there were no special partners.' Article 3455. 'No part of the sum which any special partner shall have contributed to the capital stock shall be withdrawn by him, or paid or transferred to him in the character of dividends, profits, or otherwise, at any time during the continuance of the partnership; but any partner may annually receive lawful interest on the sum so contributed by him, if the payment of such interest shall not reduce the original amount of such capital; and if, after the payment of such interest, any profit shall remain to be divided, he may also receive his portion of such profits.' Article 3456. 'If it shall appear that, by the payment of interest or profits to any special partner, the original capital has been reduced, the partner receiving the same shall be bound to restore the amount necessary to make good his share of the capital, with interest.' Article 3457.

Article 3460, which is the subject of much discussion by counsel, is in these words: 'Every sale, assignment, or transfer of any property or effects of the partnership made by such partnership when insolvent or in contemplation of insolvency, or after, or in contemplation of, insolvency of any partner, with the intent of giving a preference to any creditor of such partnership or insolvent partner over other creditors of such partnership, and every judgment confessed, lien created, or security given by any such partnership under the like circumstances, and with like intent, shall be void as against the creditors of such partnership.' Article 3463 is as follows: 'In case of the insolvency or bankruptcy of the partnership, no special partner shall, under any circumstances, be allowed to claim as creditor until the claims of all other creditors of the partnership shall be satisfied.'

The revision of 1879 was adopted by an act passed March 17, 1879; the latter act going into effect July 24, 1879. It should be here stated that title 68 of the Revised Statutes is a reproduction, without material change, of the provisions of the act of May 12, 1846, entitled 'An act for the regulation of limited partnerships.' Laws Tex. 1846, p. 279.

On the 24th of March, 1879, the legislature passed an act, entitled 'An act in relation to assignments for the benefit of creditors, and to regulate the same, and the proceedings thereunder.' Gen. Laws Tex. 1879, p. 57. The first section of that act provides 'that every assignment made by an insolvent debtor, or in contemplation of insolvency, for the benefit of his creditors, shall provide, except as herein otherwise provided, for a distribution of all his real and personal estate, other than that which is by law exempt from execution, among all his creditors in proportion to their respective claims, and, however made or expressed, shall have the effect aforesaid, and shall be so construed to pass all such estate, whether specified therein or not, and every assignment shall be proved or acknowledged, and certified and recorded, in the same manner as is provided by law in conveyances of real estate or other property.' The second section requires the debtor to annex to the assignment an inventory showing a full and true account of all his creditors, their place of residence, the sum due each, the nature and consideration of each debt, any existing judgment, mortgage, or security for such debt, and the character of the debtor's estate of every kind, excepting such as the law exempts from execution, with the incumbrances thereon. To this schedule must be annexed the affidavit of the debtor that it is a just and true account, to the best of his knowledge and belief.

The third section, upon which the assignment involved in this suit rests, is in these words: 'Sec. 3. Any debtor, desiring so to do, may make an assignment for the benefit of such of his creditors only as will consent to accept their proportional share of his estate, and discharge him from their respective claims; and in such case the benefits of the assignment shall be limited and restricted to the creditors consenting thereto. The debtor shall thereupon be and stand discharged from all further liability to such consenting creditors on account of their respective claims, and when paid they shall execute and deliver to the assignee for the debtor a release therefrom.' Gen. Laws Tex. 1879, pp. 57, 58. The ninth section declares that 'all property conveyed or transferred by the as signor previous to, and in contemplation of, the assignment, with the intent or design to defeat, delay, or defraud creditors, or to give preferences to one creditor over another, shall pass to the assignee by the assignment, notwithstanding such transfer.'

The remaining sections of the act prescribe the duties of the assignee, and regulate the administration of the trust.

The third section of the act of 1879 was amended by an act approved April 7, 1883, so as to provide that 'such debtor shall not be discharged from liabilities to a creditor who does not receive as much as one-third of the amount due and allowed in his favor as a valid claim against the estate of such debtor.' Gen. Laws Tex. 1883, p. 46.

George Hoadly, for plaintiffs in error.

[Argument of Counsel from pages 216-220 intentionally omitted]

W. C. Oliver, for defendant in error.

Mr. Justice HARLAN, after stating the facts in the foregoing language, delivered the opinion of the court.