Dean & Co. v. Collins

• Decision Date: 05 June 1906
• Citation: 15 N.D. 535,108 N.W. 242
• Court: North Dakota Supreme Court
• Parties: DEAN & CO. v. COLLINS.

15 N.D. 535

108 N.W. 242

DEAN & CO.

v.COLLINS.

Supreme Court of North Dakota.

June 5, 1906.

Syllabus by the Court.

An agreement upon the dissolution of a partnership, by which the retiring partner transfers his interest in the partnership property to the remaining partner, and the latter agrees to pay the partnership debts, creates as between them the relation of surety and principal, but does not create that relation as to a creditor who has not assented to it, even though he had notice of it. As to him their obligation as joint debtors continues.

Appeal from District Court, Towner County; J. F. Cowan, Judge.

Action by Dean & Co. against D. B. Collins. Judgment for plaintiff. Defendant appeals. Affirmed.Brooke & Kehoe and Burke & Middaugh, for appellant. Davis & Sennett, Turner & Wright, and T. J. Van Fossen, for respondent.

YOUNG, J.

This action was brought to recover a balance of $1,914.72 upon two promissory notes, executed by the defendants in 1901 and due, respectively, on November 1st and November 15th of that year. When the notes were given, and for two years prior thereto, the defendant, D. B. Collins, and J. A. Mahood, were engaged in the farm machinery business as a copartnership under the firm name of Collins & Mahood. The notes were given by the copartnership for goods purchased from the plaintiff. Mahood did not answer. Collins attempted to avoid personal liability by alleging and offering to prove certain facts which his counsel contend show that Mahood is the principal debtor, and that he (Collins) is a mere surety, and that he has been discharged from liability by reason of the plaintiff's failure to sue Mahood. The existence of the copartnership is admitted, and also the execution of the notes. He alleges that in December, 1901, the partnership was dissolved; that all of its property was transferred to Mahood; that as a part of the agreement for dissolution Mahood agreed to pay the firm debts including the notes in suit; that all firm creditors, including the plaintiff, were duly notified of the dissolution and the terms upon which it was made; that on several occasions this defendant notified the plaintiff to proceed against Mahood; that Mahood was solvent when the partnership was dissolved, but has since become insolvent. The trial court rejected the testimony offered to sustain the above defense and directed a verdict for the amount due upon the notes. Defendant has appealed from the judgment entered upon the verdict.

The first question raised by the assignments of error (and it is the only one we need consider) is whether the allegations of the answer and the offers of proof constitute a defense. Counsel for defendant contend that they do. They contend that “where a partnership is dissolved, and one partner purchases the interest of the other in the partnership property, and assumes and agrees to pay the partnership debts, he becomes in equity the principal debtor as to such debts, and the other his surety, and a creditor having notice of such agreement is bound by such relationship; and (2) that where a creditor with such notice is requested by the surety to collect his claim from the partner who has assumed the debts, and he neglects or refuses to do so, the surety is discharged, provided the principal was at the time solvent.” We shall have occasion to refer only to the first of the above propositions. That the relation of principal and surety is created as between the remaining and the retiring partner upon the facts stated is well settled. As between themselves the partner assuming the debts becomes the principal, and the retiring partner the surety. Pingrey's Surety-ship and Guaranty, § 20; Moore v. Topliff, 107 Ill. 241;Wendlandt v. Sohre, 37 Minn. 162, 33 N. W. 700. As to this there is no dispute. The question in controversy (and upon this there is a conflict of judicial opinion) is whether a creditor who is not a party to the agreement between the partners creating this new relation between them, and does not assent to it, but merely has notice of it, is bound by it, and must after such notice treat the retiring partner, not as a joint debtor, but as a surety. We have no hesitation in holding that under such circumstances the partners continue to be bound as joint debtors to the creditor, pursuant to their original obligation. In our view there is no reasonable ground for a difference of opinion upon this. The obligation of the partners to their creditor was created by contract. They were joint obligors. By the contract they subjected themselves to all of the obligations of that...