Fairchild v. Holly

| Conn. | Jun 15, 1834

Bissell, J.

Upon the facts presented in this motion, it is to be taken for granted, that a large portion of the articles charged - in the plaintiffs’ account, were furnished, and a large portion of the payments were made, after John Brown, one of the defendants, withdrew from the firm, and ceased to be a partner. It is also conceded, that if the payments which were made after he so withdrew from the concern, are applied to the oldest account, the debt for which he was liable, is paid ; and the verdict should have been for the defendants. On the trial below, the question arose, how the law would apply these payments, neither party having directed their application. And upon this point, the jury were charged, “ That the money paid by Holly, after Brown ceased to be a partner, could not, in the absence of any evidence on the subject, be, by the plaintiffs, applied to the debts of the former company ; but the application ought to be made to the debt of the company then existing, out of whose funds it might be presumed to have accrued.”

The question for our decision arises upon the charge. Is that correct 1

It is a well-settled principle, that the person paying money has a right to apply the payment as he thinks proper. If he owe several debts, he may apply the payment to either. But if he does not direct the application, it may be made by the party receiving the money. . If it be not applied by cither party, the law will make the application : and in doing so, will apply the payment to the extinguishment of the oldest debt. Such is the general rule. Meggot v. Mills & al. 1 Ld. Raym. 286. Simson v. Ingham, 2 Barn. & Cres. 65. Clayton’s case, 1 Meriv. 584, 610. Brooke v. Enderby & al. 2 Brod. & Bing. 70. The United States v. Kirkpatrick, 9 Wheat. 720, 737.

Such, then, being the general principle, it will be readily admitted, and it was indeed admitted in the argument, that had Brown continued a member of the co-partnership, the payments made must have been applied to those items in the plaintiffs’ account, which first accrued. Is the effect of Brown’s withdrawment such, as that the law will make a different application of these payments ?

And here it should be remarked, that the plaintiffs’ account is entire and unbroken. No rest was made, and no balance struck, when Brown withdrew from the co-partnership. The charges continued to be made in the same manner, and -against the same persons. Indeed, it was claimed to have been proved on the trial, and for the purposes of the argument, it may be assumed, that Brown was a secret partner, and was not known by the plaintiffs to have been a partner, until about the time of the commencement of the suit. He silently withdrew ; and the other defendants continued to carry on the business, in the same manner as before. And it should be borne in mind, that Wm. //. Holly was, throughout, the acting partner, and the agent of the other partners. It was through him that the goods were furnished, and the payments made, both before and after Brown withdrew from the concern.

Upon this state of facts, there would seem to be no reason, independently of authorities, why the general rule should not prevail, and the payments be applied to the oldest demand.

The ground assumed in the charge, viz. that the moneys, with which the payments were made, are presumed to have accrued out of the funds of the new firm, does not appear to me to be tenable. No new partner had come in : no new funds were thus created. The business underwent no visible change; and the members of the new co-partnership, or rather the remaining members of the old firm, arepresumed to have been in possession of the funds of that firm, so far at least, as those funds were required for the payment of its debts. And Holly still continuing to be the agent, may be presumed to have had the con-troul of those funds, for that purpose. Indeed, the presumption would seem to be, that these funds belonged to the old rather than to the new firm; as by reason of Brown’s retiring, it would seem to be necessary that the debts due to that firm should be called in, in order to the payment of its own debts, and the final settlement of its concerns.

This view of the case furnishes a decisive answer to an argument, which has been urged at the bar, viz. that in the absence of testimony, the moneys paid are to be presumed to be the moneys of the person making the payment.

It has, however, been urged upon us, as a settled principle, that the law will apply a general payment to the debt, for which the creditor has the worse security, leaving that for which he has the better security unpaid.

Admitting the correctness of the principle; it may be remarked, that there is nothing in the case before us, which either demands, or warrants its application. There was no evidence offered at the trial, which went to prove, that the plaintiffs’ security was in the least impaired, by reason of Brown's withdrawing from the copartnership. There was no pretence, that the remaining' partners were not abundantly responsible. Some foundation should have been laid, for the application of the principle, at least by evidence tending to show, that the security of the creditors was lessened, by the fact in question. Both debts are of the same character j they are both evidenced in the same manner ; they both stand on the same ground, as to the proof of their existence ; and both, for aught that appears, are against persons of abundant responsibility. The rule, therefore, does not apply ; and the cases cited do not sustain the objection.

In the case of Peters v. Anderson, 5 Taun. 596. the plaintiff had served the defendant three years, as a surgeon, under an indenture ; and during that period, payments had been made, leaving, however, a balance due. After the three years had expired, the plaintiff agreed, (but not under seal,) to serve the defendant as a surgeon, at a stipulated salary. And under this agreement he served three years, during which general payments were made, leaving on this contract a balance due, but sufficient to extinguish the debt under the indenture.

The plaintiff brought covenant on the indenture, and as-sumpsit for his salary due under the simple contract: and the question was, whether the payments made during the latter period should be applied to the extinguishment of the first debt; and it was holden, that these payments might be applied to the debt-due by simple contract. The case merely decides, that the plaintiff was at liberty to apply the money he received to which account he pleased; and might, therefore, appropriate it to the latter account, for which he had the worse security, and might leave the first account open.

The case of Thompson v. Brown, 1 Moody & Malkin 40. only proves, that a creditor cannot apply partnership funds to the payment of the individual debt of one of the partners ; at the same time leaving a debt due him from the copartnership unpaid. Lord Ch. J. Abbott left the question, whether the money paid belonged to the partners or not, to the jury; at the same time, he fully recognizes the general rule, that when money is paid generally, without any appropriation, it ought to be applied to the first items in the account.

The case of Simson v. Ingham, 2 Barn. & Cres. 65. and which has been relied upon, does not support the charge of the judge on the circuit. That case does, indeed, decide, that a creditor having two demands, may apply a general payment to the later account, if he pleases. Theonly question upon which the case turned, was, whether the plaintiffs had not precluded themselves from thus applying the payments, by the course they had taken. It was holden they had not: and Bayley, J., in giving his opinion in that case, says : “ The general rule is, that the party who pays money, has a right to apply that payment as he thinks fit. If there are several debts due from him, he has a right to say to which of those debts the payment shall be applied. If he does not make a specific application, at the time of payment, then the right of application generally devolves on the party who receives the money. But there is a third rule, viz. that where one of several partners dies, and the partnership is in debt, and the surviving partners continue their dealings with a particular creditor, and the latter joins the transactions of the old and the new firm in one entire account, then the payments made, from time to time, by the surviving partners, must be applied to the old debts.”

This is the doctrine in Clayton’s case, 1 Meriv. 584. and Sir William Grant there says, that by the civil law, the application is given, first to the debtor, and then to the creditor ; and that as well the creditor as the debtor must make his election, at the time of payment; and that unless such election be immediately made, the law will appropriate it in discharge of the most burthensome, and if all are equally burthensome, of the oldest debts.

In the case of Brooke v. Enderby & al. 2 Brod. & Bing. 70. the rule is applied where a dormant partner had withdrawn from the firm, and the transactions with the creditor were continued, by the remaining partner. That case cannot, indeed, be distinguished from the. present; and if it be law, must be decisive.

There, Enderby was a secret partner, and withdrew from the firm. No notice was given of the dissolution; and the plaintiff did not know that he was a partner, until after the bankruptcy of Gilpin, the other partner. During the copart-nership, various sums were received from the plaintiff, and payments were made from time to time. There was, however, a large balance in his favour, at the time of the dissolution. After the dissolution, Gilpin dealt with the plaintiff, in the same manner as before, receiving moneys and making payments ; and so continued to deal with him down to the period of his bankruptcy. The account was kept in the same manner ; no distinction being made as to the time before and after Enderby withdrew. No rest was made in the account, and no balance struck; and there was, at all times, a considerable balance due to the plaintiff.

In this action, Gilpin pleaded his certificate. Enderby pleaded the general issue, and paid money into court. And he claimed a credit for all the sums paid by Gilpin to the plaintiff, after the dissolution, without giving credit for any sums received by Gilpin, on account of the plaintiff, after that period, on the ground that the account being entire, and the payments made after the expiration of the partnership, not having been, at the time, appropriated to any particular debt, must be applied to the reduction of the old balance due from the copartnership. The court of Common Pleas were of opinion, that the case was not distinguishable in principle from ClaytoPs case ; and directed, that a judgment of non-suit should be entered.

On the ground of authority, therefore, as well as of principle, I am of opinion, that the charge to the juiy was incorrect; and that the rule must be made absolute.

Daggett, Ch. J. and Church, J., were of the same opinion. Williams, J.

The plaintiffs brought an action of book debt against the defendants, claiming they were partners, and had been by them supplied with paper to carry on their business. The partnership was denied. If any, it was a dormant partnership. One of the defendants, Broun, it was claimed, at all events, ceased to be a partner before much of the paper was furnished ; and that by the plaintiffs’ account, allowing all the credits to be placed to all the defendants, without regard to the charges made by the plaintiffs since it was claimed Broivn left the concern, there would be nothing due from the company while Brown was a member; and so no judgment could be rendered against any of the defendants. The plaintiffs claim, that paper to a large amount had been delivered to Holly &y Co. since Broivn left; and that the credits given since, ought to apply to the debt contracted since.

It was not claimed, that the defendants appropriated the money, when paid ; nor that the plaintiffs had done it, unless the manner of keeping the account constituted an appropriation ; but the defendants claimed, that the payment should apply to the oldest accounts.

The court below thought, that as after Brown left the concern, Holly <$p Co. could not subject him, by their purchases ; so, in the absence of all evidence, it was fair to presume, that the payments made them, were made for the benefit of that concern for whom the purchases were made ; and I am not satisfied that this opinion is incorrect.

Certain rules as to the application of payments, are well settled. The .first rule is, that the debtor, when he pays, may direct the application ; and if he omits, that the creditor may make it. By the civil law, the creditor must do it immediately ; by our law, he may take a reasonable time. Simson v. Ingham, 2 Barn. & Cres. 65. (9 Serg. & Lowb. 302.) Mayor, &c. of Alexandria v. Patten, 4 Cranch, 317. 320. But he cannot be allowed to do it, after a controversy begun. In that case, both parties having omitted it, the court will make the application according to its own notions of justice. The United States v. Kirkpatrick & al. 9 Wheat. 720. 737.

Another principle that the courts have adopted, is, that the money may be appropriated to the proper debt of the party who pays. Thus, where the payer owed a debt to the plaintiff, and another debt was due from his wife, and another from his wife as executrix, it was held, that the plaintiff could not apply the payments to the latter debt, but might to either of the two former, he being equally a debtor for them. Goddard v. Cox, 2 Stra. 1194.

Another principle seems to be, that it may he applied to a debt where the security is the most inferior or precarious. Peters v. Anderson, 5 Taun. 596.

The more general rule, doubtless, is, that it be applied to the oldest debt, in the absence of any peculiar circumstances, even though it be merely an equitable debt. Bosanquet & al. v. Wray & al. 6 Taun. 597.

It cannot, I think, be seriously contended, in this case, that the plaintiffs have intentionally made an appropriation, when they had no knowledge of any change in the firm. The court, then, is to make it, according to its sense of justice.

Before Brown left the concern, the firm was Holly & Co. ; and so it remained afterwards; but still it consisted of different persons, and was as distinct a concern as if a new name bad been introduced. The new debts were not the debts of Brown, but of the new company of Holly Co. Why, then, should the payments of this company be taken as the payments of the concern of which Brown was a member l Suppose a new name had been assumed; would a payment by that company, have been considered as a payment for the old company ? Now the payments are made by Holly <§' Co. ; but it is not the Holly cj- Co. of which Brown formed a part. It seems, therefore, not to fall within the principle, that appropriations must be made to the oldest debt; because these were not the debts of the same person. The Holly cj-1 Co. who make the payments, are not the Holly ff Co. who contracted the debts. Of course, it is not the payment of the former company, and ought not to be applied to their debt.

It was intimated, that it was common that the affairs of the former company be settled by their successors ; but it is not to be presumed. The evidence was in the power of the defendants ; and they ought to have shown it. In the absence of any such testimony, the fair presumption seems to me to be, that this firm were paying the debt of this firm, rather than the debt of another firm of the same name, although they may have been legally liable for both. Had a new partner come in, instead of an old partner going out, the injustice would have been more manifest; but it seems to me the principle would be the same. In neither case, is the company the same. The defendants, then, cannot claim the benefit of the principle, that application shall be made to the oldest debt. On the contrary, is it not more just, that the plaintiffs shall apply these payments to the debt which is most precarious l

Here it is said, they must show, that one is precarious. It is apparent, that they have less security, in the one case, than in the other ; and in Peters v. Anderson, 5 Taunt. 596. the bare fact that one was secured by deed, and one was a simple , , , . , ,. r debt, was deemed sufficient to entitle a creditor to an eiect¡on. Now, when the defendants seek to shelter themselves from this claim, by the application of this principle, and withdraw one of the defendants from this suit, and thus avoid it as to all, according to my notion of justice, this defendant ought to show, as a matter of fact, that such payment was intended for the debt in which he was interested, or was so received.

Suppose the plaintiffs had the note of Holly and Brown for the first paper, and that of Holly for the last, and Holly makes a payment; no doubt the plaintiffs could apply that payment to the last debt; and why should not the court do that justice to them, which they permit the plaintiffs to do themselves ? If they would, then the only question here would arise from the manner of keeping this account, or its being a partnership debt. As to the manner of keeping the account, it is all explained, by the fact, that the partnership was secret; and the plaintiffs ought no more to be prejudiced by that, than they would be, by making their charges to William H Holly, in a claim against Holly and Brown, when they discovered he was a secret partner.

But it is said, that one rule regarding this subject, is, that where a firm is in debt, and one of the partners dies, and the survivors continue the business with a particular creditor, and the latter joins the transactions of the old and new firms in one entire account, the payments made by the surviving partners, from time to time, must be applied to the old debt. Such was Clayton's case, 1 Meriv. 608. to the principles of which I entirely subscribe. Here, the partners were bankers, and were largely indebted to Clayton, at the time of the death of one of them, and continued the business under the same name. Clayton drew, from time to time, upon that house, so as to reduce his debt from 1713?. to 453?. Then he desired more funds, and again drew on the house. The account was, by the bankers, kept in the same manner as before, and sent to him, from time to time, as common ; and it was held, by the Master of the Rolls, that the parties had treated this, and the court would treat it, in the same manner as if one of the partners had not died. The judge, however, remarks, “ that he should feel a good deal embarrassed, if the general question of the creditor’s right to make the application of in- , _ . b definite payments, were now necessary to be determined. Meriv. 607. He therefore, it seems to me, means to place the case on its own peculiar circumstances, viz. the case of a banking house, which is frequently continued from generation to generation, under the same firm, changing however its members, from time to time, but keeping its accounts in the same manner as our incorporated institutions do, without any alteration in consequence of the death of its members; and that this unbroken account was not objected to, by the creditor. There is, however, a more recent case of Brooks v. Enderby & al. 2 Brod. & Bing. 70. (6 Serg. & Lowb. 23.) where the court of Common Pleas carried the principles of that case further. There, Gilpin, the plaintiff’s banker, had a secret partner, En-derby, and at the time of dissolution, owed the plaintiff a large sum ; after which payments were made, and new sums received ; and that court held, that the case could not be distinguished from Clayton's case, and that Enderby had a right to the benefit of the payments made by Gilpin since the expiration of the partnership, without being charged with the moneys by him received. That case, so far as I can see, differs in nothing from this, except that it is the case of a banker’s account, which seems to be noticed in their opinions, as well as in a note to 13 Petersd. 247. This, however, is merely an opinion, without any reason given for it. except the general one, that it is not distinguishable from Clayton's case.

Any opinion from a source so respectable is certainly entitled to great attention ; and supported as it is, by the opinion of my brethren, it is with great reluctance that I venture to differ from them, and am much relieved to find, that the view which I have taken of Clayton's case, is strongly supported, by the opinions of two eminent judges of the court of King's Bench, in Simson & al. v. Ingham & al. 2 Barn. & Cres. 65. (9 Serg. & Lowb. 25.) decided in 1823, several years since the above case in the Common Pleas. Bailey, J., in alluding to the rule says : “ In this case, it is to be presumed, that all the parties have consented that it should be considered as one entire account, and that the death of one of the partners has produced no alteration whatever.” Consent must imply knowledge of the facts; and therefore, could not exist in the case of Brooks v. Enderby, unless, indeed, it is to be presumed from the general course and usage of bankers’ business; in either of which cases, it cannot apply to this case. And Best, J., in remarking upon Clayton's case, says : “ It was on the ground that the accounts were so blended, that the Master of the Rolls decided that case.” Where the blending of accounts arises from a fact by the defendants concealed from the plaintiffs, that can certainly have no weight. I think, therefore, that these opinions by these eminent judges, given several years after the decision in the Common Pleas, will show, that the decision is not acquiesced in, or that it applies exclusively to bankers’ accounts.

I cannot, therefore, concur in advising a new trial.

Peters, J. gave no opinion, being absent.

New trial to be granted.