Devol v. McIntosh

Gregory, J. Devol aucl Fordyce brought an action in the court below against McIntosh, Beharrell, Morris, and Dodgers, alleging in their complaint that McIntosh and Beharrell were partners; that they agreed to dissolve their copartnership; that Beharrell assigned his interest in the assets of the firm to McIntosh, in consideration of which the appellees made their bond in the penal sum of $3,000, with the following condition: “ The condition of this obligation is, that whereas said McIntosh and Beharrell, having dissolved copartnership in business, and said McIntosh has purchased all the interest of said Beharrell in said business, and is to collect all outstanding claims in favor of said firm, and pay all debts of every kind against said firm; now, therefore, if said John McIntosh, or his representatives, shall pay all of said, demands against the said firm of McIntosh $ Beharrell, [530] and save said Beharrell and Ms sureties and indorsers on account of said firm harmless, then this obligation is to be void, else remain in full force and virtue in law.” It is further averred that the appellants obtained judgment, in the Floyd Circuit Court,- against McIntosh and Beharrell for $963.75, on a debt due from the firm at the time of execution of said bond; that an execution thereon had been issued, and returned “no property found.” A demurrer was sustained to this complaint, which presents the only question in the case at bar. It is attempted to sustain the ruling of the court below, on the authority of the cases of Schooley v. Stoops, 4 Ind. 130, and Tate v. Booe, 9 Ind. 13. These cases have been overruled by this court in the case of Britton v. Johnson and Another, at this term. By the condition of the bond in the present case, McIntosh was bound to pay all the debts of the firm of McIntosh ft Beharrel; but no particular time of payment was specified. No certain time being provided for, the law required payment to be made immediately, or at least as soon as the debts were due. Wright v. Whiting, 40 Barb. S. C. Rep. 235; Churchill v. Hunt, 3 Denio, 324, and the authorities cited. The rule laid down in the case of Gilbert v. Wiman and Others, 1 Comst. 550, seems to be the true one. Fratt, J., in his opinion in that case, when decided in the Supreme Court, said: “ When the instrument deviates the least from a simple contract to indemnify against damage, even Avhere the indemnity is the sole object of the contract, and where, in consequence 'of the primary liability of other persons, actual loss may be sustained, the decisions of our courts, although by no means uniform, have gradually inclined toward fixing the rule to be one of actual compensation for probable loss; so that, in contracts of that character, it may now be considered a general rule, both in this country and in England.” Beharrel could have recovered on this bond against the [531] appellees the entire unpaid partnership debts existing at the time of the execution thereof. Wright v. Whiting, supra; Wilson v. Stilwell, 9 Ohio State Rep. 467; Loosemore v. Radford, 9 Meeson & Welsby, 657; Weddle v. Stone, 12 Ind. 625. It remains to inquire whether the creditors of the firm could avail themselves of the benefit of the covenant in this bond. This is a proceeding in the nature of a suit in equity, in which all the parties in interest are before the court. It is true that Devol and Fordyce (the creditors) are the plaintiffs, and Beharrell is a defendant; but we do not see how this can change the substantial rights of the parties. If Beharrell had brought this suit, Devol and Fordyce would have been proper, if not necessary parties, (Britton v. Johnson and Another, supra,) and it would have been the duty of the court below to have ordered the payment to them of the money recovered. Wilson v. Stilwell, supra. Devol and Fordyce were the parties ultimately entitled to the money, and in equity they have the right to assert their claim. Wilson v. Stilwell, 14 Ohio St. Rep. 464. This is the rulé as to securities given by a debtor to his surety, (Curtis v. Taylor, 9 Paige, 432, and the authorities cited,) and this, even though the creditor did not originally contract upon the faith of the security, or know of its existence. It is true that Beharrell was not a surety, he was a co-debtor; but it must be remembered that the creditor had a right in extending credit to the firm, to look to the business habits of each member thereof, and reasonably to expect that each of the partners would devote his skill and energy to secure success in the joint adventure, upon the success of which the creditor, to some extent at least, was dependent for the ultimate payment of his debt. One member withdraws, but he takes the precaution to take from his copartner, who assumes the entire control of the business of the firm, the security in question, in which there is not only a covenant of indemnity, but an agreement to pay the debts of the firm; in such a case, we [532] fbinlc equity and good conscience alike concur in giving to the creditor the benefit of the agreement. Indeed, it is not clear that, as between McIntosh and JBeharrell, tbe latier did not, after tbe execution of tbe bond, stand in tbe place of a surety, thereby bringing tbe case at bar witbin tbe letter, as well as the spirit, of tbe rule in tbe case of Curtis v. Taylor, supra. JR. $ II. Crawford, for appellants. John JHJ. Stotsenberg, Thomas M. Brown, John S. Davis, Thomas L. Smith, and M. C. Kerr, for appellees. Counsel for appellants argued: 1. The failure of the principal obligor to discharge the partnership liabilities, and his suffering a judgment to be recovered against the obligee, were a breach of the condition of the instrument. Thomas v. Allen, 1 Hill, 145; In the matter of Negus, 7 Wend. 499; Wright v. Whiting, 40 Barb. 233; Gilbert v. Winan, 1 Comst. 550; Mann v. Eckford's Executor, 15 Wend. 503; Cutter v. Southern, 1 Sandf. 116, note 1; Holmes v. Rhodes, 1 Bos. & Pull. 638; Hodge v. Bell, 7 T. R. 93; Churchill v. Hunt, 3 Denio, 324; Lake Ontario Company v. Mason, 16 N. Y. 451; Ham v. Hill, 29 Miss. (8 Jones) 275; Chase v. Hindman, 8 Wend. 452; Rockfeller v. Donnelly, 8 Cowan, 639. 2. The bond given to pay firm debts, was but additional security to the debt of plaintiffs. The debt is the principal thing, and the security is incident to and always follows it. The creditors, though not immediate parties to the security, are entitled to its benefit; 4 Kent, 6 th ed., 307 ; 1 Story's Equity, sec. 502; Homer v. Savings Bank, 7 Comst. 478; Mann v. Harrison, 1 Eq. Ca. Abr. 93; Vail v. Foster, 4 Comst. 412; Phelps v. Thompson, 2 Johns. Ch. 418; Moses v. Mergalroyd, 1 Johns. Ch. 119; Kip v. Bank of New York, 10 Johns. 65; and this, even though the creditor did not originally contract on the faith the security, or Enow of its existence. Curtis v. Taylor, 9 Paige, 432. Counsel for appellee argued : The benefits of the bond are strictly personal to B. Until he is actually damaged by the non-performance of the conditions of the bond, he can maintain no action. Schooley v. Stoops, 4 Inch 30; Tate v. Booe, 9 Ind. 13. Tbe judgment below is reversed; cause remanded to said court, with directions to overrule tbe demurrer to tbe complaint, and for further proceedings. Costs here.