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Johnson v. Hersey.

through proceedings for the benefit of creditors that the lien is ever maintained and upheld. The lien or equity of the partners, until waived by the partners, holds the property in a condition where it can be taken by creditors. As soon as an attachment of it is made, the lien of the partners by operation of law, so to speak, becomes 'ransferred to the creditor, putting it beyond the further control of the firm.

What need of a resort to equity in such a matter as this? The legal remedy is more expeditious and efficacious, simple and satisfactory. You may go into equity, but why be compelled to, when a proper result can be "worked out" in a more direct and cheaper way? No other creditor complains, requiring a distribution of the fund. The objection is, that it is assuming equity powers in a court of law. But a good deal of equitable remedy in partnership matters has already been imported into the law. In this respect the law in this State has been advancing, as late cases will show. Hacker v. Johnson, 66 Me. 21; Parker v. Wright, id. 393. Joint creditors have the primary claim upon the joint fund, in the distribution of the assets of partners, when in bankruptcy or insolvency. 3 Kent Com. 64. So in cases of general assignments for the benefit of creditors. Wilson v. Robertson, 21 N. Y. 587; Merrill v. Wilson, 29 Me. 58; Howev. Lawrence, 9 Cush. 553.

It is rather strange that a question of such practical interest and importance as this is should not have been discussed in any reported case in this State. There is not much authority upon the question to be found elsewhere. The case of Caldwell v. Scott, 54 N. H. 414, is, however, in point, and coincides with our view. Arnold v. Brown, 24 Pick. 89, indirectly decides the question, we think, the same way. Locke v. Lewis, by implication, admits the principle. 124 Mass. 1; s. c., 26 Am. Rep. 631. Other cases are more or less to the same effect. Williams v. Brimhall, 13 Gray, 462; Tay v. Ladd, 15 id. 296; Commercial Bank v. Wilkins, 9 Me. 28; Yale v. Yale, 13 Conn. 185; Welles v. March, 30 N. Y. 344; French v. Lovejoy, 12 N. H. 458; Homer v. Wood, 11 Cush. 62. In the case last cited it was held that partners could not jointly sue to recover a debt which one of the partners had released in payment of his own individual indebtedness. The decision is upon the ground that one of the plaintiffs was equally with the defendant guilty of the fraud.

In the case at bar no such difficulty about the joinder of parVOL. XXXV-39

Johnson v. Hersey.

ties is encountered. We also avoid the question whether it makes a difference that the private creditor does not know that he is receiving partnership funds. Upon this point the authorities disagree. Locke v. Lewis, supra; Rogers v. Batchelor, supra; Ferson v. Monroe, 21 N. H. 221; Geery v. Cockroft, 33 N. Y. Sup. Ct. 146, and cases cited. Another question has been mooted, not arising here, and that is whether an action may be sustained in the name of one partner alone where the copartner and another person have jointly committed a fraud upon the partnership. It has been decided that it cannot be (Wells v. Mitchell, 1 Ired. Law, 484; Miller v. Price, 20 Wis. 117), and under some circumstances, that it can. Calkins v. Smith, 48 N. Y. 614; s. c., 8 Am. Rep. 575. No other points raised can change the result.

Trustees charged for $500.

APPLETON, C. J., Walton, Barrows, Danforth and LIBBEY, JJ., concurred.

NOTE BY THE REPORTER, To same effect, Phelps v. McMeely, 66 Mo. 554; s. c., 27 Am. Rep. 378; Cotzhausen v. Judd, 43 Wis. 213; s. c., 28 Am. Rep. 539. Compare Schmidlap v. Currie, 55 Miss. 597; s. c., 30 Am. Rep. 530.

In Davis v. Howell, N. J. Ch., Oct. 1880, a firm made an assignment for the benefit of their creditors, after which each partner made an assignment for the benefit of his creditors. The firm estate was sufficient to pay only eleven per cent of the firm indebted.ness. Held, that the creditors of the firm could not resort for the deficiency to the individual estate of either partner until the individual creditors of such partner were satisfied. The court said:

"The question presented has been often discussed, and though there exists some contrariety of judicial determination upon it, must be considered as settled by the great weight of authority. The rule is laid down in the text-books that joint debts are entitled to priority of payment out of the joint estate, and separate debts out of the separate estate. Story's Eq. Jur., § 675; Snell's Prin. of Eq. 419; Story on Part., § 376; Kent's Com. 64, 65; Pars on Part. 480. And though the propriety of the rule has been often and persistently questioned on the ground that it is a violation of principle, aad devoid of equity, and was originally adopted from considerations of convenience only, and in bankruptcy cases, and not on principles of general equity, yet it is so firmly established that it must be regarded as a fixed rule of equity. its history is so well known, and has been so often stated, that it is profitless to repeat it. It was declared in 1715, in Ex parte Crowder, 2 Vern. 706; it was affirmed by Lord HARDWICKE, and though Lord THURLOW refused to follow it, it was restored by Lord LOUGHBOROUGH and followed by Lord ELDON, and it has existed ever since in the English chancery. It has an exception where there is no joint estate and no solvent partner. But where there is any joint estate the rule is to be applied. That part of the rule which gives the joint creditors a preference upon the joint estate has been repeatedly recognized in this State. Cammack v. Johnson, 1 Gr. Ch. 163; Matlack v. James, 2 Beas. 126; Mittnight v. Smith, 2 C. E. Gr. 259; Scull v. Alter, 1 Harr. 147; Curtis v. Hollingshead, 2 Gr 402; Brown v. Bissett, 1 Zabr. 46; Linford v. Linford, 4 Dutch. 113. In Scull v. Alter the Supreme Court recognized the rule in all its parts. Chief Justice HORNBLOWER, by whom the opinion of the court was delivered (the question arose under an assignment under the Assignment Act, and was the same as is presented in this case), said: But if it is an assignment not only of the partnership effects and property of the firm of Carhart and Britton, but also an individual and several assignment by them of

Johnson v. Hersey.

their respective and several estates, then it must be treated as such. The estates and debts must be marshalled; the partnership effects applied in the first instance to the partnership debts; the effects of Carhart applied in the first instance to the payment of his separate debts, and in like manner the effects of Britton to the payment of debts due from him individually.

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"In Connecticut the rule is not followed, and that part of it which gives the separate creditors a preference upon the separate estate has been repudiated. Camp v. Grant, 21 Conn. 41. It has been repudiated also in certain other States. Bardwell v. Perry, 19 Vt. 292; Emanuel v. Bird, 19 Ala. 596. But the doctrine is recognized elsewhere, and has been established after thorough discussion and careful consideration. In Wilder v. Keeler, 3 Pai. 167, Chancellor WALWORTH, after a full discussion of the subject, gives the sanction of his weighty opinion to the rule as a doctrine of equity. He says: In the case now under consideration there was at the death of G. F. Lush a large joint fund belonging to the partnership, out of which the joint creditors were entitled to a priority of payment, and out of, which several of the joint creditors who have come in under this decree have actually secured a portion of their debts. Nothing but an unbending rule of law should, under such circumstances, induce the court to permit them to come in for the residue of their debts, ratably, with the separate creditors. The amount of the fund which will remain after paying the separate creditors, being a fund which could not be reached at law by the joint creditors whose remedy survived against the surviving partner alone, must be considered in the nature of equitable assets, and must be distributed among the joint creditors, upon the principle of this court that equality is equity.' The doctrine was recognized in Morgan v. Skidmore, 55 Barb. 263. In Pennsylvania, in Bell v. Newman, 5 S. & R. 78, 91, 92, GIBSON (afterward chief justice), in a dissenting opinion, strongly supports the rule as one founded on the most substantial justice. In Black's Appeal, 44 Penn. St. 503, and again in McCormack's Appeal, 55 id. 252, the doctrine is completely recognized and affirmed. In South Carolina, in Woddrop v. Price, 3 Desauss, 203; Tunno v. Trezevant, 2 id. 264, and Hall v. Hall, 2 McCord's Ch. 269, the doctrine was held to be a doctrine of equity. In Massachusetts it is established by statute. In Murrill v. Neill, 8 How. 414, it is recognized by the Supreme Court of the United States.

"The objection that is always pressed as the conclusive argument against it is, that part. nership debts are several as well as joint, and it is urged that therefore the partnership creditor has an equal claim upon the individual estate with the separate creditor. But it is beyond dispute that in equity the former has a preferred claim upon the partnership estate To accord to him an equal claim as to the balance of his debt which the partnership assets may not be sufficient to satisfy with the individual creditor, would be to give him an advantage to which he is not equitably entitled. If he obtains a legal lien on the separate estate he will not be deprived of it. Wisham v. Lippincott, 1 Stockt. 353; Randolph v. Daly, 1 C. E. Gr. 313; National Bank v. Sprague, 5 id. 13; Howell v. Teel, 2 Stew. Eq. 490. But if he has no such lien and the assets are to be marshalled in equity, that same equitable doctrine by which the partnership assets are devoted in the first place to the payment of his debt to the exclusion of the separate creditor, and to which he is indebted for the preference, will, in like manner and for like reason, give the latter preference upon the separate property. Such was the view of Chancellor KENT. He says: 'So far as the partnership property has been acquired by means of partnership debts, those debts have in equity a priority of claim to be discharged, and the separate creditors are only entitled in equity to such payment from the surplus of the joint fund after satisfaction of the joint debts. The equity of the rule, on the other hand, equally requires that the joint creditors should only look to the surplus of the separate estates of the partners after payment of the separate debts It was a principle of the Roman law, and it has been acknowledged in the equity jurisprudence of Spain, England and the United States, that partnership debts must be paid out of the partnership estate, and private and separate debts out of the private and separate estate of the individual partner.' 3 Kent Com. 64, 65. The obvious infirmity of the objection to the rule is that it leaves out of consideration the fact that it is to equity that the joint creditor is indebted for his preference. It is also urged that instead of the rule it would be more eqitable to require the joint creditor to have recourse to the partnership property before allowing him to participate in the separate estate, on the equitable ground that he has two funds for the payment of his debt while the separate

Wright v. Andrews.

creditor has but one; but the rule as established is a rule of justice and equity. It has for its basis the presumption that joint debts have been contracted on the credit of the joint estate, and separate debts on that of the separate estate. It has the weight of great authority and long establishment, notwithstanding persistent objection and some fluctua tion, and it is based on equitable principles. Sound policy is in its favor. Though there may be, as there are in case of all such rules, instances in which it works unsatisfactorily, yet that on the whole and as a rule it has not operated unjustly is evidenced by the fact that it has existed so long (Ex parte Crowder was decided in 1715), notwithstanding opposition, and that in Massachusetts at least it has, in the face of the opposition referred to, been established by legislative authority, and that too as lately as 1838. In this State it has, as has been shown, the sanction of our judicial tribunals, and it is too firmly established to be disturbed. It is true that in Wisham v. Lippincott, 1 Stockt. 353, 356, the chancellor expressed strong doubt of its correctness as a general rule; but in the other cases before cited, both previous and subsequent, the rule has been recognized withont any expression of disapprobation or dissatisfaction."

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An indorser, fully secured by money expressly pledged and appropriated for the payment of the note, is not entitled to notice of non-payment.

A

CTION against surety on a note executed and delivered in Massachusetts. The opinion states the facts. The plaintiff had judgment below.

James Wright, pro. se.

D. D. Stewart, for defendant.

DANFORTH, J. The note in suit in this case, is evidence of a contract made in Massachusetts by parties residing there, and so far as appears to be performed there. Hence it must be construed in accordance with the laws of that Commonwealth. The defendants signed the note upon the back in blank.

The case finds that at the time the note was executed and delivered there was in force in Massachusetts a statute of the following tenor: "All persons becoming parties to promissory notes payable on time by a signature in blank on the back thereof, shall be entitled to notice of the non-payment thereof the same as in

Wright v. Andrews.

dorsers." It will be noticed that this statute does not require a demand of the maker, but simply a notice of non-payment; which as the case finds was not seasonably given.

It is suggested in the argument that under the statute a notice to a party whose signature is upon the back of the note in blank is in all cases required, and that therefore its omission in this case is fatal to the maintenance of the action. It is true that no exceptions in express terms are made in the statute. But the notice required is such and only such as indorsers would be entitled to. If then the facts are such as would excuse notice to an indorser, the same facts must necessarily excuse notice to a promisor signing as these defendants did. The necessity of notice to an indorser depends upon the contract, which may be express or implied, so notice to a surety "the same as an indorser" must in a like manner depend upon such contract as may be made by the parties or inferred from the facts. It cannot be required in the latter case, if under the same circumstances it would not be in the former.

The main question then involved in this case is whether upon the facts found by the justice presiding the defendants were entitled to notice of the non-payment of the note.

Whatever conflict there may be in the decisions of different courts in regard to the necessity of notice to an indorser who has security for his liability as such, there appears to be none, when the property pledged for such indemnity is appropriated to, and the indorser is authorized by the contract to use it for the payment of the note. In such case it is very clear that notice may be dispensed with. By such appropriation there is a trust reposed in the indorser, and by his acceptance of it an implied promise on his part that such trust shall be faithfully performed. In a certain sense the indorser becomes original promisor and assumes the place of the maker of the note. He therefore suffers no injury from the fact that he is not notified of the omission of an act which fidelity to the principal, as well as to the payee, required him to perform. Story Prom. Notes, § 281; Red. & Big. Lead. Cas. 467; Haskell v. Boardman, 8 Allen, 38, 41; Ray v. Smith, 17 Wall. 411, 416.

In this case the presiding justice found that at the time the defendants indorsed the note as sureties "they were fully secured for all liability assumed by them as such." This security appears to have been a bank book showing a deposit in a savings bank, in the name of the maker's wife. Subsequently, as the case finds,

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