property as against them. As the defendants' rights in the property, if any, could be determined and enforced only by an action in equity, which they neglected to bring, it appears to us that the plaintiffs should be allowed to maintain an action in equity to determine substantially the same question.

In our opinion the court erred in dismissing the plaintiffs' petition. Reversed.

SECTION 2.-IN EQUITY.

RODGERS v. MERANDA et al.

(Supreme Court of Ohio, 1857. 7 Ohio St. 180.)

The original proceeding was a petition for an order of distribution of the separate or individual assets of an insolvent debtor, as between separate and partnership creditors.

It appears from the record that about the 13th of June, 1854, Peter Murray, an insolvent debtor, made an assignment of all his estate, real and personal, to the plaintiff, in trust for the payment of his individual creditors in proportion to the amount of their respective demands. Though possessed of a large and valuable estate, it had been found insufficient to pay his separate debts and liabilities in full. At the date of his failure and assignment he was a partner with John W. Dever in a mercantile firm under the name and style of Dever & Murray; which firm had also become insolvent, and likewise Dever; and the firm had made an assignment of the partnership property and assets about the same time to John Meranda, one of the defendants, in trust for the payment of the joint debts or liabilities of the firm. In this condition of affairs the partnership creditors, although they have filed their claims with the assignee of the firm for their distributive shares out of the partnership property, claim the right to be admitted to a participation in the dividends of the separate estate of Murray, pari passu with his individual creditors; while the latter.

1 In Willis v. Henderson, 43 Ga. 325 (1871), McCay, J., in holding illegal an execution for the debt of one partner levied against the firm's property, said: "Without doubt, by the common law, it was competent to levy upon and sell the interest of a partner in any property belonging to the partnership. Shaw v. McDonald, 21 Ga. 395. The purchaser got the interest of the partner. He did not get an undivided title equal to the partner's share in the concern according to the agreement, but the interest of the partner after a settlement of the concern affairs. Hoskins v. Johnson, 24 Ga. 625. Evidently this was a very clumsy and often a very unjust mode of enforcing the claims of a creditor against one of the firm. The purchaser did not know what he was buying, since his interest depended altogether upon the result of a settlement of the firm affairs. Our Code (section 1908) prohibits the sale of effects so situated, and provides that the interest of a partner in the partnership assets may be reached by the process of garnishment."

deny the right, and insist that his separate estate shall be applied to the satisfaction of his individual debts in preference to his partnership debts.

It appears, further, that Murray, besides advancing his part of the capital of the firm, also loaned money to the firm to a large amount, for which he held the obligations of the firm, which obligations, by the assignment of Murray, came into the hands of the plaintiff, who has presented the same to the assignee of the firm, and claims to have the same paid out of the assets of the firm, pari passu with the other partnership debts. The other creditors resist this, and plaintiff asks an order of distribution to that effect out of partnership assets.

Defendants demurred to the petition. The court below sustained the demurrer, and gave judgment in favor of the defendants; and this petition in error is filed to review and reverse that judgment. BARTLEY, C. J. Two questions are presented for determination in this case. The first is whether, in the distribution of the assets of insolvent partners, where there are both individual and partnership assets, the individual creditors of a partner are entitled to be first paid out of the individual effects of their debtor, before the partnership creditors are entitled to any distribution there from. 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 a correlative rule, giving a preference to the individual creditors of a partner in his separate property; so that partnership creditors can, in equity, only look to the surplus of the separate property of a partner, after the payment of his individual debts, and, on the other hand, the individual creditors of a partner can in like manner only claim distribution from the debtor's interest in the surplus of the joint fund after the satisfaction of the partnership creditors. The correctness of this rule, however, has been much controverted; and there has not been always a perfect concurrence in the reasons assigned for it by those courts which have adhered to it. By some it has been said to be an arbitrary rule, established from considerations of convenience; by others, that it rests on the basis that a primary liability attaches to the fund on which the credit was given-that in contracts with a partnership, credit is given on the supposed responsibility of the firm, while in contracts with a partner as an individual reliance is supposed to be placed on his separate responsibility. 3 Kent, Com. 65. And, again,

GIL.PART.-34

others have assigned as a reason for the rule that the joint estate is supposed to be benefited to the extent of every credit which is given to the firm, and that the separate estate is, in like manner, presumed to be enlarged by the debts contracted by the individual partner, and that there is consequently a clear equity in confining the creditors, as to preference, to each estate respectively, which has been thus benefited by their transactions. McCulloh v. Dashiell, 1 Har. & G. (Md.) 96, 18 Am. Dec. 271. But these reasons are not entirely satisfactory. So important a rule must have a better foundation to stand upon than a mere consideration of convenience; and practically it is undeniable that those who give credit to a partnership look to the individual responsibility of the partners, as well as that of the firm, and also those who contract with a partner in his separate capacity place reliance on his various resources or means, whether individual or joint. And inasmuch as individual debts are often contracted to raise means which are put into the business of a partnership, and also partnership effects often withdrawn from the firm and appropriated to the separate use of the partners, it cannot be practically true that the separate estate has been benefited to the extent of every credit given to each individual partner, nor that the joint estate has retained from the separate estate of each partner the benefit of every credit given to the firm. Unsatisfactory reasons may weaken confidence in a rule which is well founded.

What, then, is the true foundation of the rule which gives the individual creditor a preference over the partnership creditor in the distribution of the separate estate of a partner? To say that it is a rule of general equity, as has been sometimes said, is not a satisfactory solution of the difficulty; for the question is whether it be a rule of equity or not. In the distribution of the assets of insolvents, equality is equity; and to say that the rule which gives the individual creditor a preference over the partnership creditor in the separate estate of the partner is a rule of equality does not still rid the subject of difficulty. For, leaving the rule to stand which gives the preference to the joint creditors in the partnership property, and perfect equality between the joint and individual creditors is, perhaps, rarely attainable. That it is, however, more equal and just, as a general rule, than any other which can be devised, consistently with the preference to the partnership creditors in the joint estate, cannot be successfully controverted. 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 shares 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 on. And besides the advantage which the joint creditors have, arising from the fact that the partnership fund 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 an 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 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 the 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 separate estate of each partner. What equality and justice is there in allowing partnership creditors, who have been paid 80 per cent. on their debts out of the joint fund, to come in pari passu with the individual creditors of one of the partners, whose separate property will not pay 20 per cent. to his separate creditors? How could that be said to be an equal distribution of the assets of insolvents among their creditors? It is true that an occasional case may arise where the joint effects are proportionably less than the separate assets of an insolvent partner. But, as a general thing, a very decided advantage is given to the partnership creditors, notwithstanding this preference of the individual creditors in the separate property; and that advantage, arising out of the nature of a partnership contract, is unavoidable. Some general rule is necessary; and that must rest on the basis of the unalterable preference of the partnership creditors in the joint effects, and their further right to some claim in the separate property of each of the several partners. The preference, therefore, of the individual creditors of a partner in the distribution of his separate estate results as a principle of equity from the preference of partnership creditors in the partnership funds, and their advantages in having different. funds to resort to, while the individual creditors have but one.

It has been argued that partnership contracts are several as well as joint, and consequently have an equal legal right with separate creditors upon the individual property of a partner. But the right

of partnership creditors against the separate property of individual partners in proceedings at law is not in controversy. The question here relates to the relative equitable rights of two classes of creditors in the distribution of the estates of insolvents. Much of the confusion upon this subject has probably arisen from confounding the abstract rights of creditors in proceedings at law with their relative rights to an equitable adjustment in marshaling the assets of insolvents in chancery.

The rule here adopted appears to have been followed in England for nearly a century and a half. We find it distinctly recognized in the case of Ex parte Crowder, 2 Vern. 706, decided in 1715. And in Ex parte Cook, 2 P. Wms. 500, Lord Chancellor King declared it settled as a rule of convenience in bankruptcy that joint creditors should be first paid out of the partnership estate and the separate creditors out of the separate estate of each partner, and, if there be a surplus of the joint estate after paying the joint creditors, the share of each partner should be distributed to his separate creditors, and if, on the other hand, there should be a surplus of the separate estate of a partner after the satisfaction of his individual creditors, it should be applied to any deficiency of the joint funds in the satisfaction of the partnership debts. Lord Hardwicke followed the same rule, in Ex parte Hunter, 1 Atk. 228. But it appears that in Ex parte Hodgson, 2 Bro. C. C., decided in 1785, Lord Thurlow made an innovation on the rule in bankruptcy, declaring that there was no distinction between joint and separate creditors, that they ought to be paid out of the bankrupt's estate and his moiety of the joint estate, and that the joint creditors ought to come in pari passu with the separate creditors. This ruling of Lord Thurlow appears to have had reference to proceedings at law and in bankruptcy, for it is said that, consistently therewith, it was competent for the assignees to confine the joint creditors, where there was a joint estate, to that fund exclusively, by filing a bill in equity against the other partners and obtaining an injunction on the order in bankruptcy. But how far this innovation went, in practice, to affect the ultimate rights of the parties, is wholly immaterial, inasmuch as Lord Loughborough, in Ex parte Elton, 3 Ves. Jr. 238, in the year 1796, restored the rule which previously prevailed, holding that the rule introduced by the Case of Hodgson was inconvenient, inasmuch as every order which he passed in bankruptcy, giving a joint creditor a dividend out of the separate estate of a partner, would give rise to a bill in equity, on the part of the separate creditors, to restrain the order and secure the application of the separate estate to the satisfaction of the separate debts; and, although it was adjudged that a joint creditor might prove his claim under a separate commission, yet he could not receive any dividend there from until the amount of his distribution in the joint fund could be ascertained and the claims of the separate creditors satisfied. And the opinion of the Lord Chancellor, in this case, puts an end to the assertion, which