First National Bank v. Cody , 93 Ga. 127 ( 1894 )

Lumpkin, Justice.

1. The material facts of this case are set forth by the reporter. The instrument, dated May 22d, 1890, and referred to in the first head-note, deals with title to land, and in this respect may be regarded as a deed, and having been executed and attested as a deed, we have no difficulty in holding that it was entitled to be recorded in the clerk’s office in the record of deeds. This having been done, there was no error in admitting it in evidence without proof of its execution. This instrument, however, being a contract between John L. Palmour and the administrators of J. M. W. Cody, in relation to various matters connected with the winding up and settlement of the affairs of the firm of Palmour, Cody & Co., of which Cody was a member, it is obvious that recitals of fact in this instrument could not be evidence of the truth of statements therein contained as against one claiming to be a creditor of the late firm. A conversation between the parties to this paper would be, as to any third person, simply ¿hearsay, and the fact that their declarations have been reduced to writing does not in the slightest degree change the rule making such declarations inadmissible in evidence against other persons. The recitals in a deed made in pursuance of an order of court, or by virtue of legal process, are sometimes, for certain purposes, evidence of their truth, but parties cannot, in a voluntary contract between themselves, make their “ recitals ” evidence against anybody else as to prior existing rights. See in this connection Mining Co. v. Irby, 40 Ga. 479, 481, and authorities cited.

2. There was serious controversy between the parties to this case as to when the instrument in question was filed for record in the clerk’s office, the plaintiffs contending that this was done at 11 o’clock a. m. on the 31st day of December, 1890, and the defendants insisting that it was not filed until afterwards. Indorsed on the instrument, at the.top, there was an unsigned entry as follows: “ 11 a. m. Dec. 31.” This entry was offered to show the time of filing. Defendants objected, and at the same time offered to show by evidence that the entry was made by one who assisted the clerk, and not by the clerk himself, and also, that it was ' not macle upon the paper on the date indicated by the entry itself. The court refused to hear this evidence, but ruled that it might be introduced before the jury, and that they could pass upon the meaning and effect of the entry. Paragraph 15 of section 267 of the code requires clerks of the superior court “ to make a minute on all conveyances or liens of the day left for record, and the day recorded, to be signed officially, which shall be evidence thereof.” Taking into consideration the objection made to the introduction of this entry, in connection with the proof offered in support of the objection, we think the court erred in admitting the entry. Fairly construed, it at,least amounted to an objection that the entry was not signed by the clerk, and this, under the section of the code cited, was sufficient to exclude it.

3. When Castleberry, an officer of the bank, was on the stand as a witness, he was asked whether J. M. W. Cody did not give the notes to the bank up to the time he went to Warrenton, and answered that Cody gave one note when Palmour was absent in New York. The witness was then asked by plaintiffs’ counsel, “Don’t you know it was made J. M. W. Cody’s business to do that sort of business for the firm ?” and replied, “ Mr. J. M. W. Cody told me that John [meaning Palmour] attended to that.” This answer was properly ruled out on motion of plaintiffs’ counsel. It cannot be fairly said they brought it out; and under the evidence act of 1889, it was clearly inadmissible. Cody being dead, Castleberry, an officer of the bank, was an incompetent witness to prove the admission.

4. As originally contemplated in the contract for a partnership between Palmour' and the two Codys, the partnership business was not to begin until two certain stocks of goods had been consolidated and an inventory of the same taken. The court charged, in effect, that no partnership could exist between these parties until this had been done. There being evidence to sustain the contention of the defendants that, in point of fact, the partnership did commence in advance of the time stipulated m the contract, this charge was erroneous. It was undoubtedly competent for these parties to begin the transaction of a partnership business before the time at which they intended it should begin when the written contract was made.

5. The defendants sought to show that the partnership business actually began before the first note of $8,000, signed by Palmour, Cody & Co., was delivered to the bank, and for this purpose offered several copies of an advertisement, purporting to have been inserted by the firm, which had appeared in the Gainesville Eagle, a newspaper published in the city in which the partnership business was located. The dates of some of the insertions were prior to that of the note in question. There was no evidence that they were inserted by the Codys, or with their knowledge, or that they acquiesced m the same. In the absence of such evidence, the mere fact that an advertisement appeared in a public newspaper at a particular time could not affect the Codys, and would be insufficient to estop them from denying or proving that at that time no partnership had been entered into. It would be a dangerous doctrine to hold that a person could be held liable upon alleged partnership contracts by simply proving, without more, he had been advertised as a partner. Such a rule would operate rather harshly upon one who had never seen or heard of the advertisement, and consequently had had no opportunity to repudiate it in case it did not speak the truth.

6. It was contended by the plaintiffs that before the partnership consisting of John L. Palmour, their intestate, and Jep. M. Cody, began business as a firm, John L. Palmour had given to the bank a note for $8,000, and that in point of fact this note was not for a debt of the partnership but for one due by Palmour individually. On the other hand, it was insisted by the defendants that this note was given after the partnership began business, and that it was for a debt of the firm. "Whatever may be the truth upon this issue, it is quite certain that this note was several times renewed in the name of the firm, and the time of payment extended. The note in controversy in the present case was one of these renewals, executed by John L. Palmour in the firm name, and delivered to the bank after the dissolution of the partnership by the death of J. M. "W. Cody. "We shall not, of course, undertake to settle the disputed question as to whether or not this note was based upon a debt originally due by the firm or by Palmour individually. It will be necessary for the jury, upon the next trial of this case, to determine this issue. It is now incumbent upon this court to decide how this note should be treated and what effect should be given to it m case the jury should find it was in renewal of a firm debt.

The general rule that upon the dissolution of a partnership its assets are chargeable with the payment of the partnership indebtedness, and that a survivor may dispose of them for this purpose, is well settled. It is also true that after dissolution the partners are absolved from all liability upon future contracts; that one partner has no power to bind the firm by a new contract, and that a new promise made by one of them revives or extends the partnership debt only as to himself and not as to his copartners. Code, §§1896, 1917, 2937. It will be observed, however, that under section 1896, the dissolution of a partnership does not absolve the partners from liability upon past transactions, and therefore, in the usual course, partnership assets may be administered in settling partnership indebtedness, and for this reason section 1907 of the code gives the surviving partner the control of the partnership assets to the exclusion of the legal representatives of a deceased partner. In the present case, however, it was contended that inasmuch as the renewal note was executed by Palmour after the death of J. M. W. Cody, which fact was known to the bank, that although the firm name was signed to the note, the effect of this transaction was to discharge Jep. M. Cody and the estate of J. M. W. Cody from all liability upon this indebtedness, and also to discharge the partnership assets. There can be no doubt that Jep. M. Cody and the estate of J. M. W. Cody were discharged. In Bernard v. Torrance, 5 G. & J. (Md.) 383, it was held that a retiring partner was discharged from the debts of the partnership by the acceptance by a creditor of new notes of the other partners as renewals of notes first given by the firm, provided the creditor agreed to discharge him by the acceptance of such new notes. See, also, Folk et al. v. Wilson, 21 Md. 538; Leabo v. Goode et al., 67 Mo. 126; Davis v. Desauque, 5 Whart. (Pa.) 529; Mason v. Wickersham, 4 W. & S. (Pa.) 100. The doctrine of the above cases is, that a note given by one partner, after dissolution, for the debt of a firm, is an extinguishment of the original debt, so as to discharge the other partners, if such was the agreement when the note was given. It has been definitely decided by this court that where one holding a debt against a partnership accepts, after its dissolution, a renewal note or draft of one of the partners for the debt, and extends the time of payment without the knowledge or consent of the other partners, they are absolutely discharged. Stone v. Chamberlin & Bancroft, 20 Ga. 259; Chamberlin & Bancroft v. Stone, 24 Ga. 310; Louderback, Gilbert & Co. v. Lilly & Wood, 75 Ga. 855. In 2 Bates, Part. §694, it is stated that a partner, after dissolution, has no power to sign the firm name to negotiable paper, either by giving a note for an old debt, or for a loan, nor in renewal of prior similar papers. '

We cannot, however, assent to the proposition that where a firm is dissolved by death, and a note due by the firm is renewed in the firm name by a surviving partner, the firm assets are not still bound for the debt. Nor are we aware of any case in which this court has held to the contrary. Accepting a note in the name of the firm, whether the surviving partner had the right to sign the firm name or not, at leas! manifests some intention on the part of the creditor not to release the partnership assets, or to look alone for payment to the member of the firm who signed the note. The manner of the execution of the note certainly indicates thgt the parties contemplated that the debt should still exist against the property of the late firm, and upon principle we see no reason why this is not both equitable and just. In Espy v. Comer, 76 Ala. 501, it was held that although when a partnership is dissolved by the death of one of the members, the surviving partners cannot, by any act of acknowledgment, revive or continue in force a debt of the firm so as to bind the estate of the deceased, the discharge of his estate does not change the character of the debt as a partnership liability. In Durant v. Pierson, 12 Law. Rep. An. 146, the New York Court of Appeals went so far as to hold that money loaned to a surviving partner for the express purpose of pajfing the debts of the firm, and so used, created a valid claim in equity against the assets of the firm. The note given for the loan was executed in the name of the firm and that of the surviving partner, and at the time this note was given, it was known to all the parties concerned that the senior member of the firm had died. Haight, J., said, in effect, that while the note was, in law, unavailable as an obligation of the firm, because the survivor had no power to make it, it did not follow that it was not a claim which ought, in justice and equity, to be paid out of the firm assets, citing Denton v. Merrill, 43 Hud, 224-229. In Case v. Beauregard, 99 U. S. 119, Mr. Justice Strong, in commenting upon the rights of partners with reference to partnership assets, says: “The right of each partner extends only to the share of what may remain after payment of the debts of the firm and the settlement of its accounts. Accordingly, out of this right, or rather included in it, is the right to have the partnership ■ property applied to the payment of the partnership debts. . . This is an equity that partners have as between themselves, and in certain circumstances, it inures to the benefit of the creditors of the fii^n.” In Van Staden v. Kline, 64 Iowa, 180, it appeared that a firm had borrowed money, securing it by a mortgage upon realty belonging to the firm, and that after a dissolution of the firm by death, a surviving partner, together with his wife, in order to secure an extension of the loan, executed new notes and a mortgage to secure the same; and it was held that no new debt was thus created, but that the partnership property still continued liable for the original debt.

We have no doubt that numerous other authorities, supporting our ruling upon the question under consideration, could be found, but we deem it unnecessary to extend our search or to make further citations. The rule that partnership assets are primarily liable for partnership debts, and that such debts have a first preference upon such assets, is recognized in sections 1918, 3154, of the code. The operation of this rule should not be defeated simply because one member of the late firm has made an unauthorized change in the mere form of the indebtedness. It is going quite far enough to hold that, by making this change, the other partners are discharged from their individual liability. As to the firm, the debt still exists, and its assets are liable, in equity at least, for the payment of the debt.

7. As already stated, the plaintiffs contended that the note for $3,000 involved in this case was not, in fact, a renewal of a partnership indebtedness, and the determination of this issue will devolve upon the jury at the next trial. Under the charge of the court, they were not called upon to decide this question at the last hearing. In the event they should determine that this note was m renewal of a debt for which the firm was never liable, but that it was from the beginning merely an individual debt of John L. Palmour, it would follow, of course, that the assets of the firm could not be subjected to its payment. If the truth, when ascertained, should be that it was really the. individual debt of Palmour, he had no right, as surviving partner, to convey, in the name of the firm or otherwise, land constituting a portion of the partnership assets, in part payment of.this debt. He could not convey to his creditor, in payment or part payment of his individual indebtedness, the property of the firm; and if he made a deed for this purpose, it passed nothing to his creditor (the bank) except his individual interest in the land. Printup Bros. & Co. v. Turner, 65 Ga. 71. And the bank took that interest subject, not only to the prior claim of partnership debts upon the land, but subject also to any previous conveyance of the land by Palmour of which the bank had notice. It appears that on the 20th of September, 1889, Palmour, by deed, conveyed to J. M. ~W. Cody and Jep. M. Cody each an undivided one fourth interest in the land in dispute; but this deed was not recorded until the 17th day of January, 1893, after the date of Palmour’s deed to the bank, and there is no evidence to show that the bank had any notice of this conveyance to the Codys. It was a matter of dispute whether the bank, at the time it took the deed from Palmour, had notice of the contract dated May 22d, 1890, between him and the administrators of J. M. W. Cody. In the next division of this opinion, it will be shown that nothing contained in this contract could, under the facts of this case, interfere with the power of John L. Palmour to wind up the affairs of the partnership, and, for this purpose, deal with the land in question.

. 8. While a 'firm exists, every partner, under section 1904 of the code, unless otherwise agreed, has the right to collect and apply its assets, and to contract or otherwise bind the firm in matters connected with its business; and under section 1896, already cited, a dissolution does not put an end to the powers and rights resulting from the partnership to the partners, so far as the exercise of those powers and rights may be necessary for winding up the business. In Parsons on Partnership (4th ed.), §294, this is stated to be the general rule. Where a partnership is composed of three members, and one of them dies leaving two survivors, the right to wind up the affairs of the firm devolves upon both; and whatever may be the rights and powers of a single survivor, where there are two, we think there can be no doubt that, by 'an arrangement or agreement between the two, one may become the liquidating surviving partner, and as such assume possession and control of the partnership assets for'the purpose of applying the same to the partnership debts. Nor would it be necessary for such agreement between the surviving partners' to be reduced to writing, as an arrangement of this kind would be equally valid and binding if resting alone in parol. Parsons, Part. §293.

The evidence In the present case shows that an agreement was entered into between Jep. M. Cody and Palmour, by which the latter was vested with power to wind up the affairs of the firm of Palmour,' Cody & Co. The assent of the administrators of the deceased partner to this'arrangement was not necessary. These administrators, it is true, by accepting from Palmour the contract of May 22d, 1890, did consent that the business of winding up the affairs of the partnership might be conducted by Palmour, and that he might sell the partnership assets in paying off’ certain specified debts of the firm, which were declared in the instrument to be all the debts the firm owed, among which the note held by the bank was not included, and they had no knowledge of it at the time the contract was made. It is also most probably true that Jep. M. Cody knew nothing of the existence of this note at the time he gave his consent for Palmour to become the liquidating partner. It was insisted for the plaintiffs, that inasmuch as they were ignorant of the existence of this claim held by the bank when they accepted the contract referred to from Palmour, he had no right to dispose of the partnership assets in payment of that claim ; and the same position, if well taken, would be equally applicable to the arrangement between Palmour and Jep. M. Cody. As to these matters, we think, first, that if .the note held by the bank was chargeable upon the assets of the partnership, the fact that the written contract between Palmour and the administrators of -the deceased partner did not mention this debt would not deprive Palmour, as a surviving partner, of the authority to sell the partnership assets in settling it. The parties to this contract could not, by any arrangement between themselves, divert the assets from a proper'administration$ or limit the powers of the liquidating partner, who had become such by the consent of the other survivor, to make a lawful disposition of the same. And, secondly, we do not think the ignorance of that survivor of the existence of this debt would prevent Palmour from selling partnership property to pay it, in whole or in part. We are, therefore, satisfied that tinder the evidence Palmour had the same right to wind up the partnership business as if he had been the sole surviving partner, and as such he could, without the express assent of his eosurvivor, apply the firm assets to any bona fide debt to which they were subject, and the fact that a particular debt of this kind was not intended to be provided for in the arrangement between Palmour and Jep. M. Cody, or that its existence was unknown to Cody, would be immaterial. Now, what were Palmoúr’s powers in the premises ?

Upon the dissolution of a partnership by the death of a member, the survivor becomes the sole owner of all the personal property of the partnership : 17 Am. & Eng. Enc. of Law, p. 1154; and has full power of disposition over the partnership property for the purpose of transforming it into distributable shape in order to wind up the business. Ibid. p. 1167. For the one purpose of winding up the concern, the surviving partner has as much power over its assets as he did when it was a going concern; and his right to dispose of the personal property seems beyond question. While, under our system, laud belonging to a partnership is held by the partners as tenants in common, it is also true that the land itself is assets liable in equity to the payment of the partnership debts. One partner could convey the legal title only so far as his own interest is concerned, but we think he could convey the equitable title of the other partners to a creditor of the firm in payment, or part payment, of a bona fide debt chargeable upon the partnership assets. In a court of equity, real estate belonging to the firm and treated as partnership property, is considered as personal property to the extent, at least, of being liable to pay the debts of the firm. The surviving partner being charged with the payment of the partnership debts, has the right, in equity, to dispose of its real estate for that purpose; and though his deed will not convey the legal title to-a purchaser, it will convey this equity to him, and through it he may compel the heir to convey the legal title. Andrews’ Heirs and Adm’rs o. Brown’s Adm’r et al., 21 Ala. 437. To the same effect, see Espy v. Comer, supra; 2 Lindley on Partnership, *340. The doctrine is thus stated m a note to section 274 of Parsons on Partnership: “ Since the surviving partner has the right of disposing of the assets to pay the debts and settle the accounts of the firm, he alone may make a valid conveyance of the partnership land. Although he cannot convey the legal title, he disposes of the entire equitable interest; and the purchaser may have a conveyance from the heir of the deceased partner by filing a bill in equity. The state of the legal title to the land is immaterial. The power of the survivor is just as great if the entire legal title was in the deceased, in trust for the firm.”' The following authorities are cited by the author in support of what is above quoted: Shanks v. Klein, 104 U. S. 18; Allen v. Withrow, 110 U. S. 119; Espy v. Comer, 80 Ala. 333; Davis v. Smith, 82 Ala. 198; Breen v. Richardson, 6 Col. 605; Van Staden v. Kline, supra; Riley v. Carter (Md.), 25 Atl. Rep. 667; Hanson v. Metcalf, 46 Minn. 25; Matthews v. Hunter, 67 Mo. 293; Easton v. Courtwright, 84 Mo. 27.

If, therefore, the claim of the bank was chargeable upon the partnership assets, Palmour’s deed to the bank, if made in good faith and upon a fair consideration, conveyed the equitable title in the land to the bank; and this would be true even if the bank had notice, when it took the deed, of the contract of May 22d, 1890, between Palmour and the administrators of J. M. W. Cody, there being nothing, as already stated, in that contract which would, under the circumstances just indicated, affect the right of the bank.

This case, as to the question in hand, is distinguishable, we think, from that of Baker v. Middlebrooks, 81 Ga. 491. There, the firm of J. D. Head & Co., of which Baker was a member, was actually dissolved eighteen months or more before the death of Head; and it also appeared that, though the land in dispute had been conveyed to the firm while it existed, this land had never been used in the partnership business. Strictly speaking, under the facts stated, Baker, so far as this land is to be regarded as assets of the firm of which he had - been a member, was not the surviving partner of that firm, but was really the surviving former partner of it. Upon the dissolution of the firm, Head owned his interest in the land as a tenant in common with Baker, and upon, the death of Head his undivided share vested in his heirs at law; and although this share was doubtless subject to satisfy the partnership creditors in preference to the individual creditors of Head, Baker had no right, as surviving partner, to recover it for his own use; nor would he, had he been in possession, have had the right to administer the land, either as legal assets of the firm or as the property of his deceased cotenant, and in so doing make to another an absolute and valid conveyance of the legal title. It does not really appear that Baker was seeking to recover the land for the purpose of administering it in payment or satisfaction of the partnership debts. It appears, on the contrary, that he had himself, out of his individual means, paid off the debts of the firm, and that his only purpose in endeavoi’ing to recover the land was to reimburse himself for what he had expended in the firm’s behalf. He doubtless intended to thus subrogate himself to the rights, as he understood them, of the creditors whose claims he had paid. In the light of the facts, the expressions used by Chief Justice Bleckley must be interpreted as meaning that Baker had no right to recover the land for the purpose of acquiring in himself a perfect legal title to the whole of it, or of selling or conveying such title to another. The Chief Justice was not discussing, most probably did not have in mind at all, the question of an equitable administration of partnership realty by a surviving partner. He was dealing with, the rights of the latter relatively to the legal title only, and all we have said in this opinion on that subject is in substantial harmony with the views expressed by him in the case cited. Properly understood and construed, there is nothing, we think, in that case which is necessarily in conflict with the doctrine announced in the case at bar, that a surviving partner may, in settlement and satisfaction of a partnership debt, convey to the creditor holding the debt an equitable title to the interest of a deceased co-partner in land held and used by the firm in its business; and that such conveyance may be made the basis of compelling the heirs of the deceased partner to convey the legal title.

In the present case, there was no dissolution of the firm before the death of J. M. W. Cody, and moreover, the land in dispute was actually used by the partnership in the prosecution of its business. There seems to be no doubt that the interest of the deceased Cody in this land would be subject to the payment of the partnership debts. This view is certainly consistent with all that was said in Baker’s case. We are satisfied, after a careful examination of that case and the authorities therein cited, that none of them constrain a holding differing from that now made, and we think the conclusion we have reached is consistent with the true law of the question, so far as we have been able to ascertain from an examination of many authorities, and after giving the subject much thought and consideration.

It was urged, however, that Palmour’s conveyance to the bank was void, because, the claim held by the bank was affected with usury. Even if it was, this would make no difference, the payment in land being applied only to the principal and lawful interest, and it appearing that the usurious contract was made prior to the time of such payment. In this connection see McCaskill et al. v. Lathrop & Co., 63 Ga. 96; DeLaigle v. Denham, 65 Ga. 492.

9. In dealing with the numei’ous questions presented m this ease, we have not discussed, or stated literally, the assignments of error as they are set forth in the motion for a new trial; nor have we expressly covered all the grounds of the motion. We have, however, endeavored to formulate the principles of law applicable to this case, as we understand it, and to give our reasons, supported by authority, for the conclusions we have reached. The charge of the court, in some vitally important particulars, being at variance with the true law applicable, we deem it proper to order a new trial. Let the same be had in conformity to the views herein expressed. Judgment reversed.