[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 206 By the transfer from Gleason to Baker of his interest in the property and assets of the firm of Morss, Reed Co., Baker only acquired a right to an accounting, in respect to the partnership effects, and to the surplus that should remain after the payment of the partnership debts, and any balance that might be due from Gleason to his copartners upon an accounting between them. By such transfer, the partnership of Morss, Reed Co., as that firm had been theretofore constituted, was dissolved, and by the acceptance, by the remaining partners, of Baker, as a member of the firm, a new partnership was created, in which Baker was substituted for Gleason, the retiring partner. From that time the partnership property and effects were held by the new firm, charged with a trust for the payment of the firm debts, including that for which this action is brought; and the retiring partner, Gleason, occupied the position of a surety for the debts existing against the firm, of which he had been a member, to the extent that the assets of the firm were sufficient for their payment and discharge. As the referee has found upon sufficient evidence that the personal effects of the firm were more than sufficient to pay all its debts, not only at the time of the transfer from Gleason to Baker, but also at the subsequent time when the remaining partners Morss and Reed acquired the interest of Baker therein, it follows that, as between Gleason and his former partners Morss and Reed, Gleason was a surety only in respect of all the debts of the firm of which he had been a member, and that the assets of the firm were primarily liable for their payment, and that he could have compelled their application to that purpose, and Morss and Reed could not have compelled a contribution from him for the payment of any of such debts without showing that the partnership assets had been applied to their payment and were exhausted. This result follows, necessarily, from the principles adjudged by this court in Menagh v. Whitwell (52 N.Y., 146), in which case the rules governing the rights and liabilities of partners, as between each other, upon the *Page 208 transfer by one of his interest in the partnership effects, and the consequent dissolution of the copartnership, were considered, and an elaborate discussion of those principles, and a review of the authorities, would be out of place at this time. The general doctrine is recognized by elementary writers, and is well settled by authority. (Savage v. Putnam, 32 N.Y., 501; Story on Partnership, §§ 97, 360; 3 Kent's Com., 65; Marquand v. N YMfg. Co., 17 J.R., 525.) When therefore, Gleason, in payment of his debts to Morss, procured the transfer to his former partner Morss, of the note in suit, upon which all were liable as partners in solido to the holder of the note, but in respect of which Gleason was, as between himself and Morss and Reed, the other makers, quasi surety, and for the payment of which Morss and Reed were the trustees of an ample fund, Morss eo instanti acquired and was entitled to a credit as between himself and his partner, the owners of the trust property, subject only to the charges upon it for the amount of the note as so much paid by him; and to this extent his interest in the trust fund was increased. He could not have maintained an action against Gleason in any form, either upon the note or for a contribution as for so much money paid by him upon a partnership debt; but to entitle him to any relief as against Gleason he would have been compelled first to exhaust the partnership assets and show a deficiency. He, in fact, was not out of pocket at any time by reason of the transaction, and had no claim, legal or equitable, against Gleason. The note was long past due at the time of its transfer to the plaintiff, and the latter took it subject to all defenses and to all equities existing against it in the hands of Morss, the member of the firm from whom he received it. This is the rule applicable to all negotiable instruments transferred after due or when dishonored.
In order to maintain his action at law the plaintiff was, under the circumstances, bound to show all that his transferrer, Burton G. Morss, would have been compelled to show in an equitable action against Gleason for contribution. *Page 209 The referee rightly held that the plaintiff did not acquire by the transfer from Burton G. Morss a right of action upon the note against Gleason, and that the complaint should be dismissed.
Judgment must be affirmed.
All concur; except MILLER, J., not sitting.
Judgment affirmed.