Trustees of Catskill Bank v. Hooper

Shaw, C. J. Under insolvent proceedings, against the joint estate of Horace Gray & Co. and the several estates of Horace Gray and Nathaniel Francis, the two persons composing that partnership at the time of the commencement of those proceedings, the appellants, a banking house in the State of New York, claim to prove their debt against the separate estate of Horace Gray, arising on three unpaid drafts held by them. The ground upon which the appellants propose to charge the separate estate of Horace Gray, is, that the Ulster Iron Works, at Saugerties, N. Y., were carried on for the sole account of Horace Gray, under a lease from the owners, and that the name of Ulster Iron Works was assumed by Gray alone, simply as a name under which he carried on a sole and separate business. The claim is placed on two grounds: 1. On the bills themselves, in which the drawer has annexed to his name “ sup’t ” or superintendent, indicating on the face of the bill that he acted in a representative capacity; and 2. If not chargeable on the bills, then as upon the original debt or consideration, being a loan of money,.in pursuance of an agreement made previously, as shown by the correspondence; that the loan, having been made for the use of the Ulster Iron Works, which were carried on solely for the account of Horace Gray, the loan was in effect made to him and for his use, and that, upon the dishonor of the bills, the holders have a right to fall back upon the original loan, and recover against Gray, as for so much money oaned to him, or paid for his use. One ground of defence, taken to this claim, goes to both — 582 — aspects or grounds of the claim, and therefore may properly be first considered. This ground is, that the Ulster Lon Works were carried on jointly, by an incorporated manufacturing com-, pany, incorporated by the State of New York, and Horace Gray, as partners, or for their joint account; that they were so dealt with, and so treated by these appellants, who commenced a suit against them as joint debtors, and recovered judgment against them as such upon these very debts; and therefore that a debt against the Ulster Iron Works, either as drawers of the bills, through the agency of Burtt as superintendent, or as for the original loan to the Ulster Works, for which these bills were given, on the ground of their being dishonored, would be a deb t, not against Horace Gray alone, but against Gray and the Ulster Company jointly, and so, in either form, cannot be proved as a several debt against Gray. The first question is, whether this would be a good bar against this claim, if established. That is, supposing a firm, subsisting and carrying on business in another state, and one of the partners resides in this commonwealth and carries on business with a distinct partner here, and the latter firm become insolven t here, can a debt, due and owing by said foreign firm, be proved against the separate estate of such insolvent here? We are not aware that this question has been directly decided in this state; we must therefore determine it upon the general principles on which the insolvent laws are founded, and the considerations of policy which govern their application. Where, as in this case, the original application is made by partners, the proceedings affect the settlement of the joint estate, and also, the separate estates of each, however numerous. In such case, separate accounts are directed by law to be kept, both of debts and assets, of the partnership and each of the partners, and ultimately the joint estate is applied to the joint debts, and the separate estate of each to his separate debts, with provisions in case of a surplus. St. 1838, c. 163, § 21. The same rule must apply, in case the same individual happen to be a partner in two or more distinct firms or partnerships, and of course to the separate estates of the individuals com — 583 — posing each of such partnerships. The statute does not, in terms, apply to such a case; but the principles on which the statute is founded require such application to carry out the intent. This or a very similar application of the law was held in Barclay v. Phelps, 4 Met. 397. In that case, Phelps, the insolvent, was in actual partnership in one firm, and had recently been a partner in another, the affairs of which were still unsettled; and it was held, that separate accounts must be kept, it not being necessary to decide how the assets should be ultimately distributed. But in all those cases, all the parties had their domicils here, the partners were citizens of this commonwealth, and both the persons and the effects were within the jurisdiction of the laws of this commonwealth. The joint property of the firm, or of each firm, if more than one, and of each separate member, was brought under the operation of the laws of this commonwealth; it passed by the assignment to the assignees, and stood as a fund for the payment of the joint and several debts, according to established rules, regulating such distribution here. But the court are of opinion, that, where a partnership has been carried on in another state, of which some one inhabitant of this commonwealth is a member, and such inhabitant becomes insolvent, under the law of this commonwealth, the joint debts of the foreign partnership cannot be proved against the separate estate of the insolvent debtor here, so as to enable such creditors to claim in competition with the creditors here The courts of this state, under the laws of this commonwealth, have no jurisdiction over the joint estate of such debtor in another state, nor over the person nor persons of the other joint debtor or debtors. The joint property of such foreign partnership forms no part of the funds to be applied to the payment of any debts in this commonwealth. The rule, founded in principles of equity, as well as expediency and practical utility, of making joint assets liable to joint debts, and separate property to separate debts, could not be applied. To allow such creditor of a foreign firm to come in competition with the separate creditors, in the distribution of the separate property of the partner, — 584 — would be inequitable, and give such a creditor an unjust advantage. It would be, to allow to such creditors the chance of taking and dividing the whole of the joint property of the foreign partnership; and even if there were a large surplus after payment of the foreign partnership debts in full, it could not be brought into the funds of the separate debtor here, as in case of a domestic partnership. The court are therefore of opinion that, if Gray was chargeable jointly with the Ulster Company, and the debt due to the Catskill Bank was the joint debt of Gray and the Ulster Com pany, it cannot be proved as a debt against the separate estate of Gray, and take an equal dividend with his separate creditors. 2. The next question is, whether the act of William Burtt, “ superintendent,” (supposing it be carried out according to the abbreviated description “ sup’t.”) as the superintendent of the Ulster Iron Works, bound Horace Gray alone, or Horace Gray jointly with the Ulster Iron Company. Were it to be determined by the terms of the lease submitted as part of the case, whether, by force of such lease and the acts done under it, Gray and the Ulster Company were partners inter sese, so as to be chargeable, it might be a question of some difficulty; and it is contended that the judgment of the supreme court of New York, 14 Barb. 471, was not correctly decided. But it does not depend wholly on the lease. Burtt professed to be the superintendent of the Ulster Iron Works. These works were earned on at the place indicated by their act of incorporation, and it was the kind of business which they were incorporated to carry on. In the correspondence which preceded the loan by this bank, and which is relied upon by the appellants, as proving that Burtt acted as an agent for these works, there is nothing to show that the works were not for the account as well as in the name of the company. By the first proposal of July 30th 1847, made by Russell, for making these loans, they are informed that the Ulster Iron Company, of which Horace Gray of Boston is principal owner, are doing a heavy business, See. So Burtt, in his direct application to the bank, speaks of “ us ” and “ our payments,” and signs himself “ Superintendent Ulster — 585 — Iron Works.” There might therefore be much ground for holding that the Ulster Iron Company held themselves out as parties carrying on the business for which they were chartered, and that in dealing with Burtt, as agent, the Catskill Bank gave credit to the company as well as to Gray, and that this consideration may have had its influence with the court which rendered the judgment charging them as partners. But were we required to decide the case upon these grounds, we should desire to give more direct attention to the true construction of the lease, as constituting the terms and ascertaining the nature of the relation between these parties, and also to the facts under which the supposed debt was contracted. But we have not thought it necessary to proceed to this critical examination, because we are of opinion that these claimants are bound by the judgment which they have recovered, and cannot now treat the supposed debt as the separate debt of Horace Gray. It appears that, some time after the commencement of these insolvent proceedings, the Catskill Bank commenced a suit against Gray and the Ulster Company jointly; that Gray was not served with process; that the company were served, appeared, and contested their liability; but judgment was rendered against them jointly with Gray, as for a joint debt. The legal effect and operation of such a judgment must of course be decided by the laws of New York. In that state, statutes have long been in force regulating suits on joint contracts, where all the joint debtors cannot be served with process, and do not appear and answer,and regulating the judgment which shall be rendered in such cases. See 2 Rev. Sts. of N. Y. (3d ed.) pt. 3, c. 6, tit. 6, art. 1. This has been revised, with some alterations, from a statute dating back as far as 1806 This statute requires that, in such suit, a joint judgment shall be entered, as well against the defendant not served and not appearing, as against those who appear. The judgment shall bind all the joint property and effects, to the same effect as if all had appeared; but it shall not bind the separate property, nor be used as a warrant for the arrest of the person, or the — 586 — seizure of the separate property of the party not summoned; and the statute requires that an indorsement to that effect be made on any execution issued on such judgment. The case of Carman v. Townsend, 6 Wend. 206, is instructive as to the nature and character of this statute regulating joint actions and judgments. It holds that a new action may be brought on such judgment against the party not served with process ; that the declaration shall be debt, as upon a judgment, and setting out the special facts; and such defendant, being then for the first time judicially called to answer, may, by proper pleading, traverse his liability, and avail himself of the same grounds of defence as he might have done in the original action, putting the burden of proof on the creditor to prove his debt; the judgment, in this respect, having been obtained in his absence, being no proof against him. In the court of errors, the chancellor, in giving the opinion which was adopted as the unanimous judgment of the court, begins by saying: “ The plaintiff in error is unquestionably right in his first point, in supposing that the first judgment was an extinguishment or merger of the original indebtedness, so that no action could be sustained against either of the defendants on the original promises. If any action could be sustained against the defendant not arrested in the original suit, it must be, in form, an action of debt, founded on the judgment.” 6 Wend. 209.. This statute was considerably modified in 1830, and a case, decided under it afterwards, determined that a judgment was not prima facie evidence against the defendant not served with process, in a subsequent suit brought against him. Some of the judges still considered that, under the statute, the plaintiff might have an action of debt on the statute, setting out the specia. circumstances. Mervin v. Kumbel, 23 Wend. 293. In a more recent case, Oakley v. Aspinwall, 4 Comst. 514, the law was much discussed, and these statutes were reviewed. It was a critical question upon the construction of a bond given upon dissolving an attachment, to be responsible for the debts for which such attachment was levied. The New York statute iequired that the attaching creditor should make a true state — 587 — ment of the ground of his demand, and make affidavit of it. The creditor described it as a debt arising on a judgment. The proof was of a judgment on the joint debtor act of New York against two, one of whom was an inhabitant of a foreign country, who was not served with process and had never appeared, and who had no property jointly with the other defendant, to be reached or affected by the laws of New York. It was decided by a divided opinion in the court of appeals, that that was not a debt arising on a judgment as against the absent defendant and therefore that the debt was not truly described. But we do not think the ground relied on in this case is affected by any of the controverted points discussed in those cases. The ground is that the appellants treated the contracts created by drawing these bills, as joint contracts; brought their action against both Gray and the Ulster Company, and the only reason why Gray was not a party defendant was that he was not within the jurisdiction of the State of New York. The same facts and principles on which the court in New York rendered their judgment would have required them to render a judgment binding and conclusive against Gray, if he had been a party. The effect of this qualified judgment was to bind all the stock and personal property, held and used in and about the carrying on of the Ulster Iron Works, as partnership effects. These may have been small or considerable.. The judgment is still binding upon the Ulster Company; and if the claim of the appellants should be allowed here against the separate estate of Gray, they would still hold a valid demand against the Ulstei Company as a joint debt. It is not the purpose, and we think not the effect, of such a judgment in New York to work a severance, but rather the contrary. It may not be strictly and technically true that the original cause of action is merged by such a judgment, as against the defendant not served; because the plaintiff may declare, in the subsequent action, on the original cause of action, as still a joint cause of action; and the defendant against whom the previous valid judgment was rendered may be joined in such — 588 — new action, if he can be served with process, and a complete joint judgment be rendered against both. It is therefore still a joint debt. The case of Gates v. Mack, 5 Cush. 612, was cited as an instance where a debt originally joint was admitted to proof under separate insolvent proceedings against one of the debtors That was so; but it was a case where a severance had been wrought by operation of law. In insolvency against both, this debt was proved; one obtained his certificate of discharge, but the other did not. On a second insolvency of the latter, the balance of the former debt was admitted to proof as his several debt. But the reason is obvious. By the common law, where one of two or more joint debtors obtains a special discharge by operation of law, not discharging the debt, it is a severance, and the creditor has his remedy against the other. But in the particular case cited, there is a more decisive reason, an express provision of statute. By the original insolvent law, St. 1838, í. 163, § 7, it is provided that no discharge under that act shall release or discharge any person who may be liable for the same debt as a partner, joint contractor, indorser, surety, or otherwise. This puts the point beyond doubt, but is no authority for the appellants in this case. The court are of opinion that the claims of the appellants were not provable against Gray’s separate estate, and that they were rightly rejected by the master. Decree affirmed.