P. T. George & Co. v. E. N. Morison & Co.

Schmucker, J., delivered the opinion of the Court. Early in December, 1899, the firm of P. T. George & Co., ■which had for many years been engaged in trade in Baltimore City, became financially embarrassed and failed in business. The firm was composed of Philip T., Samuel E. and Josias J. George. Samuel E., being very heavily indebted to the firm, withdrew therefrom and made an assignment of his interest in its assets to the remaining partners, and a few days thereafter made an assignment to N. Winslow Williams for the benefit of his creditors without preference.

After Samuel E. George had left the firm its creditors accepted a transfer of all of its assets of every kind in satisfaction of the debts due to them. The transfer of the assets was effected by having the remaining partners assign them to The P. T. George Company, a corporation composed of the creditors. As the debt from Samuel E. George to the firm ¹³⁴ formed part of its assets, that debt passed under the assignment to the P. T. George Company and became its property. N. Winslow Williams, the trustee of Samuel E. George’s individual estate under the assignment for the benefit of his creditors, administered his trust under the supervision of the Circuit Court of Baltimore City.

A claim for $357,493.30, being the sum due from Samuel E. George to the firm at the date of his withdrawal therefrom, was filed in the trust estate case, by Philip T. and Josias E. George, co-partners, trading as P. T. George & Co. Certain funds, being ready for distribution among the individual creditors of Samuel E. George by the trustee, the auditor stated alternative distribution accounts in one of which the claim for $3 57,493.30 was allowed to participate pari passu with the other creditors and in the other of which that claim was excluded from participation. Certain of the other creditors filed exceptions to the allowance of the claim and the Circuit Court upon the hearing of the matter sustained the exceptions and passed an order ratifying the account which had excluded the claim and from that order the appeal was taken. It appears from the record that the controverted claim of $3 57,493.3° was proven against the assets of Samuel E. George, not by the P. T. George Co. to which it had been assigned as part of the firm assets, but by Philip T. and Josias E. George, co-partners, trading as P. T. George & Co. They did not assert the claim as trustees for the corporation nor has the claim been entered to its use nor does it appear to be a party to the record in any capacity. For that reason if for no other the order appealed from must be affirmed, but in order that the right of this claim to participate in the distribution of the individual estate of the insolvent partner along with his individual debts may be settled we give expression to our views upon the merits of the case.

The doctrine of marshalling of assets and claims as between the co-partnership and individual creditors of an insolvent firm has formed, in its various aspects, an interesting and important theme of judicial discussion for two centuries in the English, ¹³⁵ and for a shorter period in the American, Equity and Bankruptcy Courts. A recent and very full review of the historical development of the doctrine is found in the opinion of Judge Lowell In re Wilcox, 94 F. R. 84. From this judicial discussion there has resulted the well-settled general proposition that the individual property of the partner is applicable in the first instance to the payment of his individual debts and the firm property must be first applied to the payment of the firm debts and only the surplus, if any there be, of each fund is applicable to the payment of the other class of debts. McCulloh v. Dashiell, 1 H. & G. 96 ; Glenn v. Gill, 2 Md. 15 ; Hull v. Deering, 80 Md. 124 ; Pott v. Schmucker, 84 Md. 535 .

The issue now before us does not, strictly speaking, involve the general proposition to which we have referred, because the contest here is not between firm creditors and individual creditors. This is a case, it is true, of the distribution in equity of the individual assets of one insolvent partner, but there are no firm creditors before the Court. The real contest is between the assignee of a debt due by the partner to a firm of which he was a member on the one hand and the holders of debts growing out of his separate transactions on the other hand. We have referred in this connection to the general doctrine of marshalling of assets in cases of co-partnerships because under the authorities and especially under the rulings of this Court in the recent case of Pott v. Schmucker, supra, where there is a full discussion of the whole subject which need not be repeated here, the determination of the present issue must be controlled by a proposition which results as a corollary from the general doctrine.

In Pott's case the trustee of an insolvent firm claimed the right to participate, as the holder of a debt due to the firm by an insolvent partner, in the distribution of a fund which the Court