Court Opinion

ID: 6946977
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:26:45.711133+00
Date Added: 2024-06-11T16:07:56.983967
License: Public Domain

The Opinion of the Court was delivered by Treat, J. Chester and Ransom Swallow, were merchants and partners in business under the style of C. & R. Swallow. The partnership was dissolved by mutual consent, Chester Swallow taking all the effects of the firm, and agreeing to discharge all of its liabilities. Subsequently, Chester Swallow borrowred of D. Perrin, $1600, and made his promissory note therefor, with Ransom Swallow and Timothy Ladd as sureties. Chester Swallow died insolvent in July, 1843, leaving this note and many of the partnership debts unpaid. Ladd paid on the note, $865 in July, 1844, and the balance of $934 in March, 1845; the aggregate of which sums was allowed by the Probate Court as a claim against the estate of Chester Swallow, and on which allowance, Ladd received a dividend of eighteen cents to the dollar. Ransom Swallow died insolvent in February, 1845, and Ladd exhibited a claim against his estate for $742, for contribution as co-surety on the Perrin note. The Probate Court allowed the claim, but made an order that it be paid pro rata with the debts due from the late firm of C. & R. Swallow. From this last order, Ladd appealed to the Circuit Court, and that Court affirming the decision of the Probate Justice, he has removed the case into this Court. It is conceded, that at Law, the individual debts of Ransom Swallow, and the partnership debts of C. &. R. Swallow are placed on the same footing, and are to be paid pari passu out of the assets; but it is contended, that in Equity, the rule is different, and the individual creditors are entitled to a priority in payment. The general rule by which Courts of Equity are governed in the administration of the assets of deceased and insolvent partners, seems to be well established. If there is partnership property and the separate property of a partner, the partnership debts are to be paid out of the proceeds of the joint estate, and the individual debts are to be paid out of the proceeds of the separate estate. The joint and individual debts are to be kept distinct, and the assets derived from the two estates are to be marshalled accordingly. The joint creditors have no claim on the fund arising from the separate estate until the individual debts are satisfied; and on the other hand, the separate creditors can only seek payment out of the surplus of the partnership effects after the satisfaction of the joint liabilities. Such is unquestionably the rule in Equity, where there is a joint and a separate estate to be distributed among joint and individual creditors. 1 Story’s Eq. Jur. §. 675; 3 Kent’s Com. 64; Story on Partn. §. 363: Wilder v. Keeler, 3 Paige, 167; McCulloh v. Dashiell, 1 Harris & Gill, 96. It may, however, be necessary to look into the foundation and extent of this equitable rule, and see if it is applicable to the present case. In the case of a partnership, there is a community of interest and responsibility. Each partner has a concurrent title to the whole of the partnership property, and he is individually liable for all\ of the partnership obligations. He has the specific right to (j have the joint property faithfully applied to the payment of the? joint debts; and after the debts are satisfied, he is entitled to li a share of the surplus. These rights and liabilities continue ( in most cases after a dissolution of the partnership. In the case of a dissolution by the death of one of .the partners, the surviving partner succeeds to the management and control of the affairs of the partnership; but the personal representatives of the deceased partner are still responsible for the debts, and entitled to participate in the surplus; and they may coipgel the survivor to make such a disposition of the partnership effects, as will relieve them from responsibility, and- enable them to receive their portion of the surplus. While the partnership is progressing, the joint creditors have strictly no equity against the partnership effects. They have only a cause of action against the partners, on which they may obtain judgment, and then satisfy the judgment out of the joint property, or nut of the private property of the partners. The right in equity of the joint creditors to seek payment out of the partnership effects to the exclusion of the separate creditors of deceased or insolvent partners, results solely from the right of the partners or their representatives, to have the joint estate thus applied. The rule is for the benefit and protection of the partners themselves. The equity of the creditor is of a dependent and subordinate character, and is to be worked out and enforced through the medium of the equities of the partner. 1 Story’s Eq. Jur.§ 676; Story on Partn. §§ 360, 361. The partners may part with their right to have the joint property applied to the payment of the joint demands; and when they do so, the equity of the creditor is at an end. This is done, where one partner sells out his entire interest in the concern to his copartner. In such case, the purchasing partner takes the property fully discharged from the lien of his copartner; and the equity of the creditors being subordinate to the lien of the partners, the property is wholly freed from the claims of the joint ^creditors. What before was joint property, now becomes ^the separate property of one of the partners. There is no longer any joint fund for the payment of the debts, to which the joint creditors may resort through the equities of the partners. On the other hand, the right in equity of the separate creditors to seek payment out of the private estate of the partners, in exclusion of the joint creditors, has its foundation on the ground, that it would be giving the latter an undue advantage to permit them to absorb the joint estate, and then divide the private estate with the separate creditors. It is a doctrine of Equity, that a creditor who has two funds to which he may resort for payment, shall be required to exhaust the one in which he has an exclusive interest, before he goes upon the fund to which another creditor can only resort. In the present case, there are no partnership effects; The assets consist wholly of the private estate of Ransom Swallow. By the terms of the dissolution, the whole of the partnership effects was transferred to Chester Swallow, and thereby became his separate property, fully discharged of the lien of Ransom Swallow. The latter voluntarily parted with his lien, and relied altogether on the obligation of his copartner, to discharge the liabilities of the firm. There was consequently no equity of the partners remaining, through the medium of which, the joint creditors could assert any specific claim against the' property previously belonging to the partnership. The question now arises, does the equitable rule before stated apply to cases like the present, where there is no joint estate? On this subject, Mr. Justice Story says: “Where there is no joint estate, the case may seem to be involved in more nicety and difficulty; since, under such circumstances, the creditors would seem, as their contract is several as well as joint, to be entitled, upon general principles, to claim pari passu with the separate creditors. However, it cannot be positively affirmed, that such is the settled doctrine in Equity, in cases of deceased partners. On the contrary, there seems to be some conflict of opinion upon the point. In bankruptcy, where there is no joint estate, and there is no solvent partner, joint creditors are permitted to prove against the bankrupt’s estate pari passu with the separate creditors.” Story on Partn. § 363. The rule established in the administration of bankrupt estates, may, with equal propriety, ( be adopted in the case of deceased partners. There is no. difference in point of principle between the two cases. If there is no joint fund to which the joint creditors can resort,) and no solvent partner from whom payment can be enforced,; they should be allowed to participate equally with the private creditors, in the estate of the deceased partner. The partner, while living, is individually liable for the joint demands, and upon his death, that liability extends to his personal representatives, and maybe enforced against them. It is now the settled doctrine in Equity that all partnership contracts are to be considered as joint and several; and on this principle, the joint creditors may proceed at Law against the survivor, and in Equity, against the estate of the deceased partner. 1 Story’s Eq. Jur. § 676; Story on Partn. § 362. The joint creditors having the right to charge the estate of the deceased partner, as upon a several contract, and having no joint estate to which he may resort, and no recourse upon a solvent partner, it would seem to be highly inequitable to restrict him to the surplus of the private estate remaining after the satisfaction of the separate creditors. The Circuit Court decided correctly. No opinion is expressed on the question, whether the Probate Court may exercise equitable jurisdiction in ordering the distribution of assets. The judgment of the Circuit Court is affirmed with costs.*  Judgment affirmed.  This case was argued and decided at the December Term, 1846, but the Opinion was not filed until the present term.