assets of bankrupts or insolvent partners, and the partnership debts are to be settled before any division of the funds takes place. So far as partnership property has been acquired by means of partnership debts, those debts have, in equity, a priority of claim to be discharged; and the separate creditors are only entitled in equity to seek payment from the surplus of the joint fund after satisfaction of the joint debts. The equity of the rule, on the other hand, equally requires that the joint creditors should only look to the surplus of the separate estates of the partners, after payment of the separate debts. It was a principle of the Roman law, and it has been acknowledged in the equity jurisprudence of Spain, England, and the United States, that partnership debts must be paid out of the partnership estate, and private and separate debts out of the private and separate estate of the individual partner. If the partnership creditors cannot obtain payment out of the partnership estate, they cannot in equity resort to the private and separate estate, until private and separate creditors are satisfied; nor have the creditors of the individual partners any claim upon the partnership property, until all the partnership creditors are satisfied."

It is argued, however, that this doctrine was overruled in Ohio, in the case of Grosvenor v. Austin, 6 Ohio Rep. 104, 25 Am. Dec. 743. It is true, that the reasoning of the court in the opinion is to that effect; but the case decided falls within one of the acknowledged exceptions to the rule. 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 case of Grosvenor v. Austin was a bill in equity by the creditors of the firm of Seymour Austin & Calvin Austin, for a distributive share with the individual creditors of Seymour Austin out of the assets of his separate estate in the hands of his administrator. There were no partnership assets, and both parties had died insolvent. This was not a case, therefore, for the application of the principle under consideration, and Judge Lane, in delivering the opinion, says, as to this rule: "This Court are of opinion, that if any such rule exist, it must have been of frequent application, and thus have become familiar to the profession. Yet no case is found in the books, except the one in 9 Vesey, and the South Carolina case, that touches such a doctrine, unless cases founded on the statutes of bankruptcy. A claim so novel in a case necessarily of such common occurrence, must be listened to with caution amounting to jealousy," etc. Touching the subject of this obiter opinion, the following remarks of the Supreme Court of the United States, in Murrill v. Neill, supra, are in point:

"The rule in equity governing the administration of insolvent part

nerships is one of familiar acceptation and practice; it is one which will be found to have been in practice in this country from the beginning of our judicial history, and to have been generally, if not universally, received. This rule, with one or two eccentric variations in the English practice which may be noted hereafter, is believed to be identical with that prevailing in England, and is this: that partnership creditors shall, in the first instance, be satisfied from the partnership estate; and separate or private creditors of the individual partners from the separate and private estate of the partners with whom they have made private and individual contracts; and that the private and individual property of the partners shall not be applied in extinguishment of partnership debts, until the separate and individual creditors of the respective partners shall be paid. The reason and foundation of this rule, or its equality and fairness, the court is not called on to justify. Were these less obvious than they are, it were enough to show the early adoption and general prevalence of this rule, to stay the hand of innovation at this day; at least, under any motive less strong than the most urgent propriety."

It has been argued that the statue in this State, relative to the equal distribution of the estates of deceased persons, and also the statute providing that all assignments of property in contemplation of insolvency, giving preferences to creditors, had established, in this State, a policy inconsistent with the rule in question. These statutes were certainly never intended to have such an effect. The equality required by them is subordinate to the settled equities and priorities of different grades and classes of creditors. It was manifestly not the design of these statutes to change the nature of partnership contracts, and abrogate the preference of partnership creditors in the distribution of the partnership assets. And as this was not done, the rule of equality adopted in equity, requires the corresponding preference to be given to the individual creditors of each partner in his separate estate.

2. 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 cred

itors of a partner, as they can only claim through the rights of their debtor, cannot be allowed such participation with the joint creditors.

It was at one time held to be the law, on the authority of adjudications by Lord Talbot and Lord Hardwicke, that if a partner has loaned money to the separate estate of one of the partners, according to the equitable rule of distribution of the assets after insolvency, in the former case, the separate creditors of the partner would be entitled to an equal share out of the joint assets to the extent of the debt created for the money lent; and that, in the latter case, the partnership creditors would be entitled to payment to the same extent, out of the individual estate of the partner. Ex parte Hunter, 1 Atk. 223; Story on Part., #390. But this doctrine has long since been overruled; and the contrary appears now to be well settled. In Ex parte Lodge, 1 Ves. Jr. 166, Lord Thurlow held that the assignees on behalf of the joint estate could not be entitled to distribution out of the separate estate of Lodge, for money which he had abstracted from the partnership, unless he had taken it with a fraudulent intent to augment his separate estate. And in Ex parte Harris, 2 Ves. and Beam. 210, 212, Lord Eldon said: "There has long been an end of the law which prevailed in the time of Lord Hardwicke, 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 £1,000 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."

This doctrine proceeds upon the principle that, in the distribution of the assets of insolvents, the equities of the creditors, whether joint or separate, must be worked out through the medium of the partners; that creditors can only step into the shoes of their immediate debtors in reaching their effects where there are conflicting claims; and that, inasmuch as an individual partner could not himself come in and compete with the partnership creditors, who are in fact his own creditors, in the distribution of the fund, and thereby prejudice those who were not only creditors of the partnership but also of himself; therefore the separate creditors of a partner could not enforce any claim to a distributive share

of the joint effects against the partnership creditors, which could not have been enforced by the partner himself for his own benefit. Story on Partnership, 390. The rule, however, that these several funds are to be thus administered as they stood at the time of the insolvency, to be received with this important limitation, that it does not apply in case, either where the effects obtained, creating the debt, were taken from the separate estate to augment the joint estate, or from the joint estate to augment the separate estate, fraudulently, or under circumstances from which fraud may be inferred, or under which it would be implied.

In the case before us, however, it is not pretended that the firm obtained the borrowed money from Murray improperly. The separate creditors of Murray, therefore, are not, on account of this claim for money lent by Murray to the firm, entitled to participate with the partnership creditors in the distribution of the joint effects.

Judgment of the common pleas reversed; and ordered that the separate effects of Peter Murray be distributed pro rata first among his individual creditors, before any application thereof be made to the payment of the partnership debts of Dever & Murray; and that the partnership effects be applied first to the payment of the partnership debts, irrespective of the claim of the partner, Peter Murray, for money loaned by him to the firm.

All of the other justices concurred.

RIGHT OF A PARTNER TO AN INJUNCTION AND THE APPOINTMENT OF A RECEIVER

NEW V. WRIGHT

44 Miss. 202 (1870)

PEYTON, C. J. It appears from the record in this case that Charles B. New and Charles A. Wright, on the 13th day of July, 1865, formed a partnership in the mill and lumber business, for the terms of five years from that date.

The bill of complaint of Charles B. New, filed in the Chancery Court of Jefferson County, on the 19th day of March, 1869, states that he was possessed of a large tract of land in said county of Jefferson, commonly called his "Buena Vista" plantation, on which was a great number of cypress trees, well suited and valuable for the purpose of being sawed into lumber, and that on said tract there was a valuable site for a sawmill, convenient to said cypress timber, and to the Mississippi River, for shipping lumber from such mill site, and that on said place he had

material and machinery suitable for the construction of a saw-mill in part. That by the terms of said partnership, the said Charles A. Wright was to use the cypress timber on said tract of land, for the said term of five years, to such an extent as might be necessary to carry on the sawmill and lumber business, and to dispose of the same according to the terms of the contract of partnership; that complainant was to allow said Wright, the use of the machinery then on said place as part of the machinery of said saw-mill, to be erected by said Wright, on said mill site, as soon as was practicable, and he was to place therein circular saws, and also machinery necessary and usual for the purpose of sawing lumber, personally to superintend the construction of said mill, the arrangement of the machinery, the hiring of laborers, and to defray all expenses incurred in the building of the mill, the purchase of machinery, wages of laborers, and all other expenses incident to the running of the said mill, and for which the complainant was not in any way to be responsible. But one-half of the sum thus expended in the construction of the mill, the purchase of the machinery, and the hire of labor by the said Wright is to be paid him, and one-half of the machinery, other property and labor furnished by complainant, to be paid to him out of the proceeds of the first sales of lumber, sawed in said mill, and when such payments were so made to the said parties, the mill and machinery should be the joint property of the complainant and said Wright, who was to continue to run the mill, and the profits resulting therefrom to be equally divided between them; that complainant was not to be liable for any of the debts contracted by said Wright, in the purchase of machinery, hiring of labor, running the mill, or in any other manner whatever.

The bill states that complainant was in part paid for his half of the machinery, materials and labor furnished by him in the erection of said mill, and that said Wright was also paid his entire half of the outlay in the purchase and erection of machinery, labor and materials in building said mill. And when these several outlays were paid to complainant and said Wright out of the proceeds of the sales of the first lumber sawed, the said mill was to be run by the said Wright as their joint property, at his sole expense, and that complainant was entitled to one-half of the proceeds of the lumber sold; that by the terms of the partnership the complainant's capital, to wit: the millsite and cypress timber were to to be set-off against the services of said Wright and expenses of running said mill and selling the lumber made thereat, for which complainant was to be in no manner bound, and that he is entitled to one-half of the proceeds of all the lumber sawed by the said mill, and sold by the said Wright, and to one-half of the lumber remaining unsold; and notwithstanding said mill has been constantly engaged in sawing lumber ever