This section is from the book "The Law Of Contracts", by Theophilus Parsons. Also available from Amazon: The law of contracts.
1 Rose, 422. Lord Thurlow broke in upon this rule, allowing joint creditors to prove and take dividends under a separate commission, and holding that a commission of bankruptcy was an execution for all the creditors, and that no distinction ought to be made between joint and separate debts, but that they ought to be paid ratably out of the bankrupt's property. Ex parte Haydon, Co. B. L. ch. 6, § l5; s. c. 1 Bro. Ch. 453; Ex parte Copland, Co. B. L. ch. 6, § 15; s. c. 1 Cox, 429; Ex parte Hodgson,
2 Bro. Ch. 5; Ex parte Page, id. 119; Ex parte Flintum, id. 120. Lord Roslyn restored the principle of Lord Hardwicke's rule (Ex parte Elton, 3 Ves. 238; Ex parte Abell, 4 id. 837), which was adopted by Lord Eldon less out of regard to the reason of the rule itself than for the sake of establishing a uniform practice. Ex parte Clay, 6 Ves. 813; Ex parte Kensington, 14 id. 447; Ex parte Taitt, 16 id.
193. See his remarks in Chiswell v. Gray, 9 Ves. 126; Barker v. Goodair, 11 id. 86, and such is the English law. Gow on Part. 312. There are, however, three exceptions to this rule. "1st, where a joint creditor is the petitioning creditor under a separate fiat; 2d, where there is no joint estate, and no solvent partner; 3d, where there are no separate debts. In the first case the petitioning creditor, and in the second, all the joint creditors may prove against the separate estate pari passu with the separate creditors. In the last case, as there are no separate creditors, the joint creditors will be admitted pari passu with each other upon the separate estate." Coll. on Part. § 923; Story on Part. §§ 378-382. But see Emanuel v. Bird, 19 Ala. 596, and Cleg-horn v. Ins. Bank of Columbus, 9 Ga. 319. The history of the English rule was reviewed in Murray v. Murray, 5 Johns. Ch. 60. It has been adopted by some American courts. Wbddrop v. Ward, 3 Desaus. 203; Tunno v. Treze-vant, 2 id. 270; Hall v. Hall, 2 McCord, Ch. 302; McCulloch v. Dashiel, 1 Har. & G. 96; Greene v. Butterworth, 45 N, J. Eq. 738; Murrill v. Neill, 8 How. 414. See In re Marwick, Davies, 229; In re Warren, id. 320; Morris v. Morris, 4 Gratt. 293. In Jackson v. Cornell, 1 Sandf. Ch. 348, the Assistant Vice-Chancellor said: " It is not denied that the rule of equity is uniform and stringent, that the partnership property of a firm shall all be applied to the partnership debts, to the exclusion of the creditors of the individual members of the firm; and that the creditors of the latter are to be first paid out of the separate
The rights of partnership creditors to a preference in the distribution * of the partnership property must not be effects of their debtor before the partnership creditors can claim anything. See Wilder v. Keeler, 3 Paige, 167; Egberts v. Wood, id. 517; Payne v. Matthews, 6 id. 19; Hutchinson v. Smith, 7 id. 26; 1 Story Eq. §§ 625, 675." And it was held in Jackson v. Cornell that a general assignment of his separate property made by an insolvent copartner, which prefers the creditors of the firm to the exclusion of his own, is fraudulent and void as to the latter. The English rule has been discarded in Pennsylvania. Bell v. Newman, 5 S. & R. 78; In re Sperry, 1 Ashm. 347. And Lord Thurlow's rule prevails in Connecticut, although the surviving partner be solvent and within the jurisdiction of the court. Camp v. Grant, 21 Conn. 41. See also Shackelford v. Clark, 78 Mo. 491; Pearce v. Cooke, 13 R. I. 184; Hutzler v. Phillips, 26 S. C. 136; Cox v. Miller, 54 Tex. 16; Bardwell v. Perry, 19 Vt. 292; Pettyjohn's Ex. v. Woodruff, 86 Va. 478. It has been held in Massachusetts that whatever may be the rule in a court of equity, an attachment of the separate property of a partner for a partnership debt is not defeated at law by a subsequent attachment of the same property for his separate debt. - Allen v. Wells, 22 Pick. 450. Dewey, J.: "It is urged, however, on the part of the defendant, that as this court, as a court of law, have long since recognized the principle that an attachment of the goods of a partnership by a creditor of one of the partners, is not valid, as against an after attachment by a partnership creditor, it should also adopt the converse of the proposition, giving a like preference to separate creditors in respect to the separate property. But we think there is a manifest distinction in the two cases. The restriction upon separate creditors, as to partnership property, arises not merely from the nature of the debt attempted to be secured, but also from the situation of the property proposed to be attached. In such a case, a distinct moiety or other proportion, in certain specific articles of the partnership property, cannot be taken and sold, as one partner has no distinct separate property in the partnership effects. His interest embraces only what remains upon the final adjustment of the partnership concerns. But, on the other hand, a debt due from the copartnership is the debt of each member of the firm, and every individual member is liable to pay the whole amount of the same to the creditor of the firm. In the case of the copartnership, the interest of the debtor is not the right to any specific property, but to a residuum which is uncertain and contingent, while the interest of one partner in his individual property is that of a present absolute interest in the specific property, Each separate member of the copartnership being thus liable for all debts due from the copartnership, and no objection arising from any interference with the rights of others as joint owners, it seems necessarily to follow that his separate property may be well adjudged to be liable to be attached and held to secure a debt due from the copartnership." Stevens v. Perry, 113 Mass. 380; Fullam v. Abrams, 29 Kan. 725; Cunningham v. Gushee, 73 Me. 417; Howell v. Teel, 29 N. J. Eq. 490; Straus v. Kerngood, 21 Gratt. 584. And in the distribution of the estates of deceased insolvent debtors, partnership debts are paid ratably with the private claims. Sparhawk v. Russell, 10 Met. 305. But in New Hampshire the English rule has been adopted in the law, to its fullest extent, and where real estate of one partner was set off on execution for a debt due from the partnership, and afterwards the same land was set off for a separate debt of the same partner, the last levy was held to prevail over the first and to give the legal title. Jarvis v. Brooks, 3 Foster (N. H.), 136. Weaver v. Weaver, 46 N. H. 188. And see Preston v. Colby, 117 Ill. 477. The conclusion of the Supreme Court of Vermont on this question is as follows: " That a partnership contract imposes precisely the same obligation upon each separate partner that a sole and separate contract does, and that it is not true that, in joint contracts, the creditor looks to the credit of the joint estate, and the separate creditor to that of the separate estate; and that there is no express or implied contract resulting from the law of partnership, that the separate estate shall go to pay separate debts exclusively; but that, as the partnership creditors in equity have a prior lien on the partnership funds, chancery will compel them to exhaust that remedy before resorting to the separate estate; but that beyond this, both sets of creditors stand precisely equal, both at law and in equity." Per Redfield, J., Bardwell v. Perry, 19 Vt. 292, 303 Mr. Justice Story says of the English rule: " It now stands as much, if not more, upon the general ground of authortaken to extend so far as to affect a bona fide transmutation of partnership into private property made prior to or upon a dissolution. While the partnership remains and its business is going on, whether it be in fact solvent or not, any honest distribution of the partnership effects among the members of the firm cannot *be disturbed by any equities of credi- tors of the partnership. (m)l In Illinois, the rule in equity is stated to be this: the assets of a deceased and of insolvent partners, if there be partnership and separate property, will be distributed by paying the firm debts out of the joint estate, and the individual debts out of the separate estate; that the joint and individual debts should be kept distinct, and the assets of the two estates marshalled accordingly; that joint creditors must first resort to the joint fund, and the creditors of the individual partners to their separate property; that upon the inadequacy of either of these, then the joint or separate estate may be applied according to the exigency of the case; that if there is no joint fund nor any solvent partner, joint creditors may participate equally with a private creditor in the estate of a deceased partner, and if there should be a surplus of the joint fund, the creditor of an individual partner may resort * to that. (n) Nor have the joint creditors such a lien on the partnership funds, as to avoid a transfer in good faith and for value to a purchaser, by partners, before judgment and execution. (o) ity, and the maxim stare decisis, than upon the ground of any equitable reasoning." Story on Part. § 377. And he says further: " It is not, perhaps, too much to say that it rests on a foundation as questionable and as unsatisfactory as any rule in the whole system of our jurisprudence; " but " should be left undisturbed as it may not be easy to substitute any other rule which would uniformly work with perfect equality and equity." § 382. Chancellor Kent, on the other hand, remarks: " For my part, I am free to confess that I feel no hostility to the rule, and think that it is, upon the whole, reasonable and just." 3 Kent, Com. 65, n. See also Walker v. Eyth, 25 Penn. St. 216; Morrison v. Kurtz, 15 Ill. 193; Baker v. Wimpee, 19 Ga. 87; Young v. Frier, 1 Stock. 465.
1 Hollis v. Staley, 3 Baxter, 167; Case v. Beauregard, 99 U. S. 119; In re Long, 7 Benedict, 141; Schmidlapp v. Currie, 55 Miss. 597. See Menagh v. Whitwell. 52 N. Y. 146, that the firm must be solvent. - K.
(m) Ex parte Ruffin, 6 Ves. 119; Allen v. Center Valley Co. 21 Conn. 130.
(n) Pahlman v. Graves, 26 Ill. 405. See Preston v. Colby, 117 Ill. 477.
(o) Greenwood v. Brodhead, 8 Barb. 593; Waterman v. Hunt, 2 R. I. 298; Allen v. Center Valley Co. 21 Conn. 130. See however Ferson v. Muuroe, 1 Foster (N. II), 462.
 
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