Sibley v. Starkweather , 2 Silv. Sup. 472 ( 1889 )

Dwight, J.

The action was on two instruments in writing by which the defendant agreed to guaranty and indemnify the firm of Hiram Sibley & Co., of whicli the plaintiff is survivor, and of which the defendant was then a member, against loss by reason of payments made by them on certain liabilities of one Briggs. The circumstances of the transaction involved, so far as they are disclosed by a record somewhat scantily made up, were briefly as follows: The copartnership of Hiram Sibley & Co., consisting of Hiram Sibley, Isaac S. Averill, and the defendant, Starkweather, was formed on the 12th day of September, 1878, and on the same day purchased from Charles W. Briggs his seed business which had been carried on by him at Rochester, under the name of Briggs & Bro., together with the stock of seeds and other personal effects belonging to the business. It was provided by the bill of sale that tile first moneys to be paid on the purchase price might be applied by the purchasers to pay off the claims of indorsers and lenders holding liens on the seeds and effects purchased, and other creditors of Briggs secured by collaterals. The defendant had been an indorser for Briggs, and notes of the latter were then outstanding bearing his indorsement, and also a note of $2,500, made by John T. Briggs and indorsed by Briggs & Bro. and the defendant. On the 14th day of September, two days after the sale of his business, Briggs made a general assignment, “for the benefit of creditors,” to Hathan P. Pond. On the 3d day of October, Hiram Sibley & Co. advanced money to pay notes indorsed by the defendant, including the $2,500 note of John T. Briggs, upon the defendant’s executing the first of the two instruments above mentioned, by which he guarantied the firm against all loss or damage by reason of such advance. On the 14th of September, the day of the date of his general assignment, but before the execution of that paper, Briggs made a bond and mortgage on a farm in the town of Gates for $5,000, running to Stark-weather, which the latter, on the 18th day of January, 1879, assigned to the firm. On the last-mentioned day Starkweather executed to the firm the second of the instruments upon which this action is based. It repeats the guaranty to the firm against loss by reason of-advances to pay off liens on the property bought by them, and “takes all risks in every and any defense or objection that may be made against such payment, or the validity of the debts to me [Starkweather] secured by such mortgages as were pledged for the payment of any claims in any form against the said Briggs.” It seems that the lien of this mortgage was afterwards cut off by the foreclosure of a prior lien. It is difficult to see how this mortgage, given after the bill of sale, could have been regarded as within the provisions of that instrument, or how it was covered by the last-mentioned agreement of Starkweather. The latter gives, in his evidence, the only intelligible account which the case contains of the inception of the mortgage. He says it was given by Briggs to him for the firm, under an arrangement made by the partner Averill, as security for a loan to Briggs which the latter Required as a condition of surrendering possession of the business and effects embraced in the purchase; that Averill raised the money for the loan on a joint note of himself and Starkweather; and that the firm afterwards paid that note, and he assigned the mortgage to them. If this is the true history of the $5,000 mortgage, it was not within the agreement of indemnity, any more than it was within the provisions of the bill of sale. But it is unnecessary to discuss the questions peculiar to the mortgage, since the case of the $2,500 note furnishes a sufficient test of the correctness of the disposition which was made of the action at the circuit. In April, 1879, Pond, the assignee of Briggs, brought an action against the firm to recover the amount unpaid on the purchase, and the defendants answered, setting up,

among other things, the advances made on the $2,500 note and the $5,000 mortgage as payment, under the terms of the bill of sale, of so much of the purchase price to be paid by them. The pleadings in that action are not in this record, but the answer does not seem to have pleaded the advances in question as an offset to the plaintiff’s demand. The result was a disallowance of those advances as not within the provisions of the bill of sale, and judgment accordingly was recovered against Hiram Sibley & Co., on the 8th day of October, 1881. Hence this action to recover the sum of $7,500, loss and damage sustained by them by reason of the advances in question. In May, 1879, Aver-ill transferred his interest in the firm to Hiram Sibley. In June, 1881, Stark-weather, witli the consent of Hiram Sibley, sold out his interest to Stuart, Barton, and Mills, by an instrument in-writing which contained the following terms: “The party of the first part doth hereby assign, transfer, sell, and convey to the party of the second part all his right, title, and interest in the property and assets of the firm of Hiram Sibley & Co., * * * without any reserve or recourse whatever. * * * This agreement and transfer is made subject to the payment by the parties of the second part, and the undertaking by them to pay all firm debts and liabilities for which the party of the first part is or may be liable as one of the members of the said firm.” At the foot of this assignment was the following consent, signed by Hiram Sibley: “The undersigned owner of the remaining two-thirds of the property above mentioned hereby consents that such assignment may be made, and admits into such copartnership the above-named parties of the second part.” The plaintiffs offered to prove by Hiram Sibley that this consent was given upon the express condition that the liability of the defendant upon his contracts of indemnity should not be discharged. In April, 1883, Barton and Mills sold their interest in the firm to Hiram W. Sibley, and in January of the same year Stuart sold his interest to the two Sibleys. This action was commenced by them in August, 1886, and, Hiram Sibley having died since the trial, it now proceeds in the name of Hiram W. Sibley, the sole survivor of the firm.

Upon the facts thus stated, we think the plaintiff made a case for recovery upon the guaranty against loss in the payment by the firm of the $2,500 note; and the conclusion turns wholly upon the question whether the defendant was released from his contract of guaranty by the transfer of his interest in the copartnership to Stuart, Barton, and Mills. We think he was not. From the moment of his execution of the instrument of indemnity which embraced the note in question, that instrument became a part of the assets of the copartnership, in which, it is true, he had an interest, subject to an accounting, as a member of the firm, but upon which he was solely and individually liable. That interest he transferred, with his interest in all the other assets of the copartnership, to Stuart, Barton, and Mills, by his assignment, without reserve; and upon no principle, as we conceive, was his individual liability to the firm extinguished by the transfer. It is said that the transfer was without recourse as well as without reserve. True, but the recourse which was barred by the contract was recourse by the firm against him as a member of the firm. He was no longer subject to, nor could he thereafter maintain, an action for an accounting, to ascertain his interest in or his liability to the firm as a partner, because by his transfer he had parted with that interest, and (with the consent of his copartner) been relieved from that liability. But his liability on the contract of indemnity stood upon another footing. That was a contract upon which he was solely and individually liable, the consideration therefor being for his own individual benefit. It belonged to the copartnership as much as if it had been his individual promissory note contributed by him as his share of the capital, and his interest in it passed to his transferees as fully and unreservedly as his interest in all the other assets of the firm. A case less complicated in its details, but which we conceive is parallel in the principles involved, may be supposed. A. and B. form a copartnership to-deal in commercial paper. B. sells to the firm the promissory note of a third person, with his own guaranty of payment. Afterwards, with the consent of A., he transfers his interest in the copartnership to C., “without reserve and without recourse.” The maker of the note proves to be worthless, and the firm brings the action on B.’s guaranty. We apprehend there could be no question of its right to recover. B. would have no right to an accounting, because he had transferred his entire interest in the partnership to C. He could not defend under the terms “without recourse,” because he contracted with C. only in respect to his partnership interest and liability, and the liability sought to be enforced is individual. The views suggested are elementary in their character, and, if correct, they obviate much of the discussion had on the argument of the case.

Among the grounds stated of the motion for a nonsuit, aside from those already considered, it was said that the cause of action, if any, relating to the $2,500 note, ac.crued immediately upon the execution of the first instrument of indemnity, and was therefore barred by the statute of limitations; and, again, that a cause of action in tltat respect had not yet accrued, because the plaintiffs had not paid the judgment in the action of Pond against Sibley. The two grounds are evidently inconsistent, and we think neither is tenable. There was a breach of the contract of indemnity as soon as the judgment was-recovered, which determined the liability of the plaintiffs, (Conner v. Reeves, 103 N. Y. 527, 9 N. E. Rep. 439,) and that was within six years before the commencement of this action. We think the nonsuit was improperly allowed, and that it should be set aside, and a new trial granted.