In re A. Gomez & Co.

HamiltoN, Judge, delivered the following opinion: By agreement of counsel all questions are eliminated except whether or not the partnership of A. Gomez & Company, consisting of one regular or managing partner,. A. Gomez, {gestor), and one special partner {comanditario), Manuel Carvajal, can be adjudicated in bankruptcy after the death of the managing partner on the petition of Carvajal, the only other surviving partner. The law of Porto Rico as to partnerships is contained in the — 357 — Code of Commerce, and tbe more important provisions are as follows: No member can demand tbe delivery of tbe capital dne bim from tbe common fund until all tbe debts and obligations of tbe association bave been extinguished, etc. Code of Commerce, art. 235 (Rev. Stat. of P. R. 7794). Tbe creditors of tbe partnership shall be preferred to tbe creditors of each partner with regard to tbe partnership property. Rev. Stat. of P. R. § 4707. Article 148 of tbe Code of Commerce (Rev. Stat. of P. R. 7707) provides that special partners cannot take any part whatsoever in tbe management of tbe business of tbe copartnership. Articles of association, executed with tbe essential requisites of law, shall be valid and binding between tbe parties thereto, no matter what their form, and conditions and combinations, legal and honest, are included therein, provided they axe not expressly prohibited by this Code. Code of Commerce, art. 117 (Rev. Stat. of P. R. 7676). In tbe liquidation and division of tbe common capital, tbe rules established in tbe articles of association (partnership contract) shall be observed. Code of Commerce, art. 227 (Rev. Stat. of P. R. 7786). Article 122 of Code of Commerce of Porto Rico is as follows: “As a general rule commercial associations shall be established by the adoption of any of tbe following forms: . “1. Tbe regular general copartnership in which all tbe partners, under a collective and commercial name, bind themselves to participate in tbe proportion which may be established, in tbe same rights and obligations. “2. Tbe limited copartnership to which one or more persons contribute a specific amount of capital to a common fund, in or358 cter to be liable for the social transactions executed exclusively by others under a collective name. “3. The corporation, in which the members form the common fund by means of specific parts or portions, represented by shares or in any other unquestionable manner, leaving its management to removable managers or administrators, who represent the company under an appropriate denomination, according to the purpose or undertaking the funds are destined to.” The partnership articles of A. Gomez & Company, dated August 13, 1907, provide that upon the death of any of the partners the firm shall be placed in liquidation. 2. The more important consideration, however, is not what the local law may provide as to partnerships, but what the Bankruptcy Law provides as to the bankruptcy of such partnerships under the circumstances of this case. There are certain general principles governing such a case heretofore decided in bankruptcy courts, which may be summarized as follows:— A partnership during the continuation of the partnership business, or after its dissolution and before final settlement thereof, may be adjudicated in bankruptcy. Bankruptcy Law, § 5-A. The court of bankruptcy which has jurisdiction of one of the partners may have jurisdiction of all the partners and of the administration of the partnership and individual property. Bankruptcy Act, § 5-0. The Bankruptcy Act of 1898 recognizes the equitable rule that partnership property is primarily a fund for the payment of the partnership' debts, and that the interest of one partner is subject to that special equity, and attaches only to the surplus remaining after the payment of the partnership debts. And so it has been held that a copartnership may be adjudged a bankrupt after the death of one partner, up — 359 — on an act of bankruptcy committed by the surviving partner, and that the adjudication of bankruptcy of a copartnership does not necessarily draw into the proceeding the estate of every individual member. There have been several adjudications in which the question has been fully considered, and in the result of which we fully concur. Chemical Nat. Bank v. Meyer (D. C.) 1 Am. Bankr. Rep. 565, 92 Fed. 896, affirmed under appeal, sub nom. Re Meyer, 39 C. C. A. 368, 3 Am. Bankr. Rep. 559, 98 Fed. 976. “We perceive no valid reason why this manifest purpose of the Bankruptcy Act should not have full effect. In the case of a decedent the proper probate court assumes the charge of and the disposition of his estate. But even then the partnership of which he was a member might, as we think, be properly adjudicated bankrupt as against the survivors, and the partnership estate administered by the bankruptcy court, since the decedent’s interest in the estate extends only to the surplus after payment of the partnership debts. So, also, in respect to a minor, neither he nor his estate is responsible for debts contracted by him during his minority. And yet we perceive no objection, where he is a partner in a copartnership, his interests therein being subordinate to the copartnership debt, to the adjudication of such co-partnership as a bankrupt under the provisions of the present Bankrupt Act. Conceding for the purpose of the argument — a question which we do not determine — that an insane person may not be adjudicated a bankrupt, . . . nevertheless we think a copartnership of which he was or is a member may be so adjudicated, and the firm property applied to the payment of the firm debts. There is here no attempt to adjudicate the insane partner a bankrupt individually. The proceeding is mere — 360 — ly to subject partnership property to tbe payment of partnership debts and for an adjudication of bankruptcy against tbe same partner. Tbe argument in tbe cases cited is so complete ' and satisfactory that tbe subject needs no further discussion. Tbe decree of tbe court below is reversed, and tbe cause is remanded to tbe court below witb a direction to proceed in conformity to tbis opinion.” Re Stein, 11 Am. Bankr. Rep. 536. 3. Coming now to tbe points directly involved in tbe case at bar, tbe principle is that in bankruptcy a partnership is a quasi person, a separate entity from tbe partners. A partner, or in tbe’case of bis death bis estate, only has such right to tbe firm property as may exist after tbe payment of its debts, in other words, after liquidation has been carried out according to law.. Tbe exact question is, What happened to tbe partnership upon tbe death of tbe managing partner, Gomez ? Tbe articles provided that- in such a case its business should be liquidated, but they did not provide and could not provide in what court tbe liquidation was to proceed. If tbe firm was solvent, there is no question tbe liquidation would be by tbe surviving partner out of court altogether, or under proper circumstances would proceed in a local court under tbe Cod.e of Commerce. If, however, a proper case for bankruptcy was presented, tbe liquidation provided for must be in a court of bankruptcy. Tbe parties could not make any different contract if they bad desired. There is no doubt that tbe estate of a deceased person cannot be placed in bankruptcy. “We are next to inquire whether tbe individual property of tbe estate of Jones could be drawn into and administered in tbe bankrupt court by a proceeding against tbe firm, of which, when alive, be bad been a member. Whatever power tbe bankrupt — 361 — court possesses over the subject of bankruptcies, it derives exclusively from.the Bankrupt Act. Power not conferred by the act it does not possess. We look in vain through its sections to find any authority conferred to put the estate of a deceased person into bankruptcy. The twofold purpose which the Bankrupt Act, has in view, viz., the equal and just distribution of the bankrupt’s estate among his creditors, and the discharge of the bankrupt from his debts, does not require the application of the law to the estate of the deceased person. The laws of the states provide for an equitable and just distribution of the decedent’s estate, and death has already discharged him of all personal liability. The Bankrupt Law could, in the case of a deceased person, accomplish nothing not already accomplished without it. While there is no direct authority given by the Bankrupt Act over the estates of deceased persons, the implication from what is expressed is strongly against such a jurisdiction. Section 12 of the act (Rev. Stat. § 5090) declares, if the debtor dies after the issuing of the warrant, the proceedings may be continued and concluded in like manner as if he had lived; that is, the estate of a deceased may be administered after his death if the court has acquired jurisdiction over it in his lifetime.” Adams v. Terrell, 4 Woods, 337, 4 Fed. 801. This, however, is not sought in the case at bar. The case of Rudolph v. Evans, 161 Fed. 590, 591, holds as follows: “The death of W. E. Scogin in December 1903, dissolved the firm of Evans & Co., composed of Evans and Scogin. The firm was extinguished. It was civilly dead — rendered so by the death of Scogin. The firm was a distinct entity in law. With Scogin’s death it ceased to exist. Consequently no bankruptcy proceeding could thereafter be instituted against this partnership enti — 362 — ty. As tbe firm no longer existed, all that Evans conlcl do was to go into bankruptcy, individually. Therefore, bis voluntary petition in bankruptcy was only, under tbe law, tbe bankruptcy petition of C. E. Evans [tbe surviving partner].” This short opinion was not directed to bolding tbe old firm liable, but to tbe point whether a new firm was constituted by admissions of other parties. It is, therefore, not in conflict with tbe well-considered case of Ee Stein, above cited. And the Bankruptcy Law on tbe subject seems to be sufficiently explicit. Section 5-A expressly provides that, despite tbe dissolution of a partnership, it may be adjudicated in bankruptcy at any time before tbe final settlement of its affairs. In tbe case at bar the death of Gomez may have dissolved tbe partnership, but certainly its affairs bad not been finally settled. Tbe firm might for some purposes be considered dead, but a probate court bad no jurisdiction of its assets. The probate court can only administer tbe property that comes to an individual after tbe partnership debts have been paid off. No probate court can administer the affairs of a dead partnership. No doubt the local courts could do so if there were no provision on tbe subject in tbe Bankruptcy Act, but there is tbe above provision, § 5-A, in that act, and it does not appear that this court made any mistake in taking jurisdiction of tbe petition. It remains only to say that care must be bad in administering tbe partnership assets not to administer, as would be done in tbe case of live partners, the individual property of Gomez. That under tbe decisions is a matter for tbe local courts. It follows, therefore, that tbe petition of tbe widow and children of Abraham Gomez to have tbe petition dismissed must be denied. It is so ordered.