It is now insisted on by the respondents that the plaintiffs are not entitled to the relief claimed by their complaint, for the reason that there is a defect of parties defendant. The action is brought by the plaintiffs, as judgment creditors of James E. Dean and Enos S. Brown, upon the return of an execution unsatisfied, to set aside an assignment made by the judgment debtors to the defendants, Delos W. Dean and Harvey Strong. It is claimed that the judgment debtors ■ should have been made parties defendants. This objection should have been taken by demurrer or answer, and if not so taken, the court is compelled to deem the same waived. Code of Pro. § 148.
The simple question, therefore, presented on this appeal, is whether, upon the face of the assignment, there is anything appearing which renders it void in law. It purports to transfer to the defendants all the joint and several property of the assignors, in trust, in the first place, to pay all notes, drafts or bills indorsed by the assignees, or either of them, made by the firm of Dean & Brown, the assignors, and by the firm of Dean, Brown & Strong, to which latter firm that of Dean & Brown had succeeded, or made by any or either of the individuals of said firms. The partnership property of the firm of Dean & Brown is thus, in the first place, to be appropriated as well to relieve the sureties and indorsers of the firm, as those o'f the individual members of the firm, and also all liabilities incurred on account of Strong, a former partner of the firm of Dean, Brown & Strong. This brings this case directly within the principle decided by this court in Wilson v. Robertson, 21 N. Y. 587.
We there said that “it seems very plain that the insertion of such a provision in the assignment of the partnership effects of an insolvent firm is a violation of the statute in respect to fraudulent conveyances, and furnishes conclusive evidence of a fraudulent Intent on the part of the assignors. Its operation was not only to hinder and delay the plaintiffs, as creditors of
The same ground was taken by the supreme court, to uphold the assignment in that case, as is taken by the referee and the supreme court' to maintain the assignment in this case, namely: that the provision violated no statute, but only a principle of the common law, which gives partnership creditors a preference in payment out of partnership property over the individual creditors of the several partners. Hence, it did not invalidate the whole assignment by rendering it fraudulent and void. Being inequitable in reference to the partnership creditors, and an infringement of their rights, the provision was an illegal one; hut not being fraudulent, it did not vitiate any other part of the assignment. These views were repudiated by this court in Wilson v. Robertson, supra, and it was held that this provision showed a fraudulent intent on the part of the assignors, which rendered the assignment wholly fraudulent and void.
The referee before whom the action was .tried, found that it was not proven that there were any individual debts of the several partners, or of Horatio Gr. Strong, of the charaóter mentioned in the assignment. It was not incumbent on the plaintiffs to show that there were any such debts. The appropriation of the partnership assets to the payment of the individual debts of the several partners, showed such a fraudulent intent on the part of the assignors, as to vitiate the assignment and render it fraudulent and void. It is not relieved from this taint by the absence of any proof that there were debts of the character mentioned. The referee and the supreme court should have held that the assignment -was" fraudulent and void upon its face.
[After stating the facts.]—The connection of Horatio G-. Strong with the firm, and the change of the firm name to that of Dean, Brown & Strong, can have no sensible effect upon the questions brought up for consideration here, and may therefore be dismissed without further notice. Strong became liable as a copartner for the debt contracted during the brief period of his connection with the business. The questions we are to consider, however, still remain the same. The same may be said of the subsequent agreement by which Strong and Stephen S. Westcott were to become the purchasers of the property and effects of the firm. He ver having been executed, it seems to be of no moment in the present controversy.
. The plaintiffs claim that tne provision in the deed of assignment which provides for the payment of the individual debts of the members of the firm, out of the assigned property, in preference to the debts of the firm, renders the deed fraudulent and void as against the firm creditors. Ho one will now claim that such a provision in such an instrument is legal, but whether its presence has the effect to vitiate the whole transaction, seems, until lately, to have been the subject of some doubt. The late chancellor had occasion to consider the subject in the case of Kirby v. Schoonmaker, 3 Barb. Ch. 46 Schoonmaker and Gasharie had been copartners in trade, and made an assignment for the payment of their debts. The deed provided for the payment of nine hundred dollars to Schoonmaker’s mother out of his joint or separate portion of the proceeds of the assigned property, five hundred and fifty dollars of which was his separate debt and the residue the debt of the firm. It also provided for the payment, out of Gasharie’s •joint or separate portion of such, proceeds, of six hundred dollars to his mother, which was his separate debt. These debts had a preference over all the creditors of the firm, except one for five hundred dollars, which was directed to be first paid. The bill was filed by a judgment creditor. It alleged no fraud, nor did it appear that the partners were insolvent. The bill was dismissed upon this ground alone, for upon no other
In the case referred to, the separate debt of Schoonmaker, due to his mother, was not the debt of the firm, nor was it the debt of his copartner, G-asharie. And so it was apparent that the property of the latter—that is, his interest in the property and effects of the firm—was, by the deed of assignment, appropriated to pay a debt which he did not owe, in preference to the debts of the firm of which he was a member, which he did owe, and was under legal obligation to pay. These deeds of assignment giving preferences, are tolerated and upheld by the courts when they devote the entire property of the assignor to the payment of his debts. If the deed reserves anything to the assignor himself, or to the members of his family or to anyone else except his creditors, it becomes absolutely void as to his creditors. When the firm debts are-paid, if the partner has none of his own, he may devote what may be left to him to pay the individual debts of his copartner. But he can no more devote it to that purpose in preference to the payment of what he owes individually or jointly as a member of the firm than he can reserve it to himself, leaving the firm debts unpaid. This is upon the obvious rule that the property of the debtor equitably belongs to his creditors to the extent of the payment of their debts. The relations which the copartners maintain to the property of the firm, entitle them sometimes, but not
[The learned judge proceeded to express the opinion that as the referee had found, that no individual debts had been paid, and the proofs did not affirmatively disclose any individual debts, the clause might be treated as nugatory, and the assignment upheld.]
All, the other judges concurred with Davies, J., in holding that the burden of showing the non-existence of such debts rested on the parties claiming under the assignment, and a finding that the evidence did not show the existence of such debts was not sufficient.