Russell v. Cole

Knowlton, J.

The conveyance by Martin to Russell was on the part of Martin fraudulent as against creditors and in contravention of the statute relating to insolvency. But Russell had no knowledge of this fact, and did not in any way participate in the fraud. The contract, therefore, took effect according to its terms, Russell became a copartner with Martin, and the goods sold became partnership property. The rights of Russell, who bought in good faith for a valuable consideration, were not in any way affected by the fraud of Martin, of which he was ignorant.

The property which thus became assets of the partnership under the contract could not afterwards be attached on a claim against one of the partners, and the defendant, as attaching officer, acquired no valid title. Sanborn v. Royce, 132 Mass. 594. Pelletier v. Couture, 148 Mass. 269, 271.

The action was rightly brought in the name of both members of the firm, notwithstanding the proceedings- in insolvency against Martin. Fish v. Gates, 133 Mass. 441. Fay v. Duggan, 135 Mass. 242. Hyde v. Moxie Nerve Food Co. 160 Mass. 559. The fact that Martin was guilty of a fraud in forming the partnership before the attachment was made does not prevent the maintenance of the action. The principle of the decision in Homer v. Wood, 11 Cush. 62, is not to be extended to cases like the present. As, according to the finding of the auditor, the goods became partnership property even as to creditors, notwithstanding the fraud of Martin, the suit against the defendant for attaching it wrongfully does not involve any question in regard to the right of Martin to rescind or repudiate the contract, nor bring his previous conduct within the issue. The defendant’s act in attaching the partnership property was a trespass; and the owners of the property, or the parties in possession of it, might sue for damages without regard to the question whether one of them in a previous transaction had been guilty of a wrong against third parties. Hall v. Corcoran, 107 Mass. 251. Newcomb v. Boston Protective Department, 146 Mass. 596, 602. Stillings v. Turner, 153 Mass. 534.

The remaining question in the case is whether the defendant is entitled to show in mitigation of damages that he delivered the property to the assignee in insolvency of Martin. After the commencement of the proceedings in insolvency, Russell alone had a right to the possession of the property. The assignee of Martin was only entitled to a share in the surplus of the partnership assets, if anything remained after paying the debts. The partnership, being solvent through the solvency of the partner Russell, was not brought into the Court of Insolvency, and that court acquired no jurisdiction to settle its affairs. It is to be remembered that our courts of insolvency are creatures of the statute, and that they have no jurisdiction except that which the statute gives to them. Their only jurisdiction over partnerships is conferred by Pub. Sts. c. 157, § 120, et infra. It is only “ when two or more persons who are partners become insolvent,” that is, when the partnership is insolvent through the insolvency of all the members of the firm, that a court of insolvency acquires jurisdiction to settle the affairs of the partnership; and in such a case a warrant is issued upon which the joint stock and property of the firm and the separate estate of each of the partners are taken.

Until the enactment of St. 1894, c. 164, courts of insolvency had no jurisdiction in equity, and that statute confers no jurisdiction to interfere in the affairs of a partnership which is not brought into the court of insolvency by regular proceedings by or against it, except in cases where incidentally to the proceedings in insolvency there is a ground for equitable relief under the principles which govern other courts of equity.

When a partnership is dissolved by the death or insolvency of one of its members, the surviving partners in case of death, or the solvent partners in case one of the firm is in insolvency, are entitled to the possession of the partnership property, and are bound to pay all of the firm’s debts. It is their duty to wind up the affairs of the partnership, and to pay over to the representative of the deceased or insolvent partner his share of the assets, if there are any after paying the firm’s liabilities. Fern v. Cushing, 4 Cush. 357. Dearborn v. Keith, 5 Cush. 224. Hanson v. Paige, 3 Gray, 239, 242. Cunningham v. Munroe, 15 Gray, 471, 479. Nutting v. Ashcroft, 101 Mass. 300. Pelletier v. Couture, 148 Mass. 269, 271. Amsinck v. Bean, 22 Wall. 395. Lindl. Part. (2d Am. ed.) 669 et seq. If they fail to do their duty in these particulars, the executor, administrator, or assignee may have a remedy in a court of equity. So long as the solvent partners are ready and willing properly to settle the business and dispose of the property of the partnership, and properly to account for and pay over the proceeds, an assignee in insolvency, under our statute, has no right to the possession of the partnership property. The partnership property and the solvent members of the firm are not within the jurisdiction of the court of insolvency. They can be brought within its jurisdiction only upon proceedings in equity under St. 1894, c. 164, founded upon facts which would give jurisdiction to a court of general jurisdiction in equity. Some of the dicta in Wilkins v. Davis, 15 Nat. Bankr. Reg. 60, and 2 Lowell, 511, are not in accordance with the decisions and practice under the statutes of Massachusetts. It follows that the surrender of the property by the defendant to Martin’s assignee in insolvency was irregular and unauthorized. It 6an-not avail the defendant as a defence in this action by way of mitigation of damages or otherwise. In the opinion of a majority of the court, the plaintiff Russell was entitled to have from the defendant all of the property taken under the attachment, and, it not having been returned to him, he may recover the full value of it. Exceptions overruled.