Chazournes v. Edwards

Parker C. J. delivered the opinion of the Court. The principle has been very distinctly settled in many cases in the English and New York reports, that a note or other security given in the name of a mercantile firm by one of the house, to pay or secure a private debt of his own, without the knowledge [9] or consent of his partners, cannot be recovered against the house.* 1 *It is so laid down in Bayley on Bills, (4th ed.) 47, and the cases cited in support of the position are numerous and decisive. It is deemed fraudulent in the creditor of one of the partners to attempt to get security for his debt in a contract which the debtor undertakes to make for his partners, inducing him to avail himself of the power he has over the property of the house for his own private purposes.2 And the knowledge o the creditor so conducting is shown by the very fact, that the debt he is attempting to secure is the debt of the individual and not of the company. The only case which has a contrary tendency is that of Ridley et al. v. Taylor, 13 East, 175 ; in which case, however, the principle above stated is admitted, but it was thought that the facts did not show that knowledge on the part of the cred tor which would constitute the transaction fraudulent on his part. There were circumstances in the case from which it was thought the plaintiffs might reasonably infer, that the bill given to them by their debtor was one which he had a right within his general authority as a partner to transfer. Though the decision does not seem to be in exact conformity with the rule as before settled in several cases, yet the principle is clearly admitted. And certainly nothing is more just than the principle which restrains a partner, in the exercise of his power over the copartnership property or credit, to cases which relate to the copartnership concerns. It is sufficiently bard upon the partners, that they are to be bound in other cases [10] where an innocent indorsee is the holder of the securities improperly created, and nothing but the necessity of pro-reeling innocent persons upon negotiable paper would justify this extension of their liability. A series of cases decided in New York have established the rule in that state incontrovertibly. The case of Livingston v. Hastie, 2 Caines’s R. 246, seems to have been well considered, and the decision has been recognised and enforced m the several cases of Lansing v. Gaine and Ten Eyck, 2 Johns. R. 300; Livingston v. Roosevelt and Dubois v. Roosevelt et al., 4 Johns. R. 251 ; Doe et al. v. Halsey, 16 Johns. R. 34 ; and Foot v. Sabin, 19 Johns. R. 154. The rule is summed up in these words and repeated m every case : — “ Where a note is given in the name of a firm by one of the partners, for the private debt of such partner, and known to be so by the person taking the note, the other partners are not bound by such no'te, unless they have been previously consulted and consent to the transaction.” Now in the case before us the note in suit, which was made by Coffin in the name of Edwards & Coffin, who were partners, was given for the debt of a former house of Bowes & Coffin, with which Edwards had no connexion; and it is equally clear that the agent of the plaintiff knew this to be the case, for this note was given in lieu of a note by Bowes & Coffin, which lay over in the bank dishonored. There is not only no evidence that Edwards consented to the transaction, but there is positive testimony from Edwards that he never was consulted, never gave any consent, and was wholly ignorant on the subject until several days after the note was given, when Coffin had absconded. This makes the case much stronger than any of the New York cases, and differs it essentially from the case of Ridley et al. v. Taylor in 13 East. The counsel for the plaintiff, in his ingenious argument, admits the rule, but would qualify it by the introduction of an exception, to wit, that if the creditor had reason to believe or suppose that the person giving the note had authority from his partner, he should have a right to recover. No authority has been cited in support of this exception ; and if there had been, we perceive no evidence in the report that would bring the [11] case within the exception. If there had been good reason for t'ne creditor to believe an authority in Coffin, from any conduct or declarations of Edwards, the other member of the house, the assent of Edwards might be implied.1 It does not appear that Coffin was inquired of respecting his authority, or that he made any declaration on the subject. We think it very clear that the plaintiff could not maintain an action upon the note against Edwards, one of the copartners. Nor can we think the case is any stronger against the defendants as indorsers. The making and indorsing of the note were one transaction, and were in pursuance of a previous agreement to give such a note so indorsed. There is no room to suppose that the defendants had any consideration for indorsing or any indemnity therefor. Having been accustomed to indorse for Edwards & Coffin, they would naturally suppose that a note brought to them with their names as promisors was for the accommodation of that house. Certainly they, would have no reason to imagine that the note was made by Coffin without the knowledge of Edwards, to secure the private debt of Coffin. They therefore, in the absence of all evidence, must be presumed to have thought it such a note as they were m the habit of indorsing. If then the note was inherently bad, and made so by the act of the plaintiff, he taking it for the private debt of Coffin, to give him a right to recover of the defendants would insure to him the fruits of an unlawful act; and of consequence would take money from them without their having any chance of indemnifying themselves against the parties whose note they supposed they had indorsed, or else, by enabling them to recover against Edwards, would make him liable circuitously when he could not be liable directly. On this point also the case in 2 Gaines’s R. is very clear, and the other authorities cited are of the same tendency. We cannot think with the counsel for the plaintiff, that the burden of proof is on the defendants, to show that they did not know the circumstances under which the note was made. [12] They had a right to presume it a valid note against the ft m, and were not bound to inquire whether Coffin had not abused the confidence of his partner. They are innocent persons ; the plaintiff is not, for he knew the consideration of the note. We think the case is very clearly made out for the defendants in principle and by authority.1 Judgment according to the verdict. Footnotes [1] Munroe v. Cooper, 5 Pick. 412; Adams v. Paige, 7 Pick. 542 ; Flagg v Upham, 10 Pick. 147; Whitaker v. Brown, 11 Wendell, 75; Laverty v. Burr 1 Wendell, 529. So, if from the subject matter of the contract, or the course of dealing of the partnership, the creditor, was chargeable with constructive knowledge of the fact, that the debt for which he takes the partnership security was a private debt of a particular partner, the partnership is not liable. Green v. Deakin, 2 Stark. R. 347; New York Firemen Ins. Co. v. Bennett, 5 Connect. R. 574. See also Mercien v. Mack, 10 Wendell, 461 ; Evernghim v. Ensworth, 7 Wendell, 326; United States Bank v. Binney, 5 Mason, 182. [2] If a person colludes with one partner in a firm to in ure the other part ners, those others can maintain a joint action against the person so colluding Longman v. Poole, 3 Moody & Malk. 223. [1] See Manufac and Mech. Bank v. Winship, 5 Pick. 11; Foster v. Andrews, 2 Penrose & Watts, 160; Vallett v. Parker, 6 Wendell, 615; U. S. Bank v. Binney, 5 Mason, 183. In an action against a firm upon a negotiable note made by one partner in the name of the firm and endorsed by the payee to the plaintiff the other partners have a right to show, that the note was fraudulent in its inception and was fraudulently put into circulation; which being established will throw the burden of proof upon the plaintiff to show that he came by the note fairly and without knowledge of the fraud. Munroe v. Cooper, 5 Pick. 412; Chitty on Bills, (Philad. ed.) 42, note a; Solomons v. Bank of England, 13 East, 134. note Woodhull v. Holmes, 10 Johns. R. 231. [1] See Woodward v. Winship, 12 Pick. 430 ; Williams v. Walbridge, 3 Wendell, 415; Boardman v. Gore, 15 Mass. R. 340 ; Stone v. Marsh 6 Barn. & Cress. 551; S. C Ryan & Moody, 364.