Case Name: In re FULLER et al.
Court: United States Court of Appeals for the Second Circuit
Jurisdiction: United States
Decision Date: 1925-06-10
Citations: 9 F.2d 553
Docket Number: No. 307
Parties: In re FULLER et al.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 9
Pages: 553–556

Head Matter:
In re FULLER et al.
(Circuit Court of Appeals, Second Circuit.
June 10, 1925.)
No. 307.
Mantón. Circuit Judge, dissenting.
See, also, 294 F. 71, and 9 F.(2d) 557.
Max D. Steuer and Samuel Gottlieb, both of New York City, for petitioner to revise.
Francis L. Kohlman, Carl J. Austrian, and Saul J. Lance, all of New York City, for petitioning creditors.
Chadbourne, Hunt, Jaeckel & Brown, of New York City (William M. Chadbourne and Carroll R. Ward, both of New York City, of counsel), for petitioning creditors.
Before ROGERS, MANTON, and HAND, Circuit Judges.

Opinion:
HAND, Circuit Judge.
On June 26, 1922, three creditors, not those here concerned, filed a petition for the involuntary adjudication of Edward M. Fuller and William E. McGee, individually and as copartners, upon which they were adjudged bankrupts on July 20, 1922. Various investigations were conducted, which finally led receivers, who had been appointed, and the creditors, whom they advised, to believe that one Charles A. Stoneham, the revising petitioner herein, had been associated as a dormant or secret partner with Puller and McGee, and that he was therefore responsible for the debts of the firm. Stoneham was himself examined for many days, beginning on May 28, 1923, and denied that he was a partner. He was indicted for perjury because of this denial during the summer of 1923, and the inquiries continued, though the substance of their disclosure is not material here. On April 25, 1924, three other creditors, the respondents herein, filed a petition, intervening as petitioning creditors, praying that a subpeena be served on Stoneham, that he be adjudged a general partner of the firm, and as such a bankrupt along with the other members. The purpose of this petition was to conclude Stoneham upon all questions, except as to his membership in the firm. This petition was denied, and the order is the subject of a separate appeal, heard along with this.
Upon the denial of that petition the same petitioners on November 5, 1924, filed an other petition, asking only that Stoneham be joined nune pro tune as a respondent, or alleged bankrupt, in the original petition for involuntary adjudication of June 26, 1922; the adjudication against Fuller and McGee meanwhile to stand. This the court granted, and it is this order which is now under review. Stoneham argues, that to introduce him into the proceedings is in effect to institute them against him de novo, and. that, as on independent petition against him no act of bankruptcy could avail the petitioners which was more than four months old on April 25, 1924, the application is bad on its face; further that, if the time does not run from the filing of the original petition, at least it rdns from the time when the present petitioning creditors learned of his alleged membership in the firm; again, if neither of these points be good, that the petition should have been denied for laches; finally, that in any event the original adjudication should have been vacated as a condition of prosecuting the present proceedings.
i If this were a proceeding to make Stone-ham a party defendant to an action upon a firm promise, and if the statute of limitations had -run in his favor personally, we will not say that he could be joined. Not being named in the original process, even under New York Practice Act, § 16, service on his co-obligors would not toll the statute. Shaw v. Cock, 78 N. Y. 194. How far the fact that he was a dormant partner, and that his connection was unknown, might change the result we need not consider. We may assume, though for argument's sake only, that the statute would protect him.
That appears tó us a wholly irrelevant consideration. The purpose of the proceedings was to sequester the assets of a group of traders, whoever they might be, ascertained by the business in which they were engaged, and to distribute them among .their creditors. It asked no judgment against the members, and established none on which they could be held personally. Their right to a discharge was a purely ancillary and separate matter created for their benefit, independent of the bankruptcy. The failure of that purpose arose from the excusable neglect to include one who had concealed his connection, and this application is no more than an effort to bring into administration newly discovered firm assets. We say so advisedly because, since Francis v. McNeal, 228 U. S. 695, 33 S. Ct. 701, 57 L. Ed. 1029, L. R. A. 1915E, 706, the estates of the separate partners are to be considered as such, and as a corollary the firm is not insolvent, unless the separate and the firm estates will not pay the firm debts. To assimilate such a proceeding to an action to recover judgment in personam seems to us without warrant.
In Metcalf v. Officer, Fed. Cas. No. 9,496, 5 Dill. 565, Judge Dillon and Judge Love' overruled a demurrer to an assignee's suit against a creditor on a voidable preference. The objection was to the assignee's title for reasons, among others, similar to those now put forward. These the court overruled, and certainly meant to say that a partner might be brought into the firm proceedings after the period of limitation had run. Whether in any event the objection lay in the mouth of a creditor who had received a preference may be doubtful, but the ruling stands. In Re Kaufman, 176 F. 93, 99 C. C. A. 107, we reserved the point, but in Re Samuels, 215 F. 845, 132 C. C. A. 187, in effect we passed upon- it in the creditors' favor, though it must be owned that the question was not discussed and apparently was not raised. With the exception of some unsupported statements in the text-writers, the point is, so far as we can find, res integra, and we rest upon the reasons already given.
In addition it seems to us that Stone-ham's position involves a confusion in respect of the limitation of four months in the Bankruptcy Act. That is in no sense the equivalent of an ordinary statute of limitations. Plainly the purpose of so short a limitation was not to protect the bankrupt from stale claims or from the fabrication or loss of evidence. All the acts of bankruptcy except the fifth depend upon transfers of property, voluntary or by operation of law. The law required dispatch of those who would unravel -them, primarily no doubt in the interest of the transferee, though probably also that the transferor might not be subject to a disruption of his affairs after they might have re-established themselves.
In, the ease of dormant partners such considerations do not apply, once the venture has been adjudicated. The persons aggrieved by the unfair discrimination against them have acted; so far as they can, they have brought before the court the whole group, and seek to sequester its assets in the interest of equality. If it in fact include other members and other assets, the limitation of the statute cannot be supposed to defeat the original effort so plainly indicated. Else through an entirely justifiable neglect, the petitioning creditors would be limited to the administration of the assets, not of the group as it was, but of those of another which never had existed as a group at all. Insolvency must then be tried by the factitious test of the sufficiency of the assets of a part of tile group's members to meet the liabilities of all. We cannot see'how in reason one can escape recognizing at least the unity of the firm to this extent, or why the whole proceedings should be conducted in the interest of a fiction, maintained only for the benefit of one who has successfully covered his tracks.
Nor can we find any reason for limiting the period within which a dormant partner may be brought in to four months from the time that his connection becomes known, even supposing such a rule should apply here. For the reasons already given, the purposes of the limitation do not apply, since the transactions, on which the right to sequester the group's property depends, have by hypothesis already been challenged. Again, we say: The question is only of how largo that property really is at the time of the adjudication. It may no doubt be true, though this ease does not require any decision on it, that the creditors can by long enough inaction preclude themselves from seeking and reaching the estate of a dormant partner. That is no more than to say that they may be defeated by general equitable considerations in a court of equity; they are subject to the defense of laehes. But we need not consider that question here, especially in view of the fact that we have before us only a petition to revise, under which we do not review the facts. At just what time it was incumbent upon the creditors to move wo will not say; certainly the finding of the indictment did not absolutely set the time running. Nor, if it did, are we persuaded that a delay of eight months thereafter was fatal to their rights. Stoneham persisted, and indeed still persists, in his denials. The evidence on which the petitioning creditors thought they could safely rely came to their knowledge long after. Moreover, there is no shadow of warrant for saying that Stoneham was prejudiced by their delay. Why, if in fact he has been all along a partner with the rest, he should escape the consequences of his participation in the enterprise, we are unable to conceive.
The final question is whether the existing adjudication should be vacated , as a condition of litigating the ease against Stoneham. We can see no reason for so doing; it may turn out that Stoneham never was a partner, in which case the present adjudication should stand. This new litigation presupposes an alternative situation to that originally presented; only so does it involve the difficulties that we have considered. Until it appears that that alternative is the truth, the original posture of the case should stand. Nor is it true that the claims of the petitioners were merged in the adjudication. An adjudication in bankruptcy creates no debts of record, merges no debts in pa.is, does nothing hut sequester the assets for distribution. The supposed analogies of ordinary judgments are inappropriate.
Order affirmed.