Court Opinion

ID: 3868290
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:02:27.443281+00
Date Added: 2024-06-11T14:15:00.005351
License: Public Domain

The plaintiff in this case seeks to recover against the defendants, John D. Burgess and Jedediah Leavens, upon a promissory note made by the said Burgess to the firm of Burgess 
Leavens, (which firm consisted of the said Burgess and the said Leavens,) and by them indorsed to the firm of Sanford  Howland, and by that firm indorsed to the plaintiff. The plaintiff claims to recover against the defendants, as indorsers of this note; the said John D. Burgess having failed to pay it at maturity, and due notice having been given to said indorsers of non-payment.
Leavens, the copartner, who alone appears to contest the claim of the plaintiff to a recovery, now urges as matter of defence, that the making and indorsement of the name of the firm upon it was the act of Burgess alone, in fraud of the firm, and in fraud of his rights as a partner, and so, that the indorsement as to him is void; and the question is, whether the facts stated disclose any sufficient defence, to bar the plaintiff from recovering against him.
In Winship  others v. Bank of United States, 5 Pet. 529, it is said, that the creation of a partnership, for any purpose, is a grant of power to every partner to transact all the business of that firm in the usual way. This general authority is held out to the world, and everybody who deals with any member of the firm, has a right to consider that member, as the firm. All paper made or indorsed by him, which is within the scope and business of the partnership, binds every member. It is however *Page 281 
sufficient that the paper is made or indorsed in the name of the firm by one of the partners, and that it be within the scope of its business. Story on Part. § 128. If, however, the partner abuses this authority with which he is intrusted by all the members of the firm, and uses it for the purposes of defrauding his copartners, the innocent party, who receives the note in good faith and pays the value for it, is not to suffer; but the maxim strictly applies, that where one of two innocent parties must suffer by the fraudulent or wrongful act of a third person, he who enabled such third person to commit the wrong should suffer, rather than he who had no such agency; and so it is held, that it is no defence to a note made or indorsed in the partnership name, as against the holder who takes it bona fide for value, and without notice of the fraud, that there has been fraud on the part of the partner in making or indorsing the note. Winship others v. Bank of United States, 5 Pet. 529; Swift v.Tyson, 16 Ib. 1; Story on Prom. Notes, § 191; Amer: Lead. Cas. 451. The holder of such paper, therefore, is debarred from a recovery only when he participates in the fraud or wrongful act of the partner; and in every case where he takes it with notice, he is deemed to be a participator in the fraud, and is not allowed to profit by it. But before he can be debarred, he must have some notice of the character of the act. The statement of facts here concedes, that the plaintiff had no such notice.
The defendant, to relieve himself from this apparent difficulty, assumes what is made apparent by the form of the paper and statement of facts, and says, that the plaintiff seeks to recover in this suit upon a contract of guaranty or suretyship; and claims, that in such case, it is not sufficient for the plaintiff to show that the defendants are partners, but he must also show, that the other partners, either expressly or impliedly, assented to the contract of guaranty; and this, because a guaranty is not within the scope of the partnership business.
The principle to which the defendant refers, is a principle well settled; and if it had any proper application to the facts of the present case, would be decisive of its merits. It is difficult, *Page 282 
however, to perceive how any effect can be given to it here, without coming in conflict with the principles already stated, and the cases cited, that the party receiving the note must have notice of the fraud, before he can be implicated in it, and therefore debarred. It is admitted here, that the plaintiff had no notice that this was, or was designed to operate as, a guaranty, or that it was other than what it purported to be upon its face, or that any debt existed to be guaranteed. The rule referred to undoubtedly supposes, that the party receiving the note was aware that it was to operate as a guaranty, or that it was upon the face of it a guaranty, and so had notice, that it was a transaction not within the scope of the business of the firm. Had it appeared from the instrument itself, which is sued upon, that it was a guaranty of an individual debt of one of the partners, it would have been necessary for the plaintiff to have proved, affirmatively, that the other partner in fact assented to the guaranty. The burden of proof would have been upon him, because he would then have had notice — it being a matter out of the scope of the partnership business — that it was not within the authority of any single partner, but required the assent of all.
But the defendant argues further, that the paper itself was notice to the plaintiff, when he took this note, that it was made by one copartner for his own individual debt, and that it was guaranteed by the same partner in the name of the firm, and that as the paper showed to whom it was passed, viz: to Sanford 
Howland, he might by inquiry have ascertained the facts.
Had the statement of facts not negatived any such notice, it would be difficult to see, how this note, or its indorsement, conveyed to the plaintiff any notice whatever of the kind indicated. It is a promissory note, made by Burgess, payable to the firm. It imports a consideration received of him, and him only, by the firm, and is a contract by him to pay so much money to the firm. It is transferred by indorsement of the firm to Sanford  Howland in the ordinary mode, according to the custom of merchants. It imports a consideration received of Sanford 
Howland, and from no one else, and is a contract to *Page 283 
make good the note of Burgess, at maturity, if he fails to pay it; but it does not import any contract between Burgess and Sanford  Howland, or any existing debt due from him to them to be guaranteed, and does not, in the remotest degree, indicate a guaranty of any such debt, or of any debt. The plaintiff is in no sense suing upon a guaranty, but is proceeding against the defendants upon their indorsement of the note of John D. Burgess, made payable to their order, and upon their contract with him, as indorsee, to pay the amount of this note to him, if Burgess should fail to do so at maturity; and if Leavens, the defendant, would avoid the payment, it is incumbent upon him to show, not only that Burgess, his partner, in making this indorsement, acted fraudulently, but that the plaintiff, when he took this note, had notice that the indorsement was made in fraud. It being admitted that he had no such notice, judgment must be entered, according to the agreement of the parties, for the plaintiff, for amount of the note, less the amount recovered thereon by the plaintiff from Sanford  Howland.