Goodrich v. Dobson.

ing question to be decided by the assignee and the creditor, under the 20th section, is, what is the balance of money due to or from the consignee upon the final statement of his account with the bankrupt estate?

In cases of involuntary bankruptcy it would not seem, under the amendment of June 22d, 1874, to be important where or for what purpose the claims against the bankrupt were purchased, provided they were not purchased after the filing of the petition.

As has been suggested, the material question in cases of this class is, were the goods delivered under such circumstances as to constitute a mutual credit?

The conclusions which are sanctioned by the authorities are, that where a known debt is due from the bankrupt, and goods have been deposited with the creditor, not as a pledge, for sale under such circumstances of dealing between the parties that a conversion into money is, in the ordinary course of business, the natural result of the transaction, such goods constitute a mutual credit given by the bankrupt to the other, and when they are sold, either before or after the filing of the petition, the avails may be set off against any unsecured claims due from the bankrupt, under the restrictions provided in

section 5073 of the revised statutes.

Goods deposited as a pledge or as collateral security are not a mutual credit, but if sold before the filing of the peti tion, in good faith, the excess above the debt for which they are a security, becomes a debt of the consignee to the bank. rupt, capable of being set off like any other mutual debt. If such goods are sold after the filing of the petition, the excess belongs to the assignee.

Upon the foregoing principles it follows that nothing is due from Goodrich & Lockwood to the estate of E. Crosby & Sons.

Beecher v. Stevens.

EBENEZER B. BEECHER vs. HIRAM STEVENS AND OTHERS.

HENRY E. PARDEE AND OTHERS, ASSIGNEES IN BANKRUPTCY, vs. HIRAM STEVENS AND OTHERS.

The firm of A & B owned real estate as a part of their partnership property. It was agreed between them and C that B should sell all his interest in the partnership assets to C, who was thereupon to form a new partnership with A. B made a conveyance accordingly, executing to Ca deed of an undivided half of the real estate, subject to a savings bank mortgage which had been made by the firm. C mortgaged this half back to B to secure the purchase price and his agreement to pay B's share of the debts of the old firm; also agreeing that the property so conveyed to him by B should be subject to the payment of the debts of the old firm as fully as before. A and C on the same day formed a new firm, each partner contributing his interest in the assets of the old firm. The new firm mortgaged the real estate to D, subject to B's mortgage. The firm of A & C afterwards went into bankruptcy, the mortgages to B and D being both unpaid, but the debts of the old firm being mostly paid. Upon a petition brought by D against B, praying that D's mortgage be declared a superior lien to B's, and upon a petition by the assignees in bankruptcy of A & C against B, praying that his mortgage lien be postponed to the payment of the debts of A & C and the adjustment of the accounts between the partners, it was held

1. That the real estate, being partnership property, was to be treated in equity as if it were personal estate.

2. That a sale of the interest of one partner in partnership property conveys only his interest in the surplus, if any, which may remain after the payment of the partnership debts and the discharge of the liabilities of the partners, inter for the property and effects of a partnership belong to the firm, and not to the partners, each of whom is entitled only to a share of what may remain after payment of the partnership debts and after a settlement of the accounts between the partners.

sese;

3. That the right or equity that such an interest, when sold, is subject to the payment of partnership debts, is to be enforced only by the remaining partner. Partnership creditors have no specific lien upon partnership property, and the equity that partnership property must be used to pay partnership debts is to be worked out through the partners. Partnership creditors have no lien upon partnership property which has bonâ fide been transmuted by the partners into separate estate, or which has been sold in good faith upon dissolution of the partnership by the retiring partner to the remaining partner, or which has been sold in good faith by one partner to a third person, with the consent of the other partner. If the remaining partner waives or abandons his right to have such property subjected to the payment of partnership debts, the creditors have no remedy against the property which has been sold, if the sale is free from fraud.

4. That a mortgage by a partner of his interest in real estate known by the

Beecher v. Stevens.

mortgagee to be partnership property, to secure an individual debt, is not a mortgage of a specific part of the real estate, but of his interest in the portion mortgaged after the payment of the partnership debts and the settlement of the partnership accounts between the partners. This interest is not available to the mortgagee until the firm debts have been paid and the partnership accounts have been discharged, if the other partner chooses to assert his equity, or if subsequent partnership mortgagees, who have a specific lien upon the mortgaged property, assert their priority.

5. That if the mortgage to B had been a mortgage of the interest of C in the new firm, it would have been subject to the debts of the new firm, provided the other partner, or his assignees in bankruptcy, had not waived their equity. 6. That upon the facts in this case the mortgage was to be regarded as a mortgage back to B of the same partnership interest in the old firm which was conveyed to C, and not of C's interest in the new firm. This mortgage was subject to the payment of the debts of the old firm, if A had chosen to assert his equity, but neither A nor his assignees in bankruptcy were now claiming any equity for that purpose.

7. It appearing that, by agreement of all the parties, for the purpose of enabling A & C to make a larger savings bank mortgage, B and D had released their mortgages, and that A & C had then made a new savings bank mortgage, that C then made a new mortgage to B upon the undivided half of the real estate to secure the unpaid portion of the purchase price, and that subject to that mortgage A & C made a mortgage to D, it was held that the mortgage given to B was, so far as A and the subsequent mortgage was concerned, a continuation of the same security which was originally given to B. The assignees of A would have no superior equities to those which he himself had, and he could not have asserted a right to have the new mortgage subject to the partnership debts of the new firm.

PETITIONS in chancery brought to the United States District Court for the District of Connecticut, and heard at its September term, 1876, before Shipman, J. The cases are fully stated in the opinion.

H. E. Pardee, for the petitioners.

J. I. Hayes, for the respondents.

SHIPMAN, J. On February 1st, 1873, John McLagon and Hiram Stevens were and for a long time had been partners in New Haven in their business of foundrymen and machinists. As partners they owned their foundry property and other real estate and machinery, which real and personal estate had been purchased with partnership funds, and was partnership property. At this time the partnership owed in secured debts

Beecher v. Stevens.

$26,300; in notes unsecured $34,286; by book accounts. $9,686; making a total of $71,282; and their assets amounted upon book to $138,240, of which sum $21,909 was in accounts due the firm. About $11,000 only of this amount was subsequently paid.

At this time the firm was financially embarrassed, and was in need of more cash capital or of more cash funds. It was agreed between the partners and Henry Smith that Stevens should sell out his interest to said Smith, who was thereupon to form with McLagon a new firm under the name of McLagon & Smith. Stevens sold and conveyed to said Smith his interest in said firm of McLagon & Stevens, and by deed conveyed his interest in said real estate and machinery, said interest being described in the deed as one undivided half part thereof, subject to mortgages to the New Haven Savings Bank for $20,000, and a mortgage to Eli Whitney for $7,500.

Smith mortgaged back to Stevens the same undivided half part of said real estate and machinery to secure several notes for the purchase price which was to be paid to Stevens, all amounting to $17,050, which deed was duly executed and recorded. Smith agreed also to pay Stevens's share of the debts of the old firm, except a certain specified portion, and said mortgage also secured the fulfilment of said agreement. The mortgage of Smith was also to be subject to an additional mortgage of $8,000 to be placed thereafter upon the property. McLagon & Smith thereupon on the same day went into partnership, and by their partnership agreement each partner contributed to the new firm his interest in the property and assets of McLagon & Stevens as his contributory share of the capital stock of McLagon & Smith, and said Smith agreed to pay said Stevens's share of all the liabilities of McLagon & Stevens, except as expressly excepted, and that all the property so conveyed by said Stevens to said Smith should be held subject to the payment of said share as fully as if the same had remained in the name of said Stevens. The entire arrangement in regard to sale, dissolution and formation of a new firm was made in good faith, without fraud, and in the hope that additional pecuniary advantages would be furnished

Beecher v. Stevens.

thereby, so that a successful business might be done by the new firm.

On June 10th, 1874, McLagon & Smith mortgaged said partnership real estate and machinery to Beecher & Todd to secure their endorsements for the benefit of the mortgagors to the amount of $30,000. In September, 1874, another mortgage on said partnership property was executed by McLa gon & Smith to Beecher & Todd to secure endorsements in all amounting to $35,000.

In September, 1875, McLagon & Smith desired to obtain an additional savings bank loan. It was agreed that Beecher & Todd should release their mortgages on the foundry property, and that Stevens should release his mortgage, which had been reduced to $10,000, and allow a new savings bank mortgage to be placed on said property for $35,000, and that Stevens should then take a second mortgage from said Smith on the undivided half part of the said real estate for $10,000, and that Beecher & Todd should take a new partnership mortgage on the foundry property to secure endorsements and debts to the amount of $47,000; all which was done and the releases and mortgages were duly recorded. Beecher & Todd's new mortgage specified that it was subject to the Stevens mortgage for $10,000, upon an undivided half part of said real estate.

The amount now due upon Beecher & Todd's mortgage is $41,689.74, and interest to July 14th, 1876, of $1,303.04. In addition Mr. Beecher has paid interest on the savings bank mortgage and insurance premiums amounting to $2,926.96, which sum it is agreed shall take precedence of the Stevens mortgage.

McLagon & Stevens are now in bankruptcy. Their secured debts, not including the Stevens mortgage, are $80,919; their unsecured proved debts are about $19,000; making a total of $99,919. All the McLagon & Stevens debts have been paid, except about $300 or $100. Beecher is the real owner of the Beecher & Todd mortgage, as he has paid all the endorsements which it was given to secure. Smith has drawn out of the new firm at least $8,179 more than his partner. The new firm is largely insolvent. The debts of the old firm were