
    The United States National Bank, Appellant, v. William A. Underwood, Respondent, Impleaded with Clarence H. Venner.
    
      Partnership — dissolution — notice that one partner has assumed the liabilities is necessary to require the firm creditors to treat the other pa/rtner as a surety.
    
    Where a partnership is dissolved and one partner takes the partnership property and assumes and agrees to pay the partnership debts, he becomes the principal debtor as to creditors,' while the other partner occupies the relation of a surety, not only as between the partners themselves, but as to all others who have had dealings with the firm to whom notice of the new arrangement has been given.
    . If an outgoing partner of a firm seeks to relieve himself from his liability as a principal debtor and to assume that of a surety, he must not only prove that ' the creditor had notice of the dissolution of the firm, but he must show that the creditor had knowledge.of the arrangement by which the continuing partner received all the assets and assumed all the debts of the old firm,' and the notice to the creditor of the new arrangement must be definite and distinct. ; ■
    
      Appeal by the plaintiff, The United States National Bank, from a judgment of the Supreme Court in favor of the defendant William A. Underwood, entered in the office of the clerk of the county of New York on the 24th day of April, 1894, upon the verdict of a jury rendered after a trial at the New York Circuit, and also from an order entered in said clerk’s office on the 11th day of April, 1894, denying the defendant’s motion for a new trial made upon the minutes.
    
      William Allen Butler and John Wotman, for the appellant..
    
      Brnid MeOlure, for thé respondent.
   Rumsey, J.:

The action was brought to recover of the defendants, as partners: in the firm of C. H. Venner, the amount due upon a promissory note given by that firm. The defendant Underwood alone answered. It appeared that on the 6th day of July, 1891, the firm of C. H. Venner & Co. was composed of William Underwood and Clarence H. Venner, who are the defendants in this action. On the sixth day of July this firm borrowed of the plaintiff $50,000 and gave their note for that sum, payable on demand, secured by collaterals. The note was in the ordinary form of a collateral security note, and. contained at the end an agreement that in case of an exchange of or addition to the collateral above mentioned the provision of the note should extend to such new or additional collateral. On the 31st day of July, 1891, the note remaining unpaid, the firm of C. H. Venner & Co. was dissolved by the retirement of the defendant Underwood, and a new firm was formed of which the defendant Underwood was not a member. Whether the plaintiff had notice of this dissolution was disputed upon the trial. The fact was submitted to the jury and was found in favor of the defendant, and, therefore, it must be assumed that notice of the dissolution of the old firm and the formation of the new one was communicated to the plaintiff about the 1st day of August, 1891, as found by the jury. This notice consisted of a letter, signed by the members of the old firm, announcing' simply that the co-partnership theretofore existing between Clarence H. Venner and William A. Underwood, under the firm name of C. H. Venner-& Co., has this day been dissolved by mutual consent. It was signed by the two members of the old firm. Accompanying it, and upon the same sheet, was ■another letter, dated the succeeding day, signed by Venner and two ■others, announcing that they had formed a co-partnership, under the name-of C. H. Venner & Go., and would continue the business -of the late firm of the same name. . - .

It appeared upon the trial that at the time of the dissolution of the first firm of C. H. Venner & Go. it was agreed between the partners that O. H. Venner & Co. should have all the assets and assume iall the liabilities of the firm, but there was no proof that this agreement was brought to the notice of the plaintiff. The agreement of dissolution which contained the contract that Venner should assume the liabilities of the firm, was offered in evidence and received, subject to be stricken out unless proof was made that notice of it had been brought to the knowledge of the plaintiff. No proof of that Bind was made. Therefore, in the consideration of this case, it must be assumed that while the plaintiff had notice of the dissoliir lion of the firm of 0. H. Venner & Co., it had no notice what■ever of the terms upon which the dissolution was effected or of the "fact that Venner took the assets and assumed the liabilities of the ■old firm. When the evidence had. closed the only question in dispute between the parties was whether or not notice of the dissolution of the firm had- been served upon the plaintiff as claimed by the defendant. Upon that state of the proof the plaintiff moved -for a verdict; the motion was denied and the plaintiff excepted.

The court submitted to the jury only the question whether "the plaintiff had received notice of the fact of the dissolution .of the old firm, charging substantially that if they found that such ■notice was received, the defendant was entitled to a verdict. To this portion of the charge- no exception was taken, nor was there •any request to go to the' jury upon the question whether the plaintiff had notice of the fact that Venner had assumed the liabilities ■of the old firm. The only question presented, therefore, upon this branch of the casé is, whether, upon the undisputed facts, and the ■ .additional fact that the plaintiff had notice of the dissolution itself,it was error to deny the plaintiff’s motion that the verdict be ■directed in its favor %

It is not to be disputed that, when a firm is dissolved and one of the partners takes the assets and assumes the liabilities, the other partner occupies thereafter the position of a surety, not only as between the partners themselves, but as to all others who have had dealings with the firm, to whom notice of the new contract has been brought.

The mere fact of dissolution has no effect upon the rights of third parties. It is said in Parsons on Partnership that no dissolution of any kind affects the rights of third parties Who have had dealings with the partnership without tlieir consent. This is the universal rule without any exception whatever. (Pars, on Part. 394, 395; Story on Part. 334.) As the fact of the dissolution has no effect upon the rights of third parties, of course the knowledge that there has been dissolution is equally unimportant. So long as the third person has information only that the partnership has been dissolved, and knows no more about it, he is still at liberty to treat both of the partners as principals with regard to all contracts then existing between them. It is only when he has had notice of the special circumstances connected with the dissolution, by which one partner has assumed the relation of surety, that he is called upon to respect that relation and give effect to the changed attitude of the one who claims the right of surety. The cases seem to be unanimous on this point. In Palmer v. Purdy (83 N. Y. 144, 147), it is said by Finch, J., delivering the unanimous opinion of the court, that it is settled that one of several original debtors can so contract with the others for their assumption and payment of the common debt as to acquire the rights of a surety, upon knowledge of the new arrangement being communicated to the creditors. But when it is sought to invest one or more of them with new equitable rights outside of the original contract, by notice to the creditor of the later arrangement, it is not too much to require that such notice shall be definite and distinct, and so given as fully and fairly to apprise the creditor of the new agreement in fact made, and the changed attitude of the debtor claiming the rights of a surety. This ease is followed upon that point ■ in-later cases. (Grow v. Garlock, 97 N. Y. 81, 87.) In fact, there seems to be no exception to the rule that the changed relation of the partners towards each other after the dissolution has no effect upon the rights of the creditor, unless there has been brought to his notice not only the fact of the dissolution, but the further fact that, by the terms of the dissolution, one of the partners has. assumed the relation of principal debtor and the Others that of surety. This rule is recognized by all the cases cited by the respondent’s counsel. In Colgrove v. Tallman (67 N. Y. 95) it is said that where a partnership is dissolved and one partner purchases the interest of the other in the partnership property, and assumes and agrees to pay the partnership debts, he thereby becomes in equity the principal debtor as to- such debts, and the other is surety, and the creditor having notice of such agreement is hound by such relationship. Applying this well-settled rule to the facts established in this case, the conclusion necessarily follows' that the plaintiff was not called upon to treat the defendant Underwood in any other way than as a principal debtor. That being the situation of the parties, there is nothing shown in this case which would warrant a holding that the defendant, in any way, ceased to he hable for this-debt, and, therefore,'it was 'error on the part, of the court to refuse to order a verdict for the plaintiff, and the exception to that refusal was well taken.

For that reason the judgment must he reversed and a new trial ordered, with costs to the appellant to abide the event of the action.

Van Brunt, P. J., Barrett, .O’Brien and Ingraham, JJ., concurred.

Judgment reversed, new trial ordered, with costs to appellant to abide event.  