debt and that it has a right to participate in the distribution of the assets of the individual partners before partnership creditors receive any payment from such assets. b. Is the bank correct? Why or why not?
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Simmons, Hoffman, and Murray were partners doing business under the firm name of Simmons & Co. The firm borrowed money from a bank and gave the bank the firm’s note for the loan. In addition, each partner guaranteed the note individually. The firm became insolvent, and a receiver was appointed. The bank claims that it has a right to file its claim as a firm debt and that it has a right to participate in the distribution of the assets of the individual partners before partnership creditors receive any payment from such assets. Simmons, Hoffman, and Murray were partners doing business under the firm name of Simmons & Co. The firm borrowed money from a bank and gave the bank the firm’s note for the loan. In addition, each partner guaranteed the note individually. The firm became insolvent, and a receiver was appointed. The bank claims that it has a right to file its claim as a firm debt and that it has a right to participate in the distribution of the assets of the individual partners before partnership creditors receive any payment from such assets. |
Explanation
A case is considered where a debtor has two creditors, who seek satisfaction out of the assets of the debtor, where the debtor has two funds to resort from; but only one creditor has the recourse to both funds. In such a scenario, the creditor with recourse to both funds can seek satisfaction out of the fund that cannot be a recourse to the other creditor. Using such a method, both the creditors may be paid or it is going to result in the exhaustion of both funds. This is called the doctrine of marshaling of assets.
This concept has been abolished by the Revised Uniform Partnership Act.
Verified Answer
The principle of marshaling of assets is involved here, as per Section 40(g) of the Uniform Partnership Act.
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