In re Wilcox

• Decision Date: 29 April 1899
• Docket Number: 43.
• Citation: 94 F. 84
• Parties: In re WILCOX. Ex parte ROUSS.
• Court: U.S. District Court — District of Massachusetts

94 F. 84

In re WILCOX. Ex parte ROUSS.

No. 43.

United States District Court, D. Massachusetts.

April 29, 1899

LOWELL District Judge.

The proper distribution of the joint estate of a bankrupt firm and of the separate estate of its component bankrupt partners has been the subject of much discussion in the courts of England and of this country for nearly 200 years, and the conclusions reached by the several courts, and by the same court at various times, have differed greatly. As was observed by Judge Ware in Re Marwick, 2 Ware, 229 233, Fed. Cas. No. 9,181:

'The whole subject of marshaling the assets and claims between the joint and separate creditors in bankruptcy involves some of the most difficult problems that occur in the whole range of jurisprudence.'

The historical development in England and in this country of the law upon this subject has often been stated imperfectly, and sometimes quite inaccurately, both in text-books and in reported opinions, and therefore it has seemed worth while to preview with some degree of fullness that development from its beginning.

At common law the creditor of a partnership was the joint creditor of the partners. He might sue them, obtain judgment against them, and take out execution against them jointly and satisfy the execution from any part of the estate of either or both, whether such estate were joint or separate. On the other hand, the separate creditor of one partner having sued that partner, having obtained judgment against him, and having taken out execution thereupon, might satisfy the execution either from that partner's separate estate, or from his share of the joint estate. If, however, a partner's share of the joint estate was sold to satisfy a separate execution issued against him, the purchaser of the share found himself somewhat differently situated from the purchaser of an undivided share of property held jointly by persons not partners. The former was limited by a court of equity to take, not an undivided share of the joint partnership estate, but only the net amount due the debtor partner after the affairs of the partnership had been settled, and after all its debts had been paid. Hence the separate creditor of an individual partner found his claim upon his debtor's share of the partnership estate subordinated to the right of the remaining partners to apply the joint partnership estate in satisfaction of the claims of the partnership creditors. See Lindl. Partn. (6th Ed.) 308; Fox v. Hanbury, Cowp. 445.

Statutes of bankruptcy are of considerable antiquity in England, the first having been passed in the reign of Henry VIII. The bankrupt law of the present day descends from statutes passed in the reigns of Elizabeth and of James I., which have been frequently amended from that time to this. Previous to the year 1822 these statutes contained but a single mention of bankrupt partners or partnerships, viz. that contained in St. 10 Anne, c. 15, Sec. 3, which provided that the discharge of a bankrupt should not discharge a bankrupt partner or co-obligor. Before 1822, therefore, the rules regulating the distribution in bankruptcy of the joint and separate estates of partners were established altogether by judicial decision. An examination of the earliest records of the English courts of bankruptcy would be necessary to determine precisely how commissions of bankruptcy against members of a trading partnership were issued in the seventeenth century and in the first years of the eighteenth. It is pretty clear that a joint commission against all the partners was not unusual. In 2 Christ.Bankr. (2d Ed.) 33, it is stated that the first reported instance of a joint commission against two partners occurred in 1682. Nothing in the report suggests that the practice was then deemed extraordinary. In the case mentioned, the separate creditors of one partner alleged that the commissioners intended to divide the joint property among the joint creditors without permitting the separate creditors to share in the same, and they filed a bill to secure their own admission to come upon the joint fund. The assignees alleged that the partnership articles provided that joint debts should be paid out of joint assets, and that those assets should not be charged with the separate debts of the individual partners. Lord North decreed, in substance, that the joint assets should be applied to the payment of the joint debts, and that, if there was any surplus, it should be applied to the payment of the separate debts of the individual partners. If, however, the joint estate was insufficient, and the separate estates of the partners were drawn upon for payment of the joint debts, then, in that case, if either partner paid more than the other, he might be admitted to prove for such surplus against the separate estate of the other partner. It is not stated if the separate creditors of the several partners had, as against the separate estate of the several partners, a claim prior to that of the joint creditors; and it does not clearly appear whether Lord North's decision was rested by him upon the articles of partnership or upon the general law, though the latter is probable. Craven v. Knight, Goodinge, Bankr. 149; s.c. sub nom. Craven v. Widdows, 2 Cas.Ch. 139. It was thus established that, in case of a joint commission against all the partners, the joint creditors could avail themselves of the equitable right of the partners of a bankrupt to subordinate to the settlement of the partnership accounts the claims of his separate creditors upon his share of the joint estate. In 1693 a partner indebted to the partnership was made bankrupt under a separate commission, and the commissioners (for what reason does not plainly appear) assigned the partnership goods to the assignees in bankruptcy under that commission. The other partners brought a bill for an account, and urged that the assignees in bankruptcy took no more than the net share of the bankrupt after his debts had been paid. Of this opinion the court seemed to be, and the joint creditors were given priority in payment out of the joint estate. This, however, was done, not in execution of the bankrupt law, but only after the interposition of a court of equity. The joint debts, though paid by the assignees, were proved before a master in chancery. Richardson v. Gooding, 2 Vern. 293. From this case it appears that, under a separate commission against one partner, joint creditors could enforce their prior claims upon the joint estate only by bill in equity, and not by petition in bankruptcy. See Gross v. Dusfresnay (1734) 2 Eq.Cas.Abr. 110. As has been said, it is impossible to determine what was the practice, at or about the year 1700, concerning the issuance of joint and separate commissions in cases where both partnership and partners were bankrupt, and where there were joint and separate assets and debts. In such cases, probably, both joint and separate commissions were issued and subsisted at the same time, the joint assignees acquiring the joint estate and paying the joint debts, and the separate assignees acquiring the separate estate and paying the separate debts; but the data are too imperfect to establish plainly that this course, or any other, was invariably pursued. See Ex parte Crowder (1715) 2 Vern. 706; In re Simpsons (1752) 1 Atk. 137.

In Ex parte Crowder a joint commission issued against A. and B., joint traders. Their separate creditors applied by a petition in bankruptcy (not by a bill in equity), that they might be let in under the joint commission to prove their debts against the separate estates of the respective bankrupts; alleging as a reason for this course, then apparently unusual, that the separate estates were of such small value that they would not bear the charge of taking out the two separate commissions which would otherwise be required. Lord Chancellor Harcourt ordered the petitioners to be let in to prove their separate debts upon their paying contribution to the charge of the joint commission, 'and directed that, as the joint or partnership estate was, in the first place, to be applied to pay the joint or partnership debts, so, in like manner, the separate estate should be, in the first place, to pay all the separate debts; and, as separate creditors are not to be let in upon the joint estate until all the joint debts are first paid, so, likewise, the creditors to the partnership shall not come in for any deficiency of the joint estate upon the separate estate until the separate debts are first paid. ' Lord Harcourt's opinion is a very short one, and his reasons do not fully appear; but it seems clear that he did not suppose that he was laying down a new rule of substantive law, and it is probable that he was applying to the distribution of joint and separate estates under a single joint commission the rule which had formerly been applied when, at the same time, joint estates were administered under a joint commission and separate estates under a separate commission. It is to be observed that Lord Harcourt's rule, and the decisions which follow it, applied only to cases in which joint and separate estates were administered under a joint commission. Not uncommonly this has been overlooked. It should be noticed, also, that a petition and order were required in each case, though the order issued as of course. Ex parte Sandon (1743) 1 Atk. 68.

In Ex parte Cook, 2 P.Wms. 500, decided in 1728, a joint commission had been taken out against two bankrupt partners, under which the commissioners made an assignment both of the joint and of the separate estate. Afterwards the separate creditors took out separate commissions; thus doing that which, in Ex parte Crowder, they had applied to be relieved from doing. In the conflict...