Myers v. International Trust Co.

Background

The International Trust Company sued Samuel A. Myers and Harry Myers, partners in the firm S. A. & H. Myers, to hold them personally liable on notes the partnership had executed and the partners had signed as indorsers. In an earlier bankruptcy case creditors filed an involuntary petition against the partnership only. The partners filed a partnership schedule listing partnership property and creditors and stated they had no individual debts. Before adjudication the partners offered a composition at forty percent to unsecured partnership creditors; the court confirmed the composition and the deposited money was distributed to the listed partnership creditors. The Trust received and credited its share before this suit.

Reasoning

The key question was whether that composition released the partners from their separate personal obligations as indorsers. The Court said a composition is essentially a bargain: it fixes the rights the parties agreed to and gives creditors only what they accepted. Because the offer and the deposited money were directed to the partnership creditors listed in the schedule, the bargain applied only to partnership debts. Massachusetts law treats a partner’s endorsement as a distinct personal liability separate from firm obligations. Since no offer or consideration was made to individual creditors for those personal liabilities, the composition did not release the partners from their indorsements.

Real world impact

This means that when a partnership settles debts through a composition, only the debts and creditors actually listed and paid are discharged. Creditors holding notes with partners’ personal endorsements can still enforce those endorsements if they were not separately included in the composition. The Court affirmed the lower-court decree that enforced the partners’ individual indorsement liabilities.