Stanley Francis v. Hector Neal

• Decision Date: 26 May 1913
• Docket Number: No. 290,290
• Parties: STANLEY FRANCIS, Petitioner, v. J. HECTOR McNEAL, Trustee in Bankruptcy of the Provident Investment Bureau
• Court: U.S. Supreme Court

228 U.S. 695

33 S.Ct. 701

57 L.Ed. 1029

STANLEY FRANCIS, Petitioner,

v J. HECTOR McNEAL, Trustee in Bankruptcy of the Provident Investment Bureau.

No. 290.

Argued May 5 and 6, 1913.

Decided May 26, 1913.

Messrs. Charles L. Frailey and Henry J. Scott for petitioner.

[Argument of Counsel from pages 695-698 intentionally omitted] Messrs. George Wharton Pepper and Edgar J. Pershing for respondent.

Mr. Justice Holmes delivered the opinion of the court:

This is a proceeding to review an order of the bankruptcy court to the effect that the separate estate of Stanley Francis should be turned over for administration to the respondent, McNeal, trustee in bankruptcy of a firm of which Francis was a member. The order was made on the petition of the trustee, and was affirmed upon a petition for revision by the circuit court of appeals. 108 C. C. A. 459, 186 Fed. 481.

The facts are short. Creditors filed a petition against Latimer, Francis, and Marrin, alleging that they were partners trading as the Provident Investment Bureau, and that they were bankrupt individually and as a firm. McNeal was appointed receiver of the partnership and individual estates, but Francis denied that he was a partner, and sought to have the receiver discharged. Thereupon, on March 13, 1906, it was agreed between the counsel for the receiver and for Francis that McNeal should be discharged as receiver of the individual estate of Francis; that the question whether Francis was a partner should be referred to one of the regular referees; that until the determination of that question, his counsel, Scott, should collect the rents and retain possession of his estate; and that thereafter Scott should account and turn over the funds to such person as the court might direct. On April 17 an order was made embodying the agreement and naming a referee. The referee found that Francis was a partner, and that now stands admitted for the purposes of the present decision. The firm was adjudicated bankrupt in June, 1909. McNeal was appointed trustee in July, and forthwith filed the petition upon which the order in question was made. The order declared that the separate estate of Francis was subject to administration in bankruptcy, and ordered the real estate turned over to McNeal, with leave to sell. The firm, even with the separate estates of the partners, will not be able to pay its debts in full.

Since Cory on Accounts was made more famous by Lindley on Partnership, the notion that the firm is an entity distinct from its members had grown in popularity, and the notion has been confirmed by recent speculations as to the nature of corporations and the oneness of any somewhat permanently combined group without the aid of law. But the fact remains as true as ever that partnership debts are debts of the members of the firm, and that the individual liability of the members is not collateral like that of a surety, but primary and direct, whatever priorities there may be in the marshaling of assets. The nature of the liability is determined by the common law, not by the possible intervention of the bankruptcy act. Therefore ordinarily it would be impossible that a firm should be insolvent while the members of it remained able to pay its debts with money available for that end. A judgment could be got and the partnership debt satisfied on execution out of the individual estates.

The question is whether the bankruptcy act has established principles inconsistent with these fundamental rules, although the business of such an act is, so far as may be, to preserve, not to upset,...