b. Authority of one partner to execute commercial paper in name of firm.-As a reasonable inference from the principles just enunciated, the general rule may be laid down that it is within the power of each partner in a trading firm to bind the firm by a note or bill made, indorsed, drawn, or accepted by him, provided such power is exercised in the usual course and as a part of the usual routine of the firm business.64 And even if the articles of agreepartnerships are constituted agents, may, in like manner, enter into any the one for the other, for entering into contracts or engagements on behalf of contracts connected with the business the firm in the ordinary trade and and concerns of the partnership, so business thereof; as, for example, by that by the contracts of the agent all buying, or selling, or pledging goods, his principals are bound. or by paying, or receiving, or borrowing moneys, or by drawing, or negotiating, or indorsing, or accepting bills of exchange and promissory notes, and checks, and other negotiable securities, or by procuring insurance for the firm, or by doing any other acts which are incident or appropriate to such trade or business, according to the common course and usages thereof." 64. Power of one member to bind firm by note or bill.- When one of a firm makes a note, or indorses or accepts a bill of exchange in the name of the concern, and apparently in the due course of its business, the act is deemed that of the partnership, especially where the bill or note has passed into the hands of a bona fide holder. The person who, acting in good faith, receives a bill or note by indorsement from one of several partners, is not bound to apply to each of the others to ascertain if he assented to such indorsement; in the absence of all fraud on the part of the indorsee, the act will bind the firm. Per Lord Ellenborough, in Swan v. Steele, 7 East (Eng.), 210. In the case of Wilson v. Richards, 28 Minn. 337, a partner who had bought lumber from his firm gave his note to it, and the firm indorsed the note and got it discounted. A renewal of the note by such partner and indorsement by him for the firm was held to be within the scope of his authority, and not using the firm name for his private debt. Parsons, in his work on Partnership (4th ed.), § 131, says: "It was established, as long ago as the reign of William III, that, by the custom of England, when there are two joint traders, and one accepts a bill drawn on them both, for him and partner, it binds both, if it concerns the trade.' The same doctrine has also been always applied both to the making and to the indorsement of bills of exchange and promissory notes, as well in law as in equity." Story, in his work on Partnership (7th ed.), § 102, says: "Each partner It is no defense to a firm note to show that the holder knew that one member signed it without consent of the other, provided it was really or ostensibly given for firm purposes. Moffit v. Roche, 92 Ind. 96. In drawing and accepting bills of exchange, it never was doubted but that one partner might bind the rest. Lord Kenyon, in Harrison v. Jackson, 7 T. R. (Eng.) 207. Where a member of a firm, who had charge of its financial business, took up firm notes by giving in exchange therefor notes of a third person, indorsed by him in the firm name, which indorsement was without the knowledge of his partner, it was held that the indorsement was within the authority of the partner making it, and that the firm was liable thereon. Steuben County Bank v. Alberger, 101 N. Y. 202. In commercial partnerships a note executed by one member in the firm name is prima facie the obligation of the firm, and if one of the parties seeks to avoid its payment, the burden of proof lies upon him to show that the note was given in a matter not relating to the partnership business, and that, also, with the knowledge of the holder of the note. Lee v. First Nat. Bank, 45 Kan. 9, 25 Pac. 196. A managing partner in control of the ment expressly prohibit one partner from binding the firm by means of negotiable instruments, a note executed in violation of such articles will, nevertheless, be valid in the hands of a payee who had no knowledge thereof.5 But if such payee had knowl Kentucky.- Judge v. Braswell, 13 Bush, 67, 75, 26 Am. Rep. 185. Louisiana. Martin v. Muncy, 40 La. Ann. 190, 3 South. 640; Cottam v. Smith, 27 La. Ann. 128. Maryland.-Porter v. White, 39 Md. 613. Maine.- Casco Bank v. Hills, 16 Me. 155; Waldo Bank v. Greely, 16 Me. 419. Massachusetts.- Richardson v. French, 4 Metc. (Mass.) 577; Smith v. Collins, 115 Mass. 388; Stimson v. Whitney, 130 Mass. 591; Shaw v. McGregory, 105 Mass. 96; Fuller v. Percival, 126 Mass. 381. business of a partnership has authority to execute and deliver notes and renew them as the business of the partnership may require. First Nat. Bank of Mankato v. Grignon (Ida.), 65 Pac. 365. See also Carter v. Steele, 83 Mo. App. 211, in which case it was held that an instruction to a jury to the effect that if a nonsigning partner did not authorize the other partner to sign a note, and did not thereafter ratify it, he was not bound by it, was erroneous, where it appeared that the partnership was engaged in buying and selling, and was formed for that purpose, as such note was equally binding on all the members. But Michigan.- Carrier v. Cameron, 31 where the partnership was not organ- Mich. 473. ized for trading purposes, no member has authority to bind his copartners by a negotiable bill, note, or acceptance in the firm name, even for a debt which the firm owes, unless he has express authority therefor, or unless the giving of such instrument is necessary to carry on the firm business, or is usual in similar partnerships; and the burden is upon the holder to prove such authority, necessity, or usage. Stavnow v. Kenefick, 79 Mo. App. 41. And see also McManus v. Smith, 37 222, 61 Pac. 844. Ore. The taker of a promissory note or bill of exchange of a trading partnership may lawfully presume that it is a firm transaction. Stevens v. McLachlan, 120 Mich. 285, 79 N. W. 627. As to application of rule generally, see: Alabama.- Wagner v. Simmons, 61 Ala. 143; Palmer v. Scott, 68 Ala. 380. Connecticut.- Pease V. Cole, 53 Conn. 53; Champion v. Mumford, Kirby, 147. Illinois.- Dow v. Phillips, 24 Ill. 249; Silverman v. Chase, 90 Ill. 37; Walsh v. Lannan, 98 Ill. 27, 38 Am. Rep. 75; Johnson v. Barry, 95 Ill. 483. Indiana.- Moffit v. Roche, 92 Ind. 96; Leffler v. Rice, 44 Ind. 103. Iowa.- Sherwood v. Snow, 46 Iowa, 481, 26 Am. Rep. 155. Kansas.- Deitz v. Regnier, 27 Kan. 94; Lindh v. Crowley, 29 Kan. 756. Minnesota.- Wilson v. Richards, 28 Minn. 337. Mississippi.- Faler v. Jordan, 44 Miss. 283; Sylverstein v. Atkinson, 45 Miss. 81. Missouri.- Holt v. Simmons, 16 Mo. App. 97; Third Nat. Bank v. Snyder, 10 Mo. App. 213; Feurt v. Brown, 23 Mo. App. 97. Nebraska.- Mace v. Heath, 30 Neb. 620, 46 N. W. 918; Peck v. Tingley, 53 Neb. 171, 73 N. W. 450. New Hampshire.- Dow v. Moore, 47 N. H. 419; Wagner v. Freschl, 56 N. H. 495. New York. Wells v. Miller, 66 N. Y. 255; Steuben County Bank v. Alberger, 101 N. Y. 202; Genesee Bank v. Patchin Bank, 13 N. Y. 309; Chemung Canal Bank v. Bradner, 44 N. Y. 680; Meriden Nat. Bank v. Gallaudet, 120 N. Y. 298, 24 N. E. 994. Ohio.- Benninger v. Hess, 41 Ohio St. 64. Pennsylvania.- Hoskisson v. Elliott, 62 Pa. St. 393; Morehead v. Gilmore, 77 Pa. St. 118. Texas.- Crozier v. Kirker, 4 Tex. 252, 51 Am. Dec. 724; Spencer v. Jones (Tex. Civ. App.), 47 S. W. 29. West Virginia.- Michael v. Workman, 5 W. Va. 391. Wisconsin.- Morse v. Hagenah, 68 Wis. 603, 32 N. W. 634. 65. Restrictions in articles.- Bates on Partnership (§ 322) states the fol edge of the limitations contained in the articles, he cannot recover against the other partners.66 Neither can a person in whose favor a bill was drawn recover on such bill against partners in a firm, where it appears that the acceptance is contrary to an agreement between such partners, and by one of them in fraud of the rest, although such drawee was ignorant of the fraud, unless he can show that he gave value for it.67 c. Presumption in favor of validity of partnership paper executed by one partner. The presumption is in favor of the validity of a negotiable instrument executed, accepted, or indorsed by one partner in the name of the firm, in the ordinary transaction of the firm's business, and within the scope thereof.68 Parsons says: "It must be regarded as the general presumption of law, that all paper upon which the signature of the firm has been put by a partner, is the paper and bears the signature of the partnership; and that all transfers of such papers by him are lawful. This, therefore, would call on the partnership to discharge itself, and, therefore, would lay the burden of proof on them." 69 A note given by one of several partners in the name of the firm, is of itself presumptive evidence of the existence of a partnership debt; and lowing doctrine: "It follows from that stipulations among the partners the fact that the public judges of the scope of a partner's powers from the nature of the business, and the usage of similar occupations, and the acts and habits of the firm, that restrictions contained in the articles or partnership contract limiting the powers that are incident to the occupation or trade do not affect the publie, who are not made aware of them." See also Bloom v. Helm, 53 Miss. 21; Benninger v. Hess, 41 Ohio St. 64. 66. Knowledge of restrictions.- If restrictions or limitations on the powers of the partners, or of some or one of them, are known to a person, his attempt to deal with a partner in violation thereof would be a fraud upon or an invasion of the rights of the others, and he will be deemed to have treated with such partner in his individual capacity, and cannot look to the partnership, although it received the benefit of such dealing. Bates on Partnership, § 323. The power of each partner to rut the name of the firm to negotiable paper is so universally implied from the very existence of the partnership, that one or more of them shall not 68. Manufacturers & Mechanics' Bank v. Winship, 5 Pick. (Mass.) 11; Waldo Bank v. Greely, 16 Me. 419; Barrett v. Swann, 17 Me. 180; Knapp v. McBride, 7 Ala. 19; Miller v. Hines, 15 Ga. 197. the ordinary business of the firm, sell A party may enter into contracts in or pledge goods, draw, negotiate, indorse or accept bills or other negotiable securities, and do any other acts incident or appropriate to such trade. Hoskinson v. Elliott, 62 Pa. St. 393. See also Hickman v. Kunkle, 27 Mo. 401; Carrier v. Cameron, 31 Mich. 373; Rocky Mt. Bank v. McCaskill, 16 Colo. 408, 26 Pac. 821; Sherwood v. Snow, 46 Iowa, 481; First Nat. Bank v. Morgan, 73 N. Y. 593. 69. Parsons on Partnership, § 134. if the other partners seek to avoid its payment, the burden of proof lies upon them to show that the note was given in a matter not relating to the partnership business, and that the payee had knowledge of such fact.70 The fact of good faith between the partners, or that the name was used as a joint undertaking in the regular course of business, is presumed; that is, the note is taken to be what it purports to be, and the burden of proof is on the defendants, the partners, to show the contrary; as, for example, if the credit or name of the firm was used by the signing partner to pay his own debt, or as an accommodation or security for others, or to obtain a loan for himself, or is for a purchase or a purpose outside the scope of the business, this is a matter of defense, and the burden, therefore, up to this point is upon the partners resisting payment to show this state of facts and the payee's knowledge of it." But where commercial paper signed by one member of a firm with the firm's name is taken by a third person in payment of a debt of the member who signs, such paper will not be binding upon the firm, unless the third person is able to show that the firm's name was used with the authority of the firm, or that the signature was afterward adopted or ratified.72 It is a general doctrine of law relating to partnership that every contract in the name of the firm, in order to bind the firm, must not only be made within the scope of the business of the partnership, but it must be made with a party who has no knowledge or notice that the partner is acting in violation of his obligations and duties to the firm, or for purposes disapproved of by the firm, or in fraud of the firm.73 Once having proved that the note was not within the scope 70. Whittaker v. Brown, 16 Wend. (N. Y.) 506. A promissory note made by one of two members of a firm in the firm name is valid against the firm in the hands of a bona fide holder for value, although not made in the partnership business, and although the other partners did not consent to and did not know of the making of the note. The note is presumptive evidence that it is valid business paper, and was given for a debt due from the makers to the payee. First Nat. Bank v. Morgan, 73 N. Y. 593. 71. Bates on Partnership, § 362. 72. Parsons on Partnership, § 134. See also Horner v. Wood, 11 Cush. (Mass.) 62. 73. Story on Partnership, § 128. "If it The English Partnership Act, 1890, § 8, contains the following: has been agreed between the partners that any restriction shall be placed on the power of any one or more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with respect to persons having notice of the agreement." It is observed by Mr. Lindley, in his sixth edition of Lindley on Partnership, p. 185, that this section appears to have been intended to settle a doubtful question raised by the dicta of Lord Ellenborough, in Galway v. Mather, 10 East (Eng.), 264, and Alderson V. Pope, 1 Campb. (Eng.) 404. In the former case Lord Ellenborough is reported to have said: "It is not essential to a partnership that one part of the partnership, or that the payee had knowledge that the partner executing it was acting without authority the presumption of validity as to such payee is destroyed. It has been held that where a note has been made or indorsed by a partner, in violation of his duty, if the holder who receives it has been guilty of gross negligence in receiving it, it will not be binding in his hands upon the partnership." ner should have power to draw bills drawn, accepted, or indorsed, by one and notes in the partnership firm to of the several partners during the charge the other; they may stipulate partnership existence, and in behalf of between themselves that it shall be the firm, and it gets into the hands done; and if third persons, having of a bona fide holder, the partners are notice of this, will take such a security liable, though in truth the partner nefrom one of the partners, he shall not gotiated the bill without the consent sue upon it in breach of the stipula- of the partners, and for his own partion.' ticular benefit. But, in respect of a The doctrine in the text is based person who at the time of receiving upon that principle of the law of the bill knew, or had reason to beagency to the effect that if a person lieve, that the partner negotiated it dealing with an agent knows that he for his individual advantage, and withis acting under a circumscribed and out the concurrence of his associates, limited authority and that his act is the bill is entirely unavailable. The in excess of, or an abuse of the authority actually conferred, then manifestly the principal is not bound, and it is immaterial whether the agent is a general or special one. Walsh v. Hartford Fire Ins. Co., 73 N. Y. 5, 10; Stainer v. Tysen, 3 Hill (N. Y.), 279. See, generally, Knox Buffinton, 50 Iowa, 320; Bartlett v. Powell, 90 Ill. 331; Fuller v. Percival, 126 Mass. 381; Wilson v. Richards, 28 Minn. 337; Stegall v. Coney, 49 Miss. 761; Cargill v. Corby, 15 Mo. 425; Yeager v. Wallace, 57 Pa. St. 365; Harting v. Hopkinson, 28 Vt. 108. V. principles are obvious and founded in general convenience. A partner, strictly speaking, has an implied authority, by virtue of the partnership connection, to perform acts and make contracts, only within the limits of the partnership covenants. But, as persons dealing with him cannot always know when he is acting within the sphere allotted him, and when, for his own use, those who are not guilty of gross negligence and act bona fide, are protected in their contracts, whatever may be the concealed obliquity of his conduct. On the same principle, if the person receiving the bill had knowledge that he was violating his duty to his partners, yet, if the bill came bona fide into the hands of a purchaser, he acquires a right to subject the partnership. Public convenience demands the establishment of tnese principles. If a secret fraud of the nature above mentioned were to vitiate a note or bill, it would demand 74. Gross negligence of payee, etc. inquiries which could not often be -New York Firemen's Ins. Co. v. made or satisfied, before either of them Bennett, 5 Conn. 574, 580, 13 Am. could be safely received, and would Dec. 109, in which Homer, C. J., says: thus operate as a pernicious impedi"By long-established law originating ment to their circulation. But neither in the custom of merchants, a contract justice nor convenience requires that by one partner, having the appearance the person who has knowledge of the of being in behalf of the firm, is con- fraud or is ignorant through gross sidered as being obligatory upon the negligence should have a right to subpartnership. Whenever a bill is ject a partnership by the contract of Fraud of one partner. Where one partner makes a negotiable note in the name of the partnership and disposes of it to a third person, who had knowledge that the proceeds thereof were to be used in fraud of the firm, it would not be binding upon the firm. Stegall v. Coney, 49 Miss. 761; Wright v. Brosseau, 73 Ill. 381; Blodgett v. Weed, 119 Mass. 215. |