If the particular terms of articles of partnership are unknown
to the public, they have a right to deal with the firm in respect
to its business upon the general principles and presumptions of
limited partnerships of a like nature, and any special restrictions
in the articles do not affect them. In such partnerships, it is
within the general authority of the partners to make and endorse
notes and to obtain advances and credits for the business and
benefit of the firm, and if such was the general usage of trade,
that authority must be presumed to exist, but not to extend to
transactions beyond the scope and objects of the
co-partnership.
Partnerships for commercial purposes, for trading with the
world, for buying and selling from and to a great number of
individuals, are necessarily governed by many general principles
which are known to the public, which subserve the purposes of
justice, and which society is concerned in sustaining. One of them
is that a man who shares in the profit, although his name may not
be in the firm, is responsible for all its debts. Another is that a
partner, certainly the acting partner, has power to transact the
whole business of the firm, whatever that may be, and consequently
to bind his partners in such transactions as entirely as himself.
This is a general power, essential to the well conducting of
business, which is implied in the existence of a partnership.
When a partnership is formed for a particular purpose, it is
understood to be in itself a grant of power to the acting members
of the company to transact its business in the usual way. If that
business be to buy and sell, then the individual buys and sells for
the company, and every person with whom he trades in the way of its
business has a right to consider him as the company, whoever may
compose it. It is usual to buy and sell on credit, and if it be so,
the partner who purchases on credit in the name of the firm must
bind the firm. This is a general authority held out to the world,
and to which the world has a right to trust.
The trading world, with whom the company is in perpetual
intercourse, cannot individually examine the articles of
partnership, but must trust to the general powers contained in all
partnerships. The acting partners are identified with the company,
and have power to conduct its usual business in the usual way. This
power is conferred by entering into the partnership, and is perhaps
never to be found in the articles. If it is to be restrained, fair
dealing requires that the restriction should be made known. These
stipulations may bind the partners, but ought not to affect those
to whom they are unknown and who trust to the general and well
established commercial law.
The responsibility of unavowed partners depends on the general
principle of commercial law, not on the particular stipulations of
the articles.
If promissory notes are offered for discount at a bank in the
usual course of the business of a partnership by the partner
entrusted to conduct the business
Page 30 U. S. 530
of the partnership and are discounted by the bank, and such
discount was within such business, the subsequent misapplication of
the money, the holders not being parties or privy thereto or of the
intention to misapply the money, would not be deprived of their
right of action against the dormant partners in such a
co-partnership.
This was an action of assumpsit brought by the defendants in
error against John Winship, Amos Binney, and John Binney, the
present plaintiffs in error, as co-partners, under the name of John
Winship.
The declaration contained seven counts, six of which set forth
six different promissory notes, describing them. The notes were of
different dates and amounts, drawn by Samuel Jacques, Jr., and
payable to and endorsed by John Winship, Jr., the declaration
alleging the notes to be payable to Amos Binney, John Binney, and
John Winship, Jr., by the name and description of John Winship, and
so endorsed to the Bank of the United States. Demand and notice
were alleged to have been duly made. The seventh count was for
$14,000, money lent.
The defendants pleaded the general issue. The plaintiffs below
offered the testimony of Samuel Jacques, Jr., the drawer of the
notes, which evidence was objected to on the following facts:
On 28 August, 1825, Samuel Jacques, Jr. having failed in
business, made an assignment of his property to Samuel Etheridge
and Henry Jacques, in trust for the payment of his debts, and among
them of the claims which John Winship might have upon him on the
promissory notes stated in this declaration. These notes are thus
described:
"And among the creditors in this schedule are also to be
included banks and individuals who are or may become holders of any
of the notes in the following list, which have either been made by
Samuel Jacques, Jr., as promisor, and John Winship as endorser, or
by said Winship as promisor and said Jacques as endorser, but such
banks or holders are to be considered creditors for the purposes of
this instrument only for such part of the contents of such notes as
came to said Jacques' use and possession, but for no more, and the
assignees are to that extent to indemnify said Winship for said
proportion of said notes
pro rata with other creditors of
this class,
Page 30 U. S. 531
and said Winship may execute this instrument as representing his
interest in said notes when paid."
"And accounts between said Samuel Jacques, Jr., and said
Winship, touching former transactions, are to be adjusted, and the
balance, if in favor of said Jacques, is to go towards the
indemnity above provided for said Winship, and if in favor of said
Winship, is to be a debt in this second class of debts, as above
stated."
Then follows a schedule of the notes drawn by Samuel Jacques,
Jr., in favor of John Winship, amounting to $14,250, and of three
notes drawn by John Winship in favor of Samuel Jacques, Jr.,
amounting to $4,200.
John Winship was, with other creditors of Jacques, a party to
this assignment, and released the assignor in these terms:
"The creditors of the said Samuel Jacques, Jr., do hereby
consent to and accept this assignment, and in consideration of the
same, and of the covenants of the said Samuel Etheridge and Henry
Jacques herein contained, for themselves respectively and their
respective heirs, executors, administrators, and assigns, have
hereby demised, released, and forever quitclaim to the said Samuel
Jacques, Jr., his executors and administrators, all claims,
demands, and causes of action which they have, or may hereafter
have for or on account of the several debts and sums of money set
opposite to their respective names on schedule, and do hereby
acquit and discharge him and them therefrom."
The court overruled the objection to the admission of Jacques,
and he testified
"That he knew of the existence of a co-partnership between the
defendants by general reputation, but had never seen any articles
of agreement between them; he considered that the Binneys were
concerned with Winship in the soap and candle business, and he knew
that it was generally so understood; that Winship did no other
business to his knowledge; that he and Winship both lived in
Charlestown, and saw each other every day; that he had dealings
with Winship soon after the commencement of the partnership, and
supplied him with rosin -- perhaps to the amount of $400 or $500
per year, sometimes more and sometimes less. And that he sometimes
gave a note for the balance signed John Winship: that witness
always took such notes on the credit of the
Page 30 U. S. 532
Binneys, with full confidence that they were interested and were
men of property."
"And at some time in the year 1823, and perhaps a little
previously, and until 1825, witness and Winship were in the habit
of exchanging notes, which were discounted at the different banks;
they began at the Manufacturers' Bank; there were none at the
Branch Bank till 1824. They began with small notes, and finally
exchanged notes for $2,000 and $2,500, sometimes signed by one and
endorsed by the other, and
vice versa. These notes were
discounted at the different banks, but that he believed that none
was discounted at the United States Bank until at later periods,
and that Winship usually applied for the discounts. That he,
Jacques, endorsed these notes on the credit of the firm. That
Winship always represented them to be for the partnership account,
and that witness never understood that they were on his private
account."
"The notes in suit were generally presented by Winship for
discount, but that witness might have presented some of them."
"There were some notes for his private account, but that he
believed those in suit to have been for the firm."
"He could not state what portion of the money obtained on these
notes he had received, but that as he and Winship exchanged notes,
he could not say that he never received any of it. Some of those
notes were given for renewals at this bank, and some to take up
notes at other banks."
"It was his impression that some of the money thus obtained went
to pay for rosin, and that one of them for $1,500 was originally
made to take up a note which had been previously given at the
Manufacturers' & Mechanics' Bank for rosin, being a material
used in defendant's factory. He knew no particulars concerning the
appropriation of the moneys obtained upon these notes, and knows of
no other which Winship has made but for the use of the firm."
"The business of the firm required a great capital, and Winship
often spoke of buying barilla and tallow for the factory, but that
witness does not know that he alluded to these particular notes,
nor that the proceeds of them were applied to any other
business."
"This business of exchanging notes continued until 1825,
Page 30 U. S. 533
when he and Winship stopped payment. Winship kept a little note
book, but witness, having great confidence in him, kept no accurate
accounts."
"The particular occasion of witness' stopping payment was the
nonpayment of his acceptance on a draft drawn on him by Winship for
barilla, an article such as is used in the factory. He told Mr. A.
Binney of it, who said he would do nothing about it. He furnished
the factory of defendants with rosin from 1822 to 1825; he
sometimes might have received payment in cash, but it was generally
in notes. He has endeavored to trace the origin of the notes in
suit, but can trace only two -- that of $800 and one of $806,
originally given for rosin, were eventually included in the notes
in suit, for $1,900, by means of successive renewals. Winship
sometimes came to witness, and stated that he wanted his name
instead of Amos Binney because he was absent, and got his name
accordingly. He has a memorandum in his note book, of August 15th,
1825, stating that Winship applied to him to take up a note of Amos
Binney of that date for $1,500, stating that he was out of town.
This note originated 9 October, 1824, and was at first for $2,00,
and renewed successively till 15 August, 1825, when it was reduced
to $1,500; that the original note was Amos Binney's, not the last
one."
Upon cross-examination he testified
"That he had known John Winship about twenty or twenty-five
years; that he was in partnership with Messrs. Hydes, and that
their names were in good credit, before his connection with Binney
and not in extensive business. There are accommodation notes of
this kind now outstanding amounting to about $21,000. No particular
agreement ever subsisted between him and Winship concerning the
proceeds of these accommodation notes; they sometimes divided the
money and each took a portion. And sometimes he lent his name to
Winship, and Winship lent his name to him. And at the conclusion of
the whole matter, they bundled up all the notes that had been taken
up and agreed to consider them as settled and discharged. "
Page 30 U. S. 534
"And as to the outstanding $21,000, he applied to adjust it with
Winship, but he said that the papers were all in Binney's hands. He
never applied to him to adjust them. When he went to Winship, the
notes and checks were in a mass, and they agreed to consider them
cancelled, to bundle them up and to pass receipts, and as to the
residue which were outstanding, that they should be adjusted as
well as they could."
"He has checks of Winship's amounting to about $1,700 or $2,000,
and some notes, and that Messrs. Binneys hold notes and checks
signed by him and given to them by Winship."
"He was engaged in an extensive speculation in hops; was
indebted and mortgaged his estates in 1824 to Messrs. Thomson, for
about $10,000. He never knew any actual use for the benefit of the
firm for money obtained on the accommodation notes unless the
taking up of the rosin notes, as stated in his testimony, be so
considered."
"He understood that Winship was engaged in some shipments of the
manufactures of the firm and also of some other articles, but
always supposed them to be on account of the firm, and Winship
always told him so."
"He was called upon to take up one of these accommodation notes
signed by him, and borrowed money of Amos Binney upon collateral
security by a mortgage of land for that purpose, and nothing was
said to Binney about his being liable to pay the note, according to
his recollection."
"The plaintiffs also introduced the testimony of other witnesses
who, among other things, stated that they learnt the existence of a
co-partnership between Winship and the Binneys in the soap and
candle business by report and the declaration of Winship, but none
of them ever learnt it from either of the Binneys. One witness
stated that Winship offered to exhibit to him the articles of
co-partnership, and Parker stated that the Binneys were engaged in
large business as merchants, and he did not know that anyone ever
supposed that they and Winship were connected except in the soap
and candle business."
The defendants gave in evidence the articles of agreement
entered into by the defendants at the formation of the
co-partnership.
Page 30 U. S. 535
The agreement was executed on 25 September, 1817, and was
between Amos Binney and John Binney of Boston and John Winship of
Charleston, Massachusetts "for the manufacture of soap and
candles."
Amos and John Binney agreed to furnish for that purpose a
capital stock of $10,000, at such times as the same should be
required to purchase stock and materials for carrying on the
manufacture, and Winship agreed to conduct and superintend the same
"under the name and firm of John Winship," to keep books open to
the inspection of the parties, exhibit an annual statement of the
capital or business, interest to be paid on the capital, and the
profits to be divided one-half to Winship and one-half to A. &
J. Binney and losses to be apportioned in the same manner. The
agreement was to continue in force for two years and for a further
term if the parties agreed thereto.
The capital was afterwards increased to $20,000, Amos Binney and
John Binney advancing the same in equal proportions. This was
acknowledged by John Winship on the back of the agreement.
They also gave in evidence a bond given by John Winship to Amos
Binney on 25 September, 1817, in the penal sum of $10,000, with the
condition following:
"The conditions of this obligation are such that whereas the
above-bounden John Winship has this day made an agreement with Amos
Binney and John Binney both of Boston aforesaid for the purpose of
carrying on a manufactory of soap and candles in joint account of
the parties aforesaid, and whereas the said A. Binney hath engaged
to endorse the notes given by the said John Winship for the
purchase of stock and raw materials for manufacturing, when
necessary to purchase on a credit, and in consideration of which
the said John Winship hath engaged not to endorse the notes, paper,
or become in any manner responsible or security for any person or
persons other than the said Amos Binney for the term of two years
from the first day of October, 1817."
"Now therefore, if the said John Winship shall faithfully
observe the conditions and wholly abstain from becoming the surety
or endorser of any person to any amount other than
Page 30 U. S. 536
the same Amos Binney for the aforesaid term of two years from
the first day of October, 1817, then this obligation to be void and
of no effect; otherwise to remain in full force and virtue."
A witness, the clerk of Amos Binney, testified on the part of
the defendants below that having all the books and papers of
Winship in his hands after the failure of Winship, he examined them
and could find no entry of any of the notes in suit, and none of
which are stated to be renewals, except two, one for $800, the
other for $806, which in the notebook are marked paid. That regular
business notes appear to have been entered in the books and the
payment of them entered in the cash book, but no entries of these
accommodation notes appear. There are entries of notes signed by
Winship and endorsed by the defendant to a large amount. Amos
Binney advanced very large sums to pay the debts of the concern,
amounting in all to about $46,828, and the whole amount sunk and
lost to Amos and John Binney was about $70,000.
William Permenter said that he was clerk to Amos and John Binney
from 1814 to 1824, and never heard of any of the accommodation
notes of Winship.
Mr. Gould stated that he was foreman in the factory, and kept
the books of the concern in a counting room; that he never saw John
Binney there, nor Amos Binney more than once or twice, for the
whole time until about the time of the failure. That he had carried
on the business since Winship's failure, and it had been
profitable.
And several other witnesses stated, among other things, that
Amos and John Binney were severally engaged in other extensive
business, and in good credit as merchants, Amos Binney being
esteemed wealthy.
The plaintiffs also introduced William Gordon, who testified
that he had always understood that there was a co-partnership in
the manufacture of soap and candles, that Winship bought real
estate, and that it was commonly reported that he bought and
shipped other articles than those used in the manufactory.
Also, Thomas R. Thompson, Solomon Harvy, Samuel Raymond,
Page 30 U. S. 537
and Thomas Pike, who testified that it was generally understood
that the defendants were co-partners and that Winship shipped
articles other than soap and candles, or factory goods. It is not
stated that any of the witnesses ever learnt the existence of the
partnership from either of the Binneys.
The first exception taken on the trial in the circuit court, as
stated in the bill of exceptions, was that the counsel for the
defendants insisted that the co-partnership was in contemplation of
law a secret co-partnership, and did not authorize the giving of
credit to any other name than that of the said Winship, but to this
the counsel for the plaintiffs did then and there insist before the
said court that this was an open or avowed, and not a secret,
co-partnership. And the presiding justice of the said court did
state his opinion to the jury on this point, as follows:
"That according to his understanding of the common meaning of
'secret partnership,' those were deemed secret where the existence
of certain persons as partners was not avowed or made known to the
public by any of the partners. That where the partners were all
publicly known, whether this was done by all the parties or by one
only, it was no longer a secret partnership, for secret partnership
was generally used in contradistinction to notorious and open
partnership; that whether the business was carried on in the name
and firm of one partner only or of him and company would in this
respect make no difference; that if it was the intention of the
Binneys that their names should be concealed and the business of
the firm was to be carried on in the name of Winship only, and yet
that Winship, against their wishes, in the course of the business
of the firm, publicly did avow and make known the partnership, so
that it became notorious who were the partners, such partnership
could not, in the common sense of the terms, be deemed any longer a
secret partnership; that if 'secret' in any sense, it was under
such circumstances using the terms in a peculiar sense. That,
however, nothing important in this case turned upon the meaning or
definition of the terms 'secret partnership,' since the case must
be decided upon the principles of law applicable to such a
partnership, as this was in fact proved to be. That there was no
stipulation for secrecy as to the Binneys' being partners
Page 30 U. S. 538
on the face of the original articles of co-partnership, and when
those articles, by their own limitation, expired, the question what
the partnership was, and how it was carried on for the future;
whether upon the same terms as were contained in the original
articles or otherwise was matter of fact from the whole evidence;
that if the evidence was believed, Winship constantly avowed the
partnership, and that the Binneys were his partners in the soap and
candle manufactory business, and obtained credit thereby."
But he left the jury to judge for themselves as to the
evidence.
Second exception. And the counsel of the defendants did then and
there further insist that the jury had a right to infer from the
evidence aforesaid, notwithstanding the entries of shipments in the
invoice book kept by said Winship, that the said Amos Binney and
John Binney had no knowledge thereof, and therefore could not be
presumed to have adopted or ratified the conduct of said Winship
making said shipments. But the presiding judge did then and there
instruct the jury as follows:
"That whether the said Amos and John Binney or either of them
knew of the said entries or not was matter of fact for the
consideration of the jury upon all the circumstances of the case.
That ordinarily the presumption was that all the parties had access
to the partnership books, and might know the contents thereof. But
this was a mere presumption from the ordinary course of business,
and might be rebutted by any circumstances whatsoever which either
positively or presumptively repelled any inference of access --
such, for instance, as the distance of place in the course of
business of the particular partnership, or any other circumstances
raising a presumption of nonaccess."
And he left the jury to draw their own conclusion as to the
knowledge of the Binneys of the entries in the partnership books
from the whole evidence in the case.
Third exception.
"And the counsel of the defendants did then and there further
insist that by the tenor of the said recited articles of agreement
and bond, the said Winship had no right or authority to raise money
on the credit of the said firm, or to bind the firm by his
signature for the purpose of borrowing
Page 30 U. S. 539
money. But the presiding judge did then and there instruct the
jury as follows: "
" That if the particular terms of the articles of co-partnership
were not known to the public or to persons dealing with the firm in
the course of the business thereof, they had a right to deal with
the firm in respect to the business thereof upon the general
principles and presumptions of limited partnerships of a like
nature, and that any secret and special restrictions contained in
such articles of co-partnership varying the general rights and
authorities of partners in such limited partnerships and of which
they are ignorant, did not affect them. That the case of
Livingston v. Roosevelt, 4 Johns. 251, had been cited by
the defendants' counsel as containing the true principles of law on
this subject, and this Court agreed to the law as to limited
partnership as therein held by the court. That it was not denied by
the defendants' counsel, and was asserted in that case, that it was
within the scope and authority of partners generally in limited
partnerships to make and endorse notes and to obtain advances and
credits for the business and benefit of the firm, and if such was
in fact the ordinary course and usage of trade, the authority must
be presumed to exist. The court knew of no rule established to the
contrary. That the authority of one partner in limited partnerships
did not extend to bind the other partners in transactions, or for
purposes, beyond the scope and object of such partnerships. That in
the present articles of co-partnership, Winship was in effect
constituted the active partner, and had general authority given him
to transact the business of the firm. That he had so far as
respects third persons, dealing with and trusting the firm, and
ignorant of any of the restrictions of such articles, authority to
bind the firm, to the same extent and in the same manner as
partners in limited partnerships of a like nature usually possess,
for the objects within the general scope of such a firm."
"That the articles limited the partnership to a particular
period, after which it expired unless the parties chose to give it
a future existence. That no new written articles were proved in the
case, and the terms and circumstances under which it was
subsequently carried on were matters to be decided upon the whole
evidence. The fair presumption was that it was
Page 30 U. S. 540
subsequently carried on on the same terms as before unless other
facts repelled that presumption. That the bond executed at the time
of the execution of the articles ought to be considered as a part
of the same transaction and contract."
And the said counsel of the defendants did then and there
further request the court to instruct the said jury as follows,
to-wit:
First, that if upon the whole evidence it is satisfied that the
co-partnership, proved to have existed between the defendants under
the name of John Winship, was known or understood by the plaintiffs
to be limited to the manufacturing of soap and candles, it must
find a verdict for the defendants unless it is also satisfied that
these notes were given in the ordinary course of the co-partnership
business or that the moneys obtained upon them went directly to the
use of the firm with the consent of Amos Binney and John Binney,
and that if it is satisfied that any part of these moneys did go to
the use of the firm with such consent, that then it must find a
verdict for the plaintiffs for such part only, and not for the
residue.
And
"Secondly, that if it is also satisfied that the Messrs. Binneys
furnished Winship with sufficient capital and credit for carrying
on the business of the firm, no such consent can be implied from
the mere fact that Winship applied these moneys or any part of them
to the payment of partnership debts."
But the presiding judge refused to give the instruction first
prayed for unless with the following limitations, explanations, and
qualifications,
viz.,
"That the defendants, as co-partners, are not bound to pay the
notes sued on or money borrowed or advanced unless the endorsements
of the same notes and the borrowing of such money was in the
ordinary course of the business of the firm for the use and on
account of the firm. But if the said Winship offered the notes for
discount as notes of the firm and for its account, and he was
entrusted by the partnership as the active partner, to conduct the
ordinary business of the firm, and the discount of such endorsed
notes was within such business, then, if the plaintiffs discounted
the notes upon the faith of such notes being so offered by the said
Winship, and as binding on the firm, the plaintiffs were entitled
to recover, although Winship should have subsequently
Page 30 U. S. 541
misapplied the funds received from the discount of said notes,
if the plaintiffs were not parties or privy thereto, or of any such
intention. And if Winship borrowed money or procured any advances
on the credit and for the use of the firm, and for purposes
connected with the business of the firm in like manner, and under
like circumstances, and the money was lent or advanced on the faith
and credit of the partnership; the money so borrowed and advanced
bound the partnership, and they were liable to pay therefor,
although the same had been subsequently misapplied by Winship, the
lender not being party or privy thereto, or of any such
intention."
And with these limitations, explanations, and qualifications, he
gave the instructions so first prayed for.
And the presiding judge gave the instructions secondly prayed
for, according to the tenor thereof.
The defendants in the circuit court excepted to these opinions
and decisions of the court; and a verdict and judgment having been
rendered for the plaintiffs, the defendants prosecuted this writ of
error.
Page 30 U. S. 552
MR. CHIEF JUSTICE MARSHALL delivered the opinion of the
Court.
This was an action brought in the court for the First Circuit
and District for Massachusetts, against John Winship, Amos Binney,
and John Binney merchants and partners, trading under the name and
firm of John Winship, as endorser of several promissory notes, made
by Samuel Jacques, Jr. At the trial, the maker was called by the
plaintiffs and sworn. He was objected to by the defendants as an
interested witness, an instrument being produced purporting to be a
release in the name of John Winship of all liability of the maker
on the said notes. The operation of the said instrument, as a
release of the notes in suit, was controverted by the plaintiffs.
It is unnecessary to state the instrument or to discuss the
question arising on it or on the competency of the witness, because
the Court is divided on the effect of the instrument and on the
competency of the witness.
The witness testified that he knew from general reputation that
the defendant, John Winship, was concerned with the other
defendants, Amos and John Binney, in the soap and candle business;
that Winship avowed the partnership; that he had dealings with
Winship soon after its commencement, and supplied him with rosin,
for which he sometimes gave a note signed John Winship, which the
witness always took on the credit of the Binneys. Winship and the
witness were in the habit of lending their names to each other, and
Winship always represented that the notes made or endorsed by the
witness for his accommodation were for the use of the firm.
Several other witnesses were examined on the part of the
plaintiff to prove the partnership, whose testimony was rendered
unimportant by the production of the articles themselves. The
defendants exhibited them, and they are in the following words:
"The memorandum of an agreement made this 25 September, 1817,
between Amos Binney and John Binney of Boston, County of Suffolk,
and John Winship, of
Page 30 U. S. 553
Charlestown, County of Middlesex, all in the Commonwealth of
Massachusetts, for the manufacture of soap and candles witnesseth:
"
"That the said Amos and John Binney agree to furnish for the
above purpose the sum or capital stock of $10,000, at such times as
may be wanted to purchase stock or materials for carrying on the
aforesaid manufacture, and the said John Winship agrees on his part
to conduct and superintend the manufactory, and to pay his whole
and undivided attention to the business, to manufacture or cause to
be manufactured, every article in the best possible manner, and to
use his utmost skill and exertions to promote the interest of the
establishment, under the name and firm of John Winship, and without
any charge for his personal labors, and to keep a fair and regular
set of books and accounts, open and subject at all times to the
inspection of the parties interested in the concern, and annually
on the first day of October of each year, to make and exhibit a
statement of the state of the business, the amount of purchases and
sales, and the profits, if any, of the business that have been
made; the expenses of conducting the business and the profits to be
divided in the following manner: to say, from the profits is to be
paid interest for the capital stock of $10,000, at the rate of six
percentum per annum, all expenses of rent, labor, transportation,
fuel, and utensils, that it may be necessary to purchase or have,
and the remainder of the profits, if any, to be equally divided
between the said Winship and Binneys, one-half thereof to the said
John Winship and the other half to A. & J. Binney, and in case
no profit should be made, but a loss, then the loss is to be borne
and sustained one half by the said A. & J. Binney and the other
half by the said John Winship."
"The agreement to continue in force for two years from the first
day of October next ensuing, and then for a further term, provided
all parties agree thereto. And to the true and faithful performance
of the foregoing conditions each party bind themselves to the other
in the penal sum of $10,000."
On the back of which were receipts signed by said Winship
acknowledging that he had received of Amos Binney $1,000 on 6
September, 1817, and
Page 30 U. S. 554
$4,000 on 4 October, 1817, and on 27 December, 1827, he had in
his hands $10,000, as said Amos' proportion of the capital, and
that he had received of John Binney $2,500 on 1 October, 1817, and
$500 on 3 November, 1817, and $500 on 16 November, 1817, and $1,500
on 13 June, 1820, and on 2 June, 1821, he had in his hands $10,000,
as said John's proportion of the capital stock.
They also gave in evidence a bond given by said Winship to said
Amos, on 25 September 1817, in the penal sum of $10,000, with the
condition following:
"The conditions of this obligation are such, that whereas the
above bounden John Winship has this day made an agreement with Amos
Binney and John Binney both of Boston aforesaid, for the purpose of
carrying on a manufactory of soap and candles on joint account of
the parties aforesaid, and whereas the said A. Binney hath engaged
to endorse the notes given by the said John Winship, for the
purchase of stock and raw materials for manufacturing, when
necessary to purchase on a credit, and in consideration of which
the said John Winship hath engaged not to endorse the notes, paper,
or become in any manner responsible or security for any person or
persons other than the said Amos Binney for the term of two years
from 1 October, 1817."
"Now therefore, if the said John Winship shall faithfully
observe the conditions and wholly abstain from becoming the surety
or endorser of any person to any amount other than the same Amos
Binney for the aforesaid term of two years from 1 October, 1817,
them this obligation to be void and of no effect; otherwise to
remain in full force and virtue."
The defendants also produced witnesses whose testimony furnished
some foundation for the presumption that the money arising from the
notes, on which the suits were brought, was not applied by Winship
to the purposes of the firm. Other testimony led to the belief that
a part, if not the whole, of the money was so applied. All the
notes in suit were discounted by and applied to the credit of John
Winship.
Page 30 U. S. 555
The testimony being closed, the counsel for the defendant
insisted first
"That the said co-partnership between them was, in contemplation
of law, a secret co-partnership, and did not authorize the giving
of credit to any other name than that of the said Winship,"
but to this the counsel for the plaintiffs did then and there
insist before the said court, that this was an open or avowed, and
not a secret co-partnership. And the presiding justice of the said
court did state his opinion to the jury on this point as
follows:
"That according to his understanding of the common meaning of
'secret partnership,' those were deemed secret, where the existence
of certain persons as partners was not avowed or made known to the
public by any of the partners. That where the partners were all
publicly known, whether this was done by all the partners or by one
only, it was no longer a secret partnership, for secret partnership
was generally used in contradistinction to notorious and open
partnership; that whether the business was carried on in the name
and firm of one partner only or of him and company would, in this
respect, make no difference; that if it was the intention of the
Binneys that their names should be concealed, and the business of
the firm was to be carried on in the name of Winship only, and yet
that Winship, against their wishes, in the course of the business
of the firm, publicly did avow and make known to the partnership,
so that it became notorious who were the partners; such partnership
could not, in the common sense of the terms, be deemed any longer a
secret partnership; that if 'secret,' in any sense, it was under
such circumstances, using the terms in a peculiar sense. That,
however, nothing important in this case turned upon the meaning or
definition of the terms 'secret partnership,' since the case must
be decided upon the principles of law, applicable to such a
partnership, as this was in fact proved to be. That there was no
stipulation for secrecy as to the Binneys being partners, on the
face of the original articles of co-partnership; and when those
articles, by their own limitation, expired, the question what the
partnership was, and how it was carried on for the future; whether
upon the same terms as were contained in the original articles or
otherwise; was matter of fact from the whole evidence; that if the
evidence was believed, Winship constantly avowed the partnership,
and that the Binneys were
Page 30 U. S. 556
his partners in the soap and candle manufactory business, and
obtained credit thereby."
But he left the jury to judge for themselves as to the
evidence.
Second exception.
"And the said counsel of the defendants did then and there
further insist that the said jury had a right to infer from the
evidence aforesaid, notwithstanding the entries of the shipments in
the invoice book kept by said Winship, that the said Amos Binney
and John Binney had no knowledge thereof, and therefore could not
be presumed to have adopted or ratified the conduct of said Winship
making said shipments. But the presiding judge did then and there
instruct the jury as follows: "
" That whether the said Amos and John Binney or either of them
knew of the said entries or not, was matter of fact for the
consideration of the jury, upon all the circumstances of the case.
That ordinarily the presumption was that all the parties had access
to the partnership books, and might know the contents thereof. But
this was a mere presumption from the ordinary course of business,
and might be rebutted by any circumstances whatsoever, which either
positively or presumptively repelled any inference of access, such
for instance, as the distance of place in the course of business of
the particular partnership, or any other circumstances raising a
presumption of nonaccess."
And he left the jury to draw their own conclusion as to the
knowledge of the Binneys, of the entries in the partnership books,
from the whole evidence in the case.
Third exception.
"And the said counsel of the defendants did then and there
further insist, that by the tenor of the said recited articles of
agreement and bond, the said Winship had no right or authority to
raise money on the credit of the said firm, or to bind the firm by
his signature for the purpose of borrowing money. But the presiding
judge did then and there instruct the jury as follows: "
" That if the particular terms of the articles of co-partnership
were not known to the public, or to persons dealing with the firm
in the course of the business thereof, they had a right to deal
with the firm in respect to the business thereof upon the general
principles and presumptions of limited partnership of a like
Page 30 U. S. 557
nature, and that any secret and special restrictions contained
in such articles of co-partnership, varying the general rights and
authorities of partners in such limited partnerships, and of which
they are ignorant, did not affect them. That the case of
Livingston v. Roosevelt, 4 Johns. 251, had been cited by
the defendants' counsel as containing the true principles of law on
this subject; and this Court agreed to the law, as to limited
partnership, as therein held by the court. That it was not denied
by the defendants' counsel, and was asserted in that case, that it
was within the scope and authority of partners, generally, in
limited partnerships, to make and endorse notes, and to obtain
advances and credits for the business and benefit of the firm, and
if such was in fact the ordinary course and usage of trade, the
authority must be presumed to exist. The court knew of no rule
established to the contrary. That the authority of one partner in
limited partnerships did not extend to bind the other partners in
transactions, or for purposes, beyond the scope and object of such
partnerships. That in the present articles of co-partnership,
Winship was in effect constituted the active partner, and had
general authority given him to transact the business of the firm.
That he had, so far as respects third persons, dealing with and
trusting the firm, and ignorant of any of the restrictions in such
articles, authority to bind the firm, to the same extent and in the
same manner as partners in limited partnerships of a like nature
usually possess in the business or for the objects within the
general scope of such a firm."
" That the articles limited the partnership to a particular
period, after which it expired, unless the parties chose to give it
a future existence. That no new written articles were proved in the
case, and the terms and circumstances under which it was
subsequently carried on, were matters to be decided upon the whole
evidence. The fair presumption was that it was subsequently carried
on, on the same terms as before, unless other facts repelled that
presumption. That the bond executed at the time of the execution of
the articles ought to be considered as a part of the same
transaction and contract."
"And the said counsel of the defendants did then and there
further request the said court to instruct the said jury as
follows, to-wit: "
Page 30 U. S. 558
" First. That if upon the whole evidence they are satisfied that
the co-partnership, proved to have existed between the defendants,
under the name of John Winship, was known or understood by the
plaintiffs, to be limited to the manufacturing of soap and candles,
they must find a verdict for the defendants, unless they are also
satisfied that these notes were given in the ordinary course of the
co-partnership business, or that the moneys obtained upon them went
directly to the use of the firm, with the consent of Amos Binney
and John Binney, and that if they are satisfied that any part of
these moneys did go to the use of the firm with such consent, that
then they must find a verdict for the plaintiffs for such part
only, and not for the residue. And,"
" Secondly. That if they are also satisfied that the Messrs.
Binneys furnished Winship with sufficient capital and credit for
carrying on the business of the firm, no such consent can be
implied from the mere fact that Winship applied these moneys, or
any part of them, to the payment of partnership debts."
But the presiding judge refused to give the instructions first
prayed for unless with the following limitations, explanations, and
qualifications,
viz.,
"That the defendants as co-partners are not bound to pay the
notes sued on or money borrowed or advanced unless the endorsements
of the same notes and the borrowing of such money, was in the
ordinary course of the business of the firm, for the use and on
account of the firm. But if the said Winship offered the notes for
discount as notes of the firm, and for their account, and he was
entrusted by the partnership as the active partner, to conduct the
ordinary business of the firm, and the discount of such endorsed
notes was within such business; then, if the plaintiffs discounted
the notes upon the faith of such notes being so offered by the said
Winship, and as binding on the firm, the plaintiffs were entitled
to recover, although Winship should have subsequently misapplied
the funds received from the discount of said notes if the
plaintiffs were not parties or privies thereto or of any such
intention. And if Winship borrowed money or procured any advances
on the credit and for the use of the firm, and for purposes
connected with the business of the firm, in like manner and under
like circumstances, and money was lent or advanced on the faith and
credit of the partnership, the money so
Page 30 U. S. 559
borrowed and advanced bound the partnership, and they were
liable to pay therefor, although the same had been subsequently
misapplied by Winship, the lender not being party or privy thereto,
or of any such intention."
And with these limitations, explanations, and qualifications, he
gave the instructions so first prayed for.
And the presiding judge gave the instruction secondly prayed
for, according to the tenor thereof.
To these opinions and decisions of the court, the defendants
excepted.
A verdict was found for the plaintiffs and judgment entered
thereon, which is brought before this Court by writ of error.
The exceptions will now be considered. All must admit that the
opinion asked in the first instance by the counsel for the
defendant in the circuit court, ought not to have been given. That
court was required to decide on the fact as well as law of the
case, and to say on the whole testimony, that it did not warrant
giving credit to any other name than that of John Winship. But,
though this prayer is clearly not sustainable, the counsel for the
plaintiff in error contends that the instructions actually given
were erroneous.
The first part of the charge turns chiefly upon the definition
of a secret partnership, which is believed to be correct, but the
judge proceeds to say that if incorrect, it would have no influence
on the cause, and adds
"That the case must be decided on the principles of law
applicable to such a partnership as this was in fact proved to be;
. . . that when the original articles expired by their own
limitation, the question what the partnership was, and how it was
carried on for the future, whether upon the same terms as were
contained in the original article or otherwise was matter of fact
from the whole evidence."
The error supposed to be committed in this opinion is in the
declaration that nothing important in this case turned on the
meaning or definition of the terms "secret partnership." This is
not laid down as an abstract proposition, universally true, but as
being true in this particular case. The articles were produced, and
the judge declared that the case must depend on the principles of
law applicable to such a partnership as this was in fact. This
instruction could not, we think,
Page 30 U. S. 560
injure the plaintiff in error. Its impropriety is supposed to be
made apparent by considering it in connection with the third
exception.
The second instruction appears to be unexceptionable, and the
counsel for the plaintiff in error is understood not to object to
it.
The third instruction asked in the circuit court goes to the
construction of the articles of co-partnership. The plaintiff in
error contends that those articles gave Winship no authority to
raise money on the credit of the firm or to bind it by his
signature for the purpose of borrowing money.
The instruction given was that if the particular terms of the
articles were unknown to the public, they had a right to deal with
the firm in respect to the business thereof, upon the general
principles and presumptions of limited partnerships of a like
nature, and that any special restrictions did not affect them; that
in such partnerships, it was within the general authority of the
partners to make and endorse notes, and to obtain advances and
credits for the business and benefit of the firm; and if such was
the general usage of trade, the authority must be presumed to
exist; but that it did not extend to transactions beyond the scope
and object of the co-partnership. That in the present articles,
Winship was in effect constituted the active partner, and has
general authority to transact the business of the firm, and a right
to bind the firm in transacting its ordinary business with persons
ignorant of any private restriction, to the same extent that
partners in such limited partnerships usually possess.
The amount of the charge is that if Winship and the two Binneys
composed a joint company for carrying on the soap and candle
business, of which Winship was the acting partner, he might borrow
money for the business on the credit of the company, in the manner
usually practiced in such partnerships, notwithstanding any secret
restriction on his powers, in any agreement between the parties,
provided such restriction was unknown to the lender.
The counsel for the plaintiff in error has objected to this
instruction with great force of reasoning. He contends very truly,
that in fact scarcely any unlimited partnerships
Page 30 U. S. 561
exist. They are more or less extensive; they may extend to many
or to few objects, but all are in some degree limited.
That the liability of a partner arises from pledging his name,
if his name is introduced into the firm, or from receiving profits
if he is a secret partner.
No man can be pledged but by himself. If he is to be bound by
another, that other must derive authority from him. The power of an
agent is limited by the authority given him, and if he transcends
that authority, the act cannot affect his principal, he acts no
longer as an agent. The same principle applies to partners. One
binds the others so far only as he is the agent of the others.
If the truth of these propositions be admitted, yet their
influence on the case may be questioned. Partnerships for
commercial purposes, for trading with the world, for buying and
selling from and to a great number of individuals, are necessarily
governed by many general principles which are known to the public,
which subserve the purpose of justice, and which society is
concerned in sustaining. One of these is that a man who shares in
the profit, although his name may not be in the firm, is
responsible for all its debts. Another, more applicable to the
subject under consideration, is that a partner, certainly the
acting partner, has power to transact the whole business of the
firm, whatever that may be, and consequently to bind his partners
in such transactions, as entirely as himself. This is a general
power, essential to the well conducting of business; which is
implied in the existence of a partnership. When then a partnership
is formed for a particular purpose, it is understood to be in
itself a grant of power to the acting members of the company to
transact its business in the usual way. If that business be to buy
and sell, then the individual buys and sells for the company, and
every person with whom he trades in the way of its business, has a
right to consider him as the company, whoever may compose it. It is
usual to buy and sell on credit, and if it be so, the partner who
purchases on credit in the name of the firm must bind the firm.
This is a general authority held out to the world, to which the
world has a right to trust. The articles of co-partnership are
perhaps never published. They are rarely if ever seen, except by
the partners themselves. The
Page 30 U. S. 562
stipulations they may contain are to regulate the conduct and
rights of the parties as between themselves. The trading world,
with whom the company is in perpetual intercourse, cannot
individually examine these articles, but must trust to the general
powers contained in all partnerships. The acting partners are
identified with the company, and have power to conduct its usual
business, in the usual way. This power is conferred by entering
into the partnership, and is perhaps never to be found in the
articles. If it is to be restrained, fair dealing requires that the
restriction should be made known. These stipulations may bind the
partners, but ought not to affect those to whom they are unknown,
and who trust to the general and well established commercial law. 2
Hen.Black. 235, 17 Ves. 412; Gow. on Part. 17.
The counsel for the plaintiff in error supposes, that though
these principles may be applicable to an open avowed partnership,
they are inapplicable to one that is secret.
Can this distinction be maintained? If it could, there would be
a difference between the responsibility of a dormant partner, and
one whose name was to the articles. But their responsibility in all
partnership transactions is admitted to be the same. Those who
trade with a firm on the credit of individuals whom they believe to
be members of it take upon themselves the hazard that their belief
is well founded. If they are mistaken, they must submit to the
consequences of their mistake; if their belief be verified by the
fact, their claims on the partners, who were not ostensible, are as
valid as on those whose names are in the firm. This distinction
seems to be founded on the idea that if partners are not openly
named, the resort to them must be connected with some knowledge of
the secret stipulations between the partners, which may be inserted
in the articles. But this certainly is not correct. The
responsibility of unavowed partners depends on the general
principles of commercial law, now on the particular stipulation of
the articles.
It has been supposed that the principles laid down in the third
instruction, respecting these secret restrictions, are inconsistent
with the opinion declared in the first; that in this case, where
the articles were before the court, the question whether this was
in its origin a secret or an avowed
Page 30 U. S. 563
partnership had become unimportant. If this inconsistency really
existed, it would not affect the law of the case, unless the judge
had laid down principles in the one or the other instruction which
might affect the party injuriously. But it does not exist. The two
instructions were given on different views of the subject and apply
to different objects. The first respected the parties to the firm,
and their liability, whether they were or were not known as members
of it: the last applies to secret restrictions on the partners,
which change the power held out to the world, by the law of
partnership. The meaning of the terms "secret partnership," or the
question whether this did or did not come within the definition of
a secret partnership, might be unimportant; and yet the question
whether a private agreement between the partners, limiting their
responsibility, was known to a person trusting the firm, might be
very important.
The proposition of the defendants in the circuit court was that
Winship had no right or authority to raise money on the credit of
the firm, or to bind the firm by his signature for the purpose of
borrowing money.
This can scarcely be considered as a general question. In the
actual state of the commercial world, it is perhaps impossible to
conduct the business of any company without credit. Large purchases
are occasionally made on credit; and it is a question of
convenience to be adjusted by the parties, whether the credit shall
be given by the vendor or obtained at the bank. If the vendor
receives a note, he may discount it at the bank. If, for example,
the notes given by Winship to Jacques for rosin to carry on his
manufacture, which have been mentioned by the witness, had been
discounted in bank, it would not have been distinguishable from
money borrowed in any other form. The judge said that if it was
within the scope and authority of partners generally, in limited
partnerships, to make and endorse notes, and to obtain advances and
credits for the business and benefit of the firm, and if such was
in fact the ordinary course and usage of trade, the authority must
be presumed to exist. Whether this was the fact or not was left to
the jury.
Does anything in the articles of agreement restrain this general
authority?
Page 30 U. S. 564
The articles state the object of the company to be, the
manufacture of soap and candles, the capital stock to be $10,000,
which sum is to be paid in by Amos and John Binney; John Winship to
conduct and superintend the manufactory; the name of the firm to be
John Winship; the profit and loss to be divided. They are silent on
the subject of borrowing money. If the fact that the Binneys
advanced $10,000 for the stock in trade implied a restriction on
the power of the manager to carry on the business on credit, it
would be implied in almost every case.
But the bond given by Winship to Amos Binney which is admitted
by the judge to constitute a part of the partnership agreement, is
supposed to contain this restriction. The condition of the bond
recites that
"Whereas Amos Binney had engaged to endorse the notes given by
the said John Winship for the purchase of stock and raw materials
for manufacturing, when necessary to purchase on credit, in
consideration of which the said John Winship hath engaged not to
endorse the notes, paper, or become in any manner responsible or
security for any person or persons, other than the said Amos
Binney. . . . Now if the said John Winship shall faithfully observe
the conditions, and wholly abstain from becoming the surety or
endorser of any person, to any amount, other than the said Amos
Binney then,"
&c.
The agreement recited, but not inserted in this condition, that
Amos Binney would endorse the notes of Winship when it should be
necessary to purchase on credit, while it implies that the power
was incident to the act of partnership, was not in itself a
positive restriction on that power. The affirmative engagement on
the part of Amos Binney that he will endorse, is not a prohibition
on Winship to obtain any other endorser. The exigencies of trade
might require the negotiation of a note in the absence of Mr.
Binney and this may have been a motive for leaving this subject to
the discretion of the acting partner. If he has abused this
confidence, the loss must fall where it always falls when a
partner, acting within his authority, injures his co-partners. If,
then, the agreement between Amos Binney and John Winship contains
nothing more than is recited in the condition, it contains no
inhibition on Winship to negotiate notes in the ordinary course
of
Page 30 U. S. 565
business. The restriction on Winship is not in this recital, but
in his engagement expressed in the condition of the bond.
He engages not to endorse the notes, paper, or become in any
manner responsible or security for any person or persons, other
than the said Binney.
The obvious import of this engagement is that Winship will not
make himself responsible for another. Had he made an accommodation
note for Jacques, it would have been as much a violation of this
agreement as if he had endorsed it. The undertaking is not to
endorse notes for another. But this note is endorsed for himself.
It is negotiated in bank in the name of the firm, and the money is
carried to the credit of the firm. Had not Winship misapplied this
money, no question would have arisen concerning the liability of
his partners on this note. The stipulation in the bond not to
endorse or become security for another would not have barred the
action. But be this as it may, this stipulation between the parties
is a secret restriction on a power given by commercial law and
usage, generally known and understood, which is obligatory on the
parties, but ought not to affect those from whom it is
concealed.
The counsel for the defendants in the circuit court then prayed
an instruction to the jury, that if they were satisfied that the
partnership was known to the plaintiffs to be limited to the soap
and candle business, they must find for the defendants, unless they
were also satisfied that these notes were given in the ordinary
course of the partnership business, or that the moneys obtained
upon them went, directly to the use of the firm, with the consent
of Amos Binney and John Binney, and that if they are satisfied that
any part of these moneys did go to the use the firm with such
consent, that then they must find a verdict for such part only, and
not for the residue.
This instruction was not given as asked, but was given with
"limitations, explanations, and qualifications."
The judge instructed the jury, in substance, that the defendants
were not bound to pay the notes sued on unless the endorsements
thereon were in the ordinary course of the business of the firm,
for the use and on account of the firm, but if they were satisfied
that the notes were so offered and discounted, and that the said
Winship was entrusted by the partnership, as the active partner, to
conduct the ordinary business of
Page 30 U. S. 566
the firm, and the discount of such endorsed notes was within
such business, then the plaintiffs were entitled to recover,
although Winship should have subsequently misapplied the funds,
received from the discount of said notes, if the plaintiffs were
not parties or privies thereto or of any such intention.
The plaintiffs in error contend that the instruction ought to
have been given, as prayed, without any qualification whatever. The
instruction required is that although the jury should be satisfied
that the money went to the use of the firm, they should find for
the defendants, unless they should be also satisfied that the
consent of Amos and John Binney was given to its being so applied.
That is that a note discounted by the acting and ostensible partner
of a firm for the use of a firm, the money arising from which was
applied to that use, could not be recovered from the firm by the
holder unless the application was made with the consent of all the
partners.
The counsel for the plaintiffs in error is too intelligent to
maintain this as a general proposition. He must confine it to this
particular case. He is understood as contending that under the
secret restrictions contained in the bond given by Winship to Amos
Binney Winship was restrained from discounting these notes even for
the use of the firm, and that no application of the money to the
purposes of the co-partnership could cure this original want of
authority, and create a liability which the note itself did not
create, unless such application was made with the consent of all
the partners. So understood, it is a repetition of the matter for
which the third exception was taken, and is disposed of with that
exception. The instruction, therefore, ought not to have been given
as prayed. Still, if the court has erred in the instruction
actually given, that error ought to be corrected. That instruction
is that if the notes were offered in the usual course of business
for the firm, by the partner entrusted to conduct its business, and
were so discounted, and if such discount was within such business;
then the subsequent misapplication of the money, the holders not
being parties or privies thereto, or of such intention, would not
deprive them of their right of action against the
co-partnership.
We think this opinion entirely correct. It only affirms the
common principle that the misapplication of funds raised by
Page 30 U. S. 567
authority, cannot affect the person from whom those funds are
obtained.
We think there is no error in the opinions given by the judge to
the jury. The court being divided, on the competency of Samuel
Jacques as a witness, the judgment is
Affirmed, with costs and damages at the rate of six
percentum per annum, by a divided court.
MR. JUSTICE BALDWIN dissenting.
The plaintiffs sue in this case as the endorsees of six
promissory notes drawn by James Jacques, and endorsed by John
Winship, which came to their hands as the discounters thereof,
being offered by John Winship, and the proceeds thereof placed to
his credit in the bank. They were not notes endorsed to the
plaintiffs in payment, or as collateral security for the payment of
an antecedent debt, or the performance of any preexisting contract.
The bank is prohibited in its charter from dealing in goods unless
for the sale of such as are pledged for the payment of debts. 4
L.U.S. 43. Ninth fundamental article of the charter of the
bank.
This was not, then, the case of goods sold by plaintiffs to
defendants as partners on the faith of the partnership in the
course of their business. Neither is it a case of money previously
lent, and a note or bill endorsed over in payment or security. The
case finds, and the circuit court considered it a case of discount,
which is a purchase of the note on stipulated and well known terms.
The purchase or discount of a note is a contract wholly unconnected
with the objects, uses, or application of the money paid. A party
who sells a bill or note, incurs no liability to the discounter by
the mere contract of discount, where he does not endorse it, nor
does the discounter who pays for the discounted bill or note in
other bills and notes, without endorsement, guarantee their
payment. The contract is one of sale, and in the absence of fraud
or misrepresentation, the rights of the parties are tested
exclusively by the only contract which the nature of the case
imports, of sale and purchase as of any other article in
market.
Where a purchase is made or money borrowed on partnership
account, an immediate debt is created, a note or bill given or
endorsed is for payment of the existing debt, and if not
Page 30 U. S. 568
paid, the debt remains unless the bill or note has been accepted
as payment. So if the bill or note is given as collateral security.
And the law is the same whether one or all the partners do the act;
there is an antecedent debt binding on all, or an indemnity to be
provided; the obligation is not impaired by giving or transferring
an ineffectual security. But the present case is wholly different.
The defendants owed no antecedent debt to the bank for which these
notes were transferred to them. They were neither offered or
accepted as payment or indemnity, but sold by Winship and purchased
by the bank at their value. That value is, in my opinion, to be
ascertained with reference to the names on the bill, who are the
parties to the contract, and in my view of the law, the only
parties. The bank bought from John Winship the promise of James
Jacques, guaranteed by Winship, on known conditions. This
distinction between passing or pledging a note in payment and
discounting it has been wholly overlooked in the opinion of the
circuit court, and the case seems to have been considered
throughout as governed by the same rules which apply to purchases,
loans, and other partnership engagements. The case before them was
a pure case of discount, which is governed by its own principles,
which, in my opinion, would have produced a different result in the
cause, had they been laid down to the jury.
These principles are fully illustrated and established in their
various bearings on cases which have been adjudicated, and laid
down in terms too clear not to be understood. 15 East 10-11; Doug.
654, note; 3 Ves.Jr., 368; 10 Ves.Jr. 204; 3 Durnf. & East 757;
1 Lord Ray. 422; 2 Com. 57, S.C.;
5 U. S. 1 Cranch
192;
10 U. S. 6
Cranch 264; 1 Wash.C.C. 156, 321, 328, 399; 3 Wash.C.C. 266; 9
Johns. 310; Burke's Cases in Bankruptcy, 114, 170; 3 Mad. 120; 1
Esp.N.P. 448. I do not refer to the latter case, because it ought
to be any authority in this Court, but because it shows that Lord
Kenyon, who dissented from the court of King's Bench in 1790, in
the case quoted from 3 Durnf. & East 757, came to the same
opinion in 1796. Neither do I rely on elementary writers who lay
down the same positions; but on the adjudged cases, which seem to
me to be the safest guides to the law.
"Satius est petere
fontes, quam sectari rivulos." 10 Coke 118.
Page 30 U. S. 569
Resting on these authorities, I shall consider the case on the
evidence as one of discount, not of loan, purchase or any other
preexisting liability. As the evidence of Jacques proves that these
notes were accommodation, and not notes of business, as Mr. Harris
the discount clerk, testifies that all the notes were discounted at
Winship's request, and the proceeds passed to his credit; that it
is easy to distinguish accommodation notes from others; and that he
considered these in suit to be of that description, and that the
bank had frequently discounted notes drawn by Winship and endorsed
by Amos Binney, and Mr. Parker, one of the directors of the bank,
testified, that when the bank discounted these notes, it was
understood that Amos and John Binney were bound by them. Witness
understood that they were bound as partners in the soap and candle
business, not general partners. Did not know as to John Binney
whether plaintiff considered him answerable, but that they did so
consider Amos Binney; that a number of notes of this kind were
discounted, while other notes endorsed by Amos Binney were in bank;
the Amos and John Binney were engaged in large business as
merchants, and witness does not know that anyone ever supposed
defendants to be partners, except in the manufacture of soap and
candles.
I cannot do injustice to the plaintiffs by founding my opinion
on this testimony. Mr. Parker was present at the making of the
contract of discount of these notes; he was one of the agents of
the bank in making it, and a party to it, as a member of the
corporation, directly interested. His evidence is the solemn
admission on oath of a party to the contract, and ought to be taken
as true. The defendants have a right to its full benefit as
explanatory of the nature, terms, and circumstances under which it
was made. Mr. Harris the discount clerk, was the appropriate agent
of the bank in consummating the contract of discount, by paying to
Winship the proceeds of the discounted notes; and I cannot err in
saying from the record, that these were the only witnesses examined
at the trial touching the discount of these notes; the only
contract, in my opinion, which the law raises between the
plaintiffs and defendants. What, then, was the obligation which
this contract of discount, as proved by Harris and Parker, imposed
on Amos and John Binney by the bank's purchasing these notes
Page 30 U. S. 570
at the request of John Winship, and paying or passing the
proceeds to his credit?
The notes were accommodation, so understood by the plaintiffs
and discounted as such. The bank, then, knew that they were not
what they purported to be; they are set forth in the record, are
all drawn for value received, and thus bear a falsehood on their
face, known to the bank. Such notes, Mr. Harris says, are easily
distinguishable from notes of business, and the bank did not
discount them as representing a purchase, a loan, or any
preexisting obligation by Jacques to pay the amount to Winship, but
as the lending of his name by Jacques to Winship, to enable him to
raise money by the sale of the notes. There was in this respect no
fraud on the bank. They knew they were not purchasing notes given
and endorsed in the usual course of business. They did not come to
their hands as innocent endorsers, taking them to be what they
imported to be, for value received. The bank is a purchaser, it is
true, for a valuable consideration, but not innocent or without
notice. They took the notes with a known taint on their very face,
which can only be effaced by some subsequent endorsee or holder,
who takes them in the course of business without notice, and takes
them as between the payor and payee, as having been given for value
received. But the plaintiffs have become the endorsees by discount,
knowing that by the acknowledged principles of commercial law, as
between the original parties in all their relations, Winship was
the drawer and Jacques the endorser. As between them and the bank,
their relations were the same, whether the notes were of business
or accommodation; they were liable in the capacities they
respectively assumed on the face of the notes. When the discounter
or the endorsee of an accommodation note, known by him to be such,
seeks to recover the amount from a person whose name does not
appear on the note, he must prove that the person charged had made
himself a party to the note; had authorized its negotiation or
transfer, previously, or afterwards assented to, ratified, or
adopted the endorsement as his own. Had there been no previous
connection between the Binneys and Winship, and the Binneys had
procured the discount from the bank without their endorsement, they
would be no more answerable to the bank than by receiving payment
of a check.
Page 30 U. S. 571
On the face of these notes the Binneys are strangers to the
bank. The contract of discount which they made with Winship, does
not,
per se, create one with the Binneys. Being
accommodation notes, they were discounted as such; that is, as the
notes of Winship endorsed by Jacques; for such is the acknowledged
character of such notes in the commercial world. The line
separating business from accommodation paper is clearly defined by
law and usage. There is the same difference between the endorser of
a note known not to be what it purports to be, and one which
represents a real debt from the drawer to the drawee, as between
the purchasers of real estate with or without notice of an
encumbrance, or the defect of title so far as respects their
standing in courts of justice in relation to third persons not
parties to the contract. Those who purchase in good faith, without
notice of fraud, and pay their money, confiding in the face of the
transaction, ignorant of anything which can affect its legal or
equitable character, are entitled to the protection of all courts
as their most favored parties.
A peculiar sanctity is thrown round the obligation of negotiable
paper, actually negotiated in the usual course of business, and in
the hands of an innocent holder, for a valuable consideration,
without notice. Every presumption which the law can raise, is in
favor of such a holder, whether he receives the note in payment, or
by discount. It becomes divested of this peculiar obligation, when
the paper in its original concoction or negotiation becomes
divested of these attributes, and remains in the hands of a holder
who has a knowledge of all the circumstances attending both. I know
of no decision of any court, no principle of law, nor usage of
merchants, which confounds the distinction between these two kinds
of paper in the hands of endorsees, with or without notice; it is
too well established to require support from argument or authority.
The same distinction exists in paper negotiated after it is due, or
partnership notes given for the private debt of a partner. Notice
is the distinguishing criterion in all these cases, and settles the
question as to the burden of proof. So I find the law laid down by
the Supreme Court of Massachusetts, in the case of the
Manufacturing & Mechanics' Bank v. John Winship, 5
Pickering 11. The suit was brought on an
Page 30 U. S. 572
accommodation note drawn by John Winship to Jacques or order,
endorsed by him and discounted by the plaintiffs in the usual
course of banking business. The Chief Justice charged the jury that
the burden of proof was in the plaintiffs, and that if no proof was
given of them that the money was raised for the business of the
firm at the manufactory, the jury should find the fact for the
defendants. In giving judgment for the defendants, the court
affirmed the charge of the Chief Justice as to the burden of
proving the note to have been given on partnership account being on
the bank; that no recovery could be had against the partners so
long as it remained doubtful whether they have or have not made the
contract declared upon; that from the fact of the note being found
to be an accommodation one between Winship and Jacques, it would
seem more likely that it related to the private concerns of Winship
than to those of the partners; at any rate, the uncertainty resting
on the face of the note would still continue. The plaintiffs knew
or might have known that Winship was openly engaged in commercial
speculations, which were wholly unconnected with the business of
the manufactory, and that his signature might relate to one concern
as well as another. If, therefore, they meant that the note should
be enforced against the partnership, they should have ascertained
that the signature of Winship was intended for the signature of the
firm. But they made no such inquiry, and it does not appear that
Winship or Jacques ever made any representation to that effect. And
although it appears that the plaintiffs supposed the Binneys would
be answerable, because they were partners with Winship in the
manufactory, yet they gave no intimation whatever to the parties to
the note to be discounted, that such was their understanding of the
contract.
There are few courts whose opinions may be more safely confided
in as to the rules of the common law; there is none whose authority
I feel more bound to respect as to the common law of Massachusetts
than its highest judicial tribunal. The law of the state where a
contract is made and carried into effect seems to me to be the law
which must control its obligation, and until evidence of the common
law of that state more imposing than the solemn decision of its
supreme court
Page 30 U. S. 573
is furnished me, I feel it my duty to respect and adopt it,
believing that in doing so I violate no principle which has ever
been sanctioned by this Court. In some particulars, the evidence in
the cause referred to was more favorable to the bank than in this.
The note was discounted at the bank on the belief that the Binneys
were liable as partners of the manufactory at Charlestown only.
This was found by the jury, but it was not found, and there appears
to have been no evidence that the bank or its officers knew the
note to be an accommodation one. The judgment of the court was on
the fact being so found, not on its being known to the
plaintiffs.
In this case the notice is brought home to the plaintiffs by the
evidence of their discount clerk. Mr. Parker, the director, does
not say the note was discounted on the belief that the Binneys were
liable as partners; all he says on that subject is when the bank
discounted these notes, it was understood the Binneys were bound by
them. He immediately corrects this and says he does not know as to
John Binney whether plaintiffs considered him answerable, but they
did so consider Amos Binney. This is certainly very lame evidence
of the notes being discounted on the credit of both Amos and John
Binney, and much weaker than the fact found by the jury in the
other case. The bank had notice of the course of business between
Winship and Amos Binney by his endorsing Winship's notes and the
bank discounting them. The Binneys were in good credit, and being
reputed wealthy, it was not to be presumed they would borrow credit
from Jacques. These circumstances ought to have put the bank on
inquiry, as Binney was a customer residing in the place. The Court
placed no reliance on these circumstances or on the fact of the
notes being discounted with the knowledge that they were notes of
accommodation.
Nor did the Court, in my opinion, correctly define the
difference between a dormant and an open partnership. It seems to
me to be this: where the names of the partners do or do not appear
in their accounts, their advertisements or their paper; where the
business is carried on in the name of all, it is open; but if any
are kept back, it is dormant; that the knowledge which the public
may have is not the test, when it is acquired from the acts or
declarations of the acting
Page 30 U. S. 574
avowed partners; it may enable them to reach the dormant one, if
the transaction is one in which he had an interest, but does not
alter its nature. The partnership remains dormant as to all, whose
names do not appear on its transactions. The dormant, the sleeping,
inactive partner may be known by reputation, or the declaration of
his co-partner, but these do not make him an avowed or active one
without the avowal and pledge of his name or paper. If credit is
given to the other names on the faith of such reputation or
representation, the persons so trusting must do it at the risk of
suffering, if their information is not true. The declarations of
one of a firm are not evidence of another person's being a partner,
in any particular transaction, unless a previous connection is
established, which gives him authority to bind by his
acknowledgment, or proof given of subsequent assent; reputation is
not,
per se evidence, unless brought home to the party
charged; then his silence may be deemed acquiescence or assent. 11
Serg. & Rawle 362; 2 Wash.C.C. 388, 390; 14 Johns. 215; 3
Caines 92; 10 East. 264; 5 Pick. 415, 417; 1 Gall. 635, 638,
640.
The language of some of the cases is that it is rather on the
ground of agency than partnership resulting from the community of
interest in the subject matter of the contract. The principle which
makes a dormant partner liable is this -- having an interest in the
profits which are a part of the fund to which a creditor looks for
payment, he shall be bound. 2 Black. 1000; 2 Hen.Black. 247; 4
East. 144; 16 Johns. 40; 2 Nott & McCord 427, 429; 1 Hen.Black.
45. As his name is not pledged, his liability arises only from his
interest, 16 East. 174, 175, and the burden of proving such
interest is on the party suing. The language of the court, in 2
Nott & McCord, 429, is very emphatic.
"To charge defendant as partner, one of two things is necessary;
either he must have permitted his name to be used as one of the
firm, thereby holding it out as a security to the community; or he
must have participated in the profits."
As the Binneys never pledged their names on these notes, they
were not discounted on their faith. There is then wanting in this
case that fact on which the power of one partner to bind the firm
by negotiable paper is created, the use of the names.
Page 30 U. S. 575
The plaintiff who seeks to make those parties to a note, whose
names do not give it currency or credit, must make them parties by
affirmative proof of an interest in profits, previous authority, or
subsequent recognition. It is true, that when a dormant partner is
discovered, he is liable; but then he must be shown to be one by an
interest in the subject matter of the note. Till this is brought
home to him, he is not party to it. I know of no authority for
saying, that the mere existence of a partnership composed of names
not avowed or pledged to the public, makes them when discovered
liable for any other than contracts in which they have an interest;
one who suffers his name to be used on paper is liable as a
partner, though there is in fact no existing partnership; but the
man who does not suffer his name to be used or pledged, is bound
only by virtue of his interest.
This furnishes, I apprehend, the true distinction between
dormant and open partnerships, and that it does not depend on the
knowledge which the public may have, or the representation made by
the contracting partner, when he is giving or negotiating a note.
The reason which makes a note drawn or endorsed by one partner, in
the joint name, though for his own use, binding on the firm in the
hands of an innocent holder, is, because it has been taken on the
faith of his name. 3 Kent.Com. 18. The case of
Van Ramsdyke's
v. Kane, shows the importance attached to the names of the
partners appearing on a bill. One partner was authorized by the
others to take up money on the credit of the partnership concern,
and draw bills therefor on a house at A. He took up money, drew a
bill directing it to be charged on the account of all the partners,
but it was signed by himself alone; the court held that the
representative of a deceased partner was liable in equity to a
payee, who trusted his money on the faith of the joint credit, but
expressed themselves with great doubt and caution as to the
liability of the partners at law. 2 Gall. 30.
It seems to me that the circumstance which would excite a doubt
in that case would remove it in this. But when all the names are
not used, the reason and the law cease together. Where the
liability attaches to the name, proof of the signature is enough;
where it depends on the mere participation of the
Page 30 U. S. 576
profits, that must be proved by the holder, as he claims to hold
persons bound whose names were not held out on the paper as
inducements to take it, he must show that the law has placed their
names upon it. In proving a partnership assignment, it must appear
that the party making it had a right to sign the name of the firm,
and that his act is the act of all the partners.
9 U. S. 5 Cranch
300. A party claiming the money due on a note, endorsed to him in
the name of the firm, must show the endorsement to be made in the
name of the firm by a person duly authorized. The case of
Leroy v.
Johnson, 1 Pet. 186, was this. Hoffman and Johnson
were partners, under the firm of Hoffman & Johnson; so
advertised in the papers, so publicly known, and so carried on,
under articles of partnership. Hoffman drew a bill on London, in
Alexandria, in his own name, which the plaintiff, residing in New
York, purchased from Hoffman. The bill was drawn to raise money to
pay a note of the firm, and sent to New York by Johnson for the
purpose of selling it. Not succeeding, Hoffman went on, and
assisted by letters of recommendation from merchants of Baltimore,
negotiated the bill, and with the proceeds paid a partnership note.
The Circuit Court of the District were asked to instruct the jury,
1. that on the evidence of partnership and the application of the
proceeds of the bill to partnership purposes; 2. that if the bill
was drawn with reference to the business of the concern; 3. that if
the name of Jacob Hoffman was sometimes used in relation to the
business of the firm, that the bill was drawn in his name, and so
negotiated for the firm, and to pay their debts; that the plaintiff
was entitled to recover. These instructions were refused, and
judgment rendered for the defendant, which was affirmed, this Court
holding it indispensable for the plaintiff to prove, that the name
of Hoffman was used in the transaction as the name of the firm, and
that the parties so traded and carried on their business; that the
jury would be well warranted from the facts of the case in
believing that Hoffman dealt in his individual name, and on his
sole responsibility, without even an allusion to the partnership;
though the bill was drawn for partnership purposes, with the
knowledge of Johnson and by him sent to New York for sale,
Page 30 U. S. 577
and the proceeds applied in good faith. The attention of the
court was not drawn to the distinction between notes discounted,
and those received in payment; nor was the bill in question an
accommodation one. There was no fraud in the transaction, as
between the partners. It was drawn, negotiated, and the proceeds
applied, with the consent of both, and the aid of letters of
recommendation. It came to the hands of the holder by fair purchase
in market, in the usual and regular way of business; yet Johnson
was not bound; his name was not on the bill; the plaintiff did not
prove it to be the name of the firm in the particular transaction,
though Hoffman's name was sometimes used alone in partnership
transactions.
If, in addition to these defects in the plaintiff's case, it had
appeared that the bill drawn in the name of Hoffman had been one of
accommodation, known to Le Roy to be so, and purchased as such,
without the knowledge of Johnson of its having been drawn or
negotiated, or the application of its proceeds to partnership
purposes, and with a knowledge by Mr. Le Roy derived from his
having been in the frequent habit of discounting bills drawn by one
and discounted by the other, understanding there was a special
partnership between them; it is not presuming too much to think,
that this Court would have deemed these circumstances strong
presumptive proof and reasonable notice of their accustomed mode of
raising money for partnership purposes, by discount, and that a
known accommodation note drawn by a stranger, and endorsed by
Hoffman alone, was not a partnership note, when offered by him for
discount, without the name of Johnson. It would seem to me to
furnish the very case which this Court, in delivering its opinion
in
Le Roy v. Johnson makes a proviso of the liability of
the members of a firm whose names appear on a bill negotiated, and
in the hands of an endorsee. The Court said a bill drawn or
accepted by a firm, by its usual name and style is presumed to be
on its joint account and authority, and that third persons are not
bound to inquire whether it was so done or not,
"unless the contrary be shown, and that the persons with whom
the partner deals had notice or reason to believe that the former
was acting on his separate account."
This restriction to the liability of partners, whose names
Page 30 U. S. 578
appear on a joint note in the hands of an endorsee, to whom the
faith of a partnership is publicly pledged, seems to me conclusive
in a case circumstanced like this, where the agents, who effect the
discount of the note in question for the bank, prove distinctly
their own knowledge of the nature, extent, and objects of the
partnership, the mode adopted to raise funds for the firm in the
same bank, and of these notes being for the accommodation of
Winship, and his receiving the proceeds.
Under the circumstances of this case, I cannot consider the
plaintiffs as innocent endorsees of the negotiable paper of a firm
actually negotiated by them on its pledged credit, without notice
or reason to believe that Winship was acting on his separate
account. The testimony of Harris is conclusive on my mind to prove
that the officers of the bank perfectly understood the nature of
the transaction; that the notes were not discounted on any
representation made by Winship, or on the belief that they were the
notes of the firm. The bank may have thought the Binneys, or one of
them, liable, but according to the testimony of Parker could not
have believed the endorsement to represent a regular and authorized
partnership transaction. The statement of Mr. Parker was at first
that they understood the Binneys were liable, but he afterwards
corrected himself and said, he did not know, as to John Binney
whether the plaintiffs considered him so answerable, but that they
so considered Amos Binney. They evidently thought Amos liable
because he had been in the habit of endorsing Winship's notes, but
could by no possibility have believed Amos and John liable as
partners under the signature of Winship, when one of the directors
who made the discount could not say that the bank ever considered
John Binney to be liable.
Finding, on a careful examination of the charge of the circuit
court, that none of the restrictions and qualifications of the
liability of a dormant partner, whose name does not appear in an
endorsement of an accommodation note, discounted under known
circumstances of suspicion, have been laid down or explained to the
jury; I am constrained to say that it is erroneous, and that the
judgment ought to be reversed. I cannot, on a subject so important
as this, silently dissent from the opinion of the Court, when my
judgment has been made up on
Page 30 U. S. 579
what seems to me the best established principles of commercial
law; nor can I consent to overrule a decision of the supreme court
of the state where this contract was made, executed and enforced
without the highest possible evidence of their having been mistaken
in their judicial exposition of their common law.
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the District of
Massachusetts, and was argued by counsel, on consideration whereof
it is considered, ordered, and adjudged by this Court, that the
judgment of the said circuit court in this cause be, and the same
is hereby affirmed, with costs and damages, at the rate of six
percentum per annum.
