R. W. Smith & Co. v. Mallory's Ex'r

GOLDTHWAITE, J.

The evidence clearly shows, that the estate of the surviving copartner, Meldrum, was insolvent ; but it also, as we think, shows a joint fund in his hands, and as the estate of the deceased copartner is insufficient to pay its separate debts, the sole question is, whether under these circumstances, the partnership creditors are entitled to share pari passu with the separate creditors, in the estate of the deceased partner.

That the joint creditors have a primary claim upon the joint fund, to the exclusion of the separate creditors, in the administration and distribution of the estates of bankrupt or insolvent partners, is too well settled, at this day, to require the citation of authority; and this right, on the part of the joint creditors, was made the basis of the equity of the separate creditors to a primary claim upon the separate property of bankrupt partners, by the English Chancellors before Lord Thurlow.—Ex parte Crowder, 3 Vern. 706; Twiss v. Massey, 1 Atk. 67; Ex parte Hunter, ib. 227; Ex parte Cook, 2 Pr. Will. 500. Chancellor Thurlow, however, thought that the “justice of the case would be, that both the joint and the separate creditors should come in pari passu, upon both funds” (Ex parte Cobham, 1 Bro. 576; Ex parte Hodgson, 2 Bro. 5; Ex parte Page, ib. 119; Ex parte Flintum, ib. 120); and the distinction which previously existed, between joint and separate creditors, in the distribution of the assets of a bankrupt partner, was done away during Ms administration. The successor of Thur-low, Lord Loughborough, in Ex parte Elton, 3 Ves. 238, restored the rule which had previously obtained ; defending it on general principles of equity, and declaring “that it had long been settled, and it was not possible to alter that, that each estate was to pay its own creditors.” Since then, although Lord Eldon is not fully satisfied with the rule, he concedes it upon the principle of stare decisis (Ex parte Kensington, 14 Ves. 448; Dutton v. Dutton, 17 ib. 207); and the question is now regarded as a settled one in the English courts. — Story on Partnership § § 3Y6, 3YY, and cases there cited.

In the American courts, the decisions are contradictory. The question has been ably discussed, and the correctness of the rule denied, in Pennsylvania, Connecticut, Ohio and Tennessee (The Estate of Spivey, 1 Ashm. 347; Camp v. Grant, 21 Conn. 53; Grosvernor v. Austin, 6 Ohio 103; Bell v. Newman, 5 S. & R. 78); but it has received the judicial sanction of the Supreme Court of the United States, in Murrell v. Mill, 8 How. 414, and has been recognized as the law in the courts of New York, Maryland, New Jersey and South Carolina.—Wilder v. Keeler, 3 Paige 168; Egbert v. Wood, ib. 518; Payne v. Matthews, 6 ib. 20; Murray v. Murray, 5 Johns. Ch. 60, 72; Jackson v. Cornell, 1 Sand. Ch. 343; McCulloch v. Dashiel, 1 Harr. & Gill. 96; Camak v. Johnson, 1 Green’s (N. J.) Ch. R. 163; Tunn v. Trezevant, 2 Dess. 264; Waddrup v. Price, 3 ib. 203; Hall v. Hall, 2 McCord Ch. 269; and see, also, Arnold v. Hamer, Frem. Ch. 509, and Oakley v. Rabb, ib. 546. Judge Story, while he considers the foundation on which the rule rests, as “questionable and unsatisfactory, admits it to be firmly established,” — Story on Part. § § 3YY, 382. Chancellor Kent declares in its favor, both upon principle and authority; and it may be added, as an argument in favor of the equity of the rule, that it is found in both the Roman and French law. Dig. Lib. 14, tit. 4, c. 5 ; Pothier Pand., Lib. 14, tit. 4, n. 8; Durenton, Cours do Droit Franc, Tome 1Y, § 46Y, p. 512, 513, 514. While it may be conceded, that the ruléis not free from objection, it is doubtful whether any other

would meet out equal justice; and we deem it better, in such eases, to decide with the weight of authority, which is clearly in support of the rule as established in England.

We have said nothing as to the case of Emanuel v. Bird, 19 Ala. 596, for the reason, that the ground on which that decision rests, is, that there was no joint fund, and no solvent partner; which made it an exception to the general rule.—Ex parte Hall, 9 Ves. 349; Ex parte Ackerman, 14 ib. 604; Ex parte De Tastet, 1 Rosc. 10; Ex parte Buckle, 1 Glyn. & Jam. 34; McCulloch v. Dashiel, supra; Story’s Part. § 378.

But it is urged, on the part of the appellants, that the rule we have considered is changed by the operation of our statutes. The act of 1818 (Clay’s Digest 323 § 63) does not change the obligations of partners from joint to joint and several.—Marrs v. Southwick, 2 Port. 370; Van Pheel v. Connolly, 9 Port. 452; Trann v. Gorman, ib. 456; and in relation to the act of 1839 (Clay’s Digest 324 § 67), it is to be remarked, that before its passage, a creditor of the firm could not sue the estate of a deceased copartner at law- — Coll, on Part. §576. At law, the debts of partners were joint; and by the death of one, they were extinguished as to his representative, except in equity.—Marrs v. Southwick, supra. In that court, he could proceed at once against the representative of the deceased copartner, without reference to the question whether the joint estate was solvent or insolvent, or to the state of accounts between the partners. — Devaynes v. Noble, 1 Mer. 529; S. C. 1 Russ. & M. 495; Wilkinson v. Henderson, 1 M. & K. 532; Thorpe v. Jackson, 2 Y. & C. 553; Coll. Part. § 581. But when the creditor has obtained a decree for the payment of his debt out of the estate of the deceased partner, under the equity of the principle we have already determined, he will still be postponed to the separate creditor, unless there is no joint estate.—Gray v. Chiswell, 9 Ves. 118 : Story on Part. § 363, and cases there cited. By the statute referred to, however, the rule was partially changed, and the creditor of the firm allowed to assert his claim, at law, against the representative of the deceased partner, upon making affidavit that the surviving corpartner was insolvent, or even without such affidavit; but in the last case, he was not permitted to sue out execution, until a return of nulla bona against the surviving corpartner. The object of the statute was, not to affect in any way the priority of right which the separate creditor had against the estate of the deceased copartner, but simply to allow the creditor of the firm to assert his claim against such estate in a court of law, instead of a court of chancery. If the estate of the deceased partner was solvent, he obtained his debt by a more simple process ; but if insolvent, the creditors who had a superior claim preserved their advantage.

Neither, in our opinion, is the law changed by the act of 1843 (Clay’s Digest 192 § 2) providing for the distribution of the assets of insolvent estates, amongst all the creditors pro rata. As we have seen, the claim of the joint creditors was, at law, extinguished against the representative of the deceased copartner; and neither in law, under the act of 1839, nor in equity, if there was a joint fund, could he obtain payment, except out of the surplus of the separate estate left after the payment of the separate creditors. There being a joint fund, he was not a creditor, unless there was a surplus of the separate fund. In other words, he had no right, either at law or equity, to charge any portion of the separate estate of the deceased partner, except the fund remaining after the discharge of the separate debts. The act of 1843 was intended to make all the debts equal in degree, — to place simple contract debts on the same footing with debts by judgment and specialty; but it was not intended by that act to fasten upon the estate, to the prejudice of creditors who had a superior equitable and legal right, claims which, without reference to the statute, could not have been asserted against the estate either in law or equity.

Judgment affirmed.