delivered the opinion of the court:
Carl A. Anderson, and other persons and partnerships and a corporation, the plaintiffs in error, brought separate suits at law in the municipal court of Chicago against Wallace C. Abbott, the defendant in error, and nine other persons, who had been partners in a banking business at Ravenswood, in the city of Chicago, under the name and style of Ravenswood Exchange Bank, to recover alleged balances of claims against said bank above the dividends received in bankruptcy proceedings against the partnership. The defendant in error brought his suit in equity in the circuit court of Cook county to enjoin the prosecution of the suits of the plaintiffs in error and to restrain all other depositors of the bank from bringing and prosecuting suits against him and his partners. The bill alleged that all of the actions already brought, and numerous others threatened, depended upon the same questions of law and fact, and that the sole question of law was Whether the discharge of the partnership in bankruptcy discharged the partners, individually, from the partnership debts. The power of the court of equity was invoked .to avoid a multiplicity of suits and the delay and expense of litigation, by determining the question at issue in a single suit. The circuit court, upon a hearing, decided that the individual partners were discharged by the discharge in bankruptcy and entered a decree accordingly, and the Appellate Court for the First District affirmed the decree. The record is under review in this court in pursuance of a writ of certiorari.
The material facts are as follows: The complainant and nine others were partners under the name and style of Ravenswood Exchange Bank, doing a banking business, and on February 25, 1908, a number of the depositors filed in the district court of the United States for the northern district of Illinois, eastern division, their petition to have the complainant and his partners adjudged bankrupts. All of the partners appeared and were examined, and in the examination it appeared that some of the individual partners, including the complainant, had some pecuniary means and were not insolvent." On March 31, 1908, an order was entered declaring the partners, all of whom were named in the order, “co-partners trading as Ravenswood Exchange Bank,” bankrupt. The partners filed a schedule of the property of the partnership, but did not file any schedule of their individual property and ‘they were not adjudicated bankrupt as individuals. They offered to the creditors of the partnership a composition of the claims by the payment of sevent)',-fiive cénts on the dollar, which was accepted by a majority, in number and amount, of all the claims. The offer of composition contained this provision: “This composition, however, is made upon the following express terms and conditions: That in consideration of said offer of composition and the release of said creditors, and each of them, directly and indirectly, of and from liability for any costs taxable in the proceedings now pending, as aforesaid, in bankruptcy, and the proceedings pending, as aforesaid, in said circuit court of Cook county, and the payment to said creditors, and each of them, of the moneys due them under said composition when confirmed by said United States district court, said creditors, and each of them, do expressly accept said composition-payment in full satisfaction and discharge of any and all claims and demands of said creditors, and each and every one of them, in anywise or manner arising or accruing to them, and each of them, out of their respective claims against said Ravenswood Exchange Bank or against any of its past or present members, stockholders, shareholders, officers and directors.” The defendant Carl A. Anderson and the other defendants, as creditors of the partnership, filed objections to the offer of composition, among which were the following :
“Third—The court has no jurisdiction of any of the past and present members, stockholders, shareholders, officers and directors of said bankrupt, and is therefore without power to confirm the acceptance of the offer as 'made.
“Fourth—The court has at this time no jurisdiction over the assets of the individual partners, as such, against which the creditors of the bankrupt concern have a legal right to pursue their remedy for any deficiency after a discharge in bankruptcy, either by composition or otherwise, and therefore the court is without power to compel a release of such assets from judgment and execution as conditioned in the offer of composition.
“Fifth—The court has no jurisdiction over the subject matter of the offer of composition as made, in this: That no one of the partners in his individual estate has been adjudicated a bankrupt, nor has any petition for such adjudication been filed in this or any other court. Such individual estates not, therefore, being bankrupt estates, this court, as a court in bankruptcy, has no jurisdiction over such solvent estates, and therefore no power to confirm the acceptance of the offer of composition.”
The offer of composition, with the objections thereto, was referred to a referee and special master, who reported, as matter of law, that in his opinion adjudication of the firm as bankrupt did not draw after it an adjudication in bankruptcy of the partners; that a court of bankruptcy had no jurisdiction to summarily undertake and administer the individual estates of the solvent partners without their consent, and that creditors of a bankrupt partnership have a right to resort to suits to enforce against the individual members the collection of deficiencies owing them after the partnership- estate has been exhausted. From this view of the law he recommended that the offer of composition should be denied unless the bankrupt partnership elected, within a reasonable time, to strike out from its offer the proviso in question. The district court approved the report, and on motion of the bankrupt partnership gave leave to modify the offer by striking out the provision in question. The offer was modified accordingly, and the referee, after a hearing as to the facts, again made a report to the court, referring to his former report, the modification of the offer and the withdrawal of objections, and recommended that the acceptance by the creditors of the offer of composition be approved and confirmed. On June io, 1908, the district court entered an order confirming the composition, and all of the creditors were paid the full amount of seventy-five cents on the dollar of their respective claims, pursuant to the terms of the composition.
The opinion of the referee as to the law, which was adopted by the district court, was derived from a decision of the circuit court of appeals in the case of In re Bertenshaw, 157 Fed. Rep. 363, (13 Ann. Cas. 986,) in which a trustee of three persons doing business as a firm, and who had been adjudged bankrupts, filed a petition, after the partnership property had been applied in partial payment of the claims, for an order upon one of the partners to turn oyer to him real estate owned by the partner individually. The referee found against the petition and the bankruptcy court confirmed the ruling. The circuit court of appeals held that a partnership is a distinct entity separate from the partners who compose it, and that it may be adjudged bankrupt although the partners who compose it are not so adjudicated; that where no partner is adjudged bankrupt the trustee has no power to enforce claims against1 any property except partnership property, and that partnership creditors may pursue partners who have not been adjudged bankrupt by action at law and suits in equity, and the discharge of the partnership where the partners are not adjudicated bankrupt does not discharge the partners from their liability for partnership debts. It appears from the first report of the referee that the decision in the Bertenshaw case was understood by all parties to be the law.- Afterward the Supreme Court of the United States, in the case of Francis v. McNeal,
The theory that a partnership is a legal entity distinct from and independent of the persons composing it has never been recognized in the law of this State. Even the marshaling of assets so as to apply the assets of the firm to the payment of firm debts and the individual assets to the payment of individual debts of the several partners is not recognized or enforced in a court of law but is a rule of equity, founded on the equities of creditors. (Meadowcroft v. People,
The defendants withdrew their objections to the composition upon the proviso being stricken out, and when it had been stricken out there was nothing to which the objections could apply. The objections were not withdrawn upon the faith of any agreement that the partners should remain individually liable for any deficiency or upon any agreement that the law was as understood by the referee and the court, and the only effect of striking out the proviso was to leave the composition to have its legal effect without any agreement on the subject. We do not find any ground of estoppel against the complainant. The examination of the partners had shown that some of them were solvent and their individual assets might have been drawn into the administration, but the creditors preferred to accept the offer of composition merely from a mistaken view of the law.
The judgment of the Appellate Court is affirmed.
Judgment affirmed.