« PreviousContinue »
which has ever since prevailed." * At p. 661 Mr. Griffiths says: "Though separate creditors had, as is seen, no right to prove for the purpose of voting in the choice of assignees, yet they were in some instances, where the interest of the joint creditors appeared primd facie to be adverse to theirs, allowed to choose an inspector on behalf of the separate estate, and separate creditors alone could vote in the choice of the inspector. This practice is still in some cases continued."
Rule 54 of the orders of the 19th October, 1852, was merely declaratory of the law as it stood at that time, and conferred no right of voting for an assignee under a joint commission upon separate creditors.")*
As already shewn (ante, p. 182), when the members of a firm entered into a deed of composition and discharge with their creditors, the creditors of every class were entitled to receive the same composition rate on their claims although the assets of one of the estates might have been nil.
Under the English system, then, great errors are apparent in the administration of the bankrupt laws up to 1869.
lo. The denial of the right of the joint creditors to rank concurrently with the separate creditors on the separate estates of the partners.
2o. The denial of the right to the separate creditors of the partners of a firm put into bankruptcy to appoint assignees to their debtor's estate, the right to appoint being vested in the joint creditors.
3o. The denial of the right to the separate creditors of a partner to enter into a deed of composition and discharge with him, relieving him from his individual liability.
The second and third errors seem to spring naturally from the first, It therefore becomes necessary to investigate the reasoning upon which is based the English rule, by which separate creditors are privileged over joint creditors upon the assets of separate estates.
One of the chief obligations imposed upon the members of commercial partnerships, and recognized throughout the civilized World is, that " where a partnership liability does exist, whatever
• Pages 654-657.
t Griffith'* Holmes, p. 663.
may be its origin, each of the partners is bound by it, both in person and property, to its full extent.*
A debt contracted by a firm in England is, as in France, one for which each of its partners is jointly and severally liable to the creditors. In France such debt is contracted by an itre moral, the partnership, and for its due payment the creditor holds the individual partners as securities. In England, on the other hand, the partnership is not an itre moral, when a debt is contracted by the partnership, its members are primarily liable jointly and severally. In France the property of the itre moral is liable exclusively for the debts of the partnership, and the creditors of the individual partners have no right to attach or seize either the whole or aDy portion of the partnership assets for the separate debts of the copartners. In England, the whole of the property of the partnership cau be seized for the separate debt of one of the copartners, and his interest therein sold out. In France, then, the separate estates are in the nature of securities for joint debts, whilst in England, according to the principles of the law of partnership, they form but one mass with the joint estate for the payment of joint and separate debts. Taking, however, for granted, that both in France and England partners are regarded merely as cautions solidaires for the partnership debts, and applying the principles recognized in both countries to such cases of parties becoming bound jointly and severally with and on account of the debt of another, where all the parties so bound are in bankruptcy, it is clear that there is no provision by which the debts actually contracted for his own direct benefit by a party, have a preference over those contracted by him as security for another, even when his estate has derived no benefit from his becoming such security. Again where three individual estates (not of partners) are liable for one joint and several debt, the creditor, if nothing has been paid to him, can fyle his claim against each estate for its full amount, and take his dividends from all until paid in full, notwithstanding the fact that two of the estates have derived no benefit whatsoever from the debt contracted for the advantage of the other alone.f
• Dixon on Partnership, p. 317, and authorities cited; Civil Code of L. C, art. 1865; Delangle Soc. Com. No. 226.
f Ex pte. Wildman 1 Atk. 109; 2 Ves. 113; Ex pie. Bank of Scot' land, 2 R?se 197; 19 Ves. 310; Ex pte. Adam 2 Rose 39; Ex pte. Bigg 2 Rose 37; Ex pte. Rushforth, 10 Ves. 416; Griffith & Holmes, p. 601 j Robson 176; art. 502 Code Napoleon j 2 Renouard 175-191.
In the case of partners it may be taken for granted that in the greater number of cases, their separate estates have bean made and realized by their trade so carried on in partnership; tin t from the business of the partnership is withdrawn the amount of money necessary for the support of their families and themselves, and that if it be not so applied it is added to the separate estates of the pirtners. To the world at large, moreover, the separate estates of the partners are held out as forming part of the capital of the partnership, and it is not only on the assets of the partnership, but also on the assets of each of the partners, that parties dealing with the firm rely for payment.
It is therefore submitted that neither in law nor in equity, is there any foundation for the arbitrary rule of English practice, now in force in this Dominion under § 64 of the Insolvent Act of 1869.
2o. The second error pointed out is to a very great extent based upon the one just now discussed. But very great and manifest injustice is worked in England, by the refusal to allow separate creditors to vote at the nomination of an assignee to their debtor's private estate; it is true that the Courts there had the power of granting the privilege of appointing an inspector to the separate creditors, but the inspector had not the same powers as the assignee, and as the principle of the English Bankrupt Law was that the creditors of a debtor alone had the right of appointing an assignee to his estate, it is impossible to conceive how such a violation of it could possibly have been tolerated.
It would seem to be a principle of the English law, that immediately upon its bankruptcy, a partnership was dissolved, there being no Ure moral as in Franoe, the partners became individually bankrupt, the estate of each being composed of his separate estate and his share in the joint estate, his creditors being his separate creditors and those of the extinct partnership. Thus A & B being in partnership, A's creditors after the bankruptcy would be his separate creditors and those of the firm; B's his separate creditors and those of the firm, A's assets would be composed of his separate estate and his share in the joint estate, whilst B's would consist of his separate, and his share of the joint estate. But B's separate creditors would not be creditors of A, nor would A's creditors be creditors of B, so that it is clear that neither A's nor B's creditors had, under a joint commission, the right of voting in the nomination of an assignee to the joint Voi. I. ii No. 4. estate, as thereby they would vote for and aid in the appointment of an assignee to the estate of a person who was not their debtor, and on whom they had no claim. Consequently the denial of the right of separate creditors to vote on the appointment of an assignee to the joint estate can be justified.
But a system which thus works injustice to the class of separate creditors, must be bottomed in error. The assignee of a bankrupt is a mere trustee for the creditors.* But clearly there should be vested in all the creditors of a bankrupt the right of voting for the appointment of such trustees, and any system which deprives a class of such right is inequitable and unjust.
The French system is evidently more equitable and just, and it may be with truth asserted that therein are not to be found the glaring discrepancies which disfigure the English practice. In France the carrying into practice of the principles of the bankrupt code is easy; there is no necessity for recurring to the extraordinary shifts, which have been introduced in England, in order to get over the difficulties produced by starting from a wrong ground of departure.
It would be far better in this Dominion were our legislators not attached so servilely to the principles of the common law, and the rules of English procedure. In mercantile matters, especially, for though it is now admitted that Bracton drew largely from the civil law commentators, Lord Mansfield, who is justly looked upon as the original moulder of the English commercial law, borrowed from the Ordonnance de Commerce many of the principles which adorn his judgments.
But if the fact that neither in England nor in Canada is the itre moral of a partnership recognized, presents insuperable obstacles in the way of adopting the French system, there is nothing to prevent the placing the working in harmony with the principles of the insolvent law. Therefore as the insolvent law of Canada does evidently recognize the fact that so soon as a partnership is put into insolvency, the members thereof become individually insolvent, the itre moral previously existing (if any), vanishing into thin air, the proper course to follow would be to hold in lien of a meeting of joint creditors and of the separate creditors of the partners, the whole voting en bloc for the appointment of an assignee to the joint estate, as is the practice at present, for the
* Griffith & Holmes, p. 280, and auth. cited, note (c).
creditors of each partner, viz. the joint creditors of the firm and his separate creditors to vote at such meeting for the appointment of an assignee to each estate, and in the event of the same assignee not being appointed to the estates of all the partners, such assignees to hold jointly the assets of the firm in trust for the joint creditors.
3o. The difficulties which surround the making of a valid deed of composition and discharge in matters of partnership are traceable to the rule already discussed of " to each estate the payment of its own debts by privilege." Under the English system, in the wordsof a recent writer on Composition Deeds, " the effect of these decisions on composition deeds is to render it doubtful whether any valid deed can be made by a member of a partnership if b.3 has separate creditors, if the deed operates as a release of debts."*
The first principle maintained, as already shewn, ante p. 182, was that perfect equality, so far as the composition was concerned, should reign amongst all the creditors of the insolvent or insolvents entering into such deed, consequently when two persons who had been in partnership together entered into a deed of composition and discharge with their creditors, the joint creditors of the firm and the separate creditors of each partner had to become, in requisite majority, parties to the deed, and all receive the same composition rate, although the different estates were of different values. Thus A & B were partners and became bankrupt. The joint estate was worth 10s. in the £ of the liabilities, A's private estate 5s. in the £, and B's private estate 2s. in the £ on its liabilities. Wound up in bankruptcy, the joint creditors would receive say 10s., A's creditors 5s., and B's 2s. in the £. But if the partners wished to execute a joint deed of composition and discharge with their creditors and recover their joint and separate estates, the composition based upon the aggregate value of the estates would entail a loss upon the joint and in all probability confer a benefit on the separate creditors. In justification of the ruling it was pretended that the value oi the estates should not be the measure of the composition, as a third person might pay a composition in order to free the bankrupt from his liability to his creditors, f and thereby creditors might obtain a larger dividend than if the estate were wound up
• Sills on Com. Deeds, p 20.
f Walker vs. Nevill, 3 H. & C. 416.