Court Opinion

ID: 6896696
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:50:31.496549+00
Date Added: 2024-06-11T16:06:01.661955
License: Public Domain

Opinion by
Mr. Justice Wolverton.
The questions suggested by this record are two: First, where one gives a promissory note to his retiring partner, covering partnership funds advanced by the partner so retiring, and used in the business, can failure of considera*256tion, based upon the alleged facts that no final settlement has ever been had of the partnership affairs, and that upon such settlement there would be nothing due thereon, be shown in defense to an action at law upon said note? And, second, can it be shown by verbal testimony that a promissory note given for a definite sum, and made payable on a day certain, was intended merely as a memorandum, and was not to be paid until the amount thereof could be realized out of a certuin business venture? The evidence offered and refused was intended to support the affirmative of both these propositions.
1. It is contended that when the one thousand eight hundred dollars for which the note was given was put into the business by Daniel Wilson, being a contribution to the capital invested, it became the property of the partnership; that this partnership investment or property constitutes the consideration for the note in question; and that, being the property of neither partner, but of the copartnership, It could not constitute a consideration moving from Daniel Wilson to the defendants, and therefore would not support the note. The purpose of the evidence offered and refused was to show that at the time this note was given, there had been no settlement, either partial or complete, of the partnership business, and that, upon a final settlement of the partnership, there would be nothing due the the plaintiff. It is alleged in defendants’ answer, however, that Daniel Wilson, after he had expended about two thousand three hundred and eighty dollars, withdrew from the partnership, and that W. C. Wilson promised to pay him this amount on condition that he should make it out of the mine. The note in contest was thereupon executed, covering one thousand eight hundred dollars of this two thousand three hundred and eighty dollars; so that it may be reasonably inferred from the answer and the proofs offered that there was a dissolution of the part*257nership at the time the note was executed, although no final settlement of its affairs was had. W. 0. Wilson thereafter continued in possession of the mine, working it every year since, and enjoying the benefit of the funds expended thereon in making the necessary improvements to put it in a working condition; but this does not answer the defendants’ contention, that the consideration of the note was funds that the partnership had received, and not the defendant W. C. Wilson. Unless there has been, by some act of the parties, a segregation of such funds from the general partnership property, and an appropriation thereof by the defendant W. C. Wilson, for which he and his codefendant executed their note to Daniel Wilson, there is in fact no sufficient or legal consideration to support the note. If a person received funds or property of a partnership of which he is a member, he becomes a debtor to the partnership, and not to the other members thereof; and so, if one partner loans money to the partnership, he becomes a creditor of the partnership, and not of the remaining members. In neither case could an action be maintained by or against the partnership. This is so for the obvious.reason that it is not permissible for a party to sue himself.
It is also true, as a general rule, that until the accounts of the partners are finally adjusted, or until the affairs of the firm are so far settled as that nothing remains to be done by it or its members except to ascertain the final state of the account between the partners, no action can be maintained by one partner against the other in respect of particular items of account pertaining to the partnership business. But there are exceptions to this general rule, and a prominent one is where the sum sought to be recovered is separated from the partnership account; 1 Collyer on Partnership, § 258; Bonnaffe v. Fenner, 6 S. *258& M. 212, 45 Am. Dec. 278. So a partner may sue Ms associate at law upon a note or duebill given Mm on a partial settlement of the partnership affairs: Sturges v. Swift, 32 Miss. 239. The giving of a promissory note by one partner to another is an isolation of the demand in respect of which the note was given from the general partnership account: 2 Lindley on Partnership, *565; 1 Collyer on Partnership, § 257; Bonnaffe v. Fenner, 6 S. & M. 212, 45 Am. Dec. 278; Merrill v. Green, 55 N. Y. 270; Grigsby’s Executors v. Nance, 3 Ala. 350, 351; Scott v. Campbell, 30 Ala. 728. Chief Justice Marshall in Van Ness v. Forrest, 8 Cranch, 33, says: “It is alleged that, at law, one partner can sue another on a claim growing out of the partnership, in no other case than for a general balance on a stated account. The terms in which this proposition has been laid down are perhaps too general. In the case at bar, the suit is instituted on a promissory note given, not to the company, but to Joseph Forrest, president of the company. Although the original cause of action does not merge in this note, yet a suit is clearly sustainable on the note itself. * * * . The principle that a company cannot sue its members does not apply to the case; nor does the principle that a partner cannot sue a partner on a partnership transaction apply to any case where a note in writing is given for money, not to a firm, but to an individual member. ” So it would appear that an action at law is maintainable by one partner against another upon a promissory note executed by the one to the other involving particular items or transactions of the partnership business, upon the ground that the giving of the note is an isolation or separation of the particular matter from the general partnership account, and that an accounting and final settlement of the partnership affairs is not necessarily involved in such action; that the execution of the note is such an acknowledgment of isolation or elimination *259of the particular transaction from the general partnership account as that the maker will be estopped at law from questioning the holder’s right of action thereon.
2. We are aware of authorities which hold that a promissory note given by one partner to another in settlement of particular transactions of a partnership, prior to the final settlement and adjustment of the general partnership affairs, will not support an action at law; that the maker being under no legal.or equitable obligation to pay that for which the note was given, it is therefore a mere nudum pactum, and can have no greater force or effect than an express promise would have if made under like circumstances in any other form. Of such are Martin v. Stubbings, 20 Ill. App. 398, 9 Am. St. Rep. 621; Stafford v. Fargo, 35 Ill. 481, and Sewell v. Cooper, 21 La. Ann. 583, Without attempting to distinguish or criticise these cases, we note that in them all the doctrine is maintained that it is sufficient to defeat an action upon a note given by one partner to another to answer that the note was based upon transactions touching the business in which the partners were engaged as such,' and that no final accounting or settlement of partnership affairs has been had, and that a mere showing of this state of affairs will defeat the action at law. This recognizes a sort of an equitable plea in abatement, which, in effect, bars the action. It is altogether clear that an accounting between partners cannot be had at law, and, upon principle, a mere suggestion that an accounting is necessary ought not to defeat an action where the parties have, by the giving and taking of a promissory note, expressly recognized that a right of action at law exists. If equitable reasons exist why a defendant should not pay his note in whole or in part, the remedy in equity is ample. At common law equity will enjoin proceedings at law where an unfair advantage is about to be taken, and will proceed to administer all the relief which the particular *260case requires: Story’s Equity Jurisprudence, §§ 885, 886. In the case of Burnes v. Scott, 117 U. S. 586, 6 Sup. Ct. 865, very similar to this, Mr. Justice Wood says: “As a general rule, want of consideration is a defense to a promissory note, but it is not always a defense which can be made at law. It frequently requires the aid of a court of equity to give it effect. The plea to support which the defendant contends the evidence of want of consideration was admissible, clearly sets up an equitable defense. It alleges that the note sued on is based on the ‘ transactions relating to the business of said partners, ’ * * * and that the amount due thereon, if anything, could not be ascertained until the final settlement of the partnership. It is plain, therefore, that the defense set up by the plea is not the legal defense of want of consideration, for the plea admits, by implication, that there may be something due on the note, but the equitable defense that the amount due on the note, if anything, is dependent on the amount coming to'Winston from the assets of the partnership, which cannot be ascertained without a settlement of the partnership affairs in a suit to which all the parties are necessary parties. And yet, having so pleaded, the defendant insists, in argument, that in a trial upon the promissory note in a court of law, without the presence of two of the four partners, evidence is admissible to settle the partnership, and to prove, without making Winston a party to the suit, that there is nothing due him out of the partnership assets.” The learned justice then concludes that the relief, if any, upon the facts stated, is by injunction to stay the action at law until a settlement of the partnership affairs is had, and the amount due Winston is ascertained. To the same effect are Mitchell v. Wells, 54 Mich. 129, 19 N. W. 777, and Sturges v. Swift, 32 Miss. 239. Under our statute, such equitable relief may be had by way of cross-bill in equity. It would seem that the better *261reasoning and authority is in favor of the rule that will not permit a mere suggestion of an equitable defense to defeat the action at law, wherein such defense cannot be made available. The defendants have given the right of action at law by the execution and delivery of their promissory note, and the remedy adopted by plaintiff is available to him unless restrained by a competent equitable tribunal, for which the law has made ample provisions.
3. As to the contention of counsel under the second head,—that they were entitled to show by oral testimony that the note in question was intended merely as a memorandum, and was not to be paid until the amount thereof could be realized out of the mine,—the law is settled by this court adversely thereto: Portland National Bank v. Scott, 20 Or. 423, 26 Pac. 276; see also Burnes v. Scott, 117 U. S. 586, 6 Sup. Ct. 865. We therefore conclude that the evidence offered and rejected by the court was clearly incompetent to show either a want of consideration for the note in question in a court of law under the issues herein, or that the note was intended as a memorandum only, and was not to be binding until the amount thereof could be realized from the mine. The instruction complained of, when taken in connection with other instructions pertaining to the same subject matter, comports with these conclusions, and hence the court below has committed no error either in refusing to submit the testimony offered to the jury or in its charge touching the law of the case.
4. Another question made by the appellants, which is raised here for the first time, is that the plaintiff brings the action in his capacity as administrator of the estate of Daniel Wilson, deceased, and his letters of administration having been issued to him by the probate court of Pacific County, State of Washington, he is therefore a foreign administrator, and is precluded from bringing the action *262within this state. This objection is apparant on the face of the complaint, and goes to plaintiff’s capacity to sue, and not having been taken by demurrer it is waived, and cannot be urged now, for the first time: Pomeroy’s Remedies, § 181; Moir v. Dodson, 14 Wis. 279; Robbins v. Wells, 18 Abbott’s Practice, 191; 1 Estee’s Pleadings, § 423. The judgment of the court below ought to be affirmed, and it is so ordered. Affirmed.