Case Name: The Merchants' National Bank of Dayton v. John Little, as assignee of Hooven & Allison
Court: Ohio Circuit Court
Jurisdiction: Ohio
Decision Date: 1889-09
Citations: 4 Ohio C.C. 195
Docket Number: 
Parties: The Merchants’ National Bank of Dayton v. John Little, as assignee of Hooven & Allison.
Judges: Before Judges Shauck, Shearer and Stewart.
Reporter: Reports of cases argued and determined in the circuit courts of Ohio
Volume: 4
Pages: 195–203

Head Matter:
(Second Circuit — Greene Co., O., Cir. Court —
September Term, 1889.)
Before Judges Shauck, Shearer and Stewart.
The Merchants’ National Bank of Dayton v. John Little, as assignee of Hooven & Allison.
1. Appealable action — A suit to enforce the allowance of a claim by the assignee of an insolvent debtor, is a civil action in which the right to demand a jury does not exist; and from the final judgment of the court of common pleas either party may take an appeal to thie circuit court.
2. Firm liable for money borroioed for Us use on credit of membe i — If money be borrowed for the use of a firm upon the credit of an individual member, the lender having no knowledge that the firm is the real borrower, and no credit being given by the firm to the member on account of the transaction, the lender may, upon discovering that the firm was the real borrower, maintain an action against it for the recovery of the amount loaned. •
On Appeal from the Court of Common Pleas.
The plaintiff brought suit in the court of common pleas against the defendant, praying that he be adjudged to allow the claim set up in the petition as a valid claim against the assets of the firm of Hooven & Allison, in his hands to be administered. From the final judgment rendered in the court of common pleas an appeal was taken to this court, where a motion to dismiss the appeal was interposed upon the ground that the action is not appealable.
This motion was overruled.
Upon the trial of the case, the following facts were found upon the pleadings and the evidence:
On the 21st of January, 1887, M. C. Allison and R. A. Kelly were partners, carrying on a manufacturing business in the city of Xenia, under the firm name of Hooven & Allison, Allison having charge of the financial affairs of the firm, and Kelly of the operation of the factory. On that date, Allison obtained a loan of $18,000.00 from the plaintiff, for which he gave his individual note, secured by the hypothecation of $13,500.00 (face value) of the stock of the Second National Bank of Xenia, the stock being his sole property. The note thus given was immediately entered in the firm’s accounts of bills payable and cash, with a memorandum showing that the loan had been made upon Mr. Allison’s individual collateral; and corresponding entries were made upon the firm’s journal and ledger. The plaintiff drew upon its New York correspondent for the amount of the loan (less discount) to the order of M. C. Allison. This draft was at the same time endorsed by him, and deposited in the Second National Bank of Xenia, to the credit of the firm of Hooven & Allison, and its amount was entered upon the pass book of the firm.
There were renewals of this note for a reduced amount, the same collateral security being continued until January 26, 1888, when there remained unpaid $10,000.00, for which Allison’s individual note was given. Shortly thereafter, both Allison and the firm of Hooven & Allison became insolvent, the firm assigned its property to the defendant for the benefit of creditors, and Allison died. All the transactions with reference to this loan were, with the knowledge and consent of both partners, carried upon the books of the firm as its indebtedness to the plaintiff, and all discounts were, with like knowledge and consent, paid by the checks of the firm. At the time of making the original loan and the several renewals, some of the plaintiff’s officers had knowledge of the existence of the firm of Hooven & Allison, that M. C. Allison was a member of said firm and that he was engaged in other business; but until after the firm assigned^ none of said officers had knowledge that the loan was made for the benefit of the firm, nor did any circumstance attending any of the' transactions charge the bank with notice of that fact. No credit was given to Allison upon the books of the firm on account of this transaction, either as a loan by him to the firm, or as a contribution to his capital; nor does it appear that it ever regarded it otherwise than as a loan from the bank to the firm.
After this suit was brought, to-wit: on the 18th,of May, 1889, the plaintiff, without notice to the defendant, sold the hypothecated stock at private sale for $405.00, which was its full value, but without any intention thereby to abandon its claim against the firm.
This claim was presented by the plaintiff to the assignee as soon as it discovered these facts, and the suit was brought upon the rejection of the claim.
Fred. W. Gebhart and Young & Young,
cited Story on Agency, 291-2; Mechem on Agency, 695 ; Abbott’s Trial Ev. 300; Bishop on Contracts, 1079; Addison do. 46-7, 2 Kent’s Com. 630; Thompson v. Davenport, 9 B. & C. 78 ; Lovell v. Williams, 125 Mass. 439; Beckham v. Drake, 9 M. & W. 79; Raymond v. Crown Mills, 2 Met. 319; Pope v. Distilling Co., 20 Fed. Rep. 35; Tucker v. Peaslee, 36 N. H. 167; Smith v. Smith, 27 N. H. 244; Reynolds v. Cleveland, 4 Cowen, 232; Merrill v. Kenyon, 43 Conn. 314; French v. Price, 24 Pick. 13; Peterson v. Guadesequi, 15 East, 62; Maffet v. Leuckel, 93 Pa. St. 463 ; Beymer v, Bousal, 79 Pa. St. 293 ; Emery’s Sons v. Trad. Ex. Bank et al., 6 Southwestern Rep. 582, and Colwell v. Weybosset Bank, 17 Atlantic Rep. 913.
E. H. Munger and Little & Spencer, for defendant,
cited, Story on Partnership, § 134, et seq.; 1 Lindley Part. 362, 336 ; North Penn. Coal Co’s. Appeal, 45 Pa. St. 181; Jacques v. Marquandt, 6 Conn. 497; Sylvester v. Smith, 9 Mass. 119 ; Bevan v. Lewis, 2 Eng. Ch. 376; Willis v. Hill, 2 Dev. & Bat. 231; Bank of Salem v. Thomas, 47 N. Y. 15; Emly v. Lye, 15 East, 7, and Peterson v. Roach, 32 Ohio St. 374.

Opinion:
Shauck, J.
That an appeal may be taken to this court from the final judgment of the Court of Common Pleas, in an action like this, does not seem doubtful. Section five thousand two hundred and twenty-six of the Revised Statutes provides for the appeal from judgments rendered by the Court of Common Pleas in civil actions of which it had original jurisdiction, if the right to demand a jury therein did not exist. Suits in equity to estaijjish the right to participate in trust funds were .well known prior to the adoption of our code of civil procedure, and " the civil action of the code is a substitute for all such judicial proceedings as were previously known either as actions at law or suits in equity." Chinn v. The Trustees, 32 Ohio St. 236.
The cases in which a jury may be demanded as of right are defined in section five thousand one hundred and thirty of the Revised Statutes. They are for the trial of " issues of fact arising in actions for the recovery of money only, or specific real or personal- property." This is not either in form or in substance an action for the recovery of money. The court can not enforce its judgment by execution. It can-not determine the amount of money the plaintiff is to receive. It can adjudge only that he is entitled to participate to the extent of his claim in the distribution of the trust estate, leaving undetermined all other questions by which the amount he is entitled to receive may be affected. Kennedy v. Thompson, 3 Cir. Ct. R. 446.
Whether one who has made a loan of money for the benefit of a firm, but upon the credit of an individual member, may resort to all for the recovery of the amount loaned, is a question upon which there is much apparent, and some real, conflict among the authorities. The field of necessary inquiry is, however, much narrowed by the fact that in this case the plaintiff ignores the note executed by the member, and sues for the consideration. It may, for the purpose of this case at least, be taken as settled law, that an action upon a promissory note can be maintained against thos$ only who have become parties to it. •
Other authorities cited upon the argument are not helpful here, because the plaintiff had no knowledge when it loaned the money, or when it accepted the renewals, that the member was not the actual borrower. It may be assumed that when one loans money to a member of a firm, knowing that it is for the Use of the firm, but elects to take the note of the mem ber instead of the firm, his election is conclusive, and he can not thereafter resort to the firm for the repayment of the loan.
The precise question here is, whether one who has loaned m'oney for the direct use of a firm, upon the note of a sole member, and without knowledge that it was for the use of the firm, may, upon discovering the real borrowers, maintain an action for the amount of the loan against the firm. The comprehensive terms used by Collyer and Story, in stating the exemption of the firm from liability in cases where the credit is given to the individual member, do not seem to admit of an affirmative answer to that question. These writers, and the decisions that are in acGord with them, proceed upon the principle that they only are liable to whom credit was given. A leading authority in their support is Emly v. Lye, 15 East, 7. Numerous other authorities, including The National Bank of Salem v. Thomas, 47 N. Y. 15, tend to the conclusion that the firm is exempt in such a case. In Emly v. Lye the declaration contained several counts, some upon the bills drawn by the individual member, and some for money had and received. Lord Ellenborough, the other judges concurring, held that the firm was not liable even on the latter counts, although it appeared that the proceeds of the bills had passed into the partnership account. The reason for this conclusion seems to have been that the case presented nothing "more than the mere discount of bills, and it would be highly dangerous to follow the proceeds into the hands of every party to whose use they may be applied. In the later case of Denton v. Rodie, 3 Camp. 493, which concerned bills drawn by one partner in America upon his firm in Liverpool, according to his custom of drawing such bills, in favor of persons from whom he received thereon money for the use of the firm, the same judge held the firm liable on a count for money lent, although the bills had not been accepted by it, saying, " I think this case is distinguishable from Emly v. Lye. Here I conceive the partner in America had authority from the two others to raise money for the use of the firm ; and money was accordingly raised from the plaintiffs upon these bills in pursuance of such authority. The transaction is a loan rather than' a discount." Except by those who are able to see that the distinction between a loan and a discount is material to the question under consideration, Denton v. Rodie will be regarded as his lordship's admission that he had erred in Emly v. Lye.
It is apparently impossible to reconcile the liability of the defendant with the views expressed by the court in The Bank of Salem v. Thomas. The case is not clearly stated in the report, but the decision seems to be justifiable upon the ground that although the two partners who had signed the note sent its proceeds to the firm, they did so in response to a complaint made by the other members, that they had not contributed their share of the capital. • Certainly a firm is not liable for money borrowed by a member, and contributed as his share of the capital.
There is apparent force in the reasoning of these cases, that only those ought to be held liable to whom credit was given — that to remit the creditor to the individual liability of the member fwhom he trusted would be in accordance with his understanding of his rights when the loan was made. Its legal force is, however, much weakened by the consideration that credit is never given to a dormant partner, and it is unquestioned law that a dormant partner may always be charged when discovered. The equitable force of that reasoning is also much impaired by the fact that the individual estate to which it would remit the creditor is less by the amount of the credit than it would have been if the transaction had been as he understood it.
It is said that a judgment for the defendant is required by the authority of Peterson v. Roach, 32 Ohio St. 374. The authority of that case is to be respected in all tribunals inferior to the Supreme Court. It is, however, consistent with the respect due it, that not only the observations of the judge who wrote the opinion, but the proposition laid down by the court in the syllabus as well, be read with reference to the case decided. Courts neither possess nor affect the prescience necéssary to so define all legal propositions as that no exceptions or limitation thereto may be required by cases subsequently arising. In the petition, whose sufficiency was there denied, it was not averred that the plaintiff becamel surety for the individual member in ignorance of the fact that the contract was for the firm ; nor was it shown that the firm did not give credit to the partner for the amount of the loan, or that it in any way treated the transaction as creating a liability from it to either the lender or the surety. The case before us concedes that if the lender knows that the money is for the firm, he is concluded by an election to take the note of a member; and, what ought to be always admitted — that although]! money borrowed by a member may go into the business of the firm, it does not become liable to the lender, if as between the firm and the borrowing member he receives a credit on account of the transaction. In these important respects, the case is distinguishable from Peterson v. Roach, although it may not be, from all the cases that are there cited with apparent approval. The same distinction may be drawn between this case and The Bank v. Sawyer, 38 Ohio St. 339.
That the firm is liable in a case of this character is held in Tucker v. Peaslee, 36 N. H. 167; Reynolds v. Cleveland, 4 Cow. 232; Colwell v. Weybosset National Bank, decided by the Supreme Court of Rhode Island, March 16, 1889, 17 Atlantic Reporter, 913, and numerous authorities considered in the cases cited.
The view of the authorities most favorable to the defendant is that they do not require judgment to be rendered against him, but leave us free to determine the case in accordance with reason and settled principles. The money, whose recovery is sought, went into the assets of the firm with the knowledge and assent of all its members, and in consideration thereof it parted with no property, assumed no liability to any one unless to the plaintiff. Considerations of justice require both that the firm should be liable for the money so received, and that the lender should not be remitted to an estate whose responsibility is less by the amount loaned than it would have been if the lender's understanding of the transaction had been correct.
The partnership between Kelly and Allison is admitted. That relation implied that each was not only a principal but an agent for the other in the joint business. Indeed, the authority of each to act as agent in matters relating to the joint business is now established in' this state as the true test of a partnership. Harvey v. Childs & Potter, 28 Ohio St. 319. In this transaction the firm was the real borrower — the principal — and Allison its agent, although the lender dealt with him under a misapprehension as to his true character. A pertinent rule as to the liability of the principal in such case is stated in Mechem on Agency, § 696. It broadly asserts the right of the creditor in such case to proceed against the undisclosed principal when subsequently discovered. The limitations upon that right need not be stated, as they are not pertinent here. The author's statement of the law is supported by Evans and Story on Agency, and by numerous decisions. The rule receives strong support as well as a direct application to the case of a partnership in Tucker v. Peaslee. This rule is not assailed by Fradly v. Hyland, 37 Fed. Rep. 49, nor does there now seem to be any occasion to doubt it. The cases which restrict this principle in its application to partners, so as to allow a recovery against a secret or dormant partner only, are, in that regard, arbitrary. We examine them in vain for a reason which would authorize a recovery against a secret partner, to whom no credit was extended, that would not equally justify a recovery against the;firm when all of its members were unknown in the transaction.
The doctrine that a principal's subsequent ratification of the act of his agent is equivalent to a previous authority is, we believe, no longer questioned. If the previous authority of a member to bind his firm for the repayment of money advanced to it upon his credit may be inferred from a course of business, as in Denton v. Rodie, we see no reason why the distinct and repeated ratifications of the act of the borrowing member in this case may nob be treated as the equivalent of a previous express authority to bind the firm in this transaction.
By a supplement to the answer in this case it is alleged that after the suit was brought the plaintiff sold the bank stock of Allison which he had hypothecated as security for the loan. This averment the bank admits. The argument is that by this act the bank elected to assert its claim against the borrowing member, and, thereby waived its right to proceed against the firm. This argument implies what counsel do not venture to assert: that the application of security furnished by a member as collateral .to the liability of the firm is inconsistent with that liability. A creditor may. resort to all resources that are consistent, and cannot be required to elect between them.
Judgment for plaintiff.