§ 40. (2.) Where joint creditor petitions. (3.) Where joint creditors pay separate creditors in full. The existence, however, of a solvent partner, if he be abroad (Ex p. Pinkerton, 6 Ves. 814), or the fact that the estate of a deceased partner is solvent (Ex p. Bauerman, 3 Dea. 476) will not prevent joint creditors from availing themselves of this exception, because under those circumstances there would be no solvent partner whom they could sue. On the other hand a partner will be deemed to be solvent although he be, in fact, insolvent until his insolvency has been judicially declared. (Er p. Janson, 3 Madd. 229.) The existence of any joint estate whatsoever, no matter how little it may be, defeats this right of the joint creditors (Ex p. Taitt, 16 Ves. 193), unless it be pledged for its full value (Ex p. Geller, 2 Madd. 262), and perhaps even then it would be necessary for the pledgee to realize its value, as until that is done it would be impossible to say that there would be no joint estate. If there is any doubt as to whether there is any joint estate, an inquiry will be directed. (Ex p. Birley, 1 M. D. & D. 387, 2 M. D. & D. 354.) If upon the assumption that there is no joint estate, joint creditors prove against and receive dividends out of one or more of the separate estates and joint estate is subsequently discovered, the estates so burdened are entitled to reimbursement out of the proceeds of this joint estate. (Ex p. Willock, re Dawes, 2 Rose, 392.) (2.) Where a joint creditor is the petitioning creditor under a separate adjudication, he may prove against and receive dividends out of the separate estate pari passu with the separate creditors (Ex p. Ackermann, 14 Ves. 604), and this, although there is due to him a separate debt, sufficient to have supported the petition (Ex p. Burnett, 2 M. D. & D. 357), and although as to part of the dividends, he will only be trustee for another joint creditor. (Exp. De Tastet, 17 Ves. 247.) It is to be observed that sub-section (3) and section 59, which embody the rule laid down by Lord King as to the distribution of joint and separate estate, make no mention of the above exceptions, and perhaps, considering the unsatisfactory grounds upon which they are based, and the disapproval with which they have occasionally met (see per Lord Eldon, in Ex p. Pinkerton, 6 Ves. 814), it was the intention of the legislature that they should no longer obtain. (3.) Joint creditors may by paying the separate creditors in full acquire the right to prove against and receive dividends out of that separate estate (Ex p. Chandler, 9 Ves. 36); but an undertaking to pay the separate creditors is not sufficient, at any rate unless they are ascertained. (Ex p. Taitt, 16 Ves. 193.) The petitioning creditor, although he may be, in fact, a joint creditor, is for this purpose deemed to be a separate creditor, and must be paid in full. (Ex p. Chandler, ubi sup.) Payment in full did not, under former statutes for this purpose, include payment of interest (Ex p. Clarke, 4 Ves. 676); and the effect of sub-section (5) of this section will be the same, viz., that neither joint nor separate creditors can receive interest from the date of the receiving order until all the creditors have received twenty shillings in the pound. To the rule that the joint estate is in the first instance to be distributed amongst the joint creditors there appears to be no exception. § 40. separate In administration in bankruptcy the joint estate and Joint creditor separate estate are so much considered as distinct estates, holding security or that a joint creditor having a security upon the separate separate estate of one of the partners is entitled to prove against the estate may joint estate for the full amount of his debt, without giving up enforce his security, and vice versa. (Ex p. Peacock, 2 Gl. & J. 27; security Ex p. Bowden, 1 D. & C. 35; The Bank of Australasia v. against Flower & Co., L. R. 1 P. C. 27, 46; Ex p. West Riding Bank- estate, ing Co., re Turner, 19 Ch. D. 105.) If a creditor of a firm and vice versa. and also of an individual partner holds security from that partner for both the joint and separate debt, and the realized separate security is more than sufficient to satisfy the separate debt, such creditor may prove against the joint estate for the full amount of the joint debt, without deducting the security. (Ex p. Watson, re Walker, 42 L. T. 516.) And it is submitted that the creditor would in such case be entitled to the benefit of the balance of the separate security as security for the joint debt, otherwise the effect of the bankruptcy of his debtor would be to deprive the creditor of a security for which he had contracted. The case of Ex p. West Riding Banking Co. v. Turner, ubi sup., shows that the test in each case is, whether the security if given up would augment the estate against which proof is sought to be made. Where a creditor of the joint estate, and also of one of the separate estates, holds as security for both of the debts property belonging to the separate estate of the partner who is separately indebted, he may apportion the proceeds of his security in whatever way is most to his advantage. (Ex p. Dickin, re Foster, L. R. 20 Eq. 767.) See post, section 59, sub-section (2). In order that the rule may be observed, that the joint estate should in the first instance, be applied to the joint debts, and the separate estate to the separate debts, distinct accounts must be kept of the joint and of the separate estates (Rule W.B. L § 40. What estate is joint and what separate. Character of estate may be altered by partners. re White. 215), and this renders it necessary to ascertain:-1. What estate is joint, and what is separate? 2. What debts are joint, and what are separate? Whatever is as between the parties themselves joint estate, and whatever is as between them separate estate will be, unless affected by the doctrine of reputed ownership, joint or separate estate for the purpose of distribution amongst the creditors, and, as the rules as to the distribution of joint and separate estates are founded upon the equities of the partners inter se, and not upon any lien of the creditors upon them, the character of either joint or separate property may be changed by any bona fide alteration by the partners (Ex p. Ruffin, 6 Ves. 119; Ex p. Williams, 11 Ves. 6); and this, even though at the time of such alteration the estate of which the property is transferred, is insolvent. (Ex p. Walker, 4 De G. F. & J. 509.) The agreement to transfer, however, must not be executory (Ex p. Kemptner, L. R. 8 Eq. 286; Ex p. Wheeler, Buck. 25); nor must it be tainted with fraud. (Ex p. Rowlandson, 2 Ves. & B. 172; Anderson v. Maltby, 2 Ves. 244.) The transfer must be such as to get rid of any rights in the transferring partner to have the transferred assets applied in indemnifying him against the liabilities of Ex p. Morley, the firm. Thus, in the case of Ex p. Morley, re White, L. R. 8 Ch. 1026, it was stipulated by a partnership deed that A. and B. should be partners in the profits of the business, the capital of which belonged to A.; and that on the death of A. the partnership should be dissolved, and B.'s share of profits should thenceforth belong to A.'s representatives, and that his representatives should thenceforth carry on the business, and that B. should receive from them his share of the profits up to A.'s death. A. died, having appointed B. his executor. B. carried on the trade for fourteen months, and then filed a petition for liquidation. Part of the stock-in-trade which existed at A.'s death still remained in specie, but the greater part had been disposed of by B. in the course of the business, and fresh stock-in-trade bought by him. The Court held that the partnership deed only meant that the capital, subject to the payment of the debts, should belong to A.'s representatives, and had not the effect of converting the stock-in-trade into the separate estate of A., but that so much of the present assets as had been in existence at A.'s death was applicable as joint estate to pay the joint creditors of the firm, and so much as had been bought since A.'s death, was applicable as separate estate of B. This case was followed in Ex p. Dear, re White, 1 Ch. D. 514, and Ex p. Manchester Bank, re Mellor, 12 Ch. D. 917, affirmed sub nom. Ex p. Butcher, 13 Ch. D. 465. § 40. But in the case of Re Simpson, L. R. 9 Ch. 572, where four brothers carried on business in partnership under a deed which provided that the death of one partner should not Re Simpson. dissolve the partnership, but that the business should be carried on by the survivor or survivors, and the share of the deceased partner ascertained at the next yearly stock-taking and paid to his representatives by instalments, two of the partners died, and afterwards the survivors became bankrupt, at which time no steps had been taken to ascertain the shares of the deceased partners. It was held that the creditors of the four partners had no right to have the joint assets of the four which remained in specie applied first in payment of their debts, upon the ground that by the partnership deed the whole interest in the assets passed immediately on the death of one partner to the survivors. As to the case of separate businesses, see Re Childs, L. R. Separate 9 Ch. 508, where the bankrupt owned a business at business. Brighton and one-fourth of a business in London, threefourths of which were settled to the separate use of his wife, and it was held that the London assets were to be applied first of all to payment of the London creditors. Compare Re Beale, ex p. Corbridge, 4 Ch. D. 246. As to this last case, see now section 3 of the Married Women's Property Act, 1882, which makes money, &c. lent by a wife to her husband his assets in case of bankruptcy, subject to the wife's right to a dividend after all the creditors for valuable consideration have been satisfied. It is a question Question of of fact whether the property is joint or separate estate, nor fact whether can the conduct of the bankrupts leading a creditor to believe joint or sepajoint to be separate estate entitle him to treat it as such for rate estate. the purpose of proof. (Ex p. Connell, 3 Dea. 201; Re Collie, ex p. Manchester Bank, 3 Ch. D. 481.) Although the rule as to the distribution of joint and Doctrine of separate estate is, as we have already seen, founded upon reputed the equities of the partners inter se, and consequently that is ownership as deemed to be joint or separate estate which is so as between and separate affecting joint them, yet this is subject to the doctrine of reputed ownership, estate. so that the separate property of one partner in the reputed ownership of the firm will be dealt with as part of the joint estate (Ex p. Hare, 1 Dea. 16), and joint property of the firm in the reputed ownership of one partner will be dealt with as part of his separate estate. See, however, ante. What circumstances generally will render the doctrine of reputed ownership applicable will be fully examined, post, note to section 44 (3); but it seems desirable here to consider how that doctrine affects the character of the different estates, where there has been a change in a firm, either by a former partner retiring, or a new partner being admitted. § 40. Joint estate by repute, where no partnership in fact. Such a change does not necessarily cause a change in the reputed ownership of the property of the old firm; this is particularly true of debts owing to the old firm and of merchandise belonging to it, but in the hands of third persons, and there is abundant authority to show that debts (Ex p. Burton, 1 Gl. & J. 207; Ex p. Sprague, 4 De G. M. & G. 866) and goods (Ex p. Harris, 1 Madd. 583) left in the reputed ownership of the old firm, although, in fact, belonging to the new firm, must, in the event of bankruptcy, be treated as part of the joint estate of the old firm. Where partnership property comes into the hands of one partner by survivorship, and that partner becomes bankrupt, very strong circumstances are required to show that such property is distributable, as his separate, and not as his joint estate. (Ex p. Leaf, M. & C. 662; Ex p. Heath, 4 Jur. 8.) If he continues to carry on the business contrary to the trust reposed in him, and against the consent of the persons interested in the estate of the deceased partners, it is clear that the reputed ownership clause will not apply. (Stocking v. Dawson, 17 L. J. Ch. 282.) Where, however, a partnership is dissolved, and one of the partners continues to carry on the business on his own account, and where from lapse of time, or otherwise, there is evidence to show acquiescence in such a course of proceeding on the part of the retired partners, then the nature of the property will be held to have been changed either by virtue of a tacit agreement between the partners themselves, or by virtue of the doctrine of reputed ownership, and in either case that which was the joint estate of all will be distributable as the separate estate of the continuing partners. (Horn v. Baker, 9 East, 215; West v. Skip, 1 Ves. sen. 242; Ex p. Barrow, 2 Rose, 252; Lindley on Partnership, 3rd ed. 1197, 1198.) A representation that there is a partnership is sufficient to create joint estate; it is created by reputed ownership (Ex p. Arbouin, De G. 359), and if a person hold himself out as partner with another, the fact that there is a secret arrangement between them that the whole of the assets shall belong to one of them will not prevent such assets being joint estate. Thus, in Re Rowland & Crankshaw, L. R. 1 Ch. 421, where C. had entered into an agreement with R. that R. should buy and sell goods on behalf of C., and that the business should be carried on as R. & Co., R. being paid by salary and a commission on the profits, and the business was managed by R., but C. had bought goods for it, it was held that upon each of them becoming bankrupt the book debts and stockin-trade of R. & Co. were joint estate of the two. And in the case of Ex p. Hayman, re Pulsford, 8 Ch. D. 11, where there |