Phillips v. Mendelsohn ( 1910 )

SEABURY, J.

The plaintiff, an attorney, brings this action to recover a balance alleged to be due him for professional services. Mendelsohn and Schlang were copartners, and the services of the plaintiff were rendered in connection with bringing about a dissolution of the copartnership. The evidence leaves no room to doubt that the plaintiff was employed by the firm of Mendelsohn & Schlang, and that the debt due the plaintiff was a liability of the partnership. As a result of the services rendered Mendelsohn and Schlang entered into an agreement with one another, under the terms of which it was agreed that the copartnership should be dissolved, and that Mendelsohn should assume all the assets and liabilities of the former firm. The learned court below has rendered judgment in favor of the plaintiff against both defendants, and from the judgment so rendered the defendant Schlang appeals to this court.

Mendelsohn having become the sole owner of the partnership assets and having assumed the partnership liabilities, he was primarily liable for the debt due the plaintiff, and Schlang could not be proceeded against by a firm creditor, who had notice of the facts, until the creditor had exhausted his remedy against Mendelsohn. That the plaintiff had notice of the arrangement between the defendants is, of course, evident from the fact that as attorney for the partnership he drew the papers which brought about the dissolution of the firm. Under these circumstances the defendant Schlang cannot be held primarily liable upon the debt of the partnership to the plaintiff. As a result of the dissolution agreement, Schlang occupied the position of a surety, and not of an original debtor. This position he occupied, not only as to his former partner, but as to all who have had dealings with the firm who have notice of the new agreement. The application of this rule to the facts of this case does not release Schlang from liability for obligations which he incurred as a partner. It serves merely to place .him in the position of a surety, and compels partnership creditors who have been duly notified of this changed relation to respect it, and in seeking to collect their claims they must proceed with due regard to the changed relation which the agreement of the partners has brought about. The rule stated is not new, nor does it offend against any principle of justice. 'While it cannot be said to prevail in all jurisdictions, it is sustained by the great weight of authority in England and in this country. The rule was distinctly recognized in Savage v. Putnam, 32 N. Y. 501; Millerd v. Thorn, 56 N. Y. 406; Morss v. Gleason, 64 N. Y. 204; Colgrove v. Tallman, 67 N. Y. 95, 23 Am. Rep. 90; Grow v. Garlock, 97 N. Y. 81; Palmer v. Purdy, 83 N. Y. 144; U. S. Nat. Bank v. Underwood, 2 App. Div. 342, 37 N. Y. Supp. 838; Reed & Barton v. Ashe, 18 App. Div. 501, 46 N. Y. Supp. 126; Morrisey v. Berman, 47 Misc. Rep. 586, 94 N. Y. Supp. 596.

While the facts of all these cases are not identical with the case at bar, the principle here applied was distinctly recognized and asserted in all of them. The application of the rule does not affect the rights of firm creditors to proceed against the old partners, but requires merely that in proceeding against them they shall observe the relationship ’of principal and surety. Prof. Burdick points out the distinction clearly. Thus, after stating that it is “universally agreed” that such an agreement cannot affect the rights of firm creditors to proceed against the old partners, he considers the question as to whether in so doing they shall be compelled to respect the relation of principal and surety which the partners have created. In reference to this subject he says:

“But the courts differ on the question whether the firm creditors who have notice o£ such agreement are bound thereafter to observe the relationship of principal and surety thus instituted between the continuing and retiring partners. The weight of authority, both in England and in this country, is in favor of compelling them to observe it.” 30 Cyc. 612.

The same rule is declared in Brandt on Suretyship and Guaranty, § 46, where the authorities in other states are referred to. It matters not what form the relation may take, or how it may arise. If the relation of principal and surety exists between the partners, and the creditor has knowledge of the fact, he is compelled to respect it. This places the retiring partner in the position of a guarantor of collection, and thus no action can be brought against him until the creditor has exhausted his remedies against the continuing partner. Although a contrary doctrine has been applied in some jurisdictions, yet the principle upon which the rule rests has been so clearly and repeatedly declared that we do not feel justified in departing from' it.

It follows that the judgment against the defendant Schlang should be reversed, and the complaint dismissed as to him. As the appellant may still be liable as surety, the dismissal of the complaint is not upon the merits.

Judgment reversed, and complaint dismissed, as against the defendant Schlang, without prejudice, and with costs.

GUY, J., concurs.