Case ID: sc-eq_26/html/0155-01.html
Source: Caselaw Access Project
Author: {"author": "Dunkin, Ci-i.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Robert Moffatt, adm'r vs. A. W. Thomson.
    
    Where one partner dies insolvent, and is, at the time of his death, indebted, individually, to the surviving partner, individually, and the surviving partner afterwards collects funds of the partnership, he cannot apply the share of the deceased partner to the individual debt due to himself — such share must be paid to the representative of the deceased partner, to be applied to his debts, as directed by the Act of 1789.
    A surviving partner is entitled to take and hold as survivor, for the purpose of administering the co-partnership estate, but after the effects have been reduced to money, and the debts of tho co-partnership paid, the share of the deceased partner constitutes assets, and belongs to his representative.
    Though each partner has a lien upon tho co-partnership effects for a debt due him by the co-partnership; yet, for a private debt, the survivor has no lien upon the share of the deceased partner.
    
      Before Wardlaw, Ch. at Union, June, 1851.
    Wardlaw, Ch. This is a bill filed by the plaintiff, as administrator of Lewis Bowers, against the defendant, as surviving partner, for an account of the assets of the partnership of Thom-sou & Bowers, as attorneys and solicitors. The partnership was formed in the beginning of the year 1841, and continued until October, 1844, when it was dissolved by the death of Bowers. There was no written agreement between the parties, as to the terms of the partnership;' but, according to the proof, Thomson was to furnish the office and books, and defray the incidental expenses of the office ; and the profits of tho practice were to be divided between them in the proportion of one-third of the tax costs, and one-quarter of the counsel and other fees to Bowers, and the rest to Thomson. By contract between them, but not as an integral part of the partnership arrangement, Bowers was to board with Thomson, and be furnished with food, chamber, fuel, lights and washing, at the price then customary in the village of Union; and he did so board from January 13, 1841, uutil his death, being absent only two or three weeks; and he was charged, and the charge was proved to be moderate, at the rate of $ 13T a year. No portion of this debt, except $24 for washing, was paid by Bowers in his lifetime ; nor was there ever an account stated between the partners. Both, however, at various times, during the existence of the partnership, received sums of money on account of the partnership, and at Bowers’s death, Thomson had thus received money, in excess of his share of the profits, sufficient, or nearly sufficient, to pay his demand for board, if he be entitled to make such application of what was then in his hands belonging to Bowers. In the answer of Thomson, it is stated, that Bowers directed him to draw from the sheriff’s office the fees due to him, Bowers, and therewith pay himself, Thomson. But this statement is not responsive to the allegations of the bill, and is not otherwise proved. The estate of Bowers is insufficient to pay the debts in full, and the administrator, in behalf of other creditors, insists that Thomson is entitled to retain, for his debt, ratably with other creditors, and no more. The Commissioner sustains the view of the administrator, and the matter comes before me on exceptions to the Commissioner’s report.
    
      As to the private debt of Bowers to Thompson, not connected with the partnership, Thomson seems to occupy the position of any other creditor of Bowers. For all sums received by him, as surviving partner, he must account to the administrator; and as to these, his equity, after the settlement of the partnership debts, if any, is not superior to that of any other creditor of Bowers individually. But Thomson, as any other creditor of Bowers, has the right to apply any sum received on account of Bowers, in Bowers’ life time, to the extinguishment of the debt owed to him by Bowers. The balance of the indebtedness on one side or the other, at Bowers’s death, is to be ascertained by collating the debts at that time, of each to the other, and subtracting the gross amount of the smaller from the larger debts of the parties, respectively. The state of indebtedness existing at the death of the intestate cannot be changed injuriously to the creditors of the intestate generally, by a subsequent contract, such as the purchase of a note of intestate, or receiving money from his debtor. These views result from the construction which has been given to our discount law, (Mayhew vs. Flake, 2 N. &■ McC., 398; Happoldt vs. Jones, Harp. 109,) and they might be deduced from the superior lien, and rights of a creditor in possession. I am of opinion that the defendant is entitled to set-off his debt, upon the intestate, against any liability he incurred, from receiving the money of the intestate in his life time, and the Commissioner is ordered to amend his report accordingly.
    The frame of the bill in this case is imperfect; there is no allegation of the insolvency, or even the indebtedness of the estate of the intestate; and defendant -might treat this suit as having all the incidents, and among them the doctrine of discount, which would belong to a suit of Bowers against the present defendant. But I understand all objection, on this score, to be waived.
    Other exceptions were filed ; imputing slight mistakes, principally clerical, to the report, but these were not argued, and seemed to be abandoned by counsel. These mistakes of fact should be corrected.
    Tt is ordered and decreed that the Commissioner’s report be re-committed for correction, according to the opinions herein expressed. Costs to be paid out of estate of intestate.
    At June Sittings, 1852, the case again came up, on the report of the Commissioner, before his Honor, Chancellor Johnston, who made the following decree.
    JohNston, Ch. On hearing the report of the Commissioner in this case, dated 5th June, 1852, and the exceptions filed by the defendant thereto: Ordered, that the exceptions be overruled, and that the Commissioner’s report be confirmed, and become a decree of this Court.
    The defendant appealed from both decrees, on the ground:
    Because the defendant had a good and equitable right to retain for the debt due to him from his partner, as the case is not like that of an executor or administrator, whose rights are fixed by statute in this State, and our discount law applies to this case.
    
      Jeter, for appellant.
    
      Dawkins, contra.
   The opinion of the Court was delivered by

Dunkin, Ci-i.

The ground of appeal involves the inquiry, whether the surviving co-partner can set-off a private debt due to him. by his deceased partner, against his share of assets collected since the dissolution of the co-partnership. The Chancellor has directed, that for any balance due the deceased at the dissolution, the survivor is entitled to discount; but that the rights of the parties were fixed at the death of the intestate, and cannot be varied by subsequent transactions. This general principle has been repeatedly recognized, and can scarcely be regarded as open for discussion. In the recent case of Morton & Courtnay vs. Caldwell, (3 Strob. Eq. 161,) the Court, in commenting upon the statute of 1789, remark, that “while this statute abolishes preferences among creditors ef equal rank, and virtually entitles each creditor, in case of deficient assets, to a claim on the estate of the deceased debtor, proportioned to his demand, it does not, in terms, settle any point of time, in reference to which the respective demands must be examined, in order to determine the relative proportion of assets liable to their payment.” But that still it is a fundamental idea in the statute — a disregard of which must render it’s due administration intolerably perplexing, if not impracticable — that the juncture, for the purpose of such a calculation, is the death of the debtor. It is then the remedy of the creditor ceases as to the person, and is restricted to the effects of the party indebted.” So far is the principle carried, that, if a creditor afterwards receives 50 per cent of his debt from a third party, he is entitled to recover the balance from the assets of the intestate, according to the proportion assigned to his original debt. On the other hand, the amount of assets for distribution cannot be*diminished by any subsequent arrangement, or management, of an unsatisfied creditor. Thus, in Happoldt vs. Jones, Harp. 109, a debtor of the intestate attempted to set-off a note of the intestate to a third person, which had been transferred to the defendant since the intestate’s decease. The Court say, “ the Act expressly provides that no preference shall be given to creditors in equal degree. The debt due by the defendant, was assets. The effect of allowing the whole amount of the discount, is the payment of that entire demand, in exclusion of others, and is in direct opposition to the provisions of the Act.”

At the death of the intestate, Bowers, he was indebted, individually, to the defendant, Thomson, individually, in a certain amount. For the balance, as it thus stood, the defendant was entitled to his proportion of the assets of the intestate. But in the course of the administration, it appeared that, subsequent to the death of the intestate, funds of the co-partnership of Thomson and Bowers had been collected, after the dissolution, by the surviving copartner. The position assumed, is, that Thomson is entitled to appropriate the share of the intestate m these funds to the extinguishment, in full, of the debt due by the intestate, individually, to the defendant, individually. If the intestate’s proportion of this fund constituted assets, the position is untenable, unless the defendant’s condition, as surviving partner, gave him a preference over the Other individual creditors of the intestate. Both will be considered. The principle is as old, at least, as the time of Lord Coke, that co-partners constitute an exception to the rule as to the jus accressendi amongst joint tenants. Co. Litt. 182, a. Though they are joint tenants of all the partnership stock during their lives, there is no survivorship either at law or in equity. Story on Part. § 90. It follows that, upon the decease of one of several partners, his share of the stock and effects of the partnership, subject to the partnership debts, devolves to his personal representatives, who thereupon become, both at law and in equity, tenants in common with the surviving partner. Such is the doctrine of Kent, of Story, and indeed of every elementary writer on the subject. But, as on the decease of one of the partners, the surviving partner stands chargeable with the whole of the partnership debts, he is authorized to take and hold as survivor, for the purpose of administering the co-partnership estate, until the effects are reduced to money, and the debts are paid. When this is done, the surviving partner shall be held to account with the representatives of the deceased, for his just share of the partnership funds. Collyer on Part. § 129. It is very difficult to make these principles more clear. On the death of one of the partners, his share in the concern constitutes assets, subject only to the charge of co-partnership debts. No other debt, except a debt due by the co-partnership, has any preference in relation to the share of the intestate in these funds. The lien which a partner has, is equally well settled and distinctly limited. Each has a specific lien on the partnership stock and effects for moneys advanced by him for the use of the co-partnership, beyond his proportion, and for moneys abstracted by his co-partner, from the co-partnership funds, beyond the amount of his share. Indeed, as declared by Lord Hardwicke, nothing can be considered as the share of a partner, but his proportion of the residue, afiel-an account has been taken of what has been paid or advanced, by each partner, in the partnership transactions. The result is, that, according to acknowledged principles, upon the dissolution of a co-partnership by the death of one of the partners, the survivor has, as such, no rights, either in law or equity, except for the collection of co-partnership assets, and the payment of co-partnership debts. That done, he is bound to pay to the representative of the deceased partner his share of the fund, which is liable for distribution among his creditors upon the principles prescribed by law. The partners are declared to have no specific lien except for the purpose of securing, or re-imbursing themselves, for advances made on account of the co-partnership. The survivor has no other lien over the share of his deceased partner. It is not pretended that the debt of the intestate was due to the firm or co-partnership. It was an individual transaction with the defendant. Assuming that the other co-partnership affairs were closed prior to the intestate’s death, the case may be thus simplified. Suppose that, on the decease of the intestate, insolvent, he owed the defendant a private debt of one hundred and fifty dollars, and that in his possession the administrator found a note due to the co-partnership by a third person, of five hundred dollars. As he was bound by law to do, the administrator delivers this note to the defendant, the surviving partner, who collects the money, and then insists on retaining one hundred and fifty dollars from the share of the intestate, in payment of the private debt due to him. If there be any reliance on the principles stated, the administrator had an equal right with the defendant, both in law and equity, to this fund. For convenience, as well as for other reasons before stated, the surviving partner is authorized to collect the note. That done, and the debts due by the co-partnership paid, he is bound, in the language of the authorities, to pay over to the legal representative of the deceased, his just share of the partnership funds. He has no lien upon it for his private debt. His lien, by the authorities, is limited to advances for co-partnership purposes. Upon what principle then, or upon what authority, can he claim to appropriate the share of the intestate to the extin-guishment of his private debt, and thus obtain a preference over other private creditors, and disturb the due course of administration 1 The authorities, from Lord Coke down, declare that the surviving co-partner and the representative of the deceased partner, are to be regarded as tenants in commou of the co-partnership effects. If there were three negroes belonging to the firm, and the debts paid, could the defendant resist the claim of the administrator for partition on account of a private demand which he had against the intestate ? Or, if there were a sale for partition, would his open account exclude the specialty creditors of the intestate ? It is believed that no tenant in common, although in exclusive possession of the common property, has ever been sustained in such a pretension. Upon the whole, the Court is of opinion that the judgment of the Chancellor is sustained by established principles, and the appeal is dismissed.

Dargan and Wardlaw CC. concurred.

Appeal dismissed.