same persons). If, however, the other partners had knowl edge, or means of knowledge, of the acts of the defaulting partner, and have taken no means to correct them, or if the funds were withdrawn under a general authority, though the authority were exceeded, his abstraction will be considered as a debt merely, and not provable. Drawings openly entered on the partnership books have been held a mere overdraft.2

If a partner has a debt for which an action at law could be maintained against his co-partner, as if the debt is wholly disconnected with the affairs of the partnership, or where a balance has been struck and acknowledged, he may bring a petition in bankruptcy against his co-partner, but cannot receive a dividend until the joint debts are all paid.

§ 135. Surplus. If there is a surplus of the separate estate of a partner, it goes to increase the joint assets.

If there is a surplus of joint assets, it is to be applied, first, to satisfy the lien of any partner or partners to whom the firm is indebted, and then to the separate estates, according to the interest of the several partners, as if the firm had been dissolved in any other way. If the surplus of joint assets is insufficient to pay a partner his debt, his assignees may prove against the separate estates of the partners indebted to him.

A singular distinction prevails in that, to ascertain the surplus, joint creditors are entitled to interest before division is made, and separate creditors are not.5 The discrepancy is accentuated by the rule that, in administration of the estate of a deceased insolvent, his separate creditors receive interest.

1 Ex parte Harris, 2 Ves. & B. 210 (dictum); Ex parte Lodge, 1 Ves. 166 (dictum); Lacey v. Hill, 4 Ch. D. 537; affirmed, nom. Read v. Bailey, 3 App. Cas. 94.

2 Ex parte Smith, 1 Gl. & J. 74, 6 Madd. 2; Read v. Bailey, 3 App. Cas. 94, 98, per Cairns, L. C.

3 Ex parte Richardson, 3 Dea. & Ch. 244; Ex parte Briggs, ib. 367.

4 Ex parte King, 17 Ves. 115.

5 Ex parte Reid, 2 Rose, 84; Ex parte Reeve, 9 Ves. 588; Ex parte

Ogle, Mont. 350; Ex parte King, 17 Ves. 115; Ex parte Boardman, 1 Cox, 275; Ex parte Minchin, 2 Gl. & J. 287 ; Thomas v. Minot, 10 Gray, 263; Re Berrian, 6 Ben. 297, Fed. Cas. No. 1351; Ex parte Rix, Mont. 237; Pearce v. Slocomb, 3 Y. & C. Ex. 84; Ex parte Woodford, 3 De G. & S. 666. [This seems not to be the law under the act of 1898. See infra, § 468.]

6 Ex parte Franklyn, Buck, 332; Re Dunkerson, 12 N. B. R. 391, Fed. Cas. No. 4159.

If the same bankrupt is a member of several firms, the surplus of his separate estate is distributed to them, or their assignees, pro rata of the amount of debts proved against each firm.1

§ 136. Same Persons Partners in Different Places. - If all the same persons are partners in different places, whether under the same or under different firm names, the assets are marshalled as if there were but one firm.2 It has been thought that it would accord better with the theory of the rule, that the creditors of each firm should have a first claim against the assets of that firm, but the decisions as yet are opposed to this modification.

§ 137. Conversion of Joint into Separate Property, and vice versa; Ex parte Ruffin. In Ex parte Ruffin, Lord Eldon decided that when partners had dissolved their firm in good faith, and the retiring partner had unconditionally assigned all the joint property to the remaining partner, who gave a binding covenant to pay the joint debts, then, upon the bankruptcy of the remaining partner, the joint creditors could not share in what had been the joint assets, because their lien depended on that of the retiring partner, who had relinquished it; that the assets had been lawfully severed, though the old debts remained joint.

Of the soundness of this decision, excepting when the partners are insolvent at the time of the transfer, there is no doubt.5 In the principal case, the bankruptcy occurred about a year and a half after the dissolution. But the rule has been applied in the numerous cases cited below, in some of which the time was very short, only a week in one case, so that there could have been no intervening equities.

I cite, among others, cases of conversion of separate into joint estate, and of conversion in the ordinary course of trade, and upon the death of a partner, in accordance with valid partnership articles."

1 Ex parte Franklyn, Buck, 332; Re Dunkerson, 12 N. B. R. 391, Fed. Cas. No. 4159.

2 Buckner v. Calcote, 28 Miss. 432. See decision of Daniel, J., reported at 28 Miss. 447, note.

4 6 Ves. 119.

5 See infra, § 139.

Ex parte Williams, 11 Ves. 3; Ex parte Peake, 1 Madd. 346; Ex parte Clarkson, 4 Dea. & Ch. 56; Ex parte Fry, 1 Gl. & J. 96; Ex parte Owen, 4

The flagrant injustice of the result, in many cases, of giving the separate creditors the joint property, has led to exceptions, distinctions, and modifications which we will now consider. If the arrangement has not been completed, bankruptcy works a revocation, or stay, which leaves to the joint creditors all their rights; as where a suit was pending to adjust the partnership affairs, or where the property had not been fully delivered, or certain security which had been agreed on had not been given. So, if there has been any fraud by the remaining upon the retiring partner, the joint creditors may, in bankruptcy, set aside the arrangement.2 So where the capital of a deceased partner was used in the trade by two of his executors, and the will authorized such action by three.3

If it is possible to construe the deed or agreement not to be a waiver of the lien, it will not be lost, as if the undertaking of the continuing partner is to pay out of the joint property, or simply to pay as liquidating partner, or if there be a dissolution merely.

§ 138. Ex parte Ruffin, continued. The joint creditors may, in England, assent to the arrangement at any time before their debtor's bankruptcy (but not afterwards), by acts, or by parol as well as by writing, and very slight evidence of such assent is enough. If they have assented, they share in the assets.

De G. & S. 351; Ex parte Gurney, 2
M. D. & De G. 541; Re Simpson, L. R.
9 Ch. 572; Howe v. Lawrence, 9 Cush.
553; Robb v. Mudge, 14 Gray, 534;
Russell v. McCord, 17 N. B. R. 508,
Fed. Cas. No. 12,157; Thomas v.
Minot, 10 Gray, 263; Re Wiley, 4
Biss. 214, Fed. Cas. No. 17,656.

1 Ex parte Wheeler, Buck, 25; Re Colbeck, ib. 48; Ex parte Cooper, 1 M. D. & De G. 358; Ex parte Wood, 10 Ch. D. 554; Ex parte Clarkson, 4 Dea. & Ch. 56. In England debts are not considered to be transferred until notice to the debtors, which illustrates the principle, though the reason that such debts are within the order and disposition of the old firm is not law in this country. Ex parte Monro, Buck, 300; Ex parte Burton, 1 Gl. & J. 207; Ex parte Usborne, ib. 358.

2 Ex parte Rowlandson, 1 Rose, 416, 2 Ves. & B. 172; Ex parte Johnson, 2 Lowell, 129, Fed. Cas. No. 7369.

8 Ex parte Butcher, 12 Ch. D. 917, 13 Ch. D. 465; Ex parte Morley, L. R. 8 Ch. 1026.

4 Ex parte Fell, 10 Ves. 347, per Eldon, L. C.; Re Shepard, 3 Ben. 347, Fed. Cas. No. 12,754; Ex parte Cooper, 1 M. D. & De G. 358; Ex parte Leaf, 4 Dea. 287; Harmon v. Clark, 13 Gray, 114; Fitzgerald v. Christl, 20 N. J. Eq. 90.

5 Ex parte Williams, Buck, 13; Ex parte Freeman, ib. 471; Ex parte Gurney, 2 M. D. & De G. 541; Thompson v. Percival, 5 B. & Ad. 925 ; Oakeley v. Pasheller, 4 Cl. & Fin. 207; Hart v. Alexander, 2 M. & W. 484; Lyth v. Ault, 7 Exch. 669; Ex parte Lane, De G. 300 ; Ex parte Jackson, 2 M. D. & De G. 146.

Similar decisions have been made in the United States, but others hold that there must be a special new promise.1

It was early pointed out by the Vice-Chancellor of England that it would be consistent with the course of equity to permit the creditors to assent even after the bankruptcy of the debtor; 2 but he was bound by authority to deny this right. Similar observations were made in another case. This suggestion has been adopted by statute in Massachusetts, and by several decisions in the United States, which appear to rest on strong reasoning. It is true that the rights of all parties are usually fixed at the bankruptcy, but where there is no possibility of fraud, and no act to be done by the bankrupt, but only the exercise of an election by the creditor, there seems good cause for departing from the general rule, and admitting the strong particular equity.

§ 139. American Rule. Since the effect of a transaction like that in Ex parte Ruffin is to distribute the assets in a mode different from that adopted in bankruptcy, it is held in the United States that if the transfer is made when the firm is insolvent, and within the time before bankruptcy, when preferences are assailable, it is a preference, or like a preference, of those creditors who will be benefited by it, and therefore void as against those injured. And even in England it would seem that if an act of bankruptcy was contemplated at the time of the conveyance, it might be set aside by the court of bankruptcy.6

1 See Backus v. Fobes, 20 N. Y. 204; Harris v. Lindsey, 4 Wash. C. C. 271, Fed. Cas. No. 6124; Wild v. Dean, 3 Allen, 579.

2 Ex parte Freeman, Buck, 471.

8 Stat. 1865, c. 113, now Pub. Sts., c. 157, § 125; Bucklin v. Bucklin, 97 Mass. 256.

Hoyt v. Murphy, 18 Ala. 316; Re Downing, 1 Dillon, 33, Fed. Cas. No. 4044; Re Rice, 9 N. B. R. 373, Fed. Cas. No. 11,750; Re Long, 9 N. B. R. 227, Fed. Cas. No. 8476.

5 Collins r. Hood, 4 McLean, 186, Fed. Cas. No. 3015; Ex parte Shouse,

Crabbe, 482, Fed. Cas. No. 12,815; Re Byrne, 1 N. B. R. 464, Fed. Cas. No. 2270; Phillips v. Ames, 5 Allen, 183; Re Tomes, 19 N. B. R. 36, Fed. Cas. No. 14,084; Re Cook, 3 Biss. 122, Fed. Cas. No. 3150; Re Waite, 1 Lowell, 207, Fed. Cas. No. 17,044; Re Johnson, 2 Lowell, 129, Fed. Cas. No. 7369; Goodbar v. Cary, 16 Fed. Rep. 316. See infra, § 468.

6 Ex parte Mayou, 4 De G. J. & S. 664. Compare Ex parte Walker, 4 De G. F. & J. 509; Ex parte Kemptner, L. R. 8 Eq. 286; Anderson v. Maltby, 2 Ves. p. 244. See per Lord Eldon in

In some States the partnership creditors are held to have an equitable claim upon the joint assets, if the firm is insolvent, even though no bankrupt law is in operation; and they may work it out in spite of an attempted transfer by one partner to the other. But the general opinion is that the conversion is valid, unless it contravenes some law in the nature of a bankrupt law.2

Similar questions

§ 140. Firm taking in New Partners. arise when a firm has taken in new partners, or has substituted new partners for old ones who had retired, and the new firm has become bankrupt. Then the question is whether a creditor of the old firm has agreed to take the new firm as his debtor. Here, also, slight evidence of the novation is sufficient. No fresh consideration is necessary.4

But the evidence is to be weighed, and if, on the whole, it is not sufficient to prove a novation, the creditor cannot prove against the assets of the new firm.5

In considering the cases cited, it is to be borne in mind that the credit of the new firm may be taken as security for the old debt, in which case, if there has been a sufficient consideration, the creditors may proceed against both.

§ 141. Assignment for Creditors. - In the United States a general assignment by partners, in trust for creditors, is an admission of insolvency, and it is held that the application in such an assignment of joint property to pay the individual debts of the partners is a fraud on the creditors of the firm.6

Ex parte Williams, 11 Ves. 3; Bowker v. Burdekin, 11 M. & W. 128; Ex parte Snowball, L. R. 7 Ch. 534. But insolvency alone will not avoid the conversion. Ex parte Peake, 1 Madd. 346;. Ex parte Carpenter, Mont. & Mc. A. 1.

1 Wilson v. Robertson, 21 N. Y. 587; Ransom v. Van Deventer, 41 Barb. 307; Gay v. Johnson, 32 N. H. 167; Elliot v. Stevens, 38 N. H. 311; Flack v. Charron, 29 Md. 311; Menagh v. Whitwell, 52 N. Y. 146; Bulger v. Rosa, 119 N. Y. 459, per Andrews, J.

2 See Case v. Beauregard, 99 U. S. 119; Fitzpatrick v. Flannagan, 106 U. S.

648; Huiskamp v. Moline Wagon Co., 121 U. S. 310; Locke v. Lewis, 124 Mass. 1.

3 Rolfe v. Flower, L. R. 1 P. C. 27; Ex parte Williams, Buck, 13; Shaw v. McGregory, 105 Mass. 96; Re Isaacs, 3 Sawyer, 35, Fed. Cas. No. 7093.

4 See Williams v. Shelly, 37 N. Y. 375. 5 See Re Smith, Knight, & Co., L. R. 4 Ch. 662.

6 Wilson v. Robertson, 21 N. Y. 587; Bulger v. Rosa, 119 N. Y. 459, per Andrews, J. [Under the act of 1898 such an assignment would be an act of bankruptcy, § 3 a (4). See infra, § 466.]