Scottish Court of Session Decisions

Subject_1 SOCIETY.
Subject_2 SECT. XV.

Company Creditors how to be ranked on the Estates of Individual Partners.

Charles Campbell, Trustee for the Creditors of Thomas Houston, and Others,
v.
Francis Blaikie, Trustee for the Creditors of Ramsay, Smith, Graham, and Company, both as a Company and as Individuals

Date: 19 May 1796
Case No. No. 43.

The creditors of an insolvent company are entitled to rank on the private estates of the partners pasi passu with their private creditors.

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Francis Blaikie, trustee on the sequestrated estate of Ramsay, Smith, Graham, and Company, and likewise on the private estates of the partners, proposed to rank the Company creditors exclusively on the funds of the Company; and these being insufficient for their payment, to rank them afterwards, pari passu with private creditors, on the private estates of the partners.

To this Charles Campbell, trustee on the sequestrated estate of Thomas Houston, a private creditor of one of the partners, and some other creditors of the same description.

Objected: As the creditors of a Company are preferred on the funds of the Company, it is fair that the private creditors of the partners should have a similar preference on their private estates. The former trust to the funds of the Company for their payment, while the latter, in general, give credit to an individual partner on the faith of his private fortune, without placing any reliance on his copartnery concerns, which may be altogether unknown to them. Accordingly, the preference contended for is established in England, where general questions of this nature have been longer an object of attention than in this country; Green's Spirit of the Bankrupt Laws, p. 154.; Cook's System of Bankrupt Laws, p. 163.

Answered: The creditors of a Company are preferred on funds, because the stock of the Company is, in law, held to belong not to the partners, but to the Company, considered as an universitas, against which the partners, and consequently their private creditors in their right, have a jus crediti only for the residue after payment of the debts of the Company; L. 27. D. Pro socio; Ersk. B. 3. Tit. 3. £ 24. But, on the other hand, the partners are liable singuli in solidum for the debts of the Company, which are therefore, in reality, the private debts of each partner, and, as such, must rank on his private estate. Such, accordingly, has been the uniform practice and understanding in this country; 4th July, 1776, Dunlop against Spiers, No. 42. p. 14610. affirmed on appeal; and a contrary rule would greatly weaken the credit of Companies, as it is upon the confidence in the responsibility of the partners, and not in the stock of the Company, that their credit is generally supported.

Upon advising memorials, the Lords, on the grounds stated for Blaikie, “found, That the creditors of Ramsay, Smith, Graham, and Company, are entitled to rank on the private estates of the individuals partners of said Company along with the private creditors of such partners;” but ordered a hearing in presence as “to what extent: Whether to the full amount of their original debts, or only for the balance due after deduction of what they drew from the Company estate?” (decided in the case which follows.)

For the objectors, Tait. Alt. Cullen. Clerk, Colquhoun. Fol. Dic. v. 4. p. 293. Fac. Coll. No. 216. p. 509