Etheridge v. Binney 9 Pick. 272, 26 Mass. 272

Samuel Etheridge versus Amos Binney et al.

In the case of a limited and dormant partnership carried on by one of the partners in his individual name, if he borrows money, representing it to be for the use of the partnership, the dormant partners will be liable, without proof on the part of the creditor, that the money went to the use of the partnership. Aliter, if he borrows without such a representation.

The active partner having conveyed bis own land as security for a partnership debt, and the creditor, after the appointment of one of the dormant partners to settle the partnership concerns, having paid off an incumbrance thereon, being ignorant that there were other incumbrances to the full amount of the land, it was held, that the sum so paid by the creditor should be set off against so much of an account for cash lent by the active partner to the creditor.

The active partner having assigned merchandise to a creditor of the partnership as security, with a general power to sell, it was held, that the creditor had authority to sell on credit, and so was not answerable for a loss occasioned by the failure of a person, in good credit at the time of the sale, on whom the purchaser gave the creditor a bill for the price of the goods sold.

The active partner having borrowed money on the credit of the firm, promising to re* pay it in a few days, and having refused or become unable to repay it, it was held, that the lender was entitled to interest; at least after a demand; and that calling for and actually taking security, were equivalent to a demand.

Assumpsit to recover the balance of an account annexed to the writ; there being also a count for money had and received.

The defendants were John Winship, Amos Binney and John Binney. Winship was defaulted, and the other defendants pleaded the general issue.

The plaintiff gave in evidence three memorandum checks signed by Winship, one dated May 19th, 1825, for $2000, another, May 26th, for $3000, and the third, July 12th, for $ 400. It was proved that the amount of the checks was received at a bank by Winship, on checks of the same dates signed by the plaintiff, he having deposited money there, which he had then recently received as guardian to his children.

The principal question in the case was, whether the Binneys were indebted for this money as copartners with Winship, it being admitted that a copartnership actually subsisted in the manufacture of soap and candles ; which was carried on at Charlestown in the name of Winship alone, according to the articles of copartnership.

To prove the liability of the Binneys, the plaintiff gave in *277evidence the following letter, dated May 25th, 1825, from Winship to the plaintiff: — “ Can you further oblige me with the loan of 3000 dollars to-morrow, for a short time ; it shall be returned with the other loan, as soon as you wish to invest it permanently. You may rest perfectly safe as to security, as the Mess. Binneys are abundantly able to meet any of my engagements ; this money, as well as the other a few days since, being for the use of the factory in which I am engaged as co-partner with them.”

The plaintiff attempted to show by parol testimony, by the ftooks of the manufacturing company, and by invoices of property shipped in various vessels to foreign ports which were entered in the books of the company kept by Winship, that the money borrowed of the plaintiff was applied to the use of the company. The defendants attempted to rebut this, by testimony relating to the capital advanced by the Binneys, their ignorance of the particular transactions of Winship, and the large sums raised by Winship without their knowledge; and they insisted that it appeared by the books, that there had been but two shipments of any other articles than soap and candles (and that these were the proceeds of soap and candles shipped abroad) before February 1st, 1825 ; and that these invoices were entered in the books in April 1825.

On the 15th of September, 1825, public notice was given, that the copartnership was dissolved, and that their concerns would be settled by Amos Binney.

On this part of the case the jury were instructed as follows:— A copartnership is proved, which, though not made public by advertisement, is generally known, and is proved by written articles between the parties. It is however limited to a particular branch of business, but that is capable of great expansion, within the intent and meaning of the parties. The products of the factory might be, and no doubt were intended to be, shipped to foreign markets, particularly the West Indies, and the proceeds then might be invested in the produce or manufactures of that market, and there shipped to a European market, from which returns might be made in produce or manufactures or in bills of exchange on London or elsewhere, and thus the parties in the soap and candle manufactory would be*278come extensive merchants, and the copartnership would extend throughout the whole adventures until their close at the home port. This business would naturally associate itself with others,

for a cargo of soap and candles only, to the West Indies, might come to a bad market, and the shippers would be likely to take an assorted cargo, with the view of saving on one article what they might lose on another. And this extension of the business, if known to the members of the copartnership, or if, from the circumstances, presumed to be known, would undoubtedly be for the benefit or to the disadvantage of the whole. Credit therefore would probably be wanted, as was expected by all, it being provided in the articles and the bond from Winship to the Binneys, that indorsed notes should be given. Now as the partner, whose name is assumed by the firm, may also engage in other branches of business, in which he may want credit on his own private account, if he applies for a loan of money to one who is ignorant of the copartnership, and no information is given of its existence, it is a private loan, and does not bind the firm, unless the creditor shall know that the money borrowed or the goods procured by the individual went to the use of the firm. The burthen of proof in such case is upon the creditor, in order to make good his claim upon the firm ; for he credited the individual and not the firm, and it will be presumed to be for the private benefit of the individual, unless the contrary is proved. But if the existence of the firm is known to the person who makes the loan, and representations are made to him by the borrower, that he borrows for the use of the company, and that they are answerable for the debt, so that credit is given to the company and not to the individual partner, the burthen of proof is upon the company, when sued, to show that the power confided to the individual has been abused, and that the money borrowed was applied to his private use, and also that this was known to the lender to be his intention. This principle necessarily follows from cases settled. If a purchase is made in the name of a firm, or money borrowed, and a note given or indorsed in that name, this is primó facie evidence of a debt from the firm, and it can only be rebutted by proof in the defence, that this was fraudulently done by the individual partner for his own private use, and that this was known to the creditor. So that *279in the limited partnership, if the name of the firm had been John Winship & Co., or Winship & Binney, all notes given to any creditor, in either of those names, would be company notes, unless disproved, as before stated. Now the making and offering of such a note is nothing more than a representation that the money is wanted for the use of the company, and as they confide in the individual, they will be bound by his acts. The name of the firm here being only the name of the individual, a note offered in that name, unaccompanied by any representation, would of course import only a promise by John Winship alone, and the credit being given to him alone, the creditor would not recover against the firm, without proving that the money actually went into the funds of the firm. But if the borrowing partner states that he is one of a company, and that he borrows money for the company, or purchases goods for their use, then, as there is such company, and as they have given him authority to use the company credit to a certain extent, and as the creditor will have no means of knowing whether he is acting honestly towards his associates or otherwise, if he lends the money or sells the goods on the faith of such representation, the company will be bound, unless they prove that the contract was for his private benefit, and known to be so by the creditor. And in this case the representation contained in the letters from Winship to the plaintiff is quite sufficient to throw the burthen of proof on the defendants.

It further appeared, that Winship conveyed a dwellinghouse to the plaintiff as security for his demand, and that in Novembe 1825, the plaintiff paid $ 400 to one Thompson, to discharge an attachment which Thompson had made upon the house. There were other attachments not then known to the plaintiff, which eventually took the whole property in the house.

In the plaintiff’s account, Winship was credited with $ 637 for cash lent at divers times. The jury were instructed that this sum of $ 400 ought to be set off against the $ 637,1 as it was yaid to discharge an incumbrance on property taken as security, and believed at the time to be free from any other incumbrance.

Winship likewise assigned to the plaintiff a quantity of soap *280and candles, with general power to sell the same, and account to Winship therefor, applying the proceeds first to the payment of his demand. The plaintiff made a sale to one Tappan, on a credit of six months, and took in payment a bill upon Holbrook & Dexter, then in good credit, which was duly accepted but never paid, the acceptors having become insolvent before the bill became due. It was proved that a sale on a credit of . six months was according to usage ; and the jury were instructed that the plaintiff should not be charged with this loss, if they were satisfied that it was usual to sell on credit, and that the credit of Holbrook & Dexter was good at the time when the bill was taken.

In regard to interest, the jury were instructed, that if they were satisfied the money was borrowed under an engagement tcreturn it in a few days, and it was not returned, but on the contrary the debtor refused or became unable to pay at all, this was such a breach of trust as would entitle the lender to receive interest; certainly after a demand; and that the necessity of taking an assignment of property and actually taking it, was equivalent to a demand.

A verdict was returned for the plaintiff.

The defendants moved for a new' trial, because there was no evidence that the money obtained on the checks went to the use of the company, and the judge erred in charging the jury, that inasmuch as Winship, when applying for the money, represented that he wanted it for the firm, the plaintiff was not bound to show that it was so wanted, or went to the use of the firm ; whereas the jury should have been instructed, that in a dormant copartnership, where the active partner has taken up money in his own name, it is incumbent on the plaintiff to show that the money went to the use of the firm, whatever may have been the representations.

Also, because the judge erred in charging the jury, that the plaintiff had a right to set off .the $ 400 paid by him to Thompson m November 1825, Amos Binney having been before that time constituted the settling agent of the concerns of the firm, and that fact being known to the plaintiff.

Also, because the judge erred in charging the jury, that the plaintiff was authorized to sell upon credit the goods of the *281firm pledged to him by Winship as collateral security, whereby the sum of $480 was not allowed by the jury to the defendants.

Also, because the judge erred in instructing the jury to allow the plaintiff interest on the checks, the action being for money had and received, and no special promise alleged, and no demand having ever been made on the defendants until this suit was brought.

C. G. Loving, for the defendants.

The plaintiff is not entitled to recover, if it appears that the money received on the checks did not go to the use of the firm. This was a dormant copartnership, that is, one in which the business was to be carried on wholly by and in the name of the ostensible partner, the others taking no part in the business, nor announcing their names or their interest in it. The liability in open or avowed partnerships is founded on the credit of names; because each partner has given to the others a right to pledge his name, and is therefore answerable for any abuse of it, rather than that third parties, bond fide relying on the exercise of this authority, should be injured. And in such cases it makes no difference what style is used, if it is one that openly imports a copartnership, so that the individual, by the use of it, obviously intends to bind others as well as himself. But the principle, on which the liability of dormant partners is founded, is their participation of the profits, and not the credit of their names. Whenever therefore that participation does not exist, the liability does not exist. Any other construction makes a dormant partnership the same as an open one, so far as liability for the representations of the ostensible partner goes. Whereas the fact of doing business in his name alone, is notice to all who know of the partnership, that he has no authority to pledge the credit of his partners. It is equivalent to express notice. It is clear that even in the case of an open and- avowed copartnership, if some dissent from a purchase before it is completed, they are not bound. Galway v. Matthew, 1 Campb. 404; Loyd v. Ashby, 2 Carr. & Payne, 138 ; Boardman v. Gore, 15 Mass. R. 331 ; Grant v. Hawkes, Chitty on Bills, (6th ed.) 31, note b. And dormancy is standing notice of such dissent from ever being bound on credit. It is a declaration that the dormant partner will be bound so far as the property bought *282comes to his use, but no further. This construction works perfect justice to all dealing with the ostensible partner. Thus, if the seller did not know of any copartnership, and it turns out that the property was for the private use of the ostensible partner, he has all his security in the individual liability upon which the sale was grounded. If the property went to the use of the firm, he has more security than he expected, and the dormant partner is made liable on the principle above stated. On the other hand, if the seller knows or suspects the copartnership, he knows that it is intended to be secret; and that the dormant partner does not mean to have a credit given on his name or liability, but to be liable only for the property that shall come to his use ; and if the seller trusts to the representations of the ostensible partner, who, he knows, has no right to pledge the name of the other partner, he takes the risk of this other partner’s becoming liable by reason of the property’s coming to his use. To extend the liability of the dormant partner to all cases where the ostensible partner represents that he is acting for him, it is to make him liable on the credit of his name, and not on his participation of profits. The principle set up by the plaintiff is indefinite and uncertain ; the rule contended for by- the defendants is consistent and reasonable, and no danger will arise from it. The burden of proof in the first instance is upon the creditor to show that money lent was for the partnership. If he shows that the ostensible partner represented that it was wanted for the firm, the burden is shifted to the dormant partner, and he must then show that it was not wanted and did not come to the use of the firm. The case at bar is like that of an agency, in which the business is done in the name of the agent, and the principal is liable for what comes to his use, but for nothing more.

The circumstances of this case afforded constructive notice to the plaintiff, that the money was not wanted by Winship for the use of the fii;m ; in which case the other partners are not liable to repay it, even if Winship, at the time of borrowing it, represented that it was for the firm. Lloyd v. Freshfield, 2 Carr. & Payne, 325 ; Ex parte Agace, 2 Cox’s Ch. R. 316 ; Livingston v. Hastie, 2 Caines’s R. 246 ; Livingston v. Roosevelt, 4 Johns. R. 251.

*283 Fletcher and Warner insisted that the instructions to the jury were correct. They made a distinction between a secret and a dormant partner, and they contended that the right of a partner to borrow money in the name and for the use of the partnership, and to bind the partnership for its repayment, was as ample in the case of a dormant or a limited copartnership, as in that of an open or a general copartnership. They cited Livingston v. Roosevelt, 4 Johns. R. 267 ; U. S. Bank v. Winship, 5 Mason, 183; Bond v. Gibson, 1 Campb. 185 ; Manufacturers &c. Bank v. Winship, 5 Pick. 13, [2d ed. 13, note 1 ;] 1 Montag. Partn. 4, 23 ; Ex parte Bonbonus, 8 Ves. 540 ; Coope v. Eyre, 1 H. Bl. 37 ; Lloyd v. Archbowle, 2 Taunt. 324, 325.

As to the sale on a credit, they cited Paley on Pr. and Agent, 149 ; Houghton v. Matthews, 3 Bos. & Pul. 489.