Case Name: Robert G. Corwin v. Simon Suydam
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1873-12
Citations: 24 Ohio St. 209
Docket Number: 
Parties: Robert G. Corwin v. Simon Suydam.
Judges: Day, C. J., McIlvaine, Stone, and WUite, JJ., concurring.
Reporter: Ohio State Reports, New Service
Volume: 24
Pages: 209–218

Head Matter:
Robert G. Corwin v. Simon Suydam.
1. An appropriation of partnership assets by one partner without the assent of his copartners, in satisfaction or security of his private debt, in the absence of proof to the contrary is presumed to be fraudulent and collusive, as against the other members of the firm, and may by them be set aside. This presumption, however, is not conclusive, but may be rebutted.
2. Where the sole acting member of a dissolved partnership, with full power to dispose of its property and pay its debts, himself became a creditor of the firm, by advancing his private funds in payment of its debts, and then in good faith and with no intention to defraud the company, disposed of the property of the firm to an amount less than the sum so due him, in satisfaction of a debt due from him to a third person, who received the same in like good faith, and in the belief that such sale was authorized by the firm: Held, that this disposition of the property can not be avoided by another member of the firm, it appearing that all the outside debts pf the firm are paid or secured, and that there is nothing due to such other member from the firm, unless he includes in his account against it a part of the same claim of A upon the'firm, transferred by A to him in satisfaction of a debt due to him from A.
Error to the Superior Court of Cincinnati.
Andrew He Graff, William He Graff, and Simon Suydam were partners, under the name Of A. He Graff & Co., doing business as railroad contractors. Andrew He Graff was •the managing agent of the company, and through him almost all its business was transacted. Previous to the 17th -of August, 1854, the firm had ceased to do business, and was virtually dissolved, nothing remaining but to wind up .its business, by converting its pi’operty into money and paying its debts. The company was much pressed for money, :and Andrew He Graff, from time to time, advanced his individual funds for its relief. As managing agent of the '■company, he had general power to dispose of its property for payment of its debts. Among the assets of the company were several parcels of real estate, the title to which was in the railroad company, and which were from time to time conveyed by the president of the railroad company to different parties, on the written orders of Andrew He Graff, signed by him in the firm name of A. He Graff & Co., agreeably to a contract subsisting between the firm and ..the railroad company.
On the 17th of August, 1854, while Andrew He Graff was actively engaged in thus closing up the affairs of the firm, and after lie had caused some of these parcels of real estate to be conveyed upon his written orders, signed in the company’s name, and the firm being indebted to him in about $22,000 for advances made for its account by him, he transferred one-third of this indebtedness to his co-partner, Simon Suydam. This he did by giving to Suydam a receipt for £‘ one-third of” his ££ advance,’’ stating in the receipt that the same amount was ££ to be credited ” to De Graff by Suydam in a specified matter of dealing between them outside the partnership. This was a private transaction between the two partners, William De Graff, the other member of the firm not being consulted. Suydam neither paid the amount into the firm, nor did he receive any credit on its book therefor, and no charge was made on the books against Andrew De Graff for the same.
Subsequently, and before the 12th of September, 1854, Suydam forbid the president of the railroad company to convey any more of these parcels of real estate, unless directed by him to do so, and the president informed Andrew De Graff of this prohibition.
On the 12th of September, 1854, Andrew De Graff" gave an order, in the firm name, to the president of the railroad company, for the conveyance of one of these parcels of land, knówn as the ££ Ninth-street lot,” to the plaintiff" in error, Robert G. Corwin, and the same ivas accordingly conveyed. The conveyance was by a deed absolute upon its face, but was intended, in fact, as an indemnity to Cor-win, who had become surety for a debt of Andrew De Graff, under a promise that he should be so indemnified. This surety debt exceeded the amount of the firm’s interest in the lot, and Andrew De Graff" ultimately becoming insolvent, Corwin had to pay the debt, At the time of this conveyance, Corwin knew that Suydam was, or claimed to be, a member of the firm, but was ignorant of the fact that he had objected to the sale of any more lots without his consent; and the conveyance, it seems, was ordered by Andrew De Graff in good faith, and in the belief that Suydam had withdrawn his objection. At the date of the order for conveyance, Andrew De Graff appears to have been still a creditor of'the company, to an amount exceeding the company’s interest in the lot.
Subsequently, the remaining parcels of real estate, some four or five in number, were by the president of the railroad company, conveyed to various persons on like orders given in good faith by Andrew De Graff, but without any consent, in fact, by Suydam, and the proceeds of the sales were applied by Andrew De Graff to his own use.
The case below was a petition filed by Suydam (or rather by Collett, his assignee, whose name seems, by mistake, to have been dropped from the case), to compel an account of the partnership matters, and to have this “ Ninth-street lot,” or its value, applied as partnership assets, in payment of a balance claimed to be due to Suydam on final settlement. By the record, it appears that the court found the amount due Suydam from the firm to be less than the one-third of the $22,000 debt so transferred to him by Andrew De Graff— namely, $3,482.14 — and that, without any credit on account of this transfer, he would stand debtor to the company. It also shows that Andrew De Graff is insolvent, and the court found due from him to the company on final settlement, a sum large enough to pay the amount so due to Suydam — namely, the sum of $7,426.24. The record also shows that the outside debts of the company are nearly all paid, and that there are sufficient assets of the company other than this “ Ninth-street lot,” to pay them.
The amount found due William De Graff is $761.94, but he sets up no claim against Corwin; and should Andrew De Graff be credited with the amount of his “ advance ” so transferred to Suydam, as between Andrew and the firm, his account would be about balanced.
None of the purchasers of the other parcels of real estate so sold’ and conveyed on the orders of Andrew De Graff' were made parties in the cause, and the petition and decree proceed upon the theory that the sales to them are affirmed by the company, and the proceeds of the sales chargeable to Andrew De Graff'.
The court below held Corwin liable, as between him and Suydam, to account for the value of the company’s interest in the “ Ninth-street lot,” and rendered a decree accordingly. In so holding, as well as in other matters which need not be here noticed, it is claimed that the court erred.
Aaron F. Perry, for plaintiff in error :
A partner, certainly the acting partner, has power to transact the whole business of the firm, whatever that may be. Winship et al. v. Bank of United States, 5 Pet. 429; Gano & Thoms v. Samuel, 14 Ohio St. 582.
If a firm of three or more partners agree, at dissolution, in authorizing one of their number to whom the firm is largely indebted, to dispose of the assets and pay the debts, he may include the debt to him, among the debts to be paid. In such case, his authority can not afterward be withdrawn by a notice from only one of the partners, not agreed to by the rest; much less by notice served only on an outside party with whom the firm had dealings. The facts in this case show that, before and after dissolution, the parties intended Andrew De Graff to act upon his own discretion in making firm contracts and in disposing of firm property.
An act done by one partner in the name of his firm, if unauthorized, may be either ratified or rejected by his co-partners, but they can not both ratify and reject the same act. They can not take the advantages and reject the disadvantages. Highway v. Pendleton, 15 Ohio, 757; Benedict et al. v. Smith et al., 10 Paige, 127; 1 Comst. App. (N. Y.) 434; 12 Mees. & Wels. 553; 3 Story, 689; 2 Vt. 252; 6 Clark & Finnelly, 232.
The conveyance to Corwin was binding or not on the firm. If claimed as a firm transaction in part, it must be in whole. If rejected in part, it must be wholly. In either event, no decree can be sustained against Corwin.
If the conveyance to Corwin was neither authorized nor ratified, it is not an item in the accounts of A. De Graff & Co. The conveyance was an outside transaction^with which they have nothing to do.
The transaction of August 17, 1854, between Andrew He Gi’aff' and Suydam, was between the parties to it only, and in no sense affected the firm accounts; and whether allowed to affect the firm accounts or not, it does not obviate the necessity of ratifying or rejecting the conveyance to Corwin.
In an action to settle the affairs of a partnership, composed of three or more persons, two of whom, before the firm commenced, had dealings with each other which remain unsettled, those prior dealings of the two can not, by an agreement between themselves only, be thrust into and litigated as part of the firm affairs, to the prejudice of other partners, or of outside parties whose rights may be affected by the decree.
Corwin Corwin, also for plaintiff in error:
Suydam had no interest in the case. The original petition sets out that he had made an absolute assignment and transfer to W. R. Collett of all his title and interest in ^and to the contracts of A. He Graff’ & Co. with the railroad companies, and the consideration agreed to be paid on the rescission of said contracts ; and judgment in his favor was erroneous. But we do not think the evidence in the case establishes the relation of partnership between Andrew and William Be Graff and Suydam.
Supposing Suydam to have been a partner, he had transferred his interest to Collett before the conveyance to Cor-win. How then were the rights of the parties affected by the notice he gave Smith to convey no more property without his consent ? Suydam, if he had any interest as a partner, transferred to his assignee, Collett, whatever might be found due him upon settlement of the partnership business, but did not, by his assignment, give Collett any of the rights of a member of the firm in closing up its business. Upon said assignment, the other partners were entitled to hold possession of the firm property, as against the assignee, for the purpose of paying the debts and winding up the business of the concern. Story Part., sec. 307 and note 1; Parsons Part. 159, 160, and note c, 440-442, 471-476; Collyer Part., secs. 110, 545; Horton’s Appeal, 13 Penn. St. 67; Ayer v. Ayer, 41 Vt. 350; Talcott v. Dudley, 4 Scam. 435; Eden v. Williams, 36 Ill. 252; Kingman v. Spurr et al., 7 Pick. 235; Marquand v. N. Y. Manuf. Co., 17 Johns. 525; Rodriguez v. Heffernan et al., 5 Johns. Ch. 417; Nicoll v. Munford, 4 Johns. Ch. 522; Cochran v. Perry, 8 W. & S. 266; Lockwood v. Mitchell et al. (as to rights of surviving partner), 7 Ohio St. 410; Ex parte Norcross, 5 Law Rep. (Boston,) 124.
Even if Suydam, as a member of the firm, had a right by his notice to Smith, to prevent the conveyance of any property to anybody, for any purpose, he certainly could not, by assignment, clothe a stranger to the firm with the same power, for that would be in effect allowing a member of a firm to substitute another person in his place, without the consent of his copartners. When Suydam sold out, his notice to Smith became a dead letter. Collett, as assignee, had no right to prevent conveyances by Smith, upon the order of A. De Graff & Co., and could not be substituted to any rights of Suydam, as a partner, acquired by said notice.
If Suydam was a member of the firm, and the assignee stands in his place, we claim that the majority of the firm had a right to direct conveyances by Smith for legitimate purposes of the firm, in settling its business, 'and that Cor-win can not be held liable, unless it is shown that he knew the conveyance to be in fraud of the partnership. Story on Partnership, sec. 123, note 3, and cases there cited; 3 Kent’s Com. 45; Coll. Part., 5 Am. ed. 193-195.
It has never been claimed, and there is no testimony to show that William De Graff ever in any way objected to the conveyance to Corwin; but, on the contrary, his assent to A. De Graff'’s action in that and all other firm matters, is established by all the circumstances of the case.
Hoadly $ Johnson, for defendants in error:
It clearly appears, from the record, that, with full knowledge of Say dam’s interest in the firm of A. De Graff & Co., and thus in the property, Corwin took the title in the Ninth-street lot, to secure himself against loss in an individual transaction with A. De Graff alone. It is therefore of no consequence whether the written notice given by Suydam to Smith, to convey no more of the real estate without his consent, came to Corwin’s knowledge, before or after the conveyance to him by Smith. Being firm property to Corwin’s knowledge, and he having paid the firm no consideration for it, it was in his hands, subject to a trust for the firm and its creditors. Roxborough v. Messick et al., 6 Ohio St. 448. We think the testimony clearly shows that Suydam never recalled his notice not to convey. The testimony overwhelmingly shows that Suydam was a partner. The point made that William De Graff knew nothing of the arrangement between A. De Graff' and Corwin, and did not consent to it, has no force; his consent was unnecessary. The firm owed one of the partners, and the debt had to be paid. It was not material to him whether it was payable to his brother or to Suydam, as long as he did not have to contribute to its payment twice, and to that risk he has not been exposed.
The testimony shows that Suydam is a large creditor of the firm, and is entitled to be paid out of the assets, and unless paid by Corwin, a large part of it will not be paid at all.

Opinion:
Welch, J.
We are inclined to the opinion that, in holding Corwin liable, as between him and Suydam, to account for this property, the Superior Court was in error. There is no pretense of any actual fraud or bad faith, either on the part of Corwin or Andrew De Graff. The order for the conveyance was made in the company's name, and by the partner who apparently transacted all its business. Corwin received the conveyance, and rested upon its security, in the belief that it was authorized by the company. He had no notice of Suydam's objection to the conveyance, and Andrew De Graff acted in the belief that the objection had been withdrawn, and seems to have been permitted to act in that belief, in subsequently issuing similar orders for the conveyance of the remaining parcels of real estate. The objection of Suydam was, not to the sale of this property for payment or security of Andrew De Graff's private debts, but to its sale for any purpose. When we add to these facts the further fact, that Andrew De Graff, with full power to sell the property of the firm for payment of its debts, was himself a creditor of the firm to the full amount of the property so disposed of, it seems to us that we have a set of circumstances fully rebutting any presumption of fraud or bad faith in the transaction. The foundation of the rule which declares such appropriations of partnership assets invalid, as against the other members of the firm, is the fact that they are fraudulent and collusive. A.nd although, in the absence of proof to the contrary, they are always presumed to be fraudulent and collusive, yet the presumption is not always conclusive, but may in some cases be rebutted by evidence, showing the bona Jides of the transaction, and that the purchaser was guilty of no want of caution or prudence. See Story on Partnership, sec. 133 et seq., and authorities cited. We think that the evidence here, on the part of Corwin, fairly brings his case withiu the spirit and meaning of the rule deducible from these authorities.
There is another ground on which some of the members of the court incline to place the denial of Suydam's right to impeach the transaction with Corwin; but whether that ground is maintainable, we deem it unnecessary to decide in the present case. 1 refer to the ground, insisted upon by counsel, that the transaction between Andrew De Graff and Suydam, by which the former transferred to the latter, or receipted to him, for the one-third of the " advance " made by Andrew to the firm, is to be regarded as a strictly private matter, in no way affecting the partnership interests; that it left the relations of the firm to the two partners un changed, the firm still continuing debtor to Andrew for the full amount of the $22,000 advanced, and debtor to Suydam for nothing, at least for nothing until the firm, or rather the third partner, "William De Graff, should receive notice thereof, or give to it his sanction. I confess myself unable to deny the justness of this position. If it.be correct, then it is evident that Suydam acquired by the transfer no rights but such as he can work out through Andrew De Graff, and can claim nothing beyond the amount found due to Andrew De Graff* on final settlement; in other words, he can claim 'nothing, and is himself, therefore, a debtor, and not a creditor of the firm. But if this is not maintainable as a proposition of law, it, at least, has the effect to strengthen the position of Corwin, by showing that if Corwin's transaction with Andrew De Graff is impeachable, Suydam is not in a condition to impeach it. The two transactions with Andrew De Graff amount to this : Andrew wag creditor of the firm to the amount of some $22,000. Being liable individually both to Corwin and to Suydam, he satisfies his liability to Suydam by assigning to him part of this indebtedness, and satisfies his liability to Corwin by assigning to him assets of the company, to the value of another part of the same indebtedness. .Under such circumstances, can Suydam impeach and avoid the transfer to Corwin, and for the mere purpose of paying his claim so derived under Andrew De Graff? It seems to us that if either of the parties is required to stand in the shoes of Andrew De Graff, and work out his claim through him, both should be required to do so.
The judgment will be reversed, and a decree entered so modified as to release Corwin from liability.
Decree accordingly.
Day, C. J., McIlvaine, Stone, and WUite, JJ., concurring.