First National Bank v. Cheney , 114 Ala. 536 ( 1896 )

HARALSON, J. —

It may be admitted as a correct legal proposition that, where a partner retires from a firm undef an agreement between him and the continuing partners, that they will assume and pay all liabilities of the old and dissolved firm, he acquires as between himself and the other partners, irrespective of the rights of creditors, the rights of a surety. — 1 Bates on Partnership, § 532 ; 17 Am. & Eng. Encyc. of Law, 1129.

But such an agreement between the partners themselves, to which the creditor of the firm is not a party, has no effect on him. The firm and each member thereof are bound to him, jointly and severally, which no arrangement between themselves, touching a dissolution, can affect or absolve, without his consent.

The law on this subject cannot, perhaps, be more correctly and accurately stated, than was done by Mr. Justice Washington, of the United States Supreme Court, sitting as circuit judge, in the case of Harris v. Lindsay, 4 Wash. Cr. Ct. Rep. 273, namely: “We unhesitatingly admit that partners, in respect to debts contracted by them during their association, cannot, by any agreement between themselves, at the period of their separation, change their condition of principal debtors, or in any way affect the rights of their creditors. If the agreement be, that one of them shall retain the partnership effects, and pay the debts, they continue nevertheless bound as principals, so that no indulgence granted by a creditor to the paying partner, which falls short of an agreement, expressed or implied, to take him as the debtor, and to discharge the other partner, can place them in the situation of principal and surety, so as to discharge the retiring partner. To support a defense of this kind, such an agreement must be satisfactorily made out.” To the same effect, see Parsons on Part., §§ 824, 325, 328; Story on Part., §158. The same author adds : “We further agree that a note, or bill of exchange, given for a pre-existing simple contract debt, does not extinguish it; and that, per se, it affords no ground for presuming an agreement between the parties that it was given and received in satisfaction of the debt.” — Hall v. Tanner, 91 Ala. 363; Lane v. Jones, 79 Ala. 156.

On the proposition as to whether a retired partner has the rights of a surety against a creditor who knows of the fact that the continuing partner has assumed the debts, and is, therefore, discharged by a binding extension of time on the debt, given without his assent, the English and American authorities are divided. They may be found collated in 1 Bates on Part., § 334, and 17 Amer. & Eng. Encyc. of Law, pp. 1129, 1131; 2 Lindley on Part., p. 438.

Our own court, in the case of Hall v. Jones, 56 Ala. 493, reviewed the decisions on the subject, and announced its conclusion as follows : “It is not necessary, nor do we feel inclined, to adopt some of the extreme views advanced above. Still we hold, that to discharge a retiring partner from liability once incurred, the facts and circumstances must satisfy the jury that the plaintiff agreed to release the old firm and look to the new firm. * * * We agree with Barron Garrow, that whenever there is any evidence, from which such an agreement could be inferred, then the question of agreement vel non, should be submitted to the jury, in a charge appropriate to the testimony in the cause.”

In Browning v. Grady, 10 Ala. 999, it was held that “the agreement of a crediter to discharge one partner, on his securing a portion of the debt, but reserving the right to proceed against another partner, does not operate to discharge the latter.” Again in Roberts v. Strang, 38 Ala. 566, it was held, that an agreement by a creditor to discharge one partner from liability on a partnership debt, (or a covenant not to sue him in twenty years), on his giving personal security for the payment of a portion of the debt, did not release or discharge the other partners. Referring to the decision in 10 Ala., just cited the court said: “We find nothing in this record which takes the case out of the rule thus stated. All that the creditor did, was to bind himself not to sue the appellant’s copartner, Porteous, in twenty years.”

The principle underlying these and other cases and text books on the subject is, that a creditor is not to be held to discharge a retiring partner, by any agreement the partners may make between themselves for the payment of the debts of the dissolved firm, unless he has consented thereto, and agreed to look alone to the other members of the firm for the payment of his debts.— Authorities supra.

From what has been said, it is apparent that the pleas of the defendant from No. 8 to 12, inclusive, except the 4, 8, 10 and 11, do not set up such a state of facts as show that the defendant was discharged by the plaintiff. Neither the fact as averred in said pleas, that plaintiff knew of the terms of dissolution between defendant and his copartners, at the time the agreement was made, and that he assented thereto, nor that plaintiff, after the note sued on fell due, without the knowledge or consent of defendant extended the time of payment for a valuable consideration, and accepted the notes of Hill & Bell as evidence of the indebtedness, — separately or all together, as said pleas allege them, — can be construed as the legal equivalent of an averment that plaintiff agreed to release and did release the defendant as retiring partner, and to look alone for pay to the continuing partnership. The pleas fell short of such an averment, without which they are not good and were subject to the demurrers interposed. The 8th plea is without fault in this respect, and the demurrer to it was properly overruled.

The 4th plea sets up the defense of the surrender by plaintiff to Hill & Bell, on the 1st of October, 1891, without the consent of the defendant, of solvent notes and sundry securities secured by mortgages of the value of $5,500, and thereby discharged defendant. Without holding that the defendant occupied, as towards the plaintiff, on the dissolution of said firm, the position of a surety, it may be said that if the plaintiff held, by transfer to it from Hill, Bell & Cheney, the old firm, collateral securities of the amount and value stated in the plea, for the payment of its debt, and without the knowledge or consent of the defendant, it surrendered up and delivered said collateral securities to said Hill & Bell, the continuing firm, this would amount to a discharge of the defendant, for the reason that such surrender would be an appropriation by plaintiff of assets of the old firm sufficient to pay the debt of the defendant on which he is here sued. The demurrer to the pleas does no more than question the legal sufficiency of the surrender, as averred, of the collaterals to discharge defendant from liability, and was properly overruled.

The first replication of the 4th plea was no more in substance than a rejoinder of issue on that plea, and the facts set up therein, in disproof of the plea, were admissible in evidence on such issue. We will not presume, in the absence of a bill of exceptions, that on the trial on the merits, the court did not allow them to be introduced. If so, the ruling sustaining the demurrer, was at most error without injury.

The demurrers to the 10 and 11th pleas were properly overruled. The plaintiff knew better than the defendant what part of the collaterals, if any, it had converted, and for such part, to the extent of the damage it had done to the defendant thereby, it was liable to him therefor, which he might set off or recoup against the plaintiff’s demand. This much the 10th plea claims as a right in the defendant, and no- more. The 11th plea avers the conversion by plaintiff of the whole amount of the collaterals deposited, to the damage of defendant in the sum of $3,000. Neither plea was subject to any objection interposed to it.

The 15th plea set up, that “when the notes here sued on became due, and for a long time thereafter, the said Hill & Bell had a sum of money on general deposit with plaintiff,” &c., which it permitted to be drawn out by Hill & Bell. The grounds of demurrer to this plea, which appellant insists on are: (1.) That the plea “does not state that the said notes of Hill, Bell & Cheney were due at the time plaintiff permitted Hill & Bell to check out the money of Hill & Bell.” There is nothing in this ground of demurrer since it simply denies what the plea expressly avers. (2.) “It does not appear from said plea, that the said money deposited with plaintiff, and checked out by Hill & Bell was the proceeds of the assets of Hill, Bell & Cheney, or that the said firm of .Hill, Bell & Cheney or said A. D. Cheney, had any interest or claim therein.”

There is nothing in the plea to show, that the plaintiff agreed to release the defendant, Cheney, from his obligations as principal, and to accept him as a surety merely to the new firm of Hill & Bell, to pay the debts of the old firm of Hill, Bell & Cheney, for which defendant was bound as principal. As between Hill & Bell and the defendant, the latter was, under the facts averred, the surety of the former for plaintiff’s debt. But the debts of Hill, Bell & Cheney and of Hill & Bell to the plaintiff, if upon different consideration, were independent obligations ; and the money alleged to have come to the plaintiff’s hands, after the maturity of said note, so far as appears, belonged to Hill & Bell, which they were under no obligations to defendant to apply to the debts of their old firm, in preference to their obligations thereafter contracted to the plaintiff. — Yeager v. Focke, 6 Texas Civ. App. 543 ; 1 Parsons on Part., (4th ed), p. 442, note 1. If the new firm had collected funds belonging to the old, and deposited them with plaintiff, and plaintiff knew that fact, it would have been under obligation to apply the funds so deposited to the payment of its claim against the old firm, but that is not the condition set up in said plea.— White v. L. A. of America, 63 Ala. 420. Nothing is stated to imply a legal obligation to apply the money referred to, to the old firm’s debts. The demurrer to the plea should have been sustained.

The plaintiff filed replications to the pleas which we have held tó be bad and subject to demurrer. The defendant demurred to plaintiff’s replications to these pleas on various grounds, which were overruled. The defendant filed rejoinders to plaintiff’s said replications, but as we have held the pleas to be bad, we need not pass upon the demurrers to the replications and rejoinders.

From what has been said there should be no difficulty in presenting the real issue between the parties by appropriate pleading, without confusion or prolixity.

For the errors indicated, the judgment of the'court below is reversed and the cause remanded.

Reversed and remanded.