H.L. (E.) Nanson v. Gordon. 1876 the estate of Peter Dixon was increased the greater would *be the amount which they could obtain from it, as [200 the estate of one liable to the debts of the joint partnership. Mr. De Gex, Q.C., and Mr. Davey, Q.C., for the respondent: The rule of bankruptcy law is clear, and this case affords no ground for exception to it. The cases of Ex parte Sillitoe (') and Ex parte Carter (") state the principle distinctly. In the first of these cases Lord Eldon thus expressed himself (3): "The rule is that a partner in a firm against which a commission of bankruptcy issues, shall not prove in competition with the creditors of the firm, who are in fact his own creditors, and shall not take part of the fund to the prejudice of those who are not only creditors of the partnership but of himself." His Lordship admitted that there might be an exception to the rule, and mentioned there the case of Ex parte Kendal (), where he said the partner became a creditor in respect of the fraudulent conversion of his separate estate to the use of the partnership. There was nothing of that kind here. And referring to St. Barbe (°), it was shown that to make, in any case of that sort, proof under a joint commission admissible, the two trades must be really and entirely distinct from each other. Here there was but one firm, not two distinct firms, and the funds of the deceased remained in his firm in precisely the same manner as they had stood there before his death. Under circumstances such as exist here the proof cannot be admitted: Ex parte Adams ("). The rule now contended for was clearly stated in Ex parte Ellis ('), and was acted upon by the Lords Justices recently in Ex parte Bass ("). It made no difference that the joint creditors might ultimately come upon the individual estate of Peter Dixon if this claim should be allowed. It is the settled rule of bankruptcy that the fund for payment of the joint creditors must not be affected by contingencies. *And here [201 there can be no doubt that there would not be, in fact, any thing of which they could avail themselves if this proof should be allowed. Lindley on Partnership (") was also referred to. Mr. Marten replied. (1) 1 Gl. & J., 374. (2) 2 Gl. & J., 233. (2) 1 Gl. &. J., 382. (4) Referred to in Ex parte Sillitoe, 1 Gl. & J., at p. 382, as reported in 1 Rose, 71. This reference must be a mistake. The case was probably Lodge and Fendal, 1 Ves. Jun., 166, 167, to which Lord El don correctly referred in Ex parte Harris, 2 Ves. & B., at p. 213, and Ex parte Yonge, 3 Ves. & B., 34. (5) 11 Ves., 414. (7) 2 GÌ. & J., 312. (*) 36 L. J. (N.S.) (Bankey.), 39. 1876 Nanson v. Gordon. H.L. (E.) THE LORD CHANCELLOR (Lord Cairns): My Lords, it appears to me, that the question which is submitted to your Lordships on appeal in this case is entirely covered by authority-by authority which has ranged over a great number of years, and has, indeed, become a leading principle in the administration of the law of bankruptcy. The statement of the general principle may be taken from a number of cases; but I may conveniently refer to the enunciation of it by Lord Eldon in the case of Ex parte Sillitoe ('): "A partner in a firm against which a commission of bankruptcy issues shall not prove in competition with the creditors of the firm who are in fact his own creditors, and shall not take part of the fund to the prejudice of those who are not only creditors of the partnership but of himself." My Lords, what are the facts of the present case so far as they are material? There is a gentleman of the name of Peter Dixon, in business with certain other partners; he dies, and, according to the contract of partnership, upon the occurrence of the death of a partner, his share in the assets is to be taken as it stood in the books of the concern on the 1st of the previous July; it is to be paid out by instalments ranging, I think, over fourteen years, and the surviving partners are to continue the business, paying out his capital in that way. Accordingly, the share of this partner was taken as it stood in the books of the concern, and it fell to be paid out by instalments as had been agreed upon. Before it was paid out the surviving and continuing partners became bankrupt. This transaction has been called a purchase and a sale, and has been treated as if it were something altogether independent of the partnership. My Lords, it is impossible to disguise the transaction by applying to it terms of that kind. It was a mode by which, for 202] *the obvious convenience of all parties, it was arranged that upon the death of a partner his share in the assets should be paid out to him, in certain instalments of money, in place of the concern being broken up and liquidated by a sale, and he was a creditor of the continuing partners for the amount of his interest in the concern thus ascertained. My Lords, the continuing partners, as I have said, became bankrupt. But before they became bankrupt, Dixon himself died, and his estate came to be administered in the Court of Chancery, and is now being administered there. A large amount of debt which existed against the firm at the time when Dixon died, is still unpaid, and the creditors entitled to those debts have proved those debts in the adminis(") 1 G1. & J., 374. H.L. (E.) Nanson v. Gordon. 1876 tration in the Court of Chancery. Now, these debts of course have to be paid by the estate of Dixon, but they are also debts in the bankruptcy against the continuing partners, and, there being no joint estate, that is to say, no joint estate belonging to the firm as it was originally constituted, these debts will have to be paid out of the only estate in the bankruptcy, namely, the joint estate of those who were partners at the time of the bankruptcy. Your Lordships have therefore a case in which the estate of the deceased partner, Dixon, is liable to pay to these creditors that I have mentioned the amount of their debts, and those creditors are at the same time entitled to come upon the fund in bankruptcy, to have their debts paid out of that fund; and just in proportion as the estate of the deceased, Dixon, will carry away a portion of that fund for the payment of the debt due to him, in that proportion the fund which would be available for the payment of those creditors in the bankruptcy will be lessened. Now, it is said that although it may appear at first sight to be a diminution, by the estate of Dixon, of the fund that would be paid to these creditors in the bankruptcy, that is to say, would be paid to those persons in the bankruptcy who are besides creditors of himself, still in reality they will benefit and not suffer by that arrangement, because inasmuch as they are the whole, or almost the whole, of the creditors against his estate the dividend will be brought into his estate, and they will have the benefit of it there. My Lords, that is an accident. There *might have been [203 separate creditors of Dixon to the amount of hundreds of thousands of pounds, in which case the process that I have described in place of being beneficial to his creditors who were creditors at the time that he was in business, would have been in the highest degree injurious to them. And I. think your Lordships have not heard any authority cited in which the court has entered into an investigation of how the general rule enunciated by Lord Eldon in Ex parte Sillitoe (') will apply in a particular case. Indeed, in a case which came before the Lords Justices, Ex parte Bass ('), it was expressly stated that it was not the habit of the court, and would not be right in the court, to investigate what might be called the outcome of the accounts, in order to determine, a priori, whether the rule ought or ought not to be applied. Then, my Lords, it is contended, and this really has been the great topic of argument before your Lordships, that although (1) 1 Gl. & J., 374. (9) 36 L. J (N.S.), Bankey.), 39. 1876 Nanson v. Gordon. H.L. (E.) the rule mentioned by Lord Eldon in Ex parte Sillitoe ('), and applied in so many other cases, exists where the person who seeks to prove against the estate in the bankruptcy is a living person, that rule does not apply where he has died, and where it is not himself but his estate which is coming and seeking to prove against the estate in the bankruptcy. If there was no authority upon that point, I should have said that it would be in the highest degree unreasonable and irrational to hold that if a trader had retired from a partnership, and that partnership became bankrupt, he, the trader, should not prove in competition with creditors so long as he lived, but that the moment he died his executors could do what he himself could not have done, and come in and prove in competition with the creditors; that is to say, that the firm in which he was a partner having become bankrupt he would be unable, we will say, for one month after the bankruptcy, to prove in competition with the creditors, but if he should die on the last day of the month, that then his executors, as soon as they had proved his will, might at once come in and do the very thing that he could not have done. Could anything more whimsical, more capricious, or more irrational, be supposed? If the 204] reason is that the hand to pay *should not prove in competition with those who are to receive, then whether that hand to pay is the living hand of the man himself, or is the deputed hand of his executors, is utterly immaterial. But, my Lords, is there any authority upon the subject? The case of Ex parte Carter (3) is express upon the point. Lord Eldon there admitted no distinction of this kind whatever, although he had before him the case of executors. He treated the case of executors exactly as if it had been the case of the person to whom they were executors. Is there any authority produced in the opposite direction? There is none; and I apprehend that to make a distinction upon a ground so unsubstantial, so unreal, so irrational, would be a course which your Lordships would be slow to adopt. My Lords, I am bound to say that I concur entirely with the judgment delivered by the Lords Justices, and I submit to your Lordships that this appeal should be dismissed with costs. LORD CHELMSFORD: My Lords, the sole question to be determined is, whether the rule that a partner in a firm against which a commission of bankruptcy issues shall not prove in competition with the creditors of the firm appli to this case. (1) 1 Gl. & J., 374. (2) 2 Gl. & J., 233. H.L. (E.) Nanson v. Gordon. 1876 Under the will of Peter Dixon his executors allowed his share in the partnership to continue in the business, and the amount of it became a debt due to his estate from the continuing partners, as said by Lord Eldon in Ex parte Carter (). At the time of the petition for liquidation being presented by the continuing partners, there were unpaid debts to the amount of £27,000, which were contracted by the firm while Peter Dixon was a member of it, and consequently for which his estate was liable. The debt claimed of the executors was in fact incurred by the continuing partners under the terms of the partnership deed, which provides that in case any partner should die without having made a valid bequest of his share, the share of such deceased partner should be taken *at its value, and the amount [205 found due should be paid in a certain manner. If there had been no actual bequest of Peter Dixon's share in the partnership, the value of it would have gone to his executors as a debt from the continuing partners to his estate. And the actual bequest does not vary, but confirms the relation between the parties. The position of the executors in their representative capacity is exactly similar to that of their testator. They are liable in respect of the estate to the creditors for debts incurred by the firm while Peter Dixon was a partner, and they are creditors of the firm in respect of the debt due to their testator for his share in the partnership. Therefore there can be no difference between the case of the partner himself and of his executors. They are equally within the range of the principle that a man shall not come into competition with his own creditors. This conclusion seems to me to be supported by those authorities which are directly applicable to the circumstances of the present case, and is not to be shaken by cases on the other side which were decided upon the ground of not being at all within the rule, as in Ex parte Westcott (2); or of being exceptions to it, as in Ex parte Kendal, mentioned by Lord Chancellor Eldon in Ex parte Sillitoe_(3). Under these circumstances, my Lords, I agree with my noble and learned friend, that the order appealed from ought to be affirmed. LORD HATHERLEY: My Lords, I entirely concur in the conclusion at which my noble and learned friends have arrived in this case. It appears to me that to decide otherwise than as the Lords Justices did, when the case was before them, would be to overthrow a rule which seems to (3) 1 Gl. & J., 382. See n. (4), ante, p. 200. (1) 2 Gl. & J., 233. (2) Law Rep., 9 Ch. Ap., 626. |