"Some
months prior to such sale of assets and suspension of
business by said firm, it had become indebted to said bank to
a considerable amount, on account of overdrafts on its
deposit account. In order to repay this overdraft, Harman
testifies he paid to said bank, individually, the sum of $
500. The other partner, Duke, in order to raise his
proportional part, borrowed from said Mechanics' Savings
Bank the sum of $ 500, and gave therefor his note, with one
Mrs. M. E. Duke as his surety thereon. In the attempt to
indemnify said Mrs. M. E. Duke against loss on said note, the
partner, Duke, executed to her a deed of trust, conveying
for her security, his undivided interest in the fixtures and
stock of merchandise of Duke & Harman. This instrument was
duly recorded. On the day following the sale by Duke & Harman
of its goods and fixtures, said Mrs. Duke employed J. G
McGowen, Esq., as her attorney, to protect her interests. The
partner, Duke, thereupon gave to said attorney a check for $
450, signed in the firm's name, drawn on the $ 900
deposit at the Mechanics' Savings Bank, and this check
the said attorney carried to said bank, and delivered it to
same, with instructions to apply same as a credit on the
individual note of the partner, Duke, for $ 500, and on which
said Mrs. M. E. Duke was surety. This was accordingly done by
the bank. As to these recited facts there is no particular
difference between the parties, except that the bank contends
that at the time of the overdrafts the firm owed said bank
only about $ 680, and that the whole of the $ 1,000 raised by
the partners was not used to liquidate a balance due the bank
larger than the amount named.
"The
bill is to subject the said sum of $ 450 paid by the partner
Duke, through Mrs. M. E. Duke, on his individual note, to the
demands of firm creditors.
"From
the time of Stegall v. Coney, 49 Miss. 761, down to
Bank v. Durfey, 72 Miss. 971 (S.C. 18 So. 456; 31 L
R. A., 470), it is asserted that, in the settlement of the
affairs of an insolvent partnership, firm assets should be
given to firm creditors, and individual assets to individual
creditors. In Schmidlapp v. Currie, 55 Miss. 597,
and Bank v. Klein, 64 Miss. 141 (S.C. 8 So. 208), it
was practically announced that the principle was only a rule
of administration of assets when made in the courts, and that
its operation could be avoided by the acts of the partners.
But in the Durfey case the court restored the principle to
its pristine virtue, and, indeed, extended its force and
operation, by virtually declaring an inhibitition against the
change in the operation of the rule by the acts of insolvent
partnerships to the injury of firm creditors. This sound and
equitable principle, which the chancellor conceives is
clearly and unequivocally enunciated by our supreme court in
Bank v. Durfey, will be enforced in all its completeness by
this court until the supreme court shall see fit to modify
its utterances.
"It
is urged by counsel for defendant, however, that, even if the
rule be conceded, the facts of the case do not warrant its
application here. It is contended, first, that Mrs. M. E.
Duke had a right to the check representing one-half the
proceeds of the sale, because of the trust deed executed to
her by Duke. It will suffice to say that the instrument
conveyed no greater interest in the assets of the firm than
the partner, Duke, possessed, subject to a settlement of its
affairs with creditors and with the partner, Harman. The deed
of trust was merely a contract of indemnity executed by an
individual partner, and bound only his individual interest.
He would have had no individual interest unless, after
settlement, there should have been a surplus over the just
demands of the partner, Harman, and of creditors of the firm.
Under the circumstances, where the insolvency of the firm at
the time is admitted, when the check for $ 450 was given, in
the firm name, by the partner, Duke, to the attorney of Mrs.
Duke, his surety, to be given to the bank in part
satisfaction of the bank's demand against Duke, the
transaction is, to all intents and purposes, the same as if
the partner, Duke, had himself drawn the check to the bank
and directed it upon his individual debt.
"It
is further contended that the bank is not liable to account,
because the check which it accepted and credited on its
demand against Duke, and drawn by one authorized to draw it,
was drawn on a proper fund, and was accepted and paid by the
bank in good faith and in due course of business. If the
evidence sustained this broad statement, the bank would not
be liable. Had the check been drawn by Duke, payable to a
stranger, in a matter with which the bank was unconnected,
and in which it had no interest, then it would be protected.
But the chancellor cannot escape the conviction, arising out
of the evidence, that the bank and its agents had knowledge
of, and were familiar with, all the circumstances of the
transaction from inception to conclusion. It knew the affairs
and the financial condition of the firm; it knew that the
firm had been in financial distress, and had sometimes before
been forced outside of partnership resources to pay a heavy
overdraft to the bank itself; it knew where and how the $ 500
was borrowed by Duke, and that it was used in great part, if
not wholly, to pay his part of debit balances; it knew that
the check was drawn by the partner Duke to be paid on his
individual debt, and out of partnership funds; and it
accepted the check and credited it for the bank's
advantage on the note of an insolvent principal, on which
Mrs. Duke was only surety. The bank made the loan to Duke,
and in the course of business knew that Mrs. Duke was his
surety. The chancellor cannot presume, in order to concede
the argument for the bank, that its agents were bereft of
sight, hearing, intelligence and memory. The decision in
Eyrich v. Bank, 67 Miss. 60, S.C. 6 So. 615, relied
on by counsel for the bank, is clear authority for the
conclusions announced above, and is not an authority in the
bank's favor.
"Again
it is contended that, if there was wrong by Duke and the bank
in the misapplication of the partnership assets, recovery
cannot now be had, because Harman, the remaining partner,
afterwards consented to and ratified the application in
consideration of the transfer to him by Duke of the
latter's interest in the notes and accounts of the firm.
In support of this contention, a written assignment of the
claims is offered and relied on, and proof is offered of a
prior verbal agreement to the same effect. The written
assignment evidences nothing beyond formal transfer, under
this agreement, as it is termed, and the partner Harman took
no greater right or interest than he had prior to its
execution. A partner has a general right and authority to
collect debts due to his firm, and apply the collections to
the payment of debts due from the partnership. This is his
right and duty under the law. The writing offered in evidence
expresses the purpose and the consideration of its execution.
There might be cases where such a...
