Colt v. Wilder

The Vice-Chancellor.

The bill in this case does not allege an agreement or understanding in relation to the complainant’s particular debt. It only states generally, that the debts which Wilder had contracted in the. copartnership business were agreed to be assumed. Nor does Wilder say positively that he mentioned the name of the complainant or the debt due to the latter, as one of the number; although he did mention the nature of the debts and how they had been contracted.

Both the bill and the answer of Oshea Wilder proceed upon-the ground of all such debts being assumed as partnership debts, in consequence of the stock becoming joint property. The defendant James M. Campbell, instead of meeting the assertion directly in form and substance, appears to have discriminated between an agreement to assume all and an agreement which would make himself liable for a particular debt of Mr. Colt’s; The latter he has denied; although he has not negatived the former. I do not understand him as contradicting directly and positively the allegations of the bill or the testimony of Wilder. His averments and denials may be true, and yet Wilder’s statement remain unimpaired and the credence due to him npt essentially lessened. In this point of view, the testimony is easily reconcileable. Even Campbell admits that some of the debts which were contracted by Wilder on account of money borrowed and afterwards expended in the purchase of books, as well as the debt contracted by him with Sit' Richard Philips for purchases on credit, were assumed by the partnership and either paid in cash or notes of the firm given for them. This seems to be in accordance with such an agreement as Wilder states to have been made ; and it cor- • ’ ‘ roborates his testimony as to the .fact of an understanding to such effect when the partnership was formed. Nor do I discover any thing in the testimony of Robert Hill to disprove it. He was their clerk, for about six weeks after the commencement of the partnership, until its termination ; still, although during this time, ho did not understand such an agreement had been made and (as far as he heard the declarations of Campbell and from other circumstances falling under his observation) the contrary would seem rather to appear from his evidence, yet the statement of Mr. Wilder may be strictly true. I yield my assent to this the more readily, because of the high character which this witness has given him for truth, integrity and fairness of conduct. I am thus bound to believe that, on entering into the partnership, it was an understanding and agreement between Wilder and Campbell that the debts of the former which had been contracted in and about the purchase of the property which he brought into the concern (including, of course, the complainant’s debt to a certain extent) were to be considered as debts payable by the partnership or, in other words, out of the joint property.

This being the case, it appears to me there can be no valid objection in equity to the provision contained in the assignment, for the payment of such debts rateably, according to an ascertained amount, with other debts contracted in the course of the partnership business.

The assignment itself is not attempted to be invalidated, either in execution or sufficiency. Campbell acquiesces in it as an assignment duly executed for the benefit of partnership creditors. Mr. Anderson has become a party by executing it and accepting the trusts, so that he cannot be permitted to allegedhat the title of the property was not vested in him for the purposes specified in the assignment. Nor has any creditor attempted to impeach the instrument upon the ground of informality or want of authority in Wilder to make an effectual assignment of all the partnership property.

Under these circumstances, the question is-: whether the complainant .can be permitted to participate in the benefit of the assigned property as a creditor of the firm and to what amount, ¡or, whether he is to be left to his remedy against Wilder solely ?

My .conclusion upon the evidence as to the fací ¿of an under? ¡standing or agreement I have already stated. The consideration for such an agreement is the bringing, in of tfte stock in ¡the possession of .one partner and making it joint property of the firm, as if it were by purchase, instead of crediting that partner with the amount as so much capital put ip by him. It is, therefore, not like the case of one partner signing the part? nership name to a note for his individual debt or undertaking to bind his copartner in relation to a transacfion foreign to the partnership without his consent and by which the partnership js in no respect benefitted. The casen 9-re evidently different. In the one, there is a mutual understanding and agreement zthat both .shall b.e hound to the extent, at least, of the joipi pro? perty; while, in the other, there is no such consent and, qf course, no joint liability either in law or equity.

The cases in the .book? hearing ¡the strongest analogy to the present áre cases in bankruptcy. Under the peculiar opera? ftion of the English bankrupt system and for the purpose of avoiding confusion among the .creditors in the distribution of the assets of a bankrupt partnership, the distinction between joint and individual delfts and between creditors .of the firm and creditors of any member of it in his individual capacity is carefully observed and always closely followed. And yet, some ,of these cases show very clearly that, under circumstances like jhe present, the debt would be regarded not an individual but a partnership one.

In Ex parte Peele, 6, Ves. 602., the question was, whether ¡the debt, contracted with Sir Robert Peele by qne of ¡the part? ners individually, was afterwards assumed by them and became a joint ftebt ? It was not disputed that, if an agreement tq such effect was made between the partners in forming tfie partnership, it was sufficient; and Lord Eldon .directed á reference to the commissioners to .enquire whether, qt the com? mencemont of the partnership, any debts due from one partner .on account of his stock in trade were assumed and any debts .due to him carried into the partnership with the knowledge and assent of the other partner. Thus showing how a prior .individual debt may become a partnership debt, so far, at least, as to be proveable under a commission against the bankrupt partners jointly. A very little matter is sufficient to .show the .adoption of the debt by the other partners: Ex parte Jackson, 1. Ves. Jr. 131.

The case oí Ex parte Bonbonus, 8, Ves. 540, also contains a •recognition of the doctrine, that a debt, originally a separate one, may be admitted as a joint debt, by showing the previous .authority of the other partners to bind them or their subsequent approbation of it. And the case of Ex parte Clowes, 2, Bro. C. C. 595, is a direct authority to show that debts of some of ■the members of a partnership even upon bonds given by them separately, though for money’s admitted by all the partners to .have come to the use of the firm, may be proved as joint debts. The reason for it is this: the other partners consent and are ¡privy to the application of the money to their joint use and .agree among themselves to consider it a joint debt.

It is well settled, both in England and here, that a promise from one person to another for the benefit of a third will enable •such third person to maintain an action upon such promise : Schermerhorn v. Vanderheyden, 1, J. R. 139; and equity follows the law in acting upon this principle.

There are .some laáer cases in bankruptcy which, at first, .may appear tobe at variance in one particular with those above referred to. But, I .think the earlier cases are entitled to the preference, as resting upon reason and justice. In Ex parte Williams, Buck's Bank. R. 13; a person, being in debt, entered into a partnership with another and brought in the stock in trade which he had on hand. In the deed of copartnership, It was agreed, that all the debts so due and owing by the one partner, as mentioned in a schedule annexed, should be paid by ihe partnership. The Lord Chancellor refused his assent to .¡be .doctrine that the separate creditors, by force of the deed only and independent of any accession to the agreement on their part, could have maintained an action at law against the partners jointly immediately after the execution of the deed ", and, therefore, would not, from that circumstance alone, consider them as creditors of the firm. His honor, however, admitted that a very little would do to make out an assent to the agreement; and he offered, if any creditors thought they could make out such a case, to give them liberty to apply on this ground to prove their debts against the joint estate. This case, then, does not decide that creditors may not avail themselves of the agreement between partners and turn the separate debt of one into the joint debt of both.

The next case is Ex parte Freeman, Buck, 471. There, upon the dissolution of a partnership, the retiring partner assign-; ed all his interest in the partnership property to the continuing partner, who covenanted to pay the joint debts. A ,bankruptcy ensued. It was held, that as the joint creditors had not accepted the continuing partner as their sole, debtor previous to the bankruptcy, they, had not an election to prove against his' separate estate. The Vice-Chancellor, before whom this case came, admitted, however, that if the creditors had acceded to the proposal before the bankruptcy, then a contract to such an effect would have been concluded and they could have come in as separate creditors of the continuing •partner. The principle in this decision, it will be seen, is the same as in Ex parte Williams.

In the subsequent case of Ex parte Fry, 1 Glyn and J. 96. which was, in every respect, similar to Ex parte Freeman-ih& same Vice-Chancellor (Sir John Leach) refused to depart from the rule which he had there laid down. However, it is to be observed, thát at the time of the hearing in the last case, his decision in Ex parte Freeman had been overruled on appeal, although without argument; and the Vice-Chancellor was induced to submit the question again, W’hich he deemed important, to the consideration of the Lord Chancellor, by deciding as he had done in the former case.

The only point upon which these eases seem to turn and about, which there could be any difficulty, appears to be, whether the assent of the creditors to the arrangement between the partners was necessary before the bankruptcy, in order to give them the benefit of the change of debtors which such arrangements were intended to produce ?

It does not appear, so far as my researches amongst subsequent cases have gone, how the question in the case last cited was finally disposed of nor that it has come up and been definitively settled in any other case.

I am at liberty, on this account, to regard it in some measure as an open question. At any rate, it is certain the decisions in the cases referred to have not established it as an invariable rule that creditors cannot claim in a court of equity the benefit of an agreement between partners in relation to the assumption and payment of pre-existing debts, where a bankruptcy or insolvency occurs to render a distribution of their property necessary, until they show some act of assent to the arrangement previous to the bankruptcy by which they have adopted the new debtors or varied or modified their legal rights in respect to the persons to whom they are to look for payment, Lord Thurlow in Ex parte Glows, and Lord Eldon in Ex parte Peele, acted upon no such rule and do not appear to have deemed it necessary. Under the authority of these two-cases, I feel warranted in saying, it is not incumbent upon the-complainant to show that, by any act on his part, he assented-to the agreement of Wilder and Campbell, at the time of forming their partnership, to assume his debt and become his joint-debtors. It is sufficient they did so agree between themselves and that an assignment has been made creating a trust for the benefit of the creditors of the firm. Among them, under the circumstances, the complainant may fairly be ranked.

Before I conclude, another case remains to be noticed, as it may be thought to have some bearing on the present. It is. the case of Bevan v. Lewis, 1 Sim, 376. There, a partner borrowed money, with the privity and approbation, as was alleged, of his co-partner; and applied it to partnership purposThis was known to the co-partner ; although the individual who horfoWed the money had given his own note for ip with a warrant of attorney as collateral security. By virtue-of the latter, a judgment was entered up against him individu-' ally, a writ of fieri facias issued, and a levy made upon the' partnership property. A bankruptcy having taken place, the1' question arose between the creditor and the assignees# whether the partnership interest in the goodk- was liable to be sold under the execution or only the individual interest of the defendant ? In other words, whether1 it could- be considered' a part-' nership debt after what had thus taken place ? The Vice Chan- ' eeflor held, that the debt being in judgment upon securities, andf Which the creditor had thought proper to accept, it took its1 Character from the securities and Was, consequently, an indi--' vidual and not a joint debt. But he expressed no opinión upon:1 the' effect of the transaction in’ borrowing the money, whether’ it would- not have been a partnership debt; and as tó which $ think there could not’have been:a'moment’s hesitation; had nofc the note of one partner been taken and folloWed up by a war--' rant of attorney and judgment and execution'against him individually the very form and nature of which precluded all enquiry as to its being a partnership debt, especially when thd question arose in relation to the effect of the levy made by the ' execution itself. The decision- in this case is not im conflict-'with? any of the principles I have drawn from those befor'e cited. Iff rests upon an entirely different" basis'.

A decree must be entered, declaring the complainant á creditor of Wilder and Campbell at the time of their making- the» assignment to Mr. Anderson and entitled to dividends under it.. The amount of his debt,-however, must be first ascertained-Í he slim set opposite to- his name in the schedule cannot beáncfeased, so as to enlarge the debt upon which dividends are to be declared p but I think it is-liable to- be reduced. The.amount is to- be limited to- the value of the books, at cost, Which were purchased with the complainant’s money and actually brought into the joint stock. Wilder supposed it to be-one thousand dollars; and he, accordingly, inserted this-amount. Hill supposed there-were about three hundred <M~ Jars worth of such books in the store when he came there; but then again, sales, to a considerable amount, had been made after the partnership was formed and prior to his being employed. The amount is thus a subject of inquiry before a master, who can also ascertain the amount of dividends payable upon it.

I shall reserve all further directions until the coming in of the master’s report.