Case ID: miss_19/html/0322-01.html
Source: Caselaw Access Project
Author: {"author": "Mr. Justice Clayton", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

William J. Minor vs. Thomas J. Gaw et al.
    It is well settled, that any acts done by one partner, in regard to the property or contracts of the partnership beyond the scope and objects of the partnership, do not bind the firm without some special authority for the purpose. Therefore, where one partner pays his individual debt with the partnership money or property, the act is an illegal conversion of the fund, and the separate creditor can have no better title to the fund, than the individual partner himself had.
    So also, where the debtor of a partnership, who at the same time was a creditor of one of the partners, procured a receipt for his partnership indebtedness from the partner who was indebted to him, by allowing a credit to an equal amount upon that partner’s individual debt to him, the receipt so obtained will not be obligatory upon the other partner ; and the partnership may maintain an action against their debtor, and recover the debt, notwithstanding such receipt.
    It seems, that in an action upon an open account by a firm, for the use of a third party, a bill of discovery by one member of the firm against the defendant, will not be demurrable, merely because it is filed by one of the nominal plaintiffs.
    In error from the circuit court of Adams county; Hon. Stan-hope Posey, judge.
    Thomas J. Gaw and Philip SislofF, late partners, under the\ firm of Thomas J. Gaw & Co., for the use of William P. Mellen, sued William J. Minor ipi assumpsit for the amount of an open account, consisting principally of items of lumber, amounting to $937.
    Thomas J. Gaw filed a bill of discovery at the November term, 1846, of the court, in which he says, in substance, that he has been informed and believes that his late partner, Phillip Sis-lofF, had receipted the account to Minor in settlement of said SislofF’s indebtedness to Minor, and prays a discovery of the time when and how the supposed settlement took place; and that the receipt and the consideration for the same may be set forth; and seeking to know if it was not paid by offsetting defendant’s claim against Sisloff. To this bill Minor demurred, the demurrer was overruled, and he filed his answer.
    The cause came on for trial at the May term, 1847, when plaintiffs below proved the account against Minor. Minor then introduced a receipted account of “Thomas J. Gaw & Co. against Wm. J. Minor,” which was a copy of the one sued upon, except credits; and that there were two items of $8-50 each, on the account sued upon, which were not upon the one introduced by Minor. The plaintiff below then read Minor’s answer, in which he states that he sold a lot of ground to Sis-loff on a credit, and that Sisloff, who built a house for him in Louisana, agreed that the value of the materials which he furnished, and the cost of building, should be credited on his purchase ; but not being able to pay one of the carpenters, Minor paid him on Sisloff’s order $225, and after deducting an overcharge of $240, the balance of the account of $455'54 was credited upon the purchase of Sisloff. That Sisloff became embarrassed in his pecuniary affairs, and Minor, at Sisloff’s request, took back the property, Sisloff expressing himself willing to lose $455-54. He did not recollect the time when this was done, but supposed it was soon after he paid the carpenter, on the 4th of January, 1843; that he never was served with notice of dissolution of the firm of Thomas J. Gaw & Co.; and did not believe it was dissolved when he settled with Sisloff.
    The court gave the following instructions.
    For the plaintiff:
    1. A debt due the firm cannot be discharged by one of the partners applying it in payment of an individual debt, due by him to the debtor of the firm, unless with the knowledge and approbation of the other partner.
    2. If the jury believe, &c., that the defendant in this suit received lumber, the property of the plaintiffs, in discharge of<> a separate debt of one of the partners, even if the defendant shows circumstances sufficient to repel every presumption of fraud or collusion, misconduct or negligence on his part, yet it is not necessary for the plaintiff to establish knowledge on the part of the defendant that it was a misapplication of the partnership funds, and he is liable.
    3. The funds of a partnership cannot be rightfully applied by one partner to the payment of his separate debt, without the assent, expressed or implied, of the other partner; and it makes no difference that the separate creditor had no knowledge at the time that it was partnership property.
    For the defendant: —
    1. In the absence of a stipulation to the contrary, by the general law of partnership, each partner has the right to receive payment, and to receipt for money due the firm.
    2. If the jury believe, &c., that Sisloff was a partner of Gaw & Co., then he had a right to sell lumber for a lot of land, unless there was a stipulation in their partnership forbidding it; and if this was the transaction -with Minor, Sisloff had the right to carry it out by receipting the account.
    The jury found a verdict for the plaintiff; Minor moved for a new trial, and on itg being refused, sued out this writ of error.
    Eustis, for plaintiff in error.
    1. The court erred in overruling the demurrer to the bill of discovery. Discoveries in aid of actions at law, are to be governed by the rules of equity. How. & Hutch. 606. Under those rules, discovery will only be compelled at the instance of a party having an interest. This party is not only without any interest, but is not even the nominal plaintiff of record. The nominal plaintiff is Thomas J. Gaw <fc Co. It was the duty of Mellen, the real plaintiff, if he wished this discovery, to have made the necessary statement of facts on oath. There was no other application for the discovery than that presented on the hearing of this petition and demurrer; no other time at which ,the objection could have been raised.
    
      2. The proposition is too plain to require the support of authorities, that either member of a partnership has a right to receive payment of a partnership debt; and that such payment may be made as well in land as money. If Sisloff has in fact failed to account for the amount with the partnership, and if he paid for the land with the partnership property, without the assent of his partner, or without accounting for the partnership property so applied to his own use, then the remedy of the other partner, or of Mr. Mellen, if he be the assignee of the partnership, is a very plain one, viz., the land being paid for with partnership property, there is a resulting trust in the land in favor of the partnership, and the assignee may prosecute this right.
    
      Montgomery and Boyd, for defendants in error.
    
      A. There is no evdience to show that Gaw had any knowledge of, or gave his'assent in any way, to any private or separate ngnsacfion between Sisloff and Minor. Minor knew that he was dealing with a firm. His answer proves this fact. He knew, then, that the lumber and materials came from the sawmill of Thomas J. Gaw &. Co., that they were charged to him on the books of that firm, and by the law the transaction was a fraudulent one, and derogatory to the rights of the firm and its creditors. There is no point of law better settled, than that the other partners of a firm must give their express or implied assent to a change of debtors — a stranger for a partner. In ordinary payments, that assent is presumed; but it is otherwise when the debtor to the firm undertakes to discharge his indebtedness by offsetting a claim he has against an individual member of that firm. The partnership debtor must show that the transaction was had with the knowledge and approbation of the other partners in such a case. 7 Wendell, 326. The burthen of proof is on the holder of the note, security or fund of the firm which has been taken-in discharge of a separate debt of one partner, to show circumstances sufficient to repel any presumption of fraud or collusion, misconduct or negligence, on his part. Story on Partnership, 202.
    
      2. Bat it is not necessary for Gaw & Co. to establish the fact of knowledge by Minor that it was partnership property, for the very fact that he was dealing with a partner for property which came from the mill of the partners, or out of the partnership funds, from the very nature of such a transaction, ought to put him upon a further inquiry. If he acts bona fide, it is a case of negligence. Story on Partnership, note, 210, 211; 12 Peters, 229.
   Mr. Justice Clayton

delivered the opinion of the court.

It is at this day the settled law, that any acts done by one partner, in regard to the property or contracts of the partnership, beyond the scope and objects of the partnership, do not bind the firm, without some special authority for the purpose.

In the case of a partner paying his own separate debt out of the partnership funds, it is manifest that it is a violation of his duty, and of the rights of his partners, unless they have assented to it. The act is an illegal conversion of the funds; and the separate creditor can have no better title to the funds, than the partner himself had. Whether the creditor knew the property to be partnership property or not, seems not to be material. Rogers v. Batchelor, 12 Peters, 230.

This case falls within this principle! Minor procured a receipt from Sisloff for a debt due to Gaw Sisloff, by allowing Sis-loff a credit on a debt due from Sisloff individually. If he did not know, very slight diligence would have informed him that the account thus settled was due, not to Sisloff alone, but to the partnership of which he was a member.

The charges given by the court below were quite as favorable to the plaintiff in error, as the law would justify.

Actual payment to one partner of a debt due to a firm, stands upon quite a different footing. To receive payment is within the implied, if not express, power of each and every partner.

Grant that a payment in land to one partner may be as valid as a payment in money, a proposition not necessary to be now determined, yet the evidence in this case does not show a payment of a partnership debt in land, but the application of a credit to a debt previously due from one of the partners for the purchase of land.

There is nothing in the objections to the bill of discovery, which ought to reverse the judgment.

The judgment is affirmed.