Hartness v. . Wallace

MERimiON, C. J.: The contention that the action involves and requires an account and settlement of the partnership matters and business mentioned, and, therefore, the Court of a Justice of the Peace had not jurisdiction of the subject-matter of the action, is unfounded. The firm mentioned, by its deed of assignment, conveyed to the plaintiff “certain personal property and all the choses in action that belonged to the firm-, in trust to sell said property and collect the debts due the firm for the use and benefit of the creditors,” &c. The sole purpose of the action is to collect (recover) *430 a sum of money less than two hundred dollars, the amount of a note due the partnership so assigned to the plaintiff and collected by the defendants under claim and color of ownership thereof. If the note so collected by the defendants belonged to the partnership at the time the deed of assignment was executed, it passed to the plaintiff. If, before or after that time, they so collected the money due upon it, as they did, the plaintiff could maintain this action, because, in that case, the money was so collected by them for the firm and the plaintiff as assignee, and the action is brought to recover a sum within the jurisdiction of a Justice of the Peace. And the plaintiff could maintain the action in his own name. The statute (The Code, §§ 177, 179) provides that, “ the real party in interest” must sue in his own name, except that “a trustee of an express trust (as in this case) may sue without joining with him the person for whose benefit the action is prosecuted.” Abrams v. Cureton, 74 N. C., 523; Alexander v. Wriston, 81 N. C., 191; Wynne v. Heck, 92 N. C., 414. It is very clear that one partner has no right, without the consent of his co-partners, to use, devote or apply the funds, securities or other effects of the partnership to the payment or discharge of debts, contracts or obligations binding upon himself individual, and with which the partnership has no connection. Such use of such securities would be, not simply a misapplication thereof, but .as well a fraud upon the partnership, participated in by the partner so misapplying the same, and also his creditor, if the latter had notice of such misapplication, and he would be presumed to have such notice, though he might show the contrary if he could. That the securities belong to the partnership, or appear to belong to it, puts the creditor of the individual partner on notice of its rights. Hence, in Story on Partnership, section one hundred and thirty-two, it is said : “In such cases'the creditor, dealing with the partner, and knowing the circumstances, will be deemed to act mala fide, and in fraud of the *431 partnership,.and the transaction by which the funds, securities and other effects of the partnership had been obtained, will be treated as a nullity.” Hence, also, it is said in Coll-yer on Partnership, section 496, “But a series of decisions has shown that if the separate creditors of a partner take a partnership security towards the discharge of his separate debt, the fact alone, unless explained by particular circumstances, is conclusive evidence to charge the creditor with fraud, or with gross negligence amounting to fraud; and, consequently, that the firm is not bound by such transaction.” Also, in 3 Kents’ Com., 42, it is said, “But if partnership security be taken from one partner, without the previous knowledge and consent of the others, for a debt which the creditor knew at the time was the private debt of the particular partner, it would be a fraudulent transaction, and clearly void in respect to the partnership,” &c. In Cotton v. Evans, 1 Dev. & Bat. Eq., 295, Chief Justice Ruffin said : “I admit, therefore, that the cases cited, and numerous others establish, that if a separate creditor take from his debtor a partnership security for his debt, the fact alone is conclusive evidence of fraud and vitiates the security. I use the term fraud, because I consider it embracing not only actual collusion, but what has been called gross negligence, in reference to this subject; though, it seems to me, that the fault of the creditor is not so much one of laches, as of positive wrong, in gaining a security which he must know his debtor ought not to give, nor, consequently, to be taken. This is certainly of itself a fraud.” And afterwards, in Weed v. Richardson, 2 Dev. & Bat., 535, he said: “ It is now well settled at law that it is prima facie fraudulent for a creditor of one of the firm to take from him the security of the firm ; for it is a security which the creditor knows his separate debtor ought not to give without the consent of the firm, and, therefore, he cannot honestly take.” Wharton v. Woodburn, 4 Dev. & Bat., 507; Troy v. Carter, 3 Ired , 238; *432 Abpt v. Miller, 5 Jones, 32; Ross v. Hendersn, 77 N. C., 170; Dale v. Halsey, 16 John., 34; Rogers v. Batchelor, 12 Pet., 229. The note here in question was due and payable to Con-nelly & Deitz, partners, and past due. Connelly, of this partnership, without the knowledge or consent of his co-partner, transferred it by endorsement in the firm name of the defendants, in payment of his own individual debt due to them, and the firm never received any benefit of the same. The defendants knew, or ought to have known, that Connelly had no right to misapply a note due to the firm, and they had no right to receive it in payment of his debt due them. No question (though it was contended to the contrary) whether in law or equity, as to any interest Connelly might have had in the property of the partnership is presented, because the latter was insolvent at and before the time the defendants so obtained the .note, which they after-wards collected. Nor can any question as to the effect of the endorsement of the note arise. It was past due when endorsed, and moreover, the defendants were not holders without notice of the misapplication of the note as a security belonging to the partnership. Judgment affirmed.