Barlow v. Myers — 10 N.Y. Sup. Ct. 720

Majority

p. 720

SAMUEL L. M. BARLOW and others, Respondents, v. MARIA J. MYERS, Appellant.

Headnote

Contract with one for benefit of others—who may sue wpon—Bona fide holder of note — set-off against.'

A party receiving all the assets of a partnership, and in consideration thereof agreeing to pay certain of its debts, may be sued upon such agreement by the creditors of the firm whose debts he has thus agreed to pay.

In such case the bona fide holder, for value, without notice,, of a note against the firm, transferred to him before maturity, is not affected by a counter-claim existing in favor of the person malting such agreement, and against the person, transferring such note.

Especially is this the case where the equitable obligation to apply the joint property in satisfaction of the joint debts, is created by law.

p. 721

Appeal from a judgment entered on the report of a referee.

The action was brought upon three promissory notes made by the firm of Randall & Williams, payable to the order of one Nathan Randall, and by him indorsed to the plaintiffs before maturity. The plaintiffs claimed to recover under a contract, by the provisions of which the said Randall & Williams, being largely indebted to the' estate of Austin Myers, of which defendant was sole executrix, sold to said defendant, as such executrix, the firm assets in payment of such indebtedness: and the said defend ant, as such executrix, agreed to “ pay all the company debts of said firm of Randall & Williams, now outstanding, not exceeding the sum of $22,000.” At the time of the execution of the said agreement, the notes in question were the property of Nathan Randall, against whom defendant held a note for $5,000, payable to the -order of Austin Myers, and by him indorsed. Defendant offered this note as a set-off against plaintiffs’ claim, but the same was excluded by the referee, who gave judgment for the amount of the notes held by plaintiffs.

D. Pratt, for the appellant.

The limitation, as to the amount of debts to be paid by defendant, shows that the stipulations were intended to be between them alone. (Merrill v. Green, 55 N. Y., 270 .) It is submitted that as the adjudications now stand, the only exception is where the third party is privy to the consideration. (Add. on Con., 940; Garnsey v. Rogers, 47 N. Y., 233 ; The Ætna National Bank v. The Fourth National Bank, 46 id., 82; Kelly v. Roberts, 40 id., 432.) If it be assumed -that the contract was designed to be made substantially with the creditors of Randall & Williams, it is submitted that it was made only with those whp were creditors at the time of making the contract. A contract of this kind is clearly not negotiable, in the legal sense of that term. A subsequent holder could only maintain an action upon it as assignee, and not as a contract made by him with her. (Miller v. Gaseon, 2 Hill, 188 ; Brown v. Curtis, 2 Com., 225.) The note held by defendant against said Randall wás a proper subject for set-off, and should have been allowed as such. 1. It comes directly within the provisions of the statute of set-off. (2 R. S., 354; Code, § 111.) 2. It belonged to the defendant when the

p. 722

assumed assignment was made, and was then due. 3. It would have been a good set-off against Nathan Randall had the action been brought in his name. 4. Although the action may now be maintained in the name of the assignee, the right to set off is not changed or impaired. (Code, § 111.) 5. It is not material that the notes were' negotiable and transferred before due. The action is on the contract, and not on the note.

W. D. Shipman and Joseph Larocque, for the respondents.

An action lies upon a promise made for a valid consideration to a third person for the plaintiff’s benefit, although the plaintiff was privy to the consideration. (Schermerhorn v. Nauderheyden, 1 Johns., 140 ; Cleveland v. Farley, 9 Cow., 639 ; Barker v. Bucklin, 2 Denio, 45 ; The Del. & Hudson Canal Co. v. Westchester Bank, 4 id., 97 ; Lawrence v. Fox, 20 N. Y., 268 ; Burr v. Beers, 24 id., 178; Ricard v. Sanderson, 41 id., 179; Freeman v. Auld, 44 id., 55; Hutchings v. Minor, 46 id., 456, at page 460.) The contract on which this suit is based, though made by the defendant nominally as executrix, was not such a contract as she could lawfully make in that capacity. It was executory in its character, made upon a new consideration moving to the defendant, and, in the eye of the law, is the personal contract of the defendant. It does not bind the estate of her testator. (Austin v. Munro, 47 N. Y., 363 ; Ferrin v. Myrick, 41 id., 315; Reynolds v. Reynolds, 3 Wend., 244 ; Demott v. Field, 7 Cow., 58 ; Myer v. Cole, 12 Johns., 349 .) The plaintiffs, being purchasers of the notes in question before maturity and for value, have therefore the right to regard the contract as made for their benefit, with Randall & Williams, and to enforce it under the authorities already cited.

' The defendant, upon a sale of the partnership effects of the firm of Randall & Williams agreed to discharge certain debts, including notes then held by Nathan Randall for moneys loaned, and which were subsequently, and before maturity, and for value, transferred to the plaintiffs. The defendant, at the time of the sale and agreement mentioned, held a note of Nathan Randall for $5,000,

p. 723

which was past due, and which she set up as a counter-claim, and offered to prove. On the trial before the referee it was disallowed, and judgment given for the plaintiffs on the notes.

Two questions are presented on this appeal: First, did the agreement inure to the benefit of the plaintiffs ? Second, was the set-off improperly excluded ? The defendant received all the assets of the partnership, and, in consideration thereof, undertook to pay its debts to a certain limit. The plaintiffs’ debt was included in the obligations assumed. The partnership property is primarily liable for the joint debts. It is the fund created and provided for them,^[4] although the creditors may not have any specific lien upon it. The receipt of it, therefore, constitutes a good consideration for a promise to pay the debts with which it is burdened. An action lies on a promise made by the defendant, on a valuable consideration, to a third party for the benefit of another, even where he is not privy to the consideration,^[5] and it is not essential that the promise should be made directly to the person to whom the money is to be paid. It is. made for his benefit,^[6] There is no difference in principle between the cases cited and this, except that (and it makes the plaintiffs’ case stronger) there is privity between the defendant and the consideration, inasmuch as the property which formed the consideration was, as we have seen, primarily liable for the plaintiffs’ debt. The set-off was properly rejected, because the plaintiffs were the holders of a negotiable note; and having taken it before • maturity, and for value, it was not subject to existing equities, in the absence of notice, actual or constructive. The promise to pay the note held by the plaintiffs, was to pay it as it existed at the time it matured. It could not be affected by any arrangement between the defendant and the makers. The defendant assumed their obligation, which was to pay the note to a bona fide holder for value without notice, notwithstanding they might, were it in the hands of the payee, have a subsisting set-off or equity against it. This must be the rule in a ease like this; more particularly where the equitable obligation to apply the joint property

p. 724

to joint debts is created by the law of the land. There is, however, another objection to the set-off, and that is, that it does not exist, apparently, in favor of the defendant in her own right.^[4] It is not alleged that the note was transferred to the defendant; and the presumption is that it was part of the effects which she acquired as executrix of Austin Myers, deceased. There is nothing in the cases of Kelly v. Roberts,^[5] Ætna Nat. Bank v. The Fourth Nat. Bank,^[6] and Garnsey v. Royers,^[7] in conflict with the rule established in Lawrence v. Fox, and applied- here.

The binding force of a promise duly made, upon a valid consideration, to one person for the benefit qf another, is recognized particularly in Kelly v. Roberts,^[8] The consideration here was the transfer to the defendant of the partnership property, already charged with its debts, upon the promise that the debts would be paid. The judgment should be affirmed.

Davis, P. J., and Daniels, J, concurred. Judgment affirmed.

Judgment affirmed.

* Merrit v. Seaman, 2 Seld., 168; Dale v. Cooke, 4 Johns. Ch., 13 ; Duncan v. Lyon, 3 id., 359; Root v. Taylor, 20 Johns., 137 .

† † 40 N. Y., 432 .

‡ ‡ 46 N. Y., 82 .

§ § 47 N. Y., 233 .

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Footnotes

* Wilder v. Keeler, 3 Paige, 167; Kirby v. Carpenter, 7 Barb., 873 ; Canson v. Lathrop, 25 id., 455; Sage v. Chollar, 21 id., 596.
† † Lawrence v. Fox, 20 N. Y., 268 .
‡ ‡ Delaware and Hudson Canal Co. v. West’r Co. Bank, 4 Denio, 97 .