McSherry v. Brooks

Alvey, J., delivered the opinion of the Court. This action was brought by the assignees in bankruptcy of Kirkland, Chase & Co., indorsees of five promissory notes, against the defendant, the maker. The notes all hear date the 1st of January, 1870, though the proof is that they were made on the 10th of January, 1870. Each of the notes is for the sum of $5,652.89, making in the aggregate the sum of $28,264.46.

All these notes were drawn in the ordinary form, and made payable to the order of W. D. Shurtz, one day after date. The declaration contains six counts ; five upon the several promissory notes, and the sixth upon an account stated. To this declaration the defendant pleaded, and issues were joined. The facts of the case are few and do not appear to be disputed.

The defendant and W. D. Shurtz, prior to the 10th of January, 1870, had been engaged as partners in the grocery business, under the name of W. A. McSherry & Co.; and on the 10th of January, 1870, the partnership was dissolved, under an agreement between the partners as to the mode of settlement. At that date an account ¹¹⁴ was stated, and a large deficit was found to exist; and Shurtz undertook the settlement of all partnership liabilities, and the defendant, in consideration of such undertaking, agreed to give Shurtz his note for $28,264.46, dated the 1st of January, 1870, payable one day after date. This was the amount ascertained at the time that the defendant would have to contribute to make up the deficiency in the assets of the firm, upon the assumption that of all the debts due the firm many of them were either bad or doubtful. The record contains the account of the condition of the partnership at this date, in the handwriting of the defendant himself; and in the schedule of debts those supposed to be bad or doubtful were distinguished from the good.

The agreement entered into at the time of dissolution is as follows: “In view of W. D. Shurtz settling the accounts of W. A. McSherry & Co., W. A. McSherry has given his note, dated January 1st, 1870, one day after date, for $28,264.46, with interest, with the understanding that if any accounts or parts of accounts now taken as bad and doubtful, should hereafter be collected, he, the said W. A. McSherry, is to be credited on the said note with his proportion of the amount, which is one-third. Also, if any debts due to W. A. McSherry & Co., that are now taken as good, should prove to be bad, he, the said W. A. McSherry, is to be charged with his proportion, which is one-third the amount, on said note.” This agreement is under the hands and seals of the parties, and was produced from the possession of the defendant. It was proved, indeed conceded, that instead of one note as contemplated by the agreement, the five notes sued on were substituted. These notes were held by Shurtz for several months, and he then indorsed them to Kirkland, Chase & Co., without recourse, in part payment of a prior indebtedness of $188,000.

After the notes came into the hands of the assignees of the latter firm, the defendant ¹¹⁵ was approached upon the subject of the notes, and notified that, unless something was done, suit would he brought thereon, and thereupon the defendant signed the following indorsement upon each of the notes: “Paid, Dec. 16, 1872, $5 on acc. of this note, to revive the same.” Suit was not brought on the notes until May 5th, 1875. At the trial in the Court below the plaintiffs offered one prayer, and the defendant twelve. The one prayer of the plaintiffs was granted, and all those on the part of the defendant were rejected. The defendant excepted as well to the granting of the plaintiffs’ prayer as to the refusal to grant those offered by himself.

By the prayers thus ruled upon by the Court below, several questions were raised for decision ; and without stating the propositions involved in each prayer separately, we shall state such principles as we think control the case, and then dispose of the prayers as they may or may not accord with those principles. 1. The first proposition contended for on the part of the defendant is, that inasmuch as the notes were overdue, at the time of their transfer to Kirkland, Chase & Co., and were therefore subject to the equities as between the original parties, no action at law can be maintained on them, until a further account has been taken between the partners, under the agreement made at the time of dissolution, and under which the notes were given. That the account stated at the time of the dissolution, and which is set forth in the record, was not a final account, and that the notes sued on, though in the form of ordinary negotiable promissory notes, were made only provisionally and intended to abide the final settlement of the partnership affairs ; and consequently, until there has been a final account and the affairs of the partnership all adjusted, no action at law can be maintained on the notes, either by the payee himself, or his indorser, taking the notes overdue. ¹¹⁶ The general rule is too well established to admit of any question, that actions at law cannot be maintained by one partner against another, involving the state of the partnership accounts. This general rule is founded upon certain' well defined reasons ;■ to be found stated in- the authorities.

But it is- equally well established, that one partner.may sue another at law on a promise to pay a balance which has been ascertained and agreed upon. ■ In reference to: such balance the reasons- for the inability of the partner to maintain an action at law against a co-partner no longer.exist. If, says Mr. Parsons, the settlement has closed their concerns, or has followed-the dissolution of. the. partnership, they are no longer partners at all, and if the partnership - goes on, they are not partners as to this, balance, because it has -been taken out of. the current, accounts, separated from the partnership, and appropriated to the -partner-to whom it is due. Pars, on Part., (2nd. Ed.,) 290 ; Brierly vs. Cripps, 7 C. & P., 709 ; Wray vs. Milestone, 5 M. & W., 21.

And if an action at law may be maintained for such balance, a fortiori may an action at; law be maintained on-negotiable promissory .notes given by one partner to. another for the amount of the balance' ascertained upon the dissolution. And it would seem, both upon reason and authority, that it would not be competent for the defendant to defeat such action by showing that there had been no final settlement of partnership, accounts. Pars, on Part., (2nd Ed.,) 285 ; Preston vs. Struttun, 1 Anst., 50; Rockwell vs. Wilder, 4 Metc., 562 . In the last case cited, the facts were quite analogous to those of the present case, and it was there held that the note was for a good and sufficient consideration, and that payment thereof could be enforced .by an action, at law, although there had been no balance actually struck between the partners. ■ . ' In this .case, .there was in fact an ■ adjustment of the partnership affairs as between partners; but it was made ¹¹⁷ by agreement subject to the future possibility of a change in the amount of the assets that might be realized from the debts due the firm.

If any collections could be made on account of debts supposed at the time to be bad or doubtful, then the defendant was to be entitled to a proportionate abatement from the amount of the notes; while, on the other hand, if, by the exercise of due diligence, less could be realized than was supposed to be good, the defendant was to be charged with a proportionate amount of such loss. The debts due the firm were all scheduled; and it required no re-statement of partnership accounts in order to ascertain what particular debtors had paid, or those who had not. If there had been payments on account of bad or doubtful debts, that was a matter of fact of easy ascertainment, and the jury were quite competent to pass upon the question as to the credits to which the notes were subject in respect to such payments, if any had been made. The onus of proof, as to such payments, was upon the defendant; National Bank of Washington vs. Texas, 20 Wall., 72 ; and upon the proof that was offered in respect to collections made on account of the bad and .doubtful debts, the jury were instructed in a manner as .favorable to the defendant as he could possibly ask.

By the instruction granted at the instance of the plaintiffs, the defendant was given the full benefit of all rights secured to him by the agreement of dissolution, and under which the notes were given to Shurtz. And from what we have said, it follows that the position assumed by the defendant, as to the necessity for taking further partnership accounts, as a condition upon which an action can be maintained upon the notes, cannot be sustained. 2. The next question raised by the prayers offered on the part of the defendant is, whether it was competent to the defendant to show by parol that, at the time of the making and delivery of the notes, it was agreed and understood between the parties that the payee would retain ¹¹⁸ the notes in his own possession, and not negotiate or transfer them to any third person, and thus defeat the right to recover hy the present plaintiff? The law is perfectly well settled that a promissory note, negotiable in form, is negotiable as well after as before it becomes due; Annan vs. Houck, 4 Gill, 325 ; Renwick vs. Williams, 2 Md., 356 ; National Bank of Washington vs. Texas, 20 Wall., 72 ; and in this case, notwithstanding the notes were overdue from the time they were made, yet they were made in a