Case ID: ohio-st_25/html/0609-01.html
Source: Caselaw Access Project
Author: {"author": "\"Welch, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

William Brock et al. v. Henry E. Bateman et al.
    1. Motions for leave to amend pleadings in tke District Court, in eases-brought there by appeal, are addressed to the sound discretion of the court, and its rulings thereon will not be reversed on error, except where all the facts hearing upon the motion are set forth, and where-there has been a manifest abuse of discretion.
    2. Where a partnership and the several members of the firm are insolvent, and there are no partnership funds for distribution among its creditors, the creditors of the firm are entitled to share equally with the creditors-of each partner, in the distribution of his individual assets, the amount, so distribut ed tp the creditors of the firm, however, not to exceed the-amount of their claims.
    Motion for leave to file a petition in error to reverse the-judgment of the District Court of Madison county.
    A. J. Brock and Marion Slaughter were partners dealing-in hogs and cattle, and the firm, as well as both partners,, became and are still insolvent. Each of the partners, and also the firm, made a general assignment for the benefit of creditors, the defendants in error being the assignees of Brock and also of the firm, and E. G. Coffin being the: assignee of Slaughter.
    
      The assets of the firm amount to only $6.85, a sum insufficient to pay the costs of administering the trust. The assets of A. J. Brock amount to $27,241.18, and are in the hands of his assignees ready for distribution; and there is also a large amount of assets of Slaughter in the hands, or to ■come into the hands, of his said assignee. There are numerous creditors of each of the partners and also of the firm.
    The original petition in this case was filed by the assignees of Brock and of the firm against Brock, Slaughter, the ■creditors of Brock, the creditors of the firm, and the assignee of Slaughter, setting forth the facts aforesaid, and praying the court to make such order as to marshaling ■•and distributing the funds so in their hands as equity and justice require.
    The defendants waived the • issuing and service of process, and by their written agreement submitted the cause to the court “ upon the facts so stated in the petition, and without further answer on their part.” The cause was accordingly heard in the Common Pleas upon the petition .alone, and was taken by appeal to the District Court, where the defendants made a motion for leave to file an answer and ■cross-petition, controverting material facts stated in the petition. This motion the court overruled, and on the hearing rendered a decree to the effect that the creditors of the firm should share equally with the individual creditors of ■each member of the firm in the distribution of the individual assets.
    The individual creditors of Brock now ask leave to file a petition in error to reverse the judgment of the District •Court, alleging that the court erred in overruling their motion for leave to file the answer and cross-petition, and also in adjudging that any part of the individual assets should he distributed to the creditors of the firm, until after the individual creditors should be paid in full.
    
      Winans, Darlington $ Smith, for the motion:
    For the effect of appeal, see Teaffr. Hewett, 1 Ohio St. 511.
    I. The motion to set aside default, and for leave to plead, like motions to set aside judgments, etc., is addressed to the sound or legal discretion of the court, which should be ■exercised so as to promote justice. Sheets v. Baldwin’s Adm’rs, 12 Ohio, 131; 4 Ohio, 67. An abuse of such discretion is reviewable upon error and appeal. Newsom’s Adm’rs v. Rose, 18 Ohio, 240; Freeman on Judgments (2d ed.), sec. 106 ; 29 Cal. 72, 422 ; 7 Minn. 291; 13 Wis. 539; 15 Ib. 355; 19 Ib. 232; 22 Ib. 297; 23 Ib. 468; 19 Ib. 499 ; Rogers v. Bradford, 1 Paige, 418; 1 Wis. 17 ; Ib. 209; Ib. 70; 3 Ib. 573; 6 Ib. 199 ; 5 Ib. 270; 2 Ib. 437; 5 Ib. 107; 6 Ib. 57; 20 Ib. 388; 6 Ohio, 405; 24 Ohio St. 457.
    In this case, the merits are apparent; for if the firm had .•assets, as shown in the proposed answer, the partnership creditors would have been excluded from showing the individual assets of the partners, had the court permitted it to be filed. The. answer sufficiently excuses the default in the •Common Pleas, if excuse was necessary, by stating that fihe defendants were ignorant of their defense till after judgment.
    II. Is the rule laid down in Rogers v. Meranda, 7 Ohio St. 179, settled and established ? Is it just and equitable ? In that case the partnership, and the partners, each had distributable assets; and the opinion was, therefore, but dictum.
    
    The principles suggested, approved, and adopted by the court in that case antagonize and negative the rule.
    The rule, too, if it be a rule, is arbitrary, technical, and ■delusive. Why should partnership creditors be excluded from separate assets when the partnership assets divide, it may be, but the one-tenth of one mill per cent. ? And why •should separate creditors he excluded from partnership, when there are no separate assets ?
    The rule is, in principle, and it ought to be in precedent, strictly and fully correlative. If separate creditors can resort only to surplus partnership assets, partnership creditors should be permitted to resort only to surplus separate assets.
    
      Rut, conceding that where there are no joint assets, partnership creditors may properly share with separate creditors the separate assets of the partners, they ought so to share equally, and without advantage. If one partner only has assets, it would be equal, of course, for the joint and separate creditors to share them pro rata; but when each of two partners has assets, it would be unequal and unjust, as by the decree sought to be reversed in this case, to give-the partnership creditors a pro rata dividend upon the full amounts of their claims, in pari passu with the separate-creditors, out of the separate estates of both the partners. As between the partners themselves, if one partner has paid-part of a partnership debt, he and his copartner, jointly and severally, would be liable only for the residue; and, upon, principle, it would seem that in case of the insolvency of the partnership without assets, and of the partners each-with assets, to be due to the partners respectively, and to-their separate creditors, that proportionate credit and reduction upon and of partnership debts should be entered and made for and on account of what is paid thereon from the separate assets of the partners respectively. Otherwise, the partnership creditors would be doubly paid, pro tanto;- and they might even be paid more than the whole amount due them; depending upon whether the assets of the partners respectively would average more than fifty per cent, of the aggregate of the partnership and the separate debts.
    The assets and the debts, partnership and separate, ought-to be aggregated; and an average dividend only should be paid to the partnership creditors, which should be apportioned upon the assets of the partners respectively; and the separate creditors of the partnei’s respectively should-share equally the residue.
    
      Wilson § Durflinger, also for the motion:
    The District Coux-t had authority to allow the answer and cross-petition to be filed. Code see. 721; 14 Ohio, 487.
    The whole subject, however, rested in the sound discretion of the court, and where the exercise of such discretion-is reviewable. See Beaumont v. Herrick, 24 Ohio St. 458.
    If the proposed answer of the plaintiffs in error would, if the facts alleged therein he true, have caused the court to make a different order of distribution of the assets in the ■hands of the assignees, then the plaintiffs in error were denied a fair trial. If the rule in Rogers v. Meranda applies to this ease, then there was an abuse of sound discretion in refusing to allow the answer and cross-petition to be filed.
    The rule of equity in the distribution of joint and separate .assets of insolvent partners does not apply when there is no joint estate for distribution, and no living solvent partner.
    According to the rule of distribution ordered by the District Court, the partnership creditors may receive full •payment of their claims, and possibly more than is due them, while the individual creditors will receive but a small per cent. But if there was but a small per cent, of partnership assets, the partnership creditors would be held to that fund exclusively. It does not seem that any such rule of mere chance ought to be the rule in equity in a case like the present.
    The most the partnership creditors ought to expect is to ■receive the average per cent, of the two ■ estates, or the highest per cent, paid by either individual estate.
    "When the firm has no assets at all, it seems doubtful whether or not the rule applies, but the general rule is not to be abandoned so long as there is any joint estate, no matter how trifling. Collier on Part. sec. 926; Story on Part. sec. 880; 10 Cush. 600; 44 Penn. St. 507; 1 Harris & Gill, 96; 2 Rose, 54.
    
      George Lincoln, Harrison § Marsh, contra:
    I. Section 650 of the code can not be so construed as to permit the proposed answer and cross-petition to be filed. It is not an alteration of the pleadings on the part of the plaintiffs in error, for no pleadings had been filed" by them to alter.
    The statutory thing to be altered or amended must exist before the alteration can be made. Shamokin Bank v. Street, 16 Ohio St. 10; Wisewell v. First Cong. Church, 14 Ohio St., 34; Beaumont v. Herrick, 24 Ohio St. 445-457; Horton v. Horner, 14 Ohio, 437.
    To permit this answer to be filed is to ignore the agreement of the parties as to the facts upon which the case should be-decided; to permit a new issue when no isssue was presented below, and to entirely deprive the adverse parties of a hearing upon such new issue in one of the tribunals in which they were entitled to a hearing. It is, in effect, conferring original, and not appellate, jurisdiction upon the District' Court.
    The application for leave to file the proposed answer and’ cross-petition, as amended, was too late, after final judgment had been rendered.
    The whole subject of allowing the proposed pleading to-be filed rested in the sound discretion of the court, and is not reviewable on error. Legg v. Drake, 1 Ohio St. 286; Spice & Son v. Steinruck, 14 Ohio St. 213; Clark v. Clark, 20 Ohio St. 128; Beaumont v. Herrick, 24 Ohio St. 445-457; Horton v. Horner, 14 Ohio, 437.
    II. The order of distribution made by the District Court is right.
    1. The partnership creditors are entitled to share in the-distribution of the individual assets, because these partnership debts are, in equity, several as well as joint, and because thei’e is no joint estate for distribution, and no living solvent partner.
    2. The joint estate is only $6.25. This is not, as alleged and admitted, enough to pay the costs of recording the deed of assignment, and other costs of executing the trust. The insolvent debtors’ act requires that the costs and expenses of administering the trust shall be first paid out of the trust fund before any dividend is declared. 1 S. & C.,. 711, sec. 11. There is, therefore, no joint estate for distribution among the creditors.
    3. The partnership creditors are entitled to dividend® from the separate estate, of each of the partners, upon the whole amount of the partnership debts, pari passu with the individual creditors.
    It is well settled that, in equity, partnership debts are several as well as joint; and that each partner is individually liable for the whole amount of the partnership debts.
    The separate estate, then, of each member of the firm is-liable for the whole amount of the partnership debts, where there is no joint estate for distribution; and they stand on an equal footing with the separate creditors in the distribution of each of the separate estates.
    The rule of distribution which the courts below followed may sometimes operate harshly. All general rules do. But the rule is clear, well defined, and easily applied, and generally operates at least as justly as any rule that can be applied to the subject.
    And the rule is abundantly settled by authority. Grosvenor & Co. v. Austin’s Adm’rs, 6 Ohio, 103; Sumner v. Humpson, 8 Ohio, 365; Commercial Bank v. Western Reserve Bank, 11 Ohio, 451; Rogers v. Meranda, 7 Ohio St. 179; Tucker v. Oxley, 5 Cranch. 34; Bordwell v. Perry et al. 19 Vt. 292; Ladd v. Griswold, 4 Gilman, 25; Exparte Wyldman, 2 Ves. sr. 113; Sohier v. Loring et al., 6 Cush. 537; Fuller et al. v. Hooper et al., 3 Gray, 334; Collyer on Partnership, secs. 580, 923; 4 Kent’s Com. 64; 1 Story’s Eq. Juris., secs. 162, 576; 2 Leading Cases in Equity, 313 et seq.
    
   "Welch, J.

Motions for leave to amend or change the pleadings, in appealed cases in the District Court, are addressed to the sound discretion of the court, and its rulings thereon will not be reversed on error, except where all the facts hearing upon the motion are set forth, and where there has been a manifest abuse of discretion. No such case is made here. Eor aught that appears there may have been good reasons for refusing the motion. Apparently the granting of the motion would have necessitated a continuance of the cause, as it is not shown that any notice was given the opposite party of an intention to-make the motion, so as to enable them to prepare for trial. No reason is assigned for the motion, except the fact that the matters set up in the answer were unknown to the defendants at the time of trial in the Common Pleas. What other facts bearing upon the propriety of granting the motion were shown by either party, does not appear.

Nor do we see any error in the decree rendered by the court upon the final hearing. The creditors of the firm "trusted both the partners, and had a valid claim against each for the full amount of the partnership debts, whereas the individual creditor only trusted one of them. It would seem, on principles of natural justice, therefore, that the assets ought to be so marshaled in such cases as to give some preference to the partnership creditors over those of the individual members of the firm. The authorities on the subject are not uniform. It seems to us, however, that the better authorities, both English and American, as well .as reason, establish the justice of the rule adopted by the ■court below. In other words, equity will apply the assets •of an insolvent partnership in payment of the creditors of the firm, to the exclusion of creditors of its individual members, and if there be no partnership assets for distribution, as was the case here, the creditors of the firm have a right to share equally with the creditors of each individual member of the firm in the pro rata distribution of his assets. Of course, the aggregate amount so distributed to the creditors of the firm must not, in any case, exceed the amount of their claims. It is true that this rule may work hardship and apparent injustice in particular cases; so, it is believed, will any general rule that can be devised. We understand it to be the rule established by the decision of this ■court in Rogers v. Meranda, 7 Ohio St. 179. What should be the rule where the partnership assets are insignificant, or where they will yield to the creditors of the firm a less dividend than the creditors of the individual members would realize from the individual assets, and whether the creditors of the firm should, in such case, be confined to the ^partnership assets, we are not called upon in the present-. -case to decide.

Motion overruled. t

McIlvaine, C. J., White, Rex, and Gilmore, JJ., concurred.