Holcomb v. Fulton (In Re Fulton)
43 B.R. 273 (1984)
Rule of Law:
Property purchased for, titled in the name of, and used by a partnership is considered partnership property, not the personal property of an individual partner. An individual partner's bankruptcy estate includes the partner's interest in the partnership itself, which is a right to a share of any surplus after partnership liabilities are settled, but it does not include specific partnership assets.
Facts:
- Padgett Carroll and the debtor operated a trucking business together as a partnership called C & F Trucking.
- Carroll contributed a semi-truck which the debtor drove, and they agreed to divide the profits.
- In July 1982, Carroll's grandmother, Mattie Holcomb, wired him $9,000.
- Carroll used $4,600 of these funds to purchase a used trailer from Fruehauf Corporation specifically for the C & F Trucking business.
- The seller's invoice for the trailer listed C & F Trucking as the purchaser.
- The Arkansas certificate of title for the trailer listed C & F Trucking as the owner and was signed by the debtor.
- The debtor used the trailer in furtherance of the C & F Trucking business.
Procedural Posture:
- The debtor, a partner in C & F Trucking, filed a voluntary Chapter 7 bankruptcy petition in the U.S. Bankruptcy Court.
- The debtor listed a 42-foot trailer in his bankruptcy schedules as a personal asset.
- The plaintiffs, Padgett Carroll and Mattie Holcomb, filed a claim in the bankruptcy court alleging the debtor wrongfully scheduled the trailer as his own asset.
- The Chapter 7 trustee intervened in the case, arguing the trailer was property of the debtor's bankruptcy estate.
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Issue:
Does a specific asset, such as a trailer, purchased for and titled in the name of a partnership, become the property of a single partner's individual bankruptcy estate upon their filing for Chapter 7 bankruptcy?
Opinions:
Majority - Paine, II
No. A specific asset purchased for and titled in the name of a partnership is partnership property and does not become property of a single partner's individual bankruptcy estate. The primary factor in determining ownership is the intent of the partners at the time the property was acquired. Here, the evidence, including the sales invoice and the certificate of title both listing 'C & F Trucking' as the owner, overwhelmingly demonstrates the intent for the trailer to be partnership property. Under 11 U.S.C. § 541, a debtor's bankruptcy estate consists of the debtor's legal and equitable interests in property. A partner does not have a direct ownership interest in specific partnership assets, but rather an interest in the partnership entity itself. Therefore, the debtor's estate only acquires his partnership interest, which is the right to his share of the partnership's value after its liabilities are paid upon dissolution.
Analysis:
This decision reinforces the fundamental legal principle of the partnership as a separate legal entity distinct from its individual partners. It clarifies that in a bankruptcy context, creditors of an individual partner cannot directly attach specific partnership assets to satisfy the partner's personal debts. The ruling protects the integrity of the partnership's assets for the benefit of partnership creditors and the non-bankrupt partners. It establishes a clear hierarchy where partnership debts must be settled from partnership assets before any value can be distributed to the partners and, consequently, to a bankrupt partner's estate.
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