Case Name: N. Sims, survivor, vs. Charles Smith and others
Court: South Carolina Court of Appeals
Jurisdiction: South Carolina
Decision Date: 1860-05
Citations: 12 Rich. 685
Docket Number: 
Parties: N. Sims, survivor, vs. Charles Smith and others.
Judges: O’Neall, C. J., concurred.
Reporter: South Carolina Law Reports
Volume: 46
Pages: 685–691

Head Matter:
N. Sims, survivor, vs. Charles Smith and others.
Partnership.
Where the debtor of a firm has received notice not to pay the debt to a certain member of the firm, and he afterwards takes a receipt from such member, in consideration of his discharging a debt due by the member individually to him, the transaction will not be regarded as bona fide, and will not discharge the debt due the firm,
BEFORE MCJNRO, J., AT ABBEVILLE, FALL^TERM, 1859.
The report of his Honor, the presiding Judge, is as follows :
“ The plaintiff, Sims, and one J. B. Clark, by an agreement in writing, bearing date the 23d November, 1853, jointly contracted with the defendants, as -trustees of- the Cokesbury Conference School, to put up a building at the last-mentioned place, to be completed by the 1st of May, 1854, for which they were to receive the sum of onedhousand seven hundred and fourteen dollars, to be paid when the work was completed and received by the defendants. In one of the specifications, it is stated that ‘ the whole of the rubbish ■ is to be removed.’ As I have neither a copy of the agreement nor the specifications, it may be proper they should be printed with the’brief.
“ The" building was completed, and received by the defendants sometime in the month of June, 1854.
. “ The following sums were paid by the defendant, Smith, as treasurer of the Board, to the plaintiff, Sims, who receipted for them in their names, Clark & Sims, viz.: September 1st, 1854, one hundred' dollars; December 28, same year; forty dollars; January 15, 1855, seventy dollars; April 17, same year, one thousand two hundred and thirty-eight dollars and thirty-nine cents. And, on the 15th of February, 1855, Clark executed the following receipt: ‘ Received, February 15,1855, of Chas. Smith, treasurer of Committee, to close up matters of the Cokesbury Conference School, three hundred and twenty-four dollars and fifty cents, in part, for work done on building in the campus, and recitation-rooms in chapel. (Signed,) J. B. Clark, for Sims & Clark.’
“ These several payments, it will be seen, make up the •whole amount the defendants were to pay for the building, less thirty-one dollars and eleven cents, which they admitted to be'still due to the plaintiff.
“ The questions that arose on the case were:
“ 1st. Whether Clark’s receipt had been given for his individual indebtedness to the defendants.
“ 2d. Whether it had been given before or after the termination of the partnership.
“ 3d. Whether, before the date of Clark’s receipt, the defendant, Smith, had been notified not to pay anything to Clark.
“ J. K. Yance testified, that since the commencement of the action, in a conversation with Smith, he admitted, to wit: that no money had been paid to Clark, but that the consideration of the receipt was a debt which was due by Clark, partly to himself, and partly to the Conference; and that, notwithstanding he had been notified not to pay anything to Clark, he had nevertheless taken his receipt.
“ For the defendants, F. A. Conner testified, that the building was received in June, 1854, but the rubbish not removed till 1856. At a meeting in June, 1855, the treasurer was directed not to pay any more till the rubbish was removed. Sims was considered the responsible party, and the active superintendent of the work; some of the other witnesses said, that Clark had several hands at work on the building, one of whom had been hired from defendant, Smith. This was about the substance of the testimony.
“ For the plaintiff, it was insisted, that as between Sims & Clark, their partnership had terminated upon the completion of the building, and its reception by the defendants; and as Clark’s receipt had been taken subsequent to that period, and for his private debt, and after notice not to pay him anything, upon the principles laid down by the Appeal Court, when this case was before it, November Term, 1858, Clark’s receipt must be excluded. While, on the other hand, it was urged, that the partnership of Sims & Clark continued down to a period subsequent to the date of Clark’s receipt, namely, the removal of the rubbish in 1856.
“ It is very certain, that neither of the positions assumed in the first, second and third grounds of appeal were taken on circuit; on the contrary, the questions that are now treated as questions within the province of the Court, were then treated as questions within the province of the jury, and the whole force of the argument addressed to that body.
“I then thought, and still think, that the question as to when the partnership between Sims and-Clark terminated, together with the other questions, the fact of notice to Smith not to pay anything over to Clark, as also its sufficiency, were questions proper to be passed upon by a jury.
“ The jury found the whole amount claimed by the plaintiff.”
The defendants appealed, and now moved this Court for a new trial, on the grounds :
1. Because, as it is the province of the Gourt, and not the jury, to construe contracts, the presiding Judge should have charged, that the removal of the rubbish was a part of the contract between the parties, and that the plaintiff was concluded by his declaration from denying that fact.
2. Because the witnesses, Dr. Paul Connor and others, having proved that the rubbish was not removed till the spring of 1856, the Judge should have charged the jury thaj the partnership did not expire till that time.
3. Because the Judge should have charged, that even if the partnership had expired, the notice (such as it was) received by Smith was not sufficient in itself to invalidate Clark’s receipt, but that the receipt should prevail, unless the jury were satisfied from the-evidence that either Clark or Smith, or both, acted mala fide.
4. Because the plaintiff) assuming his right to recover, was not entitled to interest on the amount of Clark’s receipt, and the Judge should have so instructed the jury.
5. Because there was no proof of mala fides, and the verdict of the jury was therefore contrary to law and evidence.
Jones, McGowan, for appellant.
Noble, contra.
11 Rich. 565.

Opinion:
The opinion of the Court was delivered by
Johnstone, J.
From the discussion of this appeal before us, it is unnecessary to decide upon any other point except the receipt for three hundred and twenty-four dollars and fifty cents, given by Clark to the defendants, the 15th of February, 1855.
It was attacked, on the trial, by the survivor of the firm, on the ground that it was obtained by the defendants by discounting against, the amount due by them to the firm, demands which they held against Clark, and exchanging receipts. These facts are affirmed by the jury in their verdict.
Assuming the facts stated, it cannot well be' doubted that the defendants were aware of, and connived at, — indeed, assisted in, — a misapplication by Clark of the assets of the firm to his own purposes ; and a diversion of them from the purposes of the partnership.
"In such cases," says Professor Story, "the creditor, dealing with the partner, and knowing the circumstances, will be deemed to act mala fide, and in fraud of the partnership ; and the transaction by which the funds, securities, and other effects of the partnership have been obtained, will be treated as a nullity." "So a release of a partnership debt by one partner (which, ordinarily, will extinguish the partnership), will be held inoperative and void, as to the firm, if it was taken in discharge of the separate debt of the partner releasing it, by the creditor knowing all the circumstances."
This being a doctrine applicable to partnerships as well in relation to the acts of their members, while the firms are in operation, as after their termination, it is immaterial whether this particular firm expired in 1854, when the building was received, or necessarily continued until the rubbish should be removed. • An individual partner has no greater right to defraud his firm in the one case than in the other; and a third party knowingly conniving at the wrong, is not entitled to take any benefit from the wrongful act.
• Mr. Story, however, as is quite usual with him, qualifies the general doctrine as he had laid it down, and remarks that "the application by a' single partner of a joint security in discharge of his individual debt, by no means necessarily establishes that it is a fraud upon the firm." " The mere fact that a note, or security, or fund of the firm has been taken in discharge or payment of the separate debt of one partner, is not, alone, decisive of collusion, or fraud, or misapplication; neither is the fact that the amount thereof has been passed to the separate private credit on account of one partner; n*or that a note or security of the firm has been in part discounted, or applied to pay a separate debt of one partner; for all these circumstances may be consistent with entire good faith, and without gross negligence on the part of the creditor." The act "may not only be expressly authorized by the firm; but it may frequently result from prudential considerations and arrangements referable to their own business and interests."
" There must, therefore, be some other ingredients in the case, importing some knowledge, or suspicion, mala fides.' Why? Because "the act may have been expressly authorized by the firm," or adopted " from prudential considerations and arrangements referable to their own business and interests."
But such transactions are, at least, so far questionable or suspicious, that "it may be taken as the general rule" that " the burden of proof is on the holder, or creditor, to show circumstances sufficient to repel every presumption of fraud, collusion, or misconduct, or negligence on his own part; unless, indeed, the circumstances already in proof, on the other side, repel such presumption. And if the securities or funds of the partnership are received in payment of the separate debt of one partner, by his creditor, it will not be necessary for the partners to establish the fact that the creditor 7mew, at t7ie time, it was a misapplication of the securities, or funds; for the very nature of such.a transaction ought to put him upon further inquiry; and however Iona fide his conduct maybe, it is a case of negligence on his part, which will not entitle him to recover against the partnership,"
So far were the defendants from being authorized to suppose that Clark, in discounting the partnership debt against his own, was authorized so to do, that they had explicit notice that his copartner objected to his receiving what was due the firm, in any form; and I think the jury were justified in their verdict.
It is ordered that the motion be refused.
O'Neall, C. J., concurred.
Motion dismissed.
Story on Part., \ 132.
Story, Part., $ 133.
Story, on Part., g 133.