Opinion
04-08-1905
CASE v. McGILL et al.
John H. Backes, for complainant. William J. Walsh, for William McGill. E. E. Marshall, John Sykes, and John T. Bird, for the Trenton Fire Brick Co.
Bill by Charles B. Case, as receiver, etc., against William McGill and others.
John H. Backes, for complainant. William J. Walsh, for William McGill. E. E. Marshall, John Sykes, and John T. Bird, for the Trenton Fire Brick Co.
BERGEN, V. C. September 14, 1903, Timothy Ryan entered into a contract with the city of Trenton for the paving of certain streets, and on the 2d of November following a copartnership was formed, the terms of which were reduced to writing, between Ryan and Charles D. Ginder, for the fulfillment of this contract. The work has been completed, and, as the partnership was limited to this particular work, the active part of it is at an end. The present proceedings relate to the distribution of the unpaid portion of the money due thereon from the city, which is represented by two city warrants directed to the city treasurer for the payment of $1,885.08 and $518.79, respectively, issued to and held by the complainant as receiver of the copartnership, and by two other warrants issued to Timothy Ryan, and by him indorsed to, and now held by, the defendant McGill, for $1,000 each. The complainant was appointed receiver of the copartnership of Ryan & Ginder under proceedings instituted for that purpose in this court on November 2, 1903, and as such has filed his bill in this cause to establish his right to the moneys due from the city, insisting that it is firm property, and should be first applied toward the payment of the partnership debts. The defendant the Trenton Fire Brick Company has answered, and claims an equitable lien upon the funds to the extent of about $1,200, prior to the rights of the partnership creditors, and to sustain its claim shows that previous to the bidding for the contract Ryan had applied to it for a price at which it would agree to furnish all the brick necessary to perform the contract if awarded to him; that Ryan, being the successful bidder, notified them that he accepted their proposition, and under this agreement the brick company furnished all the bricks required to complete the contract; that all of the goods were furnished to Ryan in his name and on his credit, and that it had no knowledge of any partnership between Ryan and Ginder. I am satisfied from the evidence, and so find, that, so far as the brick company is concerned, it had no knowledge of the partnership, and that as to it Ginder was a dormant partner. Nor does it appear that this partnership was acknowledged or disclosed to any one, at least not until long after it was formed. The city warrants were all issued payable to the order of Ryan, and by him in most, if not all, instances indorsed to the brick company, it returning to him, by check drawn to his order, the difference between the account he owed it at the time and the amount of the warrants; all of which was within the knowledge of Ginder, the partner, who took no steps to correct the proper impression, entertained and acted upon by the brick company, that Ryan was carrying on the work on his own account. There is some proof that about May 1, 1904, the officers of the brick company had knowledge of this partnership, and it was urged on the argument that, as that company had furnished to Ryan, after that date, a sufficient quantity of brick to represent, in money, the balance due them, it should be charged with having furnished them with knowledge of the partnership. But this claim is sufficiently disposed of by the fact that the brick company had entered into an agreement with Ryan to furnish the whole quantity required, and it was bound to complete its contract with him. On August 23, 1904, the brick company recovered a judgment against Ryan in the Supreme Court of this state for $1,244.69, damages and costs, and, the execution issued thereon having been returned unsatisfied for want of property to be levied on, the brick company, on October 25, 1904, filed its bill of complaint in this court, setting forth the facts above stated, and also that the city of Trenton was indebted to Ryan in a large amount for the performance of said contract, and thereupon prayed for a discovery of the amount due, and the application of so much of the money due by the city to Ryan as might be necessary for that purpose towards the payment of their judgment. These proceedings established an equitable lien in favor of the brick company upon the money in the hands of the city belonging to Ryan. Taylor v. Taylor, 59 N. J. Eq. 86, 45 Atl. 440. The complainant, however, insists that, as Ryan and Ginder were partners, the money due belonged to the firm, and must first be applied to the satisfaction of the partnership debts, and that, as it was not the property of Ryan, no equitable lien could attach. This claim, in my judgment, is not well founded, for it would be most inequitable, after it had made its agreement with Ryan and fulfilled it, giving credit tohim as an individual, upon the strength of this very contract with the city from the proceeds of which they expected him to pay it, to now deprive the brick company of the benefit of a right which it had a right to rely upon.
It is undoubtedly true that, where the partnership is an open one, the creditors of a partnership have a right to be paid first out of the partnership property, in preference to those of the individual partners; but a different rule prevails when the partnership is a silent one, and the business is conducted in the individual name of one of the partners. As was well said by Chancellor Pennington in Cammack v. Johnson et al., 2 N. J. Eq. 163, 169: "After dealing with a man under the idea that he was carrying on business on his own account, and prosecuting demands to judgment and execution, if a secret partner may then, for the first time, announce the fact of his being a member of the firm, and claim all the rights of an open partner, there would be no security in trade; * * * and a creditor may, at his election, sue either the visible partner alone, or Join any latent partner he may discover." It therefore follows, under the circumstances of this case, that the brick company, having recovered its Judgment and filed its bill, obtained an equitable lien, as a reward for its diligence, upon the money due from the city, which lien is prior to any claim of the members of the partnership, their representative, the receiver, or the creditors of the partnership, for claims none of which, so far as this case shows, have been reduced to judgments; and I will advise that it is first entitled to be paid, out of the moneys due from the city, the amount due to it on its judgment, together with its costs of this suit.
There yet remains to be disposed of the question between the receiver and the defendant McGill. It appears that in July, 1904, Ryan obtained from the city two warrants for $1,000 each, payable to his order; that he indorsed these warrants to the defendant McGill, who testifies that he bought the warrants from Ryan at a discount of $150; but he admits that he was only to pay for them at his convenience, and hag paid but $877.10. I am not disposed to credit the story of McGill that he really purchased these warrants, nor is it sustained by the evidence. It is not reasonable to suppose that Ryan, being so greatly in need of money as to sacrifice by way of discount $150, actually sold these warrants upon any such terms of payment as McGill testifies to. However that may be, he yet owes to Ryan the difference between the amount he has advanced and the amount due from the city as represented by these warrants, without allowance for the alleged discount. As between the partners, Ryan and Ginder, this money is partnership funds, and the attempt of Ryan to place the amount due beyond the reach of the partnership creditors, or to waste it by allowing unusual discounts by this pretended sale, cannot be sustained. While some question has been raised as to the actual amount advanced by McGill, I think the evidence justifies me in finding that he paid on account of these warrants, and advanced to Ryan on their security, different sums, which amount to $877.10, and he will be decreed to deliver to the complainant, as receiver, with such assignment as may be required to transfer the title, the two warrants, upon being paid by the receiver $877.10, with interest, from the date of the respective payments by him to Ryan; and, if the amount cannot be agreed upon when the decree is presented, I will fix it.