Case ID: me_50/html/0442-01.html
Source: Caselaw Access Project
Author: {"author": "Appleton, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Davis R. Stockwell versus Frederic Dillingham & al.
    
    A contract made by a co-partner in the name of the firm, will prima facie bind the firm, unless it is outside of the business of the firm.
    The firm is liable for the false and fraudulent representations of one of its members relative to matters falling within the scope of its business, and much more so when the representations are true; and an innocent third party has a right to regard such representations as true, and to act upon them.
    When one of a firm borrows money, not expressly on his individual credit, and it is shown that it was borrowed for and appropriated to the use of the firm, the firm is liable.
    Where one partner contracts a debt, representing to the creditor that it is for the benefit of the firm, if the contract is within the scope of their business, the firm is liable, whether the representations are true or false.
    On Exceptions to the ruling of Appleton, C. J., at Nisi Prius.
    
    
      Trover for pine logs. Both parties claim under Brown & Lee, who owned the Jogs prior to Nov. 2, 1858, and were a firm engaged in the lumber business. By agreement of parties, the trial was by the Court, with right to except. At the hearing, the facts appeared as follows : —
    On Nov. 2, 1858, Lee, of the firm of Brown & Lee, represented to the defendants, Dillingham & Smith, that he wanted to raise money to pay one Chase, for money he (Lee) had had of Chase, to pay Brown & 'Lee’s bills ; that Chase wanted to go to California, and he had no other means to raise the money to pay him; thereupon Lee gave to Chase a bill of sale of certain logs in the west branch of the Penobscot river, to which he signed the name of the firm, Brown & Lee, and Chase gave the defendants his mortgage of the same logs, and the defendants gave the note described in the mortgage, and charged the same to Lee.
    The condition of the mortgage was as follows : —
    " This sale is made to secure to Dillingham & Smith a demand they have against James Lee of Milford, for the sum of one hundred and fifty dollars, payable in nine months from the date hereof, and when said Lee shall pay or cause to be paid to said Dillingham & Smith the said sum of one hundred and fifty dollars, then this sale to be void. The said demand being their note of this date, for said amount, payable nine months after date, lent to and receipted for by said Lee.”
    The bill of sale and mortgage were both dated Nov. 2, 1858, and the mortgage was recorded in the town records, Jan. 4, 1859.
    Both the bill of sale and mortgage were in the handwriting of Dillingham. The note was paid at maturity by the defendants. It also appeared by the testimony of Dillingham, given for the defence, that he (Dillingham) had no information that it was Lee’s private debt; that he understood from Lee that he had borrowed money of Chase to pay bills of Brown & Lee, and that Chase had loaned the money to Lee.
    
      On. Aug. 1, 1859, Brown & Lee, being indebted to the plaintiff, in payment therefor, Brown, in the name of and for the firm, conveyed the logs before mentioned to the plaintiff, by a complete sale. Subsequently the defendants converted the logs to their own use.
    It did not appear, except as before stated, that the defendants made any inquiry whether Lee had used any money had of Chase, to pay Brown & Lee’s bills, or whether Chase had furnished any to Lee for any purpose.
    Nor was- it proved, that Lee did pay any bills of Brown & Lee, or that Chase did furnish him with any money for that purpose, as Lee had stated to Dillingham, except as before stated. Upon this point Lge was examined as a witness. . . .
    The presiding Judge found the titles of both parties, were acquired in good faith, in fact, and, upon these facts, ruled that, in law, the title of both the plaintiff and the defendants, having been so acquired, that of the defendants being prior in date, must prevail, and ordered judgment for the defendants. To which the plaintiff filed exceptions.
    
      W. O. Grosby, for the plaintiff.
    Brown & Lee were not liable to Chase, and the debt to him was Lee’s private debt, and the defendants should so have considered it, notwithstanding Lee’s representations. Story on Partnership, §§ 134, 140, 148; Collyer on Partnership, 266, 268; 6 Cowan, 497; 9 Pick., 272; 8 Met., 411.
    It is fraud in law for a partner to sell, or for a creditor to buy partnership property, in payment of the partner’s private debt, and such a transaction is wholly void in- respect of other partners or creditors. Story, §§ 128 to 133; Rogers v. Bachelder, 12 Peters, 229; Dob v. Halsey, 16 Johns., 34; Pudgett v. Lawrence, 10 Paige, 170.
    If the defendants are not subject to the imputation of moral fraud, they are still liable for negligence and legal fraud. Either is sufficient to destroy their title to the property.
    
      If the funds of a partnership are received in payment of the separate debt of one partner, it is not necessary for the firm to establish the fact that the creditor knew at the time that it was a misapplication, for the very nature of the transaction ought to put him upon further inquiry, and, however in good faith he may have acted, it is a case of negligence on his part which will not entitle him to recover. Story, § 133; Green v. Deakin, 2 Starkie, 347.
    Howe, for the defendants.
   The opinion of the Court was drawn up by

Appleton, C. J.

The facts in this case are not open to controversy. The only inquiry is whether the ruling of the presiding Judge upon the facts as disclosed was erroneous.

Both parties claim the logs in controversy under bills of sale from the firm of Brown & Lee. The defendants’ title is prior in time and consequently prior in right, unless impeached.

The bill of sale from Brown & Lee to Chase is prima facie to be deemed the act of the firm and binding on them. "When a contract,” remarks Mr. Justice Story, in U. S. Bank v. Binney, 5 Mason, 176, "is made in the name of the firm, it will prima facie bind the firm, unless it is ultra the business of the firm.” The bill of sale must be deemed then as conveying a good title, unless impeached.

The evidence discloses that "on Nov. 2, 1858, Lee of the firm of Brown & Lee, represented to the defendants that he wanted to raise money to pay one Chase, for money he, {Lee,) had had of Chase to pay Brown & Lee’s bills, that Chase wanted to go to California, and he had no other means to raise the money to pay him.” It also appeared from the testimony of Dillingham, given for the defence, that "he, (Dillingham,) had no information that it was Lee’s private debt — that he understood from Lee, that he had borrowed money of Chase to pay the bills of Brown & Lee, and that Chase had loaned the money to Lee.” But this does not impeach the defendants’prima facie title. •

The firm is liable for the false and fraudulent representations of any of its members relative to matters falling within the scope of its business. Lindley on Partnership, 250. Much more, for the representations, which are true. Whether true or not, therefore, the defendants had a right to regard them as true — and so regarding them, to act upon their truth.

Upon the representations of Lee, the defendants advanced their note upon the faith of a bill of sale given by Lee in the name of Brown & Lee, which the plaintiff seeks to avoid, on the ground that it was the private debt of Lee, and not. the debt of the firm, for which the advance was made; The statements of Lee show the money received went to pay the debts of the firm. The defendants understood it was the debt of the firm and not of Lee — which the money raised was to pay. "The firm is liable for goods though they may have been supplied to one only of the partners, and no other person may have been known to the supplier as belonging to the firm.” Lindley on Partnership, 233. "Thus, if the money is in fact borrowed for the partnership business, or it is in fact applied to the partnership business, in the absence of all controlling circumstances, the partnership will be bound therefor; since the fair presumption is, that it was intended by the partner to pledge the partnership credit, and not merely his individual credit, whether the partnership was known to the lender or not.” Story on Partnership, § 139. "The firm is liable, where one of the firm borrows money (not expressly on his individual credit) and it is shown that it was borrowed for and appropriated to the use of the firm.” Church v. Sparrow, 5 Wend., 223; Tucker v. Peaslee, 36 N. H., 167. The language used was sufficient to satisfy the defendants that it was a firm debt for the payment of which, they advanced their note. They are not responsible for the truth of Lee’s statements. As they were made in the course of business, if untrue, the firm must be the sufferer. The finding of the Judge was that the defendants were bona fide purchasers— and that finding is not adverse to the facts as reported, and must conclude the parties. Exceptions overruled.

Cutting, Davis, Kent and Walton, JJ., concurred.