Court Opinion

ID: 5550440
Source: CourtListenerOpinion
Date Created: 2022-01-10 21:33:54.248907+00
Date Added: 2024-06-11T08:35:04.215271
License: Public Domain

The Chancellor.
The question in this case, between the plaintiff and the assignees of his bankrupt partner, relates to the control and distribution of the partnership fund. The plaintiff, in a particular manner, claims the balance reported to be due from the estate of John I. Clark, deceased, to the house of Robert Murray & Co,, and insists that he is entitled, in preference to the assignees, to distribute that balance, and to disregard the settlement which was made by those assignees with the executor of Clark.
The defendant John B. Murray, and John I. Clark, were trustees to a large amount, under assignments from the house of Bobert Murray & Co., and though the bill seeks to call both those trustees to account, and to claim the balance due from each of them, yet the plaintiff’s counsel, upon the argument, did not seem to press, very seriously, his claim against John B. Murray, who had already accounted and settled with the assignees. The account of J. B. Murray, was taken and stated with the assent of the plaintiff; and we will first examine whether the plaintiff be not now concluded in respect to his claim against J. B. Murray. *681. The earliest commission of bankruptcy was taken out against Robert Murray, and his property was assigned under the bankrupt act, on the 2d of July, 1801; and on the 8th of September, 1801, the present defendants, Riggs, Ward and M‘Evers, as his assigness, filed their bill to call Clark and J. B. Murray to account for the partnership pro'perty, and all the partners of the house of Robert Murray Co., including the present plaintiff, were made parties to the bill. The bill prayed that those two trustees might be decreed to pay over to them the partnership effects in their hands, in order that they might pay the parnership debts. The partnership debts were alleged to amount to upwards of 700,000 dollars, and the private property of Robert Murray, exclusive of his share in the partnership property, was stated to be very inconsiderable.
To this bill a demurrer was filed by the present plaintiff, on the ground that the funds of the house of Robert Murray 4r Co., held by7 J. B. Murray and Clark, ought not to be paid to the assignees.
This demurrer was filed on the 5th of March, 1805, and it raised the very question now under discussion in this suit. It was overruled, on the 9th of April, 1807, and the present plaintiff ordered to answer. We find, that after-wards, on the 16th of October, 1812, when the cause came on to be heard, that a rule was entered by consent of the assignees, and of the defendant John B. Murray, and of the present plaintiff by his solicitor, directing a reference to a master, to take an account of the moneys received and paid by the defendant John B. Murray, under the said trust. An account was taken in pursuance of this reference, and finally settled with the assignees.
After the demurrrer was put in and overruled, and after the assent,to a reference, in respect to J. B. Murray, in the suit brought by the assignees, and after a decision in that ease in favour of the right of the assignees to the balance *69finally liquidated against J. B» Murray, the present plaintiff is legally and justly concluded from questioning the validity of the accounting between J. B. Murray, and the assignees. He cannot, in this collateral suit, disturb that settlement, for lie consented to the account being taken in that suit, and, of course, under the claim, and at the instance of the assignees of Robert Murray ; and he made no further opposition to the proceedings in the cause, down to its final termination. And though in the decree in September, J8:7, confirming the master’s report, and awarding to the assignees the nett sum received by John B. Murray, as a trustee, the right of the present plaintiff to question the appropriation of that sum to the assignees was reserved, at the instance of his counsel; yet that reservation gave him no new right, and he had alreadj' parted with his right to question the claim of the assignees to that fund, by his unqualified assent to the account being taken. The decree was that the defendant, John B. Murray. account with the assignees for the sum adjudged to be due from him; and a settlement afterwards between him and the assignees was clearly binding upon the present plaintiff. There would be no certainty or safety to parties, and no end to litigation, if one of the defendants, after hearing his demurrer overruled, and after giving his assent to a reference to take the account in the cause, could withdraw himself from the further assertion of his claim, and suffer the suit to terminate, and then be permitted to reassert the same claim in a collateral action. A decree can never be impeached by an original bill, or in another suit.
2. The plaintiff’s claim against the executors of Clark is not resisted upon the same ground; for here the plaintiff was no party to any of the rules or orders, under which the suit of the assignees against the executors, in respect to the partnership moneys, chargeable upon the estate of Clark, was finally and amicably settled. And here the general question occurs, whether the assignees^of the bankrupt partners had *70not competent power to receive partnership funds, and discharge partnership debtors, even without the assent of the remaining solvent partner. If this point should be decided in the affirmative, it would equally protect the defendant, J. B. Murray, in his settlement with the assignees, without having recourse to the plaintiff’s assent, or the decision in the other suit.
The assignees of a bankrupt partner, under a separate commission, are te» nants in common with the solventpartner, and one cannot call the joint property out of the hands ot the other.
The solvent partner, and the assignees of the bankrupt, must all join in a suit at law,
The solvent partner is entitled, as against the other, to no more than his share of the surplus, after the partnership debts are paid.
It is admitted, in all the cases, that the assignees of a bankrupt partner, and the remaining solvent partner, are tenants in common in respect to the partnership funds ; and, like all tenants in common, one party cannot call the joint property out of the hands of the other. There is no such case. They are entitled equally to the possession in law. This was expressly held in Smith v. Stokes. (1 East, 363.) Trover will not lie for one against the other. It has, also, been held, that the solvent partner and the assignees of the bankrupt cannot sue alone, and that they must unite in actions at law. (Ashhurst, J. in Graham v. Robertson, 2 Term, 282. Eckhardt v. Wilson, 8 Term, 140.) What right, then, has the solvent partner to come into this Court, to call the entire joint funds out of the possession of the assignees, who are his co-tenants in common, and as such, have an equal control over the joint fund ? There is no case giving to either party the absolute, exclusive possession and distribution of the entire effects. Neither party is strictly entitled, as against the other, to any thing more than his share of the surplus, after the partnership debts are paid. (Field v. Taylor, 4 Vesey, 396.)
In this case, there is no justice or equity in the pretension of the plaintiff. He admits that the partnership debts greatly exceed the partnership funds, and that there cannot be any surplus coming to either party. His sole object then is, to have the partnership funds, which have been or. may be under the control of the assignees, pass into his hands, for distribution, instead of having them distributed by the assignees; and he denies all right in the assignees to touch or distribute *71any of the partnership funds, and wishes to vacate all that they have done. But it appears that a great majority in interest of the joint creditors, and who have partnership debts due them to nearly 500,000 dollars, have come in and proved their debts under the separate commission in the case of Robert Murray. These include almost all the debts, except such as were provided for under the assignments to J. B. Murray and Clark. It also appears that the assignees, after having by suit obtained a liquidation of the balance due from the estate of Clark, and bestowed great care and efforts towards the recovery and security of that debt, settled it upon terms which they deemed prudent and just, under all the circumstances. This settlement and consequent discharge of the estate of Clark was in February, 1810; and in October following, due public notice having been given to the creditors, several of them appeared before the Commissioners of Bankrupts, and ratified that settlement. If there was any thing wrong in the settlement, it was for the creditors to disturb it, and it would be most unreasonable to permit the plaintiff to set aside all that had been done by the assignees under such a sanction from the creditors, merely for the purpose of making his own distribution. There is no charge of misconduct in the assignees. The whole bill is a denial of their competency to act, though every case on the subject admits that assignees of a bankrupt partner are tenants in common with the solvent partner. If the pretensions of either party to an exclusive distribution of the partnership funds, were to be examined upon principles of policy and equity, the assignees would have the better pretension, in the view of this Court, because the solvent partner has it in his power to give preferences, and defeat the equality and equity of the bankrupt system. Assignees, on the other hand, are bound to make a rateable distribution of the assets ; and, being trustees under the control of this Court, there is no good reason why their equal rights at law, as *72tenants in cotómbh, should surfer diminution here. They are tenants in comniori, but with particular equities in them, as Lord' Eldon observed', “ vastly beyond what tenants in common have where no bankruptcy lias occurredand their claim to the distribution of the partnership fund has-been encouraged and'strengthened by the decisions in Chancery. This will appear by a review of some of the ldading" Chancery cases.
It was well established in the time of Lord Hardwicke,that joint creditors could come in and prove their debts, urider a separate commission of bankruptcy, against one partner, for the purpose of assenting to, or dissenting froiri, the’ certificate of discharge to the bankrupt. They were not allowed to come in and prove, for the purpose of receiving dividends with the separate creditors; and they were put to the necessity of filing a bill, and bringing before the Court the assignees of the bankrupt and the solvent partners, and having the account of the joint estate taken in their presence. The principle was, that the joint creditors had a preferable claim upon the joint effects, and the separate creditors upon the separate estate and, therefore, the joint creditors could not come in upon the separate estate, until all the separate creditors were paid; and this was upon a plain rule of equity, that he who has two funds to resort to, shall not satisfy bis debt out of that one of them to which another creditor can only resort, until he has exhausted the other fund.
This more ancient doctrine recognized, of course, the equal right of the assignees to the distribution of the joint fund, and the right of the joint creditors to come in under the cover of the separate commission. It only interfered with the application of the joint fund, by marshalling the joint and separate assets equitably between the joint and separate creditors. Indeed, the right of a joint creditor to come in and prove his debt and take his dividend, under a separate commission) is a clear legal right; for a joint creditor is still *73a creditor of the bankrupt, and all the control that equity exercises over this right, is merely to marshal the funds upon equitable principles.
There is nothing, even upon the ancient doctrine in Chancery, that gives to the solvent partner any paramount rights over his co-tenants, the assignees, and, especially, a right to annul their acts, and call them to an account for all the joint funds in their possession.
It was determined, in the case ex parte Crisp, (1 Atk. 133. Willes’ Rep. 67. S. C.) both by Lord Hardwicke and by the Court of K. B., that a separate commission of bankruptcy might issue against one partner for a joint debt, upon the petition of a joint creditor. And the Ch. J. of the Common Pleas, in giving the opinion of the Court, said, that under a separate commission against one partner, the bankrupt’s share of the partnership effects might be taken and sold, making satisfaction for the partnership debts, if joint creditors elected to come in under the separate commission, “ as they generally have.” The certificate, under the separate commission, was a discharge from the partnership, as well as the separate debts, because the partnership creditors might come in and prove their debts.
This decision considered a commission as an execution, and not as an action; but Lord Eldon, in ex parte Brown and ex parte Munton, (1 Ves. & Bea. 60.) admitted there was a difficulty in considering a commission of bankruptcy as an execution, in a strict sense; and that there was a difficulty also in respect to the other partners, in allowing a separate commission to issue upon a joint debt.
Lord Thurlow, after much consideration and consultation with the judges, adopted a different course on this subject, and allowed the joint creditors not only to come in under a separate commission and prove their debts, but as a matter of right, to take dividends upon the separate estate ¿ and *74he held a commission of bankruptcy to be an execution fop all the creditors.
The rule m England) mcases of the bankruptcy of joint t^be^'that joint creditors may prove their sepavatendcoim paratecredftors commission “but counts are kept separatent aesd joint’ estatedis pay “rhe'1 part”ndhtL ropathe6 “separate “heutpius3“of the creditors re-other.11” °n the
Lord Loughborough again departed from the rule adopted by Lord Thurlow, and restored the principle, though not the entire practice of Lord Hcirdwicke. He directed the as-1 signees under a separate commission, to take an account of ° r ' ^ie j°int estate, and applying that to the discharge of the ;Qjnt creditors, to ascertain the shares of the residue belong-o 3 Q t0 l*le bankrupt and to the solvent partners. He adopt-e(^ 1-^e reasonable practice of marshalling the dividends, and compelling the joint creditor to exhaust the joint fund, before exercised his legal righi of proving his debt, and taking ^"ls dividends out of the separate fund. The case ex parte Elton, (3 Fesey,'238.) contains, at large, the able discussion, lucid principles of Lord Loughborough. He allowed the partnership creditor to prove his debt under the separate commission, and that his dividend should be set apart, and allotted to him out of the separate fund, but not paid until an account had been previously taken of the joint fund, and it had been ascertained how far his debt could be satisfied out of it. He said, that the joint creditor ought to be admitted to prove his debt under a separate commission, for the purpose of assenting to, or dissenting from, the certificate, and for receiving such surplus, beyond the amount of the separate debts, as joint creditors would be entitled to, if there were two commissions. The Court ought not to allow a joint creditor, who has two funds, to attach himself upon one fund, to the prejudice of those who have no other, and to neglect the other fund. A separate creditor cannot take a dividend upon the joint estate, rateable with the joint creditors, for at law he can only attach the interest of his debt- or in that property. It is a settled rule in equity, that the joint estaté was to be first applied to partnership debts, and the separate estate to the separate debts; and if the joint creditor was admitted, by an order in bankruptcy, to receive a *75dividend from the separate estate, the order, as he observed, would carry a chancery suit in the bosom of it. The assignees would be compelled to file a bill on behalf of the separate creditors, in order to restrain the dividend, and compel a contribution from the other parties, and to make them discover and apply the partnership fund, in order to throw the joint creditors upon it, and prevent the separate estate from being exhausted. The plain rule of distribution is, that each estate shall bear its own debts, and the usual directions in bankruptcy are to apply the funds distributively, the joint estate to the joint debts, the separate estate to the separate debts, and the surplus of each to come in reciprocally to the creditors remaining upon the other. The Lord Chancellor, accordingly, in that case, and in" pursuance of this reasoning, admitted the joint creditor to prove, but not to receive, a dividend. He directed that to be reserved, until an account should be taken of what the joint creditors might receive from the partnership effects.
The same rule and practice were followed in ex parte Abell. (4 Vesey, 837.) The joint creditors were not allowed to take a dividend under the separate commission, until the separate creditors were paid.
Lord Eldon pursued the rule and practice of his immediate predecessor, Lord Loughborough, without presuming to say which was the best rule, that or the one of Lord Thurloto. In the case ex parte Clay (6 Vesey, 813.) and in two cases cited in a note to that case, Lord Eldon admitted the joint creditor to prove, for the purpose of keeping separate accounts, and assenting to, or dissenting from, the certificate, but not to receive dividends, in the first instance, with the separate creditors. In ex parte Chandler, (9 Vesey, 35.) a separate commission was sued out on the petition of a joint creditor, and the first creditors were permitted to prove, for the purpose of voting for assignees and taking dividends, provided they would pay the separate creditors.
The doctrine, afterwards, laid down in Barker v. Goodair, (11 Vesey, 78.) is quite decisive upon the question in this *76case, because, it not only, like every case on the subject, ad-m^ts ^le e(lua^ r*ght of the assignees or tenants in common, to the joint fund, but it gives to the assignees higher equities than belong to ordinary tenants in common. Being exposed to the claims of the joint and separate creditors, they have an equity which the solvent partner has not; that is, to compel a contribution from the joint fund. Sir S. Romilly, in that case, observed, arguendo, that the assignees, as against the solvent partner, had a lien upon the whole property, until all the accounts were wound up, notwithstanding the tenancy in common. The Lord Chancellor said, that they had equities beyond what mere tenants in common had, and in the absence of the solvent partner, they could take the joint property, and pay all the joint creditors equally, and apply the surplus under ali the equities subsisting between the partners. This, be said, was done every day. Lord Kenyon, in Smith v. Stokes, (1 East, 369.) had already stated another case, in which the assignees of a bankrupt partner were to take the whole property and sell it, and account to the solvent partner for his share. This was where the property was left in the possession of the bankrupt partner at the time of his bankruptcy.
In England, the assignees under a separate commission of bankrupt, can distribute the whole partnership fund ; for after a separate commission a joint commission cannot issue, and vice versa. And where both aiv . aui (i, one or the other is superseded, as ■may best answer the ends of justice.
The rule which Lord Eldon declared to be settled in ex parte Martin, (15 Vesey, 114.) and ex parte Crew, (16 Vesey, 236. ; and see 475, 476) goes strongly to show, that assignees under a separate commission can now distribute the whole partnership fund, for after a separate commission, a joint commission cannot issue; nor, on the other hand, can a separate commission issue after a joint commission. Joint and separate commissions cannot stand together, as theyx were permitted to do in the time of Lord Hardwicke. Now, by arrangement, one or the other is superseded, as may best answer the ends of justice. If the separate commission first issued, or by the arrangement, was permitted to stand, even if there was a joint commission, it would seem necessarily *77to follow, that it must draw to it the distribution of the whole joint fund, after it had been marshalled upon the principles prevailing in equity.
It is said, again, in the case ex parte Taitt, (16 Vesey, 193.) that Lord Loughborough repeatedly made the order which Lord Eldon has followed, that the account of the joint estate should be taken under the separate commission, and that the assignees should keep distinct accounts, and distribute the joint estate among the joint creditors, and the separate estate among the separate creditors^ But the difficulty was, that the account was taken in the absence of the other parties, and though Lord Eldon continued to follow the practice, established by Lord Loughborough, yet he was evidently not satisfied with it; and I should rather apprehend he preferred the rule of Lord Thurlom, allowing the joint creditors to come in fully and take their rateable dividends, and leave it to the assignees to bring the solvent partner into Chancery, and have the account of the joint estate taken in his presence, and contribution decreed. He observed, afterwards, in Dutton v. Morrison, (17 Vesey 191. and see also ex parte Carlson, 18 Vesey 439.) that he had continued to follow the practice of his predecessor, and under a separate commission, where the other partners were solvent, he had directed an account of the joint estate to be taken, in the absence even of the other partners ; and upon the application of any one joint creditor, the order was, that the joint creditors were to be paid pari passu, out of‘the joint estate, and the residue to be distributed according to the respective interests of the partners. They were likewise entitled to their rateable proportions, (if requisite to satisfy their debts,) of the surplus of the separate estate.
Upon this review of the cases, I am not able to perceive any colourable reason for the pretension set up by the plaintiff, to the exclusive distribution of the partnership funds. There would be much more ground, upon the established doctrines of equity, for an exclusive right of distri*78bution on the part of the assignees, since under their commission, the Court is in the practice of directing an account of the joint estate to be taken, and a distribution of that estate rateably among the joint creditors. The most that can be said is, that the solvent partner, upon the dissolution of the partnership by bankruptcy, being a tenant in common, may retain and distribute the funds in his possession, and may, as was held in Fox v. Hanbury, (Cowp. 445.) sell those partnership effects, for a valuable consideration and without fraud. They cannot be called out of his possession by his co tenants, the assignees, unless under the direction of this Court, on a bill filed by them for contribution, or, perhaps, where an account of the joint fund is directed to be taken in bankruptcy. But on the other hand, there is no foundation in law or equity, for the solvent partner to call to account, either the partnership debtors who have bona fide settled with the assignees, or the assignees themselves, for the funds in their possession. They hold those funds by an equal title in law, with him, as tenants in common, and by a superior equitable title, as trustees, charged with the payment of both the joint and separate debts.
Decree.
I shall accordingly declare, that the plaintiff has no right or title in law or equity, to call the assignees to account for the partnership funds, which have been or are now in their possession as such assignees, in order to obtain, by decree, the possession of those funds for distribution among the creditors of Robert Murray Sr Co., inasmuch, as those assignees have an equal right and title in law, as tenants in common with the plaintiff and a better right in equity to the possession of those funds for the same purpose of distribution. And further, that the plaintiff has no right to annul or set aside the settlements made by the defendant John B. Murray, as one of the debtors to the house of Robert Murray & Co., with the said assignees, and by the defendants Oliver Kane and Ephraim Bowen, jun., as ex*79ecutors of John Innis Clark deceased, also, one of the debtors to the house of Robert Murray Co., with the said assignees, in order to obtain possession of what was due from those debtors respectively, for the purpose of distribution, inasmuch as those assignees had competent power to make those settlements, and to obtain possession of what was due and coming upon those settlements, for the like purpose of distribution. And I shall direct the original bill, and bill of revivor and supplement, to be dismissed, but without costs, considering the special circumstances of the case, and the importance of the points investigated and discussed.
Decree accordingly.