1876 NANSON v. GORDON. H. L. (E.) was a claim made by third persons in respect of a sale of part of his property. Ex parte Hargreaves (1), therefore, did not apply, for there the two partnerships and their mutual debts and credits were running on together. The articles of the partnership deed here were almost identical with those in Vyse v. Foster (2), which this House declared to constitute a contract for the sale of the testator's share to his partners; and, that being so, the transaction could not be treated as a mere debt, inter se, of the partners themselves, but was a substantive debt, having no relation to the partnership character of the creditor, but was a debt due to the executors as on a sale by them of part of the property of their testator. A dormant partner, who had dissolved partnership and had afterwards obtained a cognovit from his late partner for what was due to him on the balance of accounts, has been held entitled to prove the amount of his claim, though some of the partnership debts were unpaid: Ex parte Grazebrook (3). In Ex parte Carter (4) the claim was in respect of money which Godwin had himself advanced to the firm, and which he, as one of the partners, employed while he was alive and acting in the business of the firm, and after his death things went on as before, and the name of Godwin had been used to the last by the firm, and used with the consent of his executors, so that his estate itself continued in the partnership and formed part of the partnership assets. Lord Eldon, in his judgment, expressly referred to that fact (5) as strongly affecting the case. That was not so here. In the case of Moore (6) proof by one partner against the estate of the other was refused, but there the party claiming was really in the position of a surety who had not discharged his liability as such, and his undertaking to indemnify the joint estate was held not to be sufficient. The indemnity was treated by Lord Eldon as of no consequence. These two cases were therefore not applicable here, for here the debt arose after the death of the testator. The two cases of Ex parte Collinge (7) and Ex parte Topping (8) shewed that the application of the rule of bankruptcy relied on (1) 1 Cox, 440. (2) Law Rep. 7 H. L. 318. (3) 2 D. & Ch. 186. (4) 2 Gly. & J. 233. (5) 2 Gly. & J. 239. (6) Ibid 166. (7) 4 De G. J. & S. 533. (8) Ibid. 551. 1876 NANSON v. GORDON. here was one within the discretion of the Court, and the present H. L. (E.) was certainly a case in which that discretion ought to be exercised in favour of the executors. And those cases could not here be used in support of this decree, for the persons there concerned were themselves the parties to the original transactions, and were not clothed with a representative character entitling them to claim in a representative right. In the latter of these cases Lord Westbury mentioned (1) the case where "the debt sought to be proved by the partner against his co-partner is a debt arising from an undisputed contract apart from the co-partnership, and which was in existence at the time of the adjudication in bankruptcy," as one where the rule might properly be relaxed. This is surely a case falling exactly within that description. In Ex parte Edmonds (2), which resembled this case, the executors of the deceased partner were held entitled to prove pari passu with the other creditors, and to receive dividends on an unpaid balance of their testator's money, though it had not been withdrawn from the partnership, but simply allowed to remain there, being secured only by a bond given to the executors by the surviving partners. There was here no continuing joint estate of the original firm of which Peter Dixon had been a member, there was only the joint estate of the new firm, of which the executors were creditors as for property sold. The executors here could in no way be treated as having anything to do with the firm itself, except merely as being its creditors. In Ex parte St. Barbe (3), where there were two partners who were engaged, individually, in other concerns, it was held that as these other concerns were distinct from each other, there might be a proof by one on the bankruptcy of the other, the rule in bankruptcy applying only where the two businesses were but branches of one joint concern. So that there were several exceptions to the rule now asserted, exceptions rendered necessary by peculiar circumstances. Such circumstances existed here. The present case fell within the principle of these exceptions, and the joint creditors could not suffer from the claim now made, for the more the estate of Peter Dixon was increased the greater (2) 4 De G. F. & J. 488. (1) 4 De G. J. & S. at p. 557. (3) 11 Ves. 413. H. L. (E.) would be the amount which they could obtain from it, as the estate of one liable to the debts of the joint partnership. 1876 NANSON บ. GORDON. Mr. De Gex, Q.C., and Mr. Davey, Q.C., for the Respondent:The rule of bankruptcy law is clear, and this case affords no ground for exception to it. The cases of Ex parte Sillitoe (1) and and Ex parte Carter (2) state the principle distinctly. In the first of these cases Lord Eldon thus expressed himself (3): “The rule is that a partner in a firm against which a commission of bankruptcy issues, shall not prove in competition with the creditors of the firm, who are in fact his own creditors, and shall not take part of the fund to the prejudice of those who are not only creditors of the partnership but of himself." His Lordship admitted that there might be an exception to the rule, and mentioned there the case of Ex parte Kendal (4), where he said the partner became a creditor in respect of the fraudulent conversion of his separate estate to the use of the partnership. There was nothing of that kind here. And referring to St. Barbe (5), it was shewn that to make, in any case of that sort, proof under a joint commission admissible, the two trades must be really and entirely distinct from each other. Here there was but one firm, not two distinct firms, and the funds of the deceased remained in his firm in precisely the same manner as they had stood there before his death. Under circumstances such as exist here the proof cannot be admitted: Ex parte Adams (6). The rule now contended for was clearly stated in Ex parte Ellis (7), and was acted upon by the Lords Justices recently in Ex parte Bass (8). It made no difference that the joint creditors might ultimately come upon the individual estate of Peter Dixon if this claim should be allowed. It is the settled rule of bankruptcy that the fund for payment of the joint creditors must not be affected by contin (1) 1 Gl. & J. 374. (2) 2 Gl. & J. 233. (3) 1 Gl. & J. 382. (4) Referred to in Ex parte Sillitoe, 1 Gl. & J., at p. 382, as reported in 1 Rose, 71. This reference must be a mistake. The case was probably Lodge and Fendal, 1 Ves. Jun. 166, 167, to which Lord Eldon correctly referred in Ex parte Harris, 2 Ves. & B. at p. 213, and Ex parte Yonge, 3 Ves. & B. 34. (5) 11 Ves. 414. (7) 2 Gl. & J. 312. (8) 36 L. J. (N.S.) (Bankcy.) 39. gencies. And here there can be no doubt that there would not be, H. L (E.) in fact, any thing of which they could avail themselves if this proof should be allowed. Lindley on Partnership (1) was also referred to. Mr. Marten replied. THE LORD CHANCELLOR (Lord Cairns): My Lords, it appears to me, that the question which is submitted to your Lordships on appeal in this case is entirely covered by authority-by authority which has ranged over a great number of years, and has, indeed, become a leading principle in the administration of the law of bankruptcy. The statement of the general principle may be taken from a number of cases; but I may conveniently refer to the enunciation of it by Lord Eldon in the case of Ex parte Sillitoe (2): "A partner in a firm against which a commission of bankruptcy issues shall not prove in competition with the creditors of the firm who are in fact his own creditors, and shall not take part of the fund to the prejudice of those who are not only creditors of the partnership but of himself." My Lords, what are the facts of the present case so far as they are material? There is a gentleman of the name of Peter Dixon, in business with certain other partners; he dies, and, according to the contract of partnership, upon the occurrence of the death of a partner, his share in the assets is to be taken as it stood in the books of the concern on the 1st of the previous July; it is to be paid out by instalments ranging, I think, over fourteen years, and the surviving partners are to continue the business, paying out his capital in that way. Accordingly, the share of this partner was taken as it stood in the books of the concern, and it fell to be paid out by instalments as had been agreed upon. Before it was paid out the surviving and continuing partners became bankrupt. This transaction has been called a purchase and a sale, and has been treated as if it were something altogether independent of the partnership. My Lords, it is impossible to disguise the transaction by applying to it terms of that kind. It was a mode by which, for (1) 3rd Ed. P. 1227. (2) 1 Gl. & J. 374. 1876 NANSON v. GORDON. 1876 H. L. (E.) the obvious convenience of all parties, it was arranged that upon the death of a partner his share in the assets should be paid out to him, in certain instalments of money, in place of the concern being broken up and liquidated by a sale, and he was a creditor of the continuing partners for the amount of his interest in the concern thus ascertained. NANSON v. GORDON. My Lords, the continuing partners, as I have said, became bankrupt. But before they became bankrupt, Dixon himself died, and his estate came to be administered in the Court of Chancery, and is now being administered there. A large amount of debt which existed against the firm at the time when Dixon died, is still unpaid, and the creditors entitled to those debts have proved those debts in the administration in the Court of Chancery. Now, these debts of course have to be paid by the estate of Dixon, but they are also debts in the bankruptcy against the continuing partners, and, there being no joint estate, that is to say, no joint estate belonging to the firm as it was originally constituted, these debts will have to be paid out of the only estate in the bankruptcy, namely, the joint estate of those who were partners at the time of the bankruptcy. Your Lordships have therefore a case in which the estate of the deceased partner, Dixon, is liable to pay to these creditors that I have mentioned the amount of their debts, and those creditors are at the same time entitled to come. upon the fund in bankruptcy, to have their debts paid out of that fund; and just in proportion as the estate of the deceased, Dixon, will carry away a portion of that fund for the payment of the debt due to him, in that proportion the fund which would be available for the payment of those creditors in the bankruptcy will be lessened. Now, it is said that although it may appear at first sight to be a diminution, by the estate of Dixon, of the fund that would be paid to these creditors in the bankruptcy, that is to say would be paid to those persons in the bankruptcy who are besides creditors of himself, still in reality they will benefit and not suffer by that arrangement, because inasmuch as they are the whole, or almost the whole, of the creditors against his estate the dividend will be brought into his estate, and they will have the benefit of it there. My Lords, that is an accident. There |