Estate of Davis

5 Whart. 530, 1840 Pa. LEXIS 246

• Court: Supreme Court of Pennsylvania
• Decided: May 2, 1840
• Status: Published

Opinion

The opinion of the Court was delivered by

Rogers, J.

It is generally true, that the giving a note for a preexisting debt, does not discharge the original cause of action, unlesit is agreed that the note shall be taken in payment. 12 Peters, 59. 6 Cranch, 264. And although it is decided in Evans v. Drummond, (4 Esp. 90,) that taking a security from one of several partners, jqint makers of a promissory note or acceptors of a bill, will discharge the other co-partners, yet in a subsequent case, Bedford v. Deakin, (2 B. & A. 210,) it is held, that where one of three partners, after a dissolution of partnership, undertook to pay a particular partnership debt, on two bills of exchange, and that was communicated to the holder, who consented to take the separate notes of one partner for the amount, strictly reserving his right against all three, and retained possession of the original bill, the separate notes having proved unproductive, he might resort to his remedy against the other partners; and that the taking under these circumstances, the separate notes, and even afterwards renewing them several times successively, did not amount to a satisfaction of the joint debt.

In Evans v. Drummond, it does not appear whether the joint bill of exchange was given up; but in Bedford v. Deakin the fact is stated, and is one of the grounds of the decision. Whether taking the separate note of one of the partners amounts to an extinguishment or satisfaction of a joint debt, depends upon the intention of the parties; and in the absence of all proof of a special contract, the giving up or the retention of the original security, will in general be a decisive circumstance; for it is difficult to account for the fact, except on thé supposition 'that in the one case it was intended, in case of need, to enforce the joint liability; or, in the other, to depend altogether upon the responsibility of on’e of the joint debtors. Where a joint debtor insists that the separate note is substituted, and is in satisfaction of the joint debt, the onus is thrown upon him; and to discharge himself from liability, it will be necessary to show a special contract to that effect; or that in addition to a separate note being taken for the amount of the debt, the original bills were given up. And even when'that is the case, it may be rebutted by countervailing proof that it was otherwise intended. The auditors have reported that the counter notes or memorandums were retained by the creditors; and they were warranted in coming to this conclusion, as the presumption was, tliat they were in the possession of Lewis Desauque, the payee of the bills, and that they did not come into his possession as the assignee of Davis & Desauque. If the latter was so, it was incumbent on the appellants to prove it; which might have been readily done by the testimony of F. Desauque.

A partnership may be dissolved by the act of God, by the act of the party, and by the act and operation of law. This partnership was dissolved by an agreement, the particulars of which áre not stated; Davis quitting the concern, leaving Desauque in possession of the store and stock, with a general authority to wind up the business of the firm. As a general principle, when a partnership is ended in any of the modes mentioned, no one of the partners can make use of the partnership estate, in a manner inconsistent with the settlement of the joint estate. The object of the association having terminated, it follows that one of the partners cannot create any new obligation binding the firm ; for after a dissolution nothing remains to be done, except to arrange the affairs of the partnership; but until they are finally arranged, the connection between the parties subsists; and for this purpose, and until a settlement takes place, the partnership continues.

There are various ways of dissolving a partnership: affluxion of time; the death of one partner; the bankruptcy of one, which operates like death; or a dry naked agreement that the partnership shall be dissolved. In no one of these cases can it be said, that to all intents and purposes the partnership is dissolved; for the connection still remains until the affairs are wound up. The representatives of a deceased partner, or the assignees of a bankrupt partner, are not strictly partners with the survivor or the solvent partner; but still, in either of these cases, that community of interest remains, that is necessary until the affairs are settled. Peacock v. Peacock, (16 Vesey, 57.)

When a partnership is dissolved by agreement, the partner to whom is committed the power to settle the estate, may be limited, or the most full and ample authority may be given to him; but the question here, is, as to the extent of the authority of the acting partner, in relation to the assets, in the absence of all express limitations or restrictions. In general to him is given all power which may be necessary for the final settlement of the concerns. He cannot enter into any new obligation, but his authority extends only to those contracts which may be consistent with the trust. Is then, the borrowing of money, for the express purpose of paying the debts of the firm, and the application of it to that purpose, within the scope of the implied power of the acting partner! And we are of the opinion, that where the credit is given in good faith to the firm, although the partnership may have been dissolved, and where the proceeds are.¡faithfully applied to the liquidation of the joint debts, the creditor has a claim against the firm, and is not to be considered a creditor, merely, of the partner who negotiates the loan for the benefit of the estate. And to this implied power I perceive no plausible objection. Cases may be readily supposed, where the exercise of such'an authority may be highly expedient — nay absolutely necessary, — for the preservation, of thé rights of the creditors, and of the partners themselves; as where money is borrowed to relieve the estate from the pressing demands of a creditor who may urge the sale of the assets, to the injury or the absolute destruction of the estate. It may very well happen that money may be raised by a pledge of the partnership credit, which could not be obtained on the credit of the acting partner. He may pay the debt out of his own private funds, if he chooses; but when he has not means, why may he not avail himself of the aid of others, or obtain an extension of credit by a renewal of the note 1

The case of Abell v. Sutton, (3 Esp. 108,) is cited in opposition to this. If that case is to be understood as ruling the general principle, that after a dissolution of the partnership, the person who has authority to settle the partnership affairs cannot enter into any new obligation or create any new debt or liability, there can be no objection to it. But here there is no new debt or obligation created; The responsibility of the firm is precisely the sainé; and the only alteration is, as to the person of the creditor. With every respect to the opinion of the learned judge who decided that cause, I do not see the force of the reasons on which that case was' ruled. Lord Kentojt says “ that it never could be allowed that any one might make another his debtor against his will: by that means a man’s greatest enemy, by paying his debt, might make himself his creditor.” But this is a misapplication of a principle, which, to say the least of it, is itself' of doubtful weight; for it is difficult to perceive the mischievous and' distressing, consequences which would ensue from permitting, the acting partner to change the creditor of the firm, without altering, ki the slightest degree, their responsibility. In.truth, there is but little in the rule which prohibits a person from making himself' the creditor of another, by payment of his debt. The time has gone-by; even if it ever existed, when this power could be made an-instrument of oppression. Besides, debts may be purchased without the assent of a debtor; and to all practical purposes the rule is of' little value. I do not, however, intend by these remarks, to impinge the rulé, but to object to its application. It is a fair inference from the whole of this transaction, that the loan was made and the money advanced on the credit of the partnership. In the absence of express proof of a separate contract, the application to partnership uses of money borrowed- by one partner, is evidence to show that the debt is joint. And the principle applies, as well after, as before the dissolution of the partnership. Exparte Bonbonus, 8 Ves. 540. There is so much justice in making the firm which receives the money pay the creditor, qui sentit commodum sen-tire debit et onus, that we feel disposed to seize hold, even' of slight circumstances, in addition to the receipt of the money, to raise the implied contract, and to infer that the loan was made to the firm, and not on the credit of the individual partner.

But conceding that the acting partner had not power to borrow money on the credit of the firm, yet, inasmuch as all the money that was raised, went to the payment of the debts of the firm, a subsequent recognition of the act is equivalent to a previous authority. Duncan v. Lownds, (3 Campb. 478.) Vere v. Ashby, (10 B. & C. 288.)

In the assignment, Davis expressly recognises these as partnership debts, and provides for their payment; and this is nothing more than in justice he is bound to do. Nor does it follow, even admitting that the debts were the private debts of one of the partners, that they Cannot provide for the payment, out of their joint estate, to the extent of his interest in the assets, to the exclusion of ■ joint creditors. The'.doctrine of marshalling assets, applies where property is seized on an execution, or in cases of insolvency or bankruptcy, but not to a case like the present.

It only remains to consider the first exception. The sale to Stork was a cash sale, and if the assignees chose to deliver the goods without exacting payment, it was on their own responsibility. When the debtor fails to pay, the assignees ar e prima facie chargeable with the debt, and can only discharge themselves from liability, by showing that the loss arose from circumstances over which they had no control; or by proof that the purchaser was of such undoubted credit, that no prudent person would have hesitated in trusting him with the possession without requiring payment previous to the delivery of the goods. Here the whole matter seems to have been referred to the discretion of the clerk, and no extenuating facts are proved which can exempt them from responsibility. Stork was in such doubtful credit, that Davis & Desauque refused to trust him before the assignment.

The decree of the Court, so far as it allows .the assignees two hundred and ninety-two dollars and fifty cents, the value of the goods delivered to Stork, is reversed, and confirmed as to the residue.

Decree accordingly.