Summary
In Ontario Bank v. Hennessey (48 N.Y. 545) the commissioners of appeal expressed the opinion that the rule seemed to be that a firm is liable when one of its members borrows, not expressly on his own individual credit, and it is shown that the money was actually borrowed for, and appropriated to, the use of the firm.
Summary of this case from Ravold v. Beers, Inc.Opinion
Argued January 8, 1872
Decided May term, 1872
Crook Bergen for the appellant. Starr Ruggles for the respondent.
The agreement between the defendants, of March 23d 1864, constituted a copartnership. There was a community of profit and loss. The limitation of the extent of the loss to be borne by Hennessy to the sum of $800, holds good against his partner McDonald, but it no more limits his liability on partnership contracts, as to third parties, than does the limitation of his interest in the profits of the business to twenty-five per cent. (Collyer on Part., §§ 16, 17, 18.) Many cases might be cited, including those referred to by the counsel for defendant, but they leave the rule as stated invulnerable. Nor does the fact that the defendant Hennessy was not known to the plaintiff as a partner affect his liability.
So far as it appears from the evidence, no one was known to the plaintiff as a contracting party, but the defendant McDonald. The copartnership and its business had the benefit of the money of the plaintiff. Although the fact does not appear to have been disclosed to plaintiff, the discount was obtained for and applied to the use of the copartnership, and the articles authorized McDonald to contract just such a liability for the business. He was "authorized to negotiate and arrange with parties to accept drafts and pay expenses," and give security on the timber. This language clearly contemplates that drafts were to be drawn by McDonald, who was to assume the management of the business. I think, in contemplation of law, he acted under and pursuant to this authority, when he applied for and obtained the discount of his bill on Newman, and in applying its proceeds to the business of the partnership. He made no declaration that he applied for the discount on his private account, and the use made by him of the proceeds indicates that it was not so in fact. It was not necessary that the bank should know, at the time of the discount, that the money was obtained for copartnership use, in order to bind both of the defendants for its repayment. (Collyer on Part., § 537.)
The rule appears to be that the firm are liable when one member borrows, not expressly on his individual credit, and it is shown that the money was borrowed for and appropriated to the use of the firm. ( Church v. Sparrow, 5 Wend. R., 223.)
It did not appear that McDonald was engaged in any other business on his own account, and this was considered as an important fact in an analogous case. ( Bank of Rochester v. Monteath, 1 Denio R., 402, 405.)
Certain cases were relied on and cited in the opinion of the learned judge below, who dissented from the majority of the court, which are not in fact analogous, in the view which I have taken of the facts of this case. In Jacques v. Marquand (5 Cow., 497), it is said that where one partner borrows money on his individual credit and afterward applies it to the use of the firm, the lender does not thereby become a creditor of the firm. That case differs from the present, in the fact that Marquand did not act on behalf of his firm (p. 501), and Marquand was there seeking to charge his firm, and to defeat an action brought to charge him individually. The case of Tallmadge v. Penoyer (35 Barb., 120) was also referred to in the dissenting opinion. It was there held that money borrowed for the individual use of one, and afterward used for the firm of which he was a member, without his partner's consent, did not make the partner liable. The fault in the case of the defendant Hennessy is that his partner was acting for the partnership, and by his authority. This fact distinguishes this case from those authorities which have been relied on by the counsel for the appellant. For these reasons I am of the opinion that it was well held by the majority of the court below that the bill was drawn by the firm, although the name of McDonald only appeared.
It must be conceded that the agreement contemplates that no liability shall be created to bind Hennessy beyond the sum which he had contributed as capital, but it has not been framed so as to secure that result, except as between the parties. The right to a share of the profits as such, and not as a measure of compensation equal to the share stipulated for, overrides a construction of the agreement as to third parties which would produce such a result as the agreement is supposed to have contemplated.
It may be objected that the question whether McDonald was acting for himself individually in obtaining the discount ought to have been submitted to the jury. I think, however, the objection would have been untenable, as the facts indicate conclusively that he was acting in the interest of himself and Hennessy jointly. But if I am not right in this, the right to claim a new trial on this ground has been lost by the omission to request the judge at the trial to submit that or any other question to the jury.
In my opinion, the plaintiff was authorized to recover against both the defendants as for money had and received, without any reference to their liability as the drawers of the bill. The complaint contains the requisite allegations that the money was received and applied to the copartnership business of the defendants, and the proof sustains the allegations. ( Pentz v. Stanton, 10 Wend., 271, 278; Allen v. Coit, 6 Hill, 318.) The money of the plaintiff's bank was obtained by a party authorized by the partnership for that purpose to act in his own name, and it was applied legitimately in their business. The judgment is right and should be affirmed, with costs.
The agreement executed by the defendants, March 23, 1864, made them partners. It provides for a joint business, to which McDonald was to give his personal attention, and Hennessy was to furnish $800. This $800 was not a loan, but was to be furnished as capital, as no provision is made for its repayment. Hennessy, however, was to incur no further risk nor assume any further responsibility than the $800. This was placed in peril and might be lost, and if the loss should be greater than the $800, McDonald was, as between him and Hennessy, to bear it. If there was any net profit, Hennessy was to have one-quarter of it. It thus appears that Hennessy was to share in the profits of the business as profits, not as a compensation for wages he was to earn, or interest on money loaned to McDonald, but in consideration of his share of capital invested and imperiled in the joint business. Whatever the intention of the parties may have been, this, as to third persons, made him a partner. Here, within the meaning of the authorities, was a communion of profits, and hence a partnership. (Collyer on Part., § 18; Lindley on Part., 17; Winship v. Bank of the United States, 5 Peters, 529, 560; Champion v. Bostwick, 18 Wend., 175.) It matters not that McDonald was to assume all the risk and bear all the loss beyond the $800. "A man, on entering a partnership, may stipulate to be free from all liability for loss, and such stipulation will hold good as between himself and his co-contractor. In such case he will still be a partner, enjoying, in addition to the advantages of partnership, the indemnity offered him by his companion." (Collyer on Part., § 18.)
But here was also a community of loss. Hennessy's $800 was put in peril, and to that extent he was liable to be involved in loss with his copartner. Hence, even if it were necessary, which is denied ( Manhattan Brass Man. Co. v. Sears, 45 N.Y., 797), that there should be a community of loss as well as of profit to constitute a partnership, that condition exists here. Hence I have no hesitation in holding that the defendants were partners, as between themselves, and for a much stronger reason as to third parties.
The next question is, whether Hennessy is liable upon the draft in suit. The agreement did not provide for a partnership name. But as McDonald alone was to give personal attention to the business, and as Hennessy was to incur no risk and assume no responsibility, no firm name being expressly adopted in the agreement, it is fair to infer that the firm business was to be done in the name of McDonald. He was authorized to draw the drafts, to raise money for the business. Hence, McDonald's name was to all intents the firm name, and drafts drawn in that name to raise money for the use of the firm must bind the firm. ( Winship v. Bank of United States [ supra]; Story on Part., § 139.)
This draft was drawn and the money all used in the firm business, and hence both members of the firm were bound by it, as if they had both signed it.
While the complaint is technically defective in not directly alleging that the draft was drawn in the firm name, or that it was the draft of the firm, yet taking the whole complaint, together with the fact that both partners are joined as defendants, there is enough to show that the cause of action set forth is based upon the draft, as a firm draft, and that the liability sought to be enforced is the firm liability on the draft. As no objection was taken to the complaint by demurrer, and the defendants could not have been misled, the complaint should, at this stage of the case, be held sufficient in substance.
The judgment should be affirmed with costs.
My examination of this case has brought me to the conclusion that the plaintiff ought not to recover against the defendant Hennessy. I agree that if, by any act of his, he had suffered himself to be held out to the plaintiff, or the public, as a partner with McDonald, in the enterprise of getting out and purchasing lumber in Canada to be marketed in Brooklyn or elsewhere, or if, by the contract between them, he was to share in the profits of the enterprise, and no limitation was made as to losses, or restriction as to the right of McDonald to expose him to loss by involving him in liabilities, he would be liable to share in all losses sustained by McDonald. The case is without evidence to support a recovery upon either ground stated; and I do not understand that the right to recover is placed upon either of them, but upon an agreement between the defendants, which, so far as the evidence shows, was never made public or known only to themselves. The plaintiff's status is, therefore, no better (if it is as good) than it would have been if it had appeared on the trial that, at the time of the discount of the draft, the agreement was produced and read by the plaintiff, who was thereby notified of the rights of the parties as between themselves, and from it have learned that near the close of March, 1864, the parties jointly engaged themselves in the business of getting ship knees and other timber in Canada during the navigation season of that year, and making sale of it at Brooklyn navy yard or elsewhere. That McDonald was to give his personal attention to the business, and to enable him to commence and prosecute it. Hennessy was to and did furnish to him the sum of $800, in consideration of which Hennessy was to receive one-fourth of the net profits of the enterprise, and, to enable McDonald to provide himself with further means with which to prosecute the business, he was authorized to arrange with other parties to accept drafts, and give, as security therefor, a lien on the lumber or an interest in the business; but to guard Hennessy against the hazard of further loss than that incurred by risking the $800 advanced by him to the chance of loss, it was expressly provided that he should not incur a further risk than the loss of the advance thus made, or assume any responsibility whatever. This instrument, therefore, as between the parties to it, did not confer upon McDonald the right to involve Hennessy in any risk beyond the $800, or place him in a condition where he would be compelled to assume any liability whatever, and, as a necessary consequence, a party who should discount McDonald's draft upon Hennessy, whether in ignorance of an agreement creating joint or partnership relation between them, or with notice that Hennessy's risk was thus limited, and that McDonald was not authorized to place him in a condition compelling him to assume a liability, could not compel him to honor or pay the draft.
For affirmance, LEONARD, EARL and HUNT, CC.
For reversal, GRAY, C.; LOTT, Ch. C., not sitting.
Judgment affirmed.