Opinion
June Term, 1855
Francis B. Cutting, for the appellants.
L.B. Shepard, for the respondent.
The proof of the execution of the articles of copartnership between H.F. Mabbett and Fountain was insufficient. The certificate of the officer merely stated that the witness acknowledged that she subscribed the same. But there was only a general objection to its being received in evidence against the defendants, without specifying any ground whatever for that objection. Had that been done, perhaps the plaintiff would have produced the necessary proof.
The transfer of the interest of Henry F. Mabbett, in the concern of Mabbett Fountain, to Hannah Mabbett, was sufficiently proved. It was not necessary that the vendee or assignee should be called as a witness for that purpose. It was enough for the plaintiff, that the contract of sale was duly acknowledged by one of the parties to it, and proved by the subscribing witness as to the other; and if the testimony of Hannah Mabbett would have thrown suspicion over the transaction, she could have been called by the defendants. The consideration, too, prima facie, was sufficient. She was to pay the debts, and she gave up the note for $2000, which, from the testimony, it seems, would have been paid to her if she had presented it for that purpose. And nothing was thereby deducted from the assets of Mabbett Fountain, to pay the debts of Mabbett Mulligan; for she took all the interest of Henry F., and became liable to pay his share of those debts. The embarrassments of Mabbett Mulligan may have led to this transfer; but nothing appears by which it can be inferred that any of the parties to it intended to defraud the creditors of Mabbett Fountain; and besides, upon that question the jury found for the plaintiff.
Nor can it be doubted that Hannah Mabbett became a copartner with Fountain from that time; at least, as between the parties. Personally she took no active part; but the transfer of the interest of Henry was complete, and she was immediately recognized by Fountain as a partner, and her power of attorney to Henry was then shown to him; Fountain changed the style of the firm, and put up a sign bearing the new name; the bank account was also transferred accordingly; and all the business thenceforth was done under the name and style of the new copartnership. One partner cannot introduce a new member into the firm without the consent of all the old members, but here was sufficient evidence of such consent. ( See Jeffreys v. Smith, 3 Russ., 158.) The words used in the assignment, 'one equal undivided half of the goods," c., perhaps, by a critical reading, might be construed to mean the interest of the assignor in a moiety. ( Heydon v. Heydon, 1 Salk., 392; Coll. on Partn., by Perk., § 392; Johnson v. Evans, 7 M. G., 240.) But in a subsequent clause he also transfers to her all his interest and claim to the property of every nature and kind belonging to the firm.
The power of attorney, given on the 25th day of July, 1846, by Hannah Mabbett to Henry F. Mabbett, was sufficient to authorize the latter to do every act necessary to be done by a partner; certainly in the ordinary course of the business. Indeed, the language is so broad, that I am inclined to think if one partner can himself transfer all the partnership effects, and can delegate authority to another to act for him in such cases, this power of attorney did authorize the agent to do so. But in addition to this, and upon the same principle, the power of attorney, also given by her to Henry, dated on the 20th of November, 1846, although some part of it was not very aptly expressed, was abundantly sufficient to authorize the transfer of the goods of the firm of J.S. Fountain Co. to pay the debt of that firm to the plaintiff. It empowered him "to make, execute and deliver" to the plaintiff "a sufficient amount of goods out of the stock of goods now owned by J.S. Fountain Co., to pay and satisfy the indebtedness" of that firm to him. That debt exceeded the value of all the goods, at the time of the transfer under which the plaintiff now claims.
The objection to so much of the proof of what Hannah Mabbett said, and afterwards wrote, as was finally admitted by the court, was not well taken. Such evidence was admissible so far as it tended to show an authority to Henry to make the transfer to the plaintiff. If she wrote to him to do so, or if she told him to do so, that could be shown as an act, as a part of the evidence of the plaintiff's title. A sale to pay the debt of the company under such an authority would be sufficient, at least, as to her, especially if possession was given; and even if the instrument under seal was not sufficient, this might be; and if the evidence was not given to explain or vary the power under seal, or such additional authority was not given at the same time, but was an independent transaction, and before the sale, the evidence was admissible. The power of attorney under seal did not prevent her from appointing the same person agent with other powers, or from giving other instructions. But nothing that she said or did could affect the rights of the defendants, after they had caused the levy upon the property. So too, proof of the acts of Henry F. Mabbett, as her agent, and of Fountain, before that time, were admissible, so far as they were evidence of a contract, and that plaintiff had taken possession. And for such purposes only, I understand the court to have admitted them.
The principal question in this case is, as to the power of Hannah, by her attorney, to convey or transfer the property in question to the plaintiff. No doubt, if the transaction between Henry and Hannah Mabbett was for the purpose of defrauding the creditors of Mabbett and Fountain, or the transfer to the plaintiff was for that purpose, or to defraud the creditors of J.S. Fountain and Co., such transfers were void as against the creditors of those firms, respectively, whether with or without the concurrence of Fountain. On those points, the jury have found for the plaintiff. But the judge at the circuit also told the jury that the assent of the partner, Fountain, was not necessary if there was no intention to defraud. In order, therefore, to sustain this judgment, we must hold that where there is a debt due to a bona fide creditor from the firm, one member of it may transfer all the goods and chattels of the firm to such creditor to pay the debt, without the knowledge or consent of the other partner who was present or could have been consulted, there being no intention to defraud the creditors of the firm.
The right and power of one partner to transfer all the effects of the firm for the payment of debts, without the consent of his copartners, has been the subject of conflicting opinions. It is not necessary, in this case, to decide whether he can make an assignment to a trustee for that purpose. ( See Havens v. Hussey, 5 Paige, 30; Deming v. Colt, 3 Sandf. R., 284; Hayes v. Heyer, id., 293; Hutchinson v. Smith, 7 Paige, 26; Anderson v. Tompkins, 1 Brock. R., 456; Harrison v. Sterry, 5 Cranch, 289.) But it seems to be pretty well settled, that one member of a firm can convey or pledge all the partnership effects directly to a creditor, in payment, or for the security of a debt due from the company, if there be no fraud. ( See Egberts v. Wood, 3 Paige, 517; Harrison v. Sterry, supra; Anderson v. Tompkins, supra; Fox v. Hamburg, Cowp., 445; Piersons v. Hooker, 3 John. R., 68; Robinson v. Crowder, 4 McCord's R., 519; Mills v. Barber, 4 Day's R., 428; Tapley v. Butterfield, 1 Metc., 515; 3 Kent, 44; Halsey v. Whitney, 4 Mason, 206; Smith's Merc. Law, 79; Coll. on Part. by Perk., §§ 384, 394, 395; Stor. on Part., § 101; Cary, 25, 29, 30; 1 Parsons on Cont., 154; Watson on Part., 105; Morgan v. Marquis, 9 Exch. R., 145; Gow. A.P.C., 132, 135, a; 4 B. C., 867.) The difficulty is in determining what circumstances will make such transfer fraudulent. Does the fact that one of the partners, not absent but at their place of business, does not know of it and is not consulted, and that the assignment is of all the personal effects of the firm, and that it is to one, or a portion only of the creditors, make it fraudulent? The relation subsisting between partners is of the most intimate and confidential nature. They are joint tenants of the stock and effects of the company; their interests are joint and mutual, and each is seized per my et per tout; each has entire possession, as well of every part as of the whole; and each of two partners has an undivided moiety of the whole, and not the undivided whole of a moiety. A partnership is a voluntary association, by which in all the affairs connected with the business an authority is impliedly given to every member to dispose of the partnership property as if it were his own personal effects. Such is the indivisible nature of their interest, and the capacity of every member to act as the authorized agent of all, that whatever one does in the course of the partnership business has the same efficacy as if all had severally and directly joined in the act.
But it is said the disposition of all the personal effects of the firm to pay one creditor, without the consent of the other member of the firm, when he is present or can be consulted, is not an act in the course of the partnership business, but is a virtual dissolution of the partnership, and fraudulent as to such member. But, as we have seen, one partner, in the absence of fraud on the part of the purchaser, has the complete jus disponendi of the whole of the partnership interest. The author of a treatise on mercantile law lays down the broad proposition: "Provided the contract have a sufficient relation to the business of the firm; and the contractor have, in other respects, acted bona fide, it matters not much what may be its description, nor how grievous the contracting partner's fraud and misconduct." ( Smith's Merc. Law, 79.) And the cases seem to go to that extent. ( See Coll. Part., § 445 et seq.; Carry on Part., 29, 30.) And, certainly, a creditor has a right to seek and obtain from his debtor a preference for or payment of his debt to the exclusion of other creditors; and that without the imputation of fraud upon either party. I do not say that in no case would equity interfere in favor of a firm against a third person, in case of a contract of sale by one member. But this is an action at law between creditors, and the jury have negatived all fraud in fact on the part of the plaintiff; so that it is simply a question as to the power of sale by one member without the consent of the other, of all the partnership effects to pay the partnership debts. If the title to the articles of merchandise in question passed at law, the judgment must be affirmed. This sale may have broken up the firm; but there was no agreement between the members of the firm of J.S. Fountain Co., that it should continue for any definite period. But if there had been, the dissolution (if such was the result) was a mere consequence which did not affect the sale. This jus disponendi of each partner is for the advantage of trade and commerce, and no doubt strengthens the credit and benefits the partners themselves; but, however that may be, it is sufficient for the creditor, who receives the property in payment of his debt, that it exists and has been exercised in his favor without any fraud on his part.
The judgment must be affirmed.
GARDINER, C.J., DEAN, CRIPPEN and MARVIN, Js., concurred in the foregoing opinion. RUGGLES, J., took no part in the decision.
If the transaction of the 25th July, 1846, by which Hannah Mabbett became in form the owner of one-half of the stock in trade which, up to that time, had belonged to Mabbett Fountain, was a valid transaction, the goods which were subsequently seized upon the defendants' execution against Mabbett Fountain, did not belong to the defendants in the execution, and were not, generally, liable to that process. The individual interest of Fountain, in the goods of J.S. Fountain Co., was liable to seizure, and for the purpose of reaching it, the sheriff might take possession of and sell the goods; but the purchaser would acquire no interest except subject to the adjustment and liquidation of the partnership liabilities. ( Walsh v. Adams, 3 Denio, 125.) But although the sheriff might seize the corpus of the property, he could only sell the interest of Fountain; and if he undertook to sell generally, as though the goods were fully subject to the execution, he would be a trespasser. ( Waddell v. Cook, 2 Hill, 47.) When the present suit was commenced, the sheriff had gone no further than to seize the goods, and this he was justified in doing, if they belonged to a copartnership of which Fountain was a member. The plaintiff, to maintain the action, was therefore under the necessity of establishing both the sale by Henry F. to Hannah Mabbett, and the transfer by the firm of J.S. Fountain Co., consisting of Fountain and Hannah Mabbett, to the plaintiff. So far as matters of fact are concerned, the jury have passed upon both transactions in favor of the plaintiff, and it remains to determine whether any errors were committed by the judge, in receiving the evidence, in allowing the case to go to the jury, or in his instructing or refusing to instruct them in matters of law. A great number of exceptions were taken to each class of the rulings of the judge; but it will not be necessary to examine them all, and I think not more than one of them.
The question as to the validity of the transfer made by Henry F. Mabbett, as the attorney of Hannah Mabbett, in the name of J.S. Fountain Co., to the plaintiff, raises the most material of the questions which have been discussed on the argument. This point arose on the motion for a nonsuit, which was denied; but as the transaction was more fully explained by the subsequent testimony, I propose to examine it in reference to the instructions given by the judge to the jury. He charged in terms that either partner of the firm of J.S. Fountain Co., without the consent of the other, could sell the whole partnership effects for money or notes, or could apply the whole or any part of them in payment of debts, or could pay one creditor to the exclusion of others. The defendants' counsel distinctly excepted to this portion of the charge. The instruction, though in the form of an abstract proposition of law, referred solely to the instrument of the 3d December, 1846, by which the plaintiff obtained the only title to the property which, before that time, belonged to J.F. Fountain Co., which he asserts in this action, and the judge in his subsequent remarks so applied it. Fountain Co. had then on hand goods to the nominal value of $12,300, according to an inventory made a few days before, and choses in action amounting nominally to $3187.60. The firm was in insolvent circumstances, and, among other debts, owed the plaintiff $6286.47, and the defendants a large amount. Fountain was at the place of business of the firm, actively engaged in carrying it on. The other partner, Hannah Mabbett, took no part personally in the business, but acted by her attorney, Henry F. Mabbett, who was occasionally in attendance at the store, and I will assume, had all the power which Hannah Mabbett herself could have exercised had she been personally present. H.F. Mabbett, acting for Hannah Mabbett by an instrument, having the effect of a bill of sale, conveyed to the plaintiff all the goods of the firm and all their choses in action, embracing together all their property of every kind. For the purpose of the transaction, the goods were estimated, and I will assume accurately, to be worth 50 per cent, and the notes and accounts 60 per cent of their nominal amount, making $8062.56, and exceeding by $1776.09 the amount of the plaintiff's debt. For that balance the plaintiff gave his note to H.F. Mabbett, the amount of which was afterwards applied by the plaintiff in the payment of other debts of Fountain Co., which payments were, of course, further preferences. This transaction was without the knowledge of Fountain, and was known both by the plaintiff and H.F. Mabbett, to be without his consent and in opposition to his wishes. There was evidence on both sides as to a subsequent assent by Fountain to this transfer; but this is not material to be considered, as the judge charged the jury that it was valid whether he assented or not. I am of opinion that this ruling cannot be sustained. I am aware that the authority of each of the several partners, as the agent of the firm, is very great. It extends to all the goods of the firm, and warrants sales, mortgages and pledges, and every variety of transactions incident to the business in which they are engaged. But it is not wholly without limit. It must necessarily be confined to the scope and object of the business, and in the course of its trade and affairs. It is no objection that the tendency and ultimate effect of a transaction entered into by one partner, is disastrous or even destructive to its business. But this transfer was made with the deliberate intent and purpose of putting an end to the partnership enterprise, of wholly subverting its objects; and such was its effect. This is apparent not only from its embracing every portion of its means to carry on business, but from the fact that forcible possession was immediately taken of its books of account, and of the store in which the business had been carried on. I have carefully examined the several cases upon this question which were cited at the bar, and such others as I could meet with; and I think there is no well considered judgment which would justify this transfer. The two cases which have been decided in the late court of chancery, are entitled to primary consideration. In Egberts v. Wood (3 Paige, 517), the transfer which was in controversy was made after the dissolution of the firm, and when the authority of the partners as such, had ceased. The assignment was not sustained, and what was said by the chancellor as to the effect of such a transfer by a partner during the existence of the copartnership, was obiter. Besides, I think it apparent from his remarks as to the validity of the assignment by one partner, against the known wishes of his copartner, that he would not have justified the transfer now under consideration. In Havens v. Hussey (5 id., 30), the assignment was to a trustee, and his creditors were to be paid according to certain preferences. It was adjudged void. The same question was decided in a similar manner in Hitchcock v. St. John, (1 Hoff. Ch. R., 511.) A like judgment was pronounced in Deing v. Colt, and in Hayes v. Heyer (3 Sandf. S.C. Rep., 284, 293), where the assignments were to a trustee without preferences, and in Hayes v. Heyer (4 Sandf. Ch. R., 485), the same able judge who tried this cause, thought the question on an assignment without preferences, a very difficult and doubtful one, which, in the case then before him, he declined to decide. There is a class of cases where the acts of one partner in transferring the partnership effects, have been held valid on account of the absence of the other partners. Thus, in Harrison v. Sterry (5 Cranch, 289, 300), the assignment was by the managing partner in the United States, the other partner being in England; besides, it was partial, not embracing all the effects of the firm. So in Anderson v. Tompkins (1 Brock., 456), decided by Chief Justice Marshall. The firm were transacting business in Virginia. One partner had embarked for England, and the transfer was made by the other who remained in this country; and that circumstance was relied upon by the court. So also in Deckard v. Case (5 Watts, 22), the transfer was of specific articles, but it in fact embraced all the property of the firm; an execution had been levied upon it, and one of the partners having absconded, the conveyance was executed by the other, and the object of it was to enable the creditors to whom the property was conveyed to prevent its being sacrificed, it consisting of unfinished articles in the course of manufacture. The court said "Mead, the absconding partner, aware that the property had been taken in execution, abandoned all care of it; from necessity, then, the other partner should have the power of disposal in payment of the debts of the firm." Again, in Hennessy v. The Western Bank (6 Watts Serg., 300), the assignment was of the entire property with preferences, by two of the partners, the other being absent, and the case was placed on the authority of Deckard v. Case. There are a few other cases which do not fall within this distinction, but suggest views favorable to the conclusion at which I have arrived. In Dickinson v. Legare (1 Dessaas., 537), it is held that one partner of the existing copartnership could not make a transfer of all the partnership effects. In Pearpoint v. Graham (4 Wash. C.C.R., 232), Judge Washington expressed great doubts whether one partner could make an assignment of the entire property of the concern, but finally held in favor of the assignment on the ground of a ratification by the non-executing partner. Mills v. Barber (4 Day, 428), was an assignment of a single chose in action, and does not appear to have affected the entire business of the firm. A good deal of stress is placed in several of the cases, particularly in the one referred to from 5th Paige, and in those from 3 Sandford's Superior Court Reports, upon the fact that a trustee was interposed between the parties and their creditors by the act of one of the partners; and this, no doubt, is a circumstance which strikingly shows that the transfer is without the scope of the partnership enterprise. I think there is something of the character of a trust in this case. The plaintiff's debt would not cover the entire value of the property after all deductions were made; for the balance a note was given, and it is pretty obvious that this was to be used in making other preferences, and it was actually used for that purpose. It is fair to infer that such was the intention of the plaintiff and H.F. Mabbett. But waving that consideration, the fact that the property was of greater value than the plaintiff's debt, and yet that it was all conveyed to him, shows that there was another object than the payment of the plaintiff's debt; that object, apparently, was to take the whole of the copartnership business quite out of the hands of Fountain, and wind it up according to the views of the plaintiff and H.F. Mabbett. This, I think, exceeded the power of one partner. It was not within the scope of the contract of partnership, but intentionally subversive of it.
I think, therefore, that an error was committed on the trial, and that the judgment should be reversed.
JOHNSON, J., concurred with DENIO, J.
Judgment affirmed.