Colwell v. Weybosset National Bank

This is a bill for instructions. It is brought by the complainant as assignee of George W. Elliott, under an assignment made by Elliott individually, and as surviving partner of the firm of George C. Elliott Son, for the benefit of his individual and the firm creditors, "according as they may be entitled under the rules of law for the settlement of insolvent partnership and individual estates." The firm was formed in 1870; it was composed of George C. Elliott and his son George W.; it continued to do business until *Page 289 November, 1886, when it was dissolved by the death of George C. It carried on its general business in the name of George C. Elliott Son, and was advertised and known by that name. The assignment was made on November 30, 1886, the assignor being insolvent both individually and as surviving partner. The estate of George C. was also insolvent. Among the creditors claiming under the assignment are several banks and banking institutions, which claim as holders of negotiable promissory notes which matured after the death of George C. Two of these notes, one for $9,000 and the other for $8,750, were signed by George C. Elliott Son, and made payable to and indorsed by George C. Elliott, and the other notes, eight in number, were signed by George W. Elliott, and made payable to and indorsed by George C. Elliott. The total amount for which these eight notes were given was $37,500. It appears in evidence that these eight notes were made and negotiated to raise money for the firm, and that the money when raised was placed to the credit of the firm and was used in its business, except in so far as it was withdrawn for the individual needs of the copartners, under a practice which was common to both of them. The evidence shows that the negotiation of notes drawn, as these eight notes were drawn, was not only one of the modes but the more usual mode employed by the firm in raising money for its purposes. As to some of the banks the evidence is full and distinct, that it was understood by them when the advances were made that the advances were for the firm; and as to the others, though the evidence as to the circumstances under which the notes were taken is not so clear, it has not been claimed that in matter of fact the differences are material. The notes are mostly renewals, after a series of previous renewals, and generally, when renewal was made, the money was put to the credit of the firm, and checked out in the name of the firm for the payment of the old note. The interest on renewal was always paid out of the funds of the firm. The notes and their renewals were all entered in the book of bills payable kept by the firm. The loan at one of the banks was originally applied for in the firm name; and when George W. brought the note, the cashier remarked to him that it did not correspond with the application, and George W. replied that that was the way they made paper *Page 290 for the business of the firm. George W., who generally procured the loans and attended to the renewals, had no business except that of the firm, and neither had George C., except such as was incident to a small place which he had in the country. The first question asked by the complainant for his instruction is, whether the proceeds of the assignment ought to be marshalled so that those derived from individual assets shall go primarily to individual creditors, and those derived from copartnership assets shall go to copartnership creditors. We answer the question affirmatively. Tillinghast, Receiver, v.Champlain, 4 R.I. 173, 190; Silk v. Prime, 2 White Tudor Lead. Cas. Eq. *111 and notes. The second question is, whether the notes signed by George W. Elliott and indorsed by George C. are entitled to participate in the partnership or in the individual assets, or in both, and, if in the partnership, to what extent. We think they are entitled to participate in the partnership assets pari passu with the undisputed partnership creditors. The notes are evidently partnership paper in everything but form, and even if, for technical reasons peculiar to commercial paper, the firm could not be sued upon them directly, it seems to us that there are cases on the authority of which it might be sued, independently of them, for money lent. Denton v. Rodie, 3 Camp. 493;Maffet Rhoads v. Leuckel, 93 Pa. St. 468; Hoeflinger v.Wells, 47 Wisc. 628; Allen v. Coit, 6 Hill, N.Y. 318;Tucker v. Peaslee, 36 N.H. 167, 176; Beebe v. Rogers, 3 Greene, Iowa, 319; Van Reimsdyk v. Kane et al. 1 Gall. 630;Clark's Executors v. Van Riemsdyk, 9 Cranch, 153. See, also,Ex parte Brown, cited in 1 Atk. 225. It has been held that a note signed by each and every partner individually may be treated as a copartnership note, if made or negotiated for copartnership purposes. In re Thomas Sivyer, 8 Bissell, 142; Maynard v.Fellows, 43 N.H. 255; Gay Co. v. Johnson, 45 N.H. 587;Kendrick v. Tarbell, 27 Vt. 512; Ex parte Stone, in reWelch, L.R. 8 Ch. App. 914; Berkshire Woollen Co. v.Juillard, 75 N.Y. 535; 31 Amer. Rep. 488; Ex parte Nason,70 Me. 363; De Jarnette's Executor v. McQueen, 31 Ala. 230; 1 Bates on Partnership, § 453. And it has likewise been held that a note signed by one of two partners and indorsed by the other, *Page 291 if for partnership purposes, may be treated as a debt of the firm. City Bank's Appeal, 54 Conn. 269; Ex parte FirstNational Bank, 70 Me. 369; Smith v. Felton, 43 N.Y. 419. These cases are like the case at bar, and show no stronger equities. The court in the Maine case, referring to the rule of law which has been urged here that oral testimony is inadmissible to prove any person a party to commercial paper who does not appear to be such on its face, remark that the rule has generally been enforced where the attempt has been to maintain actions at law on the paper against persons not named or indicated thereon as parties, 70 Me. 379. "But equity," say the court, "looks more to fact than to form." See, also, Smith v. Felton, supra, 43 N.Y. 419, per Allen, J. In the case at bar the notes were all made and negotiated in the course of the business for the firm, and it is only because of their form as negotiable paper that this objection to their participation in the partnership fund can have any force. We do not think the objection should prevail. In Ex parte First National Bank, supra, it was held that the holder of the note was entitled to prove it either against the individual or copartnership fund, but not against both. In the case at bar we understand that the holders prefer to prove against the copartnership fund, and we think, as regards the two funds under the assignment, they should be confined to that fund and to the surplus of the individual fund, if any remains after the individual debts are paid. The firm of Billings Brothers are holders of a note for $6,750, signed by George W. Elliott, payable to the order of George C. and indorsed by the latter. It was given for two notes — for $4,000 and $2,750 — signed by Billings Brothers, payable to the order of H.A. Billings, a member of the firm of Billings Brothers, and indorsed by him. Said two notes were procured by George C. Elliott, to be used in raising money for his firm, and were so used. The smaller one was taken up by his firm before his death. The other was taken up after his death by Billings Brothers. The third question is, whether the holders are entitled, under the assignment, in respect of both the $2,750 and the $4,000, or of only one of them. We think they are entitled to prove against *Page 292 the copartnership fund to the extent of what they have had to pay in taking up the $4,000 note, and only to that extent. George C. Elliott was at the time of his decease a resident of Massachusetts. Administration has been taken out on his estate both in Massachusetts and in Rhode Island. The bill states that the holders of the notes before mentioned have proved them against his estate in Rhode Island, and have also proved or are about to prove them against the estate in Massachusetts, and that the estate is insufficient to pay them and other claims against it. It further states that the Rhode Island administrator claims for the estate, both in Rhode Island and Massachusetts, that it is entitled to share in the proceeds of the assignment in respect of said notes. The fourth question is, whether it is so entitled. Our answer is, that it is not so entitled, it being conceded that there will be no surplus remaining after the payment of the creditors under the assignment. The bill sets forth that certain persons make claim against the partnership fund to the amount of about $265 for the proceeds of goods left with the firm to be sold at auction for their account, and claim to be entitled to payment in full in preference to other creditors. The fifth question is, whether their claim is tenable. The claimants do not appear to support their claim, and, merely on the statement in the bill, we do not see that they are entitled to any preference. We do not think that Edwin L. Spink, George P. Baker, and Fred I. Marcy are entitled to the set-off claimed as stated in the bill. The debts which they owe they owe the firm; the debts which are due to them are due from George W. Elliott; and the partnership cannot be required, either by way of set-off or otherwise, to pay the individual debts of the copartners. After the above decision had been given, the respondents, the Weybosset National Bank and the First National Bank of Attleborough, by their solicitor, James Tillinghast, September 26, 1888, filed a petition for a reargument, and for leave to introduce further evidence. The court refused to admit further evidence. As to the petition for a reargument, the court delivered the following opinion: *Page 293