Int'l Trust Co. v. Myers

• Decision Date: 16 April 1925
• Citation: 252 Mass. 94
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: INTERNATIONAL TRUST COMPANY v. SAMUEL A. MYERS & others.

252 Mass. 94

INTERNATIONAL TRUST COMPANY v. SAMUEL A. MYERS & others.

Supreme Judicial Court of Massachusetts, Suffolk.

April 16, 1925

January 19, 1925.

Present: RUGG, C.

J., BRALEY, CROSBY CARROLL, & WAIT, JJ.

Bankruptcy Composition, Partnership.

A partner indorsing a note of the partnership individually is a party different from the partnership and thereby may incur a double liability arising from the two contracts, one by the partnership as maker and one by himself as indorser.

An involuntary petition in bankruptcy was filed by partnership creditors against two partners doing business under a firm name. The partnership filed schedules of partnership assets and partnership debts, which included a claim on certain partnership notes which were signed by the firm name, were payable to the firm, and were indorsed by the firm name and also by the individual partners. Each partner, in the schedules relating to individual assets and liabilities, made affidavit "that he has no individual debts and no individual assets except household furniture and wearing apparel to the value of $300 claimed to be exempt under Revised Laws of Massachusetts, Chapter 177, Section 24." There was no adjudication in bankruptcy. An offer in composition was filed and was confirmed by the court. No notice was given to individual creditors and they were not given an opportunity to be heard. Subsequently, the holder in due course of the notes sought by a bill in equity to establish the liability of one of the partners as an indorser and to reach and apply his interest in the partnership. Held that

(1) The facts, that the offer of compromise was signed by the partners individually and that the confirmation by the court recited that it was in "the matter of." followed by the individual names of the partners, did not affect the partners' individual liability for their individual debts;

(2) The composition partook of the nature of a contract; (3) The plaintiff, not having been recognized as an individual creditor in the bankruptcy proceedings, was a stranger to the offer in composition and his debt was not discharged as to the liability of the individual partner as indorser;

(4) The plaintiff was entitled to maintain his bill.

BILL IN EQUITY, filed in the Superior Court on September 26, 1917, to establish the liability of the defendant Harry Myers upon ten promissory notes, each for $2,000, signed by "S.A. & H. Myers," payable to the partnership, and indorsed "S.A. & H. Myers," "S.A. Myers" and "Harry Myers," to reach and apply to the payment of such obligations the interest of Harry Myers in the business of himself and Samuel A. Myers carried on under the name and style S.A. & H. Myers.

In the Superior Court, the suit was heard by Morton, J., a commissioner having been appointed under Equity Rule 35 to take the evidence. Material evidence is described in the opinion. The trial judge ruled as follows: "The defendants' claim is that the confirmation of the composition offer and the acceptance by the plaintiff of the dividend thereunder discharged the individual obligations of the defendants as indorsers. The question involved is a federal question, to be determined by federal law. In Francis v. McNeal, 228 U.S. 695, Mr. Justice Holmes, at page 701 states, `that it would be an incongruity to grant a discharge from the debt considered as joint but to leave the same persons liable for it considered as several,' and holds in substance that if a partnership is in bankruptcy partners as individuals are also bankrupt. This decision in my opinion controls this case, unless as claimed the statement of the partners that they had no individual indebtedness estopped them from setting up such a claim. This statement does not in my opinion warrant the inference that the partners intended to have the bankruptcy proceedings only against the partnership and I accordingly rule that such a statement does not prevent them from taking advantage of the law as laid down in the case referred to."

By order of the judge, a final decree was entered dismissing the bill. The plaintiff appealed.

J.R. Lazenby, for the plaintiff.

E.F. McClennen, (W.W. Johnson with him,) for the defendants.

CARROLL, J. This is an appeal from a final decree dismissing the plaintiff's bill to reach and apply the interest of Harry Myers in the partnership of S.A. & H. Myers to the payment of indebtedness arising out of his individual indorsement of a series of promissory notes. The defendants carried on business under the name of S.A. & H. Myers. The partnership gave ten notes for $2,000 each, for money borrowed from the plaintiff; ten of the notes were indorsed by Samuel A. Myers and nine by Harry Myers.

On January 27 1917, an involuntary petition in bankruptcy was filed in the District Court of the United States for the District of Massachusetts. The petition alleged that "Samuel A. Myers & Harry Myers both of Brookline in the County of Norfolk, co-partners trading as S.A. & H. Myers, have for the greater portion of six months next preceding the date of filing this petition, had his principal place of business at Boston . . . and owes debts to the amount of $1000"; "that said Samuel A & Harry Myers are insolvent," and had committed an act of bankruptcy. The prayer of the petition was: "Wherefore your petitioners pray that service of this petition, with a subpoena, may be made upon Samuel A & H. Myers, as provided . . . and that he may be adjudged by the court to be a bankrupt within the purview of said acts."

Schedules were sworn to and filed on February 10, 1917. The set filed is designated "Partnership Schedules." The schedule sets out that "Samuel A. Myers of Boston and Harry Myers of Brookline respectfully represent: -- That they, [are in the] Clothing business . . . have been partners under the firm name of S.A. & H. Myers having their principal place of business at Boston . . . for the greater portion of the six months next immediately preceding the filing of this petition; that the said partners owe debts which they are unable to pay in full." They alleged that Schedule A contained "a full and true statement of all the debts of said partners"; that Schedule B contained "an accurate inventory of all the property . . . of said partners." The paragraph relating to Schedules "C" "D" "E" "F," in which were to be set out the individual debts and assets, were stricken out, and each individual substituted the statement "that he has no individual debts and no individual assets except household furniture and wearing apparel to the value of $300. claimed to be exempt under Revised Laws of Massachusetts Chapter 177, Section 24." In Schedule "A" of the firm debts, the International Trust Company appears as a creditor for $20,000. But the trust company does not appear in any schedule as a creditor on account of the indorsements of each of the individuals.

On February 10, 1917, there was filed a petition for a meeting of creditors to consider an offer in composition of forty per cent upon all unsecured debts. This petition was "In the matter of Samuel A. Myers and Harry Myers" and was signed Samuel A. Myers and Harry Myers. On March 3, 1917, an offer in composition was filed, "In the matter of Samuel A. & Harry Myers." The offer was addressed to the court and "Respectfully represents Samuel A. Myers, of Boston in the County of Suffolk in said District, and Harry Myers, of Brookline in the County of Norfolk, and district aforesaid." This offer alleged among other things "that they have filed in Court a schedule of their property and a list of creditors to be filed by bankrupts; and that they now offer the following terms of composition before adjudication to creditors." On March 23, 1917, they applied for confirmation of the composition and alleged that they "had filed in court a schedule of their property and a list of their creditors, as required by law, they offered terms of composition to their creditors." On May 28, 1917, the composition was confirmed.

There was no adjudication of bankruptcy; the plaintiff proved the notes against the partnership for $20,000 and received the payment in composition. No payments were received on account of the individual indorsements on the notes. The indorsements on the notes by Samuel A. Myers and Harry Myers, created individual obligations, separate and distinct from the...