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 negotiable form, and therefore negotiable at the time they were transferred to Kirkland, Chase & Co. It must he supposed that there was some purpose or design in making the notes in the form that they hear ; and to allow the maker hy parol to contradict and change the legal import of the notes, would seem to he contrary to all principle and authority. Kirkland, Chase & Co. having taken the notes overdue, it would have been competent to the defendant to avail himself of any equities that attached to the notes themselves, or to show a want of consideration, or that they had been transferred to the plaintiffs in trust for the maker ; hut certainly not to destroy their legal import and operation hy the introduction of parol evidence that the notes were not to he negotiated, notwithstanding the negotiable terms employed on their face, or that they were not to be sued on until it should, he ascertained whether certain debts could he realized or not, notwithstanding they were made payable one day after date. This would he to contradict and limit the written contract hy mere parol; and the question is, can this he done? “What is to become of bills of exchange and promissory notes,” asked Lord Ellenborough, in Hare vs. Graham, 3 Campb., 57, “if they may he cut down hy a secret agreement, that they shall ■not be put in suit. ” “ If I issue a promissory note payable at two months,” says Pakk, J., in Free vs. Haiuicins, 8 Taunt., 92, “and enter into a parol agreement, that the *119 note shall not he put in suit, till the end of five years, or until the uncertain period of the sale of an estate, can it he contended that such a parol agreement does not contradict and limit the written contract, into which I have entered.” And he and the other Judges all declared that the note in that case could not he so contradicted and restrained in its legal operation. There the plaintiffs, London hankers, were correspondents of Sir Robert Salisbury & Co., who were country hankers, considerably indebted to the plaintiff's, and ten persons agreed to put their names on the hack of a promissory note for a certain amount, payable at one year, to be made by Sir R. Salisbury in their favor, and to be indorsed by each of them to the plaintiff's, as a security for the debt of the country bank. This was accordingly done; and Dallas, J., in delivering the leading opinion in the case, said : “It is then said, that at the time when this note was made and indorsed, it was mutually understood, that payment should not he enforced until Sir Robert Salisbury’s effects were brought to sale, and that the plaintiffs entered into this contract with the defendant, with a full knowledge of all these circumstances. One thing is to he observed; if such were meant to be the understanding, it ought to have been expressed on the instrument; but it is not expressed; and, taking the instrument as it stands, it is a common promissory note, and requires that notice of dishonor should be given to the defendant in order to give the plaintiffs a right to recover against him. But, it is said, notice was dispensed with by the understanding which existed between the parties ; to which the answer is, that if parties mean to vary the legal operation of an instrument, they ought to express such variance; if they do not express it the legal operation of the instrument remains. The effect of the evidence tendered would be to vary the note in question, and to control its legal operation ; and such evidence, I think, is inadmissible.” And to the *120 same effect are the cases of Moseley vs. Hanford, 10 B. & Cr., 729 ; Foster vs. Jolly, 1 Cr. M. & R., 703; Bank of U. S. vs. Dunn, 6 Pet., 51 . It is clear, therefore, that the terms of the notes could not he contradicted and controlled by the parol agreement or understanding as proposed by the defendant.

But if the principle were otherwise, and the defendant could, in the absence of any ex post facto occurrence to prevent, be allowed to defeat the legal operation of the notes by the proof of such a parol agreement as that offered in this case, he has effectually precluded himself from the resort to such defence, by the indorseménts upon the notes of the 16th of December, 1872. These indorsements were intended to keep in operation the notes, then .in the hands of the plaintiffs ; and if the defendant had intended to rely upon any such defence as that afterwards setup by him, good faith required that he should have made it known, instead of the indorsements placed upon the notes by him. He obtained indulgence by the acknowledgment, and it is but a fair construction of the indorsements, that they were intended as renewals of the promises expressed on the face of the notes, in consideration of the indulgence extended. After obtaining the benefit of the indulgence, good faith utterly forbids that he should attempt to defeat the plaintiffs’ recovery on the notes, by showing that they were not properly in the hands of the plaintiffs, and were not liable to be put in suit-. Such a defence is wholly inconsistent with the indorsements on the notes, and hence could not be allowed.

As the result of the foregoing considerations, it follows that the first, second, third, fourth, fifth, seventh, eighth, ninth, tenth and twelfth prayers of the defendant were properly rejected by the Court below; those prayers all being founded on theories at variance with the views and principles, herein expressed.

3 There is another question to be determined, raised ’ on the instruction granted at the instance of the plaintiffs, *121 and that is, whether it should have been submitted to the jury to find, as matters of fact, that Shurtz had fully paid all the partnership debts, as a condition upon which the the plaintiffs could recover on the notes? It does not appear that there are creditors still unpaid, and Shurtz himself proved that he had paid all the debts; but the defendant not only insists that the jury should have been required to find the fact of such payment, but, according to his sixth prayer, insists that it was necessary for the plaintiffs to produce releases in full from the creditors to the firm, as the proper evidence of such payment.

Apart from all questions as to the mode of proof, we think there was no condition precedent to the right of recovery on the notes, in respect to the payment of the partnership debts. The notes, as we have seen, are negotiable, and were made payable one day after date. The obligation assumed by Shurtz to pay all the partnership debts necessarily contemplated some reasonable time within which it could be done; as we may suppose his ability to pay the debts depended to some extent upon his collection of the assets due the firm. In such state of case, the rule of law is clear and decisive ; and nowhere is it better or more succinctly stated tban in 2 Parsons on Contracts, 189, 190, where it is said, “ If money is to be paid on a day certain, in consideration of a thing to be performed at an-earlier day, the performance of this thing is a condition precedent to the payment; and if the money is to be paid in instalments, some before a thing is to be done, and some when it is done, the doing of the thing is not a condition precedent to the former payments, hut it is to the latter. And if there is a day for the payment of the money,, and this comes before the day fixed for the doing of the thing, or before the time when the thing, from its nature, can be performed, then the payment is at all events obligatory, and an action may be brought for it independently of the act to be done. ’ ’ And the same principles are fully and clearly stated by Mr. Sergeant Williams, iu a *122 note to the case of Pordage vs. Cole, 1 Wms. Saund., 819, where the cases are extensively collected and reviewed, and the conclusions there deduced are fully sanctioned by this Court in the case of Watchman & Bratt vs. Crook, 5 G. & J., 259, 260; see also case of Goldsborough vs. Orr, 8 Wheat., 217 .

(Decided 1st March, 1877.)

It therefore cannot he objected to the instruction given by the Court, that the jury were not required to find that the partnership debts had been paid; and it follows that there was no error committed in refusing to grant the sixth prayer of the defendant, which required the Court to say that it was incumbent upon the plaintiffs to produce releases of all partnership debts assumed to he paid by Shurtz, as a condition upon which recovery could he had upon the notes.

4. The remaining question is that made by the eleventh prayer of the defendant; hut as the judgment in this case was not entered by default, under the Act of 1864, ch. 6, the question is quite immaterial. Where the defendant has appeared and pleaded, and the cause has been brought to trial in regular course, the affidavit filed with the declaration, to entitle the plaintiff to a judgment by default, as authorized by the Act, in no manner controls the nature and character of the proof that may he offered by the plaintiff in support of his action. But in this case, if there was really any question of the plaintiffs’ right to recover on the promissory notes as declared on in the first five counts of the declaration, there could he none whatever of their right to recover on the notes, with the defendant’s indorsements thereon, under the count on an account stated. Leader vs. Tatton, 16 East, 423 ; Peacock vs. Harris, 10 East, 104; Oliver vs. Dovatt, 2 Mood & Rob., 230 ; Fesenmayer vs. Adcock, 16 M. & W., 449.

Binding no error in the rulings of the Court below, we affirm the judgment.

Judgment affirm'ed.