Smith v. Lusher

5 Cow. 688

• Court: Court for the Trial of Impeachments and Correction of Errors
• Decided: December 15, 1825
• Status: Published

Opinion

The Chancellor.

Many parts of this record are not here in question; and the cause is now to be determined upon those pleadings of the parties which terminated in a demurrer. In considering the questions before the court, I shall apply the terms plaintiffs and defendants, to the parties, as they stood before the Supreme Court.

The declaration alleges, that the defendants were partners in trade, under the firm of William Soulden and company ; that as partners, they made a promissory note payable to Abraham Van Santvoord; and that Van Santvoord endorsed the note to the plaintiffs.

The special plea of the defendant Peter Smith, which" is now in question, avers, that Van Santvoord to whom the note was made payable, and who is one of the defendants, was a partner of the firm of William Soulden and company when the note was made; that the note was made by William Soulden, in the name of he firm, to Van Santvoord without the knowledge or consent of Peter Smith, for an account alleged by Van Santvoord to be due from the firm to him; and that the plaintiffs, when the note was endorsed to them by Van Santvoord, had notice that the note was made by Soulden in the name of the firm payable to Van Santvoord one of the partners, and for what consideration the note was made.

Is this plea a sufficient answer to the declaration?

The declaration states the partnership of the defendants, in the usual form; the plea admits that they were partners, and upon these allegations, it must be understood that the defendants were general partners in trade. I use the expression general partners, to convey the idea of an ordinary mercantile partnership, in distinction from special cases of limited partnership.

What the plea rtates. The origin and nature of the original debt does not appear but the firm were accountable for it to Van Santvoord. For it the note was given and was not fraudulent or illegal. V. could not be both debtor and creditor, but this does not avoid the note as to the other partners.

The plea states that the note was given for an account alleged by Van Santvoord to he due to him from the firm An indefinite phrase is here presented, by the terms, an account alleged to be due from the firm; hut this is the statement of the defendant, and he does not controvert the allegation which he thus states to have been made by Van Santvoord. The most obvious sense of this part of the plea is, that the partners of Van Santvoord were indebted to him, and that Soulden gave the notice in question, for that debt; and so the plea must be understood.

The origin and nature of this debt from the partners of Van Santvoord to him do not appear. As nothing peculiar concerning this debt, is stated, it must he understood to have been a just debt, to Van Santvoord from his five partners, which they were hound to pay, and for which they were fully and personally responsible. Van Santvoord might then, have recovered this debt by a suit; he might have assigned it to another person; and any one of the debtors acting for himself and his indebted partners, might have paid it, on behalf of all the debtors.

For this debt, Soulden, one of the partners, made this promissory note in the name of the firm, to Van Santvoord. I do not perceive, that this transaction was either a fraud, or illegal in itself. No fictitious or new debt was created by Soulden ; hut for an existing debt he gave the promissory note of the partnership. Van Santvoord could not indeed, be both debtor and creditor, in the same transaction; and as he could not maintain a suit against himself, it is urged, that this note was totally void. But wny should this consequence follow 11f the note did not bind Van Santvoord why should it not hind the other partners ? If Van Santvoord could not maintain a suit against himself, how does that principle produce a penal consequence, that he looses his rights or remedies against others ? If the note was void against Van Santvoord, it was so, merely by force of the princiole, that he could not he bound as a debtor, where he was the creditor; but this principle ha.s no application to the other partners. As this objection to the note relates to Yan Santvoord alone, it is reasonable, that the effect of the objection should be confined to him.; and that though the note may be void or ineffectual against Yan Santvoord, it is not void against the other partners. To consider the note as wholly void, merely because Yan Santvoord could have no remedy against himself, would defeat the intention of the act and the justice of the case, when such a decision is not required by any principle of law. To consider the note as binding, all the partners excepting Yan Santvoord, is to pursue the truth and justice of the transaction, and to charge the real debtors with their debt to the real creditor. This transaction as it is stated, was free from all fraud ; and the fact that Yan Santvoord was one of the partners whose firm was used in giving the note, does not in my opinion, invalidate the note against the other partners.

The knowledge averred by the plea does not affect the claim against P Smith. The sonso of the plea in averring want of knowledge or consent, &c.

The plea states, that when Yan Santvoord endorsed the note to the plaintiffs," they had notice, that the note was made by Soulden in the name of the firm, payable to Yan Santvoord one of the partners, and of the consideration for wiiich the note was made. As the facts of which the plaintiffs thus had notice, did not invalidate the note, against Van Santvoord’s partners, the knowledge of those facts cannot affect the claim of the plaintiffs against Peter Smith.

The plea of Peter Smith, avers, that this note was made m the name of the firm, without his knowledge or consent. Peter Smith might be hound, without his knowledge of the making of the note, and without his consent to the act. He was one of six partners; each of them had power to act for all the partners ; and each partner might bind all, ivithout the knowledge or consent of his associates. This averment is not a denial of the partnership of the defendants, or of the authority of Soulden to act as one of the partners. The sense of the averment is, that Peter Smith was ignorant of the making of the note, and that he gave no consent to that act. But this general partnership was then in full force; and Soulden the partner who made the note, had power to bind Peter Smith, without his knowledge, and without his consent to the particular act. This averment therefore, presents an immaterial fact.

If the note had been fraudulent, or the claim between the partners had depended on an adjustment of accounts, there would be a legal or equitable defence. Whether the eient ba^.SUffi" Statement of the case. Consequences of reversing the judgment.

If the execution of this note, had been a fraud between Soulden and Van Santvoord ; or if the justice of this claim depended upon an adjustment of accounts between the partners or against them; a legal or equitable defence would arise from such facts. But no such fact is alleged. This plea advances no matter of equitable defence against this action : and the matters alleged in the plea, whether considered separately or taken collectively, afford in my opinion, no legal defence to the cause of action stated in the declaration. It is therefore unnecessary to examine the. replication which was the immediate subject of the demurrer. The plea being insufficient, in substance, the plaintiffs are entitled to judgment on the demurrer ; and so the Supreme Court have decided.

Colden, Senator. The demurrer of the defendant below-, refers us to his plea, and we are to determine whether that be a sufficient bar to the action.

From the declaration and plea, we may assume the fol- . . J lowing facts: The defendants m error are bona fide endorsees of a promissory note, made by one of several co-partners under their mercantile firm, without the consent or knowledge of Peter Smith, the plaintiff in error, who was one of the partners, payable to one of the firm, or to his order. It is not alleged that the note was not given for a matter which concerned the partnership.

It was endorsed by the payee to the holders before it became due.

The plaintiff in error, Peter Smith, contends, that under these circumstances, the" endorsees ought not to recover on ■ the note.

If he be right, mercantile operations have been conducted under wrong notions, a great length of time ; and if we , . - , . . , . ' reverse the judgment on the principles which the plaintiff in error has attempted to maintain, we shall affect, and render nugatory, a very large portion of the mercantile securities which are now afloat. For it long has been, and now is the constant practice for one of a co partnership to draw a bill, or make a note in the name of a firm, without the consent or knowledge of one or more of the partners. It often happens that the business of a mercantile concern is conducted by one partner, while his co-partners are in different quarters of the world, and could have no knowledge of the transaction. It is also every day’s practice for partners to make a note under their firm, payable to, or to draw a bill on one of the co-partners; and I believe it has never heretofore been questioned but that a bona fide endorsee might recover against all the co-partners on such a bill or note; unless it were given for a matter which did not concern the partnership, and that fact was known to the holder at the time of the endorsement.

It is the constant practice f >r one partner to draw bills or make notes, in the name of the firm, without the knowledge or assent of his co-partners. So for partners to make a firm note payable to, or draw a bill on one of the partners; and, it seems, not to have been questioned that an endorsee may recover thereon, unless for a matter not concerning the partnership ; and that known to the endorsee at the time of the endorsement A man cannot bebound to himself, and it seems that a bond, &c. by three to one of the three, would not maintain an action. Difference between promissory notes and other contracts.

Where the payment of a bill or note, made in the name of a partnership, is resisted on the ground that it was given in fraud of the partnership, with the knowledge of the holder, it is incumbent on the defendant to plead and prove these facts. There being no averments to this effect in the plea under consideration, we are to presume, as the endorsees had a right to presume, that the note was given for a matter which concerned the partnership.

It appears to me, that in the argument of this case, there has been a mistake in not distinguishing between simple contracts made by a partnership, and other contracts and obligations purporting to be made by several persons.

It is certainly true, as has been insisted, that a man cannot be bound to himself. If three persons were to enter into a bond or covenant to pay to one of the three, I presume no action at law could be maintained on such a specialty. And it is, no doubt, generally true, that one person cannot bind another without his consent; but this general rule does not apply to mercantile concerns.

Promissory notes are on a different footing from other contracts. They ate made negotiable by, and when negotiated derive their force and effect from statute. The question then is whether in virtue of the act concerning promissory notes, (1 R L. 151,) and the law merchant, the defendants in error are not entitled to recover as endorsees of the note described in the declaration, notwithstanding any thing alleged in the plea.

As to the power of P. Smith’s partners to make the note. The power of one partner to bind another, results from the nature of partnership and the law merchant. Whether a note made by one partner in the name of the firm, for a debt of the firm could be impeached on the ground that it was made against the will of the other partners; and that known to the endorsee ? Quere.

First, as to the power which the other partners had to make the note without the knowledge or consent of Pete) Smith.

When Peter Smith entered into partnership, he gave each of his co-partners power to bind him by any promise or agreement which related to the partnership concerns. I do not mean to say, that the power of partners does not extend further, and that all the members of a firrn may not be bound by a hill or note given by one partner in the name of alj, although it may not have been for a debt of the firm, if - an endorsee takes such a note without knowing for- what consideration it was made. But it is unnecessary to give any opinion on this point at present.

If it he asked from whence partners derive their power to bind each other 1 the answer is, it results from the nature of partnerships, and from the law merchant applicable to them. It is no defence for one of several partners to say, he did not assent to the contract, or that it was made without his knowledge. If he expressly dissented, tt certainly would not avail, if the party claiming the benefit of the contract did not know that he had dissented. And if the transaction was bona fide, and concerned matters which were within the scope, and accustomed dealings of the partnership I doubt whether a plea by one partner,- that the endorsee knew when he took a note that it was given against the will of one of the partners, would be a bar to an action on the note.

It seems to me, therefore, that it cannot be questioned, but that Peter Smith's partners, and each of them, had pjwer to bind him by the note in question, although he never assented to the note’s being made, and though it was given without his knowledge. So, that if the note had been payable to any other person than to one of the firm, undoubtedly it would have hound all the partners.

But it was payable to Tan Santvoord, one of the fro i; and the remaining question is, whether that circumsta y should prevent the defendants in error, who are h. s endorsees, from recovering.

A suit could not have been sustained by the payee, who was also one of the makers; though he might have relief in equity for a partnership may be indebted to one of the firm, and how; and bind themselves by a note to him good in equity, as between the original parties ; and good at law, in the hands of an endorsee. And so though an action will not lie, while the note is with the payee, it may be brought after the note is negotiated.

If the note had remained in the hands of Van Santvoord, he could not have sustained any suit upon it. For either he must have sued all the partners, and then it would have 'been a suit by a man against himself, or he must have sued his co-partners only, and then the note would not have supported his declaration, in which he must have averred that the "defendants promised; whereas, the note would show that the promise was by all the partners. These would be technical objections, which would be fatal in a suit at common law, in the name of the payee. Yet there can be no doubt, but that a partner might have relief in a court of Chancery on a note given to him by his co-partners. For "certainly a partnership may become indebted to one of the firm ; as if there should be a co-partnership for manufacturing and vending linens, and one of the partners should be a farmer. The partnership might well become indebted to him. for the raw material, and might bind the firm by a note given for the article furnished. Though the farmer might not be able to maintain his suit at law, he could recover in a court- of equity. Such a note in the hands of one of a firm the world has a right to regard as an evidence of a debt due from the firm to the partner, to whom it is given. The endorsee is therefore justifiable in taking the note, although he may know and see upon its face, that his endorser is one of the firm; and when the endorsee brings the action, there are no technical obstacles to his recovery. The suit is not then by a person against himself; and his demand is pursuant to the contract, by which all who compose the firm are bound, and against these his action is brought.

That because a suit at common law cannot be supported against the makers of a note, previously to its being negotiated, therefore no suit can be maintainéd by the bona fide holder, after it is" endorsed, is a proposition that cannot be sustained. Nothing is more common, than for partners to draw a bill payable to one of the firm. Often bills are made payable to, and drawn upon the makers themselves; and very often bills are made payable to fictitious payees. These bills may be mere waste paper, until they are negotiated ; but the moment they are endorsed, they become efficient securities in the hands of the endorsees. If it be asked, by what law do they become so, the answer is, it is by the lex mercatoria, the evidence of which is long, constant and continued usage. This is the law merchant with respect to bills of exchange; and by the statute it is provided that promissory notes “ shall have the same effect, and be negotiable in like manner as inland bills of exchange according to the custom of merchants.” Since promissory notes have been put on the footing of bills of exchange they have, like them, been made payable to the order of one of the makers, or to the maker’s own order. Our bank notes are very generally made payable to fictitious payees. There is no instance of an objection to the right of bona fide endorsees or holders, to recover on such notes. On the contrary the cases cited by the counsel for the plaintiffs below, show that suits have been maintained on notes so made and endorsed.

I think the law well settled.' The plea of the defendant below, in my opinion, is no bar. I am therefore in favor of affirming the judgment of the Supreme Court.

Per totam Curiam,

Judgment affirmed.