If there had been a restriction on the power of a partner to mortgage in the partnership contract, it would not have been binding on the mortgagee without notice.

The question of marshaling assets came up in the great leading case of Rodgers vs. Meranda, 7 Ohio St., 180. The firm was composed of Dever and Murray. The firm, being insolvent, assigned its assets to Meranda for the payment of firm creditors, and Murray, being insolvent, assigned all his property to Rodgers for the payment of his individual creditors. Murray, besides having a certain capital invested in the firm, had loaned to it a large amount of money for which he held its note which was included in his assignment to Rodgers.

The partnership creditors filed their claims with both Meranda and Rodgers, the creditors of Murray filed their claims with Rodgers, and Rodgers himself, holding as assignee of Murray the note against the firm, filed this claim with Meranda. In this situation the parties sought from a court of chancery an order of distribution according to the law in the case.

In the decision thereupon, the court enters into a full discussion of the question of priorities, and accounts historically and ethically for the priority of the individual creditors of a partner over the firm creditors, and enforces the doctrine of non-competition between firm and partner in prohibiting for the benefit of creditors the filing of claims against either estate by the one or the other.

The following are extracts from the opinion of the court: "It is well settled that, in the distribution of the assets of insolvent partners, the partnership creditors are entitled to a priority in the partnership effects; so that the partnership debts must be settled before any division of the partnership funds can be made among the individual creditors of the several partners. This is incident to the nature of partnership property. It is the right of a partner to have the partnership property applied to the purposes of the firm; and the separate interest of each partner in the partnership property is his share of the surplus after the payment of the partnership debts. And this rule, which gives the partnership creditors a preference in the partnership effects, would seem to produce, in equity, a corresponding and correlative rule, giving a preference to the individual creditors of a partner in his separate property."

"It originated as a consequence of the rule of priority of partnership creditors in the joint estate, and for the purpose of justice, became necessary as a correlative rule. With what semblance of equity could one class of creditors, in preference to the rest, be exclusively entitled to the partnership fund, and, concurrently with the rest, entitled to the separate estate of each partner? The joint creditors are no more meritorious than the separate creditors; and it frequently happens, that the separate debts are contracted to raise means to carry on the partnership business. Independent of this rule, the joint creditors have, as a general thing, a great advantage over the separate creditors. Besides being exclusively entitled to the partnership fund, they take their distributive share in the surplus of the separate estate of each of the several partners, after the payment of the separate creditors of each. It is a rule of equity, that where one creditor is in a situation to have two or more distinct securities or funds to rely on, the court will not allow him, neglecting his other funds, to attach himself to one of the funds to the prejudice of those who have a claim upon that, and no other to depend upon. And besides the advantage which the joint creditors have, arising from the fact that the partnership estate is usually much the largest, as men in trade, in a great majority of cases, embark their all, or the chief part of their property, in it; and besides their distributive rights in the surplus of the separate estate, of the other partners the joint creditors have a degree of security for their debts and facilities for recovering them, which the separate creditors have not; they can sell both the joint and the separate estate on execution, while the separate creditor can sell only the separate property and the interest in the joint effects that may remain to the partners, after the accounts of the debts and the effects of the firm are taken, as between the firm and its creditors, and also as between the partners themselves. With all these advantages in favor of partnership creditors, it would be grossly inequitable to allow them the exclusive benefit of the joint fund, and then a concurrent right with individual creditors to an equal distribution in the estate of each partner."

"Where the partnership has become insolvent, and there are no partnership assets for distribution, and no living solvent partner, it has been uniformly conceded that the principle of the rule does not apply."

"The remaining matter for determination, in this case, involves the inquiry, whether, in case of an indebtedness for money lent to the partnership by a partner who afterward becomes insolvent, the separate creditors of the latter shall be entitled therefor to a pro rata distribution with the partnership creditors, out of the joint fund. It is claimed that the liability of the firm to a partner for money loaned is a partnership debt, and that the individual creditors of that partner are, in equity, entitled to an equal distribution therefor, out of the partnership property. On the other hand it is claimed that as each partner is individually liable for the debts of the firm, and as no partner can be allowed to participate with his own creditors in the distribution of a fund the separate creditors of a partner, as they can only claim through the rights of their debtor, cannot be allowed such participation with the joint creditors."

VoL viii. - 6.

Lord Eldon said: "There has long been an end of the law which prevailed in the time of Lord Hard-wicke, whose opinion appears to have been that if the joint estate lent money to the separate estate of one partner, or if one partner lent to the joint estate, proof might be made by the one or the other, in each case. That has been put an end to, among other principles, upon this certainly, that a partner cannot come in competition with separate creditors of his own, nor as to the joint estate with the joint creditors. The consequence is, that if one partner lends £1000 to the partnership, and they become insolvent in a week, he cannot be a creditor of the partnership, though the money was supplied to the joint estate; so, if the partnership lends to an individual partner, there can be no proof for the joint against the separate estate; that is, in each case no proof to affect the creditors, though the individual partners may certainly have the right against each other."