Ross v. Whitefield — 31 N.Y. Super. Ct. 318

Majority

p. 318

JAMES ROSS, Plaintiff and Respondent, v. GEORGE WHITEFIELD, Defendant and Appellant.

Headnote

The knowledge of one partner is that of the firm, so far as concerns their dealings with others as a partnership. Per Barbour, C. J.

The fact that one partner was informed at the time that a note was transferred to the firm by another partner, that the same was given without consideration, but merely lent to the latter, is wholly immaterial.

The plea of want of consideration to the maker of a note thus lent, with the intention that the same shall be sold or discounted for the benefit of the payee, or without restriction as to its use, cannot avail the maker, in an action brought against him by the purchaser or subsequent holder from him, although such purchaser or transferee took the same with full knowledge of the circumstances under which it was made and issued.

Before Barbour, C. J., Jones and Fithian, JJ.

[Decided June 11, 1869.]

This case was tried before Mr. Justice Jones and a jury.

In the fall of 1859, the defendant loaned his promissory note of $500 to one William H. Merrill, Jr. When the note became due, Merrill furnished the defendant with funds to enable him to pay it off, and thereupon a similar note was loaned by the latter to the former; and in like' manner several such notes were thus given and loaned, from time to time, by the defendant to Merrill, who, as the same became due, respectively, furnished to the former the funds necessary to meet them. Sometime during those transactions a partnership was entered into between Merrill and one Bullwinkle, under the firm name of Bullwinkle & Merrill; after which, and when the last note so made to Merrill became due, the money to pay the same was given by him to the defendant, and thereupon, at the request of Merrill, a new note, payable to Bullwinkle & Merrill, was made and loaned to Merrill by the defendant. That note, under an agreement between the partners, Bullwinkle & Merrill, but without the knowledge or assent of the defendant, was transferred, before due, by Mer

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rill to the firm, of B. & M., who paid him the money therefor out of the partnership funds. Other notes of like character were given by the defendant, as in renewal, from time to time, as each became due, the funds necessary to pay off the old notes being furnished by the firm to the defendant. Finally, the firm, on giving to the defendant the funds ($500) with which to take up the last note so made, requested him to give them a new note, which he refused to do. The firm of Bullwinkle & Merrill subsequently assigned their claim against the defendant, arising out of those transactions, to the plaintiff, who brought this action as for money loaned by the firm to the defendant. The judge directed a verdict for the plaintiff, for the amount claimed, to which the defendant excepted. ^

Mr. A. C. Morris for appellant.

In determining the question of the liability of the defendant, we are not to consider what passed between Merrill and his partner, with which the defendant had nothing to do, but'only what passed between Merrill and the defendant.

When Merrill had furnished money to the defendant to meet the last of the notes which he had given individually, he was free from all obligation to the defendant. His debt was paid, and he was precisely in the position he would have been if no debt had been contracted.

The testimony is that after Merrill had fully acquitted his debt to the defendant, he asked him for a further loan, directing the note to be made to the order of the firm.

That direction was in itself equal to saying, The note whiehl now borrow is not for me but for the firm” and the defendant must necessarily have so understood it.

But giving to the transaction the construction the most favorable to the plaintiff, and assuming that when the defendant gave the new note to the order of the firm he intended to bind himself to the firm, for the accommodation of Merrill, individually, and that as between him and the firm he was bound to pay the note,

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still, as between him and Merrill, the latter was bound to pay it; and that is exactly what he did.

The case narrows itself down to this point;

Admit that Merrill owed the defendant $500, and that without the consent of his partner, or with his dissent fully expressed, Merrill appropriated partnership funds to the payment of this debt (the defendant being ignorant of the misappropriation), can the firm recover the money back from the defendant (see Dob v. Halsey, 16 Johns., 40 ; Mason v. Waite, 17 Mass., 563 )

If Merrill, owing the defendant $500, had himself drawn the check upon the partnership funds, there might have been something—but very little—to excite the defendant’s suspicion that he was using partnership funds to pay his individual debt; but the check was signed not by Merrill but by Bullwinkle, and the defendant has testified that he knew nothing about the understanding between Merrill and his partner, in regard to the use of the check.

Mr. J. McKee for respondent.

The whole difiiculty in this case arises from the fact that Merrill, being the co-partner of Bullwinkle, there is an aptness to confound his individual acts and liabilities with the acts and liabilities of the firm of Bullwinkle & Merrill.

It is undisputed that the last note mentioned in the evidence for $500 was made and delivered by the defendant to Merrill for Merrill’s individual accommodation, and that the firm of Bullwinkle & Merrill took it in good faith, at full value, and discounted it for Merrill, he using the money individually.

How, if the firm had retained the note made by the defendant, and for which they had paid full value instead of loaning the - money to the defendant to take it up with when due, would there be any question as to the liability of the defendant to them in a suit on the note 2

The fact of his loaning it to Merrill for his accommodation would be no defence.

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A bona fide holder of a bill or note taken with no other knowledge than, the paper furnishes has a right to treat the parties to the same as liable to him in the same manner and order, and to the same extent, as they appear on the instrument, although as between themselves their relations may be different (Hodge v. Lansing, 35 N. Y., 136 ).

The equities in the case are all with the plaintiff, the firm having surrendered the note to the defendant after paying full value for it—having advanced money to the defendant to take up his note with, which they held, and upon which the defendant was liable to them; in the event of the plaintiff not succeeding in the recovery of the $500 as a loan, he would be remediless, while the defendant has his remedy against Merrill, who received the money.'

The check, being drawn to the order of the defendant and indorsed by him, is complete evidence that the firm of Bull winkle & Merrill advanced him that amount to take up the old note, expecting a renewal; that they had confidence in Whitefield’s responsibility, but none in Merrill’s, and that the amount was advanced by them to the defendant, and not to Merrill.

Ho other explanation of the check being drawn in that way could be given, as Bull winkle & Merrill had the possession or control of said note, and would have certainly retained the note if the check had been intended as a payment.

It is altogether unreasonable and even absurd to suppose that a business firm would give a check in payment of a note to the maker thereof which they had discounted for a third party, and which they held at the time, and upon which the.maker was the only one to whom they could look for payment. The only reasonable explanation of the giving the check in this manner must be upon the theory that it was a loan by the firm to the defendant to take up the old note in assurance of their receiving a new note therefor. Any other theory would make it almost self-evident that there was collusion between the defendant and Merrill with a view to defraud the firm.

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By the Court:

There was one fact, which, if material; ought to have been submitted to the jury. Merrill testified, as a witness, that, at the time he transferred the note to the firm, he told his partner, Bullwinkle, that the note had been loaned to him; but Bullwinkle wholly denied that, statement. It is not important, however, for two reasons: first, the knowledge of one-of the partners, like his act, is that of the firm, so. far as concerns their dealings with others, as a partnership; second, the fact that Bullwinkle was informed, at the time the note was transferred to the firm by Merrill, that the same was given, without consideration, but merely lent to the latter, was wholly immaterial. Bor, the plea of want of consideration to the maker of a note thus lent, with the intention that the same shall be sold or discounted for the benefit of the payee, or without restriction as to its use, cannot avail the maker, in an action brought against him by the. purchaser, or a subsequent holder, from him, although such purchaser or transferee took the same with full knowledge of the circumstances under which it was made and issued (Bank of Chenango v. Hyde, 4 Com. R., 567; Grant v. Ellicott, 7 Wend., 227 ; Powell v. Waters, id., 176; Grandin v. Le Roy, 2 Paige, 509).

The plaintiff in. this action took nothing, by the assignment to him of the claim of Bullwinkle & Merrill against the defendant, beyond the interest of his assignors; and, of course, he can recover here, if at all, only such amount as B. & M. would have been entitled to recover had this suit been instituted by them at the time the assignment was made; The question, then, is, what would be the rights of the parties in an action brought in the joint names of Bullwinkle and Merrill, as plaintiffs, against this defendant?

Conceding, for a moment, that Bullwinkle was a purchaser, of the note, in good faith, to the extent of his interest as a partner, and that he may, for that reason, be considered here as a lender, to a like extent, of the $500 which was given to the defendant by

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the firm for the purpose of retiring such note, and, therefore, that he would be entitled to recover jw tanto in proportion to his interest, I am not aware of any principle of equity that would authorize a recovery by Merrill, in such a case. His' relations to the defendant, certainly, were unaffected by his transfer of the notes to himself and Bullwinkle; but his implied obligation to retire the borrowed note when due, and to save the defendant harmless therefrom, remained, after such transfer, pre cisely as it existed before. How, then, can it be said that the' portion of the $500 which was furnished, with his consent, out of funds belonging to himself, even though undivided, for the purpose of paying off and cancelling the note then outstanding, was a loan by him to the defendant ? It is unreasonable to suppose that the mere transfer by Merrill of the note to himself and another, as partners, or of an undivided interest therein to his partner, could effect such a result as that.

In England, and, probably, here, under the old rules of pleading and practice, such an action as this, but brought in the names of several partners, one of them being the borrower of the note, could not have been sustained. In the case of Sparrow et al. v. Chisman (4 M. & Ry., 206), the plaintiffs, who were co-partners, brought their suit as indorsers of two bills of exchange, drawn by Peekover, one of the partners, and indorsed by him to the firm, against the defendant as acceptor. The defendant accepted for the accommodation of Peekover, who undertook to provide for the payment of the bills. The Court held that as Peekover had undertaken to provide for the bills, he and his co-partners were precluded from joining in an attempt to enforce payment from the defendant. (See, also, Rapp v. Latham, 2 B. & Ald., 795; Sandilands v. Marsh, id., 673; Richmond v. Heapy, 4 Camp., 207; Puller v. Roe, Peak’s R., 117; Iacand v. French, 12 East., 323; and remarks of Lord Tenterden in Jones v. Yates, 9 B. & Cress., 539.) Under our present system, however, which allows a judgment in favor of one of several plaintiffs and against the others, in certain cases, it is quite possible that Bullwinkle might have been entitled, in an action brought by himself and Merril

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against this defendant, to recover a judgment for the amount of his interest in the $500; and so, the plaintiff here, as the assignee and representative of that interest, may, perhaps, eventually show himself entitled to such a judgment. But, in order to do this, it will be necessary for him to prove at. least the extent of the interest of Bullwinkle in the $500 received by the defendant.

But it is unnecessary to speculate upon possible rights which may or may not hereafter appear in the further progress of the action. It is sufficient to say, so far as my opinion is concerned, that no claim against the defendant, founded upon the interest or ownership of Merrill in the $500 alleged to have been loaned by the firm to the former, passed to the plaintiff under or by virtue of the assignment; and, for that reason, the judgment, which includes that interest, cannot be allowed to stand. A new trial must be granted, with costs to abide the event.