Forsyth v. Woods - 78 U.S. 484 (1870)
U.S. Supreme Court
Forsyth v. Woods, 78 U.S. 11 Wall. 484 484 (1870)
Forsyth v. Woods
78 U.S. 484
1. Semble, that a debt incurred by the members of a partnership individually, even in a matter where the firm is to profit, will not, in case of bankruptcy of the firm, let the person to whom the debt was incurred come for a dividend upon the assets of the firm as distinguished from the assets of the individual partners.
2. The acceptance of letters of administration being a trust (granted because of the confidence reposed in the grantee) -- a loss sustained by a surety in the administration bond, who has entered into the suretyship under a representation from a firm of which the administrator was a member, that they intended to take into the possession of the partnership all the assets of the intestate, to make the administration a matter of partnership business, and to share as partners the gains and losses resulting from the administration, so that in signing the bond he would become the surety of the firm and not of the individual partner, cannot be recovered by the surety from the firm. Such a transaction is against the policy of the law.
Woods, assignee in bankruptcy of the firm of E. P. Tesson & Co. (which was composed of E. P. & E. M. Tesson) sued Forsyth in assumpsit to recover from him a balance in account.
Forsyth pleaded a special plea in bar. The plea averred a joint request made by the individuals who composed the firm of E. P. Tesson & Co. to him, soliciting him to become a surety of one of those individuals in an administration bond. It also averred a joint representation made to him by them that they intended to make the administration a matter of partnership business, to take into the possession of the partnership all the assets of the intestate, and to share as partners the gains and losses resulting from the administration, so that in signing the bond he would in effect become the surety of the firm, and not merely a surety of the partner to whom the grant of letters of administration might be made. The plea further averred that, moved by the joint request and relying upon the joint representations aforesaid, he did become a surety in the administration bond, and that
afterwards (the partnership having taken possession of all the assets of the deceased intestate, and having become bankrupt), he was compelled to pay to the legal representatives and next of kin of such intestate a large sum of money, in consequence of the default of the administrator. It still further averred that under similar circumstances, after like request and representations, the defendant became a surety in an administration bond of the other partner, to whom administration of another estate was committed by the probate court, and that he was compelled to pay money for that administrator's default. The plaintiff demurred generally, and the court below sustained the demurrer. The defendant, Forsyth, now brought the case here. Whether the facts pleaded showed a legal liability of the partnership, as such, to repay what the defendant had been compelled to pay in consequence of his suretyship, was the question presented by the record. If they did, the defendant had a setoff to the plaintiff's demand; if they did not, the demurrer to the plea was rightly sustained.
The Bankrupt Act, whose provisions were a good deal discussed in the argument, provides that
"the net proceeds of the joint stock shall be appropriated to pay the creditors of the partnership, and the net proceeds of the separate estate of each partner shall be appropriated to pay his separate creditors."
The joint stock does not go to pay the separate creditors, except when there is a balance of such stock after payment of the joint debtors.