1. In Massachusetts, a partner who indorses a firm note as an
individual incurs, in addition to the liability for the partnership
debt arising from his membership in the firm, a distinct and
separate liability arising by reason of his personal indorsement.
P.
273 U. S.
384.
2. A composition between a bankrupt partnership and the
partnership creditors only, in respect only of the partnership
debts, will not discharge the partners as individuals from their
separate obligations as endorsers of partnership notes. P.
273 U. S.
383.
3. The fact that the holder of the notes was scheduled as a
partnership creditor and received, as such, his proportion of the
consideration deposited for the composition did not enlarge the
effect of the composition so as to discharge the partners from
their personal liabilities as endorsers. P.
273 U. S.
385.
252 Mass. 94 affirmed.
Certiorari (268 U.S. 686) to a decree of the Superior Court for
Suffolk County, entered pursuant to a rescript from the Supreme
Judicial Court.
MR. JUSTICE SANFORD delivered the opinion of the Court.
This suit was brought by the International Trust Co. in a
Superior Court of Massachusetts against Samuel A. Myers and Harry
Meyers, partners composing the firm of S.A. & H. Myers, to hold
them individually liable upon certain notes that had been executed
by the partnership, in the firm name, for a partnership obligation,
and endorsed by them personally. The defense was that the
individual liabilities of the defendants had been discharged
Page 273 U. S. 381
by a composition in a prior proceeding in bankruptcy. The
Superior Court sustained this defense, and dismissed the
plaintiff's bill. On appeal, the Supreme Judicial Court, without
entering judgment, directed the Superior Court, by a rescript, to
reverse its decree and enter a decree for the plaintiff.
International Trust Co. v. Myers, 252 Mass. 94. The
Superior Court, pursuant to the rescript, entered a decree against
the defendants in the respective amounts of their individual
obligations as indorsers upon the notes. [
Footnote 1] This being, under the practice that was
followed, [
Footnote 2] the
final decree in the case, and not appealable,
Boston,
Petitioner, 223 Mass. 36, is to be regarded as the final
decision of the highest court of the state in which a decision
could be had, and the writ of certiorari was therefore properly
directed to the Superior Court.
See Davis v. Cohen Co.,
268 U. S. 638,
268 U. S.
639.
The Bankruptcy Act [
Footnote
3] provides, insofar as pertinent here, that a partnership may
be adjudged a bankrupt, § 5a; that a "bankrupt," including, as
defined by § 1a, a person against whom an involuntary petition has
been filed, "may offer, either before or after adjudication, terms
of composition to his creditors," after filing "the schedule of his
property and the list of his creditors," § 12a, as amended; that,
upon the confirmation of a composition, the consideration shall be
distributed as the judge shall direct, § 12e, and that the
confirmation, "shall discharge the bankrupt from his debts," §
14c.
The proceedings in the prior bankruptcy case, shortly stated,
[
Footnote 4] show that
creditors of the firm of S.A. & H. Myers filed an involuntary
petition in bankruptcy, praying that
Page 273 U. S. 382
it be adjudged a bankrupt. There was no prayer that the partners
be adjudged bankrupts individually. A partnership schedule, signed
and sworn to by the partners, was filed, showing the partnership
property and listing the partnership creditors. In this the
plaintiff's notes were listed as unsecured debts of the
partnership, with no statement that they were indorsed, and each of
the partners stated that he had no individual debts and no
individual assets that were not exempt. Thereafter, before any
adjudication, the partners offered terms of composition at forty
percent to the unsecured creditors. The consideration therefor was
deposited in the court, the composition was confirmed, and the
consideration distributed among the partnership creditors. The
plaintiff, as a creditor of the partnership listed in the schedule,
received its proportion of the consideration, which it credited on
the notes before bringing the present suit.
No offer of composition was made to the creditors of the
individual partners, who were not listed; no consideration was
deposited for them, and none was received by the plaintiff on
account of the individual obligations of the partners as indorsers
on the notes.
We are not called upon to determine whether the discharge of the
notes as debts of the partnership which resulted from the
confirmation of the composition carried with it the discharge of
the defendants, as partners, from the liabilities on the notes as
partnership debts which arose from their membership in the firm.
[
Footnote 5] The Supreme
Judicial Court predicated the liabilities of the defendants solely
on their personal indorsements, and the
Page 273 U. S. 383
decree was based on their respective liabilities as such
indorsers. And the sole question here presented is whether the
composition discharged them, as individuals, from the obligations
arising by reason of their indorsements.
This question must be answered in the light of the principle
stated by the Supreme Judicial Court, that a "composition partakes
of the nature of a contract." It is settled by the decisions of
this Court in
Cumberland Glass Co. v. De Witt,
237 U. S. 447,
237 U. S.
453-454, and
Nassau Works v. Brightwood Co.,
265 U. S. 269,
265 U. S. 271,
265 U. S.
273-274, that a composition is "a settlement of the
bankrupt with his creditors" -- in a measure superseding and
outside of the bankruptcy proceedings -- which originates in a
voluntary offer by the bankrupt and results, in the main, from
voluntary acceptance by his creditors; that the respective rights
of the bankrupt and the creditors are fixed by the terms of the
offer, and that, upon the confirmation of the composition, they get
what they "bargained for," and no more.
And see, In re
Coe, 186 F. 745, 747;
In re Adler, 103 F. 444, 446;
In re Lane, 125 F. 772, 773.
Here, the partnership, being proceeded against as a distinct
legal entity,
Meek v. Centre County Banking Co.,
268 U. S. 426,
268 U. S. 431,
could offer terms of composition to its creditors, under § 12a,
after filing a schedule of its property and a list of its
creditors. It filed such a schedule and list. And, although the
district court in Massachusetts had always refused to adjudge the
bankruptcy of a partnership unless the partners were also adjudged
bankrupts,
In re Forbes, 128 F. 137, 140, [
Footnote 6] and doubtless
Page 273 U. S. 384
would have permitted the terms of composition to be offered to
the creditors of the partners as well as to the creditors of the
partnership, we think it clear that, read in the light of the
schedule, the offer of the terms of composition was made only to
the partnership creditors listed in the schedule, for whom the
required consideration was deposited, and not to the creditors of
the individual partners, who were not listed and for whom no
consideration was deposited; in short, that the "bargain" was made
only with the partnership creditors and in respect to the
partnership debts. The necessary result is that the confirmation of
the composition merely discharged the partnership debts, and did
not discharge the separate debts of the partners to their
individual creditors, who were offered and received no
consideration for such release.
That, as was said by the Supreme Judicial Court, the
indorsements of the notes by the defendants "created individual
obligations, separate and distinct from the firm obligations," is
clear, it being well settled in Massachusetts that a partner who
indorses a firm note as an individual, incurs, in addition to the
liability for the partnership debt arising from his membership in
the firm, a distinct and separate liability arising by reason of
his personal indorsement.
Roger Williams Nat. Bank v.
Hall, 160 Mass. 171;
Faneuil Hall Nat. Bank v.
Meloon, 183 Mass. 66, 67;
Fourth Nat. Bank v. Mead,
216 Mass. 521, 523. As was said in the
Meloon case, the
defendants "were nonetheless indorsers and nonetheless liable as
such, because they were also liable as members of the firm which
made the note."
And see Robinson v. Seaboard Nat. Bank,
247 F. 1007, 1008,
Matter of Peck, 206 N.Y. 55, 60, and
Wilder v. Keeler, 3 Paige (N.Y.) 167, 176.
It also results, from the very nature of a composition, that,
where the terms offered and accepted go merely to the discharge of
the maker of a note, its confirmation does not release an indorser
from his separate liability for which no
Page 273 U. S. 385
"bargain" was made.
See Easton Furn. Mfg. Co. v.
Caminez, 146 App.Div. 436, 438,
Silverman v.
Rubenstein, 162 N.Y.S. 733, 735,
Bromberg v. Self, 16
Ala.App. 627, 628, and
Guild v. Butler, 122 Mass. 498,
500.
Nor do we think that the effect of the composition of the
partnership debts was enlarged so as to include the discharge of
the defendants from their personal liabilities as indorsers by the
fact that the plaintiff was scheduled as a partnership creditor and
received, as such, its proportion of the consideration deposited.
The Supreme Judicial Court rightly said that the plaintiff was a
party to the composition
"only to the extent in which its claim against the partnership
was concerned; it was not recognized as an individual creditor; no
offer was made to it as the holder of a claim against the
individuals. In this respect, it was a stranger to the offer; it
stood as any other individual creditor whose demand was not listed,
to whom no offer of compromise was made and who entered into no
bargain with the defendants."
We conclude that the composition did not discharge the
defendants from their individual and personal obligations as
indorsers upon the notes. And the decree, which merely enforced
their liabilities as such indorsers, must therefore be
Affirmed.
[
Footnote 1]
These amounts differed, as one note was indorsed by only one of
the defendants.
[
Footnote 2]
Gen.Laws 1921, c. 211.
[
Footnote 3]
30 Stat. 544, c. 541.
[
Footnote 4]
These are set out at length in the opinion of the Supreme
Judicial Court,
supra.
[
Footnote 5]
See In re Coe, 183 F. 745, 747,
Abbott v.
Anderson, 265 Ill. 285, 291, and
Curlee Clothing Co. v.
Hamm, 160 Ark. 483, 486.
And compare, as to the
effect of a discharge granted a partnership under § 14:
Francis
v. McNeal, 228 U. S. 695,
228 U. S. 701;
In re Bertenshaw, 157 F. 363, 369;
Horner v.
Hamner, 249 F. 134, 140;
Armstrong v. Norris, 247 F.
253, 255, and
In re Neyland & M'Keithen, 184 F. 144,
151.
[
Footnote 6]
We need not determine here whether the adjudication of the
bankruptcy of a partnership involves an adjudication of the
bankruptcy of the individual partners.
See Francis v. McNeal,
supra, 228 U. S. 701;
Liberty Nat. Bank v. Bear, 265 U.
S. 365,
265 U. S. 368;
Meek v. Centre County Banking Co., supra, 268 U. S.
432.