Cutler Hardware Co. v. Hacker

• Decision Date: 23 November 1916
• Docket Number: 4585.
• Citation: 238 F. 146
• Parties: CUTLER HARDWARE CO. v. HACKER et al. In re F. J. HACKER & CO.
• Court: U.S. Court of Appeals — Eighth Circuit

238 F. 146

CUTLER HARDWARE CO. v. HACKER et al.

In re F. J. HACKER & CO.

No. 4585.

United States Court of Appeals, Eighth Circuit.

November 23, 1916

Edwards Longley, Ransier & Smith, of Waterloo, Iowa, for appellant.

Mark J Butterfield, of Waterloo, Iowa, for appellees.

Before HOOK and CARLAND, Circuit Judges, and MUNGER, District Judge.

HOOK Circuit Judge.

The question in this case is whether the reduction of partnership debts to judgment, in a state court according to the local law, against both the firm and the individual members, all being thereafter adjudged bankrupt, entitles the judgment creditor to primary participation in the distribution in the bankruptcy court of the individual estates.The trial court allowed the judgments against all the estates, but ordered that participation in the individual assets be postponed until after the individual creditors were fully paid.In other words, the court held that the judgments upon the partnership debts against the individual members did not change their character within the meaning of section 5f of the Bankruptcy Act of 1898, which provides:

'The net proceeds of the partnership property shall be appropriated to the payment of the partnership debts, and the net proceeds of the individual estate of each partner to the payment of his individual debts.Should any surplus remain of the property of any partner after paying his individual debts, such surplus shall be added to the partnership assets and be applied to the payment of the partnership debts.Should any surplus of the partnership property remain after paying the partnership debts, such surplus shall be added to the assets of the individual partners in the proportion of their respective interests in the partnership.'

This provision expresses the rule of distribution in equity in cases of insolvent partnerships generally recognized and applied from the beginning of our judicial history.In Murrill v. Neil, 8 How. 414, 12 L.Ed. 1135, the rule was stated to be:

'That partnership creditors shall in the first instance be satisfied from the partnership estate, and separate or private creditors of the individual partners from the separate and private estate of the partners with whom they have made private and individual contracts, and that the private and individual property of the partners shall not be applied in extinguishment of partnership debts, until the separate and individual creditors of the respective partners shall be paid.'

See, also, Amsinck v. Bean,22 Wall. 395, 22 L.Ed. 801.

In United States v. Hack, 8 Pet. 271, 8 L.Ed. 941, the first phase of the rule was enforced against the statutory priority of the United States as a creditor of an individual partner.Lately in Farmers' Bank v. Ridge Ave. Bank,240 U.S. 498, 36 Sup.Ct. 461, 60 L.Ed. 767, the court declined to recognize the exception which obtained in England in cases where the partnership as such and the individual members were all insolvent, and there was no partnership estate to distribute.

The rule is applicable here.The indebtedness to the appellant was primarily that of the partnership.The partners had not individually contracted to pay it, and the judgments against them were but the legal conclusion from their relation to the firm.The judgments against the partners, as well as the partnership, did not change the inherent character of the indebtedness.While merger in judgment is the general rule yet according to recognized exceptions the judgment will be construed as a new form of the old debt when justice and equity require.The incident of the old debt will be...