Case Name: James Calkins, et al., Appellants, v. James M. Smith, Respondent
Court: New York Commission of Appeals
Jurisdiction: New York
Decision Date: 1872-05
Citations: 48 N.Y. 614
Docket Number: 
Parties: James Calkins, et al., Appellants, v. James M. Smith, Respondent.
Judges: 
Reporter: New York Reports
Volume: 48
Pages: 614–624

Head Matter:
James Calkins, et al., Appellants, v. James M. Smith, Respondent.
Where one member of a partnership, in order to pay his individual debt, makes his promissory note and indorses it in the firm name, without the knowledge or consent of his copartners, and the creditor with knowledge of the facts receives the note, and in order to bind the firm transfers it before maturity to a Iona fide holder, the creditor is guilty of a fraud and is liable therefor. But the fraud is not upon the firm; it is only upon those who did not consent to the indorsement. The cause of action arising therefrom is no part of the assets of the firm, although the note has been paid out of such assets, and title thereto does not pass by a general assignment of all the property and effects of the firm, nor is any interest therein conveyed by an assignment made by one of the parties injured of his right and interest in the partnership assets. (Lott, Ch. 0., and Ghat, 0., dissenting.)
Such a fraud does not work a joint injury for which the injured partners can unite in a common-law action. The damage sustained by each is in proportion to his interest in the partnership, and he must bring a separate suit to recover it. (Eabl, 0.)
Where in an action brought by two plaintiffs, they fail to establish a joint interest, but a separate cause of action in favor of one of the plaintiffs is established, the court has power, under § 274 of the Code,to give judgment in favor of the one and against the other, but it is not bound so to do, and a judgment against both is not erroneous.
(Argued January 10, 1872;
decided May term, 1872.)
Appeal from the judgment of the General Term of the Supreme Court in the eighth judicial district, affirming a judgment in favor of defendant, entered upon the decision of the court upon trial at circuit without a jury. The alleged cause of action arises out of the following facts :
On the nineteenth day of April, 1861, Charles W. Grannis, James Calkins, Gustavus A. Scroggs and Eollin Ger-main formed a copartnership, under the name of Germain & Co.
On the twenty-fourth day of May, 1862, Eollin Germain made two promissory notes, bearing date on that day, payable to the order of Germain & Co., one for $304.90, and the other for $101. Both of these notes were, in the presence of the defendant, indorsed by Mr. Germain with the firm name of Germain & Go. The former note was then delivered to the defendant, as the administrator of the estate of Solomon G. Haven, to pay a debt which Mr. Germain owed that estate, and the other note was delivered by Mr. Germain to the defendant, as the executor of the will of Ira A. Blossom, to pay a debt which Mr. Germain owed the estate of Mr. Blossom.
Both of these notes were given and indorsed without the knowledge, authority or consent of any other member of the firm of Germain & Go., but Mr. Germain, “ when he indorsed and delivered the notes to the defendant, represented to him that he was authorized to indorse them in the firm name, and that the firm was owing him money with which he expected to pay the notes.”
The defendant, before the maturity of the notes, indorsed and negotiated them to the Hew York and Erie Bank, with intent to charge the firm. The bank discounted the notes in the ordinary course of business, before maturity, and paid the proceeds to the defendant.
The defendant, before the commencement of this action, paid the amount realized by him on the notes to the estates of Messrs. Haven and Blossom respectively, in payment of Mr. Germain’s debts to those estates.
In September, 1862, the plaintiff, James Calkins, commenced an action in the Superior Court of Buffalo to dissolve the copartnership of Germain & Co., and close up its affairs.
A receiver was appointed in that action. The two notes of Mr. Germain, indorsed by him in the firm name of Germain & Go., were presented to the receiver. By order of the court they were paid out of the proceeds of the assets of the firm.
• On the sixth day of June, 3 863, Charles W. Grannis assigned his interest in the property of the firm of Germain & Co. to the plaintiff Henry W. Grannis.
On the seventh day of January, 1863, Messrs. Germain and Scroggs entered into a written agreement with the plaintiffs and Charles W. Grannis, by which they, among other things, assigned over to the plaintiffs their interest in the property and effects of the firm of Germain & Co.
On the third day of June, 1863, the receiver, under the order of the court, assigned to the plaintiffs the assets of the firm of Germain & Co. remaining in his hands.
The court, on these facts, decided the plaintiffs were not entitled to recover, and directed judgment for the defendant. Judgment was entered accordingly.
O. C. Torremos for the appellants.
The indorsement of the firm name by Germain, for the payment of his own debt, was a fraud upon the firm. (Livingston v. Roosevelt, 4 John. R., 251, 278, 289, and gases there cited Boyd v. Plumb, 7 Wend. R., 309.) The defendant was not a bona fide holder, for value, and the indorsement was without value in his hands. (Dobb v. Halsey, 16 John. R., 34, 38; Gansevoort v. Williams et al., 14 Wend. R., 133; Williams v. Walbridge, 3 id., 415; Bank of Rochester v. Brown, 7 id., 158; 1 John. R., 529; Bank of Vergennes v. Cameron, 7 Barb., 143; Exchange Bank v. Monteath, 24 id., 371; Austin v. Vandermark, 4 Hill, 259; 18 Wend., 478.) But the notes and indorsements having been transferred before due to the Hew York and Erie Bank, who were bona fide holders for value, the bank could recover against the firm upon the indorsements. ( Wells v. Evans, 20 Wend., 251; 2 id., 324; Lmingsion v. Roosevelt, 4 John. R., 279; Boyd v. Plumb, 7 Wend. R., 310; Austin v. Vandermark, 4 Hill, 259.) This was a fraud upon the firm, whether defendant so intended or not. (Decker v. Mathews, 2 Ker., 319; Livingston v. Roosevelt, 4 John., 251, 272; 4 Taunt., 799; Boyd v. Plumb, 7 Wend. R., 309; Gansevoort v. Williams, 14 id., 133, 138; 1 Edon on Injunctions, 172,210; Hood v. Ashton, 1 Russ., 412; Newman v. Milner, 2 Ves., Jr., 483.) Defendant cannot escape liability on the ground that he is acting as administrator and excecutor. (Hecker v. De Groot, 15 How. Pr. R., 314; Story on Agency, §§ 308-311.)
John Ganson for the respondent.
.The firm could not. maintain an action against a third party to recover damages for the injury the firm sustained by a wrong committed by one of its members. (Jones v. Yates, 9 Barn. & Cress., 537; 17 Eng. Com. Law, 436; Sparrow v. Chisman, 9 Barn. & Cress., 241; Wallace v. Kelsall, 7 Mees. & Wels., 264; General Mutual Insurance Compamy v. Sherwood, 14 How. U. S. R., 351, 364; Mathews v. The Howard Insurance Company, 1 Kernan, 9, 17, 18.) The facts found do not state that the defendant was guilty of any fraud, and this court cannot infer fraud from any facts found. (Oberlander v. Spiess, decided in Court of Appeals January 26, 1871; Meyer v. Amidon, decided in Court of Appeals March 21, 1871.) The court, from the evidence given, will presume in favor of the judgment rendered, that the defendant was not guilty of any fraud. (Carman v. Pultz, 21 N. Y. R., 574; Grant v. Morse, 22 id., 323; Phelps v. McDonald, 26 id., 82; Milhan v. Sharp, 27 id., 624; Smith & Coe, 29 id., 666; Brainard v. Dunning, 30 id., 211.) In such a case as this the remedy must be sought in equity in an action against both offenders. (Jones v. Yates, 9 Barn. & Cress., 532; 17 Eng. Com. Law, 438; Horner v. Wood, 11 Cush., 62.) Plaintiffs had the right to call upon Germain to pay the note and have suffered no damages. The law presumes Germain solvent. (Potter v. Merchants' Bank, 27 N. Y. R., 641, 655 ; Walrod v. Ball, 9 Bar., 271.)

Opinion:
Eabl, O.
I propose to consider in this case but one question, which I regard as decisive of this appeal. When Ger-main indorsed the name of Germain & Oo. upon the notes, without the knowledge or consent of his copartners, to pay his private debt, he undoubtedly committed a fraud upon them; and if the defendant aided in this fraud by transferring the notes to a bona, fide holder, who could enforce them against all members of the firm, he was also guilty of a fraud, and liable to the copartners of Germain for all the damage he occasioned to them. But the fraud was not upon the firm. It was upon the three partners who did not consent to the indorsement. Germain, who made the indorsement, was not defrauded, and the firm could not have sued to recover damages for the fraud.
I am inclined to think that the fraud was not a joint fraud for which the three partners could unite in a common-law action. But it was a fraud upon each partner separately, for which he could sue alone to recover the damage which he sustained. The damage sustained by each partner was not the same, but was in proportion to his interest in the partnership. This is a common-law action for fraud, in which the plaintiffs base their right to recover upon a cause of action for fraud assigned to and jointly held by them. Plaintiffs' counsel, upon the argument before us, claimed that " plaintiffs took their title to this demand through the assignment from the receiver." But it passes my comprehension how they could get title to the cause of action from that source, as Tifft was appointed receiver only of the assets of the firm. This cause of action was no part of the assets of the firm, was never vested in Tifft, and he could not therefore transfer any title thereto to the plaintiffs. And the plaintiffs did not get any interest in the cause of action by virtue of the assignment to them from Scroggs and Germain, contained in the agreement of January 1,1863. This is so, aside from any other reason that might be assigned, because they only assigned " all their right, title and interest in and to the property and effects of said firm of Germain & Co., and the choses in action of said firm of every nature and description whatever." This assignment did not cover this cause of action.
For the same reason the plaintiff, Henry W. Grannis, did not get any interest in this cause of action by the assignment to him from Charles W. Grannis, dated June 6th, 1863, because that was an assignment only of the assignee's interest in the assets and property of the firm.
The sale of the assets of the firm to the plaintiffs could not, in any way, vest them with this cause of action for the alleged fraud. It is true that the fraud diminished the assets, but it was perpetrated months before the sale. It was not a fraud upon Henry W. Grannis, but upon the three partners of Germain. The plaintiffs took the assets as they were when they bought them. The fact that they had been diminished by a prior fraud, in no way connected with the sale to them, gives them no cause of action. The defendant had nothing to do with the sale of the assets, and the fact that he may have committed a fraud affecting the value of the assets upon the prior clause cannot make him liable to the plaintiffs.
Hence it is quite clear that Henry W. Grannis had no title to or interest in the cause of action, and that the plaintiffs have not, therefore, any joint interest in the cause of action which enables them to maintain this action.
If the alleged fraud was committed, it gave a cause of action to the plaintiff Calkins to the extent of his injury as one of the partners, which he could have prosecuted alone against the defendant, and probably the court had the power in this action, if the claim had been made, to have awarded to Calkins his damages in this action, giving judgment against the other plaintiffs under section 274 of the Code. But the court was not hound to do this, and committed no error in defeating the plaintiffs because they did not establish a cause of action in which both were interested. But the claim that Calkins had a separate cause of action for the fraud upon him was not put forth in the complaint, nor made upon the trial, nor upon the argument before us; and hence, even if we should decide that, upon all the facts appearing in the case, he had a separate cause of action, it would not be proper for us, upon that ground, to reverse the judgment below.
The judgment, therefore, should be affirmed, with costs.