Camp v. Grant

| Conn. | Jun 15, 1851

Ellsworth, J.

We think the decree of the court of probate appealed from, is correct and should not be reversed.

The facts which are agreed and recited by counsel, need not be particularly recapitulated. It appears, that Zelotes G. Grant, in the settlement of whose estate the question arises, was, at the time of his death, in November, 1846, in partnership with his brother, C. S. Grant, under the name of Z. C. & C. S. Grant; and that C. S. Grant survived his brother but a short time: that he was likewise in partnership with one Jerome, under the name of Jerome & Grant; and that Jerome still survives: that Z. C. Grant owed, at the time of his death, some 10,000 dollars of private debts; the company of Z. C. & C. S. Grant, some 2,500 dollars; and Jerome & Grant, some 350 dollars; that Z, C. Grant's estate was represented insolvent, commissioners were appointed, and they gave notice, according to law, for the presentation of claims: that upon examination, they found due, and reported to the court of probate, certain private debts against Z. C. Grant, and partnership debts against Z. C. & C. S. Grant, of 2,229 dollars, 44 cents, and against Jerome & Grant 344 dollars, 16 cents: that the judge of probate ordered the assets of Z. C. Grant (being sufficient to pay only 65 cents and 3 mills on the dollar) to be distributed, pro rata, among the private and partnership creditors. The appellant, a private creditor of Z. C. Grant, complains of this decree of the court of probate, for the reason that company creditors are allowed to come in pari passu with the private creditors of Z. C. Grant. He makes this important question to us—Whether, according to law, the estate of a deceased partner is liable to be called upon to pay the debts of the partnership, while there is a surviving partner, who is not shown to be insolvent. We think this question does not necessarily arise in this case, as to the debts due from Z. C. & C. S. Grant, as will be particularly stated in the sequel, but only as to the debts due from Jerome & Grant. So far, perhaps, the objection urged by the appellant will lie; and therefore, it becomes necessary for the court, in order to meet the whole case, to examine and decide the general question. This we are more willing to do, because the question is one of great practical importance and of frequent occurrence, much discussed and variously decided elsewhere, but has not received adjudication in our courts.

The estate of Z. C. Grant having been represented insolvent, commissioners appointed and notice given to bring in claims, it was necessary, that within the time appointed by the court, which can never exceed eighteen months, every claim upon the estate should, if ever, be presented to the commissioners for an allowance; and any claim not so presented, can never afterwards be paid, except only out of some newly discovered estate. The door is, therefore, absolutely closed against any and all claimants. All the estate in the executors’ hands, is, by order of the court, distributed among the creditors, as soon after the expiration of the time limited and the return of the commissioners’ report, as is found consistent and practicable.

It is then of vital importance to settle correctly what is intended by the word “claims” in the fifty-fifth section of the statute regulating the settlement of estates. This section provides, that the creditors shall exhibit their claims to the commissioners for allowance; and then the sixty-first section declares, that the payment of claims presented and allowed against the estate, shall, after deducting the expenses of the last sickness and the funeral expenses, the taxes, and debts due the state, besides what is set to the widow, be paid, in proportion to their respective amounts.

We think a debt due from a company or partnership, though a member of the partnership is surviving, is a debt or claim against the estate of the deceased partner, which may be presented to, and be allowed by, the commissioners; because, first, it is within the fair and just construction of the language and the object of the statute; secondly, because a partnership debt is several as well as joint; and thirdly, as to most of the debts in question, it is proved there are no means for payment, but the assets of Z. C. Grant.

First, then, as to the statute. The intention of the legislature, as the statute shows, is to have an insolvent estate fully and finally settled and the avails apportioned among the creditors, at an early day; and that no creditor shall participate in these avails, who did not present his claim within the time allowed. What now, we ask, shall a creditor having a claim against the partnership do with it, in order to secure its payment? Is he driven to commence a suit, at once, against the surviving partner, because he is, or may be, supposed to be solvent? And if he is in fact solvent, he may, before judgment is obtained against him, become insolvent: so he may abscond from the country, or he may have no property that can be taken in execution, and in the mean time, the limitation of presenting claims against the estate of the deceased partner takes effect, and the creditor becomes hopelessly remediless. The surviving partner, too, has a deep interest in the presentation of claims to the commissioners. How else will he be safe, if the partnership shall, in the end, turn out to be indebted to him? He, no more than these creditors of the partnership, can come in afterwards for a share of the estate. Why then is not this a claim and a debt, within the proper meaning and necessities of the statute? Claims much more uncertain and contingent, if indeed there be here any uncertainty, are presented and allowed by commissioners, every day; and this must be so, or they would be entirely lost. Among the claims reported by these very commissioners, is an indorsement of a note for 2,248 dollars, 86 cents, which was contingent, when reported, but became certain, afterwards. The company had indorsed a note which was not then due, but it was afterwards dishonoured by the maker, and the indorsers were compelled to take it up. Thus they obtained payment of their debt in the same proportion with others, which would not have been done, had they not presented the indorsement to the commissioners within the time allowed by law. In the case on trial, the claim was presented and allowed in the same way as contingently just and true. When, we enquire, did this debt cease to be a claim against both and each of the original debtors? It was so, before the death of Z. C. Grant. Did his death extinguish the debt, or discharge his estate? His death might extinguish the legal remedy on the joint undertaking; but how could it affect the claim, the real indebtedness itself? Is not the debt due from both debtors as before? It may be true, that a certain specific remedy is gone, and that, as betwen the partners, the surviving partner owes the whole debt, and must, in the end, pay it. But what has the creditor to do with this question? It may be so, and it may not be so. Besides, credit may have been given wholly to Z. C. Grant. His estate is his representative; and as he was himself liable, his estate ought to continue to be so. Certain it is, the debt could have been collected out of his separate estate, while in life. Why not, then, after his death? Nothing but a form lies in the way; and this cannot be urged against a simple presentation to commissioners.

In the states of Massachusetts and Mississippi, where there are statutes similar to our own, their courts have taken a similar view of this subject with ourselves. They place their decisions, as we do, upon the language and intent of their statutes; and they cut loose from the conflicting decisions and unsatisfactory distinctions, which are to be found in the English books. Sparhawk v. Russell, 10 Metc. 305. 307. 7 Smedes & Marsh. 280.

We come to the second reason already mentioned, to wit, partnership debts are several, as well as joint. We do not say, that this is true of all joint liabilities, such for instance, as the liability of a principal and his surety; but it is true of partnership debts, and of all debts where the persons indebted were the original debtors, all of them recipients of the consideration received. This will appear to be the good sense and reason of the thing, if we will, for a moment, lay aside the difficulties which arise from looking at the established forms of redress in courts of law and equity, and which will be particularly noticed in the sequel.

If two or more persons borrow money, or take up goods, on credit and their joint undertaking, does not each one owe the lender of the money, or the vendor of the goods, the whole sum due? And as much so, as if he had acted alone, in the transaction? While the debtors were living, could not the creditor levy his execution upon the property of either one of them? And so, if one is discharged by bankruptcy, does not the other remain liable as before? Even if one of the debtors be sued alone, he can only object in abatement of the action, which goes simply to the form of the suit, and not to the indebtedness itself. If he does not object in abatement, the proof of a joint debt is proof of his individual indebtedness to the whole amount. And so now, by statute, when the declaration sets out a joint indebtedness, proof of the indebtedness of one is sufficient to subject him, without the other. Now, none of this would be proper or just, if a partnership debt is not considered to be several, as well as joint; if each did not owe the whole, as if he were alone.

The reason they cannot be sued severally, as well as jointly, where the security is only in form joint, is, that as both debtors were at first liable jointly, the form of the judgment, which either may have to pay, shall continue to shew the same joint indebtedness. And this is because the joint debtors are particularly interested in the mode and form of legal proceedings in the case; and because one suit at law ought to determine, finally, and among all concerned, every mere joint liability and controversy. So we understand are the authorities. Story, in his Eq. Jur. vol. 1. sec. 162, 3. says: “It seems now well established, as a general principle, that every contract for a joint loan is, in equity, to be deemed, as to the parties borrowing, a joint and several contract, whether the transaction be of a mercantile character, or not; for in every such case, it may fairly be presumed to be the intention of the parties, that the creditor should have the several, as well as the joint, security of all the borrowers for the repayment of the debt.” And he further says, “ the creditors may at once proceed against the assets of a deceased joint debtor, though there be a surviving debtor, just as if the form of the security had been joint and several.” Sir John Leach, master of the rolls, said, in Wilkinson v. Henderson, 1 Myl. & Keene, 582-3: “All the authorities establish, that in the consideration of a court of equity, a partnership debt is several, as well as joint.” Story, in his late treatise on Partnership, § 362. says, the doctrine formerly held on this subject, seems to have been, that the joint creditors had no claim whatever in equity against the estate of the deceased partner, except when the surviving partners were, at the time, or subsequently became, insolvent or bankrupt. But that doctrine has since been overturned, and it is now held, that in equity all partnership debts are to be deemed joint and several. Sir William Grant, in Devaynes v. Nobles, 1 Meriv. 529. 564. says: “I apprehend, by the general merchantile law, a partnership contract is several, as well as joint.” Mr. Collyer, in his treatise on Partnership, p. 580, says: “It is now established beyond controversy, that in the consideration of courts of equity, a partnership debt is several, as well as joint.” The same is held by Chancellor Kent, in Hamersley v. Lambert, 2 Johns. Ch. R. 511. Like views are expressed in many cases, and in some, are authoritatively decided. Sumner v. Powell, 2 Russ. & Mylne, 495. 2 Meriv. 37. Devaynes v. Nobles, 1 Meriv. 589. Collyer on Part. b. 3. c. 3. § 4. Wilkinson v. Henderson, 1 Mylne & Keene, 582. Throop v. Jackson, 2 Younge & Coll. 553. Gow, 358, 9. 3 Kent’s Com. 64. (4th ed.) Hamersley v. Lambert, 2 Johns. Ch. R. 508. Belknap v. Abbot, 11 Ohio R. 411.

The remaining reason for sustaining the decree, to the extent of the 2,229 dollars, 44 cents, due from Z. C. & C. S. Grant, is, that the surviving partner became insolvent, and there was no company property remaining to pay the debt.

The facts are these. C. S. Grant, the surviving partner, died, soon after his brother, Z. C. Grant, but some time before the decree complained of, was made. C. S. Grant was, individually, insolvent at, and so continued to be after, the death of his brother, until his own death, having no property whatever, except for a short time, after his brother’s death, and partnership property, to the amount of 700 dollars, which was under an attachment by Bennett, Buckley & Clark, creditors of Z. C. & C. S. Grant, to a larger amount than its entire value. They attached the property before the commissioners met to allow claims. The commissioners allowed the claim, and after this, judgment and execution were obtained against the surviving partner, as was necessary, and the property was all sold, and the avails applied to extinguish the debt, as far as they would go.

Thus it appears, that at the time when the court of probate decreed the assets of Z. C. Grant to be distributed among the creditors of Z. C. & C. S. Grant, and C. S. Grant, the surviving partner, had died insolvent, leaving no property of any kind, to pay the debts of the company. Of upon the admitted principle in courts of equity, that if the surviving partner is insolvent, the estate of the deceased partner may be proceeded against, this debt of 2,229 dollars, 44 cents, must be paid out of this estate.

The only answer urged to this view, is, that this was not the state of things, at the death of Z. C. Grant, as there was 700 dollars worth of company property on hand. But we think this makes no difference. We take the state of things at the time the court was called upon to decree what distribution of the funds should be made. The line of duty marked out by those facts, is to be pursued by the court. Had the fund, at that time, been subject to an order of a court of equity, as it was to an order of a court of probate, the court would have held the liability of Z. C. Grant's estate to pay the joint debts, to be complete and absolute. The court of probate must do the same.

There is a debt due from Jerome & Grant of 344 dollars, 16 cents, which stands perhaps on a ground somewhat different. Jerome is still living; and it does not appear but that he is entirely solvent. It does not, it is true, appear, that he is certainly solvent, or that he is within the limits of the state; but it is claimed, that in the absence of proof to the contrary, these things will be presumed. Let it be so. Then we have presented the grave question, so learnedly and elaborately discussed at the bar. Can the estate of a deceased partner be proceeded against for the payment of company debts, when there is a surviving partner, who is of sufficient ability to pay them?

We suppose, that since the decision in Ex parte Elton, 3 Ves. 241., this question has been settled in the negative, in England; not however as a general rule of equity, but as a rule of convenience in administering the law of bankruptcy. The history of the rule shews, that it has never met with favour in England, as a rule of justice and equity. It originated in the peculiar modes of proceedings under joint and several commissions in bankruptcy. Lord Hardwicke first laid down the rule in the negative. Lord Thurlow thought it so unjust, that he would not follow it, and laid down the rule to the contrary. Lord Loughborough restored Lord Hardwicke's rule; and Lord Eldon followed in the same track, while he was Lord Chancellor. The language of Lord Chancellor Rosslyn is: This subject took a different course at different periods, until the time of Lord Thurlow, who considered it with great anxiety, and having consulted most of the judges, expressed his decided opinion, that the contrary course was the best, as being the most legal, and therefore held, that the joint creditors should be admitted to prove and take dividends under a separate commission. He considered a commission of bankruptcy to be an execution for all the creditors; and as separate property could be taken on an execution against the partners, so it could be taken under such a commission. Lord Loughborough held this rule would be inconvenient in practice, and restored the more antient rule of Lord Hardwicke, See ex parte Elton, 3 Ves. 238.

So far as any principle of general equity is deducible from what is stated by the learned chancellors, as influencing them to adhere to the antient rule, it is, that as the separate creditors of one partner are postponed, in the distribution of partnership property, to the joint creditors, so the converse should be true—joint creditors shall be postponed to the private creditors of the partners, in the distribution of separate property. But there is an obvious difference between the two cases. Neither partner is permitted to appropriate to his own use company property; nor is the creditor of either partner permitted to take, on execution, company property, to pay his private debts, while there is not enough to pay the company debts. The partner individually owns only what is left to him after paying the company debts and liabilities; and now, at law even, after much discussion and diversity of practice, it is clearly established, that the creditor of one partner, by attaching company property, attaches only the aforesaid residuum. Hence, where there is a joint commission against partners in bankruptcy, it would be the highest injustice, as well as a palpable violation of a clear rule of law, if separate creditors were permitted to take, pari passu with joint creditors.

We think too, joint creditors may be said to give credit with special reference to the property of the company; but to this idea we do not attach much importance; and although it may not be sufficient, of itself, to establish the rule practiced upon by Lord Thurlow; it is clearly a rule of equity, that joint creditors, working through the equities of the partners, shall have a prior lien upon partnership property. But what can be said in favour of the converse of this rule—that joint creditors shall not come in, pari passu, with separate creditors, upon private property? Here there are no equities to be worked out in behalf of copartners. So it is true, that private property may be taken, on a joint execution, even to the entire exclusion of private creditors. It is, in truth and equity, a private debt due from each partner absolutely; and hence, if a joint creditor first attaches separate property, he will take precedence in obtaining satisfaction, unless he is defeated by a bankrupt law.

It is possible, that in some cases, private debts are contracted upon the credit of private property, and joint debts upon the credit of joint property; but this is by no means always the case; nor is it so generally the case, as to render it proper to make it the foundation of a general rule of equity. The exact truth in this particular, cannot well be known, in most cases; and courts of justice have no right to speculate on a possibility, and make it the basis of their judgment. We know, that the creditor usually gives credit, upon considering the whole property and all the responsibilities of his debtors, whether as a partner or an individual; and this is all the court is interested to know. And although joint debtors have rights between themselves, which protect the interest of one of them in the partnership property, from the private debts of the other, worked out by holding joint property to be first liable for joint debts, this is a different case; and therefore the rule is not necessarily to be reciprocally applied.

Nor is it easy to comprehend how it can be any longer held, by enlightened judges, that the creditor of a partnership cannot, upon the death of one of the partners, look directly to his estate for payment, since it is perfectly established that the debt is several as well as joint.

Mr. Collyer, in his work on Partnership, p. 623., (2nd ed.) while admitting that the cases shew the rule to be as claimed by the appellant, says: If this point were decided on principle alone, and without reference to any supposed analogy between the practice in the court of equity and the practice in bankruptcy, it seems clear, that the partnership creditor, as resting on his separate contract, would have a right to come in competition with the separate creditors.

Lord Hardwicke’s rule has received but little favour or countenance in this country. In Bell v. Newman, 5 Serg. & Rawle, 78. Tilghman, Ch. J., in giving the opinion of the court, after discussing the subject at length, and reviewing the cases in the English chancery, rejects the present practice of the English courts. In Allen v. Wells, 22 Pick. 450., there is a like review and a like conclusion come to, by the court. Judge Story, in his treatise on Partnership, § 377. says: “This rule, (the present English rule) although now fairly established, has occasioned much diversity of opinion among learned judges, at different times. It was established at an early period; but was afterwards departed from, and was again re-established; and it now stands as much, if not more, upon the general ground of authority, and the maxim stare decisis, than upon the ground of any equitable reasoning; in truth, it is precisely such a case as may well justify a great deal of argument on each side; and although it has been said, that the equity of this mode of distribution is very plain, because each estate ought to bear its own debts; yet it is by no means clear, that this is not an artificial suggestion, cutting down the difficulty and assuming the correctness of the rule, rather than showing it had its origin and foundation in the principles of natural justice ex æquo et bono.” In his Equity, vol. 1. § 676., he says: “A broader principle is now established, and it is held, that insolvency or bankruptcy is not necessary, in order to justify the creditors of the partnership in resorting to the assets of the deceased partner; and that such creditors may, in the first instance, proceed against the executor or administrator of the deceased partner, leaving him to his remedy over against the surviving partners.”

We will here add, that this last suggestion relieves the case from any real or supposed hardship. If the estate of the deceased partner ought not, as to the survivor, to pay the debt, but the survivor only, and he has ample property, let the estate pay as if it were a several debt; and then the executor may sue the survivor, and get a settlement of the company accounts. If the estate should be found liable after all, as to the survivor, to pay the debt, the presentation allowance of it by commissioners, is the only remedy to accomplish this result. This would have been the case, if both partners were alive; and the death of neither can make a difference, in a case presented to commissioners.

There are many cases in the books, as Lawrence v. Trustees, &c. 2 Denio, 517, Bradley v. Barnwell, 3 Denio, 61. Pendleton & al. v. Phelps & al. 4 Day, 476. Alsop v. Mather 8 Conn. R. 585. Sturges v. Beach, 1 Conn. R. 508., where it is held, that a suit in chancery will not lie to recover a partnership debt out of the assets of the deceased partner, unless the survivor is proved to be insolvent.

Now, without saying how much this rule is to be qualified, by the more recent principle of equity, well established, that partnership debts are in equity several as well as joint, the objection grows altogether out of the mode of proceeding to enforce judgment, and not out of the nature or individuality of the debt. At law, the survivor only can be sued on a joint promise; and if the survivor is able to pay the debt, there is no necessity, and therefore, there is no right, to go into a court of equity; and hence the rule above mentioned. No such technical or jurisdictional objection applies to this case; for here the claim is simply presented to a board of commissioners, the only tribunal which can adjudicate claims upon insolvent estates; and they must allow it, if it is just and right.

Again, it has been urged, that if joint creditors can come upon the private property of an insolvent debtor pari passu with private creditors, then, if we do not allow the rule to work conversely, and permit private creditors to come in upon company property pari passu with company creditors, we give joint creditors an advantage over private creditors. This is so; but it is no other advantage than what appertains to a creditor having two securities over another creditor who has but one. If, because through the equities of a deceased partner, joint creditors have a prior lien on the company property, or in other words, if a partner cannot himself appropriate company property to pay his private debts, to the injury of his copartner; and has no other private interest which can be taken by execution or otherwise, in the property than what remains upon a settlement of partnership accounts; the inequality or advantage does not grow out of an unequal application of a rule of equity, but out of the nature of the debt and property in question. In England, it may be true, and we believe it is, that under their bankruptcy law, creditors who prove their debts, must put themselves upon an entire equality with other creditors.

In Cull. B. L. 145-147., it is said, that a creditor shall not be allowed to prove his debt, unless he swears he has no security, or offers to give up what he has. But this is no rule of equity, nor of fairness even; for we well know, and such is the practice, that if a creditor, by originally taking security for his debt, or by acquiring it, afterwards, by extraordinary diligence, secures to himself the means of paying part of his debt, he is not, thereby, prevented standing upon an equality with others, for the payment of the remainder. Estates are perpetually settled upon this principle; and have been, from the earliest periods of our history. In Findley v. Hosmer, 2 Conn. R. 352. this exact question was made and decided; and the court held, that a creditor might pursue all his remedies until he was paid in full; and that until then, he could not be marshalled out of any of his securities, or defeated in any of the remedies which were opened to others, to collect their debts.

Upon full consideration, we decide, that the rule adopted by Lord Thurlow, is the true and just one, to wit—that the debts of a partnership are in equity joint and several; and that partnership debts, where one of the partners is dead, may, at once, be presented against his estate, though the survivor be solvent and within the jurisdiction of our courts.

We advise that the decree of the court of probate be not reversed.

In this opinion Church, Ch. J. and Storrs and Hinman, Js. concurred. Waite, J.

I consider the rule to be perfectly well settled, in this state, that a creditor of a partnership, cannot resort to the estate of a deceased partner, while one of the partners is living and solvent.

It was so laid down, by this court, more than thirty years ago. Sturges v. Beach, 1 Conn. R. 507. Swift, Ch. J. in delivering the opinion of the court in that case, remarked, that “Bush,” the surviving partner, “was liable at law, for all the debts; and the creditors, if he was able to pay, could not call upon the representatives of Norton, the deceased partner. It is only on the failure of Bush, that the estate of Norton can be rendered liable in equity. Should a contrary principle be adopted, it might be productive of great inconvenience and injustice.”

The doctrine of that case, so far as my knowledge extends, has ever since been sanctioned, by a course of uniform practice, and has been repeatedly recognised as law, by this court. Alsop v. Mather, 8 Conn. R. 294. Filley v. Phelps, 18 Conn. R. 294. And whatever modern notions may prevail elsewhere, if authorities can govern, there can be no doubt about the law here.

Upon this principle, the court of probate did right in allowing the claims against the partnership composed of the deceased, in his life-time, and C. S. Grant; for although the latter survived the former, yet it is admitted, that he afterwards died insolvent. But, in my judgment, the court erred, in allowing the debts against the partnership, of which Jerome was a member, because he is still living, and it is not shown that he is insolvent.

It is however said, that it does not appear but that such is his condition. The record is indeed silent upon that subject. But according to the authority of the case cited, the insolvency of the survivor is the very foundation of the right to proceed against the estate of the deceased. “There can be no occasion,” said Ch. J. Swift, in that case, “to resort to the estate of the deceased partner, unless the survivor is insolvent." That fact, therefore, must be shown, by the creditor, to enable him to sustain his claim against the estate of the deceased.

Such clearly has been considered the law in relation to solvent estates. And the same reasons apply, with as great, if not greater force, to those that are insolvent.

If every creditor of the partnership may present his claim to the commissioners upon the estate of the deceased partner, and there have it settled and adjusted, and then receive his dividend upon the full amount from the private assets of the deceased, in the language of Judge Swift, “it might be productive of great “inconvenience and injustice.” In many cases, the settlement of such estates would be rendered tedious, complicated and expensive. In the present case, it is very difficult to see how the executors of the deceased can compel Jerome to advance any thing to them, until they have actually paid, at least some portion of the partnership debts; and then only to the extent of his proportion of such payments. This, in some cases, might render repeated dividends necessary. They cannot call from his possession the partnership assets; because he is clearly liable, at law, for all the partnership debts.

But if the surviving solvent partner is required to close up the partnership business, pay off the debts, so far as the assets can be made applicable, and then call upon the estate of the deceased partner for his proportion of the balance of the unsatisfied debts, the settlement of the estate becomes simple and unembarrassed. And no injustice is done to the partnership creditors. They are to resort, in the first instance, to the surviving partner, and having exhausted his funds, if their debts are unsatisfied, they may then proceed against the estate of the deceased for the balance.

For these reasons, I think the decree in the court of probate, directing a dividend to be paid upon the debts due from the partnership composed of the deceased and Jerome, was erroneous, and ought to be set aside.

Decree of probate affirmed.