71 Minn. 155 | Minn. | 1898
Lead Opinion
Arthur H. Ives and Amos P. Ireland, partners under the firm name of Ives, Ireland & Co., duly made an assignment of all of their partnership and unexempt individual property, for the benefit of their creditors, under the insolvent laws of this state.
The net assets of the partnership for distribution amount to.
The trial court, by its order of distribution, directed the assignee to pay the net assets of the firm, pro rata, to the firm creditors, including the Irish-American Bank, the net individual assets of Ireland, pro rata, to his individual creditors, excluding the firm creditors, except the Irish-American Bank, which was included therein to the full amount of its debt, without any deduction for the dividend thereon it was to receive from the firm assets; and the net assets of Ives to his individual creditors. The assignee and certain-firm creditors appealed from this order.
The appeals present two general questions for our decision. They are: Did the trial court err, (a) in distributing the firm assets to-the firm creditors, and the individual assets to the individual creditors? (b) in directing a dividend to be paid to the Irish-American Bank from both funds?
The principles upon which the rule rests are clearly stated in the dissenting opinion of Chief Justice Gribson in the case of Bell v. Newman, 5 S. & R. 91, and the opinion of Chief Justice Bartley in Rodgers v. Meranda, 7 Oh. St. 179. The latter wrote thus of the rule:
“That it is, however, more equal and just, as a general rule, than any other which can be devised consistently with the preference to the partnership creditors in the joint estate, cannot be successfully controverted. It originated as a consequence of the rule of priority of partnership creditors in the joint estate, and, for the purposes of justice, became necessary, as a correlative rule. With what' semblance of equity could one class of creditors, in preference to the rest, be exclusively entitled to the partnership fund, and concurrently with the rest entitled to the separate estate of each partner? The joint creditors are no more meritorious than the separate creditors, and it frequently happens that the separate debts are contracted to raise means to carry on the partnership business.”
Judge Story, in his time, declared the rule to be firmly established. He, however, questioned its equity and propriety, but added:
“Such as it is, however, it is for the public repose that it should be left undisturbed, as it may not be easy to substitute any other rule which would uniformly work with perfect equality and equity in the mass of intricate transactions connected with commercial operations.” Story, Partn. §§ 877, 382.
The rule was expressly approved by Chancellor Kent, who declared it to rest upon just and obvious principles of equity, and to be settled by a series of English and American decisions. 3 Kent, Com. *65. Prof. Parsons declared it to be distinctively settled, and a simple rule, eminently practical, and founded upon obvious principles of policy. Parsons, Partn. §§382, 383. Whatever question
The assignee claims that it is so, in that it violates the fundamental principles of equal distribution and no preferences, upon which the insolvency law rests, and asks us to adopt the Kentucky rule, which is, in effect, that where a firm is insolvent, and there are both firm and individual assets to be distributed to firm and individual creditors, the partnership assets are to be distributed exclusively to the -firm creditors; then the individual creditors are to receive from the individual assets a percentage on their claims equal to that received by the firm creditors from the partnership assets on their claims; and the balance, if any, is to be distributed to all of the creditors pro rata. Northern v. Keizer, 2 Duv. 169. The original of this rule seems to be the rule adopted in Pennsylvania, in Bell v. Newman, 5 S. & R. 77, for the distribution of firm and individual assets, in a case where a surviving partner died, leaving both partnership and separate creditors, and firm and separate assets in the hands of his administrator. Gibson, J., dissented, and in his opinion ably vindicated the equity rule, and in these words tersely stated, at page 98, the objections to the rule laid down in the opinion of the court:
“It is evident, therefore, the rule would operate unequally, by making the separate creditors share their fund with the joint creditors, where it happens to be the largest, without subjecting the latter to share theirs under like circumstances. It may be said, it is impossible to put them on a footing in this respect. I grant that it cannot be done on any plan of participating in the same fund, but you precisely put them on a footing by making each fund bear the burden of its own debts;.and, if that of the separate creditors should happen to be the most productive, I know not on what principle of equity they can be deprived of the advantage.”
Bell v. Newman was practically overruled in Black's Appeal, 44 Pa. St. 508, and the equity rule adopted. The objections to the now discarded rule of Pennsylvania apply precisely to the Kentucky rule, which has not, so far as we are advised, been followed by any other court.
The same suggestions apply with equal force to the claim that the requirement of the insolvency law of equality in the distribution of the net assets to the creditors abrogates the equity rule. It is difficult to see upon what principle we can consistently hold, as we are, in effect, asked to do by the assignee, that the equity rule is annulled by the provisions of the insolvent law forbidding preferences and requiring equality of distribution, and adopt in place of it the Kentucky rule; for the latter permits the firm creditors to have the exclusive benefit of the firm assets, if they are greater and pay a greater dividend to firm creditors than the individual assets do to individual creditors; but, if they are less, then, and only then, the two classes of creditors share equally. The firm creditors never share their fund with the separate creditors, but the latter must share theirs with the former, whenever it is the larger. If one of these rules is forbidden by the insolvency law, the other is also.
The fact that the insolvency law contains no directions for marshaling the assets of insolvents where there are different classes of creditors and different funds, indicates that it was the intention of the legislature to leave the settled equity rule in force. The
It is further urged that the rule of distribution and priority in the insolvency court and probate court should be the same, and that the equity rule cannot be followed in the probate court, in the allowance and payment of claims against the estate of a deceased partner, because the Probate Code (G. S. 1894, § 4521) provides, in effect, that when two or more persons are indebted on a joint contract, and one of them dies, his estate is liable thereon, and it may be allowed by the probate court as if it were joint and several. We are not called upon here to construe this statute, or determine what the rule of distribution in the probate court would be. It may, however, be suggested, without deciding the question, that it seems to be well settled in other states that statutes making partnership debts joint and several, and statutes providing for the allowance of joint claims in the probate court as if joint and several, are not intended to abrogate all equitable priorities of partnership and individual creditors, respectively, in the partnership and individual estates, or to introduce any new rule for marshaling the assets of the joint and separate estates. 2 Bates, Partn. § 828.
The question of double proof in such a case is not a new one. It was at one time the rule in England that a creditor holding a note signed by the firm and an individual partner must, in bankruptcy, elect which estate he would prove his claim against. The rule is, and always has been, otherwise in this country, and it is settled by a very decided weight of authority that such double proof is permissible. Parsons, Partn. § 390; 2 Bates, Partn. § 841; 17 Am. & Eng. Enc. 1210; Emery v. Bank, 7 N. B. R. 217, Fed. Cas. No. 4,446; In re Bradley, 2 Biss. 515, Fed. Cas. No. 1,772; Ex parte Nason, 70 Me. 363; Roger v. Hall, 160 Mass. 171, 35 N. E. 666. It is true, as claimed, that the federal bankrupt law of 1867 provided for double proof in certain cases; but Judge Clifford, in Emery v. Bank, clearly indicates that, independently of the statute, where a creditor has taken the precaution, before parting with his money, to secure an express written contract for its repayment from both the firm and the individual partner, his right is clear, in ’ case of bankruptcy, to the benefit of his caution, and he is entitled to prove his claim against, and receive a dividend from, both the fund belonging to the partnership, and also the estate of the individual partner. This precise question was involved in the cases of Ex parte Nason and Roger v. Hall, supra, and in each the rule as to double proof was maintained on principle. In the last-named case the court, after citing the authorities in support of the rule, concludes thus:
“In view of the modern decisions, and the general agreement of opinion, we think it unnecessary to argue elaborately for the right of a creditor who has required two contracts, binding two distinct estates, to insist upon both.”
Our conclusion on this question is that the Irish-American Bank was entitled to receive a dividend on its claim from both funds. The trial court, however, directed a dividend to be paid to it from both funds, concurrently, on the full amount of its debt. There are authorities sustaining this part of the order, but it is manifestly inequitable to other creditors. When the bank receives a dividend
It follows that the order appealed from must be modified so as to permit the bank to receive a dividend from the individual assets of Ireland only on the balance of its claim after applying as a payment its dividend from the firm assets, and that this case must be remanded, with direction to the district court so to do. So ordered,' without statutory costs.
5 Stat. 448.
14 Stat. 534.
Concurrence Opinion
I concur, except in the result arrived at as to the claim of the Irish-American Bank. I think the consideration of the debt should, in this case, determine the class to which the claim belongs, and that, notwithstanding the authorities cited to the contrary, the claim of the bank should be treated as exclusively a partnership debt. A partnership is but an aggregation of individuals, and not an entity distinct from the members composing it. It is wholly inconsistent with the spirit and purposes of our insolvent law to permit one dealing with a partnership to obtain a preference by securing on the evidence of the debt the signatures of the members of the firm, individually, in addition to their signatures by their firm name. There is nothing in the general equity rule for the distribution of partnership and individual assets which requires any such result.