assert that it is not an entity. So far, however, as concerns the question of adjudging the firm bankrupt as a firm, there has been no difference of opinion. In the case of In re Beauchamp Brothers Lord Esher said, "You cannot adjudicate the abstract thing called a firm' bankrupt. You cannot make a firm bankrupt unless you can make the members of the firm bankrupt." It was, therefore, not surprising that with all the authority, statutory and judicial, to the contrary, the first court that had occasion to consider the question of the nature of a partnership under the Bankrupt Act of 1898 should have been somewhat puzzled.2 Section 5 a of that Act provides that "a partnership during the continuation of the partnership business, or after its dissolution, and before the final settlement thereof, may be adjudged a bankrupt." Section 1 (19) provides that "persons' shall include corporations, except where otherwise specified, and officers, partnerships," etc. With some hesitation the court held that these two sections authorized the adjudication as bankrupts of a firm and one of its members who had committed an act of bankruptcy, which was also an act of bankruptcy of the firm, although the other member could not be adjudged a bankrupt because he had committed no act of bankruptcy. The Circuit Court of Appeals affirmed this judgment, and the precedent thus set has been followed in all jurisdictions but one, to be hereafter mentioned.

This construction of the Bankrupt Act naturally led to decisions that the firm might be adjudged bankrupt when no partner was or could be made a bankrupt, and also that all the partners. might be adjudged bankrupt without adjudging the firm a bankrupt. But the District Court of Massachusetts has found insuperable obstacles in the way of construing the Act so as to deal with the firm as an entity. This court had found no difficulty in holding that where one of the partners is a minor, an adjudication can be made against the adult partner and against the firm. But where one partner filed a petition to bring the firm and his co-partner into bankruptcy, it was held that the co-partner might set up the

1 [1894] I Q. B. 1, 5.

2 Chemical Bank v. Meyer, 92 Fed. Rep. 896.

8 In re Meyer, 98 Fed. Rep. 976.

4 In re Stokes, 106 Fed. Rep. 312; In re Meyer, 98 Fed. Rep. 976, 979 (semble).

5 In re Mercur, 116 Fed. Rep. 655; s. c. 122 Fed. Rep. 384; Ludowici Roofing Co

v. Penn. Institute, 116 Fed. Rep. 661.

6 In re Forbes, 128 Fed. Rep. 137.

In re Dunnigan, 95 Fed. Rep. 428.

defense that he was solvent, because an adjudication against all the partners, it was said, is essential to one against the firm, and that on the issue of solvency the co-partner is entitled to a trial by jury. The court arrived at the result by finding that certain parts of Section 5 other than those already quoted were not reconcilable with the theory of an entity. It must be admitted that all the provisions of Section 5 are not wholly consistent with the idea of the firm as an entity. Clause h of Section 51 is somewhat ambiguous.

The District Court of Massachusetts arrives at one conclusion as to its effect upon the present question, while the District Court of the Eastern District of Pennsylvania,2 and the Circuit Court of Appeals of the Third Circuit affirming the judgment, reach the opposite conclusion. Some other clauses of the section were also relied upon by the District Court of Massachusetts, which do not seem to the writer, however, to stand in the way of holding that Congress intended to treat the firm as an entity for the purposes of bankruptcy. But the possibility of finding such apparent contradictions between different clauses of the section, as well as the re-enactment by Section 5f of the old rule of distribution of the partnership and individual estates, indicates that the scheme of treatment of partnerships in bankruptcy was not fully thought out by the draftsman to its logical conclusion. The theory was a new thing, and the changes necessary to the application of the theory seem not to have been carefully considered. Liberality of construction would, however, seem to be desirable and to lead to approval of the result reached by the great majority of the federal courts.

But it is not the purpose of this article to discuss the question upon which the indicated difference of opinion has arisen, but assuming the firm to be an entity under the Bankrupt Act to consider the question of the treatment of the firm and individual estates where the firm alone has been made a bankrupt. The rule of distribution both in England and in America when all the partners are in bankruptcy, greatly criticized by the courts but

1 "In the event of one or more, but not all of the members of a partnership being adjudged bankrupt, the partnership property shall not be administered in bankruptcy unless by the consent of the partner, or partners, not adjudged bankrupt; but said partner, or partners, not adjudged bankrupt, shall settle the partnership business as expeditiously as its nature will permit, and account for the interest of the partner, or partners, adjudged bankrupt."

2 In re Mercur, 116 Fed. Rep. 655. 8 In re Mercur, 122 Fed. Rep. 384.

grudgingly yielded to, apparently more to save trouble than for any other reason,1 may be made to run like some jingle, "firm estate to firm creditors, separate estate to separate creditors, anything left over from either goes to the other." It is believed that this rule is to be found in no other country,2 and it is to be regretted that Congress did not avail itself of the opportunity to enact a rule of distribution more scientific and more in accordance with the principle of partnership liability, whether the firm be regarded as an entity or not.3

1 Thus does Sir Frederick Pollock paraphrase the language of Lord Blackburn in Read v. Bailey, 3 App. Cas. 102. Pollock, Partnership, 8 ed., 155, n. 4.

2 In France, although the codes make no express provision, the majority opinion is that the firm creditors take the firm estate and compete with the separate creditors upon the separate estate for any unpaid portion of their claims. Troplong, Droit Civ. Contr. de Société, t. 2, nos 857-863; Sirey et Gilbert, Codes Annotés, Art. 1864, nos 18, 19; Sirey, Code de Commerce, Art. 18-19, nos 128, 129; Fremery, Études de Droit Commercial, 32-33, 372; Lyon-Caen et Renault, Droit Commercial, t. 8, no 1190.

In Switzerland the Code Fédéral des Obligations, Art. 566, in express terms gives the firm estate to the firm creditors to the exclusion of the separate creditors, and Art. 568 permits the firm creditors to pursue the separate estate for any unpaid balance in competition with the separate creditors, if the firm estate is insufficient to pay the firm creditors in full.

In Scotland the firm creditors rank in full on the firm estate, to the exclusion of the separate creditors, and rank on the separate estates pari passu with the separate creditors for the unpaid balance. 2 Clark, Partnership, 753.

In Germany, Art. 733 of the Civil Code (Bürgerlichesgesetzbuch) devotes the firm property to the payment of firm debts, and Art. 212 of the Bankruptcy Law (Konkurs ordnung) permits the firm creditors to seek satisfaction from a partner's separate estate in bankruptcy pari passu with his separate creditors for any balance not paid by the firm estate in bankruptcy. Sarwey-Bossert, Konkursordnung, Vierte Auflage, 496-497. It is contended by Kohler, Leitfaden deutschen Konkursrechts, Zweite Auflage, 198-199, that the firm creditor may prove the full amount of his claim against the individual estate, receiving, however, of course, dividends only to the amount of the unpaid balance; but this view is not generally adopted (Sarwey-Bossert, 497, n. 3 b). In Austria the firm creditor may prove the full amount of his claim against the separate estate. Konkursordnung, § 201; Handelsgesetzbuch, § 31; Kissling, Oesterreichische Konkursordnung, 295–296.

In Hungary the firm creditors are paid first from the firm assets, and come upon the separate estate for the deficiency. Code de Commerce, Art. 97; Loi sur la Faillite, Art. 251 (French translation by De la Grasserie).

3 In France it is almost universally agreed that a partnership is an entity, une personne morale, un être moral. Lyon-Caen et Renault, Droit Commercial, t. 2, no 105-124. And the personality of the firm is expressly admitted in the Belgian Loi sur les Sociétés of May 18, 1873, Art. 2, where, after enumerating five kinds of commercial sociétés, one of which is the ordinary partnership, it is provided that "chacune d'elles constitue une individualité juridique distincte de celle des associés."

The Commercial Codes of Italy, Art. 77 (French translation by Turrel), and of Roumania, Art. 78 (French translation by Bohl), read, “À l'égard des tiers, les sociétés sus-énoncées sont des êtres collectifs distincts de la personne des associés." And the Com

Our rule of distribution is totally at variance with the mercantile view of partnership. But even upon the legal theory it cannot be justified. To give the firm estate to the firm creditors to the exclusion of the separate creditors is of itself a personification of the firm, since otherwise the property would simply belong to the members as joint tenants or tenants in common, and so be subject to the claims of their individual creditors as fully as any other property of the members.2 And on the other hand, if the firm is but an association of individuals, the creditors of the firm are creditors on the joint obligations of those members, and as such have the same rights against the property of each member, including therein property held by them jointly with others, as have his individual creditors. If the rule which throws the firm creditors first upon the firm estate is put upon the ground that the firm is the principal and the members are sureties, this too is a recognition of the firm as a different person from the members. If the principle of marshalling be invoked to justify the rule of distribution, it is to be observed that the application of this principle is only conceivable on the assumption that the firm creditors have a right to resort to a fund which the individual creditors cannot

mercial Code of Spain, Art. 116 (French translation by Prudhomme), provides that "La société commerciale une fois constituée possédera la personnalité juridique pour tous

ses acts et contrats."

In Scotland the firm "constitutes a quasi persona of which the members are agents and sureties - a principle which exactly realizes the notion of a firm entertained by mercantile men both in this country and in England” (1 Clark, Partnership, 31), and it may therefore be rendered bankrupt without any of its partners being either bankrupt or insolvent. 2 ibid. 750.

In Russia the Commercial Code makes no provision on the subject, but it is said that Russian jurisprudence recognizes the personality of the firm. Code de Commerce Russe, 20-21 (French translation by Tchernow).

66

In Louisiana the partnership is an entity, “a moral being distinct from the persons who compose it"; a civil person which has its peculiar rights and attributes." Smith v. McMicken, 3 La. Ann. 319, 322; Succession of Pilcher, 39 ibid. 362; Rivers v. City, 42 ibid. 1196; Wolfe v. Pants Co., 52 ibid. 1357; Newman v. Eldridge, 107 La. 315.

In Germany, although the partnership can in its firm name acquire rights and contract obligations, acquire property and other real rights in immovables, can sue and be sued (Handelsgesetzbuch, Art. 124), and although, as we have seen, the firm property is specially devoted to the firm creditors to the exclusion of the separate creditors until the firm creditors are paid in full, yet, the codes making no express provision on the point, the question whether a firm is a legal person has been the subject of much discussion and difference of opinion. Lyon-Caen et Renault, Droit Commercial, t. 2, 100; 1 Behrends, Handelsrecht, § 62, n. 2.

1 Corey, Accounts, 2 ed., 124; Ames, Cas. on Partnership, 367, n. I.

2 Lyon-Caen et Renault, Droit Commercial, t. 2, 87.

reach, - an assumption which involves a recognition of the entity of the firm; and even if the assumption is made, the principle is not consistently applied. It is true that the rule of marshalling would oblige the firm creditors first to exhaust the estate against which the separate creditors had no claim, but after the exhaustion of the firm estate the rule of marshalling would permit the firm creditors to come against the separate estates pari passu with the separate creditors. Nevertheless, the old rule of distribution has been re-enacted by Congress in Section 5 ƒ of the Bankrupt Act of 1898, and must be taken into account in considering the question under discussion; — namely, how is the court which has adjudicated a firm bankrupt, but not the individual partners, or less than all of them, to reach the property of the non-bankrupt partners?

There is a difference of opinion in Continental countries upon the question whether the bankruptcy of the firm necessitates the bankruptcy of the partners.1 Where the question has been answered in the affirmative the property both of the firm and of the individual members comes into the hands of a bankruptcy court or courts for distribution, but no European jurisdiction has been found where, the firm alone or the firm and some only of the partners being bankrupt, the court has undertaken to seize and administer the property of the non-bankrupt partners. But in the case of In re Meyer,2 the court, speaking of Section 5 of the Bankrupt Act of 1898, said that, "it is the scheme of these provisions to treat the partnership as an entity which may be adjudged a bankrupt by volun

1 In France it is generally held, although not without opposition, that the bankruptcy of the firm involves (entraine) the bankruptcy of the partners. Lyon-Caen et Renault, Droit Commercial, t. 8, nos 1144-1148. Sirey, Code de Commerce, 3 ed., 469, no 65. The argument is that, as the Commercial Code provides (Art. 437) that every trader who ceases his payments is in a state of bankruptcy, the cessation of payments by the firm necessarily implies cessation of payments by the partners who are personally liable for the debts of the firm (all the partners in the sociétés en nom collectif and the general partners in the sociétés en commandite).

The Commercial Codes of Italy (Art. 847), Spain (Art. 923), Portugal (Art. 746), Roumania (Art. 860), and the Konkursordnung of Austria (Art. 199), expressly provide that the bankruptcy of the firm shall entail the bankruptcy of the members who are subject to unlimited liability for the debts. Some of the codes further provide that the bankruptcy of the firm and of its members shall be declared by the same judgment (Italy, Art. 847; Roumania, Art. 860; Portugal, Art. 746; Austria, Art. 199). In Germany, however (Sarwey-Bossert, Konkursordnung, 496, n. I; I Behrend, Handelsrecht, 589), and in Switzerland (Code Fédéral des Obligations, Art. 573), the law is contrary to that of the jurisdictions above enumerated, and the bankruptcy of the firm does not necessarily draw with it the bankruptcy of the members.

298 Fed. Rep. 976, 979.