Drake v. Porter — 20 N.Y. Sup. Ct. 658

Majority

p. 658

EDWARD DRAKE, Respondent, v. WILFRED W. PORTER and THOMAS C. BASSETT, Appellants.

Headnote

Undertaking — by continuing pa/rtner to secwre payment of Jw'm liability — what covered, by — what constitutes a payment.

The plaintiff, upon dissolving a partnership, conveyed all the assets to the continuing partner, Thompson, who, having agreed to pay and discharge all firm liability, gave to the plaintiff a bond, signed by himself and the defendants, as sureties, conditioned to pay all the debts and liabilities owing by the firm, due or to become due, and to save plaintiff harmless from the payment of any and all firm debts and liabilities, of every name and nature, then owing by them. Subsequently, actions were commenced against the plaintiff and Thompson upon certain notes given by the firm. The summons was served upon Thompson alone, who engaged an attorney to appear for both, and who suffered judgment to go by default. Plaintiff, having obtained leave to open the judgment, defended the action and procured the complaint to be dismissed. This action was brought to recover the amount paid to plaintiff’s attorneys for their services in defending the action, plaintiff having given his promissory note to them for the amount, which was accepted by them in payment thereof. Held,, that the attorneys having accepted plaintiff’s notes in payment of their bill, he was entitled to recover the amount as money actually paid by him; That the amount so paid was within the condition of the bond, and that the sureties were liable therefor.

Appeal from judgment in favor of the plaintiff entered on the report of a referee.

On the 8th January, 1810, the plaintiff and Mark V. Thompson became copartners in the city of Syracuse in the stove business. This firm succeeded that of Drake & Wells who had previously carried on business at the same place, Thompson taking the place and assuming the responsibilities of Wells, who retired from the business.

In 1812 a disagreement arose between Drake and Thompson, in reference to their partnership matters, and one Bassett was appointed receiver of the property and effects of said firm.

On the 28th of April, 18Y2, an agreement in writing was entered into between said Drake and Thompson, whereby it was, amongst other things, stipulated and agreed that an inventory should be made of the property of said firm at cost price, and that whichever

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should offer most for tbe property of said firm should have it, and the other party should sell to him his interest in said property. It was further agreed in and by said written agreement, that the partner who purchased should assume all the partnership debts and release the retiring partner therefrom.

An inventory had been made by the receiver of the property oi said firm in March, 1872, and on the twenty-eighth of April it was agreed that the inventory thus taken should be accepted in place of the one agreed to be made in the contract of the twenth-eighth of April above mentioned, and that any consideration of over or under estimate in the March inventory, or in transactions subsequent to said inventory, should be covered by the offers of said partners, according to the terms of said contract for the retention and disposal of their respective interest in the concern.

Thompson subsequently became the owner of the partnership effects at a price mutually agreed upon, and he agreed with Drake to give him, in consideration of such purchase, a bond of indemnity under the hands and seals of the defendants, dated 26th day of April, 1872, with a condition that if said Thompson, his heirs and assigns, etc., should pay or cause to be paid all the firm debts and liabilities of every name and nature then owing by the firm of Drake & Thompson on their partnership accounts due or to become due, or in any wise connected with the business of said firm, and save Drake harmless from the payment of any and all firm debts and liabilities of every name and nature then owing by them in any manner whatever, then the said obligation to be void, otherwise to remain in force.

During the existence of said firm of Drake & Thompson they, purchased of one Hinman an interest in a patent-right, for which they gave five notes of said firm of $100 each, dated 23d July, 1870, and payable in six, nine, twelve, eighteen and twenty-four months from date. At the time of the purchase by Thompson of Drake’s interest in the copartnership assets, and at the time the bond was given by the defendants to Drake, these notes wer.e held by said Hinman; nothing had then been paid on them. These notes were not included amongst the liabilities of the firm, because the partners believed that they were not valid obligations against said firm, as the patent proved to be worthless,

p. 660

On or about tbe 1st September, 1872, Hinman commenced an action on said notes against tbe members of- said firm, the summons being served on Thompson aloné, who employed an attorney to appear and defend for both. Tbe attorney did appear and defend tbe said action for both.

A judgment was taken by default against both for tbe whole of said notes, together with tbe interest thereon and tbe costs of tbe action. Drake, after tbe recovery of tbe judgment, caused notice of tbe levy of the execution on said judgment upon bis property to be served on tbe sureties in said bond, and that be would bold them responsible upon said bond for such sum as be should be required to pay upon said judgment. Tbe sureties paid no attention to said notice. Drake thereupon moved to be let in to defend said action, and tbe motion was granted and be thereupon put in an answer, and tbe cause was tried in June, 1874, and tbe complaint was dismissed, with costs.

Tbe attorneys employed to obtain leave to defend said action, and who defended it, brought in a bill against Drake for their services for $318.93, and for which Drake gave tbe said attorneys bis note, which was taken in payment of said indebtedness before this action was commenced.

This action was brought to recover the amount so paid as aforesaid to tbe. attorneys for tbe defense of said action, with another claim that was rejected by tbe referee, and as to which no question arises on this appeal. Tbe defendants, Porter and Bassett, appeared; tbe defendant Thompson did not appear.

Tbe answer contained, first, a general denial of tbe allegations in tbe complaint; second, that before tbe defendants executed said bond, tbe plaintiff represented to them that tbe inventory of their liabilities contained a full and complete statement of all debts due by tbe said firm of Drake & Thompson, and that there was no claim against said firm upon said notes given for tbe patent-right, and that defendants, relying on said statement, executed said bond, and insist that tbe plaintiff is estopped from setting up any claim not contained in said inventory; third, that tbe representation- by Drake that tbe inventory contained all the liabilities of said firm was false and fraudulent and made with a view to deceive and defraud said defendants, and that they have sustained damages, by

p. 661

reason of sncb false and fraudulent representations, to tbe amount of $500, wbicb tbej insist upon by way of 'recoupment against tbe claim of said plaintiff.

Tbe referee found tbe facts as hereinbefore stated, and ordered judgment in favor of tbe plaintiff for tbe sum of $355.27, together with tbe costs of tbe action.

Q-eorge N. Kermecl/y, for tbe appellants.

Irving G. Vcmn, for the respondent.

Tbe bond on wbicb this action is brought is dated tbe 26th April, 1872. Tbe plaintiff did not give bis note for tbe costs, wbicb be seeks to recover of tbe defendants, until just before this action was commenced, wbicb was in April, 1875. It follows that tbe claims in suit accrued subsequent to tbe execution of tbe bond.

Tbe condition of'the bond is, that tbe obligors should pay, or cause to be paid, all tbe firm debts or liabilities now (that is on tbe 26th April, 1872) owing by Drake & Thompson on their joint partnership accounts, due or to become due, or in anywise connected with tbe business of said firm, and save Drake harmless from tbe payment of any and all firm debts and liabilities, of every name and nature, now owing by them in any manner whatever.

"Without stopping to inquire whether tbe defendants are liable on tbe clause of tbe condition by wbicb they agree to pay tbe debts due and owing by tbe firm of Drake & Thompson, I propose to consider tbe question of their liability on tbe indemnity clause of tbe condition. Tbe costs,of Puller & Yann, tbe attorneys who procured tbe order of tbe court allowing the plaintiff to appear and answer in tbe action after judgment bad been entered against both tbe partners on tbe patent-right notes, and who subsequently defended tbe action and nonsuited tbe plaintiff, were not a debt due by tbe -firm of Drake & Thompson at tbe time tbe bond was given, but it became a debt due by them when tbe judgment of nonsuit was entered on tbe 16th June, 1871. To entitle tbe obligee in an indemnity bond to recover costs of actions brought against

p. 662

bim for the recovery of copartnership liabilities, he must show that he has paid them, or been in some way damnified thereby.

In Churchill v. Hunt ( 3 Den., 321 ), it was held that, upon a bond conditioned to save harmless and indemnify the obligee against his liability as maker of a note held by a third person, and to pay the same or cause it to be paid, the obligee may, without having paid any thing, recover the amount of the notes against the obligor upon his failure to pay the holder, but he cannot recover the costs of a judgment obtained against him on the notes when he has not paid them.

The costs of Fuller & Yann were due from the firm, and if the plaintiff has paid it, he is entitled to recover.

In the following cases it has been held that the obligee in an indemnity bond was entitled to recover on the bond when he had given to a creditor of the firm a promissory note for the demand, which the creditor agreed to receive in payment of his claim against the firm of which the plaintiff was a partner: Witherby v. Mann, ( 11 Johns., 518 ); Rodman, v. Hedden ( 10 Wend., 498 ); Howe v. Buffalo, New York and Erie Railroad Company ( 37 N. Y., 297 ); Doolittle v. Dwight ( 2 Met., 561 ); Lee v. Clark ( 1 Hill, 56 ).

The referee was right in holding that plaintiff had paid the costs so as to entitle him to recover.

The appellants’ counsel moved for a nonsuit at the Circuit, and asks for a reversal of the judgment by this court on the ground that the costs sought to be recovered were not a debt against the firm at the time the bond was given. The bond does, in terms, provide that the obligors shall pay the debts of the firm now (at the date of the bond) due or to become due.

If the obligors had paid the debts claimed to be due from the firm, the bill of costs in controversy would never have accrued; and it comes with a bad grace from the defendants to refuse to pay the costs occasioned by their own breach of the conditions of the bond. It is true the partners, by defending the action, defeated a recovery on the patent-right notes, and they should the inore cheerfully pay the costs incurred in the defense of the action.

The referee was right in holding that plaintiff was not chargeable with fraud in telling, at or before they signed the bond, that the patent-right notes were not a valid claim against the firm. He

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declared to tbem tbe facts relating to tbe notes, and tbe action brought to enforce tbem, and gaye it as bis opinion that tbe firm was not liable on tbe notes.

Tbe defendants bad tbe same means that plaintiff bad to determine tbe question of liability, and was as competent to form an opinion as to tbe legal liability of those who should become sureties on tbe bond.

Tbe judgment must be affirmed.

Present- — -MulliN, P. J., Talcott and SMITH, JJ.

Judgment affirmed.