Case Name: The Elmira Iron and Steel Rolling Mill Company, Appellant, v. Nathaniel C. Harris, Impleaded, etc., Respondent
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1891-01-22
Citations: 124 N.Y. 280
Docket Number: 
Parties: The Elmira Iron and Steel Rolling Mill Company, Appellant, v. Nathaniel C. Harris, Impleaded, etc., Respondent.
Judges: 
Reporter: New York Reports
Volume: 124
Pages: 280–302

Head Matter:
The Elmira Iron and Steel Rolling Mill Company, Appellant, v. Nathaniel C. Harris, Impleaded, etc., Respondent.
One who has been a known and recognized partner in a firm, but who has withdrawn therefrom, can only relieve himself from liability for subsequent transactions between his former partner in the firm name and third persons, who are unaware of the change, by giving notice of his withdrawal.
A notice of dissolution published in a local newspaper, only affects those who previously had not dealt with the firm, but thereafter deal with the remaining members; it does not operate as a notice to one with whom the firm had business relations prior to the publication; as to them, actual notice is necessary.
It seems this rule does not apply to a dormant ■ partner, that is, one who took no part in the business and whose connection with it was unknown.
The defendants entered into an agreement, by the terms of which they formed a copartnership under the name of B. & Co., for the purpose of carrying on a business specified. It was agreed that defendant H. ■should not give his attention to the business, but that he “ shall be consulted in the business, and all the plans and operations of the firm shall be made and done with the advice of the firm.” The other defendants were to give their whole time and attention to the business. Under this agreement the business was carried on; H. was engaged in other business, but he took part, to some extent, in its financial management and in correspondence with creditors, writing letters in his own name and in that of the firm, and his copartners informed persons dealing with the firm that he was a partner. In an action brought upon an alleged firm indebtedness, H. defended on the ground that before the indebtedness was incurred, he retired from the firm. It appeared that notice of the ■dissolution was published in a local paper, but that the business was continued in the same firm name. Plaintiff had dealt with the firm before the withdrawal of H., and had no notice of his withdrawal; it had no knowledge in fact that he had ever been a partner; H. also testified that at the time of the formation of the partnership, it was said that it should not be made public and evidence was given on his behalf to the effect that it was not generally understood that he was a partner. Held (Haight, J., dissenting), that H. was liable; that under the partnership agreement, he was not a dormant but an active partner; and that .a submission of that question to the jury was error; also that the liability of H. was not changed by the fact that plaintiff did not know he was a partner.
(Argued December 2, 1890 ;
decided January 22, 1891.)
Appeal from judgment of the General Term of the Supreme ■'Court in the fourth judicial department, entered upon an order made April 30, 1887, which affirmed a judgment in favor ■of the defendant, Eathaniel C. Harris, entered upon a verdict and affirmed an order denying a motion for a new trial.
The action is brought to recover upon liabilities of the firm of .Blood & Co., originally composed of the defendants.
The defendant Harris alone defends, and upon the ground that several years prior to the transactions upon which this ■action is founded he had withdrawn from the firm.
It appears that the plaintiff had had dealings with Blood & Co. prior to Harris’ withdrawal, and that notice of' such withdrawal was not given to the plaintiff. But the defendant insists that he was a dormant partner and, therefore, not bound to give notice of his retirement from the firm to those with whom the firm had dealt prior thereto, in order to relieve himself from liability for an indebtedness subsequently incurred by those who continued to carry on the business under the same firm name. On the 1st day of January, 1862, John P. Blood, Samuel N. Blood and the defendant, Nathaniel 0. Harris, entered into an agreement in writing, the material parts of which are as follows: “ The said parties have this day entered into a copartnership, and by these presents do agree to become copartners in the foundry, machine shop business, and in all things thereto belonging; and also in buying and selling, building and retailing all sorts of ware, goods and commodities belonging to tho foundry and machine shop business, and in the manufactory of all implements of husbandry, and, in general, all business which has heretofore been carried on by the said Blood, and to continue for the term of ten years from the date hereof, if 'the said parties shall agree in their business, * * * And it is further agreed and understood by and between the parties that the said John P. Blood and Samuel N. Blood are to give their entire personal attention to the management, of the business, which is to be located and carried on in the boro’ of Athens, at such place as shall be agreed upon by the parties, and said John P. Blood and S. N. Blood shall have six hundred dollars each year for their services in managing the business as aforesaid, to be drawn from the company’s fund, and neither partner shall have the right to draw any further sum without the written consent of the other parties.
“ The said J. P. and S. N. Blood agree to give their whole time to the business and to keep an accurate book or books, with entries of all matters of business belonging to the firm, which shall be accessible to both the parties at all times and for all purposes. * * * And said N. 0. Harris shall be consulted in the business; and all the plans and operations of the firm shall be made and done with the advice of the firm; and the said N. 0. Harris to have and receive from the firm one hundred dollars per year for his services for the care and assistance which he may render to the firm without giving his personal attention to the business.”
Thereafter and until about October 25, 1869, pursuant to such agreement, the parties thereto conducted business under the firm name of Blood & Co. On the day last named, Harris withdrew from the firm and a notice of the dissolution was published in one issue of a local paper, but such publication did not come to the knowledge of the plaintiff, and notice thereof was not given nor attempted to be given to the plaintiff otherwise than by such publication. Thereafter the Bloods, together with G. M. Angier, under the same firm name, continued the business without interruption until March 21,1816, when they made a general assignment for the benefit of their creditors. Angier Avorked in the manufactory as a shop-hand from the formation of the firm in 1862 down to the date of the general assignment, and during all this time there Avas no change either in the firm name, signs, or general aspect of affairs. Whilst Harris Avas a member of the firm he was engaged in other business and took no part in the making of purchases or sales for the firm. He paid some attention to the financial part of the business, and had some correspondence Avith creditors of the firm, both in the name of the firm and his own. He testified that at the time he entered into the partnership, it Avas said that it should not be made public — shouldn’t be talked about at all,” and evidence was introduced in his behalf tending to show that it was not generally understood that he was. John P. Blood testified that it Avas known by quite a number that Mr. Harris was a member of the firm, and that all persons dealing with the firm avIio asked him Avere told that Mr. Harris was a member; that he could not tell Iioav many he told; that they told the parties interested in the concern to know who the partners were, and that it Avas; customary for the firm to tell who were the members of the firm to those-dealing Avith it, if they asked. Samuel H. Blood testified that the connection of Harris with the firm was not kept secret by him at all, and that he talked of it generally whenever the question came up. It appears that the plaintiff did not know until after its dealings with the firm of Blood & Co. were at an end, that Harris was a member of the firm. The plaintiff’s president testified that no inquiry was made as to who constituted the firm of Blood & Co. * * * We •thought the credit of Blood & Co., when we first commenced dealing with them, was good; we inquired and ascertained that the credit of the firm was good.” The court submitted to the jury the question whether Harris was an ostensible or dormant partner, with instructions that if they should find under the evidence that he was a dormant partner, then the defendant was entitled to a verdict; otherwise that the plaintiff was entitled to recover.
Other facts appear in the opinion.
Frederick GolUn for appellant.
To relieve a retiring partner from subsequent transactions in the partnership name, with ■& person who has dealt with the firm before the dissolution, notice of the dissolution must be brought home to the person. (Austin v. Holland, 69 N. Y. 571; Howell v. Adams, 68 id. 314; Kenny v. Altwater, 77 Penn. St. 34; Elkinton v. Booth, 143 Mass. 479; Clark v. Fletcher, 96 Penn. St. 416; Kelley v. Hurlburt, 5 Cow. 534.) Under the agreement of January 1, 1862, and the firm name of Blood & Co., in completion of said agreement Harris became, as a matter of law, an ostensible partner with John P. Blood and Samuel PT. Blood. (Sweet v. Morrison, 103 N. Y. 235; Pringle v. Leverich, 97 id. 180; U. N. Bank v. Underhill, 102 id. 336; F. & M. Bank v. B. & D. Bank, 16 id. 125; Lindley on Part. 237; Baldwin v. Burrows, 47 N. Y. 199; C. C. S. Bank v. Walker, 66 id. 424; Belton v. Hatch, 109 id. 593; Wild v. Devenport, 48 N. J. L. 129; Cassidy v. Hall, 97 N. Y. 159-171; Thompson w. N. Bank, 111 U. S. 529; Dennethone v. Hook, 112 Penn. St. 240; Curry v. Fowler, 87 N. Y. 33; F. N. Bank v. Tarbox, 38 Hun, 37; Metcalf v. Williams, 104 U. S. 93; Wright v. Cabot, 89 N. Y. 570; Mullen v. Lamphear, 15 N. Y. S. R. 647; Kayton v. Barnett, 10 id. 444; Bliss v. Bliss, 7 Bosw. 339; McLachlin v. Brett, 34 Hun, 478; 105 N. Y. 391; Southwell v. Bowditch, L. R. [1 C. P. Div.] 100, 374; Deering v. Flanders, 49 N. H. 225; Elkinton v. Booth, 143 Mass. 479; Davison, v. Holden, 55 Conn. 112; Clark v. Fletcher, 96 Penn. St. 416; Winship v. Bank of U. S., 5 Pet. 529; Mitchell v. Dall, 2 Harr. & Gill, 171; Tier v. Lampson, 35 Vt. 179; B. C. Bank v. Howard, 35 N. Y. 500; Benjamin v. Covert, 47 Wis. 375; Beecher v. Bush, 45 Mich. 188; A. L. T. Co. v. Wortendyke, 24 N. Y. 550; Cammack v. Johnson, 2 N. J. Eq. 163; Van Valen v. Russell, 13 Barb. 591; Bulger v. Rosa, 119 N. Y. 459; Platt v. Halen, 23 Wend. 456; Cookingham v. Lasher, 2 Keyes, 454; North v. Bloss, 30 N. Y. 374; Howe v. Savory, 49 Barb. 403; Van Elps v. Dillage, 6 id. 244; Wordwell v. Haight, 2 id. 549.) The court should, upon the undisputed facts and evidence, have held as a matter of law that Harris was an ostensible partner, and directed the verdict for plaintiff. (Deering v. Flanders, 49 N. H. 225.)
J. A. Gibson for respondent.
The trial court should have nonsuited the plaintiff. (Davis v. Allen, 3 N. Y. 163; Howell v. Adams, 68 id. 314.) There is no valid exception to the evidence. (Brown v. Thurber, 77 N. Y. 613; Sprague v. Hosmer, 82 id. 467; Van Brunt v. Day, 81 id. 251; Lewis v. Seabery, 74 id. 410; Chapin v. Dobson, 78 id. 74; Lattimer v. Hill, 8 Hun, 172.) There is no valid exception to the charge of the court. (Read v. Nichols, 118 N. Y. 224; Smedis v. B., etc., R. R. Co., 88 id. 13; McGinley v. U. S. L. I. Co., 77 id. 495; Langley v. Wadsworth, 99 id. 61; Newall v. Bartlet, 114 id. 399.) Assuming that there was sufficient evidence to go to the jury upon the question, notwithstanding that the plaintiff consented that the court pass upon the question; it is well-settled law that where the plaintiff makes the motion for a directed verdict, and the defendant makes a motion for a nonsuit, that there is a submission to 'the court of every question which is not thereafter specifically asked to be sent to the jury. (Kirtz v. Peck, 113 N. Y. 222; Provost v. McEncroe, 102- N. Y. 650; Mayer v. Dean, 115 id. 556.) The question of .activity is not an element of dormant partnership except as it bears upon the question whether the partner is generally known to be a partner. (3 Pars, on Part. 411, 415; Davis v. Allen, 3 N. Y. 172; Story on Part. 241, § 160; Chamberlain v. Dow, 10 Mich. 319; Thompson v. F. N. Bank, 111 U. S. 529; Cassidy v. Hall, 97 N. Y. 160; Morehouse v. Yeager, 71 id. 594.)

Opinion:
Parker, J.
The question to be determined is presented'by an exception taken to the refusal of -the court to direct a verdict in favor of the plaintiff.
The plaintiff insisted that it was the duty of the court to determine as a matter of law that,the defendant while a member of the firm of Blood & Co. was an ostensible partner. The trial court held otherwise and submitted to the jury the question whether Harris was an ostensible or dormant partner with the further instruction that if they should find that he was a dormant partner then the defendant was entitled to a verdict.
How, it is the general rule that a partner can only relieve himself from liability for subsequent transactions had with his former partners, in the partnership name, by giving notice of his withdrawal. (Austin v. Holland, 69 N. Y. 571; Howell v. Adams, 68 id. 314; Elkinton v. Booth, 143 Mass. 479.)
The rule is founded -upon the principle governing the liability-of a principal for the acts of his agent, where an agent has once represented his principal, if the principal would avoid responsibility for his acts in the direction of his original .authority after the agency has ceased, it is incumbent upon him to notify those with whom he has dealt that such relation no longer continues. And a partner in dealing with third parties in behalf of the partnership not only acts for himself but as agent for each of the other members of the firm. So that when a partner withdraws from a firm it is his duty to give notice of that fact in order that it may be understood that his former partners have no longer any right to represent him. And if he fail to discharge .that obligation he cannot thereafter avoid liability for an indebtedness incurred in the partnership name to a party unaware of the changed situation.
It appears that a notice of dissolution was, at the time, published in a local paper, but that could only affect those who should deal with the firm for the-first time, after the withdrawal. It did not operate as a notice to the plaintiff with whom the firm had had business relations prior thereto. As to it, actual notice could alone suffice. It was not given, and, therefore, defendant is chargeable with the indebtedness sought to be recovered, unless he is entitled to the protection of the one exception to the rule, continuing the liability of partners after dissolution, who fail to give notice. A dormant partner need not give notice, and the jury have been permitted to find that such was Harris' relation to the firm of Blood & Co. Whether rightly, we must now consider. The first step in that direction is to ascertain what is meant by the term "dormant partner." Bouvier defines " dormant " as sleeping, silent, not known, not acting. "A dormant partner " (says Collier in his work on Partnership [6 ed.], p. 11) "is he whose name and transactions as a partner are professedly concealed from the world is one who shares in the profits of a business, but is not known as a member of the firm."
A dormant partner is one " taking no part in the management of the partnership." (Bindley on Part. 16.)
"We think, however, the word implies both the quality of secrecy and inactivity." (Pars, on Part. § 3.)
In National Bank v. Thomas (47 N. Y. 15, 19) the court said: "A dormant partner is one who takes no part in the business, and whose connection with the business is unknown. Both secrecy and inactivity are implied by the word." As the court cited North v. Bloss (30 N. Y. 374), as well as other authorities in support of the definition given, it is clear that it did not understand or intend that the North case should have the effect of altering a rule which had been long settled as asserted by it. It follows that one occupying such a relation to a partnership need not give notice, because his connection with the firm not having been known, it cannot have con tributecl in any degree towards establishing the credit of the firm, and, consequently, his withdrawal could not take away a. single element which helped to build up the business reputation and credit of the partnership. Such we deem the rule, and it should not be extended. Credit is a matter of such importance in the mercantile world, and the fináncial standing of any partner may, through various sources, be so readily commingled with that of his firm that it is essential that he should be required to take the precaution of giving notice of withdrawal unless it clearly appears that his connection with the firm did not add to its reputation for responsibility.
It is not attempted here to establish a partnership liability against Harris on the ground of estoppel, which would have burdened the plaintiff with the necessity of establishing that he held himself, or knowingly permitted another to hold him out as a partner; that the plaintiff had knowledge of such holding out, and was induced thereby to create the debt. And the authorities' applicable to such a situation, of which Thompson v. First National Bank of Toledo (111 U. S. 529) is a type, need not be considered.
The written agreement entered into between the .Bloods and Harris made the parties actual partners. It neither limited the liabilities or the agency of either. It did not suggest that Harris' connection with the firm should be kept secret. It did not provide that Harris should, as to its business, be wholly inactive. It required each of the Bloods to give his entire time and attention to the business, for which each was to be paid $600 per annum. While as to Harris, who was engaged in other business, it was agreed that he should " be consulted in the business, and all plans and operations of the firm shall be made and done with the advice of the firm; and the said U. 0. Harris is to have and receive from the firm $100 per ' year for his services for the care and assistance which he may render to the firm without giving his personal attention to the business."
The agreement, therefore, does not indicate that it was the intention of the parties that Harris should be a secret partner, sharing in the profits as a reward for his contribution to the capital without contributing in any other manner to the standing and business of the firm. Neither was he in fact inactive during the seven years that elapsed before his withdrawal. While he did not engage in the purchase of material or the sale of manufactured articles, he did take part to some extent in the financial management of the partnership, and in the settlement of controversies, in which he wrote letters over his own signature as well as that of the firm. During some portions of the partnership period he was frequently about the shops, at times nearly every day, looldng over the work and occasionally speaking to the different foremen about it.
Neither did his partners keep secret the fact of his connection with the firm.
John C. Blood testified: " I presume it was known by quite a number that Mr. Harris was a member of the firm of Blood & Co.; if a person asked me ivho had a right to know I told them; those who had a right to know were the men dealing with us, and the men who were dealing with us who asked me were told that Mr. Harris was a member of the firm; I could'nt tell you how many I did tell."
Samuel N. Blood testified: "Q. Was his connection with the firm kept secret by you or by anybody else to your knowledge ? A. It was not by me at all. Q. Did you tell persons inquiring that he was a member of the firm ? A. I did, sir. Q. And talked of it with persons doing business with you generally ? A. I did, sir; whenever the question came up."
Again, the adoption of the firm name of Blood & Co. is in opposition to the claim of dormancy on the part of Harris. A dormant partner is one wdio becomes such by a secret arrangement, while his associates are held out to the world as sole proprietors and managers of the business. (Beecher v. Bush, 45 Mich. 188-203.)
If the business had been carried on under the firm name of Blood & Blood or Blood Bros., then the Bloods would have been held out as comprising the entire firm. But the words " & Co." indicate an agency, and that a principal or principals are undisclosed, and if credit is given the law presumes that it was given to. all the principals.
In Shamburg v. Ruggles (83 Pa. St. 148), the court say: " If A. B. & 0. enter into articles of association and agree that the business shall be conducted by A. and in his name alone, B. & C. in such case are dormant partners, and thougli liable for the debts and obligations of the firm during its continuance, are not so liable for debts after its dissolution, although notice of such dissolution may not have been given to the public or those previously dealing with it, for it is to be presumed that credit was given upon the responsibility of A. alone and not upon that of B. & 0. If, however, the business be conducted in the name of A. & Go., a different presumption arises, for then it is supposed that credit is given not to A. alone, but to all those composing the company; in other words, to the firm and not to any one individual of it. In such case, if B. & 0. retire, notice must be given to those dealing with the firm, or he will continue to be liable for the debts thereof subsequently contracted with former creditors who may be ignorant of the dissolution." To the same effect is the reasoning of the court in Deford & Co. v. Reynolds (36 Pa. St. 325); Podrasnik v. Martin (25 Ill. App. 300); Deering v. Flanders (49 N. H. 225); Clark v. Fletcher (96 Pa. St. 416).
Notwithstanding the terms of the agreement of partnership, the adoption of a firm name which did not exclude the defendant, the annoucement by each of the Bloods to those making inquiries and having dealings with the firm that Harris was. one of the partners, and the further fact that he, to some extent, participated in the settlement of accounts and the financial management of the business — facts, which, standing alone determine that Harris' status in the firm was that of an ostensible partner — it is insisted that other evidence presented, on the part of the defendant, authorized a submission to the jury of the question whether he was a dormant partner.
The evidence relied on, in support of such position, was : 1. That it was said at the time of the formation of the partnership that it should not be made public — " should not be talked about at all." 2. The testimony of a number of witnesses residing in that locality, some of whom had had dealings with the firm of Blood & Co., to the effect that they did not know that Harris was a partner.
This evidence, it is asserted, tended to show that his relation to the firm of Blood & Co. was not generally known. It may be observed, in passing, that one of the Bloods denied that there was any understanding, at the time of the formation of the partnership, that the fact of Harris' membership should not be talked about, and evidence was adduced, on the part of the plaintiff, for the purpose of showing that it was quite generally known in the community that Harris was a member of the firm.
For the purpose of this review, howeAer, the plaintiff's .answering evidence cannot be considered, as Ave are to determine whether the defendant's evidence was of such a character .as to authorize a jury to find that he Avas a dormant partner, notwithstanding the facts which, if standing alone, we have asserted require a holding that he was in law an ostensible partner.
The agreement of partnership- was reduced to writing. It •does not in any manner súggest that the membership of Harris was to be kept from the public. It purports to embrace the entire agreement, and the defendant has not attempted to show that in reducing the agreement of the parties to Avriting anything Avas omitted by mistake or otherwise which had been agreed upon. It is not asserted that this so-called understanding Avas made a part of the original contract. It is not pretended that the parties made a subsequent agreement founded upon a neiv consideration. It does not clearly appear that the matter Avas spoken of in the presence of all the parties, much less assented to, for Samuel FT. Blood says he does not remember any such thing, and was not a party to any such agreement, and Harris' evidence does not necessarily include him. Harris' testimony on the subject, and the whole of it, is comprised in .an answer to a single question.
" Q. How you may tell me, at the time you entered into this partnership, was there anything said between you as to whether this should be made public ? A. There was, sir; it was not to be talked about at all." It is, we think, clear that this evidence cannot be permitted to effect a change in the legal relation which the parties assumed in writing and by subsequent conduct.
Heither can a general partner, who, in order to relieve himself from a liability which attaches to an ostensible partner, assumes the burden of proving that he was a dormant partner, be deemed to have so well borne it as to destroy the legal effect of acts of the character disclosed by this record, by the testimony of his neighbors and others given years after the dissolution, to the effect that they did not know until after the happening of that event that he was ever a member of the firm, supplemented by the expression of his own opinion that not one in ten in his vicinity knew of it. The question is not whether one knew it or nearly all, but whether by agreement •— the adoption of a firm name—and subsequent conduct he so held out the Bloods as the only members of the partnership as to prevent his name .from contributing to the standing and credit of the firm. If he did not, then he must be visited with the legal consequences of his failure to give notice to those who had, prior to his withdrawal, transacted business with the firm, and the lack of information on the part of some or many persons will not operate to shield him from it.
The plaintiff, it seems, did not know that Harris was a member of the firm, but that fact cannot avail the defendant, because at the time of the commencement of the dealings with the plaintiff he was " an ostensible and n'ot a secret partner, and was such as to all persons dealing with the firm, and his liability to the plaintiff is not changed by the fact that the plaintiff did not know that he was a partner. He trusted the copartnership, whoever the partners might be, who composed it."
(Howell v. Adams, 68 N. Y. 314.)
This position is not only supported by authority, but is well founded in the methods largely adopted in business circles for the purpose of ascertaining whether credit shall be given.
The competition in business and rapidity with which orders must be filled make it necessary for business houses to promptly ascertain whether credit shall be given. This necessity has contributed to the establishment of agencies which undertake to ascertain the financial condition of corporations, firms and individuals engaged in business.
The inquiry addressed naturally is, what is the financial condition of Jones & Co. ? For, having no acquaintance with the individuals comprising the firm, information as to membership does not aid the inquirer. So in this case, the plaintiff's president testified that no inquiry was made as " to who constituted the firm of Blood & Co. "We thought the credit of Blood & Co., when we first commenced dealing with them, was good; we inquired and ascertained that the credit of the firm was good."
The judgment should be reversed.