Fellows v. Wyman

Perley, O. J.* The dissolution of a partnership may be implied from circumstances. Story on Part., sec. 272. And a firm is dissolved by the destruction of the thing which is the sub — 356 — ject of the partnership. Story on Part., secs. 280, 281. Bes vero intereunt cum aut nuiles relinquantur aut conditionem mutaverint. Wyman & Gear had sold out their stock, discontinued their business, and made arrangements for the settlement of the partnership transactions. Here was evidence at least from which the jury might infer a dissolution; and for the purposes of this case the partnership must be taken to have been dissolved before the note was endorsed by Gear. There are certain powers which remain to each partner after a dissolution. Thus the admissions of a partner, made after dissolution, are competent evidence, as the law is held in this State, against the firm as to any contract made prior to the dissolution. Mann v. Locke, 11 N. H. 246. And one partner, after dissolution, may sell and dispose of the partnership property, for the benefit of the partnership and to wind up its concerns. Story on Part., sec. 322. But as a general rule he cannot create any new contracts or obligations binding on the partnership, and the endorsement of securities belonging to the firm falls under this general rule. Ibid. The cases which hold that one partner, after dissolution, cannot endorse a note or bill, “ have been determined with a view of protecting one partner from a responsibility which might be created against him in consequence of the negotiation of the bill” pr note. This reason might not be thought to apply where the bill or note was endorsed without recourse. But the eases do not seem to have admitted any distinction in favor of an endorsement without recourse; perhaps on the ground that such an endorsement is a contract, and would imply certain obligations on the part of the firm, though they could not be charged as endorsers — Sanford v. Mickles, 4 Johns. 224; and an authority to settle the partnership business does not authorize a partner, after dissolution, to endorse the negotiable paper of the firm, though, with such an authority, he may transfer a note payable to bearer by delivery. Parker v. M’Comber, 18 Pick. 505. This general rule will not of course apply where a partner, after dissolution, has authority from the other partners to endorse in the name of the firm ; and such authority may be implied — 357 — from circumstances. If, for instance, the property of the firm on a dissolution were divided among the partners, and bills or notes by this division became the sole property of one partner, he would have an implied authority to endorse the bills or notes without recourse, for the purpose of collection or sale; otherwise the owner would not have the full and fair benefit of the property assigned to him ; he could not dispose of it in the ordinary way, which must have been contemplated on the division. Yale v. Eames, 1 Met. 486; Waite v. Foster, 33 Maine 424. As a general rule, one partner, either before or after dissolution, cannot apply the funds of the partnership to the payment of his private debts, or in any way to his individual use, because it would be in derogation of the rights of the other partners, and a fraud on them. Story on Part. 197. But the presumption of fraud or misapplication may be rebutted by the circumstances of the particular case ; as, if the partner had acquired an exclusive interest in the property, which he applied to his separate use, it would be no fraud on the other partners, nor any injury to them. Story on Part. 199, 200. By the general rule of law, then, Gear, after the dissolution, had no power to endorse the partnership securities, nor to apply the partnership funds to his separate use ; and a general authority to settle debts due to the firm would not take the case out of this rule. Sanford v. Mickles, 4 Johns. 224; Perrin v. Keene, 1 Appleton 355. The verdict must be taken to have established the fact that Wyman, the other partner, after the dissolution, and while the note was in Gear’s hands with authority to collect, fraudulently settled with the defendant, and without consideration gave a receipt to discharge the note. But though this settlement was made without a real consideration that could avail against the plaintiff in equity, yet, purporting to be on the adjustment of a claim made against the firm by the defendant, it would bind Wyman, the partner who made it, and, in the absence of fraud, the partnership. This settlement was a fraud on Gear, because he had a lien — 358 — on the partnership funds for the payment of partnership debts, and for his share of the partnership funds, when it should be ascertained on a final adjustment; and the debt which was really due from the defendant, and had been fraudulently discharged, would have gone, if it had been collected, into the funds of the partnership, and so in the end to the benefit of Gear for his share. Whether the fraudulent discharge of one partner can be set up by a defendant, who, as in this case, is particeps in the fraud, to defeat a suit at law, brought in the name of the firm by the other partner, to recover the debt, is a question upon which the authorities are not agreed. In some cases it has been held that courts of law will protect the equitable interest of the defrauded partner against the fraudulent discharge, as they uniformly do where the assignee of a chose in action brings a suit in the name of the assignor, and the defendant attempts to defeat the suit by a discharge or release, fraudulently obtained from the assignor after the assignment. Dobb v. Halsey, 16 Johns. 34; Green v. Caldwell, 5 Cowen 489; Purdy v. Powers, 6 Barr 492; while in other cases it has been decided that the effect of a. release or discharge by one partner cannot, in a suit at law brought in the name of the firm, be avoided by showing that it was obtained by fraudulent collusion with the partner who gave it. These decisions appear to have gone on the ground of technical objection to a joint judgment in favor of two plaintiffs, when it appeared that one of them had no right to recover, which in a suit at law was thought to be insurmountable. Jones v. Yates, 8 B. & C. 532, is a strong authority to this point. The rule is so stated in Story on Part., sec. 238. The case of Jones v. Yates is cited, and apparently approved by Parker, C. J., in Greeley v. Wyeth, 10 N. H. 15. There is also a very able judgment of the Supreme Court of Massachusetts, delivered by Bigelow, J., in Homer & a. v. Wood & a., reported in the Law Reporter for June, 1855, following the English rule, as laid down in Jones v. Yates. In Homer v. Wood the decision is carefully limited to the case where the defendant is innocent of the fraud, and actually pays the demand by discharging a debt — 359 — against the individual partner who gave the release ; but the objection to a recovery is conceded in that case to-stand on technical ground, and the able reasoning of the court would seem to apply with unabated force to a case where there was fraudulent collusion between the defendant and the partner who made the settlement. The weight of authority appears to be strongly against the right to set up the fraud of a partner in giving a release or discharge to avoid the effect of it, when offered in defence to a suit at law brought for a partnership demand in the name of the firm. That is not the exact point which arises in the present case; for this suit is in the name of an endorsee, and judgment is not here sought to be recovered in favor of a plaintiff who has discharged his interest, and has no claim against the defendant. This case is free from that technical objection. The authorities, however, which maintain that objection, have not regarded the joint and contingent interest of a partner in a partnership demand, sued for the benefit of the firm, in the same light as they do the interest of an assignee, who by the assignment has become the sole equitable owner of a chose in action, and sues in the name of the assignor, to recover it for his own sole benefit. The assignee in such case is treated as the party; his equitable right to the demand is recognized in a suit at law ; and he is protected in a suit at law against fraudulent attempts of the assignor to release or discharge his interest. When he has recovered the debt the money is his own; he is not held to account with the assignor or any other party. If a debt due to a partnership should on settlement be transferred to one of the partners, and become his sole property, and afterwards the other partner and the debtor should attempt to discharge it fraudulently, it is not easy to see why the rule applied to other cases of assignment should not be enforced there, and the partner who had become the sole owner by assignment, should not be protected in a suit at law against a fraudulent release or discharge, like another assignee. But where the partnership is unsettled, and the demand sued — 360 — is due to the firm, the case is essentially different. The interest of the partner who brings the action after the discharge, in the partnership and in the demand sued, remains unadjusted. The adjustment cannot be made in a suit at law; and until it is made it cannot appear what interest the partner who brings the action may have in the demand, or whether he have any ; and this is perhaps one of the reasons why courts of law in such case have generally left the defrauded partner to his remedy in equity. The question here is, whether Gear, by virtue of the fraudulent settlement between his partner and the defendant, obtained authority to endorse the note in the name of the firm. If Wyman, Gear’s partner, had sold this note to him, so as to make him the sole owner, this, we have seen, would have conferred authority to endorse in the name of the firm, as incident to the absolute ownership of the note. The authorities would seem to establish this position. As the defendant and Wyman, the other partner, according to the finding of the jury conspired to defraud Gear, and as the other partner has by his fraudulent discharge renounced all title and claim to the note, and put it out of his power to collect the money due on it, it may be at least plausibly argued that Gear ought to have as full and complete control of the note as if he held it by assignment or sale ; and as the equities of the case on the facts found by the verdict are strong that way, we should have been very willing to find that the law would warrant us in coming to that conclusion, instead of turning the plaintiff round to his remedy in equity. But we are on the whole of opinion that the assignment of a partnership note to one of the partners, which has been held to give an implied authority to endorse without recourse in the name of the firm, presents a case substantially different from this. The assignment transfers the whole interest to the partner, who is assignee. He recovers the whole amount of the note to his own use without account, and it is from this, his sole and absolute ownership, that his authority to endorse has been implied in law. But in this case, after the fraudulent discharge, Gear was not the sole owner of the note. The note was part of the — 361 — funds of the firm, chargeable with the payment of partnership debts, and to be accounted for, if collected, like other partnership property; and there would be no power in a court of law to settle and adjust the various claims and equities among the parties ultimately interested. We have, after some hesitation, arrived at the conclusion that the fraud of the defendant and the other partner did not confer on Gear authority to endorse the note without recourse in the name of the firm. Consequently the verdict must be set aside, and a New trial granted. Footnotes [*] Fowler, J., having been of counsel, did not sit.