Buchanan v. Mechanics' Loan & Savings Institute

• Decision Date: 03 December 1896
• Citation: Buchanan v. Mechanics' Loan & Savings Institute, 35 A. 1099, 84 Md. 430 (Md. 1896)
• Parties: BUCHANAN v. MECHANICS' LOAN & SAVINGS INSTITUTE ET AL.
• Court: Maryland Supreme Court

35 A. 1099

84 Md. 430

BUCHANAN v. MECHANICS' LOAN & SAVINGS INSTITUTE ET AL.

Court of Appeals of Maryland

December 3, 1896

Appeal from circuit court, Washington county, in equity.

Suit by William E. Stockslayer against Jacob C. Dayhoff and another for the dissolution of a partnership. From an order sustaining exceptions by the Mechanics' Loan & Savings Institute and others to the report of the master in regard to the distribution to H. L. Buchanan, Buchanan appeals. Reversed.

Argued before McSHERRY, C.J., and BRYAN, ROBERTS, BOYD, and FOWLER JJ.

Buchanan Schley, for appellant.

Norman B. Scott, Jr., and J. A. Mason, for appellees.

FOWLER J.

The appellant was a creditor of John C. Yessler, who was a member of the firm of J. C. Dayhoff & Co. Yessler held the promissory note of his firm for the sum of $2,000, payable to his own order one year after date. In the early part of March, 1894, Yessler indorsed this note before maturity to the appellant as collateral security for the payment of an indebtedness of $815, $500 of which was evidenced by a note of said Yessler for that amount, and the remainder consisted of an open account of $315 for cash loaned at various times. Subsequent to the indorsement of the firm's note of $2,000 by Yessler to the appellant, the firm became insolvent, and receivers were appointed by the circuit court of Washington county to wind up its business. During the progress of the distribution of the firm's assets the auditor of that court filed account designated "No 1," in which the sum of $5,911.36 was distributed among the general creditors, among whom the appellant was numbered the auditor having allowed him $719.83 on account of the $2,000 note as part payment of the indebtedness of $815. To this allowance the general creditors of the firm excepted. Their exceptions were sustained by the court below, and hence this appeal.

The exceptions were based upon a variety of grounds, as appears by the record, but the only ones relied upon here, and which we think necessary to consider, are: First, that, inasmuch as Yessler, the appellant's indorser, was a member of the firm, and would not, therefore, be entitled himself to share the distribution of the partnership assets until the payment in full of all the partnership debts, his indorsee stands in no better position; second, that the transfer of the $2,000 note was fraudulent; and, third, that said note, having been passed to the appellant as collateral security for the payment of a pre-existing debt, was not, therefore, indorsed to him in the ordinary course of business, and that, consequently, he was not a bona fide holder for value without notice, within the meaning of the settled rules regulating the transfer of commercial paper.

The first exception appears to be founded on the general rule about which, of course, there can be now no difference of opinion, that a partner cannot share in the partnership assets until all the firm creditors have been paid in full. Whether this rule can properly have any application to this case depends altogether upon the legal effect of the indorsement by Yessler to the appellant. If that indorsement is to have its ordinary legal effect given to it by the well-settled rules applicable to the indorsement of commercial paper, the fact that the firm or its creditors had a good defense against the note in question while in the hands of Yessler would not avail them as against the appellant; but if, on the other hand, such indorsement is to be considered merely as an assignment, or if the note itself can be held as constituting notice to the indorsee of existing equities, then the appellant would stand in the shoes of Yessler, and would not be entitled, as against the creditors of the firm, to share in the distribution of its assets. What, then, is the legal significance of the indorsement? This question is answered by Mr. Bates in his work on Partnership (section 884), where he says that, while a partner cannot sue, yet the note in his hands is not void; but the difficulty is one attending the remedy, rather than the right, and vanishes on indorsement to a third person for value. The transfer, however, he says, must be bona fide, and not colorable only. In support of this view he cites many authorities, some of which relate to transactions like the one before us, where the rights of an indorsee of a member of the firm's paper are directly involved, and some of them involve only generally the rights of...