contracted the debt or incurred the obligation | notes, one for $2,500, and one for $5,200. Bơ for which suit has been brought." The grant- ing unable to repay the borrowed money to ing of this leave to amend the affidavit was ob- John McGinty, the defendant, on December 19, jected to by the defendant, and is the subject of 1878, sold to Edward McGinty, a relative of an exception, and assigned for error. But sec- John McGinty, his entire stock of goods, amounttion 1483 of the Code of Mississippi of 1871 ex-ing to $6,633.46, at cost and 10 per cent added, pressly authorizes amendments to defective af- and the partnership accounts, amounting to fidavits, and we see no objection on principle, $10,222.06, for which Edward McGinty paid under such a provision, to an amendment add- $8,200 in cash, and assumed to pay obligations ing a new ground for the attachment. There due in part from Fitzpatrick Bros., and in part was no claim on the part of the defendant of be- from Fitzpatrick, the surviving partner, for ing taken by surprise or put to any disadvantage commercial debts contracted by him since the by reason of the amendment, and we fail to per- death of his partner, to the amount of $6,974.16. ceive how in any way he could have been preju- This price was a full and fair value for the diced. In point of fact, he immediately filed goods and accounts, and in fact Edward Mchis plea in abatement to the amended affidavit, Ginty paid out several thousand dollars more traversing the additional allegations, and the on the debts assumed than he had collected out cause, being at issue upon the pleas in abatement, of the assets transferred. was submitted to a jury, according to the prac- This sale to Edward McGinty was made with tice authorized by the statute. There was a ver- the knowledge of John McGinty, who, in fact, dict finding"That the attachment herein was advanced the money to complete it, Edward berightfully sued out," and the defendant there-ing without means, and upon an understanding upon had leave to plead to the merits, and filed that the money should be paid to John McGinty with a plea of non assumpsit several special on account of the debts due to him; and acpleas, which it is not necessary now to notice. cordingly the $8,200 cash was returned to him The cause having been tried by a jury upon these in payment of the two notes for $2,500 and issues, there was a verdict and judgment for the $5,700 respectively. Immediately after the sale, plaintiff. The present writ of error brings up Fitzpatrick was employed by Edward McGinty for review these proceedings and judgment, er- as a clerk to carry on the business, at a salary rors having been assigned upon bills of excep- of $2,500 per annum and, shortly afterwards, tion duly taken to the rulings of the court upon a partnership between them was advertised. both trials. The assets of the firm of Fitzpatrick Brothers on hand at the time of the death of J. C. Fitzpatrick, together with after-acquired goods and moneys, were applied indiscriminately by the defendant to the payment of debts of the firm and of those contracted by him in the subsequent course of business, and it appeared that he had paid as much at least on account of partnership debts, as he had realized from partnership assets, and that he had applied all the proceeds of the business, after paying its necessary expenses, to the payment of the debts of the late firm, and of his own, contracted in carrying on the business as surviving partner.

Upon the trial of the issues of fact arising upon the pleas in abatement, evidence was introduced, as appears by the bill of exceptions, by the respective parties, tending to prove the following state of facts:

That in March, 1878,defendant had purchased the interest of Forbes in the firm of Forbes & Fitzpatrick, wholesale grocers, forming with the latter the partnership of Fitzpatrick Bros., who, by the terms of the purchase, assumed the liabilities of Forbes & Fitzpatrick, including, among others, about $15,000 due to the plaintiffs. These liabilities, as was afterwards ascertained, exceeded the value of the assets of the original firm. Jas. C. Fitzpatrick died in September, 1878, leaving in the hands of the defendant, as surviving partner, the partnership property, and the concern insolvent. The defendant continued the business, sold out in part the old stock, purchased other goods to replenish it, to the amount of more than $12,000, partly on credit, partly for cash, putting the goods in discriminately in stock with those on hand. During the existence of the firm of Fitzpatrick Bros., the firm paid part of the debt due to the plaintiffs, assumed by them, and contracted other indebtedness with them for goods bought and money loaned for about the same amount as that paid. The deceased partner, before his death, had drawn out of the partnership more than his interest therein and was indebted to it. On December 3, 1878, the defendant, being very much pressed to pay some maturing bills of the firm to the Mississippi Valley Bank, being debts created by the firm of Fitzpatrick Bros., borrowed $5,700 from John McGinty, giving his note, at one day's date, verbally promising to repay the amount speedily out of the assets of the late firm. This money was used by the defendant in paying partnership debts. Fitzpatrick Bros. owed John McGinty, besides, two

The second issue, upon the pleas in abatement, was upon the allegation of the affidavit, that "The defendant had assigned and disposed of or was then about to assign or dispose of his property or rights in action, or some part thereof, with intent to defraud his creditors, or give an unfair preference to some of them."

Upon the first branch of this issue, whether the defendant had disposed of any of his property with intent to defraud his creditors, the court charged the jury as follows:

"If you shall find from the evidence that the defendant sold or transferred any of the property or assets of the late firm of Fitzpatrick & Brothers, with intent to prevent the creditors of the firm of Fitzpatrick & Brothers, or any of them, from collecting their debts, such sale or disposition will sustain this ground of attachment. It was the duty of the defendant, as such surviving partner, to apply all of the assets of the firm to the payment of the debts due by the firm, and if he appropriated any part of them to the payment of his individual debts, it was a fraud upon the firm creditors, whether he so considered it or not, and if established by the proof, will sustain this ground of attachment, as the law will presume that he intended the natural result of his act. The defendant

being liable for the debts of the firm, could not, | ing able to pay their debts, during the whole by borrowing money and paying the debts of period of its existence, and the additional fact the firm, create himself a creditor of the firm, that the deceased partner had, before his death, or subrogate himself to the rights of the cred-drawn from the partnership more than his initors as paid." terest therein, and was indebted to the firm.

And to the giving of this instruction an exception was taken.

The legal right of a partnership creditor to subject the partnership property to the payment of his debt, consists simply in the right to reduce his claim to judgment, and to sell the goods of his debtors on execution. His right to appropriate the partnership property specifically to the payment of his debt, in equity, in preference to creditors of an individual partner, is derived through the other partner, whose original right it is to have the partnership assets applied to the payment of partnership obligations. And this equity of the creditor subsists as long as that of the partner, through which it is derived, remains; that is, so long as the partner himself "Retains an interest in the firm assets, as a partner, a court of equity will allow the creditors of the firm to avail themselves of his equity, and enforce through it the application of those assets primarily to payment of the debts due them, whenever the property comes under its administration." Such was the language of this court in Case v. Beauregard, 99

The ground on which this part of the charge appears to rest is, that a surviving partner, although invested with the legal title to the partnership property, on the dissolution of the firm, by the death of his copartner, is not the beneficial owner, but a mere trustee, to liquidate the partnership affairs, by selling the assets and applying them to the payment of the partnership debts; that the continuance of the business by means of the partnership assets is a breach of that trust; and, if it results in diverting any of the partnership property from the creditors of the firm, is a fraud upon them. And yet, upon that supposition, it deserves consideration, whether the allegation made in the affidavit as the ground of the attachment, that the defendant has disposed of his own property to defraud his creditors, can be supported by proof of a disposition of property belonging to the firm, in order to defraud the creditors of the firm; especially, in view of the result that, if the at-U. S., 119 [XXV., 370], in which Mr. Justice tachment is sustained, it not only subjects the partnership property, but also takes the individual property of the defendant from individual creditors, for the payment of the firm debt. The writ runs against his individual property alone, and upon the sole ground that he has sought fraudulently to withdraw it from the claims of his individual creditors. This incongruity is sufficient, at least, strongly to suggest the suspicion that the proceeding itself and the grounds on which it has been sustained, are based upon a misconception of the law which governs the case.

Strong, delivering its opinion, continued as follows. "It is indispensable, however, to such relief, when the creditors are, as in the present case, simple contract creditors, that the partnership property should be within the control of the court and, in the course of administration, brought there by the bankruptcy of the firm, or by an assignment, or by the creation of a trust in some mode. This is because neither the partners nor the joint creditors have any specific lien, nor is there any trust that can be enforced until the property has passed in custodiam legis." Hence it follows that, If beAnd this will be confirmed by a critical exam-fore the interposition of the court is asked, the ination of the charge.

property has ceased to belong to the partnership; if by a bona fide transfer, it has become the several property either of one partner or of a third person, the equities of the partners are extinguished and, consequently, the derivative equities of the creditors are at an end." In that case it was held, in respect to a firm admitted to be insolvent, that transfers made by the individual partners, of their interest in the partnership property, converted that property into individual property, terminated the equity of any partner to require the application thereof to the payment of the joint debts, and constituted a bar to a bill in equity filed by a partnership creditor to subject it to the payment of his debt; the relief prayed for being grounded on the claim that these transfers were in fraud of his rights as a creditor of the firm.

Upon the state of the evidence, as disclosed by the bill of exceptions, the jury may have found that the defendant, as surviving partner, with the assent, either express or tacit, of the personal representatives of his deceased copartner, had been left in possession of the firm property for the purpose of continuing the business; that, in doing so, in good faith, he raised money upon the individual credit given him, on the faith of his possession and control of property, which he was allowed to deal with as his own, and applied it to the purpose of paying the debts due from the firm, of which he was the surviving partner; and yet, felt compelled, under this charge, to find that an appropriation out of the property which had come to him as such survivor, to repay such a loan, without any actual fraudulent intent, would be a fraud in law upon every creditor of the partnership, justifying a seizure, on attachment for that cause, of all his property, whether formerly belonging to the partnership or since acquired; and that, although his individual additions to his stock in trade were, at least, equal to what had been taken for the payment of individual debts. The same doctrine has been fully sanctioned It is fair to consider this charge, although not by the Supreme Court of Mississippi in Schmidso qualified, in connection with the facts, in ref-lapp v. Currie, 55 Miss., 597, where it is said, erence to which there was evidence, that the that "The doctrine that firm assets must first firm of Fitzpatrick Brothers and its individual be applied to the payment of firm debts, and inmembers were insolvent, in the sense of not be-dividual property to individual debts, is only

Another case between the same parties came again for consideration before the court, which reaffirmed the decision, and held that in such a case the bill might be properly filed by a creditor, without first reducing his claim to judgment. Case v. Beauregard, 101 U. S.,688 [XXV., 1004].

a principle of administration adopted by the courts where, from any cause, they are called upon to wind up the firm business and find that the members have made no valid disposition of or charges upon its assets. Thus: where, upon a dissolution of the firm, by death or limitation or bankruptcy or from any other cause, the courts are called upon to wind up the concern, they adopt and enforce the principle stated; but the principle itself springs alone out of the obligation to do justice between the partners. In that case one of two partners, but with the assent of the other and without any fraudulent intent, transferred the whole business and stock of the firm to a third person in payment of an individual debt. A creditor of the partnership sued out a writ of attachment against them, and caused it to be levied on the goods in the possession of the purchaser, upon the ground that the transfer of the firm goods, in satisfaction of the individual debt of one of the partners, was fraudulent and void as against firm creditors. The right to do so was denied.

The same principle applies in case of a dissolution of the partnership. "It is competent," says Mr. Justice Story, Partnership, sec. 358, "for the partners, in cases of a voluntary dissolution, to agree that the joint property of the partnership shall belong to one of them; and if this agreement be bona fide and for a valuable consideration, it will transfer the whole property to such partner, wholly free from the claims of the joint creditors. The like result will arise from any stipulation to the same effect, in the original articles of copartnership, in cases of a dissolution by death or by any other personal incapacity."

OCT. TERM,

ness and apply its assets to the payment of its debts. Any intermediate disposition of the property, made in good faith, even although it may have been specifically a part of the partnership assets, and even if it has been applied to the payment of his individual obligations, will be valid and effectual; and, without circumstances showing an actual intention to defraud, cannot be treated as a fraud in law upon partnership creditors. Accordingly, in Roach v. Brannon, 57 Miss., 490-500, the Supreme Court of Mississippi said: "If then, a firm creditor may sue out and levy an attachment upon firm assets in the hands of a surviving partner, upon what grounds must he proceed? Must he aver and prove one of the specific grounds of attachment laid down in the statute, or will it be sufficient to show that the surviving partner is acting in violation of that quasi trust imposed upon him by law for the benefit of firm creditors? We have no hesitation in saying that he must bring his case strictly within the letter of the statute."

exception to the following instruction, being in The next assignment of error is based on an continuation of that just considered:

design that those unpaid shall remain so, it will constitute an unfair preference within the meaning of this clause of the statute. You will, therefore, apply this rule to the facts in proof under this issue."

whether or not the disposition made by the de"5. The latter clause of this issue is as to fendant of the assets was with the intention of giving an unfair preference to some of his creditors over others. It is difficult to determine what particular acts will constitute such preference. meant something by this expression, but it has I am of the opinion that the Legislature never been construed by the Supreme Court of the State. In the absence of such construction, I will instruct you that when a debtor is insolvAnd, in case of dissolution by the death of great length of time to pay all his debts, and disent, and knows that he will be unable for a one of the partners, without any previous agree- poses of his means to one or more of his credment as to the mode of liquidation, the only dif-itors, to the exclusion of others, and with the ference is, that the joint creditor may, at his election, institute proceedings, by filing a bill in equity against the personal representatives of the deceased partner and the survivors, to wind up the partnership business, to marshal the assets, and appropriate the partnership property to the payment of the joint debts. Story, Part., describing one of the grounds for which an atThe language of the Mississippi Code of 1871, secs. 347, 362. Although, in Mississippi, it is de-tachment might issue, was that "The debtor has nied that a court of equity has jurisdiction to assigned or disposed of, or is about to assign or entertain a suit on behalf of a firm creditor at dispose of, his property or rights in action, or large against a partnership, whether it be an ex- some part thereof, with intent to defraud his isting one, or one that has ceased by limitation creditors, or give an unfair preference to some of or by the withdrawal or death of one of the part- them." ners. Roach v. Brannon, 57 Miss., 490-500; ion, it is said, so far as it relates to an Code of 1871, sec. 1420. Freeman v. Stewart, 41 Miss., 138. This provis"unfair And unless a partnership creditor or the per-utes of the State by the Code of 1857, art. 2, p. preference," was first introduced into the statsonal representatives of the deceased partner 372. It is said by the Supreme Court of Missiscommence such a proceeding to liquidate the af- sippi, in Eldridge v. Phillipson, 58 Miss., 270, fairs of the partnership, there is nothing to pre- that "The right of a debtor, insolvent or in failvent the surviving partner from dealing with ing circumstances, to give a preference to one the partnership property as his own and, act- or more of his creditors, if it be bona fide and ing in good faith, to make valid dispositions of with no intent to secure a benefit to himself, is it. Locke v. Lewis, 124 Mass., 1. And if, in a firmly established rule in the jurisprudence like good faith, with the acquiescence of the per- of this State," and many cases are cited, occursonal representatives of the deceased partner, he ring both before and after the adoption of the uses the firm property to continue the business Code of 1857, in support of the statement. It on his own account and in his own name, he was well settled, therefore, that whatever else does it without other liability than to be held the prohibition against unfair preferences might accountable to the estate of his deceased partner be supposed to include, it certainly did not make for a share of the profits; or, as we have seen, all preferences illegal. But the necessary result upon a bill filed for that purpose, by the per- of preferring one or more creditors by a debtor sonal representatives of the deceased partner or unable to pay all, would be that the rest should a partnership creditor, to wind up the firm busi- remain unpaid, and for an indefinite length of 214

to him by Forbes, as to the value of that interest. EDWARD MCGINTY, Claimant, etc., Plff.

assets, property and business which he had pur-ply to the payment of individual debts, goods be

the proceedings in that of Flannagan against Fitzpatrick, the judgment in which has been in part reversed. Edward McGinty, the plaintiff in error, having in that cause appeared as a claimant of the property seized under the attachment, the same was delivered to him by the marshal, on taking a bond conditioned to pay to the plaintiffs in the attachment such damages as might be awarded against the claimant in case his claim should not be sustained, or, in that event, to return the goods to the marshal. Thereupon, in accordance with the statutory practice in such cases in Mississippi, an issue was joined between the plaintiffs in attachment and the claimant, to try their respective titles to the property. Upon this issue, evidence was submitted by the parties, tending to show substantially the same state of facts as appears in the principal case.

The court refused to give instructions asked on behalf of the defendant, and in lieu thereof, among others not necessary to be considered, gave the following:

"2. It was the duty of J. J. Fitzpatrick, as such surviving partner, to sell and convert into money the goods and property belonging to said firm, and to collect the debts due the firm, and first apply the same to the payment of the debts due by the firm and not to mingle the same with his own goods, so that they could not be identified, he being by law created a trustee for this purpose; but if he mingled them with other goods, so that they could not be identified, he thereby rendered his own goods liable for the debts of the firm, or [as?] those originally owned by the firm; and if he applied the proceeds of

the sale of such goods, either originally owned by the firm or those afterwards purchased and mixed up with them, so that they could not be identified, to the payment of his private debts, such disposition operated as a fraud upon the rights of the creditors of the firm of which he was surviving partner, and as to him rendered

the sale void.

There was a verdict and judgment for the plaintiffs in the attachment, which are brought into review by this writ of error.

nership, amounted to a fraud upon the latter.
For this, as well as for reasons stated in the
opinion in the former case between the original
parties, we hold this instruction to be erroneous.
The judgment is accordingly reversed and the
cause remanded, with instructions to grant a new
trial. Judgment reversed.
True copy. Test:

James H. McKenney, Clerk, Sup. Court, U. S.

STATE OF GEORGIA, Appt.,

v.

MORRIS K. JESUP, Surviving Trustee,

ET AL.

(See S. C., 16 Otto, 458-464.)

Case, when not reviewable-right of State.

*In a foreclosure suit pending in the circuit court, the mortgage property being in possession of its receivers, the State of Georgia presented a petition in which, declining to become a party to the suit, it asked that the receivers be required to withdraw from the possession of a part of the property in their hands, upon some of which executions for state taxes had been levied prior to their appointthat the action of the court could not be reviewed ment. The petition was denied and dismissed. Held, upon the appeal of the State, for the reason, if there were no others, that the order did not conclude any right it had in virtue of the executions, or of the [No. 109.]

levies made thereunder.

Argued Nov. 28, 29, 1882. Decided Dec. 18, 1882.

APPEAL from the Circuit Court of the United
States for the Southern District of Georgia.
The history and facts fully appear in the
Statement of the case by Mr. Justice Harlan:

The suit, out of which this appeal arises, 1877, in the Circuit Court of the United States was commenced on the 15th day of February, K. Jesup, a citizen of New York, and the surfor the Southern District of Georgia, by Morris viving Trustee in a mortgage, or deed of trust, The charge above quoted goes further than executed on the 20th day of December, 1867, that which was considered and adjudged to be by the Atlantic and Gulf Railroad Company, a Georgia Corporation, conveying to trustees and erroneous in the principal case. For here the the survivor of them, its main line and certain jury were instructed, that it was a fraud upon branches, together with their appurtenances, partnership creditors, to apply to the payment rolling stock, equipment, etc., respectively, in of individual debts goods belonging to the sur-trust to secure the payment of bonds, in a large viving partner, which never belonged to the partnership, but were his own individual property, merely because they had been mingled with the stock formerly belonging to the firm. This is an error, in any view that can be taken of the rights of the parties. Even on the supposition that the partnership stock was held under an express and positive trust for partnership creditors, equity would give the latter only so much of the fund as represented the partnership property, and would divide it as to values between the parties beneficially interested, even although the specific goods might not be sepa

rable.

on the first day of July, 1897, with interest
amount, made by the Company, and payable
semi-annually, at the rate of 7 per cent per an-
num. The deed contained the usual provisions
ment of the stipulated interest, to enforce the
requiring the trustees, upon default in the pay-
security for the benefit of the bondholders. The
bill asked for the appointment of receivers, and,
accordingly, on the 20th day of February, 1877,
the entire property and effects of the railroad
an order was entered, appointing receivers of
company embraced in the deed of trust or mort
gage, with
power, and charged with the duty,
orders and directions of the court. The re-
to manage and operate the same, subject to the
ceivers took possession and, subsequently, the
order of February 20, 1877, made at chambers,
was renewed and confirmed by an order of

This being so, it could hardly be charged, as
a matter of law, that an appropriation of the
mingled stock to the extent of a value no greater
than would be allowed in equity to individual
creditors, in marshaling the assets for distribu-
tion, between them and the creditors of the part- *Head note by Mr. Justice HARLAN.