HARD v. MILLIGAN

HARD v. MILLIGAN. City Court of Brooklyn; General Term, 1880. Partnership. — General Assignment. — Chattel Mortgage. —- Fraudulent Conveyance.—Assignee for Benefit of Creditors.—Demand Before Suit.—Parties. Where one of two partners sells out his interest to the other, who gives the former a mortgage on the assets to pay the price, and assumes to pay all the partnership debts, and subsequently assigns the assets to an assignee for the benefit of creditors generally, the assignee may recover the assets from the mortgagee, or one claiming under him, who is not a bona fide purchaser for value. It is not necessary that judgment be first recovered, by the assignee. Evidence of the insolvency of the firm, at the time of giving the mortgage,' is material and admissible in such action. The mortgage creditor is not a necessary party, although the officer who is made defendant acted under his instructions in seizing the property. Appeal from a judgment. Ralph A. Hard sued Ephraim J. Milligan, Jeremiah Lant and Issao F. Bissell for conversion of chattels, alleging that defendants had became possessed of and wrongfully detained from plaintiff the stock in trade contained in a certain store in Brooklyn, from which place the goods had been taken by defendant Lant, who put them in the auction room of defendant Bissell. It appeared that before June 26, 1878, Ephraim J. Milligan, one of the defendants, and one Dawson McQ-rayne were partners, holding said stock, and doing business at the store mentioned. That they then dissolved partnership, upon terms by which McHrayne took the entire partnership assets, and assumed the partnership debts ; and gave Milligan, the retiring partner, a chattel mortgage on the assets to secure the price at which he bought him out. In about a month McGrrayne made an assignment to Hard, the present plaintiff, for the benefit of creditors. Immediately after the making of that assignment, Ephraim Milligan assigned the mortgage he held, to his wife, through an intermediary. Subsequently, and on default in the terms of the mortgage, the defendant Lant, under the wife’s authority, entered the premises and removed the property to thp auction room, whereupon this action was brought. It did not 'appear that any demand had been made for the return of the property before the commencement of the action. The language of the assignment was sufficiently broad to convey all this property; and its terms contemplated the application of the assets to all the debts of the assignor, without indicating the existence of any distinction in respect to firm and individual debts. On the trial, McGrrayne as a witness was allowed to testify, in plaintiffs behalf and against objection, that, at the time of the dissolution, the firm was not able to pay its debts as they became due in the usual course of trade ; that they had been sued by firm creditors ; and to state the amount of indebtedness. An inquiry as to the amount of his individual indebtedness was excluded. His testimony that he had no other property than the firm property, and that the retiring partner knew this fact, was admitted against objection. Plaintiff, by direction of the court, had a verdict, and defendants appealed. H. C. Place (A. W. 8. Proctor, attorney), for defendants, appellants. I. Demand before suit was essential, because defendant was in possession under a legal conveyance. II. The assignment to plaintiff was void, because, if an assignment of partnership property, all partners must join (Paton v. Wright, 15 How. Pr. 481; Welles v. March, 30 N. Y. 344, and cases cited; Coope v. Bowle, 42 Barb. 87); and, if it be an individual assignment, the assignor had no right to convey, by reason of his previous conveyance by mortgage. III. The mortgage negatives the idea of collusion, for it provides for payment of the debts as part of the consideration; if there was fraud and collusion, it was upon the assignor’s part, to defeat the mortgage. IV. Plaintiff is not a bona fide purchaser, nor a receiver, and took and held subject to the mortgage. V. Allowing McGrayne to testify to inability of the firm to pay its debts, and to Milligan’s knowledge that McGrayne had no other property, was improper, ° because a conclusion of law, and because there was no allegation that the mortgage was fraudulent. VI. Mrs. Milligan, the owner of the mortgage, was a necessary party. VII. Plaintiff must show the mortgage fraudulent; of which there is no evidence; and if there were, it was a question for the jury, and error to direct a verdict (Frost v. Warren, 42 N. Y. 204; Gardner v. McEwen, 19 Id. 123). VIII. Omission to file the mortgage did not avoid it (17 N. Y. 580; 7 Hun, 238; Gildersleeve v. Landon, 73 N. Y. 609). William Sullivan, for plaintiff, respondent. I. The remaining partner after dissolution may assign for the benefit of creditors (Becker v. Boon, 61 N. Y. 324; Hays v. Bolles, 2 Daly, 231, 233, 235, 236; Tenny v. Johnson, 43 N. Y. 146; Phelps v. McNally, 66 Mo. 559). II. As to the effect of the act of 1858, c. 314, cited: Bishop on Insolvency, 147, 149; Southerd v. Pinckney, 5 Abb. New Cas. 184; S. C., 72 N. Y. 424). III. As to relative validity and priority of chattel mortgage and assignment: Hays v. Bolls, 2 Daly, 231, 233, 235, 236; Tenney v. Johnson, 43 N. H. 146; Phelps v. McNally, 66 Mo. 559; Randall v. Parker, 3 Sandf. 69. See also, 3 Supm. Ct. [T. & C.] 218; Wood v. Lowry, 17 Wend. 492; Griswold v. Sheldon, 4 N. Y. 582; Otis v. Sill, 8 Barb. 102; Thompson v. Van Vechten, 5 Abb. Pr. 459; Wood v. Lowry, 17 Wend. 492; Spies v. Boyd, 1 E. D. Smith, 445; Griswold v. Sheldon, 4 N. Y. 581; Edgell v. Hart, 9 N. Y. 213; Ford v. Williams, 13 N. Y. 577; Gardner v. Ewen, 19 N. Y. 123; Mitnacht v. Kelly, 3 Abb. Ct. App. Dec. ; Russell v. Wynne, 37 N. Y. 594-597; Marston v. Vultee, 8 Bosw. 129; Delaware v. Ensign, 21 Barb. 85; Dodd v. Johnson, 3 Supm. Ct. [T. & C.) 216; Dutcher v. Swartwood, 15 Hun, 31; Herman on Chattel Mortgages, 234, 235, 236; Southard v. Benner, 72 N. Y. 424; S. C., 5 Abb. New Cas. 184; Mobley v. Letts, 6 Reporter, 13; see 17 Alb. L. J. 193, 431; 1 Edm. St. 435; Thompson v. Van Vechten, 27 N. Y. 581, 582; Parshall v. Egbert, 54 N. Y. 22; Best v. Staple, 61 N. Y. 78, 79; Stewart v. Beale, 7 Hun, 416, 417; affirmed, 68 N. Y. 619; Dutcher v. Swartwood, 15 Hun, 31; 25 Barb. 484; 31 Id. 90. IV. Demand was not necessary (Jessop v. Miller, 2 Abb. Ct. App. Dec. 449). V. Mrs. Milligan’s remedy is against the sheriff (Manning v. Keenan, 73 N. Y. 54. See 13 Barb. 629; 71 N. Y. 77). See Southard v. Pinckney, 5 Abb. Hem Cas. 184, and note. [MAJORITY — By the Court.*—McCue, J.] By the Court.*—McCue, J. It is evident that the firm of Milligan and McGrayne, at the time of its dissolution, was very much embarrassed, if not insolvent, and that this was known to both of the parties. Milligan sold out his interest in the partnership assets to McGrayne, the latter assuming the partnership debts, and executing to the former a mortgage on the assets to secure the payment of the purchase-money, to wit: $500 in weekly installments of $30 each. The dissolution took place on June 26, 1878, and McGrayne carried on the business "until July 24, 1878, when he made an assignment for the benefit of creditors to the plaintiff, who immediately took possession of the property assigned. Between June 26 and July 24, McGrayne had paid three weekly installments of $30 each on the mortgage; a fourth one had become due on July 24, but was not paid. ' On July 25, 1878, Milligan assigned Ms mortgage to one Masters, who, on the following day, assigned it to the defendant, Lizzie A. Milligan, the wife of the original mortgagee. On July 26, 1878, the defendant Lant, who is a constable, under the authority of the mortgagee, entered the store where the firm business had been carried on, and without the knowledge and consent of the plaintiff carried away the stock and fixtures, being the property described in the chattel mortgage, and being also the property which had been assigned to the plaintiff. The foregoing facts were fully established by the evidence; and at the close of the case, the court directed a verdict for the plaintiff, submitting to the jury only the question of the value of goods, &c. From this ruling the defendants appeal. We are of the opinion that the case was properly disposed of. Milligan and McGrayne, as partners, were each liable for the partnership debts, and the agreement of dissolution, while it changed the relation of the partners as between themselves, did not relieve the retiring partner from liability to the creditors of the firm. The creditors still had a right to look in the first instance to the partnership assets for the payment of their claims. They had an equitable lien upon the same, and no private agreement between the partners, admitting that it was entered into in good faith, can operate to prevent the application of partnership property to the payment of partnership debts. The mortgage given by McGrayne to Milligan must therefore be presumed to have been given and received with full knowledge of all the equities which might be invoked against it in the event of any question arising, affecting the rights of the creditors of the firm. Any other principle than this would be a direct temptation to the perpetration of a gross fraud on the rights of the firm creditors—to consummate which it would only be necessary, if a partnership found itself in failing circumstances, for one partner to sell out to another at a consideration large enough to cover the full value of the common property, take back a mortgage on the same, foreclose it, and apply the proceeds to the payment of a private debt due from his co-partner, which in equity and conscience should be first applied to the satisfaction of the partnership liabilities. Looking at the case from the standpoint of a creditor, all the interest which Milligan could sell in the partnership property or assets was his share “in the surplus of those assets after the partnership debts were paid,” and that is all which it was in the power-of McGtrayne to mortgage. We think the testimony as to the financial condition of the firm at this time was very material, and properly admitted; and the defendants did not attempt to contradict McGrayne’s testimony, that at this time the firm was not able to pay its debts. There is no evidence that any new assets had been added to the stock on hand at the time of the dissolution ; and of the receipts from the business, which were estimated at from $40 to $50 per week, $30 per week was paid by McG-rayne to Milligan on account of the mortgage. It is admitted that nothing was taken by the defendants, but that which had been partnership property. Beyond the recitals in the assignments of mortgage it does not appear that any valuable consideration was paid by Mrs. Milligan, and she must be held to have taken the mortgage subject to all equities which might be urged against it. The mortgage covered nothing but partnership property; and it was valid only to the extent that there was any surplus stock or property belonging to either partner after the debts were paid. It appears that there was no surplus. What then could the mortgage operate upon ? (See Staats v. Bristow, 73 N. Y 268). In view of the established facts in the case, we think the mortgage was fraudulent and void in law as against the partnership creditors, and that the taking of the goods and chattels in question by the defendants was unlawful and wrongful. When the taking of property is wrongful, it is not necessary to make a demand for its return in order to maintain the action. Under the act of 1858 (L. 1858, c. 314), the plaintiff as assignee had a right to maintain this action, and, in behalf of the firm creditors, to treat the transfer by the one partner to the other, and the mortgage given on the transfer, as void (See Southard v. Benner, 72 N. Y. 427). In view of the conclusion which we have reached upon the main question above discussed, it does not seem necessary to refer to the facts that the mortgage, covered a stock of goods which were intended to be sold by retail from day to day as opportunity offered ;■ that the mortgagor continued in possession ;■ g¡nd that the mortgage was not filed until after the execution and delivery of the assignment to the plaintiff and his acceptance of the trust; all of which are of controlling influence in relation to the dona fides of the transaction. These facts were not disputed, and upon this branch of the case there was no question to be submitted to the jury. One other objection remains to be referred to, viz. : that there was a defect of parties. It is claimed that Mrs. Milligan should have been made a party defendant. . This action being for a wrongful conversion, the plaintiff had his election, as in all cases of tort, to sue one or any number of'several joint tortfeasors. Where the act complained of is a wrongful seizure of property by one, it is not necessary to join with him in the same action another under whose instructions he acts. This may be done or not, at the option of the plaintiff. ■ We think the case was rightly disposed of, and the judgment must be affirmed with costs. Reynolds, J., concurred. Judgment accordingly. Present—MoCue and Reynolds, JJ.