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one of the partners, where the articles of copartnership do not stipulate otherwise, yet either one may, by his will, provide for the continuance of the partnership after his death; and in making this provision, he may bind his whole estate or only that portion of it already embarked in the partnership. But it will require the most clear and unambiguous language, demonstrating in the most positive manner that the testator intended to make his general assets liable for all debts contracted in the continued trade after his death, to justify the court in arriving at such a conclusion. Burwell v. Mandeville's Executor, 2 How., 560.

§ 316, Rights and liabilities of retiring partners.- Where a partner retires from a partnership, but suffers his name to be retained in the new firm, he is responsible to a creditor, the holder of a note, who takes it without actual notice of the dissolution, even though a notice thereof was published in the newspapers. He may be proceeded against in bankruptcy, by the creditor, as a member of the firm. Whether an estoppel ought to apply where the creditor has not been misled, that is, where he has had actual notice, quere. In re Krueger, 5 N. B. R., 439; 2 Low., 66.

§ 317. Where a partner transferred his interest in partnership assets to the other partner, and said remaining partner agreed to apply said assets to the payment of the firm debts, and afterwards, before paying said firm debts, filed his petition in bankruptcy, upon the petition of the retiring partner, asking that he be made a party to the proceedings, and that the firm be adjudicated bankrupt, to the end that the firm assets should be applied to the payment of the firm debts, held, that he was not estopped by said transfer from saying that they were partnership assets, (1) because, as between himself and the firm creditors, he could not estop himself by any dealings with the other partner from any duty he owed those creditors; and (2) because the assets were pledged to the payment of said firm debts, and that the remaining partner was only a trustee for the benefit of the creditors, to convert the assets and pay the debts of the firm. In re Gorham, 9 Biss., 23.

§ 318. Upon the dissolution of a mercantile firm, if it be agreed that the acting partner shall take the effects and pay all the debts of the firm, and this be known to the creditor of the firm, he cannot, with a good conscience, take a lien on the joint effects for new advances made by him to the acting partner on his own individual account, so as to exhaust the joint effects, and leave the retiring partner liable for the old joint debt. McClean's Executors v. Miller, 2 Cr. C. C., 620.

$319. The rights of partnership creditors cannot be altered by any private agreement which the partners may choose to make with each other upon dissolution. Although the partnership effects are by such agreement to be retained exclusively by one of the partners who is also to discharge the debts, the recourse of the creditors against the retiring partner remains unchanged, unless by some positive act which directly or by a fair inference amounts to an agreement to discharge him. Harris v. Lindsay,* 4 Wash., 98, 271.

§ 320. Indulgence granted by a creditor would not amount to such agreement. But if, with full knowledge of the agreement between the partners, that one is to retain the effects and pay the debts, a creditor shall enter into a totally new contract with such partner, by which the nature of the partnership debt is wholly changed so as to become a different debt from that which the retiring partner was bound to pay, or such as to subject him to a different kind of responsibility, such new contract will amount to an acceptance by the creditor of the paying partner as his debtor, and to a discharge of the other. Ibid.

$321. Accordingly, where a retiring partner, who assumed the debts of the firm, formed successively two new partnerships, each of which had dealings with and became indebted to a creditor of the old firm, and after the dissolution of the last firm he settled with such creditor for the indebtedness of the three firms, giving notes for the aggregate amount, divided into three parts, neither of which answered to the balance due by either house, and the creditor gave a receipt by which he agreed to give the maker of the notes credit for them when they should be paid, held, that the other member of the original firm was discharged.

Ibid.

§ 322. notice. A firm was dissolved, two of the members retired, and a new firm was formed, consisting of the remaining members of the old firm and two new members. The new firm then assumed all the obligations of the old firm and agreed that the liabilities of the retiring members should be terminated. Subsequently the new firm was adjudicated bankrupt. Among the debts of the new firm published in the bankruptcy proceedings was a certain debt of the old firm. This debt was proved without objection as a debt of the new firm by the representative of the creditor. Dividends were declared and received by said representative. The estate of the new firm was subsequently wound up, and certain stocks constituting' the assets were distributed among the creditors of the firm in pursuance of a scheme assented to by such creditors. During the life-time of one of the retired members of the old firm, no claim for liability was made upon him for said debt, but prior to the distribution of stocks, payment was demanded of the executor of said retired partner, who denied 273

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his testator's liability. Thereafter the representative of said creditor participated in the distribution of stocks, which he sold without notice to the executor of said retired partner. The amount received by the representative of said creditor not being equal to the debt, he sued the estate of said retired partner for the deficiency. Held, that the plaintiff knowing that the old firm was dissolved, and that the new firm had assumed the liabilities of the old, was chargeable with knowledge that the outgoing members were to be relieved from liability, and that if it had been his intention to maintain intact the then existing liability of the retired partner, he should have given some positive expression of such purpose when he came to deal with the new firm in respect to the debt. That the lapse of time, the omission to make a claim upon said retired partner in his life-time, the other members of the old firm being insolvent, and making no demand on the executor of said partner until the estate of the new firm was substantially wound up, is hardly consistent with the position assumed. that there was no intention to accept the liability of the new firm in lieu of the old. That by proving the debt in the bankruptcy proceedings of the new firm, the plaintiff adopted the new firm as his debtors. And that by adopting a course by which the right to vote as a creditor in the bankruptcy proceeding was lost to said retired partner and his executor, deprived of the power to secure his estate against loss, the plaintiff had acted in such a manner as to render his claim to relief inequitable. Regester v. Dodge, 19 Blatch., 79. § 323. In a social partnership, where an absolute community of property with right of survivorship on the one hand, and care, by the community, of every member through life, on the other, is the fundamental and pervading principle, if one member be unjustly expelled by a usurped though unquestioned authority, not having under the clear terms of the association any right to expel him, the court will not oblige him to return to the association (there not being on its part an offer of full and satisfactory reconciliation and reception), but will interfere with the fundamental and pervading principle; and though the expelled member brought nothing into the community, will give to him, for himself, a separate and individual part of the property. And where payment for the party's services at the ordinary rate of services like his, during the years he was a member, would give him more than his numerical proportion or share of the whole capital stock, and where the question of profits was a little obscure, the court regarding this as the simplest and most natural justice, gave to him his numerical share or proportion of the whole capital stock, from whatever source arising, as the same existed at the time he was expelled, irrespective of the amount which he found in the association when he became a member. Nachtrieb v. The Harmony Settlement, 3 Wall. Jr., 66. Reversed, Baker v. Nachtrieb, 19 How., 126.

social partnership.

§ 324. To what extent partnership continues.— A partnership, although dissolved, still continues for the purpose of liquidation and partition of gains, and under the law of Louisiana the partners may be sued at the domicile of the partnership for such purposes. Goodrich v. Hunton, 2 Woods, 137.

§ 325. C. and S., partners, entered into an agreement reciting that the partnership was dissolved, the dissolution to date from the date of the agreement, "except so far as it may be necessary to continue the same for the final liquidation and settlement of the business thereof." C., by said agreement, sold to S. his interest in the partnership assets, and S. was to apply said property and the proceeds thereof to the payment of the partnership debts and the necessary expenses of carrying on the business. Held, that whatever effect this agreement had to dissolve the partnership as to future business, and debts contracted thereafter, it had no such effect as respected the partnership property in which C. theretofore had an interest, or the partnership debts named in that agreement, or as respected proceedings under the bankruptcy act to affect such partnership property. The case is not one where the transfer of the interest of the retiring partner is absolute, and the remaining partner agrees to pay and assume the debts. In the present case C. took from S. an express agreement that the partnership property assigned, and its proceeds, should be applied by S. to pay the partnership debts, and the agreement by S. was to pay those debts with that property. Therefore there was no dissolution of the partnership or transfer to S. until and unless the debts were first paid. In re Shepard, 3 Ben., 347.

§ 326. Notice.- Where R. and C., who had been doing business as partners under the firm name of R. & Son, divided their stock in trade and afterwards carried on business in separate establishments, but each using the old firm name, held, that they continued to be partners as to one who had previously dealt with them, and dealt with them, or one of them, thereafter, unless public or personal notice of dissolution was brought home to such person. Moline Wagon Co. v. Rummell,* 2 McC., 307.

§ 327. Special agreements between partners.- Dissolutions of partnerships upon terms agreed upon will be enforced as between the parties, but will not be allowed to affect the rights of creditors. Hudgins v. Lane, 2 Hughes, 361.

$328. Where one partner dissolves a copartnership, he cannot demand of the other to carry

out the stipulations of the articles which made the copartnership, which provide that the excess of funds either has contributed to the firm is to be paid by the company out of the net earnings. A sale of the property should be made, to give each his due rights in the partnership assets. Wilson v. Davis,* 1 Mont. T'y, 183.

$329. A partner sold his interest in a firm to his copartner and another, and the paper writing or bill of sale executed by him contained this clause: "and it is further understood by the parties of the second part, that the above sale is made subject to any indebtedness made by the purchase of the before mentioned goods, wares and merchandise, by Jennings & Phelps and Phelps & Clasen, for which reference is made to an account of liabilities on the 1st day of April, 1867." Held, that the vendees took the goods charged in their hands with a liability to pay the debts mentioned out of those goods. It seems that such clause meant a promise on the part of the vendees to pay all such debts of the two firms as were created by the purchase of any of the goods conveyed by the bill of sale, and which should be found in account of liabilities taken on the 1st of April, 1867. Phelps v. Clasen, Woolw., 204.

$ 330. If an outgoing partner takes an obligation from the continuing partners to assume and pay the debts of the firm, and to “relieve" him from any and all claims, an action can be maintained thereon against the obligors upon their failure to pay the debts, although the obligee has not been compelled to pay any of them, and has, in fact, been discharged in bankruptcy. Hood v. Spencer,* 4 McL., 168.

§ 331. An agreement dissolving a partnership between A. and B., who under the partnership carried on two stores, a jewelry and a hardware store, provided that B. should have "the goods in the jewelry store and all the debts due that store, as a compensation in lieu of profits arising from the whole business." Held, under this clause, that B. could not maintain a claim to any profits of the jewelry store not existing in debts or goods. Finley v. Lynn,* 6 Cr., 238.

$332. The same agreement gave to A. all the debts due to the hardware store, and required him to assume all debts due from the concern. Held, that he was entitled to a debt due from the jewelry store to the hardware store. Ibid.

$333. An agreement of dissolution of a partnership existing between A. and B. provided that A. should indemnify B. against "all claims and demands upon the concern." An indemanity bond, afterwards executed in pursuance of this agreement, embraced in its language a debt owing by B. prior to the partnership, and which it was agreed, at the time of the formation of the partnership, that the partnership should assume. Held, that there was not such a repugnancy between the dissolution agreement and the bond as to justify the court in reforming the latter at the suit of A. Ibid.

VI. PRIVATE AND PARTNERSHIP CREDITORS.

SUMMARY Right of private creditor to attach property, § 334. — Garnishing firm debtor on suit against partner, § 335.— Rights of creditors derivative, §§ 336–538.— Creditors' liens, $339–313.- Fraud in transfer, § 344.— Surviving partner's use of assets, §§ 345, 346.— Equity where new rights have attached, § 347. — Creditors of new and old firms, §§ 348, Retiring partner; homestead, §§ 350-352.

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§ 334. A separate creditor of a partner can only take and sell the interest of the debtor in the partnership property, being his share upon a division of the surplus after the partnership debts are paid. Such creditor may, however, attach the partnership property, if the debtor has any available interest therein, and a bill in equity to recover property so attached and to restrain the attaching officer, not averring that there are any partnership debts or that the partner sued has not an ultimate interest in the property, cannot be maintained. Peck v. Schultz, § 353.

§335. A separate creditor of a partner can only subject to the payment of his claim such interest in the firm property as his debtor may be found to have on a partnership accounting. Where, therefore, in an action against the firm of A. & B., one having in his hands funds of the firm of A. & C. was summoned as trustee, C. not being joined and nothing appearing as to the solvency of the firm of A. & C., or as to the state of the accounts between A. & C., held, that the trustee must be discharged. Lyndon v. Gorham, §§ 354, 355.

336. The equity of partnership creditors to have the partnership property applied to the payment of the debts in preference to the individual debts of the partners is a derivative one, which is worked out through the equity of the partners themselves, and if the latter are not in a position to enforce it, the partnership creditors cannot. In the case of simple contract creditors, it is essential to obtaining relief that the property should be within the control of the court and in course of administration, brought there by the bankruptcy of the firm, or

by an assignment, or by the creation of a trust in some mode. Case v. Beauregard, §§ 356360.

$337. If, before the interposition of the court is asked, the property has ceased to belong to the partnership, and by a bona fide transfer it has become the several property either of one partner or of a third person, the equities of the partners are extinguished, and consequently the derivative equities of the creditors are at an end. Ibid.

$338. Where two of three partners, engaged in operating a railroad under a lease of it, transferred their interests bona fide to pay individual debts, and the remaining partner and the successors to the title of the transferees afterwards executed an act of fusion by which all the rights of the parties became vested in the railroad company, held, that a creditor of the partnership could not thereafter maintain a bill in equity, alleging the insolvency of the partnership and its original members, to have the property so transferred, subjected to the payment of its claim. Ibid.

§ 339. The general creditors of a firm, before levy and seizure, have not, as such creditors, any specific lien on the assets of the firm, but the preference of the company creditors over the separate creditors in the distribution of the joint assets arises from and must be worked out through the rights of the partners to insist upon such application. Tracy v. Walker, $$ 361-365.

§ 340. The partners may relinquish their rights to each other or to third persons, or they may enforce them in a court of equity for their own benefit, or become the instruments by which creditors may, in like manner, enforce them. Ibid.

§ 341. When the primary right of partners to apply the partnership property to the extinguishment of the company debts is gone, the right of partnership creditors to compel such application is also gone. Ibid.

§ 342. The right of one partner to appropriate the joint assets to the separate creditors, by consent of the other partner, does not depend upon the solvency of the firm. Ibid.

$343. A partner sold his interest in the firm business and assets to his copartner, the latter agreeing to give him a bond of indemnity against the liabilities of the firm. The continuing partner did not give the bond, but was allowed, nevertheless, to retain absolute control of the stock and assets, and to pay company and private debts from the proceeds, without objection or interference on the part of the retiring partner. Held, that, under such circumstances, a private creditor of the continuing partner who received a transfer of part of the stock and assets in payment of his claim should be protected, as against a firm creditor, if such private creditor acted in good faith. Ibid.

§ 344. It appearing that the continuing partner made false representations as to his solvency to the complainant, a firm creditor, and thus gained time to dispose of the property to his private creditor, a relative, that the value of the assets transferred exceeded the amount of the debt due to the transferee, and that the excess of assets was afterwards used in payment or compromise of debts of the firm, and the transaction not being satisfactorily explained by the transferee, held, that the transfer would be held fraudulent as to such excess and the transferee charged to that extent. Ibid.

§ 345. If a surviving partner, with the acquiescence of the personal representatives of the deceased partner, uses the firm property to continue the business on his own account and in his own name, and no proceedings are taken by partnership creditors to wind up the business and apply the partnership assets to the payment of their claims, any application of such assets made by such survivor in the course of the business, in good faith, in payment of his individual debts, will be valid and effectual, and cannot be treated as a fraud in law upon the partnership creditors. Fitzpatrick v. Flannagan, §§ 366–371.

§ 346. The firm of A. & B. was insolvent during the whole period of its existence, and A., by whose death the partnership was dissolved, before his death drew from the partnership more than his interest in it and was indebted to it. After A.'s death, B. continued the business without objection on the part of A.'s personal representatives, sold from and replenished the stock of goods, and applied the assets indiscriminately to the payment of debts of the late firm and debts contracted by him in the subsequent course of business, paying as much at least on account of partnership debts as he realized from partnership assets. After a time, in order to repay certain money borrowed by him and used to pay partnership debts, he made a transfer of the entire stock of goods at a fair valuation to a relative of the lender, upon an agreement by the transferee to apply the balance of the price agreed to be paid, over and above the amount of the loan, to the payment of other debts of the concern. Held, that this transfer was not fraudulent in law as to creditors of the late partnership, and, in the absence of an actual intent to defraud, furnished no ground for an attachment upon an affidavit, in an action against B. as surviving partner, alleging that he had disposed of his property to defraud his creditors. Ibid.

§ 347. The equity of a retiring partner, who has assigned his interest in the firm assets to

the continuing partner upon an agreement by the latter to become responsible for the firm debts, to compel the application of the firm assets to the payment of the firm debts, if it exist at all, cannot exist where new rights have attached by reason of the change of interests, as where rights of individual creditors have accrued, or where the continuing partner or the new firm has disposed of the property, or there are creditors of the new firm. Crane v. Morrison, SS 372-375.

§ 348. A partnership existing between A. and B. was dissolved, each partner taking one of two mills composing the partnership property, and each assuming the debts contracted in respect to the mill of which he became the separate owner. B. afterwards claimed the right to rescind the dissolution agreement on the ground of A.'s failure to pay the debts assumed by him, but before such claim was made and before A.'s default, A. had taken in a new partner and conveyed to him an interest in his mill for a price agreed upon. A creditor of the old firm attached the personal property at the mill, and subsequently the new firm went into bankruptcy. In an action by the assignee in bankruptcy to recover the attached property, held, that any equity of B.'s to have property received by A. applied in payment of the debts of the old firm assumed by A.. and a fortiori any such equity of the creditors of the old firm, was lost upon A.'s taking in the new partner; that the right acquired by the attachment was only a right to subject the interest of A. in the property after payment of the debts of the new firm; that such right would be protected in the bankruptcy proceedings, and that the assignee was entitled to the property. Ibid.

$349. In such case the fact that B. had filed a bill in equity in another court against A.. the latter's partner, and the attaching creditor, praying for an accounting of the copartnership affairs and that a receiver had been appointed in such suit, held not to affect the case, it appearing that the receiver was not in possession of the property, but that it was held by the sheriff under the attachment. Ibid.

$350. Partnership assets, improperly withdrawn by one of the partners upon retiring from the firm, may be pursued by a firm creditor and subjected to the payment of his claim, although they have been invested in a homestead. In re Sauthoff, §§ 376-380.

§ 351. If a retiring partner takes out a portion of the assets of the firm for his individual use, he must do so without impairing the fund to which the firm creditors have a right in equity to look for payment of their claims; and it must be made clearly to appear that such remaining fund is ample. The fact that the partners believed that enough remained to pay the partnership debts, if such belief was a mistaken one, will be no defense. Ibid.

§ 352. Subsequent dealings of the creditors with the continuing partner, selling him goods, giving him fresh credit, and permitting such goods to be mingled with the old stock, will not estop them from asserting a claim on the property withdrawn on the ground that they have ratified the transaction between the continuing and retiring partner. Ibid. [NOTES.-See § 381-421.]

PECK v. SCHULTZE

(Circuit Court for Massachusetts: 1 Holmes, 28-30. 1870.)

Opinion by SHEPLEY, J.

STATEMENT OF FACTS.-The bill of complaint alleges that the complainants are copartners under the name and style of A. M. Peck & Co.; that they are the owners of a large quantity of domestic liquors; that the defendant, George L. Andrews, the marshal of the United States for the district of Massachusetts, has attached the liquors upon a writ in favor of Emil Schultze and Robert Sailer against Albert M. Peck, claiming that the liquors were the property of said Peck; that he unjustly detains the liquors and threatens to remove them from complainants' store. Complainants pray for a decree that Andrews may return the liquors, and for an injunction to restrain him from further interfering with said property.

§ 353. On execution against a copartner in favor of an individual creditor, only the partner's interest in the surplus of the partnership property after the payment of the partnership debts can be taken.

By the rules of law as formerly held in England, the sheriff, under an execution against one of two copartners, took the partnership effects and sold the moiety of the debtor, treating the property as if owned by tenants in common.

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