Buell v. Cole

By the Court, E. Darwin Smith, J. The contract made by the plaintiff and defendant with Wolcott and Savage,. dated November 30, 1853, dissolved the copartnership of A. H. Savage & Co. The assets of that firm, by force of — 363 — said agreement, passed to Buell & Wolcott, and they were bound thereafter to pay and satisfy the debts of the firm, provided the assets so transferred to them were sufficient for that purpose. The debts to Cheney and Cleveland, mentioned in the pleadings and in the report of the referee, were confessedly the proper debts of the firm of A. H. Savage & Co. at the time of the dissolution of said firm. It was therefore the duty of the plaintiff and the said Wolcott to pay such debts if the assets of the firm were sufficient for that purpose, and as between themselves and the said Savage and Cole they, the said Buell and Wolcott, became thereafter the principal debtors, and the said Savage and Cole sureties for the payment of the said debts, to the extent of the value or amount of the partnership assets received by the plaintiff and Wolcott on the dissolution of said' firm. As between themselves, the only claim which Buell and Wolcott could thereafter make against their late partners was, that they should contribute ratably to the payment of such or so much of the partnership debts as should remain unpaid, after all the partnership assets received by them under the agreement aforesaid had been fully exhausted and applied upon such debts. Cole and Savage were liable only to contribute to make up the deficiency if such partnership assets were insufficient to pay the said partnership debts. When, therefore, the several partners gave their separate notes to Cleveland and Cheney for the amount of their respective debts, the notes so given by the said Savage and Cole, as between themselves and the said Buell and Wolcott, were in legal effect simply accommodation notes lent to the said Buell and Wolcott, provided the latter had sufficient assets of the firm of Savage & Co. in their hands to pay and discharge such debts to Cleveland and Cheney, together with the other debts of said firm. In the hands of the original creditors, Cheney and Cleveland, or of any third person to whom they might have transferred them, they were valid — 364 — notes; but in the hands of Buell and Wolcott, they wei-e simply notes given without any consideration until the assets of the firm were exhausted. They represented no debt or liability from Cole and Savage to Buell and Wolcott. They were simply obligations of the sureties in the hands of the principal debtors, representing a debt which such principals were bqund to pay off and discharge. Upon what principle the plaintiff can maintain an action on these notes before the partnership assets in-his hands are exhausted and found insufficient to pay the said debts to Cleveland and Cheney, I cannot conceive, unless a principal debtor, after having paid his own debt and taken up the securities held therefor, can turn around and maintain a,n action on such securities against his own surety, to recover .the amount so paid. If these views are correct in respect to the relative rights of the several members of the firm, of A. H. Savage & Co. as against each other, it follows, I think, that the several findings of the referee excepted to on the trial' excluding evidence tending to establish the fourth and fifth answers of the defendants,' were erroneous. Those answers set up a complete equitable defense to the plaintiff’s action. The possession of these notes of the defendants, prima facie, entitled the plaintiff to recover. But the defendant was clearly entitled to show that as between himself and the plaintiff these notes were given -without consideration, and to secure a debt which the plaintiff himself was primarily bound to pay. He was entitled to show the facts set up in his two answers, the fourth and fifth. All the exceptions, and there are quite a number, to decisions excluding evidence tending to prove such answers, I think well taken. A party now is entitled to set up an equitable defense, and it is just as available as a legal defense. I have no doubt that before the Code a court of equity, upon a proper bill filed for that purpose, would have restrained the action by the plaintiff upon the notes — 365 — aforesaid, and for the moneys paid by him upon the Cheney and Cleveland debt, upon the allegations contained in these answers. The answers do in effect. allege that these notes have .been paid by the plaintiff and Wolcott who were the primary debtors, for the payment thereof. The defendant offered to prove that the plaintiff received under the agreement of November, 1853, and had in his hands, more than sufficient of the assets of the late firrp. of A. H. Savage & Co. to pay said notes and moneys, together with the other debts of said firm. Certainly this was admissible, and would have established, I think, a complete defense to the suit. The plaintiff might perhaps be allowed to retain these notes till he had exhausted such assets. The answer of the defendant concludes with a prayer for affirmative relief that the plaintiff account for the property and effects of said firm of A. H. Savage & Co. which had come to his hands, and that the two promissory notes mentioned in the complaint be delivered up, or that they be canceled and destroyed. The partnership was dissolved, and the defendant had relinquished all interest in its assets and had no right to ask for an accounting, because he could recover nothing on such accounting from Buell and Wolcott. Such accounting would be requisite before they could call on Cole and Savage to make up any deficiency, or to pay them any amount over and above the assets of the copartnership which they, or either of them, might have paid to the partnership creditors. For the purpose of such an accounting, Wolcott and Savage would be necessary parties, and such an accounting, therefore, could not be had in this suit, so as to be final and conclusive. But the defendant had a right, as an equitable defense, to show that the plaintiff had paid these notes from the assets of the firm of A. H. Savage & Co. which came to his hands under the agreement of the 30th of November, 1863. So far he had a right to go to make out his defense. — 366 — But this judgment, I think, should be reversed for another reason. Upon the facts found by the referee, I think his conclusions upon the law, that the plaintiff was entitled to recover, erroneous. It seems to me that the plaintiff could no more maintain an action upon these notes, against the defendants, than he could for the account for which said notes were given, independently of the notes. The notes to Cheney and Cleveland were given by the respective parties to get time for the payment -of the principal debts, and the time was extended by Cheney and Cleveland upon the receipt of such notes. The notes were n’ot given upon any settlement among the'partners, -or any adjustment of their accounts as among themselves. There was no settlement of the partnership accounts, no balance struck, and no promises to pay, as between themselves. The notes simply represented their primary liability to their creditors, each note being given for one fourth of the original debt. It is apparent that they were put in this shape so that the original creditors, in giving an extension of the time for the payment of the respective debts, might retain all their security and not release either of their debtors. The notes had no relation to the ultimate claim of the plaintiff and Wolcott upon Cole and Savage, after exhausting the assets in their hands in payment of the partnership debts. The arrangement for the giving of said notes by Cheney and Cleveland /was one for their common benefit, and for the especial convenience of the plaintiff and Wolcott, that they might have more time to collect the debts and convert the assets of the copartnership into money; and the notes of #182 were mere memorandum notes, as between the parties, to preserve their relative rights and liabilities as between themselves. The notes, therefore, were not legal liabilities as between the partners themselves, and could not be enforced in their hands, as against each other, I think, at law. In this view of the object and force of these notes, the plaintiff could main — 367 — tain no action on them, or any of them, at law. His remedy against the defendant was, in equity, for the payment of his proportion of any deficiency which may be found due to him after the partnership assets are exhausted. The rule is well settled that one partner cannot sue his copartner, at law, except upon a balance struck, or an express promise, upon a full settlement of the partnership transactions. (1 Wend. 534. 13 John. 402. 18 id. 245. 6 Barb. 538.) [Monroe General Term, December 5, 1864. The judgment, I think, should be reversed and a new trial granted, with costs to abide the event. Welles, J. C. Smith and E. D. Smith, Justices.]