Opinion
No. 3127.
Decided December 5, 1939.
Bankruptcy of one partner terminates the partnership.
A trustee under the bankruptcy act (section 75 (2)) is vested with all the rights and remedies of a judgment creditor holding an execution which has been duly returned unsatisfied.
A trustee in bankruptcy is entitled to pursue the remedy given by P. L., c. 317, ss. 7, 13 to discover and reach the interest of the bankrupt in a partnership of which he was a member.
BILL IN EQUITY, for the discovery of certain assets alleged to belong to the defendant Khoury, a bankrupt, with a prayer that the defendants (Solomon Khoury and Nellie Thomas) be ordered to surrender the assets in question to the plaintiff (trustee in bankruptcy) for administration by him as a part of the bankrupt estate.
The material facts, as reported by a master, are as follows. The defendant Khoury filed a voluntary petition in bankruptcy on October 25, 1936. On that date Khoury and his sister, Nellie Thomas, were conducting the Broadway Market, so called, in Dover as co-partners. The business of the partnership was transacted, however, in the name of Nellie Thomas as sole owner, with Khoury acting ostensibly as manager. This arrangement was made in order that Khoury might avoid the payment of a judgment which one Joseph Michael had obtained against him. In his petition in bankruptcy Khoury listed among his liabilities the judgment of Joseph Michael but did not include among his assets any interest in the Broadway Market. That interest at the time of the bankruptcy was one-half the liquidating value of the property of the partnership, the other half belonging to Nellie Thomas as an equal partner.
On April 27, 1939, the plaintiff caused a certified copy of the present bill and of the orders thereon to be filed in the city clerk's office in Dover, where Khoury resided. Service was completed on the defendants the following day. The Broadway Market continued to do business, however, until the appointment by the Superior Court of a receiver, who on October 28, 1937, sold the assets of the business at auction. Practically all the creditors' claims then outstanding were found by the receiver to have accrued after the filing of the bill and orders with the city clerk.
Transferred by Connor, J., on exceptions to the decree of the court ordering that the money in the receiver's hands be applied first to the payment of all claims found by him to be outstanding (Khoury's interest being one-half of only what remained after such payment), and that the bill in equity as to all allegations of fraud be dismissed.
Snow Peyser (Mr. Peyser orally), for the plaintiff.
Everett J. Galloway and Frank E. Blackburn, for the defendants, furnished no brief.
"The bankruptcy, like the death, of a partner, dissolves the partnership." Eustis v. Bolles, 146 Mass. 413, 414. And where a partnership has been dissolved by the bankruptcy of one of the partners, the surviving partner retains his authority over the partnership property after the bankruptcy clothed with a trust to apply the property to the discharge of the partnership obligations and to account to the trustee in bankruptcy for the bankrupt partner's share of the surplus. Annotation, 29 A.L.R. 45, 46, and cases cited.
"When an estate, property, interest, right or credit, legal or equitable, of a debtor against whom execution has been issued and returned unsatisfied is alleged to be so holden that it cannot be reached, or to have been conveyed by the debtor in fraud of his creditors, or to be held by others for the debtor's use, proceedings in equity may be had for a discovery, and for relief; and the court shall make proper decrees and orders, and issue proper process to compel a discovery, to prevent a transfer of the property and to make application of so much thereof as in justice ought to be applied in satisfaction of the debt." P. L., c. 317, s. 7. See, also, 1 Hening, Dig. 516.
"When a bill is filed under the provisions of section 7, the plaintiff may cause a certified copy thereof, and of the order thereon, to be filed in the office of the clerk of the town in which any defendant resides; . . . and such filing and the service of the bill upon such defendant shall constitute a lien, as against him and others having after-acquired rights, upon the personal estate, property, interest, right or credit to which the bill relates, or which may be discovered by the proceedings, for the performance of any decree or order relative thereto, in favor of the plaintiff against the defendant." P. L., c. 317, s. 13.
Section 75 (2) of the Bankruptcy Act, in force at the time the present proceedings were instituted, provides that a trustee in bankruptcy, "as to all property not in the custody of the bankruptcy court shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied." 11 U.S.C.A. 180.
Khoury's interest in the partnership could be attached (Treadwell v. Brown, 43 N.H. 290), and the steps taken by the plaintiff in compliance with the provisions of the statute constituted a valid lien as against Khoury and those creditors whose rights had not then accrued.
The exceptions are sustained.
Decree for plaintiff.
All concurred.