
    Ephraim Peek v. D. L. Wakely and Levekett Hubbard.
    1825.
    
      Columbia.
    
    
      Ephraim Peek and Leverett Hubbard entered into copartnership, as merchant tailors, in JS'ew Haven in the year 1815. The capital stock of the firm was of which Peek advanced nothing, Hubbard the whole and Peek gave Hubbard his note for 11000. The firm ° . became insolvent, and surrendered, in 1816, all their goods, &c. to assignees ; and Hubbard’s private ty was sold. Wakelu lived within a few doors of Hub-v ** bard and Peek ; and for the last fortnight before the final dissolution was in the shop, in employment of the firm. The assignees placed a part of the goods in the hands _ , , . , , , , .nr ,1 • Peek, to be carried to the south and disposed ot tor their benefit. Wakely was placed in charge of them by Peek, and brought them to Columbia. Soon after, Wakely , , „ ° _ , , . . . , .. . bought trom Peek the whole stock, and gave his note tor them. Upon which Peek had to sue, and obtained judgment. Hubbard, in the mean time, had been arrested for a private debt in JVeio Haven, and took the benefit of the poor prisoners’ law of Connecticut. He came on to Columbia, and Wakely, dreading the judgment which Peek was about to obtain upon his notes, purchased from Hubbard Peek’s note for $1000, then past due two years, with a knowledge that Hubbard had been and then was insolvent, and that Peek was doing a good business and was paying off the debts of the firm. Wakely was to pay Hubbard for the note $550 out of the proceeds, when recovered ; but, in fact, never paid but f 35, in suit of clothes. They entered into some written agreement about it which was not exhibited. The note was 
      endoxsedbyHubbardioWakély. Wakely sued Peek upon notej anc[ obtained judgment. Peek filed this bill to enjoin him; and alleged that he had paid, beyond his own ProPort’on °f t^e debts of the firm, a sum more than sufficient to extinguish his note to Hubbard; and this too after accounting to the assignees for the goods brought on by him to the south.
    
      p. and h. copartner**0 ship. H. put in dh the whole stock, and p. gave H. his note for one and assigned creditors. h. notwith-taiSri ,note> which he afterwards (after it was 'wf'wfftTa full know-ledgeofallthe circumstan-the note sub-Equities! and ®£een°pnt’ and H.
    
      On the first argument of this cause, Chancellor Gail-larb, by a decree of February 1824, directed that the assignees should be made parties. The.decree was as follows : Peek's note was not included in the assignment made by Hubbard and Peek to their assignees, in trust for the creditors. Nor did Hubbard give it up when he took the benefit of the ¡poor debtor’s law of Connecticut. ■ After it became due, it was assigned to Walcely, who had sued and obtained judgment on it. Peek is looked to, being the solvent partner, for payment of the debts of Hubbard and Peek; and if he had paid or ultimately should pay more than his proportion of their debts, Hubbard will be accountable to him for the difference. But Hubbard is insolvent. By an account taken between 'Hubbard and Peek, it is insisted that Hubbard has paid to the assignees more than Peek. The accounts are disputed, and I will not go into them : because supposing them now to be in favour of Hubbard, we do not know how they will be at the winding up of the concern; because the assignees of Hubbard and Peek not being parties to this suit, they will not be bound by any thing done in it. Neither Hubbard, nor Wakely who holds this note with the equity attached to it growing out, of the circumstances, can insist on its payment, until an account is taken between Hubbard and Peek. Their assignees should be made parties to the bill. It is ordered and decreed that the injunction, restraining the defendant proceeding on his judgment, be continued until an account shall be taken between Hubbard and Peek, 
      and their assignees ; and that the complainant do amend his bill, by making the assignees parties to it. The assignees were accordingly made parties, but never answered nor appeared; and an examination of the . , . , rn ■ ■ , accounts was gone into, before the Commissioner, who reported that Peek had not paid at the time of the transfer of the note, over and above his share of the debts of the firm, a sufficient amount to discharge him from his liability to pay the amount of the judgment recovered at law by Wakely against Peek, or to entitle him to a credit on the said note, Peek being then indebted to the firm of Hubbard and Peek. But that if the complainant was at liberty to set off any of the debts due by Hubbard and Peek, which he had paid between the date of the transfer of the note to Wakely and the commencement of this suit up to 1824, Peek had either actually paid on obtained discharges in favour of the firm,' by private arrangements with the creditor or his individual responsibility, an amount over and above his share of the debts of the firm sufficient to discharge him from the payment of the note in question.
    The complainant excepted to so much of this report as questioned the propriety of admitting the discounts or credits set up by complainant, which arose by payments made by him after the transfer of Peek’s note by Hubbard to Wakely, for the reasons,
    1. That the equities set up by complainant did actually exist at the time of the transfer of the note.
    2. That the payments made by complainant after the transfer of the note, were compulsory; and only in consequence of the liabilities incurred before the transfer.
    The case came on again, to be argued on the exceptions to the report of the commissioner.
    
      De Saussure, M’ Cord and Preston, for the complainant.
    
      
      Gregg and Harper, contra.
    Thompson, Chancellor.
    There have been several interlocutory orders made in this case, and two Chan- . . . . , - , ' I cellors, whose opinions are entitled to great weight an(j reSpect, have decreed, that Peek has the same equity against Wakely which he had against Hubbard. It is not now important for me to examine into the correctness of those decisions. I am well apprized, that the general rule of law is as has been declared; but this case does not come within that rule. The question submitted to me is altogether of a different nature; it is simply (admitting the doctrine as laid down to be correct) what equity Peek had against Hubbard1? Hubbard loaned him $1000, for which he had taken his note of hand. This was his individual and private property, not at all involved in the copartnership transactions. The copartnership funds were all which their creditors looked to for satisfaction of their demands against them. These funds were assigned to their creditors, and not a word said in the schedule, respecting the note. They were satisfied with the fairness of the return, and never refused to resort to either, for a further compensation for their demands. Hubbard, being in very distressed circumstances, sold to Wakely the note for $35. It is contended for the complainant, Peek, that he had an equity against Hubbard's private property for the copartnership debts. Whatever right the creditors might have had, it assuredly does not extend to Peek. What sum or sums of money he had loaned him he was morally and legally bound to repay to him or his assignee : Wakely was this assignee, and entitled to recover the money of Peek.
    
    10 April 1825.
    It is ordered and decreed, that the bill be dismissed with costs.
    
      6 May 1825.
    From this decree the complainant appealed, and made the following:
    1. That the equities, set up by the complainant, existed at the date of the transfer of the note.
    2. That the payments made by the complainant, after the transfer of the note, were compulsory; and to meet the liabilities incurred before the transfer.
    3. That Wakely and Hubbard, the parties to the transfer of the note, were now before the Court; and Wakely having paid but $‘35 of the amount he agreed to pay, the note ought to be decreed to be cancelled, upon the repayment to him of that sum.
    
      W. F. He Saussure, for the motion.
    Where a person takes a note after it is due, he takes it subject to all the equities existing between the original parties, and he is presumed to know all the equities which may subsist. 1 Johns. Cha. Rep. 54. 12 Johns. Rep. 345. 3 Term Rep. 82. Chitty on Bills, 144. If Hubbard had sued Peek, the Court would not have suffered him to recover this money until the copartnership concerns had been settled. The defendant stands in the relation of trustee to Hubbard, at least so far as relates to the sum which he owes him. 4 Desaus. Rep. 48. 4 Mass. Rep. 372.
    
      Gregg, contra.
    It was not important whether Peek had taken up the copartnership paper, and had given his own, for he was liable. Peek stated in his bill that he had paid ‡6000, and it had turned out that he had only assumed to pay that much himself. These subsequent payments and assumptions could not affect the previous transfer of the note. The complainant must not only be able to do it, but he must state in his bill every thing he relies upon, and every thing which he intends to prove or put in issue. Coop. Eq. Plead. 7. The equi
      ties between the parties must have relation back to the time of filing the bill. At that time Hubbard was in advance to the firm $6000, and Peek only $2000. The ass*Snee °f a chose in action takes it subject to all the equities of the obligor, but not to a latent equity of a third person. 2 Johns. Cha. Rep.'443. 480. The bill does not allege, nor had it been proved, that Wakely knew of the payments made by Peek subsequent to the transfer of the note to him. An assignee without notice is preferred to third person's who set up a latent equity. 1 Dow’s Rep. 35. 1 Ves. 123.
    
      Harper, on the same side.
    
      First. Was there any thing existing, at the time of the transfer, on which Peek could have defended himself against Wakely as assignee of Hubbard %
    
    
      Second. Were there any particular circumstances in the case, giving the complainant aground for relief1?
    The opinion delivered by Chancellor Gaillard was not intended to be final. The order was only for a reference, and to make additional parties. Allan v. Bower, 3 Bro. C. C. 149.
    The assignee of a chose in action not negotiable takes it subject to all the equity of the obligor, and so of negotiable papers if the assignee has notice, but not if he had no notice. 2 Wash. Rep. 248. One who takes a note after it is due takes it subject to all the legal defences that it would have been subject to in the hands of the payee ; all the defences which then existed might have been set up; but that on which the complainant relied was a discount arising subsequently thereto. Eden on Injunctions, 24. 2 Johns. Cha. Rep. 144.
    
      M’Cord submitted the following argument in reply.
    
      The partnership between Peek and Hubbard was dissolved in 1816, and three years afterwards this note was assigned by Hubbard to Wakely, two years after the note was due. This note, if not assigned to the ere- ° ditors in Connecticut, should, bona fide, have been assigned. And what ought to have been done by Hubbard, as between Hubbard and Peek, will be considered in equity as done. As to Hubbard then this note was to be considered as assigned to the creditors of the firm, and it was a fraud in Hubbard to conceal it. The bill charged that Wakely had notice of the whole transactions, and the allegation was proved. Wakely then stood in the same situation as Hubbard stood. They were to be regarded as one. The indorsement to him was two years after the bill was due. Chitty on Bills, 144. O' Callaghan v. Sawyer, 5 Johns. Rep. 118. 12 Johns. 345. 1 Dali. 444. Furman v. Haskin, 2 Caines’ Rep. 372. If the rule of law were otherwise, the contract between the parties was in the nature of copartnership, and therefore made Wakely's rights and Hubbard’s identified. “ Hubbard was to receive $550 out of the proceeds of the note when recovered.” That rendered Wakely and Hubbard jointly interested. Wakely was only to get half for recovering it. Wakely then made himself an agent of Hubbard, and as such was liable with Hubbard to account for the proceeds of this note to Peek, he having notice, and taking the note after due. Peek was liable for the whole debts of the firm of Hubbard and Peek, and this note operated as a security from Hubbard to Peek for his responsibility for the whole debts of the firm. To suffer Hubbard to trade it off, or to collect it out of Peek, without coming to a settlement, would be depriving Peek of an equity which he possessed at the time of the failure. It would be a fraud by Hubbard on Peek, in which Wakely participated. After a failure it is doubtful whether, in equity, all partial assignments of property, or preferences, made by the insolvent debtor were not fraudulent and void in equity. There *s no doubt ^ey are good in law, but the reasons urged by Lord Kames in his Principles of Equity, Book III. Ch. V. for the application, by the Courts of Equity,of the principles adopted by the EnglAsh bankrupt laws, in this connection, had great force, viz. That a creditor, knowing the insolvency, could not be innocent, who would be accessary to an act of injustice on the part of the debtor, by taking more than his proportion of the effects, in consequence of such preference given to him by the debtor; and that the equitable right to the debtor’s effects, which upon his insolvency (in equity) accrue to his creditors, makes it a wrong in him to sell any of his effects privately without their consent. The sale indeed was effectual at common law; but the purchaser, supposing his knowledge of the insolvency, was accessary to the wrong, and the sale is voidable upon that ground. 4 Desaus. Rep. 227. Suppose there was a judgment against Hubbard in his own private case, Peek could enjoin that judgment lintil the whole of the co-partnership debts were paid, and why not restrain the asportatice, or fraudulent destruction of his equitable security in this note for his responsibility to pay Hubbard’s share of the debts. 1 Mad. Ch. 76. He cited also Cullen’s Bank. Laws, 192. 197.
    
      Blanding, on the same side.
    It was not pretended that at the time of the agreement of Hubbard to transfer the note to Wakely, the complainant had any legal right: but it was contended that, at that time he had an equitable right to have this note impounded, until it should be ascertained whether, on the liabilities he had incurred for Hubbard, he would be compelled to pay the share of the copartnership debts for which Hubbard was liable; and finally to have the note discharged in the event of his making such payments. These were the facts on which this liability arose. Hubbard and Peek had been equal partners of a dissolved concern which was clearly insolvent, and the debts to which each partner was liable were greater than the present note, after exhausting all the copartnership effects. . Hubbard was also insolvent. Peek (quoad this transaction) was perfectly solvent to the belief of Hubbard, as he states in his answer, and to the certain knowledge of Wakely, who then owed Peek between $2,000 and $3,000. What was Hubbard then bound to do with this note? Certainly not to collect or enforce it. When he surrendered his property his conduct shewed what his views then were. He did not assign it, because Peek was equally responsible to the creditors of Hubbard and Peek without, as with, such an assignment. Peek was charged in the account with Hubbard and Peek with the sum of $2,000, because Hubbard had put $2,000 into the concern. But if this note were still outstanding, Hubbard had advanced but $1,000, and Peek the same ; and instead of Peek being charged with $2,000, he would have been credited with $1,000. According then to Hubbard’s shewing and the evidence, the note was actually merged in the copartnership transactions, and had no legal obligation in the hands of Hubbard. But without this evidence Peek’s evidence was complete the moment of the dissolution of the insolvent copartnership. He was then Hubbard’s security, both in law and equity, for all the debts of the concern beyond his own proportion of them. The amount of these debts has been established; and after Hubbard and the assignees of Hubbard and Peek have been made parties to these proceedings, it does not lie with any one to say, that there are other debts which Hubbard may hereafter be compelled to pay. Was the liability of Peek at the time of the transfer of the $1,000 note to Wakely an equity 1 To this point he cited JYesbit v. Smith, 2 Brown’s C. C. 581, and Taylor v. Herriot, 4 Desaus. Rep. 227. The case of Wiggins v. Armstrong, 2 Johns. Chai Rep. 144, had been relied on to prove the contrary. That case proved, that a simple contract creditor could not before judgment restrain the fraudulent disposal of his debtor’s effects. Here the case was different. Peek asks that Hubbard should not be permitted to draw out of his hands $1,000 while he is liable to pay for Hubbard, as his security, a much larger sum. If Hubbard would not be permitted to do this, then Peek's equity at the time of the agreement to transfer the note to Wakely was unquestionable.
   After the argument Mr Justice Johnson delivered the opinion of the Court at length, which has been mislaid ; and the Reporter has not been able to recover it. However the Court held that Wakely took, subject to all the equities subsisting between Peek and Hubbard. The following certificate was given.'

“ It is ordered and decreed, that a perpetual injunction do issue, to restrain defendant, Wakely, from proceeding on his recovery, at law, against the complainant, in the case stated in the bill, except as to thirty-five dollars, paid by Wakely to Hubbard, and the costs at law: and that each party pay their own costs in this case.”

Decree reversed.  