Story Case

The firm of Tait and Company was composed of William Tait and Andrew Burke. In January, 1914, the firm assets amounted to $10,000. John Burns, a creditor of the firm, had a claim against the partners for $15,000. Tait had no other assets than his interest in the firm. Burke had other assets amounting to $6,000, but Harvey Ingham had a claim against him for $7,000. A dispute arose between Burns and Ingham as to the way these assets should be paid to them, as creditors. What should the bankruptcy court do in the matter?

Ruling Court Case. Mcculloh Vs. Dashiell's Administrator, Volume 18 American Decisions, Page 271

Dashiell and Bennett were partners in trade, and, in the course of their business, the firm became liable upon a note for $700, in favor of the complainant, McCulloh. When the note was not paid at maturity thereof, suit was brought on it against Dashiell and Bennett. During the pendency of the suit, Dashiell died and judgment was taken against Bennett as the surviving partner. About this time, Bennett applied for and obtained the benefit of the insolvent laws of Maryland, and was discharged of all his debts. The result was that McCulloh could not realize anything against Bennett. There were some firm assets left, but they were not sufficient to pay the obligation in full. He then filed this bill against the administrator of Dashiell, deceased, seeking to collect from the separate property of the deceased partner. The administrator to this claim replied, that the separate assets of Dashiell were just sufficient to pay his separate creditors and that, if this partnership claim were paid therefrom, the separate creditors would get nothing. Therefore, the question was presented whether a firm creditor is entitled to be paid an equal portion of his claim with the separate creditors of Dashiell out of the separate assets, or whether, when the claim is a joint one, it shall be postponed until all the separate creditors shall be first paid fully?

Decision

Joint creditors must look primarily to the firm assets. They can resort to the separate assets of a partner only in case there are not separate debts or in case there is a surplus after payment of separate debts. As all the separate assets would be necessary to pay the separate creditors, it was decided that the complainant was entitled to recover nothing from the defendant.

Ruling Law. Story Case Answer

We have seen, heretofore, that each partner is individually liable for all the debts of the firm; that his liability is not limited by the amount he has contributed to the firm; but that firm creditors may get satisfaction against him for their full debts from his separate property. But does this rule apply when the separate assets of the individual are not sufficient to pay in full the separate debts of the partner? The firm creditors can resort to the separate assets of a partner, only in case there is a surplus left after the separate debts of that partner have been paid. On the other hand, a separate creditor of a partner may levy upon the firm interest of a partner to satisfy his claim against the partner. This, too, can be exercised only when there is a sufficient amount of firm assets to pay the firm debts. That is, personal assets first satisfy personal creditors, and partnership assets first satisfy partnership creditors, and if in either case there is something remaining, the others are entitled to share the balance. In the Story Case, Burns can appropriate all of the partnership assets to apply on his claim, and Ingham will receive all of Burn's individual assets to satisfy his claim.