Weaver v. White — 46 N.Y. St. Rep. 467

Majority

p. 467

William B. Weaver, App’lt, v. Jehiel White, Resp’t.

(Supreme Court, General Term, Third Department,

Filed July 2, 1892.)

Headnote

Partnership—Appropriation of firm assets to individual debt.

Plaintiff endorsed a note for his son to establish him in business, and also one to enable him to purchase goods. Thereafter the son formed a partnership, the firm taking his assets and agreeing to pay his liabilities, including said notes; neither partner putting in any cash. Plaintiff also endorsed a note for said firm. Said notes were renewed by the firm with plaintiff’s endorsement, but plaintiff finally paid the same and other firm debts, and took a bill of sale of the assets of the firm and continued the business himself. Held, that said notes were valid obligations against the copartnership and were not fraudulent against creditors of the firm who became such after the same were given, and an appropriation of the firm property to pay such notes was not unlawful.

Appeal from judgment in favor of defendant, entered upon nonsuit.

Shedden & Booth (L. L. Shedden, of counsel), for app’lt; Weeds, Smith & Conway (T. F. Conway, of counsel), for resp’t.

This case coming before us to review a judgment entered upon an order nonsuiting the plaintiff, it must be assumed that those facts which the plaintiff’s evidence proved, or tended to prove, are established or found in his favor, and such facts are as follows:

Some time in the year 1889, or prior thereto, one Peter O. Weaver entered into business in the village of Morrisonville, Clinton county. To raise money to establish such business the plaintiff, his father, endorsed a note for him for the sum of $2,000, which note was discounted at the Merchants’ Bank of Plattsburgh ; subsequently the plaintiff endorsed another note for him, for $500, which was discounted at the same bank After conducting the business for a year or more, one Loren B. Weaver, a brother, was taken into partnership in the business by Peter O. Weaver.

Peter O. Weaver at that time was between $5,000 and $6,000 in debt; his stock in trade was estimated to be of the value of $3,000.

The articles of copartnership recite that the “ party of the first part, Peter O. Weaver, has contributed the sum of $2,000 in cash, and the said party of the second part, Loren B. Weaver, has contributed the sum of $1,000 in cash,” “ and this amount is now invested in a stock of goods now in the store of J. Broadwell, in the village of Morrisonville, N. Y., estimated at $3,000.”

As a matter of fact no cash was actually contributed by either. The fourth article of the co-partnership agreement reads as follows : “ The parties above named agree to take all the accts., debts and liabilities that now remain unsettled that, were contracted by Peter 0. Weaver during the past year while in the mercantile business at Morrisonville and that were incurred for the benefit of the said business, a part of this amount being $200 to J. Broadwell, $2,000 to Merchants’ Bank, $500 to Merchants’ Bank,

p. 468

$1,000 to Merchants’ Bank of Plattsburgh, N. Y., being the amount now "vested in the stock of goods which P. 0. Weaver & Co. now agree to buy and do take possession of this 10th day of June, 1890, and $3,000 of this amount shall he the capital stock invested in this company by P. O. Weaver and Loren B. Weaver, Jr."

The $2,000 and $500 notes were the ones I have already referred to as having been endorsed by plaintiff. On the 10th day of June, 1890, Peter O. Weaver and Loren B. Weaver under the firm name of P. O. Weaver & Co., executed a note for $1,000 which was-endorsed by the plaintiff and discounted at the Merchants’ Bank of Plattsburgh and is the $1,000 note referred to in said fourth article of the partnership agreement; the proceeds of that note were used to pay debts contracted in the business by Peter O. Weaver prior to the formation of the co-partnership.

All these notes were renewed as they became due by and under the firm name of P. O. Weaver & Co., and endorsed by the plaintiff. The co-partnership continued to do business until May 2, 1891, when, becoming embarrassed and the plaintiff refusing to endorse or raise any money for them, they executed a bill of sale-to him of all the goods in the store, at the inventoried price of $3,145; the accounts valued at $1,200 were also transferred to-the plaintiff, making the consideration in all $4,345 ; this was to be paid by the plaintiff by taking up the $2,000, $1,000 and $500 notes in the bank, and by his agreement to pay certain other debts of the firm making up the balance of $4,345. The plaintiff subsequently took up the notes in the bank and gave them to-Peter O. Weaver, either paying the bank or giving his own notes in place of the ones he took up. The plaintiff carried on the business until about August 25, 1891, during which time he purchased goods and added .them to the stock in trade, to the amount of between $400 and $500.

On the 25th of August, 1891, the stock in trade was seized, and the store closed, by the defendant, the sheriff of Clinton county, under an execution issued upon a judgment recovered by Edward P. Durant and E. Matthew Carpenter against Peter O. Weaver and Loren B. Weaver, for the sum of $982.15, the judgment roll being filed June 5, 1891, and the recovery being had for goods, wares and merchandise sold to the firm of P. 0. Weaver & Co., apparently between November 8, 1890, and April 17, 1891.

The plaintiff brought an action in replevin against the defendant to recover possession of the goods, and upon the trial at the-close of plaintiff’s case a motion for a non suit was granted, and from the judgment entered thereon the plaintiff appeals to this-court. The case was disposed of in the court below upon the principle that copartnership property cannot be applied to the payment of the individual debts of the copartners until the firm debts are paid.

That such" is the general rule there can be no serious question.

The point to be considered here is whether the $2,000, $1,000- and $500 notes held by the Merchants’ bank and endorsed by the plaintiff were copartnership notes or individual notes. The_$l,000*

p. 469

note was originally issued as a copartnership note. The $2,000 note was originally issued as the individual note of Peter 0. Weaver before the formation of the copartnership. So also the $500 note. When the copartnership was formed it was agreed that it should assume the payment of all these notes, the $1,000 note being issued the same day the firm was by the terms of the copartnership agreement to take possession of the store and business.

No cash was actually put in by either member of the firm. The new firm simply took possession of the store, stock in trade and business formerly possessed and carried on by P. O. Weaver, and assumed to pay all the debts that had been contracted by him in that business.

The proceeds of the $2,000 note had been used to start him in business; that is, to purchase the stock in trade. The proceeds of the $500 note were also used in the regular course of such business, probably to purchase merchandise; the proceeds of the $1,000 were used also to pay some of the debts contracted by Peter O. Weaver in that business, presumptively in purchasing goods and merchandise, and the goods, wares and merchandise so-23urchased were, as we have seen, turned over to the new firm, so-that the copartnershi23 had in fact the benefit of all the notes. And the notes so given by the firm, or in renewal thereof, or assumed, by it, are valid obligations against the copartnership. Turner v. Jaycox, 40 N. Y., 470 ; Arnold et al. v. Nichols, 64 id., 119; Hannigan v. Allen, 127 id., 639-42; 37 St. Rep., 138 .

The merchandise in the hands of Peter O. Weaver was liable for his debts; there was nothing inequitable as against subsequent-firm creditors in making such debts obligations of the new firm which took the merchandise, for the jmrchase of which the debts were contracted, without paying for them.

The indebtedness for which the merchandise was liable was not increased; the new obligations simply took the place of the old.

It was not the ordinary case of making firm obligations binding upon the firm property to pay individual debts with ;-here at the time of assuming the two notes and making the other the firm had no property; the assumption of the two notes and the execution of the other was for the purpose of procuring firm property with which to transact business.

“In Menagh v. Whitwell, 52 N. Y., 146 , and all kindred cases there was substantially a donation of firm property to pay the debt of an individual partner without any consideration to the firm.” Bernheimer v. Rindskopf, 116 N. Y., 439 ; 27 St. Rep., 648 .

In this case the consideration is ample ; the copartnership sA cures the merchandise which the debts it assumes and pays were contracted to purchase.

The new firm took the individual property of Peter 0. Weaver and assumed his individual debts at the same time; they became copartnership debts at the same time the property became co-partnership 23i’023erty; the one was the consideration of the other.

They came into existence as firm debts at the same time the firm came into existence.

p. 470

The indebtedness for which the judgment was obtained and execution issued thereon to the defendant was incurred months after the giving and assumption of the notes in question, and hence such notes cannot be regarded as fraudulent as against such judgment creditors, and an appropriation of the firm property to pay such notes is not unlawful. Nordlinger v. Anderson, 123 N. Y., 544 ; 34 St. Rep., 361 .

The other indebtedness in consideration of which the transfer of the property was made to the plaintiff, it is conceded, or at least not controverted here, was copartnership indebtedness.

No contention is made but that the transfer to plaintiff was lawful, provided the obligations in question were copartnership obligations, and not those of the individual members of the firm; the conclusion at which I have arrived in that respect renders a reversal of the judgment necessary.

Judgment reversed, new trial ordered, costs to abide the event.

Mayham, P. J., and Putnam, J., concur.