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Vol. IV.)

Smith'v. Sheldon.

[No. 2.

SUPREME COURT OF MICHIGAN.

[OCTOBER, 1876.]

WHEN RETIRING PARTNERS DISCHARGED FROM LIABILITY FOR

PARTNERSHIP DEBTS.

SMITH, Impleaded, ETC., v. SHELDON et al.

The outgoing members of a firm that is dissolved, are sureties on a partnership debt for those who remain, but they are discharged if the latter, without their knowledge or consent, substitute a new debt, that increases their liability.

OPINION of the court by COOLEY, CH. J.
The legal questions in this case arise upon the following facts :-

Prior to June, 1867, Eldad Smith, Isaac Place, and Francis B. Owen were partners in trade, under the firm name of Place, Smith & Owen, and as such became indebted to defendants in error in the sum of $969, on book account.

In the month mentioned the firm was dissolved by mutual consent, Place purchasing the assets of his copartners, and agreeing to pay off the partnership liabilities, including that to the defendants in error.

On the second day of the following month Place informed the defendants in error of this arrangement, and that he had taken the assets and assumed the liabilities of the firm, and they, without the consent or knowledge of Smith and Owen, took from Place a note for the amount of the firm indebtedness to them, payable at one day, with ten per centum interest. They did not agree to receive this note in payment of the partnership indebtedness, but they kept it and continued their dealings with Place, who made payments upon it. The payments, however, did not keep down the interest. Place, in 1872, became insolvent and made an assignment, and Smith was then called upon to make payment of the note. This was the first notice he had that he was looked to for payment. On his declining to make payment, suit was brought on the original indebtedness and judgment recovered.

The position taken by the plaintiffs below was that, as they had never received payment of their bill for merchandise, they were entitled to recover it of those who made the debt: the giving of the note which still remained unpaid being immaterial. On behalf of Smith it was contended that by the arrangement between Place and his copartners, the latter, as between the three, became the principal debtor, and that from the time when the creditors were informed of this arrangement they were bound to regard Place as principal debtor and Smith and Owen as sureties, and that any dealing of the creditors with the principal to the injury of the sureties would have the effect to release them from liability; and it is further contended that the taking of the note from Place, and thereby giving him time, however short, was in law presumptively injurious.

Upon this state of facts the following questions have been argued in this court:

ameformed of thiSmith and or to the injury is further him

Vol. IV.)

Smith v. SHELDON.

[No. 2.

1. Was the note given by Place in the copartnership name for the copartnership indebtedness, but given after the dissolution, binding upon Smith and Owen ?

2. If Smith and Owen were not bound by the note, were they entitled to the rights of sureties? And

3. Did the taking of the note given by Place discharge Smith and Owen from their former liability ?

On the first point it is argued in support of the judgment that when a copartnership is dissolved the partner who is intrusted with the settlement of the concern should be held to have implied authority to give notes in settlement. On the other hand, it is insisted that in law he has no such authority, and that if he assumes, as was done in this case, to give a note in the partnership name, it will in law be his individual note only.

Whatever might be the case if the obligation which was given had been a mere acknowledgment of the amount due in the form of a due bill, or I. O. U., we are satisfied that there is no good reason for recognizing in the partner who is to adjust the business of the concern an implied authority to execute such a note as was given in this case. This note was something more than a mere acknowledgment of indebtedness, and it bore interest at a large rate. It was in every respect a new contract. The liability of the parties upon their indebtedness would be increased by it if valid, and their rights might be seriously compromised by the execution of paper payable at a considerable time in the future if the partner intrusted with the adjustment of their concerns were authorized to make new contracts. It was assumed in Farmers' f Mechanics' Bank v. Kercheval, 2 Mich. 506, 519, that the law was well settled that no such implied authority existed ; and we are not aware that this has before been questioned in this state. See Pennoyer v. David, 8 Mich. 407. We think it much safer to require express authority when such obligations are contemplated, than to leave one party at liberty to execute at discretion new contracts of this nature, which may postpone for an indefinite period the settlement of their concerns, when a settlement is the very purpose for which he is to act at all.

For a determination of the question whether Smith and Owen were entitled to the rights of sureties, it seems only necessary to point out the relative positions of the several parties as regards the partnership debt. Place by the arrangement had agreed to pay this debt, and as between himself and Smith and Owen he was legally bound to do so. But Smith and Owen were also liable to the creditors equally with Place, and the latter might look to all three together. Had they done so, and made collection from Smith and Owen, these parties would have been entitled to demand indemnity from Place. This we believe to be a correct statement of the relative rights and obligations of all.

Now a surety, as we understand it, is a person who, being liable to pay a debt or perform an obligation, is entitled, if it is enforced against him, to be indemnified by some other person, who ought himself to have made payment or performed before the surety was compelled to do so. It is immaterial in what form the relation of principal and surety is established, or whether the creditor is or is not contracted with in the two capacities, as is often the case when notes are given or bonds taken. The relation

[No. 2.

Vol. IV.]

Smith v. SHELDON.

is fixed by the arrangement and equities between the debtors or obligors, and may be known to the creditor or wholly unknown. If it is unknown to him, his rights are in no manner affected by it; but if he knows that one party is surety merely, it is only just to require of him that in any subseqent action he may take regarding the debt, he shall not lose sight of the surety's equities.

That Smith and Owen were sureties for Place, and the latter was principal debtor after the dissolution of the copartnership, seems to us unquestionable. It was then the duty of Place to pay this debt, and save them from being called upon for the amount. But if the creditors, having a right to proceed against them all, should take steps for that purpose, the duty of Place to indemnify and the right of Smith and Owen to demand indemnity were clear. Every element of suretyship is here present; as much as if in contracting an original indebtedness, the contract itself has been made to show on its face that one of the obligors was surety merely. As already stated, it is immaterial how the fact is established, or whether the creditor is or is not a party to the arrangement which establishes it.

This view of the position of the parties indicates clearly the right of Smith and Owen to the ordinary rights and equities of sureties. The cases which have held that retiring partners thus situated are to be treated as sureties merely, have attempted no change in the law, but are entirely in harmony with older authorities, which have only applied the like principle to different states of facts, where the relative position of the parties as regards the debt was precisely the same. We do not regard them as working any innovation whatever. The cases we particularly refer to are Oakely v. Passeller, 4 Cl. & Fin. 207; Wilson v. Lloyd, Law R. 16 Eq. Cas. 60, and Mellard v. Thorn, 56 N. Y. 402.

And it follows as a necessary result from what has been stated, that Smith and Owen were discharged by the arrangement made by the creditors with Place. They took his note on time, with knowledge that Place had become the principal debtor, and without the consent or knowledge of the sureties. They thereby endangered the security of the sureties, and, as the event has proved, indulged Place until the security became of no value. True they gave but very short time in the first instance; but as was remarked by the Vice Chancellor in Wilson v. Lloyd, L. R. 16 Eq. Cas. 60, 71, “the length of time makes no kind of difference.” The time was the same in Fellows v. Prentiss, 3 Denio, 512, where the surety was also held discharged ; and see Okie v. Spencer, 2 Wheat. 253.

But that indulgence beyond the time fixed was contemplated when the note was given, is manifest from the fact that it was made payable with interest. In a legal point of view this would be immaterial, but it has a bearing on the equities, and it shows that the creditors received or bargained for a consideration for the very indulgence which was granted, and which ended in the insolvency of Place. When they thus bargain for an advantage which the sureties are not to share with them, it is neither right nor lawful for them to turn over to the sureties all the risks. This is the legal view of such a transaction; and in most cases it works substantial justice.

The judgment must be reversed with costs, and a new trial ordered.

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If a seller of merchandise, in order to maintain his lien for its price, refuses to permit

the purchaser to take possession or control of it, he thereby prevents an acceptance

and receipt of it by the purchaser within the statute of frauds. Upon an agreement for the sale of merchandise and payment therefor by a satisfactory

note, the purchaser examined the merchandise, had it weighed, marked with his initials, and piled up by itself in the seller's warehouse, to be taken away upon payment for it or giving a satisfactory note for its price. The purchaser never complied with these terms, and the seller refused to allow him to take the merchandise away, elaiming a lien upon it for its price. After remaining for several months it was destroyed in the warehouse by fire. Held, that there was no such delivery of the merchandise as to constitute the seller a bailee for the purchaser.

MORTON, J. This is an action of contract to recover the price of a quantity of leather, exceeding fifty dollars in value, alleged to have been sold by the plaintiffs to the defendant. There was no memorandum in writing of the contract, and the purchaser did not give anything in earnest to bind the bargain or in part payment.

It appeared on the trial that the defendant on May 17, 1872, went to the plaintiffs' store and agreed to purchase the leather at the price named, to be paid for by a satisfactory note.

On the thirty-first day of the same month, he again went to the plaintiffs' store, examined the leather, had it weighed, marked with the initials of his name, and piled up by itself, to be taken away by him upon giving a satisfactory note for the price, or the payment of the price in money, but not otherwise. He never complied with the terms of the agreement. The plaintiffs refused to allow him to take the leather from their store without such compliance, claiming a lien upon it for the price due. It remained in their store till November 9, 1872, when it was burnt with the store. Upon this evidence the presiding justice of the superior court ruled that the leather had not been so accepted and received by the defendant as to take the contract out of the statute of frauds, and the plaintiff excepted to such ruling.

It should be kept in mind that the question is not whether, if a valid contract of sale upon the terms above named had been proved, the title in the property would have passed to the defendant so that it would be at his risk. In such a case, the title would pass to the purchaser unless there was some agreement to the contrary, but the vendor would have a lien for the price, and could retain possession until its payment. Haskins v. Warren, 115 Mass. 514; Morse v. Sherman, 106 Mass. 430 ; Townsend v. Hargraves, 118 Mass. 325. But the question is whether the defendant had accepted and received the goods, so as to take the case out of the statute of frauds, and thus complete and make valid the oral contract relied on. Unless there was such acceptance and receipt, there was no Vol. IV.)

PENNYWIT v. FOOTE.

[No. 3.

valid contract by virtue of which the title to the goods would pass to the defendant. To constitute this, there must be a delivery by the seller, and some unequivocal acts of ownership or control of the goods on the part of the purchaser. Knight v. Mann, 118 Mass. 143, and cases cited.

In the case at bar, there was no actual acceptance and receipt of the goods by the defendant. They were never in his possession or control, but remained in the possession and control of the plaintiffs, who refused to allow him to take them, claiming a lien for the price. If they had and asserted a lien as vendors, this is inconsistent with the delivery of possession and control, necessary to constitute an acceptance and receipt by the vendee. In Baldey v. Turner, 2 B. & C. 37, 44, Holroyd, J., says: "Upon a sale of specific goods for a specific price, by parting with the possession the seller parts with his lien. The statute contemplates such a parting with the possession, and therefore, as long as the seller preserves his control over the goods, so as to retain his lien, he prevents the vendee from accepting and receiving them as his own within the meaning of the statute." Benjamin on Sales (Am. ed.), 151, and cases cited ; Browne on St. of Frauds, $ 317.

It is true there may be cases in which the goods remain in the possession of the vendor, and yet may have been accepted and received by the vendee. But in such cases the vendor holds possession of the goods, not by virtue of his lien as vendor, but under some new contract by which the relations of the parties are changed. Cusack v. Robinson, 1 B. & S. 298, 308; Castle v. Sworder, 6 H. & N. 828; Dodsley v. Varley, 12 A. & E. 632.

In the case at bar, the vendors refused to permit the vendee to take possession or control of the goods, but claimed and asserted their lien as vendors for the price. We are therefore of opinion that the ruling of the superior court was correct.

Exceptions overruled. T. H. Sweetser f B. F. Hayes, for the plaintiffs. S. A. B. Abbott, for the defendant.

SUPREME COURT COMMISSION OF OHIO.

(To appear in 27 Ohio St.)

FOREIGN JUDGMENT. -- OF THE POWER OF A COURT TO INQUIRE INTO

JURISDICTION OF COURT PRONOUNCING SUCH JUDGMENT. — JUDGMENT OF COURT OF ONE OF CONFEDERATE STATES MADE DURING STATE OF WAR. — ATTORNEY AND CLIENT, ETC.

PENNYWIT v. FOOTE.

1. Neither the constitutional provision, that full faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state, nor the act of Congress passed in pursuance thereof, prevents an inquiry into the jurisdiction of the court by which a judgment offered in evidence was rendered. VOL. IV.

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