
    Phelps v. McNeely, Appellant.
    
    Distribution of Partnership Assets. A partner sold his interest in the firm to his co-partner, who agreed to pay the firm debts. The firm was at the time insolvent. After the sale the continuing partner gave a deed of trust on all the assets of the late firm to secure the payment of an individual indebtedness of bis own, which accrued prior to the dissolution. In a contest between a creditor of the firm and the individual creditor, Held, that the right of the former to be paid out of the firm assets in preference to tbe latter was not impaired by the dissolution, and as against him the deed of trust was a nullity.
    
      
      Appeal from, Andrew Circuit Court. — Hon. Henry S. Kelley, Judge.
    
      J. D. Strong for appellant,
    cited Caldwell v. Scott, 54 N. IT. 414; Tenney v. Johnson, 43 N. H. 144; Rogers v. Batchelor, 12 Pet. 230; Sauntry v. Dunlap, 12 "Wis. 364; Conroy v. Woods, 13 Cal. 631; Story, on Partnership, 97; Taft v. Buffum, 14 Pick. 322; Clark v. Houghton, 12 Gray 38 ; Fierce v. Wilson, 2 Iowa 20.
    
      S. E. Carter for respondent.
   Norton, J.

— The appellant in this case brought his suit by attachment against the firm of Clark & Bowers, in the Buchanan court of common pleas. The attachment was levied upon certain goods and chattels, as the property of the firm. The respondent, Phelps, appeared and filed an interplea in which he claimed a portion of the property thus levied upon, under a deed of trust executed by Clark, to secure the payment of a debt which Clark owed one Cooper. The answer to this denied the right of Phelps to the property, or that Clark owed" Cooper, or had ever executed a note, and alleged that the deed of trust was without consideration, was fraudulent, and was made to hinder and delay the creditors of Clark & Bowers. The venue of the cause was changed to the Andrew circuit court, where, upon atrial, judgment was rendered in favor of plaintiff, Phelps, from which the defendant has appealed to this court, motions for new trial and in arrest of having been overruled. The defendant seeks a reversal of the judgment because of the alleged errors of the court in receiving and rejecting evidence, and in giving and refusing instructions. The objection made to the reception in evidence of the deed of trust, and the return of the sheriff showing what property had been seized by him by virtue of the attachment writ, are too frivolous and technical to require further notice, than to say that they were properly overruled. Defendant offered to prove the contents and appearance of a memorandum book wbicb had been produced by Cooper on a former trial. Tbis was objected to on tbe ground that tbe book itself was tbe best evidence, and until its absence or loss, if lost, was accounted for, the evidence offered was but secondary. Tbe court ruled properly in excluding tbis evidence, defendant not having laid tbe proper foundation for its introduction. Besides tbis, witnesses Grubb and Strong were allowed to Éstate wbat Cooper had testified to in regard to it at a former trial of tbe cause, Cooper having been previously asked wbat be bad sworn to concerning it on said trial.

Tbe evidence in tbe case shows that prior to tbe 14th of March, 1871, Clark and Bowers were partners in conducting a saloon in St. Joseph, and that they were indebted on partnership account to defeudant McNeely in tbe sum of $387.10. On that day Bowers sold to Clark bis interest in tbe partnership business and property on tbe following terms, viz: Clark was to pay Bowers tbe sum of $125, and pay all tbe partnership debts, tbe principal one of wbicb was tbe debt due to McNeely. The evidence strongly tends -to show that it was understood at tbe time, and previous to tbe consummation of tbe bargain between Clark and Bowers, that Clark was to execute a mortgage on tbe property to secure MeNeely’s debt, and that McNeely was, in that event, to release Bowers and' look to Clark for bis debt; that Clark on tbe same day, and prior to tbe consummation of tbe agreement between Clark and Bowers, bad told McNeely that Bowers would not sell to him unless be, McNeely, would release Bowers, and promised to execute to McNeely a mortgage if he would release Bowers, and that McNeely agreed to do tbis when tbe mortgage should be executed; that on tbe 14th of March, 1871, Bowers executed and delivered a writing to Clark wbicb recited tbe dissolution, and tbe fact that be bad sold bis interest to Clark for tbe consideration of $125, and the further consideration that be should pay tbe partnership debts. The evidence also tends to show that at the time this agreement was made, Clark was indebted to Cooper in the sum of about six hundred dollars as his own individual private^debt; that a portion of this debt was for money loaned by Clark to enable him to buy Bowers’ interest in the firm, and $83 of it was applied to the payment of rent then due by the firm, and for which McNeely was baund as security. Clark swears that he told McNeely he had borrowed this money of Cooper, and McNeely testifies to the contraiy, and that Clark told him he had borrowed the money of one Gill. The evidence shows that Clark & Bowers were at that time, and still are, insolvent, and that Clark did not execute a mortgage to McNeely; that on the 16th of March, 1871, two days after the dissolution, Clark executed to Phelps, the plaintiff, a deed of trust on the partnership property for the purpose of securing Clark’s individual debt of $600 to Cooper; ¿.hat Cooper had, about one week pi’ior to the dissolution, applied to Clark and requested him to execute a mortgage .o secure his debt.

The chief error complained of, and brought to our attention, was the refusal of the court to give the following instruction: “If the jury believe from the evidence, that on or about the 14th day of March, 1871, defendants Clark & Bowers, (in the attachment suit,) were co-partners in business, and as such co-partners were the owners of the property in controversy herein, and that at the time they were insolvent, and had no other property or assets with which to pay their firm debts; that said Clark & Bowers were at the time as such partners, indebted to said' J. D. McNeely in about the sum of $387.10, and that with a ■a knowledge of these facts, Clark purchased of Bowers his interest in the partnership effects for the purpose of enabling the said Clark to transfer said partnership property to interpleader, Phelps, to secure the payment of an individual debt due from Clark to Cooper, and that in pursuance of such purpose on the part of Clark, the deed of trust read in evidence was executed to secure the debt due from Clark to Cooper, then such transfer from Clark to Phelps was fraudulent and void as to said McNeely, and the jury will find for defendant in the interplea.” It was held in the case of Flanagan v Alexander, 50 Mo. 50, that one partner has no authority or power whatever, without the consent of his co-partners, to appropriate the assets of the partnership to the payment of his individual indebtedness. While a partner can dispose of the property by a bona fide sale, he cannot appropriate it without the consent of his co-pai’tners, to the payment of his individual debts, either with or without knowledge of the creditor that such property was partnership property. Ackley v. Staehlin, 56 Mo. 561. In the distribution of partnership assets, partnership creditors have a preference over individual creditors, and individual creditors have a corresponding preference in reference to individual property. It is, however, argued that, inasmuch as Bowers had sold out to Clark with the condition that Clark was to pay the partnership liabilities, the partnership property thus received by him was released from the operation of this rule. It must be conceded that, if Clark, prior to his purchase of Bowers, had executed the deed of trust in question on the partnership property to secure the payment of his own debt to Cooper, without the consent of Bowers, he would have taken no interest therein by virtue thereof, except what might have remained over to Clark after the payment of all the firm liabilities as his share. The mere fact that the partnership was dissolved, and that Bowers retired from the firm after selling his interest to Clark on the condition that he was to pay partnership debts, would not authorize Clark to apply the property thus acquired to the payment of his individual antecedently contracted debt to the exclusion of the firm creditors; and their right to be first paid out of the assets to the exclusion of individual creditors, would not be impaired any more by an application of the firm assets after its dissolution under the above circumstances, by one partner to the payment of bis own debt, than if such replication bad been made before tbe dissolution. Tbe question here raised is thoroughly discussed in 43 N. H. 144, Tenney v. Johnson, in which tbe court, after stating that it was settled that tbe effects of the firm in the bands of a surviving partner remained'subject to tbe prior claim of partnership creditors as against creditors of the surviving partner, speaking through Justice Bellows, say: “The question then arises, if one of tbe partners voluntarily retires from tbe firm, releases all bis interest, and receives from tbe remaining partner an obligation to pay all its debts, does tbe right of priority still continue in the partnership in respect to such assets, or in other words, is there no substantial difference between such a case and that of surviving partners ? In both cases tbe legal title to tbe assets is vested in tbe remaining partner, in one by operation of law, and in tbe other by tbe act of tbe parties, andt in either case tbe remaining partner has tbe full power of sale for proper purposes. So in both cases be is bound to pay all tbe company debts, and so far as tbe creditors are concerned by tbe same obligation, namely, by bis partnership promise. If it beheld that this right of priority may be defeated by a sale from one partner to another, it is easy to see that it would be a most convenient mode of evading a principle that is held ,to be salutary.” Each partner has tbe right to have tbe partnership property applied to tbe due discharge and payment of all firm debts and liabilities, before anyone one of the partners or bis individual creditors can claim any right or title to them. Hence, it follows that no separate creditor of any partner can acquire any right, title or interest in tbe partnership stock, funds or effects by process or otherwise, merely in bis character as such creditor, except for so much as belongs to that partner as bis share or balance after all prior claims thereon are deducted and satisfied. Story on Part., 156, Sec. 97. Tbe contention in this case is between a creditor of the firm of Clark & Bowers, and the individual creditor of Clark, one of its members, who is seeking to have the partnership property applied to the payment of his debt. Unless the consent of McNeely, the firm creditor, to this application can be shown, this cannot be done. "We think the instruction asked should have been given, and because it was refused, the judgment will be reversed and cause remanded,

in which the other judges concur.

Reversed.  