LACKNER v. McKECHNEY et al.; MILLER et al. v. LACKNER et al., 252 F. 403

MACK, Circuit Judge (after stating the facts as above). 1. Concededly, on proceedings to wind up copartnership affairs, creditors will be permitted to intervene and file their claims against the copart-nership assets and against the individual members of the firm.

A court of equity, necessarily determining the validity and extent of their claims for the purpose of devoting any partnership assets to the payment thereof before any distribution as between the copartners, would not remit them to another tribunal for full relief, if the partnership assets proved deficient, but would give personal judgment against the copartners for the deficiency. Johnson v. Miller, 50 Ill. App. 60. But it is contended that this personal deficiency judgment will he rendered only in a ca.se in which thcic are actual firm assets that have been brought within the jurisdiction of the court.

A bill might conceivably be brought after all firm assets had been dissipated, for an accounting as to the past transactions, and a settlement as between the copartners because of those transactions might be decreed, regardless of the existence of unpaid partnership debts, and therefore without a determination of the amount of such outstanding' liabilities. Such, however, is not the ordinary bill to wind up a partnership, and such was not the bill in this case.

It was charged, and for many rears believed by all the parties, that there were partnership assets of very great value, namely, the claim against the city of Chicago. In and by the bill itself creditors were expressly invited to come into the proceedings. One of the essential objects of the original litigation was to prevent the defendants from exercising their power over this claim or judgment to the detriment both of the complainant, as executor of the deceased’s personal estate, and of the firm creditors.

When the copartners ihemsclves have asserted, and it may be assumed have honestly believed in, the existence and value of firm assets, and thus have invited and led their creditors to come into the dissolution litigation for satisfaction of their claims, instead of resorting to a direct action at law or in equity against the estate of the deceased partner or die surviving members of the firm, and to remain therein until their rights in such an original action would be barred by the statute of limitations, neither principle nor any authority cited or found compels or justifies a court of general chancery jurisdiction in refusing to exercise that jurisdiction, and to render personal judgment in favor of the firm creditors, merely because the supposed firm assets have finally proven to be valueless. 2.

Although the claim against the city of Chicago was a chose in action, the federal court, through its receiver, obtained control thereof. Firm creditors were thereby prevented from seeking to realize payment of their claims out of this .fund, as they might otherwise have done through attachment or garnishment proceedings in the state courts.

Whether this claim should eventually turn out to be valuable or valueless, either because of a sef-ofl or otherwise, it was deemed by the parties and was in fact an asset of the estate —an asset which at the time the original proceedings were begun had a very .substantial value, and which, even at the time appellants’ intervening petition was filed, was deemed by the parties to be of some value.

Moreover, the partnership as such was alleged to have a claim against the defendants for moneys wrongfully taken from the firm property— a claim which, if substantiated, would enable the partnership to share pro rata with individual creditors of the insolvent partner (Burdick, Partnership [3d Ed.] p. 313), and thus perhaps yield something for firm creditors.

The relative rights of the copartners in and to the firm assets at the time that the original bill was filed could not be finally’' adjudicated until the rights of the creditors should have been determined; the determination, therefore, of the validity and amount of the creditors’ claims against the firm was certainly proper and germane to the subject-matter of the principal proceedings. • But, even if there had been confessedly no partnership assets, a determination of the affairs of the copartnership and the mutual rights-of the copartners would have made adjudication of the firm liabilities none the less germane or desirable.

While creditors could not have been compelled to submit themselves to the jurisdiction of the court, they were very properly' admitted, irrespective of citizenship, for this purpose. Only with them before it could the court properly and fully wind up the partnership affairs. Not merely in their own interest, therefore, but in the interest of the principal parties to the litigation and for the purpose of determining the latters’ relative rights, are creditors permitted to intervene in such proceedings.

It may be that a personal decree in their favor as against their debtors is not absolutely essential to the settlement of the main proceedings; but with the parties properly before it, not merely as claimants of the fund, but as parties, the extent and validity of whose entire claim must be found, the jurisdiction of the federal chancery court, in our judgment, justifies and, requires that, upon the adjudication of the amount of the claim, payment thereof should in a proper case he decreed, irrespective of the citizenship of the intervening creditors.

The decree, however, would be against the executor or administrator as such. 3. Assuming that under the Illinois statutes a foreign executor is not subject to suit, clearly this privilege may be waived. Weir, as executor, by filing his bill for an accounting, necessarily and expressly offered to pay what might be found due from him to the defendants; but, inasmuch as he invited the adjudication of creditors’ claims, he must be held likewise to have waived any such privilege as against them. Decker v. Patton, 20 Ill. App. 210. Moreover, he filed a general demurrer for want of equity to appellants’ claim.

He thereby waived any personal ‘ privilege exempting him as a foreign executor from suit. Newark Savings Institution v. Jones’ Executors, 35 N. J. Eq. 406; Palm’s Adm’r v. Howard (Ky.) 102 S. W. 267. Cf. Lawrence v. Nelson, 143 U. S. 215, 12 Sup. Ct. 440, 36 L. Ed. 330. 4. Weil v. Guerin, 42 Ohio St. 299 (and see, too, Gaines v. Therman, 8 Ohio N. P. [N. S-] 521, 20 Ohio Dec. 95), construing

section 6102 of the Ohio statutes, establishes the separate liabilities of the surviving partner and of the estate of the deceased partner for joint firm obligations. The clear intimation therefrom is in accordance with the overwhelming weight of American authority that in Ohio such a claim against the deceased partner’s estate may be filed in the probate court or sued upon without first exhausting firm assets or establishing the surviving partner’s insolvency. The claim might therefore have been filed against the estate as soon as it accrued.

But in our judgment it did not accrue until the withdrawal of appellants from the litigation after the final decision in the Supreme Court of Illinois, and this was within the Ohio statutory period of one year prior to the filing of the intervening petition. Appellants’ claim is based upon a general, employment for certain litigation, not for a fixed time on a fixed salary. The cause of action,. therefore, does not accrue from day to day, but only at the termination of the service. Walker v. Goodrich, 16 Ill. 341; 2 Mechem, Agency, § 2262. The death of Frederic did not necessarily terminate the contract.

If only for the purpose of winding up the affairs, the firm continued thereafter, and the surviving partners remained, as they had theretofore been, the managing members of 1he firm. As such, it was their duty on behalf of the firm to continue the litigation, and in so doing they were fully authorized to permit the continuance of the contract of employment with the appellants, entered into in the lifetime and with the assent of Frederic. The obligation resulting therefrom is but a continuation of the original obligation incurred by all of the copartners.

That appellants’ performance was uncompleted at Frederic’s death, and was only completed thereafter, does not absolve the estate of the deceased partner from direct liability therefor, in view of the nature of the services as incidental to the winding up of the partnership affairs. See Mason v. Tiffany. 45 Ill. 392; Hughes v. Gross, 166 Mass. 61, 43 N. E. 1031, 32 L. R. A. 620, 55 Am. St. Rep. 375; 2 Mechem, Agency, § 1567; In re Kalbfell, 27 Pittsb. Leg. J. (N. S.) 210; Id., 30 Pittsb. Leg. J. (N. S.) 274.

The situation is totally unlike that which arises when a surviving p?.rtner incurs new obligations, not incidental to the winding up, or gives negotiable paper for old obligations. 5. It is clear from the record that the present proceedings were not dismissed because of a. failure under the old equity rule 69 to take testimony within three months. The order of re-refercnce in 'December, 1912, waived any possible laches of any of the parties in this respect. 6. Appellants, as interveners, had obtained an independent standing in the cause. They were entitled to proceed to establish their claim.

The original plaintiff and defendants might waive their mutual accounting, but they could not thereby destroy appellants’ rights as a party litigant. The court should not permit the original bill to be dismissed until such an intervening petition is disposed of on the merits. C. & A. R. R. Co. v. Union Rolling Mill Co., 109 U. S. 702, 3 Sup. Ct. 594, 27 L. Ed. 1081.

The decree must therefore be reversed, and the cause remanded, with directions to permit appellants to proceed with the taking of evidence, and for further proceedings consonant with the views herein expressed. <§^>For other cases see same topic & KEY-NUMBER. in all Key-Numbered Digests & Indexes <gssFor other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes