Schiele v. Healy

Beach, J.

[After stating the facts as above.]—It is fair to conclude from the evidence given upon the trial, that the note for $200 was given by the defendant Healy for an individual debt. Thomas J. Conway, the payee, and who transferred it to the defendant Cunningham, states directly and without qualification that the defendant Healy owed him a debt of $400 before the formation of the firm, the half of which was. represented by this note, while the balance was included in the one for $1,200,. signed with the firm name. Upon his cross-examination he states that Healy told him the $400 was used in his business, which in no way tends to change the obligation to a firm indebtedness, because Healy had been doing business for some time, before the co-partnership of Healy and Conway was formed. Hor is the force of this evidence weakened by the testimony of defendant Conway, that he was to assume one-half of the indebtedness for $400, because that portion was included in the firm note for $1200, while the balance was represented by the individual obligation of Healy. This tends to establish a direct contradiction of that statement. In any event, were it true, the sum would have been a portion of the capital of the partnership, and in providing it each partner seems to have intended to contract a separate personal obligation.

The assignment was of the firm property, and the question arises whether or not it was rendered fraudulent and void, by the preference of an individual indebtedness of one copartner.

In Kirby v. Schoonmaker (3 Barb. Ch. 46), the case differed from the one at bar. The assignment covered both individual and partnership property, and gave preference to the creditors of the firm, except in two instances of individual indebtedness, upon which the contention of its invalidity was founded. “ These debts (says the learned chancellor), were not directed to be paid out of the effects of the partnership generally, but the separate debt of each copartner was directed to be paid out of his portion of the proceeds of the joint property, and of his separate property . . . The case would have been entirely different if copartners who were insolvent and unable to pay the debts of the firm, either out of their copartnership effects or of their individual property, had made an assignment of the property of both, to pay the individual debt of one of the copartners only. For an insolvent copartner who was unable to pay the debts which the firm owed, would be guilty of a fraud upon the joint creditors, if he authorized his share of the property of the firm to be applied to the payment of a debt for which neither he nor his property was liable at law or in equity.”

The creditors of a copartnership are legally and equitably entitled to payment from the firm assets. If, as appears by the proofs, the note for two hundred dollars was an individual debt of the defendant Healy, the provision for its payment from the firm assets, in preference to demands against the partnership, was a fraud upon those creditors, and should invalidate- the assignment. Neither the firm, nor the other partner Conway, was in any way liable upon the note, and its indorsement with the firm name, by the maker Healy, after or at the time of the assignment, was a fraudulent act showing a like intent. If the conclusion of fact is well founded, the decision of the court of appeals in Wilson v. Robertson (21 N. Y. 587), in addition to the adjudication stgora, seems to dispose of the case. The court say, that the insertion of a provision to pay individual debts out of partnership property, in an 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 . . . The prior right of the creditors of the firm to its effects cannot be impaired by any consideration having reference to the interests of the individual partners; and anything which defeats this right or hinders or delays such creditor in enforcing payment of his demand against the firm, from the firm property, is a violation of the statute, and a fraud upon such creditor.”

The case of Turner v. Jaycox (40 N. Y. 470), does not bear upon the point. The decision was based upon the fact, that although the debt preferred was not originally contracted by the firm, they had subsequently for a good consideration agreed, and became liable, to pay it.

The judgment must be affirmed with costs.

Charles P. Daly, Ch. J., and J. F. Daly, J., concurred.

Judgment affirmed, with costs.