United States Bank v. Binney

28 F. Cas. 811, 5 Mason C.C. 176

Opinion

STORY, Circuit Justice.

The present suit is brought by the Bank of the United States, as holders of certain promissory notes, signed by Samuel Jaques, Jr., and indorsed by John Winship, wdiich have been discounted at that bank, and protested for non-payment.. The plaintiffs found their claim against the defendants upon the statement, that the defendants are partners in trade under the name and firm of •‘John Winship;” that the indorsement and discount were for the benefit of the firm, and that upon the dishonour of the notes, they are all jointly liable as partners. No question arises as to the due presentment of the notes for payment, and due notice of the dishonour to the defendants. The defence turns upon a point wholly distinct from that. The defendants admit, that they were partners in the soap and candle business with John Winship, in the manner, and to the extent set forth in the articles of co-partnership read at the bar, and that the business was carried on in the name of “John Winship;” but they deny, that Winship was authorized to make or indorse any such notes, or to bind the partnership thereby; or that they were ever offered for discount, or discounted on account of the partnership, or the proceeds ever were applied to their use or benefit.

In respect to the general law regulating partnerships, there does not seem any real dispute or difficulty. Partnerships are usually divided into two sorts, general and limited. The former is. where the parties are partners in all their commercial business; the latter, where it is limited to some one or more branches, and does not include all the business of the partners. There is, probably, no such thing as a universal partnership, if. by the terms, we are to understand, that every thing done, bought, or sold, is to be deemed on partnership account. Most men own some real or personal estate, which they manage exclusively for themselves. In respect to both general and limited partnerships, the same general principle applies, that each partner has authority to bind the firm as to all things within the scope of the partnership, but not beyond it. Where the contract is made in the name of the firm, it will, prima facie, bind the firm, unless it is ultra the business of the firm. Where the firm imports, on its face, a company, as A., B. & Co., or A.. B. & C.. there the contracts made by the partners in that name bind the firm, unless they are known to be beyond the scope and business of the firm. But where the business is carried on in the name of one of the partners, and his name alone is the name of the firm, there, in order to bind the firm, it is necessary not only to prove the signature, but that it was used as the signature of the firm by a party authorized to use it on that occasion, and for that purpose. In other words, it must be shown to be used for partnership objects, and as a partnership act. The proof of the signature is not enough. The plaintiffs must go farther, and show, that it is a partnership signature. In the present ease, the signature of “John Winship” may be on his own individual account, as his personal contract, or it may be on account of the partnership. Upon the face of the paper it stands indifferent. The burden of proof, then, is upon the plaintiffs to establish, that it is a contract of the firm, and ought to bind them.

The case of Livingston v. Roosevelt, 4 Johns. 251, has been relied upon by the defendants’ counsel, as containing the true doctrines of law, applicable to general and limited partnerships. I am not disposed to controvert it. These doctrines may be taken by the jury as correct; and I will quote the language, as it stands in the report, so as to direct the attention of the jury to it. (Here the judge read from the report.) In this case, it is stated, that partners, in limited as well as in general partnerships, are authorized to raise and borrow money, sign, and indorse notes and bills for the common benefit, in transactions relating to the business of the firm. This doctrine has not been controverted at the bar; and indeed it must be true, if such be the ordinary course and. usage of trade; for then such an authority must be presumed to be allowed by all the-partners for the common benefit. And I know of no principle established to the contrary. Whether the present be a limited or general partnership is to be determined by the whole evidence in the case. It is certain, that by the articles it is a limited co-partnership. and confined to the soap and candle business. Those articles expired, by their own limitation, in two years, and had force no longer, unless the parties elected to continue the partnership on the same terms. That is matter of evidence upon the whole facts. The natural presumption is, that as-the partnership was continued in fact, it was continued on the same terms, as before, unless that presumption is rebutted by the other circumstances in the case. There is-no written agreement respecting the extension of the co-partnership, and therefore it' is open for inquiry upon all the evidence. The present notes were made and indorsed" long after the term of two years expired. The plaintiffs contend, that the partnership-was then general; the defendants, that it' was limited, as before. The jury must determine between them, upon weighing all the facts and presumptions.

It has been said, that this is the case of a secret partnership; that it was the intention of the Binneys, that their connexion with it should be kept secret, and that the management of the business in the name of “John Winship” shows this intention. In point of fact, there is no covenant or declaration in the articles of co-partnership, by which the parties have bound themselves to keep it secret; or that the names of the Binneys should never be disclosed to any persons dealing with Winship in the partnership concerns. In point of fact, too, if the evidence is believed, Winship, immediately after its formation, and during its continuance, constantly avowed it, and made it known, and obtained credit in the business of the firm thereby. He stated the Binneys to be partners; and this statement was generally known and believed by the public, and especially by persons dealing with Win-ship in respect to the business of the firm. If tile jury believe this evidence, then in point of fact, whatever was the original intention of the parties, this was not a secret partnership in the common meaning of the terms. I understand the common meaning-of “secret” partnership to be, a partnership, where the existence of certain persons as-partners is not avowed or made known to-the public by any of the partners. Where all-, the partners are publicly made known,. whether it be by one, or all the partners, it is no longer a secret partnership, for this is generally used in contradistinction to “notorious,” and “open” partnership. And it makes no difference in this particular, whether the business of the firm be earrried on in the name of one person only, or of him and company. Even if some of the partners intend to be such secretly, and their names are disclosed against their wishes and intentions; still when generally known and avowed by any other of the partners, the partnership is no longer a secret partnership. If, therefore, in the present case, Winship, against the wishes and intention of the Bin-neys, did in the course of the business of the firm make known, that they were partners, and who all the partners were, so that they became public and notorious, I should say, it was no longer a secret partnership in the common sense of the terms; if secret in any sense, it must be, under such circumstances, in a peculiar sense. Sometimes “dormant” and “secret” partners are used as synonymous; but I take it, that “dormant” is generally used, in contradistinction to “active;” and “secret,” to “open” or “notorious.” However, nothing important turns in this case upon the accuracy of definitions, since it must be decided upon the principles of law applicable to such a partnership as this in fact was, and is proved to be, whatever may be its denomination.

In the present case, Winship was entrusted with the whole business of the firm, as the active partner, and it was to be managed in his name. The business was the manufacture of soap and candles. The particular terms and restrictions of the articles of co-partnership were not, as far as we have any evidence, ever made known to the public, or to any persons dealing therewith. Indeed, according to the very line of argument of the defendants’ counsel they were intended to be kept secret. I agree, that the bond is to be taken in connexion with the articles of co-partnership, as a part of the same transaction, and binding the parties. But if neither the bond, nor articles, nor any conditions or limitations, or restrictions therein contained were ever made known to the public, then persons, ignorant thereof, and dealing with Winship in respect to the business of the firm, and trusting him on the credit of the firm with money, or goods, or receiving his notes in payment. had a right to act upon the general principles of law applicable to limited partnerships; and the acts of Winship, in respect to such persons, under such circumstances bound the firm. Winship must be deemed, as to them, to have the ordinary authority to bind the firm to the same extent, and in the same manner, as partners, as the active partners in limited partnerships of a like nature possess. If, indeed, the jury should come to the conclusion, that the partnership was ultimately general, or that the Binneys knew, that Winship held them out as his partners generally in all transactions of a commercial nature; or that they knew,. that he obtained credit for the firm upon such representations of their joint respohsi-bility; and that these notes were discounted upon such representations, so known to-them, and not disavowed or contradicted by them, then the ease might justify a broader doctrine. For, under such circumstances, their silence might be fairly construed as a confirmation of his acts; and they ought, in conscience and equity, as well as in law, to bind- them. It would be for the jury to-consider, how far the evidence would bear out such a conclusion. But supposing the-partnership to be limited to the soap and candle manufacture, still if credit is given to-the firm within the business of the firm, it binds all the partners, notwithstanding any secret reservations between the latter, which-, are unknown to those, who give the credit. If credit be given to the firm, within the-scope of the business of the firm, no subsequent misapplication of the fund, by the-partner procuring it, to which the creditor is not privy or party, will exonerate the firm. Even in respect to secret partnerships, where the credit is given only to the ostensible party; yet if it be in the course of the business of the partnership, and for the common benefit, the secret and silent partners are bound; for those, who are to receive the benefit, are also bound to the burthens. If, therefore, Winship borrowed money on the credit of the firm, and applied it to the-use of the firm, and the creditor was wholly ignorant of any restrictions contained in the private agreements of the partners, by which it was not necessary for the business of the firm, the firm would be bound, notwithstanding Winship might, in fact, have had at the time other sufficient funds in nis hands. It would doubtless be different, if there was any fraudulent connivance between the parties, or a misapplication of the fund, to which the creditor was a party or privy. It is upon this ground, that one-partner cannot pay his own separate debt by any contract or payment knowingly made to-bind the firm, and which is not authorized by the firm. It has been said, that no conclusion could be drawn unfavourable to the-Binneys from any entries contained in the-books of the firm, as to their sanction of the .proceedings of Winship. That would depend upon their knowledge of those entries. Whether they had such knowledge is matter -of fact, upon the whole evidence in the case.. The ordinary presumption is in cases of partnership, that all the partners have access to-the partnership books, and might know the contents thereof. But this is a mere presumption from the ordinary course of business,, and may be rebutted by any circumstances,, which either positively or presumptively re but any inference of access, such, for instance, as distance of place, or the course of business of the particular partnership; and indeed any other circumstances raising a presumption of non-access.

[NOTE. On writ of error from the supreme court, the judgment was affirmed, with costs and damages at the rate of 6 per cent, per an-num. 5 Pet. (30 U. S.) 529.]

In the present case the material considerations, then, are these: If Winship was the active partner, and authorized to conduct the business of the firm; and if the particular terms and restrictions of the articles of co-partnership were secret and unknown to persons dealing with him on account of the firm; he possessed, so far as respected such persons, the ordinary powers of partners in like cases of limited partnerships. It has not been denied, that these include (as the case in 4 Johns. 251, shows) a power to borrow money, and for this purpose, to sign and indorse notes and bills in the name of the firm for the business thereof, and to procure discounts thereof. Were these notes of that nature, and the discount thereof procured for the benefit and upon the credit of the firm in the course of its business, without any knowledge on the part of the bank, that Winship had no right under the circumstances to bind the firm therefor? If so, then the plaintiffs are entitled to recover, although Winship may have subsequently misapplied the funds so procured by such discounts, unless the plaintiffs were, privy or party to such' misapplication. The notes are all indorsed in the name of “John Winship.” For aught, therefore, that appears on the face of them, they were notes only binding him personally. The plaintiffs must, then, go farther, and show either expressly or by implication,- that these notes were offered by Winship as notes binding the firm, and not merely himself personally, or that the discounts were made for the benefit, and in the course of the business of the firm. It is not sufficient for the plaintiffs to prove, that the bank, in discounting these notes, acted upon the belief, that they bound the firm, and were for the benefit and business of the firm. They must go further and prove, that that belief was known to and sanctioned by Winship himself in offering the notes, and that he intentionally held out to them, that the discounts were for the credit, and on the account of the firm; and that his indorsement -was the indorsement of the firm, and to bind them; and that the bank discounted the notes upon the faith of such acts and representations of Winship. The jury will judge from the whole evidence, how the case stands in these respects. The , mere fact, that the discounts so procured were applied to the use of the firm, is not, of itself, sufficient to prove, that the discounts. were procured on account of the firm. It is a strong circumstance, entitled to weight; but not decisive.

Another point made by the plaintiffs is, that the Binneys have subsequently ratified Winship’s conduct, by procuring discounts of a like nature, so as to establish either an original authority in Winship to make such indorsements, and procure such discounts, or at least a ratification, which is equivalent to such an authority.

(The judge then summed up the facts on this as well as the other points, and left the case to the jury.) ‘ ;

Verdict for the plaintiffs.