Summary
In Harris v. Murray, 1863, 28 N.Y. 574, the interest of a limited partner had been sold upon an execution, and the sale was attacked as invalid. Two opinions were written in the case.
Summary of this case from Alley v. ClarkOpinion
September Term, 1863
George W. Parsons, for the appellant.
S.S. Harris, for the respondent.
There is no finding by the court, nor was any evidence offered to warrant the conclusion that the sale was made on any understanding as claimed by the plaintiff. Such understanding and alleged agreement is denied by Murray in his answer, and if the plaintiff expected any benefit therefrom, evidence to prove the same should have been offered.
The main question in the case is, whether the sale under the executions was valid. The property sold was "the right, title and interest of Harris, which he had on the 31st of August, 1854, or at any time afterwards, in the goods, chattels, assets and accounts of the firm of N. Dougherty at No. 101 Water street."
The plaintiff presents two grounds of objection to the sale. 1st. That the sheriff could not sell under an execution an interest in choses in action. 2d. That the sheriff could not sell personal property under an execution unless the same was in view at the time of sale, and then he should have sold the same in parcels.
It must be remembered that this was not a general partnership, but was formed under the statute authorizing limited partnerships, and the interest sold was that of one of the limited partners. This statute prohibits any interference by the special partner with the management of the property of the firm, or the withdrawal of any part of the original capital and even of the receipt of interest on his advances, if such payment would reduce the original amount of such capital.
As the special partners can not interfere with the property or take the control from the general partners, it follows that the sheriff on an execution has no such power. He can not, on an execution against such partner, do any thing with the partnership property that the special partner could not do. He therefore would have no authority to take from the general partners the partnership property, for the purpose of selling the interest of the special partner in the property and assets of the firm; nor could he, as in the case of other partnerships, sell the interest of one partner in the property of the firm and deliver the property in which such interest is sold to the purchaser. All that the sheriff, under such circumstances, could sell would be the interest of the special partner, if such interest could be sold under an execution. This question was fully examined in this court in Stief v. Hart, (1 Comst. 20,) in regard to property pledged by the debtor, so far as related to the right of the sheriff to take the property out of the possession of a party entitled to the exclusive possession of it. In that case the property was pledged by the judgment debtor. The sheriff levied upon the interest of the pledgor, and took the possession of the property from the pledgee, who brought replevin. The circuit judge charged in favor of the right of the sheriff to take such possession. The judges of this court were equally divided upon the question, and the judgment below was affirmed. Those judges who sustained the right of the sheriff to take the possession did so upon the ground that the 20th section of the statute (2 R.S. p. 366) expressly authorized a levy on and sale of the right and interest of the pledgor in the goods pledged, and that the 23d section required the same to be present at the time of sale. From the opinions delivered by the judges, I think it may fairly be inferred that none of them held the rights of the sheriff to take the property out of the possession of a party having the exclusive right of possession would have existed independent of the authority conferred by the 20th section, and as that authority is limited to the case of goods pledged, the law as to taking such property out of the possession of a party entitled solely thereto remains unchanged.
And in Mattison v. Baucus, (1 Comst. 295,) GARDINER, J. while admitting that the interest of a mortgagor in personal property was subject to levy and sale under an execution, placed his decision upon the ground that the right to the possession for a limited period was in the mortgagee. But where by the express terms of the mortgage the mortgagee was entitled to the possession, he held the interest of the mortgagor to be a mere chose in action, not the subject of levy and sale under execution. (See also Marsh v. Lawrence, 4 Cowen, 467.) In Hull v. Carnley, ( 11 N.Y. Rep. 501,) the same distinction is recognized, and the cases which hold that possession in such cases is necessary to give validity to the levy are approved.
It must be conceded that under the law as it was before the code, mere choses in action were not the subject of levy and sale under execution. The interest of Harris in the property of a limited partnership can hardly be said to be an interest in the property of the firm. He advanced to the firm a sum of money which he is entitled to receive back with interest at the termination of the partnership. He is also entitled to a share in the profits. But he is to no further extent the owner of the property. Upon payment of these claims the property would belong to the general parties.
By the 291st section of the code the existing provisions of law relating to property liable to sale on execution are made applicable to the executions issued by virtue of that act, except when in conflict therewith. There is nothing in the code which would be in conflict with the law on this subject. The code, it is true, (§ 234,) provides for a levy by attachment on all species of personal property, but the 235th section prescribes the mode of enforcing such attachments; and the 237th section directs how choses in action are to be applied to the payment of judgments by the sheriffs. In no case does it specifically provide for the sale of any such right of action.
There are many reasons why such a sale should not be sanctioned. The value of such an interest can never be known or disclosed to purchasers at the time of sale, and if the law directs that personal property shall not be sold under execution, except the same is present and can be seen by the purchasers, surely the same principle requires a different mode of disposing of an unsettled claim against a firm than to sell it by sheriff's sale. No purchaser, unless one interested in the partnership, could know or ascertain its value, and such a mode of disposition would be a sacrifice of an interest in a firm very inconsistent with a due administration of justice.
It is said, however, that whether the sale was regular or irregular is immaterial, because the executions were valid. That would undoubtedly be so if it was a mere irregularity in the sale, and the remedy would be by motion to set aside the sale. But that rule does not apply where the sale has been made of something which the sheriff had no authority to sell. In such cases the attempt to obtain possession of the thing sold may be resisted by showing that the sheriff had no authority to make the sale. The one is a want of jurisdiction; the other a mere irregularity.
It is also insisted that Harris was estopped from objecting to the validity of the sale because he was present and suffered the sale to proceed without objection. There are two sufficient answers to this objection. The one is that Harris had no knowledge which he withheld so as to induce others to act who would not have done so if he had communicated the same at the sale. It was apparent on the face of the sheriff's notice. He was selling an interest in partnership property. The purchaser ought to have known, as well as Harris, that such sale was illegal; and it was therefore unnecessary for Harris to give any notice. The other reason is that Murray, who seeks to avail himself of the sale, was a partner, and had all the knowledge which Harris had. There was nothing to communicate to Murray on this subject, which would have prevented his action, in purchasing at the sale, and which was not known to him at the time.
Nor did the fact of a levy having been made under the attachment deprive Harris of his interest in the firm. There had been no appropriation of that interest by the sheriff. The accounting would of course be subject to any claim which the sheriff could make upon it, but did not deprive Harris of his interest, or prevent him from collecting any surplus over such claims as the sheriff had upon it.
I am of the opinion that the judgment should be reversed, and a new trial ordered; costs to abide the event.
The judgment appealed from can not be sustained on the ground on which it was placed by the general term of the Supreme Court in the opinion of Mr. Justice CLERKE. His position was that there was a fatal variance between the statements of the complaint and the position on which the plaintiff sought to recover; that the complaint counted solely on a trust arrangement by which the defendant Murray agreed to use the judgment for the benefit of C.T. Harris, the original plaintiff, and that this alleged agreement not having been proved, the plaintiff could not avail himself of the nullity of the sale if it were really void. The scope of the complaint was that the plaintiff had an interest as a special partner in the firm of Dougherty; that the copartnership had expired by its own limitation; that Murray claimed that he had purchased the interest of the plaintiff and was not therefore bound to account to or pay him anything, and that the defendant Dougherty acquiesced in that view and denied the plaintiff's rights. The principal ground relied on in the complaint no doubt is that the defendant Murray was estopped from purchasing on his own account by reason of that agreement; but it was not admitted that any sale had in fact been made, but only that the defendant pretended that there was one. If it appears that the alleged sale was void so that no title passed thereby, there is nothing to preclude the plaintiff from having an account of the copartnership, or the value of his interest. The conceded fact entitled him to an account or to the money he had invested and the interest, unless the plaintiff had been divested of that property by a valid sale. Whether the former sale was inoperative on account of its inherent invalidity, or on account of an estoppel growing out of the alleged trust agreement, was not material. His suit was for an account and payment of his interest, and he was clearly entitled to that relief, unless Murray had acquired his rights by a sale legally and equitably operative. The suit was tried on the theory that the result depended on the validity of the sale. This is apparent from the defendant's motion to dismiss the action on the ground that the complaint admitted a sale, and from the finding of the referee that the sale passed all the interest of the plaintiff to Murray. The interest of the plaintiff in the firm of Dougherty was not tangible property, and could not be sold under an ordinary writ of fieri facias. It was in the nature of a thing in action which may be subjected to the payment of the debts of the owner by a proceeding adapted to such a case; and the sole question is whether such an interest was vendible under an execution except in a suit commenced against an absent debtor by attachment. The subject of attachments against foreign corporations, and against non-resident, absconding or concealed and fraudulent debtors, is regulated by chapter 4 of title 7 of the code of procedure, embracing sections 227 to 243 inclusive. Besides the special provisions made by these sections, there is a direction that the sheriff shall proceed on the warrant of attachment in all respects in the manner required of him by law in the case of attachments against absent debtors. But the sale on which the defendants rely was not made pursuant to the warrant of attachment, but it was made subsequently to the issuing of execution on the judgment, and by virtue of such execution. The provisions of the code on this subject are singularly confused and obscure, owing apparently to an attempt to embrace in a few brief sentences a subject requiring much detail, and to assimilate the duty of the sheriff under the attachment and the duties of trustees under the provisions respecting trustees in attachment cases, contained in the several statutes. Upon a careful reading of this part of the case, I am inclined to the opinion that it was never intended to expose interests of the nature of that which the plaintiff had in the special copartnership to a peremptory sale by the sheriff on execution. The sheriff can perform certain acts under the warrant of attachment before an execution shall be issued, but after the issuing of execution his duties are regulated by the second and succeeding subdivisions of section 237 of the code. He is directed to sell under such execution so much of the attached property, real and personal, "except as provided for in subdivision four of this section," as may be necessary to satisfy the balance of the judgment. Provision is made that where the sale is "of any rights or shares in the stock of a copartnership or association," the sheriff shall execute to the purchaser a certificate of sale which is to vest in him all the rights and privileges which the debtor had. The fourth subdivision referred to as excepting certain property from the liability of a sale is as follows: "Until the judgment against the defendant shall be paid, the sheriff may proceed to collect the notes and other evidences of debt, and the debts that may have been seized or attached under the warrant of attachment, and to prosecute any bail he may have taken in the course of such proceedings, and apply the proceeds thereof to the payment of the judgment." As the code existed when this sale took place, it contained no provisions for the sale of such interests in any way; but by an amendment enacted in 1859, apparently to supply a material omission, the subdivision was made to proceed thus: "After six months from the docketing of the judgment, the court shall have power on the petition of the plaintiff, accompanied by a certain affidavit which is to state, among other things, that he has used diligence and endeavored to collect the evidences of debt in his hands so attached, and that some part of them remains uncollected, to order the sheriff to sell the same upon such terms and in such manner as shall be deemed proper." If the interest in question was embraced under the denomination of evidences of debt or of debts, there was a positive inhibition against selling it on the execution. If it was a right or share in the stock of a corporation or association, it might be thus sold. In my opinion it was in the nature of the interest first mentioned, and not of corporate stock. It was a sum of money invested in the partnership enterprise, to be reimbursed, if not lost in the business, at the end of the period during which the partnership was to continue, with any profits which had been earned, and which had not been divided. It was not payable in presenti, and probably not, in strictness of language, a debt at all. But it was merely held in trust for the special partner to be employed in the business mentioned in the articles, and finally returned to the special partner unless lost by the exigencies of the business. It was not a right or share in a corporation or association. The term association is never used in legal proceedings to define a commercial partnership, general or special. But it is known that a large proportion of the banking institutions of the state are formed as associations under the general banking law, and the statutes uniformly speak of them as associations. There would be a manifest impropriety in disposing of such an interest at auction to the highest bidder. No party other than the remaining partners or their clerks would be likely to know anything respecting the solvency or the condition of the concern, and it would be likely always to fall into the hands of those parties at whatever amount they might choose to bid. The present case is an example of what would usually take place if this proceeding could be upheld. The plaintiff invested $15,000 in the copartnership on the third day of April, and in November following that money and the accumulated profits passed into the hands of his copartner Murray for $2625.00. But if I am not right respecting the general liability of this interest to a sale on execution, there is another ground upon which I feel satisfied that this purchase by Murray can not be upheld. By the instrument signed by all partners at the same time the articles for copartnership were executed, it was agreed that if the plaintiff should fail to pay his outstanding private obligations, which included the notes to Abbott, his interest in the profits as a special partner was to cease from the date of his failure to discharge such obligations, and thereafter the money contributed was to be a debt against the other partners, payable with annual interest at seven per cent on 31st of December, 1856. This instrument was given in evidence on the trial, and it showed that the plaintiff's interest was a debt in the strictest sense, and that the sheriff should have retained the evidence of it and collected the interest as it accrued, and the principal when it fell due.
In whatever light, therefore, we regard the circumstances, I am of opinion that the auction sale was a nullity, and that it passed no interest to Murray, the purchaser. The suit was not for an accounting upon the precise footing of a debt in numero against the other partners; but it claimed the benefit of the plaintiff's interest in the concern, and if it was in the nature of a debt instead of the share of a partner, the plaintiff should not have been turned out of court for a variance which did not surprise or mislead any body. The plaintiff sets out the agreement under which the interest was turned into a debt, and that instrument was given in evidence on the trial without objection, and the facts which produced the conversion were proved. There is no valid pretense that Harris, the original plaintiff, was estopped by being present at the sale. He neither said or did any thing to waive his rights, or to entrap Murray, the purchaser. That person knew all the facts which went to show the invalidity of the sale, as well as the plaintiff, and both are chargeable with a knowledge of the law. It was a sale in invitum under pretended legal process, and the purchaser bid at his peril. If he could sustain it he got the plaintiff's money for less than one-fifth part of its amount. If the proceeding was illegal or inoperative he failed to make a great speculation. He took his chance and must abide the result.
I am of opinion that the judgment should be reversed, and a new trial awarded.
SELDEN, WRIGHT and JOHNSON, JJ. concurred in the above opinions.
DAVIS and MULLIN, JJ. were for affirmance. HOGEBOOM, J. took no part in the decision.
Judgment reversed.