Mise.] Supreme Court, December, 1919. partners have as between themselves, and in certain circumstances, it inures to the benefit of the creditors of the firm. The latter are said to have a privilege or preference, sometimes loosely denominated a lien, to have the debts due to them paid out of the assets of a firm in course of liquidation, to the exclusion of creditors of its several members. This equity, however, is a derivative one. It is not held or enforceable in their own right. It is practically a subrogation to the equity of the individual partner, to be made effective through him. Hence, if he is not in condition to enforce it, the creditors of the firm cannot be." To the same general effect is the case of Fitzpatrick v. Flannagan, 106 U. S. 648-654. The rule of law enunciated in the two cases in the United States Supreme Court above cited was recognized in Saunders v. Reilly, 105 N. Y. 12–19, and Dexter v. Dexter, 43 App. Div. 274–276. To apply the principles above enunciated to the claim of the Manufacturers and Traders' National Bank, we find that Michael Zeis did not exercise the right vested in him to have the firm affairs liquidated and the debts paid from the assets of the firm, but by his will in substance directed the continuance of the business by his sons as successors. These provisions by will were tantamount to an express waiver on his part of the right to have the firm affairs liquidated and the debts paid, and as the creditors' right is a derivative one in the creditors and not enforceable in their own right, any equitable lien they might otherwise have had no longer exists; and they cannot be held to have an equitable lien on the firm assets in preference to creditors who became such subsequent to the death of Michael Zeis, but must share in the distribution of the firm assets pro rata with such subsequent creditors. The cases of Miller v. Estill, 5 Supreme Court, December, 1919. [Vol. 109. Ohio St. 508, and Thayer v. Humphrey, 91 Wis. 276, hold the same doctrine. Beyond the strict legal questions presented by the case now under consideration, we think the facts present strong equitable reasons why the bank should not be paid in preference to the other claims of creditors against the business. Michael Zeis died leaving the will in question with the provisions in it in reference to the continuation of the business. The bank knew of his death and of the will and must be presumed to have known of the legal force and effect of its provisions. Zeis died on November 30, 1915. For some two and a half years this business was in fact continued by his sons as successors, and new debts and obligations were incurred in the regular course of business. The notes held by the Manufacturers and Traders' National Bank, at the time of Michael Zeis' death, were from time to time renewed in part, and part paid. These renewal notes were signed by the successors in the same firm name of "M. Zeis & Sons " under which name the sons continued the business. Doubtless, the debt to the bank was reduced in part at least by reason of moneys realized from the continued operation of the business so that the credit obtained from the new creditors contributed to the reduction of the concern's indebtedness to the bank. Under such circumstances, we think it would be inequitable for the bank as against other creditors to be paid in preference to them. In the case of Dalton v. Humphreys, 242 Fed. Repr. 777 (C. C. A.) practically the same questions were up for adjudication as those presented here. The court said: "It goes without saying that creditors of the old firm, at the time of H. C. Harris' death, had full right to require the business to be wound up and the partnership property applied to the Misc.] Supreme Court, December, 1919. payment of their debts. But they took no steps to that end. Without protest or objection they allowed the new firm to take up the business and carry it on for more than two years; there was no dissent until after the bankruptcy. In the circumstances, this long acquiescence, manifested at least by non action, raises a strong presumption that the new firm succeeded. the old firm, taking over its assets and assuming its liabilities with the knowledge and consent of the former creditors ** This being so, it appears plain to us that a few creditors of the old firm, whose debts remain unpaid, should not be permitted to upset an arrangement to which they presumably consented. and at the time was undoubtedly deemed best for all concerned." We, therefore, are forced to the conclusion that the Manufacturers and Traders' National Bank is not entitled to any preference but must share pro rata with other creditors in the distribution of the firm assets. Certain of the defendants raise questions touching the payments made by the firm of M. Zeis & Sons to Walburga Zeis, the widow of the testator. By his will, the testator gave to his widow the use of his residence for life and then directed" My Executors hereinafter named to pay her the sum of Fifty Dollars ($50.) for weekly maintenance," etc. This weekly payment of fifty dollars the executors of the will never themselves paid, but the sons as successors of the firm of M. Zeis & Sons made the payments to her from the funds of the firm, and charged these payments on the books of the concern to the labor account of the business. These payments continued to be made until the appointment of the receiver of the firm business, and after such appointment the receiver continued the weekly payments to the widow, until he has paid from the funds in his hands the sum of about $1,300. The Supreme Court, December, 1919. [Vol. 109. creditors of the business insist that the payments both before and after the appointment of the receiver were unauthorized and illegal, and ask that the amounts' so paid should be refunded by the parties making and receiving the same. On behalf of the widow, it is urged that she was compelled or did in fact surrender her dower interest in the real property of the firm and equitably should not be required to make good the amounts paid her under the circumstances of the case. It is perfectly manifest that the surviving members of the firm of M. Zeis & Sons were under no legal obligations to make any payments whatever to the widow. The testator made to his sons a specific devise and bequest of the business of M. Zeis & Sons from which were to be paid certain legacies given by the 3d, 4th, 5th, 6th and 7th paragraphs of the will. These bequests were the only ones required to be paid from the business. The provision for the widow is contained in the "eighth paragraph of the will, and is not included among the bequests to be paid by the sons from the business. On the contrary, the will directs the fifty dollars per week to be paid by the executors of the will, neither of whom were members of the firm of Zeis & Sons. Out of what funds or property the testator intended this amount was to be paid, it is hard to discover, because the testator at his death left little or no personal estate outside his interest invested in the firm of M. Zeis & Sons. The sons, however, as survivors of said firm, did seem to assume the duty of making weekly payments for their mother. The fact that these payments were charged to labor, however, would indicate that they must have known that they were not legitimate charges against the business, but were made for the purpose of providing their mother with means of living, according Misc.] Supreme Court, December, 1919. to the standard expressed in the will of their father. It was, doubtless, a praiseworthy action on their part had the business prospered, but the filial and considerate acts of the sons were nevertheless to the prejudice of the creditors of the firm and cannot be deemed to cure the illegality of the transaction if such it was. I think it safe to assume that the payments made to Walburga Zeis were purely voluntary on the part of her sons, in substance and effect donations made by grateful sons to the maintenance of their mother. There is no evidence that would warrant the conclusion that the mother knew or supposed such payments embarrassed the firm or tended to render it insolvent. The court is unable to find that there was any fraud or intent on her part to cheat or defraud creditors. While these payments were unauthorized, nevertheless that fact does not, it seems to us, give a cause of action against the mother or justify a decree or judgment against her for the amount so received. Suppose the firm had made a donation to some charity. We do not think creditors could compel the charity to refund the donation made although in so doing the firm were unmindful of the rightful claims of creditors. We think, under the circumstances of this case, the creditors have no cause of action against the widow. In the absence of fraud on the widow's part we do not think she is legally liable to refund. On the other hand we do not think the plea made in her behalf of having relinquished her dower in the firm real estate is a good plea in her behalf. The mill property seems to be recognized by all parties as firm property. Her dower right, if any, was and is subject to the payment of the firm's debts. Real estate purchased by a firm with its funds for partnership purposes is regarded in equity, so far as |