that the special partnership has a right to maintain an action for a diversion of this fund in its name, even though one of the general partners was an active participant in the transaction by which the deposit was depleted. The cases cited by the learned referee support his con

clusion in this respect. We also agree that the property of the firm could not be used for the payment of individual debts of the general partners of the old firm. If this action, therefore, is to be treated as one to recover, based solely upon a diversion of the moneys deposited by the special partner, dissociated from any other act or transaction had between the two firms, and the money was diverted, and used for the payment of debts of individual members of the old firm, and not of the debts or obligations of the special partnership, then we think the action was properly brought in the names of the special partners, and a recovery thereunder would be easily sustained. Such, however, as we view it, is not this action. The complaint herein avers: First, that Elisha M. Fulton, Sr., became, with La Montagne, Clarke & Co., the plaintiffs, copartners in a limited copartnership, pursuant to the laws of New York, Elisha M. Fulton, Sr., being the special partner, and the others general partners; second, that such limited partnership carried on a stock brokerage business from the 23d day of June, 1892, to the 7th day of October, 1893, when it was dissolved by mutual consent, and in accordance with the statute in such case made and provided; third, that during the existence of such copartnership the defendant was a banking corporation, organized and existing under the laws of the United States; fourth, that on the 23d day of June, 1892, the defendant was indebted to the copartnership in the sum of $200,000 for moneys collected and received by it upon a certified check of the special partner, which was deposited with the defendant to the credit of such partnership; fifth, that between the 23d day of June, 1892, and the close of business on the 16th day of October, 1893, the defendant had received for the use of said limited partnership a given sum of money; sixth, that between the aforementioned dates the defendant paid to the order of the limited partnership, on its checks or orders, a given sum of money; seventh, that on the close of business on the 16th day of October, 1893, the defendant was indebted to the limited partnership in the sum of $60,000 upon a balance in its favor of the moneys specified in Nos. 4, 5, and 6 of the complaint, and that the same remains due and unpaid. The complaint demands judgment for this sum, with interest thereon from the 16th day of October, 1893. It is apparent, therefore, that the cause of action set forth in this complaint is one at law for the recovery of a debt due from the defendant to the limited partnership as such. There is not a suggestion in the complaint that the plaintiffs were insolvent at the time the action was brought, or prior or subsequent thereto. There is not a suggestion that the special partner has suffered any loss on account of any transaction alleged in the complaint, or that he has been charged with any greater liability than such as he assumed as the special partner of the firm. Upon the pleading, therefore, we come to consider this cause of action as resting in the right of the plaintiffs, as general partners, and for the benefit of the special partnership, to recover a debt due by the defendant to the special partnership. The

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answer, in substance and effect, avers payment of the $60,000 to the partnership. The issue is therefore of debt and payment.

It

The plaintiffs proved, in order to establish their cause of action, the articles of copartnership which were entered into, and which formed the basis in establishment of the limited partnership. These articles provided, as the referee found, that the special partner should contribute as his special capital the sum of $200,000; that La Montagne, Clarke & Co. should contribute $100,000 in specified proportions; that the said sum of $100,000 so to be contributed by these general partners was to be made by transferring to such limited partnership all the property, assets, and good will of the general copartnerships, composed of La Montagne, Clarke, and Smith, then existing and doing a brokerage business under the firm name of La Montagne, Clarke & Co. seems to have been the view of the learned referee that, as the special partnership was to take over all of the property of the old firm of La Montagne, Clarke & Co., its effect was to impose upon the special partnership the obligation of paying the debts of the old firm, and such undoubtedly is the law. Arnold v. Nichols, 64 N. Y. 117. The assets of the old being transferred to the new firm, the same principle applies as obtains between creditors of the firm and the surviving partners; the property in all such cases being made liable for the payment of debts. Adams & Co. v. Albert, 155 N. Y. 356, 49 N. E. 929, 63 Am. St. Rep. 675; Bush v. Gibbons, 87 App. Div. 576, 84 N. Y. Supp. 478. There is no evidence in the present case which shows, or tends to show, that the old firm was insolvent; and the evidence, it seems to us, was sufficient for the court to find that the assets of the old firm equaled its debts and liabilities, and, in the absence of proof to the contrary, or controlling authority, we should be disposed to hold that the assets of the old firm were enough to discharge its debts and liabilities, and produce a surplus to the amount of the contribution of the general partners. But however this may be, it is clear as a legal conclusion that, when the new firm took over all of the assets of the old, it took them cum onere, chargeable with the payment of the debts and obligations of the old firm. That the new firm recognized this liability is made to appear from the fact that it subsequently paid the debts and obligations of the old firm, due and owing to this defendant, as it paid all of the obligations to it, and took over from it the collateral which it held as security for some, at least, of the indebtedness, and finally closed out the account by giving a check for the balance found to be due the defendant from the old firm. It is undisputed that, upon the day of the transfer of the $60,000 from the new firm to the credit of the old, the indebtedness then due and owing by the old firm to the defendant was $50,593-79. This debt to this extent was a demand held by the defendant against the old firm, which it could have enforced by action against the new firm on the day that the latter filed the certificate and affidavit constituting the special partnership. It was an indebtedness which the new firm was obligated to pay by the terms of the agreement which it had made, and the transfer of the $60,000 discharged such debt. As the obligation to pay this debt was assumed by the new firm, and as it was in fact discharged by the defendant, as having been paid by the check which it received, may it make the discharge of such obligation operate

as a payment in answer to an action against it for debt? The learned referee, in his opinion, briefly considered this subject in these words:

"The question is, has the bank discharged its obligation to pay out the moneys deposited by the new firm on its order? If it has not, it cannot justify the payments. If in fact the payments irregularly or improperly made inured to the benefit of the depositor, this may be an equitable defense; that is, the defendant may perhaps show that by its breach of contract the plaintiffs sustained no damage. Shipman v. Bank, 126 N. Y. 331, 333 [27 N. E. 371, 12 L. R. A. 791, 22 Am. St. Rep. 821]. No such equitable defense is set up in the answer. No attempt is made to prove it."

That the plaintiffs had the benefit of this sum of money to the extent of the obligation then existing in favor of the bank is a conceded fact in the case. That the defendant discharged the obligation which it held, and for which the new firm was liable, is undisputed. The legal liability resting upon the new firm to pay was established by the plaintiffs the moment they introduced the articles of the special partnership in evidence, and whatever legal results flowed therefrom, as constituting a defense to this action for debt, the defendant is entitled to its benefit. Looby v. Village of West Troy, 24 Hun, 78. It was therefore proved by the plaintiff that the defendant was entitled, in answer to the claim of debt asserted against it, to the benefit of the proof which the plaintiffs made, and this without regard to the state of the pleadings. It must therefore be regarded as established that the defendant applied, for the benefit of the plaintiffs, moneys in discharge of an obligation for which the plaintiffs were liable; and, in action for debt to recover back that sum of money, we are of opinion that the proof as given by the plaintiffs in the case entitled the defendant to be credited therefor as a payment made for and on account of the plaintiffs, and this without regard to the technical question of pleading, as, the fact having been established by the plaintiffs themselves, they cannot be heard to say that the defendant should not have the benefit of what their own proof shows. It might be otherwise if the plaintiffs' claim were based upon any other consideration than an attempt to enforce the payment of a debt, but in the present form of action the rights and liabilities of the parties are to be considered solely upon the basis of an issue framed to enforce in ordinary course a money demand. But aside from this consideration, we think the defense was available under the pleadings. The plea of the answer is payment, and, while payment, in its strictest sense, imports the satisfaction of a pecuniary obligation by the delivery of money, yet, in a general sense, it is much enlarged, and embraces anything which operates as a discharge of a pecuniary obligation, or anything which is accepted by the creditor as the equivalent of money, and in satisfaction thereof. 22 Am. & Eng. Ency. of Law (2d Ed.) p. 517. In Beals v. Home Ins. Co., 36 N. Y. 522, the court adopted this definition:

"To pay, is defined by lexicographers, to discharge a debt; to deliver a creditor the value of a debt, either in money or in goods, to his acceptance, by which the debt is discharged."

There can be no difference in the discharge of a debt by operation of law where the facts out of which arises the rule require such operation, and where the payment is by agreement. Where it appears, in an action to recover a debt, that the parties seeking to enforce it have had the

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money which they seek to recover applied in discharge of an obligation upon which they were liable, the law imports an acceptance upon the part of the creditor of the thing which operates as a discharge of the demand; and, where such fact appears, it will be an exceptional case where recovery of the money so applied will be permitted. In Farmers' & Citizens' Bank v. Sherman, 33 N. Y. 69, it was held that new matter might be given in evidence which amounted in law to a satisfaction of the claim. Therein the action was upon a promissory note made by the defendant for the accommodation of one Pomeroy. Pomeroy, after the delivery of the note to the plaintiff, entered into an agreement by which he was to deliver to the plaintiff, in discharge of an indebtedness which he owed to it, including the note in question, a quantity of lumber, at a specified time and for specified prices, and, upon the delivery of such lumber, paper to the amount and value of the lumber as Pomeroy might require was to be returned. The whole amount of his indebtedness to the bank was $13,000. He delivered thereafter $5,840.20 worth of lumber, and then requested the surrender of the note, which the bank refused, and it thereafter brought action thereon. When he sought to show the transaction, objection was interposed that under a plea of payment the evidence of the agreement was inadmissible. The court upon this subject said:

"The answer simply alleged payment, which, as it is claimed, in legal contemplation, means payment in money, and evidence to prove payment in any other way than by cash did not sustain the allegations of the answer. That the answer gave no notice of the defendant's intention to prove payment in any other way than by cash. It did not set forth nor disclose the particulars of the transaction between Pomeroy and the plaintiffs, and hence the unexpected admission of proof of the transaction under such a pleading surprised them. There is no force in these objections, considered as a question of pleading. The answer alleged payment, and it was competent, under the pleading, to prove that payment had been, in fact, made either in cash or in some other way. If payment be relied on as a defense, it would be bad pleading to allege the evidence of the fact instead of the fact itself; and, when the fact of payment is pleaded, there is no rule requiring the evidence, or a concatenation of evidence, establishing payment, to be alleged in the pleading, to render such proof legally admissible. In this case it was not required that the particular facts relied on as amounting to payment should have been set forth in the answer. It was enough if those facts sustained the plea of payment."

In McLaughlin v. Webster, 141 N. Y. 76, 35 N. E. 1081, the court said:

"But the defendants had pleaded payment generally, and under that defense were entitled to give proof of any agreement between the parties in the lifetime of the testator that operated to discharge the debt. It is not necessary generally to state the particular manner in which the obligation was extinguished. Any valuable consideration moving from the debtor to the creditor, which the parties agree shall operate to satisfy the debt, will be given that effect, in the absence of fraud or mistake, especially in the case of debts unsettled and unliquidated. When parties agree that a debt shall be deemed paid and satisfied by a provision in favor of the creditor in a will, and that provision is made, and the creditor has received the benefit of it, I see no reason to doubt that the facts may be shown under a pleading alleging payment or satisfaction generally." Stirna v. Beebe, 11 App. Div. 206, 42 N. Y. Supp. 614; Quin v. Lloyd, 41 N. Y. 349.

In the present case the articles of copartnership constituting the special partnership contained an agreement by virtue of which the part

nership obligated itself to discharge the debts of the old firm. They were therefore under an agreement to pay those debts, and when the obligation, being in existence, was discharged by the creditor, a debt, as such, ceased to exist in favor of the partnership, which had received the benefit of the money applied in its discharge. The defendant therefore had the right to prove such facts, and, as their legal effect was to operate as a payment in discharge of the claim to the extent of the obligation, to that extent there was no debt to enforce at the instance of these plaintiffs in this action. The defendant was not, as we have already observed, called upon to make such proof, as the plaintiffs proved all of the facts essential to make the doctrine of payment applicable. The referee found that the new firm became insolvent prior to its dissolution. There was no proof to establish such fact, save that given by Elisha M. Fulton, Jr., when he was recalled by the plaintiffs, and permitted to testify, over the objection and exception of the defendant, that they were insolvent; the liabilities of the firm over the assets being $115,000. The agreement of dissolution did not state that the firm was insolvent; the sole statement upon that subject being that the partnership "found itself in embarrassed financial circumstances, and whereas, in endeavoring to extricate the said partnership from embarrassment," William P. Whitlock had advanced large sums of money. Then follows the agreement for dissolution. Insolvency was not within the issue raised by the pleadings, and evidence to prove it was inadmissible, and, as it was objected to, it was improperly received; but it cannot now be availed of as furnishing any basis upon which to found the present action. M. Groh's Sons v. Groh, 177 N. Y. 8, 68 N. E.

992.

These views, however, do not lead us to the conclusion that the judgment should be reversed in its entirety. The indebtedness of the old firm to the defendant, as we have seen, was overpaid by the sum of $9,406.21. For this sum there was no indebtedness due by the old firm to the defendant, or to any one else, for which the new firm, so far as appears by this record, was liable. Nor has it been made to appear that such sum was applied for the benefit of the new firm. For aught that appears, it was used exclusively for the benefit of the old firm, so that to that extent the defendant has failed in its defense, as payment of that sum of money is not shown to have been made by the bank, either in the discharge of obligations held by it, for which the new firm was liable, or otherwise. We are of the opinion, therefore, that to this extent the plaintiffs are entitled to recover. So far as the other questions which were raised and argued upon the present appeal are concerned, we think they were properly disposed of by the referee, and, as each question was fully and completely discussed by him in the learned opinion which he delivered, it renders further consideration here unnecessary.

It follows that the judgment should be modified by striking from the recovery the sum of $50,593.79, with interest thereon from the 13th day of December, 1895, and, as so modified, the judgment should be affirmed, without costs to either party in this court.

VAN BRUNT, P. J., concurs.

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