only; and that a partner is not ordinarily entitled to extra compensation or interest in the absence of an agreement to pay it.5 It has been seen, moreover, that the claims of partners for contribution as to debts paid, for reimbursement for advances, for indemnity against liability, and most other claims and demands arising between the partners themselves, are to be settled upon the final accounting. Such an accounting becomes, therefore, the one great occasion for a comprehensive and effective settlement of partnership demands, between the partners.

§ 466. Same subject-Right of general creditors to present their demands. But the claims of the partners as between themselves are usually not the only ones to be adjusted. The claims of the partnership creditors must also be ascertained and paid. These may be cared for by the voluntary action of the partners without suit. If no court has acquired control of the assets for the purpose of distribution, ordinary actions at law can usually be maintained notwithstanding the termination of the partnership. Or in an action in equity instituted by a partner or a creditor to wind up the business and distribute the assets, the claims of the partnership creditors may be presented and proved without the commencement of separate actions to enforce them.

Debts must be collected either by the partners themselves, or by a receiver in case the partnership affairs are being settled by a court of equity. A sale of the tangible property is also to be made, and is practically a matter of course, unless for special reason shown, some other method of disposition is ordered.

When the assets have thus been reduced to an available and distributable form, and the claims of the partners among themselves and of creditors against the firm have been ascertained, the estate is ready for distribution among those entitled according to the priorities which the law establishes.

§ 467.

As has been already seen in a previous section," the partners themselves may, in pursuance of well-settled and

5 Ante, §§ 178, 179.

6 Ante, § 190.

7 See ante, § 227.

long-established rules, have the aid of courts of equity in securing accountings, dissolutions and distributions of the partnership assets. Other persons who claim through the partners may also of ten have such aid to secure an accounting and distribution. The mere general creditor does not usually need such aid, as he may reach the assets through ordinary legal process. But at times a creditor who has exhausted his legal remedies may have recourse to equitable ones, like a creditor's bill, for example. Moreover, in many states, there are statutory proceedings, such as state insolvency proceedings for example, by means of which he may bring the assets under judicial control; and, during the existence of a national bankruptcy law, he may have the remedies which such a statute provides. The consideration of the application of these remedies, however, is not within the scope of the present work.

§ 468. Partnership debts to be first paid. It follows from what has been said as to the application of the firm assets that the partnership debts are to be paid first, and that claims of the individual partners against the firm or each other cannot compete with the claims of the firm creditors. It is thus said to be a general rule that by no form of claim can one partner compete with the firm creditors in the distribution of the firm assets; but this is a question which has been considered in the preceding chapter.

§ 469. Manner of accounting.-Mr. Justice Lindley lays down the following rules,10 which have been generally adopted, as to the manner of accounting: "In adjusting the accounts of

8 See ante, § 449.

9 See Edison Illuminating Co. v. DeMott (1893), 51 N. J. Eq. 16, 25 Atl. 952; Ex parte Blythe (1881), 16 Ch. Div. 620.

102 Lindley on Partnership, 402 (Ewell's 2d Am. ed.). See, also, Molineaux v. Raynolds (1896), 54 N. J. Eq. 559, 35 Atl. 536, Burd. Cas. 169.

The partners may, of course, by agreement vary these rules so far as they affect themselves alone: Groth v. Kersting (1896), 23 Colo. 213, 47 Pac. 393, Burd. Cas. 563, Gilm. Cas. 484; Huger v. Cunningham (1906), 126 Ga. 684, 56 S. E. 64.

partners, losses ought to be paid first out of assets excluding capital, next out of capital, and lastly by having recourse to the partners individually; and the assets of the partnership should be applied as follows:

"1. In paying the debts and liabilities of the firm to nonpartners.

"2. In paying to each partner ratably what is due from the firm to him for advances as distinguished from capital.11

"3. In paying to each partner ratably what is due from the firm to him in respect of capital.

"4. The ultimate residue, if any, will then be divisible as profit between the partners in equal shares, unless the contrary be shown." 12

§ 470. Same subject.-"If the assets are not sufficient to pay the debts and liabilities to non-partners," continues Mr. Justice Lindley, "the partners must treat the difference as a loss and make it up by contributions inter se. If the assets are more than sufficient to pay the debts and liabilities of the partnership to non-partners, but are not sufficient to repay the partners their respective advances, the amount of unpaid advances ought, it is conceived, to be treated as a loss to be met like other losses. In such a case the advances ought to be treated as a debt of the firm, but payable to one of the partners instead of to a stranger. If, after paying all the debts and liabilities of the firm and the advances of the partners, there is still a surplus, but not suffi

11 This must be secured to him before a distribution of capital among the other partners. It is a violation of this right to distribute the capital and give him merely a judgment to collect his advances from the other partners pro rata. See Leserman v. Bernheimer (1889), 113 N. Y. 39, 20 N. E. 869, Mechem's Cas. 1072, Burd. Cas. 565. It will take precedence of a mortgage upon one partner's interest: Warren v. Taylor (1877), 60 Ala. 218, Mechem's Cas. 1081, Burd. Cas. 580. See, also,

Folsom v. Marlette (1897), 23 Nev. 459, 49 Pac. 39, Burd. Cas. 570.

12 As has been already seen, ante, § 145, it is the general rule that, in the absence of some agreement to the contrary, profits and losses are to be shared equally among the partners, even although their respective contributions to the capital were unequal. See Raymond v. Putnam (1862), 44 N. H. 160, Gilm. Cas. 490. See, also, McMurtrie v. Guiler (1903), 183 Mass. 451, 67 N. E. 358, Gilm. Cas. 74.

cient to pay each partner his capital, the balances of capitals remaining unpaid must be treated as so many losses, to be met. like other losses.

§ 471. Uniform Partnership Act.-The Uniform Partnership Act contains detailed provisions upon this subject, which are in substantial conformity with those mentioned in the preceding section as to the order of application. It also contains other provisions which need not be repeated here. (Section 40.) The complete text is given in the Appendix.

§ 472. Same subject-Loss of capital, how borne. “In the absence of controlling agreement," said the court in a leading case,18 "partners must bear the losses in the same proportion as the profits of the partnership, even if one contributes the whole capital and the other nothing but his labor or services. Whether a loss of capital is a partnership loss, to be borne by all the partners, depends upon the nature and extent of the contract of partnership.

"If, as is not infrequently the case in a partnership for a single adventure, the mere use of the capital is contributed by one partner, and the partnership is in the profits and losses. only, the capital remains the property of the individual partner to whom it originally belonged, any loss or destruction of it falls upon him as the owner, and, as it never becomes the property of the partnership, the partnership owes him nothing in consideration thereof.14

13 Whitcomb v. Converse (1875), 119 Mass. 38, 20 Am. Rep. 311, Mechem's Cas. 692, Burd. Cas. 575, Gilm. Cas. 488. See, also, Taft v. Schwamb (1875), 80 Ill. 289, Burd. Cas. 577. Compare Magilton v. Stevenson (1896), 173 Pa. 560, 34 Atl. 235, Burd. Cas. 573.

14 [For a later case holding the particular partnership to be on this basis, see Meadows v. Mocquot (1901), 110 Ky. 220, 61 S. W. 28, 22 Ky. Law R. 1646.] See, also,

Cameron v. Watson (1858), 10 Rich. (S. Car.) Eq. 64, 103; Baker v. Safe Deposit Co. (1900), 90 Md. 744, 45 Atl. 1028, 78 Am. St. R. 463; Manley v. Taylor (1884), 50 N. Y. Super. 26; Hasbrouck v. Childs (1858), 16 N. Y. Super. (3 Bosw.) 105; Everly v. Durborrow (1871), 8 Phila. 93, [but compare Emerick v. Moir (1889), 124 Pa. 498, 17 Atl. 1]; Stumph v. Bauer (1881), 76 Ind. 157, Gilm. Cas. 175.

"But where, as is usual in an ordinary mercantile partnership, a partnership is created not merely in profits and losses, but in the property itself, the property is transferred from the original owners to the partnership and becomes the joint property of the latter; a corresponding obligation arises on the part of the partnership to pay the value thereof to the individuals who originally contributed it; such payment cannot, indeed, be demanded during the continuance of the partnership, nor are the contributors, in the absence of agreement or usage, entitled to interest; but, if the assets of the partnership upon a final settlement are insufficient to satisfy this obligation, all the partners must bear it in the same proportion as other debts of the partnership."

§ 473. Same subject. In accordance with these principles, it has been held that where one partner contributes experience, skill, or the like, and the other money, the former is not, upon dissolution, entitled to any part of the cash capital, but each takes back, so far as possible, what he put in-one his experience, etc., and the other his money. If, however, where one contributes labor and the other money [not merely its use], there is, upon dissolution, a loss of capital, it has been held that the one who contributed labor only must aid in making good the loss of the other who contributed money, 16 though there are cases which hold the contrary.17

In making contribution at law, the loss is divided equally among the whole number, without regard to their solvency or insolvency; but in equity the loss is made to rest upon the solvent partners alone. 18 The Uniform Partnership Act adopts the equity rule.19

15 Shea v. Donahue (1885), 15 Lea (Tenn.), 160, 54 Am. Rep. 407, Mechem's Cas. 695, Gilm. Cas. 168; Conroy v. Campbell (1879), 13 Jones & Sp. (N. Y.) 326.

16 Whitcomb v. Converse, supra; Hayes v. Hayes (1889), 66 N. H. 134, 19 Atl. 571.

17 See Baker v. Safe Deposit Co., supra; Meadows v. Mocquot, supra; and other cases cited in preceding section.

18 Whitcomb v. Converse, supra; 1 Lindley on Partnership (Ewell's 2d Am. ed.), 376. 19 Sec. 40 (d).