In re the Assignment of Whitney & Kitchen

Dowling, J. :

Girard ¡¡ST. Whitney and James V. Geraghty were stockbrokers in the city of ¡New York, doing business under the firm name and style of Whitney & Kitchen. On January 16, 1908, the firm made a general assignment for the benefit of its” creditors, without preference, to Bayard L. Peck, and on January •2.5, 1908, the members of . the firm made individual general assignments, .without preferehce, to the same person, who duly qualified as assignee under all three assignments on January 17, 1908, February 24, .1908, and March 25, 1908, respectively. Thereafter, and on June 3, 1908, the claimant, John F. McIntyre, commenced an action against “ Girard ÜST. Whitney and James V. Geraghty, copartners, doing business under the firm name and. style of Whitney & Kitchen, and Bayard L. Peck, as assignee for the benefit of creditors of said copartnership,” to recover the sum of $30,337.50, ■ with interest, upon. allegations of the copartnership of defendants in the business of stock brokerage under the firm name of Whitney & Kitchen; of the making of the firm assignment before referred to; of the purchase by the copartnership at plaintiff’s special iústance and request of 500 -shares of Amalgamated Copper Company stock at the then market price of- $90 a share, including the commission of said copartnership; of the deposit by plaintiff with the copartnership of the sum of $5,000 in cash as margin upon said transaction and as part payment of the purchase price of said shares; of an agreement by the copartnership to advance for. plaintiff the balance of the purchase price of said shares and to hold them as collateral security for such advances; of the further deposit.by plaintiff with said copartnership, at its demand and request, between August 7 and October 23, 1907, of sums aggregating $25,000 as margins upon the transaction and as partial repayment of the advances made by the copartnership-. The complaint then further alleged: “Seventh: On information and belief, that on or about the 27th day of July, 1907, the defendants Whitney and Geraghty, composing the said copart • nership as aforesaid, without the consent or knowledge of plaintiff, and in violation of his ownership and of his rights in said stock, and in violation of the said agreement between plaintiff and said copartnership, disposed of said five hundred (500) shares of stock of the Amalgamated Copper Company and converted. the same to then* own use. Eighth [as amended]. That prior to the commencement of this action, and on January 16th, 1908, January 17th, 1908, and January 19th, 1908, plaintiff duly demanded from the defendants Whitney and Peck, as assignee as aforesaid, and on January 21st, 1908, plaintiff duly demanded from the defendant Geraghty the return to him of said stock, and at said times duly offered to pay the balance due thereon, but said defendants and each of them failed and neglected and refused to return the same, and on information and belief said stock is not and was not then and has never since said conversion been in the possession of said defendants or of any of them.” It was further set forth that plaintiff did not know of the conversion of his stock until' January 16, 1908; that the highest market price of the stock between July 27, 1907, and that date was $90.37% per share; and that due proof of claim had been presented against the assigned estate of the • copartnership to the assignee, who had rejected the same. Thereafter the complaint was dismissed by stipulation against the defendant Peck, but he continued in the action and took part in the argument of the subsequent appeals. The suit having been sent to a referee to hear and determine, judgment was thereafter entered on his decision in favor of the plaintiff and against the defendants “ Girard N. Whitney and James V. Geraghty, copartners, composing the firm of Whitney & Kitchen,” in the sum of $11,485.21 damages, together with $977.40 costs and disbursements. On appeal to this court the judgment was modified by increasing it to $36,356.53, with costs of the appeal amounting to $249.29 (McIntyre v. Whitney, 139 App. Div. 557). On appeal to the Court of Appeals the judgment of this court was affirmed, with costs (201 N. Y. 526). Included in the judgment in its present form is an allowance granted pursuant to the provisions of section 3253 of the Code of Civil Procedure. Thereafter proof of claim of the amounts due under the various judgments was duly filed .with the assignee, wherein the plaintiff gave notice that he “ claims that the copartnership of Whitney & Kitchen, consisting of James V. Geraghty and Girard N. Whitney, general partners,” is justly indebted to, him in the amount thereof. At the same time he filed similar proofs of claims against the individual estates. The assignee rejected all of the claims against the copartnership estate beyond the principal thereof, with interest down to the time of the making of the assignment, and rejected in toto the claims against the individual estates.

The questions presented for decision are: (1) A1'6 the judgments recovered a valid claim against the copartnership estate for the whole amount thereof with interest, or only for the amount admitted by the assignee?. (2) Are the claims based on said judgments- provable against the individual estates of the members of the firm, as well as against the copartnership estaté, and if so, are they to be preferred in payment over the other firm debts and equally with the claims of individual creditors of the individual estates?" To the first question we believe the answer must be returned that the judgments are final and conclusive upon the assignee and all other persons interested in the copartnership estate, as well as upon the assignors. So far as the interest is concerned the members of the firm determined the question for themselves when they directed their assignee, by the terms of the assignment, to pay and discharge in full, so far as the funds were sufficient, “ all the debts and liabilities now due Or to grow, due from the said copartnership, parties of the first part, with all interest moneys due or to grow due thereon. ” But even apart from this provision the assignee could not question the judgments, or seek to separate them and allow part and disallow the rest, when the judgments themselves are not attacked for fraud or collusion. c c Where a cause of action has been prosecuted or reduced to judgment, the cause of action is swallowed up and merged in the judgment, which is a higher and superior sort of security.” (20 Am. & Eng. Ency. of Law [2d ed.], 599.) “After the recov-' ery of this judgment, whether it was recovered for a tort of upon contract, the recovery became a debt which the defendant was under Obligations to pay; and the law implied a promise or contract on his part to pay it. The previous cause of .action whatever it was, became merged in the judgment.” (Gutta Percha & R. Mfg. Co. v. Mayor, etc., 108 N. Y. 278.) “I am of opinion that, in the absence of any suggestion of fraud, collusion, undue advantage or mistake, a judgment recovered against an assignor for benefit of creditors, even after the making of the assignment, on a litigation of the merits and on a deliberate and intelligent decision by .a court of competent jurisdiction, is conclusive on the assignee, as to the fact and amount of an indebtedness established thereby on a- consideration existing before the assignment. ” (Austin Abbott, Referee, in Ludington’s Petition, 5 Abb. N. C. 322.)

This is so even when the assignment is made pending the trial of the action. “Where during the pendency and before the trial of an action, the defendant makes a general assignment for the benefit of creditors, and the action, after a trial at which the defendant appears and defends, results in a judgment in favor of the plaintiff, the judgment in the action is not only competent evidence as to the amount of the plaintiff’s claim against the assigned estate, but, in the absence of fraud or collusion in the recovery of the judgment, is conclusive evidence thereof against the assignee and the defendant’s other creditors.” (Matter of Roberts, 98 App. Div. 155.) So in Merchants’ Nat. Bank v. Hagemeyer (4 App. Div. 52) an assignee was allowed to become a party to an action where the assignment was made after the action was commenced, on the ground that the judgment to be rendered would be conclusive upon the assignee, whether made before or after the assignment. We are of the opinion, therefore, that whatever was incidental to the recovery of the judgment and involved therein as a necessary result of the litigation, including the costs and allowance therein, as well as the interest accruing because of the delay, became final and conclusive as against not only the assignors, but their assignee and creditors, in. the absence of fraud and collusion. The present record not only fails to disclose the presence of such elements, but affirmatively establishes a most vigorous opposition to plaintiff’s claim, carried to the court of last resort, with the assignee participating in the appeals.

The second question presented it seems to-us necessitates the drawing of the distinction which, was pointed out in Matter of Blackford (35 App. Div. 333), (relied on by claimant), between a tort pure and simple and one arising out of the contractual relationship between the parties. It sufficiently appears from the summary heretofore made of the original complaint that the tort alleged was that of the copartnership and that it arose out of a disregard of the contractual rights of plaintiff by the partnership. There is no allegation of any wrongful act of the individual members of the firm. No one of them is charged to have unlawfully converted or disposed of plaintiff’s property. The claim is that the copartnership converted the stock, and the referee has found that the copartnership unlawfully delivered plaintiff’s stock to another firm in payment of. a copartnership debt, the copartnership being credited with the value thereof on the books of the Clearing House of the New York Stock Exchange. . This, therefore, is. a joint' debt, arising out of a violation by a copartnership of its contractual duties, with no profit accruing therefrom to the individual members but solely to the copartnership. Ordinarily, it would come under the rule of equity that joint creditors must look to the joint estate, and individual creditors to. the separate estate of the partners, based on the principle that the joint creditors have extended credit on the faith of the firm property and the individual creditors on the faith of the separate estates of the partners. (Matter of Blackford, supra.) The cases relied upon by plaintiff as sustaining his contention that the liability herein is joint and several are either those wherein an individual liability has been created by members of a firm individually indorsing the firm notes, of such exceptional cases as Morgan v. Skidmore (55 Barb. 263; affd., 3 Abb. N. C. 92), where a member of a firm had personally made a false representation as to the solvency of his firm and the condition of the estate of one of the deceased members, in reliance upon which plaintiffs had issued a draft for £12,000. It was there held that judgment could be obtained against the estate of the member making, such representation, even after plaintiffs had obtained judgment against the firm for the.original amount due, nor was there anything inconsistent in the two suits, for they were not suing as creditors of the deceased, when his liability would be joint, but upon his representation, whereon his liability was personal.

But in this case the individual members of the firm have extended the usual rule by each directing in their individual assignments that their assignee shall pay and discharge in full “ all the debts and liabilities now due or to grow due from the said copartnership of Whitney and Kitchen and from the said party of the first part, with all the interest moneys due or to grow due thereon; and if the residue of said proceeds shall not be sufficient to pay the said debts and liabilities and interest moneys in full, then to apply the said residue of said proceeds to the payment of said debts and liabilities ratably and in proportion.” It was held in Mills v. Parkhurst (30 N. Y. St. Repr. 138, 142) that the application of the equitable rule by which partnership debts are primarily payable out of partnership assets and individual debts out of individual assets, with a preference to each class of debts over the other as respects the distribution of the corresponding fund, could be prevented only by express and unmistakable directions to the contrary in the instrument of assignment, but that when the intention of the assignor was clearly expressed that no distinction was to be made between his individual debts and those which arose from his connection with the firm that intention must be. effectuated. Such is the case with the assignment now under consideration.

It follows, therefore, that the assignee must allow the claim of John F. McIntyre at its full amount, including costs, allowance and accrued interest, against the copartnership estate of Whitney & Kitchen, and that as against the individual estates of Girard 1ST. Whitney and James V. Geraghty the claimant is entitled to share equally therein with the individual creditors, and the creditors of said firra, to the extent of the balance remaining due upon his claim against the firm.

Judgment is directed accordingly, without costs.

McLaughlin and Laughlin, JJ., concurred.