In re Forbes
Decision Date | 11 February 1904 |
Docket Number | 8,338. |
Citation | 128 F. 137 |
Parties | In re FORBES et al. |
Court | U.S. District Court — District of Massachusetts |
Southard & Parker, for petitioner.
Clement G. Morgan, for respondent.
This is a petition in the usual form filed by one partner to bring his firm and his copartner into bankruptcy. The copartner being served, has, by his answer, denied 'that he has committed the act of bankruptcy alleged in the petition, or that he is insolvent,' and has also denied that the partnership existed at the date of the petition or at any other date. He has claimed a jury trial. The court has to consider if a jury trial can be had, and, should it be ordered, what issues are to be submitted to the jury.
Some difficulties arising in the bankruptcy of partnerships, and especially in dealing with voluntary petitions by one partner, were stated by this court in In re Carleton (D.C.) 115 F. 246. Neither the act of July 1, 1898, c 541, 30 Stat. 544 (U.S. Comp. St. 1901, p. 3418), nor the act of March 2, 1867, c. 176, 14 Stat. 517, nor the general practice of courts of bankruptcy under either act, has required an allegation of an act of bankruptcy in a petition filed by one partner to bring into bankruptcy his partnership and partners. The act of 1898 does not require an allegation of insolvency, though the allegation that the partners are unable to pay their debts, which is contained in Form No. 2 promulgated by the Supreme Court under authority of the act comes almost to the same thing. On the other hand, General Order 8, under the act of 1898, and General Order 18, under the act of 1867, alike have provided that a partner refusing to join in a partnership petition filed by his copartner is entitled to resist the prayer of the petition as if it had been filed by a creditor, and 'shall have the right * * * to make proof, if he can, that the partnership is not insolvent or has not committed an act of bankruptcy. ' The general order thus appears to provide that the nonassenting partner may disprove that which the petitioning partner need not allege. If it be suggested that the general order is intended to require that the former make his defense by way of confession and avoidance, the answer is obvious that it is hard to imagine the course of a trial in which a respondent is required by affirmative proof to negative generally the commission of any act of bankruptcy, no specific act having been alleged anywhere in the pleadings.
If we pass from the statute itself, the general orders and forms duly promulgated thereunder, and the unreported practice of courts of bankruptcy, to reported decisions, we shall find that under the act of 1867 the inferior federal courts uniformly held that the petition of one partner to put into bankruptcy his firm and copartners need allege no act of bankruptcy, though it might do so. See cases cited in In re Carleton (D.C.) 115 F. 246, 248. An allegation of insolvency, required in all cases by the act of 1867, was held sufficient. Unless the petition alleged an act of bankruptcy, the nonassenting partner was shut up to proof of insolvency. These decisions thus limited the effect of the general order, and for many purposes they treated the petition of one partner as a voluntary petition. On the other hand, the Supreme Court in Medsker v. Bonebrake, 108 U.S. 66, 2 Sup.Ct. 351, 27 L.Ed. 654, held that as to a nonassenting partner adjudged bankrupt upon the petition of his copartner, the case was one of 'compulsory or involuntary bankruptcy,' for the purpose of classifying preferences. The apparent conflict between the statute, the forms, the practice, and many decisions of inferior courts on the one hand, and a general order and a dictum of the Supreme Court on the other, was thus inherited from the act of 1867. While General Order 8, under the act of 1898, has not removed the difficulty, it has neither increased nor created it. See In re Penn, Fed. Cas. No. 10,927. To overthrow the general practice and the unanimous decisions of courts of bankruptcy, because opposed to a dictum of the Supreme Court, is dangerous; dangerous also to disregard a clear expression of that court's opinion, because opposed to the unbroken practice of all courts of bankruptcy under two bankrupt acts as well as to many reported decisions of those courts.
To decide the present case, the general nature or partnership proceedings in bankruptcy must be considered, since there lies the origin of the confusion. For some purposes a partnership has been treated as an entity apart from the partners; for other purposes it has been treated as a congeries of partners. Some courts have suggested that the act of 1898 has adopted for bankruptcy the theory of an entity separate from the partners. Sections 1 (19, 5a; In re Meyer, 98 F. 976, 39 C.C.A. 368; In re Mercur, 122 F. 384, 58 C.C.A. 472. Yet this treatment of a partnership is irreconcilable with other provisions of the statute. Section 5h of the act provides that the partnership property (except in case of consent) shall not be administered in bankruptcy unless all the partners are adjudged bankrupt. This is, in effect, a provision that the partnership shall not be made bankrupt except by an adjudication of all its partners. Adjudication without accompanying distribution of the bankrupt estate would be worse than a vain form, for it would confuse inextricably questions of preference, lien, attachment, and the like. The remedy given by clause 'h' to the trustee is, in substance, the equitable remedy found so unsatisfactory in the days of Lord Eldon. See In re Wilcox (D.C.) 94 F. 84, 95. The negative provision of clause 'h' is more definite than the affirmative provision of clause 'a,' which does not declare under what circumstances the adjudication of a partnership shall be made, or what shall be its form or effect. Section 5b contemplates that the adjudication under a joint petition shall be both joint and several. If the adjudication were joint only, there would be no object in providing that the joint creditors alone shall elect the trustee. Still again, section 5c gives to the court which has jurisdiction of one partner 'jurisdiction...
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