rule has been followed in America, although some of the courts seem inclined to overlook the necessity of the existence of a living solvent partner. (In re Mills, Fed. Cas. 9,611; 11 N. B. R. 74; in re Downing, Fed. Cas. 4,044; 3 N. B. R. 748; 1 Dill. 33; in re Goedde, Fed. Cas. 5,500; 6 N. B. R. 295; in re Knight, 8 N. B. R. 436; Fed. Cas. 7,880; 2 Biss. 518, disapproving Somerset Pottery Co. v. Minot, 10 Cush. 592; in re McEwan, Fed. Cas. 8.783; 12 N. B. R. 11.) There is some conflict among the authorities as to whether there must be absolutely no assets belonging to the partnership or whether the fact that the assets of the partnership are insufficient to pay expenses of administration is sufficient. Both on authority and principle, it would seem that, where the firm assets are not of sufficient value to leave any fund whatever for distribution after the expense of their reduction to cash, it should be deemed that there are no partnership assets. In other words, after the payment of the expenses there must be some net proceeds from the partnership assets. (In re Goedde, supra; in re McEwan, supra; Story on Part. § 380; in re Marwick, 8 Law Rep. 169; s. c. 2 Ware, 233; s. c. 3 N. Y. Leg. Obs. 286; Collyer on Part. B. 4, ch. 2, § 3, pp. 626 and 627, 2d ed.; Ex p. Leaf, 1 Deacon R. 176; in re Lee & Armstrong, 2 Rose, 54; Ex p. Peake, 2 Rose, 54; Ex p. Hill, 5 Bos. & Pull. 191, A; Ex p. Janson, 3 Madd. R. 229; Ex p. Kensington, 14 Ves. 447.) The burden of proving that there are partnership assets rests upon the individual creditors who claim a right of priority in the individual assets. (In re Rice, Fed. Cas. 11,750; 9 N. B. R. 373; in re Jewett, 1 N. B. R. 491; Fed. Cas. 7,304.)

There have been two District Court decisions under the Act of 1898 dissenting from the English rule. (In re Wilcox, D. C. Mass. 2 Am. B. R. 117; 94 Fed. 84 and in re Mills, D. C. Indiana, 2 Am. B. R. 667; 95 Fed. 269.) In the last mentioned case Baker, J. held that where a partnership has been dissolved by a suit in a State court, and partnership creditors have received from partnership assets a dividend of 55 per cent, they cannot thereafter share pari passu with individual creditors in individual assets, which are being distributed in bankruptcy. Unless they

first surrender the dividend received in the dissolution proceeding, it would be inequitable for them to share with individual creditors who in that proceeding had obtained nothing and it is queried whether the exceptions frequently recognized by the courts is well-founded law-viz. that in marshaling and distributing partnership and individual assets, if there is no living solvent partner, joint creditors are entitled to share pari passu with individual creditors in individual assets. The Indiana rule is declared to be opposed to the recognition of the exception.

The grounds upon which Judge Baker renders his decision in this case seem to be the precise grounds upon which the decision turned in the English case of Lodge v. Richard (1 DeGex. J. & S. 610, discussed at length in In re Wilcox, 2 Am. B. R. 117 at 139), namely, the inequity of permitting the joint creditors to first exhaust the joint assets, and then claim a right to share in another fund (the individual assets) pari passu with individual creditors. Yet it is to be noted that the exception that where there is no living solvent partner and no joint assets, joint and individual creditors share pari passu, was recognized by the judges in that case as being a fixed rule of distribution even though possibly it was a rule hard to satisfactorily explain.

The opinion in In re Wilcox (94 Fed. 84; 2 Am. B. R. 117) is a most scholarly review of all the leading decisions on the point, both English and American, for the last two hundred years. It is admitted in it that there has been not only much conflict between these decisions, but that there has been a wavering or variance in the several decisions of the same forums. The learned judge in that opinion reaches the conclusion that at least, under the present Bankruptcy Law, the former well-recognized exception to the general rule as to marshaling and distributing the property of insolvent partnership, viz. that in case of no joint assets and no living solvent partner, joint and individual creditors. should share pari passu in individual assets, is no longer to be recognized.

The decision of the judge in In re Wilcox seems to be a courageous and independent determination to declare as no longer

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What are Firm Assets and What are Individual Assets?

good law an exception to a general rule, which exception always proved one difficult for courts and judges to justify upon principle or reason. But a review of the cases nevertheless seems. to show that a large majority of them-even those considered in In re Wilcox-regarded the exception as a fixed and wellrecognized one, and as a rule of law so long settled, that, upon principles of public policy and upon the presumption that contracts are entered into and transactions are undertaken with reference to it, it should not be disturbed.

The language of the Statute of 1867 upon the subject of marshaling and distributing partnership estates seems to have been without material difference from that of the present act; yet under that act many of the courts, as will be seen by a review of the cases cited above and also those discussed in In re Wilcox, held that the exception above mentioned still existed.

What are Firm Assets and What are Individual Assets?-Questions as to whether assets are partnership or individual frequently arise, sometimes from the nature of the property or more often from transactions between the several partners or between the firm and one partner.

Both personal property and real property may be held by the partnership.

Real estate purchased by a partnership for partnership purposes, with partnership funds, is regarded in equity, so far as the firm and its creditors are concerned, as personal property. (Greenwood v. Marvin, 111 N. Y. 423; 19 St. Rep. 612.)

The English doctrine is that partnership realty is ipso facto converted into personalty, not only between the parties, but also as affecting the rights of the heirs, administrators, etc. of a deceased partner, unless the partners especially express their intention that it be otherwise.

The New York rule, which is the American rule, holds, in the absence of any agreement to the contrary, that it retains the character of realty until the occasion arises for a conversion, and then becomes personalty only to the extent required. The portion not

What are Firm Assets and What are Individual Assets? [Ch. III, required for partnership equities retains its character as realty, and the rule leaves the laws of descent to their ordinary operation. (Darrow v. Calkins, 154 N. Y. 503; 61 Am. St. Rep. 637.)

The good-will of a partnership business is treated as a firm asset. No matter how valuable or valueless it may be, it is subject to sale with the other partnership assets upon the winding up of the firm business. (Vonderbank v. Schmitt, 44 La. Ann. 264; 15 L. R. A. 462; 32 Am. St. Rep. 336.)

Questions as to what are partnership and what are individual assets more frequently arise where there have been transfers of property once belonging to the firm to one member thereof. If a firm is solvent, it is perfectly legal and proper for one member to purchase the firm assets upon an agreement to pay the firm debts, or for other valuable consideration. If such a transfer is made in good faith by a solvent firm, the property becomes, both in law and equity, the individual property of the purchasing member. Firm creditors may still look to all of the members for payment of their claims; or, if they choose, they may accept the assuming member as their sole debtor. (In re Collier, Taylor & Co. Fed. Cas. 3,002, 12 N. B. R. 266; in re Long, Fed. Cas. 8,476; 7 Ben. 141; s. c. 9. N. B. R. 227; in re Downing, Fed. Cas. 4,044; 1 Dill. 33; s. c. 3 N. B. R. 748; in re Wiley, Fed Cas. 17,656; 4 Biss. 214; in re Mills, Fed. Cas. 9,611; 11 N. B. R. 74.) But if a firm is insolvent and if a sale to one partner is made with the intention of enabling the individual creditors of the purchasing partner to obtain payment from a larger fund, thereby giving them a preference; or, if for any other reason, the transfer is inequitable, it will be treated by the court of bankruptcy as null and void, and the property will be disposed of as if it were still partnership assets. (In re Cook & Gleason, Fed. Cas. 3,151; 3 Biss. 116; in re Byrne, Fed. Cas. 2,270; 1 N. B. R. 464; s. c. 7 A. L. Reg. 499.) This, in fact, is nothing more than the invalidating of a preferential transfer, and distribution accordingly. (See post under this section sub nom. PROVING CLAIMS OF PARTNERSHIP ESTATE AGAINST INDIVIDUAL ESTATES, ETC.)

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What are Firm Assets and What are Individual Assets?

It is very clear, as already pointed out, that any scheme or device resorted to by persons in contemplation of bankruptcy for the purpose of charging the partnership assets with the individual liabilities of the partners is violative of the provisions of the act. In a recent case (In re Jones et al. D. C. Mo. 4 Am. B. R. 141; 100 Fed. 781) this rule was laid down where firm indorsements were made at a time when the firm was in an embarrassed financial condition without any new consideration moving from the individual creditor to the firm and within four months prior to the involuntary firm petition in bankruptcy. In this case, Adams, J.

says:

"It seems to me that a statement of this case is enough to dispose of it. Section 5, subd. g,' of the Bankruptcy Act provides that the court shall marshal the assets of the partnership estate and individual assets so as to prevent preferences, and secure the equitable distribution of the property of the several estates. The same section provides that the net proceeds of the partnership property should be appropriated to the payment of partnership debts, and the net proceeds of the individual estates of each partner to the payment of his individual debts. Any surplus of either after the satisfaction of the claims of its appropriate class (and not until then) may be employed for the satisfaction of the claims of the other class. Section 60 of the act provides that any such transfer of property, or the effect of the enforcement of such transfer, as will enable any one of the bankrupt's creditors to obtain a greater percentage of his debt than any other of such creditors of the same class, shall constitute a preference, and any such preference given within four months before the filing of the petition for adjudication of bankruptcy shall be voidable by the trustee. From these excerpts out of the Bankruptcy Act, as well as from others, which are not necessarily here mentioned, it is perfectly apparent what the general scheme of the Bankruptcy Act contemplates with regard to partnership assets, namely, that they shall be in good faith applied first to the payment of partnership debts; therefore any scheme or device resorted to by persons in contemplation of bankruptcy for the purpose of charging partnership assets with the individual liabilities of the partners is, in substance and effect, violative of the provisions of the act, and, inasmuch as the court is required to so marshal partnership assets as to secure the equitable distribution of the property of the several estates, it is clear that the court must brush away all these attempts at evasion and hold the parties to the requirements of the Bankruptcy Act administered broadly and equitably to accomplish the objects intended by it. The scheme resorted to, as shown in the statement of this case, by the bankrupts to foist upon the partnership assets the payment of their individual liabilities, was at least devised for an inequitable purpose within the purview of the Bankruptcy Act. The physical