US SUPREME COURT DECISIONS

1. The assignee in bankruptcy of the estate of an individual partner of a debtor copartnership cannot maintain a suit to recover back money previously paid to a creditor of the copartnership upon the ground that the money was paid to such creditor in fraud of the other creditors of the firm and in fraud of the provisions of the Bankrupt Act. The suit should be by the assignee of the partnership.

2. The mere fact that one partner of a firm composed of two partners, after a stoppage of payment, suffered the other, who had put in two-thirds of the capital and who was in addition a large creditor of the partnership for money lent, to manage the partnership assets apparently as if they had been his own, proposing to creditors a compromise at seventy cents on the dollar, taking the partnership stock, transacting business in his own name, buying some new stock, selling old and new, and mingling the funds -- though keeping separate accounts -- does not, of itself, dissolve the partnership and vest such acting partner with the partnership property in such way as that on a decree of bankruptcy against him individually, the partnership assets pass to his assignee in bankruptcy.

The Bankrupt Act enacts in its thirty-sixth section that persons trading as partners may be decreed bankrupt as well as persons trading as individuals, and that when a partnership is decreed bankrupt, all the joint stock and property of the partnership and also all the separate estate of each of the partners shall pass to the assignee, who by the said section is to keep separate accounts of the two estates. Creditors of the firm and the separate creditors of each partner may prove their respective debts, and the net proceeds of the joint stock is to be appropriated to pay the former and the net proceeds of the separate estate to pay the latter. If there be any balance of the separate estate of any partner after payment of his separate debts, it is to be added to the joint stock to pay the joint creditors, and if there be any balance of the joint stock after payment of the joint debts, it is to be divided and appropriated to and among the separate estates of the several partners, according to their respective right and interest therein, and as it chanrobles.com-red

Page 89 U. S. 396

would have been if the partnership had been dissolved without any bankruptcy. [Footnote 1]

But the act does not contain any provisions by which, when one member alone of a partnership is decreed bankrupt and there is no decree against the partnership itself, the property of the partnership passes as does the partner's individual property.

In this state of the law, on the 15th of February, 1869, a partnership composed of two persons, named respectively Kintzing and Lindsey and trading at St. Louis, Missouri, as Kintzing & Co. -- Kintzing being the senior partner, a contributor of two-thirds of the capital, and a large creditor of the firm for money lent -- becoming embarrassed in their affairs, and having numerous creditors, including one named Amsinck (a large one, resident in New York) stopped payment.

From the date of this stoppage, Kintzing seemed to have proceeded as if the partnership had been dissolved. The assets of the firm with the tacit assent of Lindsey, the other partner, passed into the exclusive possession of Kintzing. He then submitted a written proposition to the partnership creditors, to pay them in discharge of existing debts, seventy percent -- in the firm notes, however -- at six, twelve, and eighteen months, the arrangement not to bind any creditor until agreed to by all.

Amsinck directed his agent in St. Louis to sign the agreement in behalf of him, Amsinck, on condition, to be privately made with Kintzing & Co., that they should "discount" the notes thus to be given, paying for them on such so-called operation of discount one-third cash and the residue in thirty and sixty days -- an arrangement which if Kintzing & Co. could not get on, ultimately would prove more favorable, of course, to Amsinck than that proposed to the other creditors and accepted by about two-thirds of them. Kintzing & Co. agreed to this, and the fifty percent was paid to Amsinck, making a payment in cash of $16,275. The six, twelve, and eighteen months' compromise notes were sent chanrobles.com-red

Page 89 U. S. 397

to those creditors who had agreed to accept them, though conditionally; the six months' notes maturing August 18, 1869.

In the meantime, Kintzing went on trying to get the other creditors to accept the terms of compromise proposed; he alone, as it seemed, administering the partnership assets for the benefit of the creditors as contemplated by the agreement of compromise. He took the partnership stock, made new purchases on his own account, transacted the business in his own name, and sold the old and new stock, mingling the funds as if all were his own, except that he kept separate books for each business. The $16,275 (the amount paid to Amsinck) was derived from such mingled funds.

As already observed, about two-thirds of the creditors had signed the compromise agreement when the agent of Amsinck signed it for him. Kintzing continuing to make exertions to get the remaining creditors to sign, transacted business with the old assets and some new ones in the way mentioned for a certain time. However, finding that all the creditors would not sign, and so that the plan of compromise would be defeated, he made to the state assignee of Missouri, on the 21st of August, 1869 -- the six months' notes, which had matured three days before, being still unpaid -- a general assignment under the laws of Missouri of his property for the benefit of his creditors.

Certain of the creditors of the partnership now getting wind of the secret arrangement between Amsinck and Kintzing & Co., and that the $16,275 had been actually received by Amsinck, filed a petition in the District Court at St. Louis representing that they were creditors of Kintzing, "a member of the late firm of Kintzing & Co.," that the said Kintzing had committed various acts of bankruptcy specified (one of the acts specified being the payment to Amsinck), and praying the he, Kintzing (not Kintzing & Co., nor Lindsey, but Kintzing), might be decreed a bankrupt, and he was so decreed accordingly, one Bean being appointed his assignee in bankruptcy. chanrobles.com-red

Page 89 U. S. 398

Thereupon Bean filed a bill in chancery -- the bill in this case -- against Amsinck in the court below, praying that the payments made to Amsinck might be decreed to have been made in fraud of other creditors and of the Bankrupt Act, and that Amsinck might be decreed to account for and pay them over to him, Bean, the assignee. The answer denied fraud &c., and set up in addition the point that the bankruptcy proceedings were against Kintzing alone, and not against Lindsey also, and not against the firm; that the complainant, Bean, was the assignee only of Kintzing individually, and not the assignee of the firm; that the co-partnership had never been dissolved; that the complainant did not represent the interest of Lindsey in the claim sought to be recovered in the suit, and that Lindsey had an interest in it which did not pass to the complainant.

The court below did not, however, regard the objection as of force. It said:

"It is apparent, from the evidence that the firm was regarded as dissolved by all parties concerned, by Kintzing, by Lindsey, and by the creditors, including the defendants, and that the assets and effects of the firm were regarded as being put into Kintzing's hands in trust to settle up the business as the appointee of the creditors, and pay the compromise notes. Kintzing passed into the hands of the state assignee all that was left of such assets, as being part of the estate of Kintzing. From the state assignee they passed to the plaintiff, as the assignee of Kintzing, as part of the estate of Kintzing."

It said in addition:

"The composition deed does not appear to have been assented to in any manner by Lindsey. He is not named in it, nor was he, so far as appears, a party to it potentially. . . . There does not seem to have been any authority, so far as Lindsey was concerned, to sign the firm name to the compromise notes so as to bind him by them. The compromise notes, therefore, signed by Kintzing with the firm name, were the individual notes of Kintzing. Having given them, he was to have the assets to administer with which to pay them."

This objection arising from the fact of the decree in bankruptcy chanrobles.com-red

Page 89 U. S. 399

being against Kintzing alone, being thus disposed of, and the transaction between Amsinck and Kintzing & Co. having been, as the court considered, a clear fraud on the other creditors of that firm, the court decreed a recovery. It said:

"Whether the money could or could not be recovered back by the debtor, the fourteenth section of the Bankruptcy Act especially vests in the assignee all property conveyed by the bankrupt in fraud of his creditors, and authorizes him to sue for and recover the same. This applies to conveyances fraudulent at common law, and to transfers of property such as that in the present case. [Footnote 2]"

From that decree Amsinck brought the case here, where three assignments of error -- two of them not material to be stated -- were made, the third one, and the one on which the decision in this Court was rested, being this:

"That the decree was erroneous in deciding that the assignee of Kintzing individually could maintain this action, the appellants alleging that if they were liable at all, they were liable to Kintzing & Co. or to their assignee. "

Page 89 U. S. 400