Abpt v. Miller, 50 N.C. 32, 5 Jones 32 (1857)

Dec. 1857 · Supreme Court of North Carolina

50 N.C. 32, 5 Jones 32

BERNARDT ABPT v. WILLIAM R. MILLER.

A mercantile instrument, given in a partnership name, binds all the partners, unless the person who lakes it knov s, or has reason to believp, that the partner who made it was improperly using his authority for his own benefit to the prejudice of the other members.

Where a new partner came into a firm, and the same business was carried on at the same place as by the old firm, and one of the members of the new firm gave a mercantile instrument in the name of the new firm, to secure a debt due by the old firm to one of its workmen, which was regularly entered on the books of the new firm, it was Held that the onus of proving that that paper was given in bad faith, and that the receiver of it knew, or had reason to believe it, rested upon the defendant.

ActxoN of debt, tried before Saunders, Judge, at the Fall Term, 185?, of Wake Superior Court.

The following case agreed was submitted for the judgment of the Court: James F. Jordan and William D. Cooke were partners in the business of manufacturing paper, under the name and style of “James F. Jordan & Co.,” and had in their employment the plaintiff, F. B. Abpt, as a laborer, at one dollar and a quarter per day, from some time in the year 1852, until the 1st of January, 1851.

In July 1853, the defendant, William E. Miller, became a partner in the said company, which still continued to do business under its old name and style.

On the first of October, 1853, J. F. Jordan, who was the active partner, without the knowledge of Wm. E. Miller, executed to'the plaintiff a note for $669, in part payment of his services, and signed it in the name of James F. Jordan & Co., which was regularly entered on the books of the company, as was the custom when notes were executed. On the first of January, 1851, he executed another note in the same manner for $100, for the balance due him.

The defendant pleaded the general issue and the facts specially set forth. It was agreed that if his Honor should be of opinion with the plaintiff, upon the above state of facts, judgment should be rendered for the sum of $?69 with interest; otherwise, judgment was to be entered for the defendant.

On consideration of the case agreed, the Court being of opinion with the defendant, gave judgment accordingly ; from which the plaintiff appealed.

Rogers and Susted, for plaintiff.

Rowle, for defendant.

Pearson, J.

The case of Cotten v. Evans, 1 Dev. and Bat. Eq. 284, settles this principle. A mercantile instrument, given in the partnership name, binds all of the partners, unless the person who takes it knows, or has reason to believe, that the partner who made it was improperly using his authority for his own benefit, to the prejudice of the other members ; in other words, the question is not one of power, but of a known abuse of power, the enquiry being, was the security obtained in good, or bad, faith.

If the instrument be given to secure an individual debt of the partner giving it, which had been previously contracted, that is sufficient evidence of the abuse of power; it proves that the partner is improperly using authority for his own benefit, to the prejudice of the other members; and they are not bound unless there is proof of their concurrence either before or afterwards. In like manner, if an executor transfers a note of the testator in payment of his own debt, the transaction itself is evidence of fraud, and an abuse of power. This doctrine is settled by numerous cases, and is agreed to on all hands.

If, after business has been carried on for some time by a firm, one of the partners withdraws and a third person comes in, and the same business is carried on at the same place, by the new firm, and one of the members of the new firm, who had been a member of the old firm, gives a mercantile instrument in the name of the new firm to secure a debt of the old firm, a different question is presented, for it may well be that the creditor acted in good faith in taking the security; because Ire may reasonably suppose that the new firm, which consists in part of the same individuals, had acquired the stock on hand and the debts due to the old firm, in consideration of an undertaking to pay the debts due by it. If he acts innocently, and a loss is to fall either upon him, or upon the firm, evidently it should be borne by the latter. They conferred upon their partner the power to draw the instrument, and can only relieve themselves by proving that the party claiming benefit under it, knew, or had reason to believe, that he was improperly using it. The onus of proof is on them. This is decided in Cotten v. Evans, supra, where the subject is elaborately discussed, and all the cases are examined.

There is a dissenting opinion in that case, and the subject underwent a thorough examination. Much can be said on both sides, and if the argument-leaves the question doubtful, it proves that it can only be settled by adhering to the decision of the court.

The present is a much stronger case than Cotten v. Evans. The defendant comes into the firm-, upon what terms is not stated, and the business is carried on under its old name arid style, without any apparent change whatever, save that there is a new member. The plaintiff had been engaged as a laborer by the old firm, for an indefinite time, at one dollar and a quarter per day, and continued to perform service as before. A mercantile instrument, or promissory note of the new firm, is given to him by the acting partner, for a part of his wages, which is regularly entered on the boohs. Afterwards, another note is given in like manner for the balance. The services for which the notes were given were rendered in part before, and in part after, the defendant came into the firm..

It may well be that the plaintiff acted in good faith in taking these securities, because he may reasonably have supposed, and in all probability did suppose, that the defendant became a member of the firm by paying a sum agreed on, as a consideration for a share in the concern, whereby he became interested in the stock on hand, the unfinished work and materials, and the debts due it, and became bound for the debts outstanding against it; in other words, that he became a partner “ for better or for worse.” The defendant has offered no proof as to the terms upon which he became a member, and this is peculiarly within his knowledge ; at all events, if a loss is to fall on the plaintiff, or on him, he should bear it; for he conferred on his partner the power to draw the securities, and the onus of proving that the defendant knew, or had reason to believe, that the power was improperly used, is on him.

The fact that the plaintiff was working under a continuing contract for an indefinite time, is also entitled to much weight. It is true, his wages were estimated at so much per day ; but there was an engagement, growing out of the nature of his employment, that the firm should employ him, and he should work for it so long as it was mutually satisfactory to the parties — a sort of tenancy at will; so that either party would have felt aggrieved, if the other had, without cause, abruptly broken off the relation; under it, the services ran into the time of the new firm. This makes the case much stronger than that of a pre-existing debt or executed contract, independent and wholly unconnected with the business of the new firm, as was the case in Cotten v. Evans.

There is error.

Pee CubiaM, Judgment reversed, and, upon the case agreed, judgment for the plaintiff.