SECTION IV.

DISCHARGE OF PARTNERSHIP DEBT BY BILL OR NOTE OF ONE PARTNER.

§ 1299. The doctrine is now regarded as sound and well settled as a general rule (though there has been vacillation and difference of opinion on the question), that the giving of the separate bill or note of one of several partners for a copartnership debt, is good consideration for the discharge of the other partners. For it may be advantageous to the creditor in various ways; it avoids difficulties which might arise from suing the debtor with other defendants; in the event of his bankruptcy it would have priority over joint debts in England; and it may be more convenient and satisfactory to the creditor in the pursuit of his remedy, whether in equity or at law. 66

68

§ 1300. Effect of separate note of one partner for partnership debt. -The bill or note of one partner may be undoubtedly taken as collateral security merely for the firm's debt, in which case the latter is not affected thereby. It may also be taken with an express reservation to the creditor of all remedies against the firm, in which case also the original liability of the firm is undoubtedly preserved. But the question remains, what is the presumption when the separate bill or note of one partner is taken, payable at a future day, for the debt of the firm, and what is its effect? Partners are joint parties, not joint and several. And the prevailing doctrine is that the separate note of a partner for a partnership debt is not presumably an extinguishment or satisfaction thereof, and that the burden of proof is upon the party alleging it to show that such effect was intended.69 In Massachusetts a different view

66. Thompson v. Percival, 5 B. & Ad. 925; Reed v. White, 5 Esp. 122; Evans v. Drummond, 4 Esp. 89; Powell v. Charless, 34 Miss. 485; Nicholas v. Cheairs, 4 Sneed, 231; Arnold v. Camp, 12 Johns. 410; Van Epps v. Dillaye, 6 Barb. 244; Waydell v. Luer, 3 Den. 510 (overruling same case, 5 Hill, 448, and Cole v. Sackett, 1 Hill, 516). See Sheehy v. Mandeville, 6 Cranch, 264; Edwards on Bills, 194, 195, 2 Am. Lead. Cas. 248; Byles on Bills (Sharswood's ed.) [*371], 550; 2 Parsons on Notes and Bills, 199.

67. 2 Parsons on Notes and Bills, 201.

68. See post, § 1322; Bedford v. Deakin, 2 B. & Ald. 210, Holroyd, J.; Story on Notes, § 425.

69. Ante, §§ 1295, 1297; Parker v. Cousins, 2 Gratt. 372; Estate of Davis and Desauque, 5 Whart. 530; Thompson v. Briggs, 8 Fost. 40; Gardner v. Conn, 34 Ohio St. 187; Muldon v. Whitlock, 1 Cow. 290; Montross v. Byrd,

prevails, but in that State, however, an individual note is presumptively payment."

70

The view upon which this doctrine must rest is, that the one partner simply adds his separate security for a joint debt, and that, while it would be a breach of contract to sue him on the joint debt, while the separate security is current, his remedy lies by action for such breach (as, in like manner, it lies for breach of covenant not to sue1), and the creditor may at any time sue upon the original joint contract without regard to the separate security. If, when the separate security is taken, the note or other security of the firm is surrendered up, it would seem prima facie, though not conclusively, demonstrative of an intention to exchange the new security for the old, and to regard the latter as discharged. And the question as to the intent of the parties is generally one of fact to be determined by a jury. The surrender of the partnership security and the acceptance of the separate note of one member, enables the latter to represent to his associates, with apparently satisfactory vouchers, that the partnership obligation is at an end, and to settle with them accordingly; and the case differs from those in which it is considered that no presumption of satisfaction arises from the renewal by an individual of his own paper, and the surrender to him of the instrument renewed.73

72

§ 1300a. Renewals in firm's name after dissolution.— If after dissolution of a firm a creditor, who is not affected with notice of dissolution, take from one of the former partners a bill or note in the firm name, it is as binding on the firm as if no dissolution had occurred, upon principles stated in another portion of this

6 La. Ann. 519; Leabo v. Goode, 67 Mo. 126; Powell v. Charless, 34 Mo. 485; Edwards on Bills, 193, 194; Lindley on Partnership (Ewell's ed.), *440, and note; Chase v. Brundage, 58 Ohio St. 517, 51 N. E. 31; Redenbaugh v. Kilton, 130 Mo. 558, 37 S. W. 67. Compare Oil Well Supply Co. v. Wolfe, 127 Mo. 616, 30

S. W. 145.

70. French v. Price, 24 Pick. 13. See ante, § 1266.

71. Story on Notes, § 421.

72. 5 Rob. Pr. 863; 2 Am. Lead. Cas. 271; Morriss v. Harvey, Sup. Ct. of Va., Sept. Term, 1881, reported in Va. L. J. for Jan., 1882, p. 21; Estate of Davis, 5 Whart. 538; Mason v. Wickersham, 4 Watts & S. 100. Compare Wiseman v. Lyman, 7 Mass. 286; Sneed v. Wiester, 2 A. K. Marsh. 277; Sheehy v. Mandeville, 6 Cranch, 253. Contra, Powell v. Charless, 34 Mo. 485; Leabo v. Goode, 67 Mo. 130.

73. See ante, § 1266a.

74

work. But if the creditor have notice of dissolution, it has been held, that a note given in the firm's name by one of the former partners could not bind any other ex-partners as a party to it, because unauthorized by them; and further, that it discharged the nonconsenting ex-partners, who stood in the relation of sureties to the settling partner, he having taking the assets and assumed the debts.75 Upon the peculiar circumstances presented the case was, as it seems to us, rightly decided; but what is the ordinary presumption and effect of the transaction when one ex-partner of a dissolved firm gives a partnership bill or note for the firm debt? If unauthorized by the other ex-partners, and taken by one affected with notice of the dissolution, it cannot bind them. Does it discharge them? We think not. It cannot be presumed to have been intended to discharge them, for it pretends to bind them. And if they are discharged it must be upon the ground that, as between themselves, partners are sureties, and that suspension of remedy against one discharges the others. But we have already seen that taking the bill or note of one joint contractor does not discharge the others; and as the unauthorized firm note can only bind the parties making or consenting to it, we can perceive no legal principle upon which the discharge of nonconsenting members of the firm can be grounded.76

The very numerous cases on this and similar questions present quite a diversity and confusion of views. It is difficult to discern in many of them the principles relied upon; and impossible to reconcile them. We have stated the conclusions which seem to us the most consistent with general principles; and are without

74. Ante, vol. I, §§ 369a, 369b, 370a, 370b; Midland Nat. Bank v. Schoen, 123 Mo. 650, 27 S. W. 547.

75. Smith v. Sheldon, 35 Mich. 42. Where a retiring partner surrenders assets to continuing partner under an agreement that he shall pay the debts of the firm, and notifies the creditor of dissolution and of the agreement, the acceptance of the individual note of the continuing partner by the creditor would discharge the retiring partner, he, under these circumstances, being regarded as surety. Maier v. Canavan, 8 Daly, 272. See Lindley on Partnership, *440, and Ewell's note; Tarver v. Evansville Furniture Co., 20 Tex. Civ. App. 66, 48 S. W. 199. Where the payee has knowledge of the dissolution of a partnership, and that the retiring member is to be relieved from liability upon the note, and the payee thereafter extends the time of payment and receives collateral therefor, the retiring member is discharged. Wood, etc., Machine Co. v. Oliver, 103 Mich. 326, 61 N. W. 527.

76. Parker v. Cousins, 2 Gratt. 372.

space to enter into all the refinements and vacillations of the adjudicated cases.77

§ 1301. Where no new security is taken, a mere promise to look to one partner only, or that one only should assume the debts, is not binding, because without consideration.78 But if third parties were induced to enter into an arrangement on the faith of such a promise, it would be otherwise. And it has been urged that when the partner seeking to be discharged is shown to have altered or varied his situation on the faith of such agreement, the rule would be different also.79 When two or more persons, not partners, are jointly indebted, the individual note of one will operate as a discharge of both, if so agreed between the parties;80 but such agreement will not be presumed, and must be distinctly proved.81

"The tak

77. In Byles on Bills (Sharswood's ed.) [*48], 132, it is said: ing security from one of several partners, joint makers of a note, or acceptors of a bill, will in general discharge the other copartners." Story says the same thing with even more emphasis. Story on Bills, § 431. More guardedly Parsons says: “In general, or, at least, frequently, a holder who takes security from one or more partners liable on negotiable paper discharges the rest." 1 Parsons on Notes and Bills, 135. The doctrine is too strongly stated by Byles and Story - for it is simply a question of intent, the presumption being: where the partnership security is retained that it is preserved alive, and the contrary when it is surrendered; such presumption being controlable by other circumstances appearing. In Thompson v. Percival, 3 Nev. & M. 167, 5 B. & Ad. 925, there was evidence tending to show agreement to look only to the separate security, an accepted bill of the continuing partner, and the question whether it was an accord and satisfaction was left to the jury.

78. Lodge v. Drias, 3 B. & Ald. 611.

79. 2 Am. Lead. Cas. 249.

80. Myatts v. Bell, 41 Ala. 222.

81. Bowers v. Still, 49 Pa. St. 475; Schollenberger v. Selenridge, 49 Pa. St. 83. See ante, § 1297.

CHAPTER XLI.

WHAT DISCHARGES A SURETY - THE LAW OF PRINCIPAL AND SURETY IN ITS APPLICATION TO BILLS AND NOTES.

§ 1302. In the chapter on "Payment and Other Discharges have been considered the matters which operate as a discharge of liability of the maker and acceptor of a negotiable instrument, with incidental reference to the effect of such matters on the liability of the drawer and indorsers. But there are other matters which discharge the drawer and indorsers that deserve special attention, as their relations to the holder of the instrument are very different from those of the maker or acceptor. These matters may be conveniently discussed under the head of "The Law of Principal and Surety in its Application to Bills and Notes." And under that heading will also be appropriately embraced those cases in which the party signs a negotiable instrument describing himself as surety; or is known to be such, although signing as a joint or several promisor.

SECTION I.

WHO ARE PRINCIPALS AND WHO SURETIES AND GENERAL PRINCIPLES OF SURETIES' LIABILITIES.

§ 1303. In the first place, as to who are to be regarded as principals, and who as sureties. The acceptor of a bill and the maker of a note, when the acceptance is made or note executed upon a valuable consideration, are undoubtedly principals as to all the parties thereto. And the drawer of such a bill, and the indorsers of such a bill or note, are sureties of the acceptor or maker to the holder. But though all the parties to such a bill are sureties of

1. Clark v. Devlin, 3 Bos. & P. 363; Wallace v. M'Connell, 13 Pet. 136; Blair v. Bank of Tennessee, 11 Humphr. 84; Gunnis v. Weigley, 114 Pa. St. 194; Chitty on Bills (13th Am. ed.) [*411], 463. The question of who is principal, or who the surety, is not determined by the form of the contract, but by the inquiry as to who received the consideration for which the obligation was executed. See Leschen v. Guy, 149 Ind. 17, 48 N. E. 344; Tanner V. Gude, 100 Ga. 157, 27 S. E. 938, citing text; Commercial Bank v. Wood, 56 Mo. App. 214; State Sav. Bank v. Baker, 93 Va. 514, 25 S. E. 550; Dey v. Martin, 78 Va. 1.