Clement v. Foster, 38 N.C. 213, 3 Ired. Eq. 213 (1844)

June 1844 · Supreme Court of North Carolina

38 N.C. 213, 3 Ired. Eq. 213

JESSE A. CLEMENT vs. THOMAS FOSTER & AL.

A creditor of a firm cannot file a bill to stop the business and tie the hands of all or any of the partners from disposing of the effects, for the purpose of applying them, even to satisfy all the creditors of the firm equitably, and much less to satisfy his own debt singly, whether his claim against the partnership be either a legal or an equitable demand.

It is only at the instance of one partner that the court will interfere, against another partner, who is appropriating- the effects to his own use; because in that case they are joint owners of the property, and he has no right to apply it to his separate use, thereby leaving the other liable to the partnership debts out of his own estate, or, at all eyents, flepriving him of property that belongs to him.

So, if a creditor of one of the partners gets a judgment against him, a Court of Equity will entertain the bill of the ereditor against all the partners to pay the debt or to have the partnership account taken, and payment made out of the surplus belonging to the debtor.

This cause, after having been set for hearing, was transmitted by consent from the Court of Equity of Davie county, at Spring Term, 1844.

The facts, as they appear upon the pleadings, are as follow:

The plaintiff and the defendants Thomas Foster and Armfield eatered into copartnership, as traders in merchandize in the year 1837, and continued the business until April, 1839. They then sold the stock of goods to a new firm, composed of the defendants Foster and Gilbert;and they executed bonds for the price payable to the former firm, namely, Clement, Armfield, and Foster: of which one for the sum off 1935 63§, to fall due September 25, 1840, afterwards fell to the plaintiff, Clement, in the settlement and division of the effects of Clement, Armfiejd and Foster amongst the three parties. The settlement took place October 25. 1839, and included all the copartnership transactions, except a demand against one Roberts, who had been^employed by the firm as a pedlar of goods on their account and had not made a settlement. All the time, however, a number of debts were owing by the firm; which, in the settlement, Clement and Armfield covenanted vvith Foster to pay, and partnership funds were kept by them for that purpose.

In December 1840, the plaintiff commenced this suit; and by an original, amended, and supplemental bills against Foster, Gilbert, Armfield,C. Harbin, JamesF. Martin, Rad-ford Foster, H. R. Austin, it is charged, that Gilbert has left this Slate and gone to Alabama to reside, and that the books, papers and effects of Foster and Gilbert were in the hands and disposition of the other partner, Foster, and that he,Foster, had become insolvent and unable to pay his debts, and, for the purpose of doing so, had applied large sums and assigned debts belonging to the firm of Foster and Gilbert in discharge of his own debts, and that, in fact, he had assigned to Austin as a trustee, by a deed of trust, all his own estate and all the"partnership effects in trust to secure certain debts which Foster, and Gilbert, and he, Foster, owed to the other defendants, Harbin, Martin and Radford Foster or to indemnify them against responsibilities for the firm, and for Thomas Foster himself, not at all providing for the debt to the plaintiff, on which the plaintiff cannot proceed at law by reason, that by mistake the bond was drawn as to make Thomas Foster, upon the face'of it, both an obligor and obligee. The bills likewise charge, that Foster received from the pedlar, Roberts, several payments on his account to the firm, which went to the use ol Foster and Gilbert. The prayer is, that the plaintiff may have a decree for his debt against Foster and Gilbert, and that it may be declared to be entitled to satisfaction out of the effects of Foster and Gilbert in preference to those creditors for whose benefit the assignment to Austin was made, and that Thomas Foster and Gilbert may be restrained from applying any of the effects of the firm to the payment of their several private debts or to their own uses, until payment thereout of tire plaintiff’s demand.

Upon the bills the plaintiff obtained an order of sequestration ofallthe effects of Foster and Gilbert, and bad a receiver appointed, who has gone on to collect debts due to the firm.

Gilbert has not answered, and the bill has been taken fro eonfesso against him. Armfield takes no partin the controversy, but submits to any decree.

Thomas Foster answered, that Clement and Armfield deceived him in their settlement, and did not give him his due share of the effects; also that they did not pay the debts of the firm of Clement, Armfield and Foster, as they jointly covenanted with him to do, but that he was sued therefor and compelled to pay larger sums thereon than is now due to the plaintiff on the demand now claimed by him; and he insists thereon, that he is entitled to call on the plaintiff to surrender to him his claim, that he may have the benefit of it, as having been paid by him, in the account of Foster and Gilbert upon a settlement between him and Gilbert. He and the other defendants admit the assignment to Austin in trust; and they state that the debts of Foster and Gilbert therein secured are just debts, and also that the debts of Foster himself therein secured are just debts and not more in amount than the sum he is in advance for the firm by payments on their account out of his own separate estate ; and therefore, they insist that the plaintiff is not entitled to any Preference having his debt paid before those. These defendants further insist, that the plaintiff has no lien at law or ¡n equity on the effects of the firm of Foster and Gilbert, or any right to control the partners in the disposition thereof in the payment of other creditors of the firm or their own creditors.

Hoke and Caldwell for the plaintiff.

JBoyden fotJhe defendants.

Ruffin, C. J.

As to the right which the defendantsset up upon the score of the state of the accounts between Foster and Clements and Armfield, by reason of the payment of debts by Foster, which the two latter took on themselves; that is a proper matter for an enquiry upon the reference tc ascertain the sum due to the plaintiff on the foot of the bond allotted to him in the division of the effects of Clement, Armfield and Foster. For as Foster was obligor and obligee therein, the debt is an equitable one only, for which the plaintiff can have no relief but in this Court. If therefore he should be indebted to Foster, it will form a fair deduction from Foster’s liability to him.

But the principal question in the cause is, whether the plaintiff has a right in this Court to have the management o£ the partnership effects taken out of the hands of the partners themselves, Foster and Gilbert, or their assignees, and the effects applied to the payment of the plaintiff’s debt, upon the ground that the partners are not able to pay their debts, and that they are, or one of them is, appropriating those effects to their, or his separate uses. We own that we know of no such equity in a general creditor of a partnership. At the instance of one partner the Court will in such a case interfere against the other partner, because they are joint owners of the property, and one has no right to apply it to his separate use; thereby leaving the other liable to the partnership debts out of his own estate, or, at all events, depriving him of property that belongs to him. So, if a creditor of one of the partners gets a judgment against him, the Court of Equity will entertain the bill of the creditor against all the partners to pay the debt or to have the partnership accounts taken and payment made out of the surplus belonging to his debtor. That is done on the ground of the difficulty on the creditor and the ruin to the business, by proceeding to sell under execution an aliquot part of the joint effects. Indeed, the interest of the debtor in the partnership effects is only in the surplus after a settlement of all the joint debts, and also a settlement between the partners themselves. But there seems to be no principle, on which a creditor of a firm cau file a bill to stop the business, and tie the hands of all or any of the partners, or one of them, from disposing of the effects, for the purpose of applying them, even to satisfy all the creditors of the firm equitably, and much less singly td his own debt by note,bond, or account. Such a jurisdiction as the former is exercised in cases of bankruptcies under statutes giving the power to take and assign all the effects of a bankrupt partnership or individual, for the benefit of all creditors. If the Court of Equity had an original jurisdiction of the kind, there would have been but little necessity for a bankrupt act. Without such an act, a creditor of the firm must take his remedy by judgment at law' against the partners personally, and proceed, as upon any other joint judgment, against persons who are not partners.- The nature of the debt to the present plaintiff does not vary the case upon this point. As he cannot recover at law, he is entitled to a decree here for so much money; but it is only a general decree that the debtors personally shall pay hifn the money. The debt does not especially attach itself to the partnership effects, more than to any other owned by the debtors or either of them. If the relief which the plaintiff asks could be granted, there is no insolvent partnership, whose concerns would not be brought to a close under an administration in the Court of Equity. We cannot suppose that one of these partners is acting in opposition to the will or interests of the other; since no complaint is made by the one against the other. To stop his collection and disposition of the effects, *s privilege of the other partners, and cannot be claimed by the plaintiff. Indeed the bill takes the effects alike from ^offi, Up0n no allegation but that of the plaintiff's having the rights of a general creditor. The firm has a right of preferring other creditors of the firm before the plaintiff, upon the general principle pervading the law, except in cases, not of insolvency, but of bankruptcy. So, if the partners so agree between themselves, they may apply, each his own share of the joint effects, to his separate debts ; for, as respects them severally, the separate debts of each are as much his debts as the joint debts are, and nothing but the duty of one partner to another prevents either from paying his separate debt out of that portion of his property, as soon as out of any other portion of his property, or as soon as a joint debt. If the creditor of the firm were confined to his remedy against the effects of the firm, there would be more consistency in the present attempt. But the plaintiff is not so restrained, but may raise his debt out of the separate property of the partners to the hindrance of their separate creditors and may take their persons.

It follows, that the orders for a sequestration and a receiver must be discharged, and the receiver directed to settle his accounts before the Master, and pay over to the defendants, as entitled, the moneys in his hands, and deliver up the books of accounts, and other evidences of debts and property, to the defendants Foster and Gilbert, or their assignees respectively. And the plaintiff must pay all the costs that have been incurred under those orders.

The bill must be dismissed with costs as to all the defeudants, except Thomas Foster and' Gilbert and Armfield. And it must be referred to the Master to take an account of the sums received by the plaintiff or Armfield, or by Foster and Gilbert, or either of them, from Roberts, on account of his dealings with or for the firm of Clement, Armfield and Foster ; and also to take an account of what may be due to the plaintiff on his demand in the pleadings mentioned, and of any proper deduction therefrom in favor of the defendants, or any or either of them.

Per Curiam, Decree accordingly.