In re Mercur

116 F. 655, 1902 U.S. Dist. LEXIS 180

• Court: District Court, E.D. Pennsylvania
• Decided: July 16, 1902
• Docket: Nos. 90 and 91
• Status: Published

Opinion

ARCHBARD, District Judge.¹

On December 20, 1898, James Watts Mercur and Ulysses Mercur, his brother, both individually and as partners, trading as J. W. Mercur & Co., made a voluntary assignment for the benefit of creditors to Ezekiel Hunn; Jr., who qualified and entered upon his duties in accordance with the state law. Within four months afterwards, on March 24, 1899, proceedings were instituted in this court to have the two Mercurs declared bankrupts, and on July 31st following an adjudication was made against them, and subsequently Chas. P'rancis Gummey was appointed their trustee. A rule was thereupon taken on the assignee to turn ovar the property in his hands, both firm and individual. This he resists, and the question is whether he can be compelled to do so. Taking the case as it stood when the rule was entered, it is clear that, so far as firm property is concerned, it cannot be maintained. The proceedings against the two bankrupts, as we shall see more fully later, while begun and carried on simultaneously, are distinct and several. There has been no adjudication against the firm, and the trustee was not appointed to represent it, but only the two members who happened to compose it in their separate and individual capacity. Under such circumstances the trustee has no authority to demand or interfere with the firm assets. This is settled by the case of Amsinck v. Bean, 22 Wall. 395, 22 L. Ed. 801, where it was held that, while the assignee (trustee) in bankruptcy of the joint stock and property of a partnership is required by the statute to' administer the separate estate of the individual members, as well as that of the firm, there' is no reciprocal regulation with regard to the estate of the partnership where an individual member of it has alone been adjudged a bankrupt. In conformity with this, it was also decided that, where one of two partners had transferred to the other all his interest in the firm assets, to be applied to the payment of the firm debts, upon the subsequent bankruptcy of the liquidating partner his assignee (trustee) was not entitled to the firm assets so transferred to him as against an assignment for the benefit of creditors of the firm under the state law. In re Shepard, 3 Ben. 347, Fed. Cas. No. 12,754. These cases arose and were decided, it is true, under the bankruptcy act of 1867, but they are equally applicable to the one now in force. The decision of this court in Re Stokes, 6 Am. Bankr. R. 262, 106 Fed. 312, is in entire harmony with this ruling, the facts being materially different. The firm in that case had been thrown into bankruptcy, on the strength of which an order was made on the assignee for the benefit of creditors of the individual partners to turn over to the trustee of the firm the individual property in his hands, to be administered by the trustee along with that of the partnership. This is the express requirement of the bankruptcy act (section 5), and the propriety of the order cannot be questioned. But, as is pointed out in Amsinck v. Bean, supra, there is no such corresponding provision where the converse is the case, and the members of the firm—as here—have alone been brought into court. To remedy this obvious difficulty, on December nth last, just prior to the argument of the present rule, a petition was presented by the Vulcanite Paving Company,.a creditor of the firm of J. W. Mercur & Co., to have it adjudicated nunc pro tunc as of the date of the original adjudication of the two members. The right to make such an order is contested both by the bankrupts themselves, as well as by the assignee of the firm and by other creditors. The question is practically one of first impression, and is not free from difficulty.

As a preliminary matter, it may be observed that there is no such finality to the proceedings that we cannot, even at this late stage, revise and amend them, if otherwise authorized. The general right to amend, regardless of the time which has elapsed, is abundantly sustained by the authorities. Sandusky v. Bank, 23 Wall. 289, 23 L. Ed. 155; In re Ives (C. C. A.) 113 Fed. 911; In re Henschel (D. C.) 114 Fed. 969. But to do so it is plain there must be in the record as it stands the substance of that which is asked for. The right to amend can go no further than to bring forward and make effective that which is in some shape already there. The question, therefore, is whether the amendment which is now applied for is justified by the proceedings which have so far been taken; and to judge of this we must look into them somewhat more closely. As already seen, they were begun on March 24, 1899, at the instance of the Charter National Bank, of Media, as the holder of a joint note of James Watts Mercur and Ulysses Mercur, his brother, and another of James Watts Mercur individually, by two several petitions, one against the one bankrupt and the other against the other. It was in each case charged that the alleged bankrupt, while insolvent, had joined, the one with the other, in conveying away a certain farm owned by the two together, with intent to hinder, delay, and defraud creditors; and in the case of James Watts Mercur, additionally, that while insolvent he had suffered a creditor to obtain a preference by the entry of a confession of judgment against him. The bankrupts opposed the proceedings, contending that they had not been properly instituted, because there were more than 12 creditors, a list of some 14 being given in the one case and 36 in the other; but several other creditors came in on notice, sufficient to make up the required nümber. Among these were several creditors of J. W. Mercur & Co., not given in the list referred to, whose right to participate was resisted by the bankrupts on the ground that they were firm, and not individual, creditors; but was allowed by the court, and an adjudication finally entered. Prior to this, however, proof having been made, at the hearing, of the assignment for the benefit of creditors, already referred to, at the suggestion of the court this was charged as a further act of bankruptcy in addition to that set out in the original petition. Subsequently each of the bankrupts applied for his discharge, which was in turn resisted, among others, by S. G. Purvis & Co., who, as creditors of the firm of J. W. Mercur & Co., objected to a discharge from the partnership debts, on the ground that the proceedings were individual in scope, and did not in any way concern the firm assets; but, without stopping to discuss it, a discharge was granted by the court December 20, 1899, to each of the bankrupts in the usual terms. Meanwhile, at the meeting of creditors, Chas. Francis Gummey was appointed trustee of the bankrupts severally, and obtained soon afterwards the rule on the assignee for the benefit of creditors to turn over the property transferred to him, which has already been disposed of.- So the record stood when, on December 11, 1901, the proposed amendment was applied for. It is plain from this review of the proceedings that, while begun at the same time and carried on together, side by side, they have, from the outstart, been individual in character, directed against the two parties who were the subject of them severally, and not because or by virtue of the partnership relation. The fact that it existed could not be obscured, but it has not been made the basis of any action taken, the references to it being incidental only, and usually with the suggestion that it was not in any way involved. It is now proposed, however, to change this, and by a so-called amendment to recast and transform all that has been so far done. Instead of two distinct cases against' each of the parties severally, we are to have practically one, which shall be effective against the partnership to which they happen to belong, the same as though it had been directed against it from the beginning. It is contended as a justification that, both the partners having been brought into court, of necessity the partnership has been also. If this be true, the amendment is proper; but otherwise it is not. All the authorities agree that in contemplation of the statute a partnership is a distinct entity, which requires a petition specifically directed against it, alleging an act of bankruptcy in which it is expressly involved, and resulting in an adjudication of the partnership itself, irrespective of and in addition to any that may be made against the individual members. This is carried so far that without it (as it is held) there can be no effective discharge from the firm obligations, and (by some courts) that the proceedings against the partnership and the individual member are distinct cases, in which separate fees must be paid. In re Meyers, 2 Am. Bankr. R. 707, 96 Fed. 408; Id., 3 Am. Bankr. R. 260, 97 Fed. 757; In re Russell, 3 Am. Bankr. R. 91, 97 Fed. 32; In re Meyer, 39 C. C. A. 368, 98 Fed. 976; Bank v. Craig (D. C.) 110 Fed. 137; In re Farley (D. C.) 115 Fed. 359; In re Barden (D. C.) 101 Fed. 553; In re Hale, 6 Am. Bankr. R. 35, 107 Fed. 432; In re Sanderlin, 6 Am. Bankr. R. 384, 109 Fed. 857; In re Winkens, Fed. Cas. No. 17,875; In re Shepard, 3 Ben. 347, Fed. Cas. No. 12,754; Crompton v. Conkling, 9 Ben. 225, Fed. Cas. No. 3,407; Nutting v. Ashcroft, 101 Mass. 300. If this be so, whatever proceedings are instituted should disclose from the outstart the character which is proposed for them, and should maintain it to the close. If a partnership is intended to be reached, the petition and the proceedings under it should be appropriate to that end; if only the individual members, they should be governed by that circumstance. This is something more than a mere matter of form. It goes to the substance of the proceedings, involving, as it does, the question of notice, and the rights of the parties to be affected. In the present instance, while the petitions were filed simultaneously, and by the same creditor, and corresponding action has from time to time been taken in each, from the beginning there have been two distinct cases, every step in each being separate and individual in character. The acts of bankruptcy charged were individual, and did not touch the firm, which was not even named in that connection. Nor was this changed by the amendment introduced at the suggest tion of the court, in which the assignment for the benefit of creditors was brought forward as an additional ground for the adjudication; that assignment being no more firm than individual. As opposed to the idea that the firm was intended to be brought in, the trustee, as we have seen, was appointed for the individual bankrupts only, and not for the partnership, and was chosen by the combined vote of both individual and firm creditors, although, if the partnership were in court, the choice, by the statute, would have been made by firm creditors alone. Section 5b. Furthermore, at the time a discharge was applied for attention was distinctly called by the objecting creditors to the fact that the firm, although possessed of large assets, had not been brought in, making the proceedings, as it was claimed, individual in scope, and not warranting a discharge from firm obligations. In the face of all this it would be a great stretch of authority, and one in no wise warranted by the proceedings as originally taken and consistently maintained, to go back and endeavor by a nunc pro tunc order to recast and remodel the whole. In the time which has elapsed rights have been acquired and obligations incurred, as we may assume, on the strength of the record as it has been made up, and they should not be invaded or disturbed. The bankrupts have sought and obtained their discharge in accordance therewith, which would possibly have been more vigorously and effectively opposed, if it was understood to extend to other than their individual obligations. I do not undertake to say that it does not, and the bankrupts themselves resist the amendment, because, as they contended, it is an attempt to draw them again into bankruptcy on account of claims from which they have been fully released. But whatever may be the effect on the bankrupts themselves,, the plain purpose of the application, as disclosed at the argument, is to reach back and overturn transactions long since closed, which cannot now be called in question, except by giving a new and materially different character to the proceedings, which, in form at least, they have not hitherto borne. The only basis for any such action that I can find is the suggestion that, because all the parties who made up the firm have been brought into court, of necessity the partnership has oeen also. And the only thing which lends any countenance to this is that provision of the bankrupt law (section 5I1) which declares that: “In the event of one or more, but not all of the members of a partnership being adjudged a bankrupt, the partnership property shall not be administered in bankruptcy, unless by consent of the partner or partners not adjudged.” This, at first blush, may seem to imply that, when all of the members are adjudged, the partnership property'must be so administered. But the section is admittedly exceptional and negative, and we are hardly warranted in constructing an affirmative out of it. It merely preserves to an existing solvent partner the right to administer the affairs of the partnership if he wants to, and it is not to be carried further by mere implication. It decides nothing with regard to the effect, on the firm itself of distinct proceedings against those who compose it individually, and, as this very provision of the statute recognizes and proves, there is no inherent necessity that, because both of two partners have been thrown into bankruptcy, the partnership must be also. If the firm estate can be administered outside of the bankruptcy court, notwithstanding that one of the partners is in it, there is no reason why it cannot be also, even though all the partners are there. There has to be the same marshaling of assets between the partnership and the individual creditors in the one case as the other, and, if it can be successfully done with one partner in bankruptcy and the firm not, it can be just as well with all of the partners there. It seems to me, therefore, that the belated effort now made must fail. The original cast given to the proceedings, which has been recognized and maintained throughout, must continue to the end. If it is desired to reach the partnership after this long interval,—although time may not altogether enter into the question,—the only course to pursue that I can see is to file a new petition in a separate proceeding, and not attempt to ingraft it by amendment upon that which we have here.

The petition of the Vulcanite Paving Company to have the firm of J. W. Mercur & Co. declared bankrupt nunc pro tunc is refused.

The rule on Ezekiel Hunn, Jr., assignee for the benefit of creditors of James Watts Mercur individually, and of J. W. Mercur and Ulysses Mercur as partners trading as J. W. Mercur & Co., to turn over the property in his hands, is discharged as to the property of the said firm, but made absolute as to the individual property of the said James Watts Mercur, and Ulysses Mercur individually, so far as at has not been already administered.

1 Specially assigned.