Kalamazoo Trust Co. v. Merrill

Brooke, J. (after stating the facts). Two questions are involved in this controversy: (1) Could the copartnership bank itself have maintained a suit at law upon said notes, it being conceded that three of the six members were jointly liable with the defendant thereon ? (2) If this is answered in the negative, can the trustee maintain such suit ? With reference to the first question, we think it may be said to be settled law in this State that a copartnership may not maintain a suit at law against one of its partners, and the reason for the rule is that, inasmuch as all the partners have a jointjntevest in the claim, all are necessary parties plaintiff, and to permit the action would present the anomaly of a single individual acting as both plaintiff and defendant in the same suit. And it is elementary that in suits at law, by or against a copartnership, all the partners must be named as plaintiffs or de *654 fendants, as the case may be. As to both these propositions, the authorities (where, as in this State, the common law obtains) are practically unanimous. 30 Cyc. pp. 561, 567; Mechem on Partnership, §§ 130, 131, 147, 225; George on Partnership, p. 363; Smith v. Canfield, 8 Mich. 493; Barber v. Smith, 41 Mich. 138 (1 N. W. 992); Learned v. Ayres, 41 Mich. 679 (3 N. W. 178); Davis v. Merrill, 51 Mich. 480 (16 N. W. 864); Carpenter v. Greenop, 74 Mich. 664 (42 N. W. 276, 4 L. R. A. 241, 16 Am. St. Rep. 662); McGowan v. Lamb, 66 Mich. 615 (33 N. W. 881); Grimes v. Bowerman, 92 Mich. 258 (52 N. W. 751); Reed v. Gould, 105 Mich. 368 (63 N. W. 415, 55 Am. St. Rep. 453); Stever v. Brown, 119 Mich. 196 (77 N. W. 704). See, also, Jacaud v. French, 12 East, 317; Bank of Toronto v. Nixon, 4 Ont. App. 346; Hoare v. Oriental Bank Corp., L. R. 2 App. Cas. 589; In re Wakeham, L. R. 13 Q. B. Div. 43; De Mazar v. Pybus, 4 Ves. Jr. 644; Jones v. Blun, 145 N. Y. 333 (39 N. E. 954); Strauss v. Frederick, 91 N. C. 121; Chambers v. Sloan, 19 Ga. 84; Harris v. Visscher, 57 Ga. 232; Schreiner v. United States, 6 Ct. Cl. 359; cases cited 15 Enc. Pl. & Prac. p. 839. The cases of Kinney v. Robison, 52 Mich. 389 (18 N. W. 120), Mitchell v. Wells, 54 Mich. 127 (19 N. W. 777), Carpenter v. Greenop, supra, and Cook v. Canny, 96 Mich. 398 (55 N. W. 987), relied upon by appellee, will be found, upon examination, to present exceptions to the rule rather than to afford any modification of it. But it is urged by plaintiff’s counsel that, even conceding this to be the rule, it has no bearing upon the case before us because Merrill, the defendant, was not a member of the copartnership, and therefore no reason exists under the authorities cited why he should not be made defendant in a suit at law wherein all the partners were parties plaintiff. This would be unquestionably true if in fact all six members of the copartnership bank are under no disability which would prevent them from becoming parties plaintiff in a suit at law upon these notes. It will be remembered that Gilkey, Bowman, and Wilson are jointly *655 and severally liable with the defendant upon the paper. Can these three men, who, as we have shown, are necessary parties plaintiff, maintain a suit at law upon the notes against their co-obligor, no one of them having paid the debt secured thereby, or any part thereof ? We think not. One joint obligor may not sue another joint obligor, upon their common obligation, until he has paid the debt, or a larger portion thereof than, as between himself and his coobligor, he would be liable to pay. His action would then be for contribution. 9 Cyc. pp. 798-801, and cases cited; Tobias v. Rogers, 13 N. Y. 59. All six being necessary parties, and three being under disability, the suit at law could not be maintained by the copartnership bank. Let us see what the result would be if the copartnership bank were permitted to maintain a suit at law upon the notes. For convenience, let us suppose that the notes amount to $100,000, and that Gilkey, Bowman, and Wilson are, with defendant, equally liable upon all of them. Then the bank would recover a judgment against defendant for $100,000, $75,000 of which it was the duty of Gilkey, Bowman, and Wilson to pay. And who receives the $100,000 ? The copartnership bank, one half of which is owned by Gilkey, Bowman, and Wilson. Therefore these three men, instead of paying $75,000, actually receive $50,000. Such a result would be manifestly monstrous. It is not necessary that this defendant should first pay the notes, and then have recourse to a suit for contribution against his co-obligors. Nor is his claim against them one in the nature of a set-off, as claimed by appellee. It is his right to have the equities, as between himself and his co-obligors, adjusted in the action upon the instrument, where such instrument is, in part, the property of those equally liable thereon with himself, and this conclusion does no violence to the rights of the copartnership or of the three members thereof, not themselves liable upon the paper. The copartnership bank, in taking the paper of three of its members, must be presumed to have known *656 that a suit at law could never be maintained thereon because of the lack of necessary parties plaintiff. This was an infirmity in the paper, apparent upon its face, and one which affected all the partners alike. No honest claim of the partnership, or of either of the partners, will, however, be lost or impaired. In a suit in equity the defendant must respond to the extent to which he is properly liable, but he will not be compelled to pay to his coobligor a sum of money for which his co-obligor is liable. Can the trustee (plaintiff herein) maintain the suit if its bankrupt, the copartnership bank, could not ? Collier on Bankruptcy (7th Ed.), p. 810 e, states the rule as follows: “It is well settled that a trustee takes, not as an innocent purchaser, but subject to all valid claims, liens, and equities. Thus he has no better title than the bankrupt had, and is affected with every equity which would affect the bankrupt himself if he were asserting the same rights and interest. A trustee in bankruptcy stands in the shoes of the bankrupt, and has no better title than he, in the absence of fraud, or of attaching or judgment creditors at the time of the filing of the petition. Where a right of action passes to the trustee, any defense, legal or equitable, which might have been raised against the bankrupt’s claim may be raised against the trustee.” This rule finds support in the following cases, among others: Chattanooga Nat. Bank v. Rome Iron Co., 102 Fed. 755; Atchison, etc., R. Co. v. Hurley, 153 Fed. 509, 82 C. C. A. 453; Security Warehousing Co. v. Hand, 206 U. S. 415 (27 Sup. Ct. 720, 19 Am. Bankr. Rep. 201). See, also, Loveland on Bankruptcy (3d Ed.), p. 438. After issue was joined in this case, but before trial, plaintiff proved its claim upon these notes, against the individual estates of Gilkey and Bowman, to the extent of their several liability thereon. Thereupon defendant filed a plea puis darrein continuance, setting up these facts, and at the trial offered proof thereof, which was excluded. '.The effect of this plea need not be considered here, be *657 cause the plaintiff, by reason of the disability pointed out, cannot maintain its action at law. In a suit in equity the assets in the hands of this plaintiff, belonging to the individual estates of defendant’s co-obligors, will be marshaled in accordance with familiar rules. The judgment is reversed, and no new trial is ordered. Hooker, Moore, McAlvay, and Blair, JJ., concurred.