Smith v. Shelden

• Decision Date: 17 October 1876
• Citation: 35 Mich. 42
• Court: Michigan Supreme Court
• Parties: Eldad Smith v. Allan Shelden and others

35 Mich. 42

Eldad Smith v. Allan Shelden and others

Supreme Court of Michigan

October 17, 1876

Heard October 4, 1876 [Syllabus Material]

Error to Wayne Circuit.

Judgment reversed with costs, and a new trial ordered.

C & W. N. Draper and C. I. Walker, for plaintiff in error, to the point that a partner, by taking the firm assets and agreeing to pay the liabilities, becomes, as between himself and his former partner, the principal debtor and bound to pay the debt, and the retiring partner is a surety merely, cited: Morse v. Gleason, 2 Hun. 31; Kinney v. McCullough, 1 Sand. Ch., 370; that a note given by one partner in the name of the firm, after dissolution, and without authority from the other partner, is the sole note of the partner giving it: F. & M. Bank v. Kercheval, 2 Mich. 518; Pars. on Part.; Pars. on Notes, 145-312; that such a note payable in the future operates as an extension of time to the continuing partner and no suit can be brought against him or the firm till the note becomes due and payable: 2 Pars. on Cont., 683-4; 3 Lead. Cases in Eq., 561; Glun v. Smith, 2 G. & J. (Md.), 496; 2 Mich. 518; that it is well settled that giving time to a principal without consent of his surety will discharge the latter, and the length of time given, or whether the surety has been benefited or injured by such arrangement, is wholly immaterial: 3 Lead. Cases in Equity, 534, 535, 561; 1 Parsons on Notes and Bills, 241; Miller v. Steart, 9 Wheat. 680; Commissioners of Berks v. Rap, 3 Binn. 520; Fellows v. Prentiss, 3 Denio 512; Bringham v. Wentworth, 11 Cush. 123; 6 English Rep., 663; that notwithstanding parties may appear to be joint makers of the promissory note, and the holder thereof may have purchased the same believing them to be such, either may show by parol that he signed as surety, and the holder will be affected by such relation from the time he has notice of it: Hubbard v. Gurney, N. Y. Court of Appeals, Albany Law Journal, April 15, 1876, page 267; Bank v. Haye, 6 Ohio 17; Graflon Bank v. Kent, 4 N. H., 221; Harris v. Brooks, 21 Pick. 195; Carpenter v. King, 9 Metc. 511; Mariner's Bank v. Abbott, 28 Me. 280; Wilson v. Green, 25 Vt. 450; Averend, Gurney & Co. v. Oriental Financial Co., 1 Eng. 469; 3 Lead. Cases in Equity, 570-2; that where one partner turns over the assets of the firm to his co-partner and retires, and the continuing partner assumes and agrees to pay all the debts, and the creditors are notified of such arrangement, the liability of the retiring partner is changed from that of principal to surety: Emmons v. Drummond, 4 Esp. 90; Oakeley v. Pashellar, 4 Cl. & Fin., 207; Stone v. Chamberlain, 20 Geo. 259; Colgrove v. Tallman, 2 Lans. 97; Wilson v. Lloyd, 6 Eng. 642; Millerd v. Thorn, 56 N. Y., 402

Meddaugh & Driggs, for defendants in error, argued that nothing short of an express agreement by creditors will discharge retiring partners: Pars. on Part., 421; Story on Part., §§ 154-6; Collyer on Part. (5 Am. ed.), §§ 487, 563; that the promissory note of a third person taken for an antecedent debt is not a payment unless by agreement: Johnson v. Eard, 9 Johns. 310; Foley v. Barber, 5 Johns. 68; Jaffrey v. Cornish, 10 N. H., 505; Davison v. Bridgport, 8 Conn. 472; taking the notes of another than the debtor is an extinguishment of the debt only when so agreed: Jewett v. Plenk, 43 Ind. 368; Devlin v. Chamblin, 6 Minn. 468; Hotchin v. Secor, 8 Mich. 484; Dudgeon v. Haggart, 17 Mich. 273; and on the relations existing between a retiring partner and creditors of the firm cited: Pars. on Part., 421-2; Story on Part. (2d ed.), 154-6; Collyer on Part. (5 Am. ed.), 487, 554-70; that a note of a surviving member of the firm, given in adjustment of a creditor's account against the firm, will not be deemed a payment of the account unless such is shown to have been the agreement: Leach v. Church, 15 Ohio St., 169; Bowen v. Still, 49 Penn. St., 65; Scholenberger v. Seloonridge, 1 Ired. 83; Van Epps v. Billage, 6 Barb. 244; Spear v. Atkinson, 1 Ired. 262; Thompson v. Briggs, 28 N. H., 40; Powell v. Charles, 34 Mo. 485; Keel v. Bridgers, 16 Miss. 612; Sneed v. Wiester, 2 A. K. Marsh., 277; Rayburn v. Day, 27 Ill. 46; Tyner v. Storps, 11 Ind. 22; Bonnell v. Chamberlin, 26 Conn. 487; Smith v. Rogers, 17 Johns. 340; that the mere acceptance of the promissory note of a less number than all of the joint debtors will not discharge the joint liability: Drake v. Mitchel, 2 East. 251; Foley v. Barber, 5 Johns. 68; Johnson v. Reed, 9 Johns. 310; and on the general subject they cited: Thompson v. Percival, 5 B. & Ad., 925; Reed v. White, 5 Esp. 122; Evans v. Drummond, 4 Esp. 192; Harris v. Farwell, 15 Beav. 31; Stevens v. Thompson, 28 Vt. 77; Harris v. Lindsey, 4 Wash., C. C., 98; Moulden v. Whittock, 1 Cow. 290; Rosseau v. Call, 14 Vt. 83; King v. Lowrey, 27 Barb. 532; Thurber v. Corbin, 51 Barb. 215; Wilson v. Lloyd, 6 Eng. 642; Daniel v. Cross, 3 Ves. Jr., 277; Millerd v. Thorn, 56 N. Y., 402; Brown v. Clark, 14 Penn. St., 469; Robinson v. Taylor, 4 Barb. 242.

OPINION

Cooley, Ch. J.

The legal questions in this case arise upon the following facts:

Prior to June, 1867, Eldad Smith, Isaac Place, and Francis B. Owen were partners in trade under the firm name of Place, Smith & Owen, and as such became indebted to defendants in error in the sum of nine hundred and sixty-nine dollars on book account.

In the month mentioned the firm was dissolved by mutual consent, Place purchasing the assets of his co-partners and agreeing to pay off the partnership liabilities, including that to the defendants in error. On the second day of the following month Place informed the defendants in error of this arrangement, and that he had taken the assets and assumed the liabilities of the firm, and they, without the consent or knowledge of Smith and Owen, took from Place a note for the amount of the firm indebtedness to them, payable at one day with ten per centum interest. They did not agree to receive this note in payment of the partnership indebtedness, but they kept it and continued their dealings with Place, who made payments upon it. The payments, however, did not keep down the interest. Place, in 1872, became insolvent and made an assignment, and Smith was then called upon to make payment of the note. This was the first notice he had that he was looked to for payment. On his declining to make payment, suit was brought on the original indebtedness and judgment recovered.

The position taken by the plaintiffs below was, that as they had never received payment of their bill for merchandise they were entitled to recover it of those who made the debt, the giving of the note which still remained unpaid being immaterial. On behalf of Smith it was contended that, by the arrangement between Place and his co-partners, the latter, as between the three, became the principal debtor, and that from the time when the creditors were informed of this arrangement they were bound to regard Place as principal debtor and Smith and Owen as sureties, and that any dealing of the creditors with the principal to the injury of the sureties would have the effect to release them from liability. And it is further contended that the taking of the note from Place, and thereby giving him time, however short, was in law presumptively injurious.

Upon this state of facts the following questions have been argued in this court:

1. Was the note given by Place in the co-partnership name for the co-partnership indebtedness, but given after the dissolution, binding upon Smith and Owen?

2. If Smith and Owen were not bound by the note, were they entitled to the rights of sureties? And,

3. Did the taking of the note given by Place discharge Smith and Owen from their former liability?

On the first point it is argued in support of the judgment that when a co-partnership is dissolved the partner who is entrusted with the settlement of the concern should be held to have implied authority to give notes in settlement. On the other hand it is insisted that in law he has no such authority, and that if he assumes, as was done in this case, to give a note in the partnership name, it will in law be his individual note only.

Whatever might be the case if the obligation which was given had been a mere acknowledgment of the amount due, in the form of a due-bill or I O U, we are satisfied that there is no good reason for recognizing in the partner who is to adjust the business of the concern any implied authority to execute such a note as was given in this case. This note was something more than a mere acknowledgment of indebtedness; and it bore interest at a large rate. It was in every respect a new contract. The liability of the parties upon their indebtedness would be increased by it if valid, and their rights might be seriously compromised by the execution of paper payable at a considerable time in the future if the partner entrusted with the adjustment of their concerns were authorized to make new contracts. It was assumed in F & M. Bank v. Kercheval, 2 Mich. 504 at 506, that the law was well settled that no such implied authority existed, and we are not aware that this has before been questioned in this state.--See Pennoyer v. David, 8 Mich. 407. We think it...