
    Louis Nordlinger, App’lt, v. Adolph Anderson et al., Resp’ts.
    
    
      (Court of Appeals,
    
    
      Filed December 2, 1890.)
    
    Assignment fob cbeditobs — Payment of individual debt of pabtneb BY INSOLVENT FIBH.
    Where the father of one of the members of a firm advances money for the benefit of the firm and upon the faith of its responsibility, although he takes as evidence of the loan the individual note of his son, which was replaced by the firm note, at a time when it was not shown to be insolvent, the subsequent preference of the father in an assignment for the benefit of creditors is not such a fraud upon creditors as will render the assignment void.
    Appeal from judgment of the supreme court, general term, first department, affirming judgment of special term dismissing plaintiff’s complaint upon the merits.
    
      Fred. W. Hinrichs, for app’it; John H. Corwin, for resp’ts.
    
      
       Affirming 24 N. Y. State Rep., 240.
    
   O’Brien, J.

The plaintiff, a judgment creditor of the firm of Adolph Anderson & Co., composed of Adolph Anderson and Charles A. Muns, brought this action to set aside and have declared fraudulent and void an assignment for the benefit of creditors, with preferences, made by the firm on the 9 th day of September, 1887, and duly recorded. The preference made in the assigment was in favor of Charles Muns, the father of one of the partners and assignors, for the payment of a debt of $7,000, and it is charged that this claim is fraudulent and fictitious. The trial court found that the firm was actually indebted to the preferred creditor in a sum exceeding that to pay which the preference was made, and that in making the assignment there was no intent to hinder or defraud the other creditors. These findings are amply sustained by the evidence and have received the approval of the general term. The indebtedness of the firm to Charles Muns included a note of $3,000 and interest thereon bearing date March 10, 1887, payable one year from date to the order of said Charles Muns and signed by the firm. This note was made in June, 1887, with the consent of both partners, and delivered to the payee by the firm to take the place of the individual note of the partner, Charles A. Muns, to his father for the same amount and bearing same date, payable on demand. The old note was surrendered and destroyed when the new one was taken in its place. The contention of the plaintiff upon this appeal is that, to the extent of the $3,000 note and interest, the preference amounted to the disposition of the firm property for the purpose of paying the individual debt of one of the partners, and that the law imputes fraud to such a transaction regardless of the actual intent of the parties at the time of making the assignment.

The general rule that an appropriation by an insolvent firm of the partnership property to the payment of the individual debts of one of the partners is fraudulent as against the partnership creditors is well settled. Wilson v. Robertson, 21 N. Y., 587 ; Menagh v. Whitwell, 52 id., 146; Ransom v. Van De Venter, 41 Barb., 307. But we think the facts as they appear in the record do not bring this case conclusively within this principle. There is no finding that at the time .that the firm note was substituted for that of the individual partner the firm was insolvent and the evidence given at the trial would not justify such a conclusion even if we were at liberty, as we are not, to examine it for the purpose of finding a fact upon which to base a reason for reversing the judgment. The firm was organized in the early part of March, 1887. Prior to that time Anderson had been engaged in business alone under the name of Win. D. Clark & Co., and he brought to the new firm only such assets as he then had and which 'proved to be of no value. Muns put in $3,000 in cash which he borrowed of his father, the preferred creditor, giving to him as we have seen his individual note payable on demand as appears from the evidence. This cash contribution made by the creditor who was subsequently preferred was in fact the only capital the firm had. It went into the hands of Anderson, who deposited it in his own name and used some part of it for the payment of his old debts. The evidence would warrant a finding that this money was really advanced by the father of one of the partners for the benefit of the firm and upon the faith of its responsibility; and though he took as evidence of the loan the individual note of his son, yet it was at all times in equity the debt of the firm to him which might have been enforced in his favor by suit and judgment at law against the partnership. Under these circumstances the substitution of the firm note for that of young Muns in June, 1887, before the debt upon which plaintiff’s judgment is based was contracted cannot be held to be fraudulent in law against the plaintiff or the other firm creditors.

The written evidence of the loan was then changed and made to conform to the actual transaction between the parties and to the equities as they always existed between the creditor who ad•vanced the money and the firm receiving it. There is another ground upon which, we think, the judgment of the courts below should be sustained. The individual note of young Muns given at the time his father advanced the $3,000, does not nor does any copy of it appear in the record; and there is no finding in the case as to the terms of the note or the time when it became due, but Anderson, the other partner, was examined as a witness by commission, at the instance of the plaintiff, and he testified that the note was payable on demand, and it appears that when the note of the firm was given in June and dated back to March, 1887, when the money was advanced, that the first note was surrendered and destroyed. Assuming, for the purpose of the argument, that the plaintiff’s counsel is correct in treating the debt as originally that of one of the partners and not of the firm, the fact that the creditor surrendered a demand note which he might have enforced at any time and took in its place, with the consent of all the partners, the note of the firm not due till the end of a year would, in the absence of a finding that the firm was at the time of giving the new note insolvent or that the change was made for a fraudulent purpose, constitute a good consideration for the note of the firm. National Bank of Gloversville v. Place, 86 N. Y., 444.

The individual debt of one partner may, under certain circumstances, constitute a , legal basis for a valid firm obligation, and when no actual fraud exists the partnership property may lawfully be appropriated to pay a debt which the firm by its own action has made its own upon a sufficient consideration. Bernheimer v. Rindskopf, 116 N. Y., 428; 27 N. Y. State Rep., 648.

The burden of showing that the assignment was fraudulent, either in fact or in law, was upon the plaintiff. The result in the courts below relieves the case of all imputation of fraud in fact, and sufficient facts were not found nor shown to warrant this court in holding that the transaction is fraudulent in law.

The judgment should be affirmed, with costs.

All concur.  