Frow, Jacobs & Co.'s Estate

The opinion of the court was delivered, May 17th 1873, by Agnew, J. Thomas J. Frow and Thos. U. Parker, who had been partners in the firm of Frow, Jacobs & Co., having made a voluntary assignment for the benefit of the creditors of Frow, Jacobs & Co.; the true question is, whether the debts claimed by Seth T. Foresman are debts of the firm of Frow, Jacobs & Co. If they are, they fall within the terms of the assignment, and must be paid out of the fund. If the answer to the question depended solely on the covenant of Frow, Jacobs & Parker, contained in the agreement of August 20th 1869, to indemnify S. T. Foresman, the conclusion of the learned auditor would have been correct, as that covenant created only a joint and several obligation. But Frow, Jacobs and Parker were already liable for these debts as partners in the firm of Foresman & Co., which they took upon themselves when Foresman retired from the firm, and they continued the business. The evidence is clear, that, when Foresman sold out his interest to his partners and retired, they proposed to continue the business, and did so. When he went out they took all the assets of the firm into the business and took upon themselves all the debts. There was no separation of Fores-man’s interest or share in either assets or debts. These assets became the capital of the new firm, and the debts, already partnership, as it regards them, became its debts. In short, it was but a dropping out of Foresman, leaving the others partners in all respects. Clearly Frow, Jacobs and Parker did not intend, as among themselves, that the debts which they thus assumed, should change their character, and become claims against themselves as individuals, and not to follow the partnership assets. The effect of such [466] an intention would be to throw the burthen, in case of insolvency of one or more, upon them or him who remained, and to let the partnership assets go free. Such an intent is inferable from no facts in the case, and is disproved by their • subsequent ■ acts in paying off debts of Frow, Foresman & Co., out of the means of Frow, Jacobs & Co., by entries in their books, and by the express testimony of Parker, one of the last firms, and of H. C. McCormick, Esq. Parker swears that the firm of Frow, Jacobs & Co. assumed these debts, and McCormick states that at the time of writing the agreement between Foresman & Frow, Jacobs and Parker, “they talked over the indebtedness of Frow, Foresman & Co., and they agreed that they, Frow, Jacobs and Parker, would form a new firm, take all the assets of Frow, Foresman & Co., and pay all the indebtedness of the old firm.” That these debts were assumed by the new firm is manifest from the nature of the business, the attending circumstances, the declared intention of the parties, their subsequent acts, and their interests. It is the equity among the parties themselves which governs, in the distribution of partnership assets, and not the mere rights of creditors: Snodgrass’s Appeal, 1 Harris 471. “ This equity, (says Judge Bell), springing from their community of interests in the capital stock and assets of the partnership, is to have the avails of these applied in discharge of their mutual liabilities, before any individual of the number is permitted to apply joint property to his private use.” And I may add, the same equity, in the case of the insolvency of the partnership, requires its effects to go in discharge of the firm debts, as far as they will reach, before the individual property of any one of the partners shall be taken to pay the excess. The equity of these debts to participate in the fund being established, Foresman’s right to receive the money follows. When the other partners bought him out and assumed payment of the debts in consideration of his interest in the firm property he stood in the attitude-of a surety to his former partners, who undertook to indemnify' him against payment. When he paid any of the debts he became entitled to be substituted in equity to the rights of the creditors: Kyner v. Kyner, 6 Watts 221; Cottrell’s Appeal, 11 Harris 294. “ The doctrine (says Judge Strong) does not depend upon privity, nor is it confined to cases of strict suretyship. It is a mode which equity adopts to compel the ultimate discharge of the debt by him, who in good conscience ought to pay it, and to relieve him whom none but the creditor could ask to pay. To effect this the latter is allowed to take the place of the creditor and make use of all the creditor’s securities, as if they were his own: McCormick’s Administrator v. Irwin, 11 Casey 111. It is contended that, at all events, Foresman is not entitled to be paid the sum of $831.84, the residue of a note held by Piper [467] & Lyon against Frow, Jacobs & Co., on the ground that by a settlement between Frow & Parker, and Lyon, the holder of the note, the latter took a new note of Frow & Parker in payment, and cancelled the note by Frow, Jacobs & Co., and thenceforth that debt was gone. But this is not a full statement of the facts. The note of Frow, Jacobs & Co. was taken for a debt of Frow, Foresman & Co., one of the debts assumed by Frow, Jacobs & Co., and at the time of' taking it Piper and Lyon retained the note of Frow, Foresman & Co., as collateral security for the payment of the debt; and they still retained it when Frow & Parker gave their note for the balance of $831.84. Therefore, when Foresman, who was compelled against his wish to endorse this note of Frow & Parker, for $831.84, because of his continued liability on the original note of Frow, Foresman & Co., to Piper & Lyon, paid the note as endorser, he became entitled to stand in the room of Piper and Lyon, and to a cession of their security, viz., the original note of Frow, Foresman & Co., and according to the principles already stated he became entitled to come in upon the fund in place of Piper and Lyon. We think the learned judge below was right in his conclusion, and the decree is affirmed with costs to be paid by the appellant.