Opinion
December Term, 1897.
Joseph S. Hunn, for the plaintiff.
Horace L. Bennett, for the defendant.
The defendant Widener testified on the trial, and in this he was corroborated by Alfred E. Smith, that he (Widener) did not know of the execution of the note in suit, or of the preceding note, until after the dissolution of the firm. The evidence that Widener was without knowledge of the existence of these notes is positive, is not contradicted, and it must be accepted as a fact in this case. However, I do not regard the question of actual knowledge, or of actual notice of the existence of these notes, as of the slightest legal importance. By the terms of the contract under which Widener acquired his interest in the firm of Smith Petrie, it was agreed that the transfer was subject to all existing debts due by said firm, not exceeding the sum of $3,000. To this extent either partner of the new firm of Alfred E. Smith Co. had power to bind it for the payment of the debts of the former firm. It is not asserted that the new firm ever paid or assumed to pay more than the sum of $3,000 on account of the debts of the old firm, and until this limit was passed, either partner had full power to pay or to execute obligations in the usual course of business, for the payment of the debts of the old firm.
Again, Widener must be deemed to have had constructive notice of the payment of the note of Smith Petrie, and of the execution and discounting of the two notes made by Alfred E. Smith Co., for the payment by the new firm of the note of Smith Petrie was entered on the books kept between the bank and the firm, and the discounting of the two subsequent notes was entered on the pass book; and, between the general partners of the firm and its creditors, all of the general partners are conclusively deemed to have notice of all the entries made in the ordinary course of business on the books of the firm. As between the partners and third persons this is a conclusive presumption; and the fact that one of the general partners, by his own neglect, failed to learn of the facts entered, does not avail him as against a creditor.
In the case at bar the evidence falls short of showing a misapplication of the firm's funds or of its credit, but in cases where the property or credit of a firm has been misapplied by one of the partners, the other general partners, as between the firm and its creditors, cannot avail themselves of the fact, provided they might have discovered and prevented the misapplication by the use of ordinary diligence in the business of the firm. In case of a misapplication of credit, the complaining partner must repudiate it and give notice to the creditor and not allow him to renew or extend the credit on the faith of the authority of the acting partner. In such cases the complaining partners are charged with constructive notice, which is equivalent, in such cases, to actual notice or knowledge, and they are estopped from asserting as against the creditors that the misapplication was not consented to. ( Lodge v. Prichard, 3 DeG., M. G. *906; Ex parte Harris, 2 V. B. 210; Ex parte Yonge, 3 id. 31, 36; Ex parte Hinds, 3 DeG. S. 613; Pollock Part. [3d Eng. ed.] 129.)
In Taylor v. Herring (10 Bosw. 447) entries in partnership books were held not evidence for one partner against another on an accounting between them, unless it appears that the complaining partner not only had access to the books but actually inspected them. From this judgment the learned chief justice dissented, and in the prevailing and dissenting opinions many of the cases relating to this question are referred to and discussed.
In Fairchild v. Fairchild ( 64 N.Y. 471) it was said: "That, as a general rule, where members of a firm have access to its books and opportunity to know how their accounts are kept, such knowledge on their part will be presumed."
In Peyser v. Myers ( 135 N.Y. 599) the question arose whether a firm formed by an incoming partner for the purpose of continuing the business of a former firm was liable for a debt of the former firm. It appeared that the new firm was formed for the purpose of continuing the business of the old firm, and that the debt in question was carried on to the books of the new firm, and it was held that the debt must be treated as a debt of the new firm, though there was no express agreement by the new firm to pay it.
In the case at bar it is conclusively shown that the firm of Alfred E. Smith Co. was formed for the purpose of continuing the business of Smith Petrie, and that it did continue that business, and that the note in suit was given in the due prosecution of that business. It also appears that this defendant resided in the city of Rochester, and that, although he took no active part in the management of the affairs of the firm, he passed by its place of business daily and might have known, and ought to have known, about the transactions of the firm, which were plainly entered in its books. There is no question of fact in this case; there is no conflict in the evidence, and, such being the case, there was no question for the jury, and it was the duty of the court to direct a verdict for or against the plaintiff. The often-repeated statement that a proposition is a mixed question of law and fact simply means that, if the facts are disputed, the disputed fact in issue must be determined by a jury, and then the law must be decided by the court (Thomp. Tr. § 1031); but when there is no dispute about the fact in issue, the case presents a question of law for the court, and there is no mixed question of fact and law.
Defendant's motion for a new trial should be denied and a judgment ordered against him on the verdict, with costs.
All concurred, except WARD, J., not voting.
Defendant's exceptions overruled and motion for a new trial denied and judgment ordered for the plaintiff on the verdict, with costs.