Opinion
Argued June 11, 1880
Decided November 30, 1880
A.C. Brown for appellant.
Henry H. Anderson for respondents.
It is a well-settled rule, that while a factor to whom goods are sent for sale, without instructions as to the terms of the sale, is at liberty to sell at such time and upon such terms as he may deem proper in the exercise of a sound discretion, yet he is bound to obey the subsequent instructions of his principal as to the sale, although he has made advances, unless the principal, after reasonable notice, fail to pay such advances. ( Marfield v. Goodhue, 3 N.Y. 62.) So long as the firm of Underhill Co. was doing business, either member of that firm was authorized to give instructions as to the terms of sale of the goods by Stewart Co., the factors, and they had a right to follow such directions. But upon a dissolution of the firm it was competent for the copartners to constitute one of their number a special agent for winding up its affairs, and when this was done, parties who, with notice of the arrangement, deal, in matters connected with the liquidation, with the partners not thus intrusted, are subject to the equitable rights of the other partners. ( Robbins v. Fuller, 24 N.Y. 572.) If the arrangement made comes to the knowledge of the parties dealing with the firm, it is sufficient to put them on guard; and if they act in disregard of such knowledge, they must be held responsible for consequences which ensue. In the case at bar, the proof shows that upon the dissolution of the copartnership of Underhill Co., by arrangement Vanderbilt assumed the payments of all the debts, took charge of the liquidation, and the defendant Underhill had nothing to do with or to say about the affairs of the late firm. The plaintiffs, through their agent, were advised by Vanderbilt as to the situation, and informed by Vanderbilt that he controlled the affairs of the firm, that he had assumed the debts and the whole responsibility of settling up the concern from the time of its dissolution, and would see about the sale of the goods; and he directed that they should not be sold for less than one dollar a yard. Notwithstanding the notice and instructions given, the plaintiffs, without any notice to Vanderbilt, after consultation with Underhill, proceeded and sold the goods for a less amount than was directed by Vanderbilt. We think that this was done without lawful authority, and that the request to find to the effect "that plaintiffs had notice of the dissolution of defendants' firm, and that Vanderbilt was the agent for winding up its affairs, and that after such notice they recognized and dealt with him as such special agent," was material and should have been granted by the referee. The power conferred by Underhill upon Vanderbilt deprived him of all right to interfere. It cannot be questioned that Underhill had parted with all right to control the settlement of the copartnership debts, and Vanderbilt assumed all the responsibility and was liable to pay the debts. He, therefore, had a right to direct what should be done, and his power was more than a bare authority, liable to be revoked by his copartner, and which did not invalidate the acts of either. Underhill, therefore, had no right to interfere, and Stewart Co., having notice of the exact relations of the copartners, were not justified in consulting with Underhill, who was then in their employment, or in following his advice or direction. We are referred to no reported case which upholds the doctrine that under such circumstances the consignee is relieved from the responsibility which he is under to the partner entitled to control the settlement of the copartnership affairs. None of those relied upon are in point, as is apparent from an examination of the cases referred to.
In Napier v. McLeod (9 Wend. 120), a deed or instrument in writing was executed, upon the dissolution of a copartnership, by two of the members to the third, authorizing him to receive and collect the outstanding debts, etc., and generally to conclude the unfinished business of the firm, and constituted the latter "their true and lawful attorney, irrevocably," for the purposes mentioned, with power to give acquittances, etc. It was held that this power of attorney did not operate as an assignment of the interest of the two members of the firm, and did not render inoperative a release subsequently executed by one of the other members of the firm to one of its debtors. SAVAGE, Ch. J., says: "I apprehend the mere expression that the power is irrevocable does not make it so; if no interest is conveyed, and nothing but a bare authority, uncoupled with an interest, is granted, the power which creates can destroy; and he who gives a naked authority can revoke it." It is also said that Napier was constituted attorney for the firm, and "in their names and the name of the firm and in their behalf, to ask, demand," etc., thus laying some stress upon the phraseology employed. It will be noticed that in this case, a construction was placed upon the instrument executed; and it was held that it was not for the use of Napier, or for his exclusive benefit, and that he was only to demand and receive the debts in the name of and in the behalf of the firm, and the rights of the partners were not changed. In the case at bar Vanderbilt had full control, and no interest whatever remained in the other partner. The agreement amounted to an absolute transfer of Underhill's interest, and he had no right to give any directions as to the settlement of the affairs of the company. It is also to be noticed that Stewart Co. had full knowledge and notice that Vanderbilt had assumed the debts, and of the actual status of the partners toward each other in reference to the settlement of their affairs. In the case of Gram v. Cadwell (5 Cow. 489), it was held that where there was a special agreement between partners, on dissolution, in regard to the settlement of their affairs, by which one of them was to continue business, assume all debts, and that the money paid by the outgoing partner should be paid back by the other within a limited time, that a separate interest was created in the remaining partner; and a subsequent release of a debt by the outgoing partner, to a creditor having notice of the agreement, was void. This case sustains the doctrine that where the partner has thus parted with his interest, and the creditor has notice of such fact, he has no control over the copartnership affairs, and does not and the position of the plaintiffs. Porter v. Taylor (6 M. S. 156) merely holds that payment to one partner, after a person has been appointed to collect the debts, is good, and does not affect the question considered.
None of the cases, therefore, hold that under circumstances like those here presented, the partner who has surrendered the right to control, as was done by Underhill, can interfere with the partnership affairs by giving directions in regard to them, or that a party who has been advised of the actual state of the case, and has full knowledge of the facts, is justified in following such directions if given.
The fair construction of the evidence is that Vanderbilt had the entire responsibility of paying the debts and closing up the partnership, and claimed to exercise this right in reference to the goods in question, and Stewart Co. were fully aware of such claim. They were notified not to dispose of the goods for less than a price he put upon them. They knew that Vanderbilt was solvent, and upon notice able to pay any deficiency, and that Underhill, who had become their clerk, was insolvent, and they assumed to act upon consultation with Underhill alone. In view of these facts, we think they had no right to act without notice to Vanderbilt, at least of their intention, and by doing so, Vanderbilt's rights as a partner might be seriously affected. It is not a question of mere authority alone, but involves an absolute right of a solvent partner, who had assumed to pay the debts, to supervise and manage the affairs, in accordance with an arrangement made between his copartner and himself for the joint benefit of both. The finding refused was clearly important, and might seriously affect the disposition of the case by the referee; and for the error stated, the judgment must be reversed and a new trial granted, with costs to abide the event.
The general rule that a factor receiving goods on consignment for sale is bound in selling them to follow the instructions of his principal, is not, in the absence of a special agreement, changed by the fact that the factor is under advances, and has a lien on the goods for their repayment. This was decided in Marfield v. Goodhue ( 3 N.Y. 62), where the question received careful consideration, and so far as it is inconsistent with the case of Brown v. McGran (14 Pet. 495), must be regarded as settling the law in this State contrary to the ruling in that case.
It is unnecessary now to consider whether the case of Brown v. McGran can stand upon its special circumstances, consistently with the decision in Marfield v. Goodhue. It is sufficient to say that there are no facts which take the case now before us, out of the general rule declared in Marfield v. Goodhue. The contract between Underhill Co. and Stewart Co., under which Stewart Co. received the goods of Underhill Co., created the ordinary relation of principal and factor between the parties. The contract, it is true, provided that Stewart Co. should make advances on the consignments, but this fact did not, in the absence of a special agreement, enlarge the authority of the factors, or entitle them to sell the goods in disregard of the instructions, unless Underhill Co., after reasonable notice, failed to repay advances made under the contract. Stewart Co. upon such failure would be entitled, upon notice, to enforce their lien by a sale of the goods. (See Smart v. Sandars et al., 5 C.B. 895.) While the partnership of Underhill Co. continued, it is plain that either partner had authority to give directions to Stewart Co. in respect to the sale of the goods, and that the consignees would have been justified in acting thereon, provided they acted in good faith in dealing with the property. The right of one partner to sell the partnership property in the prosecution of the partnership business, and to dispose of the partnership assets for the payment of partnership debts springs from the principle that each partner is the general and accredited agent of the others in the business of the partnership, and the partnership is bound by the acts of either partner within the general scope of the agency, and third persons who acquire rights by the exercise of this general authority are not affected by limitations or restrictions contained in the partnership articles, or imposed by any subsequent agreement between the parties of which they had no notice. The authority of partners is not absolutely determined by dissolution of the partnership. One partner cannot, thereafter, bind the firm by new engagements not connected with the liquidation. But partners continue, after dissolution, joint tenants of the firm property. Each has an interest that the assets shall be collected, and that the partnership debts shall be paid, and the general authority which each possessed before the dissolution, to collect the debts, and dispose of the property of the partnership, continues for the purpose of winding up the concern. (3 Kent, 63.) The right of each partner, after dissolution, to act in matters connected with the winding up, cannot, we conceive, be divested by mere notice from one partner, so as to prevent transactions relating to the liquidation between third persons and the partner whose authority is attempted to be restricted by notice, from being effectual and binding, provided the dealing is not collusive or fraudulent. ( Gillilan v. Sun Mutual Ins. Co., 41 N.Y. 376.) But it is, doubtless, competent for partners on a dissolution, by agreement, to confide to one of the partners the exclusive control and management of the liquidation. And when such an agreement is made binding as between the partners, it will exclude the implied authority possessed by each partner, and prevent third persons, having notice of the arrangement, from dealing, in disregard of it, with the partners who have renounced their control of the partnership affairs. ( Robbins v. Fuller, 24 N.Y. 572.) But a bare authority conferred by the partners upon one of their number, which may be countermanded at any time, will not invalidate acts of either partner within the general power. In Napier v. McLeod (9 Wend. 120), two partners, on the dissolution of a firm, executed a power of attorney to the third partner, constituting him their attorney irrevocably, to demand and receive, on their behalf, all debts, dues and demands of the firm, and one of the two partners who executed the power subsequently executed to the defendant, who had notice thereof, a release of a debt owing by him to the firm, and it was held that the release was valid on the ground that the power did not operate as an assignment of any interest of the partners executing it, but was an authority merely, and, therefore, revocable. (See, also, Gram v. Cadwell, 5 Cow. 491; Porter v. Taylor, 6 M. S. 156.) A fortiori a mere assumption by one partner, on a dissolution, of an exclusive right to control the winding up, although the other partner may for a time acquiesce in the claim, will not preclude him from subsequently exercising the power of a liquidating partner.
The application of the doctrine stated, to the facts in this case, is an answer to the claim that Stewart Co. sold the goods in violation of the instructions of Underhill Co. The latter firm was dissolved in December, 1875. The evidence does not warrant the inference, or at least it did not require the finding, that the defendant Vanderbilt was, by any agreement between him and Underhill, constituted the exclusive agent for winding up the partnership. It does appear that, after the dissolution, Vanderbilt claimed the exclusive right to control the sale of the goods of Underhill Co., and that Stewart Co. were cognizant of this claim, and soon after the dissolution he instructed Stewart Co. not to sell the goods below a price named by him. Vanderbilt was the solvent partner in the firm, and Underhill had become a clerk in the employment of Stewart Co. The claim of Vanderbilt that, under the circumstances, he should alone control the goods, was certainly not unnatural, but the claim to do so did not ipso facto exclude the power of Underhill. Vanderbilt could change the limit of price first fixed by him, and Underhill could also revoke Vanderbilt's instructions, and authorize, as he did, a sale at a less price than that fixed by Vanderbilt. Underhill, although insolvent, had an interest to have the goods sold at the best price, and a right to exercise his judgment as to the time and terms of sale. It is to be observed that the question here is one of authority only. It is not claimed that Stewart Co. were guilty of any fraud, or that they colluded with Underhill to sacrifice the goods. If this issue had been made, and there was any evidence tending to sustain it, the relation which Stewart Co. held to Underhill would be a significant circumstance, and give great weight to any evidence tending to show bad faith on the part of Stewart Co. But in the absence of fraud, we are of opinion that Stewart Co. were justified in acting upon the instructions of Underhill, and that the claim that they sold in violation of instructions cannot be sustained.
The issue of usury was also, we think, properly overruled. The agreement of July 1, 1874, was not usurious on its face. The giving of extra time to purchasers to increase the sales is the reason stated for the allowance of the additional discount. If extra time was given, the risk of Stewart Co. on their guaranty was increased. If the benefit of extra time was taken by purchasers by way of discount, they had the benefit of the deduction. If in making up the account Stewart Co. charged a discount, either when extra time was not given, or when no discount to purchasers had been allowed, the account was subject to correction. But we see in the case no proof that the agreement of July 1, 1874, had any connection with a loan, or from which an inference can be drawn that it was a cover for interest on advances beyond the lawful rate.
We think that no error was committed on the trial, and that the judgment should be affirmed.
RAPALLO, EARL and FINCH, JJ., concur with MILLER, J.
FOLGER, Ch. J., and DANFORTH, J., concur with ANDREWS, J.
Judgment reversed.