National Bank v. Norton — 1 Hill & Den. 572

Majority

p. 572

National Bank vs. Norton, impleaded with Seaman and others.

Headnote

One partner, after dissolution, cannot bind his copartners even by the renewal of a partnership note.

Nor will a power reserved to him in the articles of dissolution to settle the business of the firm, and for that purpose to use their name, enable him so to bind his co-partners-.

The .extent of a power to -settle, considered and discussed.

In an action against makers and endorsers of a note, under the act of April 25th, 1832, (Sees. A. 1832, p. 489,) the plaintiff cannot resort to the original consideration as an independent ground of recovery.

The acts of one partner, though after dissolution, will bind his copartners in respect to all persons who have previously dealt with them as a firm, except those to whom actual notice of the dissolution has been given..

Notice of dissolution published in a newspaper, and thus accidently reaching a bank director, is not equivalent to actual notice to the bank; especially where, by the charter, the director has no power to act for the institution save in conjunction with others.

Otherwise, semble, of notice to a director with express instructions to communicate it to the board of directors.

The acts of an officer of a corporation, unless official, or within the compass of an agency delegated to him, are not binding on the corporation.

Assumpsit, tried at the New-York circuit in March, 1841, before Gridley, C. Judge.

The action was brought by the National. Bank against the defendants as makers and endorsers of a promissory note; the declaration containing the common money counts, with a copy of the note annexed. Norton alone defended the suit.

The note annexed to the declaration was dated January 18th, 1840, and purported to haver been endorsed by “ Seaman and Norton” as first endorsers, and Henry J. Seaman as second endorser; “Seaman <fc Norton” being the name of a former firm, composed of the said Henry J. Seaman and the defendant Norton.

Both the endorsements were in Seaman’s hand-writing; and the principal question in the case was whether, under the circumstances, and as in favor of the plaintiffs in this suit, the endorsement of the firm name by him was an act binding upon Norton.

p. 573

It appeated, among other things, that the firm of “ Seaman & Norton” was dissolved on the 1st of February, 1837; and on that day a notice of the dissolution signed by Seaman and the defendant Norton was published in the “ Courier and Enquirer”—a newspaper in the city of New-York, where the firm business had been carried on, and where the plaintiffs also conducted their business. The notice was as follows: “ The co-partnership heretofore existing between the subscribers under the firm of Seaman & Norton is this day dissolved by mutual' consent. The business of the firm will be settled by Henry J. Seaman, who is duly authorized to sign the name of the firm for that purpose.” A witness testified that, by the terms of the dissolution, Seaman was to take the effects of the firm, and settle all its liabilities.

It further appeared, that on the- 24th day of January, 1837, the plaintiffs discounted a note for the firm of Seaman & Norton, of a large amount, drawn by the same makers with the one in question and endorsed by the firm; that this note was held by the plaintiffs when the dissolution of the firm, of Seaman & Norton took place; that it had been renewed from time to time with deductions, as payments were made; and that the note in question was given by way of renewal thereof, for the balance then remaining due on the original loan.

It also appeated from the testimony of Seth Grosvenor, that he was a director in the National Bank (plaintiffs) in 1837; that he then knew of the dissolution of the firm of “ Seaman &. Norton”; that he saw a notice of it published in the newspapers of the city of New-York. *

The circuit judge ruled at the trial, that the notice of dissolution above set forth, only imported that Seaman had power to settle the business of the firm, &c.; and that this did not give him the right to make the note in question, even by way of renewing the former one. He further held, that the fact of th'e dissolution coming to the knowledge of Mr. Grosvenor, one of the plaintiffs’ directors, whose duty as a member of the board of directors was - to pass on the

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discount and renewal of notes, and who therefore might he regarded as the plaintiffs’ agent, was sufficient to charge the plaintiffs with .actual notice thereof. A nonsuit having been ordered as in favor of Norton, the plaintiffs now moved to set the same aside, and for a new trial, upon a case.

D. Selden, for the plaintiffs,

insisted that by the terms of the dissolution and the published notice, Seaman was authorized to use the firm name for the purpose of. settling the partnership concerns: 'and this, if other authority were .wanting, gave him the right of using the firm name, in respect to the note sued upon. But a partner, as such, has the right to renew notes of the firm after dissolution, where the effect, as in this case, is to diminish the obligation of the partners. He further contended that the circuit judge erred on the point of notice of the dissolution: That such notice to a director, would not charge the bank as having had actual notice; and that Seaman &. Norton, having dealt as a firm with the plaintiffs, prior to the dissolution, actual notice alone could absolve Norton from liability. The plaintiffs moreover should have been permitted to recover as against the firm on the original consideration ; as the renewal note, if invalid, did not extinguish their previous liability.

C. M'Vean,

contra, denied that one partner could thus bind his co-partner by a renewal of the partnership note in the name of the firm, after dissolution. Seaman derived no authority from that relation to give the -note in question. (Bank of South Carolina v. Humphreys, 1 M' Cord, 388. Bell v. Morrison, 1 Peters' Rep. 351 . Collyer on Part. 314. Manhattan Co. v. Vernon, 17 Wend. 524 . S. C. 22 id. 183.)

Nor did the authority in this case to settle, and use the partnership name, give Seaman the power to bind the firm, by the renewal note in question. It was limited as strongly as the most guarded language could limit it. (1 H. Black. 155. 3 Day’s Rep. 353. White v. Union Ins. Co.

p. 575

1 Nott & McCord, 561. Foltz v. Pourie, 2 Dess. 40. Sanford v. Mickles, 4 John. Rep. 224 . Hackley v. Patrick, 3 John. Rep. 536 . Chitty on Bills, 60, ed. of 1839. 1 McCord’s Rep. 16. Collyer on Part. 314, 315. 3 Esp. N. P. R. 111.) The authority was intended to prevent Norton from settling; and to confine that right to Seaman, who took the partnership effects.

If the plaintiffs were dealers with the defendants, the publication of the dissolution in the gazette taken by the plaintiffs, and- the knowledge of the director when it occurred, from such publication, were sufficient to charge the plaintiffs with actual notice. (Collyer on Part. 310, 311. Manhattan Co. v. Vernon, 17 Wend. 524 ; 22 id. 183, P. C. Bank of So. Car. v. Humphreys, 1 M’Cord, 388. KetcJmm v. Clark, 6 John. Rep. 144 . Irby v. Vining, 2 M’Cord, 379. 3 Day’s Rep. 353.)

The plaintiffs could not recover on the original note. If they gave it up and knew of' the dissolution, they lost their right of action on it. The first note, moreover, was endorsed by and discounted to the defendants, Seaman & Norton, and the note produced was endorsed by them, and by Henry J. Seaman as a second endorser, who, in that capacity, negotiated . it to the plaintiffs. And again, this suit was brought against the makers as well as the endorsers under the statute, and the statute confines the plaintiffs to the note annexed to the declaration. (2 P. P. 274, 5, 2d ed.)

It is settled that one partner cannot bind the other after, dissolution, even by the renewal of a partnership note. This is the making of a new contract by one for all the partners, after his authority is revoked. During the continuance of the partnership he is entitled to act for all, as their general agent. On dissolution, he ceases to hold that character, and must be considered as a mere joint debtor. This leaves to him the power of payment in respect to debts due from the firm, but with slight exception, if any, nothing more. (Bell v. Morrison, 1

p. 576

Pet. Sup. Court Rep. 351, 367 to 374, and the cases there cited. Bank of South Carolina v. Humphreys, 1 McCord, 388 .) The doctrine was assumed without question in Vernon v. The Manhattan Co. (17 Wendell, 524, 22 id. 183, S. C. ;) and may be considered as adjudicated in that case both by this court and the court of dernier resort.

The note in question, a renewal note, which had been running in the bank before the dissolution, was renewed by Seaman, one of the partners, afterwards. It was of course void in respect to Norton, his copartner, unless a power of renewal was expressly delegated at the time of the dissolution. The plaintiffs claim that such power was delegated, and base themselves on the clause in the advertisement of dissolution declaring that the business of the firm was to be settled with Seaman, who was authorized to sign the name of the firm for that, purpose. This was no more than a power to liquidate partnership demands and sanction the liquidation by the firm name. It no more gave power to renew the old note, than to give one payable in chattels. A. says to B., settle my debt with 0., and sign my name for the purposes of such settlement. It is a strained and unnatural construction to say, that B. may use A.’s name in extinguishing the old contract by executing such new one in A.’s name as he pleases. The agent can do no more than deal with the old debt by paying or stating an account. The word settle, as here used in respect to the debts due from the firm, (and the word business no doubt covers these,) is thus defined by Mr. Webster—“ To adjust ; to liquidate; to balance or to pay; as; to settle accounts.” . (Web. Dict. “ Settle,” pl. 18, 4to ed.) That this is so understood by courts, may also, I think, be collected from several of the cases cited by the learned counsel for the defendant on the argument. (Kilgour v. Finlyson, 1 H. Black, 155. Mowatt v. Howland, 3 Day, 353 . White v. Union Ins. Co. 1 Nott & McCord, 561. Sanford v. Mickles, 4 John. R. 224.) Others cited by him are in point. (Abel v. Sutton, 3 Esp. R. 108, 111. Martin v. Walton, 1 McCord, 16 . Hackley v. Patrick, 3 John. R. 536.) These were all cases of an express author

p. 577

ity to settle, after dissolution, yet the first holds that the power did not extend to endorsing a partnership note even in liquidation of a partnership debt. In the second, it was denied to be a power of renewal; and in the third, a power of adjustment was denied to operate as an authority to sign an account stated. In the case at bar an express power to use the name is given; but it' is confined to the purposes of adjustment, (settlement.) The words did not work an extension of power in any respect beyond the form of doing the business.

Were the points already considered, therefore, the only ones in the case, there can be no 'doubt that the plaintiffs were properly nonsuited. No verdict, upon the ground that the endorsement being inoperative left the old claim against these parties untouched, could be taken against the firm for the original consideration. Such a position would be quite doubtful in any view; for the present note was operative as to all who had actually made and endorsed, and was doubtless received as an agreed substitute or discharge of the firm note. It was not a mere nullity, like usurious or forged paper. But a decisive answer lies in the form of the action. It was brought as a joint action for several claims under the statute of 1832, (Sess. L. p. 489,) by a declaration containing the common counts, with a copy of the note, against makers and endorsers. In such an action you cannot go behind the note immediately in suit, nor "do I see that, independently of the statute, the plaintiffs could have «. done any better. Viewed at common law, here would be a plain misjoinder of parties defendants.

These considerations, however, are not yet decisive against the plaintiffs. The note in question being an attempt to renew an old note of the firm, which lay in the plaintiffs’ bank, and was confessedly binding on the firm, the partners must be considered as dealers with the plaintiffs, who were therefore entitled to actual notice of the dissolution before they could be affected by it. (Vernon v. The Manhattan

p. 578

Co. 17 Wend. 524 ; 22 id. 183. S. C. on error.)^[1] Such actual notice did in fact reach Grosvenor, a director of the plaintiffs; and notice to the agent is notice to the principal. The rule, however, does not mean an agent with powers short of the transaction to which his notice relates. A director, as such, has no independent powers of business by the act incorporating the plaintiffs. (íSess. L. of 1829, p. 468, § 12.) He is but one of fifteen directors who must act as a board, and can act in no other way as directors. One may certainly be clothed with' other powers. Grosvenor, for instance, might have been made renewal agent generally, or of the note in question; and having that capacity, the notice of dissolution might have affected the bank, not as notice to a director, but to an agent representing the bank in a particular department of business. Independently of that, a notice of the dissolution given to him for the express purpose of being communicated to the board, would perhaps have been sufficient, for the duty of making the communication would then have devolved upon him as director. He must necessarily, perhaps, be considered as the agent of the bank to that extent. On this, however, we are not called upon to pass one way or the other, nor

(a) (a) As to those who have had no dealings with the firm prior to the dissolution, notice by advertisement in a newspaper of the city or county where the business is carried on will suffice. (Ketchum v. Clark, 6 John. R. 144, 147, 8. Mowatt v. Howland, 3 Day’s R. 353. Lansing v. Gaine et al. 2 John. R. 300. Nott v. Downing, 6 Lou. R. (Curry) 680, 683. Graves v.Merry, 6 Cowen’s R. 701. Kelly v. Hurlburt, 5 id. 534. Martin v. Walton, 1 McCord’s R. 16. Shaffer v. Snyder, 7 Serg. & Rawle, 503 , 4. Bank of So. Car. v. Humphreys, 1 McCord, 588 . Colly, on Part, 311, 312, Springf. ed. 1834.) In respect to a dormant partner, no notice whatever is requisite; he being protected from the acts of his copartners by dissolution alone. (Kelly v. Hurlburt, 5 Cowen’s R. 534. Carter v. Whalley, 1 Barn. & Adol. 11. Armstrong v. Hussey, 12 Serg. & Rawle, 315 .) It seems, that where actual notice of dissolution is necessary, proof that the party (e. g. a bank) sought to be charged with it, took a newspaper in which the notice was published, is a fact from which the jury are authorized to infer actual notice; (Bank of So. Car. v. Humphreys, 1 McCord, 388 ; Martin v. Walton, id. 16; and see Greene v. Merch. Ins. Co. 10 Pick. 402 , 406, 7;) but is not per se equivalent to actual notice. (Vernon v. Manhattan Co. 22 Wend. 183 , 191, 2. 17 id. 524, 527, S. C. See also Rowley v. Horne, 3 Bing. 2.)

p. 579

do' we mean to do so. In the case at bar, he was not addressed as one of the • directors. He happened to know the fact of dissolution, as a director or other corporator may do, without perhaps being aware that the bank could be prejudiced by it Not having any intimation that it was material, it is too much, even if the point were in the case, to insist on a presumption that he ever communicated the fact to the board. Not having acquired his knowledge as director, there is no room for presumption either on the ground of duty or interest. In The Fulton Bank v. Benedict, ( 1 Hall, 480 , 497, 557,) the judge told the jury that notice to a director who appeared to have had charge of the business to which it related was not notice to the bank, unless communicated to the board, or to the officers of the bank. Oakley, J. said the charge was too narrow for the case; adding, “ I think that under some circumstances, notice to a director ought to charge the corporation, as where the director acts in any particular business as the special agent of the bank, as in the case of Rathbone. He was one of a committee to inquire as to this very note,” &c. The Washington Bank v. Lewis, ( 22 Pick. 24 , 31,) takes the same view of a director’s agency. In The Hartford Bank v. Hart, ( 3 Day, 491 , 5,) the court said, the directors have certain powers resulting from their act of incorporation, and are, for certain purposes, agents, and their acts, when in strict relation to "their agency, are binding on the corporation. See also Stewart v. Huntington Bank, (11 Serg. <£* Rawle, 267, 269,) and Hayward v. The Pilgrim Society, 21 Pick. 270 .) These cases show, what is indeed quite plain, that the acts of a director or> other officer of a corporation, unless official, or in respect to his agency, are no more operative as against the institution than the acts of any ordinary corporator; and these no more so than the acts of a stranger.

In the case at bar the learned judge held, that proof of publishing the notice, and actual knowledge in the director whose duty, as one of the board, it was to pass on the discount and renewal of notes, and who was therefore to be

p. 580

regarded as the agent of the plaintiffs, was sufficient proof of their knowledge. In this we think he erred. The board were the agents for the purposes mentioned, and they should acquire this sort of knowledge as such, or at least the firm should show notice brought home to some other agent specially authorized by th'é bank, or by the course of their business, to receive it.

A new trial 'should therefore be granted, the costs to abide the event.

New trial ordered.

Cases cited

Vernon v. Manhattan Co. 17 Wend. 524 N.Y. Sup. Ct. p. 574, p. 575, p. 578