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there are both separate and partnership assets, then the individual creditors must first be paid in full before partnership creditors will be allowed to par ticipate in the individual estate: Crooker v. Crooker, 52 Me. 267; 83 Am. Dec. 509; McCulloh v. Dashiell, 1 Har. & G. 96; 18 Am. Dec. 271; Rodgers V. Meranda, 7 Ohio St. 179; Union Nat. Bank v. Bank of Commerce, 94 Ill. 271; Bond v. Navre, 62 Ind. 505; Rainey v. Nance, 54 Ill. 29; Kirby v. Schoon. miker, 3 Barb. Ch. 46; 49 Am. Dec. 160; Egberts v. Wood, 3 Paige, 517; 24 Am. Dec, 236; Ladd v. Griswold, 4 Gilm. 25; 46 Am. Dec. 443; Warren V. Able, 91 Ind. 107; Bake v. Smiley, 84 Ind. 212; Weyer v. Thornburgh, 15 Ind. 124. In the application of this rule, excluding the partnership credito ors from the benefit of the separate estate, it must generally appear that there were also partnership assets, so that in fact there are two classes of funds or property to be applied to the satisfaction of the two different classes of creditors. Under these circumstances, though the partnership funds are of but little value, and the partnership obligations of great extent, the part. Dership creditors will not be allowed to pursue the separate estate of a deceased partner until his individual creditors have first been satisfied, but if, on the other hand, there are no partnership assets, the partnership creditors and the separate creditors of a deceased partner are placed upon an equality, and are entitled to share ratably in his estate: Rodgers v. Meranda, 7 Ohio St. 179; Brock v. Bateman, 25 Ohio St. 609; Pearce v. Cooke, 13 R. I. 184; Grosvenor v. Austin, 6 Ohio, 103; 25 Am. Dec. 743; Harris v. Peabody, 73 Me. 262; Higgins v. Rector, 47 Tex. 361; Emanuel v. Bird, 19 Ala. 596; 54 Am. Dec. 200. In Indiana, however, though there are no partnership assets, the partnership creditors will not be permitted to obtain satisfaction out of the separate estate of a deceased partner until his individual creditors have been paid: Warren v. Farmer, 100 Ind. 593. In some of the states the mere existence of partnership assets does not entirely exclude the partner. ship creditors from redress against the estate of a deceased partner, though the assets of that estate are not sufficient to pay his individual liabilities. Thus, in Virginia and South Carolina, if the partnership creditors have pro. ceeded against and exhausted the partnership assets without obtaining com. plete satisfaction, the balance due from them is treated as though it were the separate obligation of the deceased partner, aud they are permitted to share ratably with his separate creditors in the assets of his estate: Hutzler v. Phillips, 26 S. C. 136; 4 Am. St. Rep. 687; Pettyjohn v. Woodruff, 86 Van 478; Shackelford v. Shackelford, 32 Gratt. 481. In Kentucky, after the partnership creditors have exhausted the partnership estate, the separate creditors are entitled to receive a liko amount irom the estate of a deceased copariner, and, if any thing thereafter remains, the separate and partnership creditors are entitled to a ratable participation therein: Payelle Nat. Bank v. Kenney's Assignee, 79 Ky. 133; Northern Bank v. Keizer, 2 Duvall, 169.
Bankrupts and Insolvents. — The rules of equity have with little or no es. ception been adopted as controlling courts having the administration of the estates of bankrupts and insolvents. Sometimes, as in the case of the late National Bankrupt Law, the equitable rule was expressly made a part of tho statute. Thus section 36 in that law declared: “And, after deducting out of the whole amount received by such assignee the whole of the expenses and disbursements, the net proceeds of the joint stock shall be appropriated to pay the creditors of the copartnership, and the net proceeds of the sep. arate estate of each partner shall be appropriated to pay his separate cred. itors; and, if there shall be any balance of the separate estate of any partner, After the payment of his separate debts, such balance shall be added to the
joint stock for the payment of the joint creditors; and, if there shall be any balance of the joint stock after payment of the joint debts, such balance shall be divided and appropriatel to and among the separate estates of the several partners, according to their respective right and interest therein, and as it would hıve been if the partnership had been dissolved without any Lankruptcy; and the sum so appropriated to the separate estate of each partner shall be applied to the payment of his separate debts.” The equi. table rule that partnership creditors shall be given precedence as to the dis. tribution of the partnership assets, and the individual creditors in the distribution of individual assets, has been applied with great frequency, and, we believe, without dissent in the various courts of the country, state and national: Rainry v. Nance, 54 Ill. 29; Peters v. Bain, 133 U. S. 670; Claflin 1. Behr, 89 Ala. 503; Bates on Partnership, sec. 825; Harris v. Peabody, 73 Dle. 262; Schmidlapp v. Currie, 55 Miss. 597; 30 Am. Rep. 530; Jackson I. Co. v. Pardee, 9 Heisk. 296; In re Knighe, 8 Nat. Bank, Reg. 436; 2 Biss. 518; Amsinck v. Bean, 22 Wall. 401. Courts of bankruptcy, though it has not been maile a part of the statute, have also very generally a lopted the rule that if there is no partnership estate, then the partnership and separate creditors are equally entitled to prove their clains against the separate es. tate of a partner, and to share pari passu in his assets: In re Lloyd, 22 Feil. Rep. SS; United States v. Lewis, 13 Nat. Bauk. Reg. 33; In re West, 39 Feil. Rep. 203; In re Downing, 3 Bank. Reg. 152; 1 Dill. 33; In re Goedde, 6 Ba:k. Reg. 295 Contra, In re Byrne, 1 Bauk. Reg. 122; In re Frear, I Bank. Reg. 201; 35 How. Pr. 219.
Est-ites in Probate.--In the greater portion of the United States, the ad. ministrition and settlement of the estate of a deceased person are committed to probate or surrogate courts, in which persous having claims against such estate must present them for approval or allowance, or must seek to compel the payment thereof by pursuing the remedies desiguated in the statutes coutrolling such courts. As we have already seen, when it was necessary for creditors to resort to a court of equity to obtain satisfaction out of the estate of a decedent, if he had incurred liability, both individually and as a member of a partnership, and left an estate in both capacities, these two classes of creditors were regarded as having special rights in the assets of the business out of which their claims arose. The rule upon this subject is thus stated at pages 64 and 65 of the third voluine of Kent's Commentaries: “ The joint creditors have the primary claim upon the joint fund, in the distribution of the assets of bankrupt or insolvent partners, and the partner. ship debts are to be settled before any division of the funds takes place: Murrill v. Neil, 8 How. 414; Shelld v. Wilson, 1 Wms. 478; Converse v. Mckee, 14 Tex. 20. So far as the partnership property has been acquired by means of partnership debts those debts have, in equity, a priority of claiin to be discharged; and the separate creditors are only entitled in equity to seek payment from the surplus of the joint fund after satisfaction of the joint debts. The equity of the rule, on the other hand, equally requires that the joint creditors should only look to the surplus of the separate es. tates of the partners, after payment of the separate debts. It was a prin. ciple of the Roman law, and it has been acknowledged in the equity jurisprudence of Spain, England, and the United States, that partnership debts must be paid out of the partnership estate, and private and separate debts out of the private and separate estate of the individual partner. If the partnership creditors cannot obtain payment out of the partnership estate, they cannot in equity resort to the private and separate estate, until
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private and separate creditors are satisfied; nor have the creditors of the individual partners any claim upon the partnership property until all the partnership creditors are satisfied: Walker v. Eyth, 25 Pa. St. 216; Morrison v. Kurtz, 15 Ill. 193. The basis of the general rule is, that the funds are to be liable on which the credit was given. In contracts with the partnership the credit is supposed to be given to the firm, but those who deal with an individual member rely on his sufficiency." These rules have been gener. ally accepted as controlling in probate and surrogate courts in the distribu. tion of the assets of a decedent, and, though the statutes of the state may have made a special classification giving priority to particular classes of indebtedness, this classification will not be regarded as intended to abolish or impair the equitable rule hereinbefore stated if the decedent left both individual and partnership obligations: Claflin v. Behr, 89 Ala. 503; Hund. ley v. Turris, 103 Mo. 78; 23 Am. St. Rep. 863; Wilder v. Keeler, 3 Paige 167; 23 Am. Dec. 781; Emanuel v. Bird, 19 Ala. 596; 54 Am. Dec. 200; Charles v. Eshleman, 5 Col. 107; Doggett v. Dill, 108 Ill. 560; 48 Am. Rep. 665; Powlkes v. Bowers, 11 Lea, 144; Irby v. Graham, 46 Miss. 425; Rodgers V. Meranda, 7 Ohio St. 192; Smith v. Mallory, 24 Ala. 628; Bridges v. McCullough, 27 Ala. 661. Those states which have modified the equitablo rule, even when administered by courts of equity, have made a correspond. ing modification in its application to probate and surrogate courts. Thus, in Arkansas and Connecticut, we understand that neither class of creditors is entitled to any preference over the other as against the separate estate of a deceased partner: l'amp v. Grant, 21 Conn. 41; 54 Am. Dec. 321; McLain v. Carson, 4 Ark. 164; 37 Am. Dec. 777; and in South Carolina, as a part. nership creditor is required first to exhaust his remedies against the pai ner. ship assets, he may thereafter be permitted as to the balance remaining due him to share with the individual creditors in the separate estate of the de. ceased copartner: Hutzler v. Phillips, 26 8. C. 136; 4 Am. St. Rep. 687; Wilson v. McConnell, 9 Rich. Eq. 500; Gudsden v. Carson, 9 Rich. Eq. 252; 70 Am. Dec. 207; Blair v. Black, 31 S. C. 346; 17 Am. St. Rep. 30.
The Creditors of a Partnership are Entitled to Maintain Against the Members Thereof every action, suit, or proceeding which might be maintained upon a like cause of action against a single person, or against two or more persons liable jointly, though not as partners. There will, therefore, be no occasion to consider those actions, suits, or proceedings in detail. The rule in case of conflict between partnership and individual creditors has already been stated. The former are entitled to precedence over the latter in the distribution of partnership assets.
Creditors' Liens. There are decisions which speak in general terins of the lien of partnership creditors upon the partnership assets: Tillinghust v, Champlin, 4 R. I. 173; 67 Am. Dec. 510; Sumner v. Hampson, 8 Ohio, 328; 32 Am. Dec. 722; Washburn v. Bank of Bellows Falls, 19 Vt. 278. The term is misleading. They do not have any lien: Level v. Farris, 24 Mo. App. 445; Goldsmith v. Eichold, 94 Ala. 116; 33 Am. St. Rep. 97; Williams v. Gage, 49 Miss. 777; Sigler v. Knox County Bunk, 8 Ohio St. 511; Allen v. Center V. Co., 21 Conn. 130; 54 Am. Dec. 333; Allen v. Grissom, 90 N. C. 90; Sick. man v. Abernathy, 14 Col. 174; nor any absolute right to have the firm assets applied to the payment of their claims. Each of the partners has, in the absence of any contract or other transaction waiving it, the right to have the firm property applied to the payment of the firm obligations, and the creditors of the firın are for many purposes deemned subrogated to this right of the partners, and therefore entitled to insist, in the absence of a waiver of that right by the partners themselves, that the partnership property be applied to the extinction of the partnership obligations before it shall be taken for the payment of the debts of the individual partners, or of either of them.
Preferences in Furor of Partnership Creditors.-In treating of the right of partnership creclitors to pursue the property of the individual partners we have already stated that the rule in chancery, or insolvency, and probate proceedings is that the property of the partnership shall be applied to the discharge of the partnership obligations before the separate creditors of either party can participate therein. Concerning the extent and application of this rule there is no controversy, provided the property of the partnership is in the custody or control of the court, and is not already charged with legal liens interfering with the claims of the partnership creditors: Bass v. Estill, 50 Miss. 300; Chase v. Steel, 9 Cal. 64; Lucas v. Atwood, 2 Stew. 378; Collins v. Butler, 14 Cal. 223; Burpee v. Bunn, 22 Cal. 194; Lord v. Devendorf, 54 Wis. 491; 41 Am. Rep. 59; Estute of Edwarıls, 122 Mo. 426; Level v. Farris, 24 Mo. App. 445; Moody v. Lucier, 62 N. H. 584; Converse v. McKee, 14 Tex. 200; Christian v. Ellis, 1 Gratt. 396; Murrill v. Neill, 8 How. 414. The rule is also applicable to assignments made for the benefit of creditors which do not contain provisions preferring any class of creditors: Hook. er's Assignment, 75 Iowa, 377. The rule is also applicable where, though there is no partnership in fact, parties have represented themselves to be partDers, and have been dealt with as such, and have created obligations bind. ing upon them jointly, and the holders of which believed, and had reason to believe, that the transaction was with a partnership. “Persons who deal with parties representing themselves as partners in a business are entitled to have the property used in that business applied to the payment of their debts in preference to the individual debts of those representing themselves as partners. This rule may operate severely upon the individual creditors, but the contrary rule would operate just as severely upon the partnership creditors”: Van Kleeck v. Hammell, 87 Mich. 599; 24 Am. St. Rep. 182.
The question of the greatest difficulty is whether and when the superior equity which partnership creditors have in the partnership assets can be enforced by them so that such assets may not be taken and appropriated to the satisfaction of other obligations, and be thereby forever lost to them,
As Against Individual Creditors Proceeding by Attachment or Execution, the creditors of a partnership have little to fear. Neither partner has any specific interest in any part of the property of the partnership. His only right is to have a settlement and accounting, and to be awarded his share of the assets after the partnership obligations have been paid. His interest, it is true, is subject to attachment and execution: Reed v. Shepardson, 2 Vt. 120; 19 Am. Dec. 697. “Confessedly, a sale under an execution against one partner does not divest the title to the partnership property. It transfers only such interest as may remain in the judgment debtor upon the settlement and adjustment of the affairs of the partnership": Freeman on Executions, sec. 125.
There is a conflict of decision as to the mode of levying upon the interest of a partner, and as to the effect of a sale under execution. Perhaps the weight of authority favors the view that an officer can take exclusive pos. session of the property levied upon, retaining it until the sale, and deliver it to the purchaser, and that he may hold it as a cotenant with the other partners, who, on their part, must take some measures to reclaim it as part of the partnership assets if necessary to the satisfaction of the partnership
obligations, but the more reasonable rule, and one rapidly gaining ground, is that a purchaser at an execution sale does not acquire a right to the possession of the property purchased, either against or jointly with the mem. bers of the firm, but only an interest in the proceeds after the business of the firm shall have been settled: Freeman on Executions, sec, 125. How. ever this may be, the property still remains answerable for the partnership debts, and a writ of attachment or execution for a partnership debt takes precedence over any previous levies or sales under writs against one mem. ber of the partnership only, and a purchaser under the former writ acquires title paramount to that of a purchaser under the latter writ, irrespective of the dates of the respective levies and sales: Cox v. Russell, 44 Iowa, 556; Switzer v. Smith, 35 Iowa, 269; Williams v. Gage, 49 Miss. 777; Washburn v. Bank of Bellows Falls, 19 Vt. 278; Roop v. Herron, 15 Nel. 73; Watt v. Johnson, 4 Jones, 190; First Nat. Bank v. Brenneisen, 97 Mo. 145; Pierce v. Jackson, 6 Mass. 242; Power's v. Large, 69 Wis, 621; 2 Am. St. Rep. 767; Coover's Appenl, 29 Pa. St. 9; 70 Am. Dec. 149; Conroy v. Woods, 13 Cal. 626; 73 Am. Dec. 605.
The right of the partnership creditors to have the partnership property applied to the satisfaction of the partnership debts is, as we have already remarked, dependent upon the equity of a member of a partnership to have buch application made, and if by any means there is no member of the partnership retaining this equity, then the equity of the partnership creditors which is dependent upon it is lost. This, as we shall hereafter see, is often the result of a sale or disposition of property made as the joint act, or by the inutual consent of all the partners. A like result appears to follow a voluntary transfer of their respective interests. Hence, it has been held that if, under an execution based upon a joint debt of the partners, though it is not a partnership obligation, a sale is made of partnership property, the purchaser acquires an absolute title which cannot be overreached by any proceeding taken in behalf of the partnership creditors. In determining this question the court of appeals of New York said: “Upon the facts of this case it is entirely clear that Tooker and Irwin could have taken their firm property and applied it upon this joint judgment against them; and, inasmuch as they had the power and right to do that, they could have turned it out to the sheriff when he came with the joint execution against them; and, as they could have turned it out upon the debt before judgment, or upon the execution after judgment, there can be no reason to doubt that the sheriff could take and sell it upon the execution free from the claim of their firin creditors. After this sale of the firm property upon a joint judg. ment against both members of the firm ro equity was left in either mem. ber of the firm to have the property thereafter applied in discharge of the firm debts. Having been applied in discharge of the joint debt against both members of the firm all the equities of both members in the property, as against each other, were wiped out; and it is only through the equity which one member of a firm bas in the firm property, or against his coparto ners, that firm creditors, on the principle of subrogation, can enforce their claims against the firm property”: Saunders v. Reilly, 105 N. Y. 12; 59 Am. Rep. 472.
Disposition of Property by Partners.—While the creditors of the partner. ship are protected from the claims of the creditors of a single member in the manner hereinbefore indicated, and while equity will grant such further aid as may be necessary to prevent the partnership assets from being taken in the satisfaction of the debts of any separate member of the partnership.