Broadway National Bank v. Wood , 165 Mass. 312 ( 1896 )

Allen, J.

On the averments of the bill, it must be assumed that Faden was an ostensible but not an actual partner, and that the property which the plaintiff seeks to reach and apply to the payment of its debt was in fact owned by the two Leatherbees. Assuming that Faden was and is personally liable to the plaintiff as ostensible partner, on the ground of estoppel, it is contended that this has the effect to entitle the plaintiff as a creditor of the ostensible firm to have the property which was in the possession and use of that firm applied to the satisfaction of the creditors of that ostensible firm in priority to creditors whose claims are only against the two Leatherbees. There are some decisions which support or favor this view. Kelly v. Scott, 49 N. Y. 595. Hillman v. Moore, 3 Tenn. Ch. 454. Whitworth v. Patterson, 6 Lea, (Tenn.) 119. But the weight of authority and the better reason, as we think, are the other way. The estoppel is a personal one. An ostensible partner cannot be included in insolvency proceedings instituted by the actual partners. Hanson v. Paige, 3 Gray, 239. He cannot interfere in the management of the partnership business, and obtain an injunction or a receiver. Nutting v. Colt, 3 Halst. Eq. 539. Kerr v. Potter, 6 Gill, 404. He has no lien on the partnership assets. Stone v. Manning, 3 Ill. 530. The long established equity of joint creditors to be paid in priority out of the joint funds is usually said to be by way of substitution to the rights of the partners inter sese, and where no such right exists then the creditors have no such equity. This doctrine is so firmly established that it is too late now to question it. Story, Eq. Jur. 675, 1253. Howe v. Lawrence, 9 Cush. 553, 558, 559. Harmon v. Clark, 13 Gray, 114, 121. Robb v. Mudge, 14 Gray, 534, 539. Case v. Beauregard, 99 U. S. 119, 125. Fitzpatrick v. Flannagan, 106 U. S. 648, 654. Huiskamp v. Moline Wagon Co. 121 U. S. 310, 323. Saunders v. Reilly, 105 N. Y. 12, 19, 20. Brown v. Beecher, 120 Penn. St. 590, 607, 608. Washburn v. Bank of Bellows Falls, 19 Vt. 278. Rice v. Barnard, 20 Vt. 479. Couchman v. Maupin, 78 Ky. 33. Farley v. Moog, 79 Ala. 148. Golden State & Miners’ Iron-Works v. Davidson, 73 Cal. 389, 392. Grabenheimer v. Rindskoff, 64 Tex. 49. It has also been held in England that, when trustees who are authorized to carry on business contract debts, their creditors can only resort to the trust fund when the trustees are entitled to be indemnified therefrom, and that the creditors reach it only by being substituted to the equities of the trustees. See In re Johnson, 15 Ch. D. 548, and Dowse v. Gorton, 40 Ch. D. 536, cited in Mason v. Pomeroy, 151 Mass. 164, 167.

In applying the foregoing doctrine to cases where a person is ostensibly, but not actually, a member of a partnership, and is therefore under a personal estoppel to deny his liability, it follows that a creditor who by reason of this estoppel can maintain a personal action against him cannot extend this estoppel so as to bind the property which was in the possession and use of the actual partners. The ostensible partner himself has no equity to have this property applied to the payment of the claims upon which he is liable; and therefore the creditors holding those claims, who are merely subrogated to his rights and equities, have no such equity. Kerr v. Potter, 6 Gill, 404. Glenn v. Gill, 2 Md. 1. Reese v. Bradford, 13 Ala. 837, 846. Scull’s appeal, 115 Penn. St. 141. York County Bank’s appeal, 32 Penn. St. 446. Swann v. Sanborn, 4 Woods C. C. 625.

The result is, that the decree sustaining the demurrer and dismissing the bill was right.

Decree affirmed.