Opinion
Submitted September 21, 1874
Decided January term, 1875
Wilcox Hobbs for the appellant.
Lewis O. Corbet for the respondents.
This case presents the question whether, if a person makes an agreement with two members of a firm, for a valuable consideration, to allow his "name to be used in firm signatures, signs, advertisements, bill-heads, and for all and every the business purposes of the firm, so long as it remains in existence," thereby becomes a partner as to third persons who may have sold goods to the firm on credit, and who may not have known at the time of the sale what person was represented by the fictitious name.
The title assumed under this agreement was Secor, Swan Co. There had been a Mr. William H. Secor, who had previously been a member of this firm when some goods were sold by the plaintiffs. When he left, the arrangement was made with Charles F. Secor to continue the business, making use of his name. After this arrangement, the goods, which are the subject of the present action, were sold. The referee who tried the cause, found that the plaintiffs did not sell or deliver the goods upon the faith or credit or reputation that Charles F. Secor, the defendant, was one of the members of the firm, or liable for its debts, and that he had no knowledge of the agreement until after the goods had been delivered. Under this state of facts, can it be claimed that Charles F. Secor is liable to the plaintiffs for the goods sold after the date of his agreement?
This point cannot be regarded as settled by the authorities, and can only be satisfactorily disposed of by discussing it upon principle. It is claimed, on behalf of the defendant, that the true ground on which a mere nominal partner is to be held liable to creditors of the firm is that of an estoppel in pais; and that it is a necessary element in such a case that a creditor of the firm should have parted with his goods, or have given it credit on the faith of the representations made by the nominal partner. It is cheerfully conceded that this rule is, in some instances, applicable. The real inquiry is, whether it must be extended to all cases. There are cases in which the doctrine of estoppel may be rested on broad grounds of public policy; the present appears to be one of them. (1 Greenleaf on Evidence, § 210.) The sound rule would seem to be, that a person who deliberately agrees that his name shall be used in a partnership, must be conclusively presumed to intend the consequences which naturally flow from such an act. It would be contrary to public convenience to require affirmative proof that dealers with the firm knew who was represented by the fictitious name. The referee, in the present case, did not find that the plaintiffs knew affirmatively that Charles F. Secor was not a member of the firm, but only that he did not know of the arrangement between the parties defendant, and did not act on the credit of his name. If this finding was sufficient to defeat the plaintiff's claim, a heavy burden would be thrown upon dealers with the firm. Suppose that one of them should die and his executor should prosecute his claim — should he be defeated because he could not prove directly that his testator knew what person was represented by the fictitious name?
In Young v. Axtell (cited in 2 H. Bl., 242), Lord MANSFIELD said, that the defendant Mrs. Axtell, as she suffered her name to be used and held herself out as a partner, was certainly liable, though the plaintiff did not at the time know that she was a partner or that her name was used. This case is approved by Mr. Lindley in his work on Partnership. He says: "It appears from this case that it is not necessary for a person charging a nominal partner, to have been aware of the partnership at the time of the contract. And this doctrine seems satisfactory when we consider that the object of the rule is to prevent the extension of unsound credit." (Sec. 86.) This is a clear recognition of the element of public policy underlying the rule of Lord MANSFIELD.
This view is strengthened by the policy of our own statute against fictitious names, the use of them being made a crime. No more effectual mode of breaking up a pernicious practice upon this subject can be suggested, than for the courts to hold uniformly that parties allowing their names to be used as partners, shall be held to all the consequences fairly attributable to their acts, and to make them partners as to third persons, dealing with the firm, without reference to their knowledge of the real facts in the case. Suppose that Swan, the other ostensible partner in this case, had also been a fiction, and that the only real dealer was West, represented by the letters "Co.;" could it be tolerated that the men whose names appeared should escape all responsibility because a creditor could not show affirmatively, to the satisfaction of a referee or jury, that he reposed credit in the particular Mr. Secor or Swan, who had thus held himself out to the public?
It should be added that the only mode of giving true effect to Charles F. Secor's agreement, is to hold him responsible. The firm must have expected some practical result from the use of his name. They paid him a consideration for it. They must have understood that they were to gain an advantage from it. On the theory now advanced, nothing was to be accomplished. To those who did not know of Charles F. Secor's connection with the firm, he was not liable. To those who did know of his agreement, the same rule would have to be applied, as on account of knowledge there could be no estoppel. The only persons who could, under any circumstances, hold him liable, would be those who were aware of his being in some way connected with the firm, but did not know of the agreement under which he acted. To make the agreement of any advantage to dealers with the firm, its true nature must be studiously concealed from the parties intended to be affected by it. Such an exposition of the agreement is so plainly subversive of the policy of the law that it would not be fair to the parties to assume that they intended it. The reasonable construction of their agreement, in the absence of countervailing proof, is, that they intended it to be open and known to the public, and to have it accomplish its apparent purpose by pledging Mr. Secor's credit to their dealers. This construction makes the agreement accomplish its proper purpose, as it renders Mr. Secor responsible to every person dealing with the firm precisely as though he were an actual partner.
On the whole, we approve of the rule on this subject as it is laid down by Mr. Parsons in his work on Partnership. He says: "When a creditor sues a firm, and seeks to put the liability of a partner upon one who is only a nominal partner, it is a somewhat difficult question whether the plaintiff can recover without proof that he himself believed the person whom he seeks to charge to be a partner. The authorities on this question are far from unanimous, some holding that one put forth to the world as a partner, is liable as such to every creditor of the firm; while others hold that he is thus liable only because he was a partner in fact and in interest, or because the plaintiff regarded him as one, and dealt with the firm in some degree, at least, on his credit. Perhaps a reasonable rule might be stated thus: Where one is held forth to the world as a partner, the first question is, was he so held out by his own authority, assent or connivance, or by his negligence. If by his authority, consent or connivance, the presumption is absolute that he was so held out to every creditor or customer. If so held out by his own negligence only, he should be held only to a creditor who had been actually misled thereby." (Page 119.)
There was no error in the disposition of this cause in the court below, and the judgment should be affirmed.
All concur.
Order affirmed, and judgment accordingly.