Statement of the Case. WILSON et al. v. ROBERTSON et al. Assignment by Insolvent Firm, when fraudulent. In an assignment by an insolvent firm of the partnership property, in trust for the benefit of creditors, the giving of a preference to the separate debts of one of the partners, renders it fraudulent and void in toto, as against firm-creditors; not merely illegal, as to the preference. Cox v. Platt, 32 Barb. 126, overruled. APPEAL from the general term of the Supreme Court, in the fourth district, where a judgment entered upon the report of a referee, dismissing the complaint, had been affirmed. This was an equitable action by the plaintiffs, as judg ment-creditors of the firm of Crocker & Staples, to set aside as fraudulent and void, an assignment for the benefit of their creditors, with preferences, made to the defendants, Robertson and Crocker, as trustees, on the 17th June 1850. The assignment was alleged to be fraudu lent, inter alia, because it provided for the *pay- * 588 [ ment out of the firm assets, of the private debts. of Jonathan D. Crocker, one of the assignors, in preference to the firm-creditors. The individual debts thus preferred amounted to $1700 in all. The referee found as a fact, that Jonathan D. Crocker put into the capital of the firm, a stock of goods of the value of $1882.62; and that Staples, the other partner put in $170 only. He also found that some of such preferred claims were debts contracted by Crocker before the formation of the partnership; and that others were, in equity, debts of the firm, and he found as a conclusion of law, that the assignment was valid, and directed that the complaint be dismissed with costs. [ * 589 Opinion of the Court, per WRIGHT, J. The judgment entered on his report having been af firmed at general term, the plaintiffs took this appeal. Van Vorst, for the appellants. Parker, for the respondents. WRIGHT, J.-An assignment by an insolvent debtor of his property to trustees, for the benefit of creditors, which expressly authorizes them to sell the property upon credit, is void as against the creditors of the assignor. (Barney v. Griffin, 2 N. Y. 365; Nicholson v. Leavitt, 6 Id. 510.) But an assignment will not be construed as conferring this authority, when its language is consistent with a different interpretation, which makes it legal and valid. In Kellogg v. Slauson (11 N. Y. 302), the authority to sell was conferred in the precise language of the assignment in question; yet the assignment in that case was held valid. The case is a direct adjudication of this court, that a power of sale, expressed in the identical terms of the instrument under consideration, is not obnoxious to the objection that it is an authority to sell on credit, or was so intended by the assignor. The point is no longer open for discussion. (Whitney v. Krows, 11 Barb. 198.) There is, however, in my judgment, a fatal objection to the present assignment. The partnership effects of an insolvent firm are assigned to pay preferred private debts of one of the partners, for which neither the firm. nor his copartner were liable. There is no controversy as to the facts touching the question. In April 1847, * 590 ] Crocker & Staples formed a copartnership *in the mercantile business, in the county of Washington, and prosecuted the business until the 17th June 1850, incurring firm debts for their stock in trade, among which was that on which the plaintiffs' judgment was recovered. On the 17th June 1850, as the referee finds, Opinion of the Court, per WRIGHT, J. they were insolvent, and unable to pay their debts; and, in fact, the evidence showed that they were unable to discharge in full even the claims of preferred creditors. Being thus insolvent, they executed an assignment in trust for creditors. The instrument purported to assign and transfer all the property, real and personal, of the firm, or of either of the members of it, more particularly described in a schedule annexed. It embraced partnership property wholly, with the exception of a house and lot, the individual property of Crocker, which was incumbered by two mortgages for more than the value. The assignment directed the conversion of the estate into money, and after deducting the expenses of executing the trust, the assignees, with the residue or net proceeds and avails, were to first pay and discharge in full the debts due or to become due from Crocker & Staples, or either of them, or for which they, or either of them, were liable to Joel Colvin and seven other persons (naming them), together with all interest money due or to grow due thereon; and if the avails were insufficient to discharge the same in full, then, they were to be paid pro rata. Of the eight persons enumerated in this first preferred class of creditors, it is admitted in the answer of the defendants, that five, having claims for over $1200, were private and individual creditors of Jonathan D. Crocker, one of the assignors, and that the debts existed against Crocker at the time of the formation of the partnership, in April 1847. In the second class of preferred creditors, eleven persons were named, three of whom were the private creditors of Crocker, having claims for over $500, and which debts existed against him prior to April 1847. The whole amount of the preferred debts was about $2500. of which over $1700 were private liabilities of Crocker, whilst the value of the assigned estate was but little beyond the sum of $2000. In the third class, were Opinion of the Court, per WRIGHT, J. * 591 ] partnership creditors, *not before preferred. In the fourth class, were the private creditors of each of the assignors, not before preferred; and, lastly, the surplus, if any, was reserved to the assignors jointly. The question, therefore, is distinctly presented, whether it is a fraud upon the creditors of an insolvent firm, for such firm to assign the partnership effects, in trust to pay the private debts of the individual members, to the extent of nearly exhausting the joint fund, or to any extent, where such fund is inadequate to satisfy the creditors of the firm. The question cannot be said to be embarrassed by the irrelevant fact, found by the referee, as to the amount of capital contributed by each of the partners in April 1847; nor by the still further suggestion, made on the argument, that it was a joint and several assignment of a mixed fund, to pay both private and partnership debts. It was a joint assignment of the joint property and funds; and although Crocker's equity of redemption in the lot and dwelling may have passed to the assignees under the assignment, there was nothing thereby added to the fund. The supreme court held, that the provision violated not statute, but only a principle of the common law, which gives partnership creditors a preference in payment out of partnership property over the individual creditors of the several partners; hence, it did not invalidate the whole assignment, by rendering it fraudulent and void. Being inequitable in reference to the partnership creditors, and an infringement of their rights, the provision was an illegal one; but, not being fraudulent, it did not vitiate any other part of the assignment. it may be true (though it is not free from doubt), that if an assigment contains a provision to pay individual debts out of partnership property, and this is not a violation of any statute, it cannot be set aside, at the instance of a single creditor seeking to appropriate the funds to his individual benefit. But it is unnecessary to follow up this inquiry, as it seems Opinion of the Court, per WRIGHT, J. very plain, that the insertion of such a provision in an assignment of the partnerthip effects of an insolvent firm, is a violation of the statute in respect to fraudulent conveyances, and furnishes conclusive evidence of a fraudulent intent on the part of the assignors. *Its op[ * 592 eration, in this case, was not only to hinder and delay the plaintiffs, as creditors of the firm, but, if successful, to cheat them out of their entire demand. It will be conceded, that the creditors of the firm are, legally and equitably, first entitled to the partnership effects. Such creditors have a claim upon the joint effects, prior to every other person, which the court will enforce and protect alike against the individual partners and their creditors. Indeed, the partnership property must be exhausted in satisfying partnership demands, before resort can be had to individual property of the members of the firm. The firm is not liable for the private debts of one of its members, nor is there any liability resting upon the other members in respect to those debts. An appropriation of the firm property to pay the individual debt of one of the partners is, in effect, a gift from the firm to the partner-a reservation for the benefit of such partner, or his creditors, to the direct injury of the firm creditors. Can it be reasonably doubted, that, when an insolvent firm assign their effects for the payment of the private debts of a member, for which neither the firm nor the other members, nor the firm assets, nor the interests of the other members therein, are liable, such an assignment and appropriation are a direct fraud upon the joint creditors of the assignors? An insolvent copartner, says the late Chancellor, who was unable to pay the debts which the firm owed, would be guilty of a fraud upon the joint creditors, if he authorized his share of the property of the firm to be applied to the payment of a debt for which neither he nor his property was liable at law or in equity. (Kirby v. Schoonmaker, 3 Barb. Ch. 48; Buchan v. Sumner, 2 Id. 207.) Yet, the co-assignor |