THE

AMERICAN LAW REGISTER.

SEPTEMBER, 1872.

PARTNERSHIP BILLS AND NOTES.

§ 1. A partnership exists whenever two or more persons unite skill, labor or property in an undertaking, and partici pate in its profits; unless such participation in the profits be by way of services as an employee without interest in, or control of, the subject matter, in which case the participant is not a partner. Ogden v. Astor, 4 Sandf. 311; Vandenburg v Hall, 20 Wend. 70. Partners are of several kinds. I. Actual and ostensible. II. Secret or dormant. III. Nominal or ostensible. IV. General. V. Special or limited. VI. Retired.

§ 2. In the first case, where the partner is both actual and ostensible, there can be no difficulty in fixing his liability. which is palpable, although his name may not be expressed in the style of the firm. Secret or dormant partners are just as liable, when they are discovered, as those who are ostensible, because, participating as they do in the profits, they are held equally liable for losses. But in case of withdrawal from the firm, no notice is necessary, the secrecy of their connection with it rendering it superfluous. Davis v. Allen, 3 Comstock 168; Magill v. Merrie, 5 B. Monroe 168; Scott v. Colmisnil, 7 J. J. Marshall 416.

VOL. XX.-35.

(537)

§ 3. A mere nominal or ostensible partner is as much bound by the negotiable paper, or other engagements of the firm, as if actual; for if he suffer himself to be held out to the world as a member, he authorizes third persons to regard him as contracting party. If such partner desires to avoid liability, he must give due notice that he is not an actual partner.

§ 4. A general partnership is such as exists by operation of law when two or more persons combine in an undertaking and share the profits, and in which all are jointly and severally bound for all the partnership debts. A special or limited partnership is one in which the special partner contributes to the common stock a specific sum in actual cash, and is liable only to that extent for the debts of the partnership. This privilege is granted by statute in most of the States, being unknown to the common law, and is accompanied by stringent conditions. Edwards on Bills & Notes 106-7.

$5. Retired partners must give notice of withdrawal from the firm otherwise they will be bound. This notice should be given by letter or circular to all business correspondents who have dealings with the firm; and by advertisement to those who know it only by general reputation. Edwards on Bills 116; 1 Parsons Notes & Bills 143.

Partner may Bind Firm in Copartnership Business.

§ 6. One partner may bind all of his copartners in any transaction and by any instrument not under seal, within the scope of the partnership business; and may assign, accept, indorse, present, demand, or receive payment of negotiable papers in the partnership name. And if a bill be drawn upon a firm, the acceptance by one partner, whether in his own. name or the name of the firm, is binding upon the firm, it being only necessary for it to appear that he acted for it. Leroy v. Johnston, 15 Peters 197; Mason v. Rumney 1 Camp. 384; Jenkins v. Morris, 16 M. & W. 877. The drawing of a bill of exchange by one partner in his own name upon the firm of which he is a member, it has been held, is in contemplation of law, an acceptance of the bill by the drawer in behalf of the firm. Dougal v. Cowles, 5 Day 511.

§ 7. The general authority of a partner to bind the firm springs from the mutual agency of the copartners for each

other; and from the course and usage of the business in which they are engaged. It follows, therefore, that a person contemplating partnership with another cannot, without a special authority, bind him by a contract for the proposed partnership benefit; for example, for the purpose of raising capital-his agency not commencing until the connection is consummated. Greenslade v. Dower, 7 B. C. 635. The copartnership being formed the copartner can bind his associates only in such transactions as pertain to their partnership business; and the copartnership business must be of such a character that the giving of negotiable paper would be the convenient and proper mode of conducting it, in order to create the presumption of agency in a copartner to give a bill or note in the firm's name. Thus the U. S. Supreme Court held that a bill drawn by a partner in the name of a firm engaged in farming, working a steam saw mill and in trading, was binding, because trading and running the mill required capital and the use of credit; but if the firm had been engaged in farming alone, no one partner could have bound it by a bill or note. Kimbro v. Bullitt, 22 Howard 256.

§ 8. For these reasons one of a law partnership cannot bind the firm by a promissory note: Levy v. Pyne, Car. and M. 453; Hedley v. Bainbridge, 3 Q. B. 316. (42 E. C. L. R.); nor can one of a firm practicing medicine bind it in a like manner except for medicine and other necessaries of his profession: Crosthwait v. Ross, 1 Humph. 23; nor can one of a firm keeping tavern bind his copartners except strictly within the business; Cooke v. Branch Bank, 3 Ala. 175. It is said, however, that if the concerns were of such vast magnitude as to require large capital and credit, the rule would be of doubtful application, and that it would depend very much upon the usage of the particular firm and others similarly engaged. 1 Parsons, N. and B. 139. The general authority of a partner to bind the firm exists only by implication, and may be rebutted by evidence that the party who took the security had previous notice that no such authority existed. Gallway v. Matthew, 10 East. 264; King v. Faber, 22 Penn. 21.

§ 9. A note beginning "I promise," and signed by one of

the firm for the rest, as A. B. for C. D., E. F., &c., wil bind the firm. Gallway v. Matthew, 10 East 264, 1 Camp. 403; Staats v. Howlett, 4 Denio 559; and will not bind the separate partner singly; In re Clarke, 14 M. & W. 469, overruling Hall v. Smith, 1 B. & C. 407. So if it begins, "I promise," and is signed by the firm's name. Doty v. Bates, 11 Johns. 544. And if a partner draws a bill or note in a fictitious name and indorse the partnership name, the firm will be bound by the indorsement. Thickenesse v. Bromilowe, 2 Cromp. & J. 425. If the partner intending to use the firm's name make a slight and immaterial variation from it, the firm is still bound; Williamson v. Johnson, 1 B. & C. 146; Faith v. Richmond, 11 A. & E. 339; Forbes v. Marshall, 11 Exch. 166; but if the variation is material it will not be. Kirk v. Blurton, 9 M. & W. 284; Maclae v. Sutherland, 3 Ellis & B. 31. If A., B. and C. are partners, a note given by one of them signed A. & Co. will be presumed to be in the partnership name. Drake v. Elwyn, 1 Caines 184. And if the names of all the partners are written on the paper instead of the firm's name, the firm will be bound. Norton v. Seymour, 3 C. B. 792. One partner cannot, without special authority, execute a joint and separate note in the partnership name; Perring v. Hone, 2 C. & P. 401, 4 Bing. 28 (13 E. C. R. L.); but it has been held—and justly as we think-that such a note would be void only as a several note, and good as a joint note. Maclae v. Sutherland, 3 El. & B. 36 (77 E. C. L. R.).

§ 10. If one partner obtains money by representing the signature to be that of the firm, and misapplies it, he will commit a fraud on his co-partners; but they will be liable to all bona fide holders without notice, as the partnership existence enabled him to commit it. U. S. Bank v. Binney, 5 Mason 176; Buckner v. Lee, 8 Ga. 285.

Cases of the Name of an Individual Used as a Style of Firm.

§ 11. Sometimes the partnership transacts business in the name of a single partner, and questions often arise whether or not paper executed in the name of the single partner was intended as his only, or as that of the firm.

Prima facie it is presumed to be the paper of the individual

partner alone. Cunningham v. Smithson, 12 Leigh 43; Manufacturers Bank v. Winship, 5 Pick. 11; Boyle v. Skinner, 19 Misso. 82; Mercantile Bank v. Cox, 38 Maine 500; Buckner v. Lee, 8 Georgia 285; U. S. Bank v. Binney, 5 Mason 176; Bank of Rochester v. Monteath,1 Denio 402. But if it is shown to have been executed in the business of the firm, and that he intended to sign it as a partner, it will be considered the firm's paper. South Carolina Bank v. Case, 8 B. & C. 427.

§ 12. If a person is a partner in two firms, the one firm cannot sue the other at law, as the names of all the members, whether appearing in the firm's name or not, must be set forth in the declaration, and the same party cannot be both a plaintiff and a defendant; Pitcher v. Barrows, 17 Pick. 361; Babcock v. Stone, 3 McLean 172; Mainwaring v. Newman, 2 B. & P. 120; Neale v. Turton, 4 Bing. 149; Moffat v. Van Milligan, 2 B. & P. 124. The remedy would be in equity. In some States, however, as in Pennsylvania, the common law has been changed by statute, so that an action will lie.

But this difficulty ceases when the instrument passes to a third party, who may sue both firms: Pitcher v. Barrows, 17 Pick. 361; Davis v. Briggs, 39 Maine 304. And when there is a good defense against one of several partners it applies equally to all, although the others may have been entirely innocent of complicity in the fraud of the one, or have been themselves its victims; Richmond v. Heapy, 1 Stark. 204; Brandon v. Scott, 7 E. & B. 234, (90 E. C. L. R.); Aistley v. Johnson, 5 H. & N. 137.

§13. Copartners may enter into any contract between themselves restraining the firm, or any member of it, from executing or indorsing a negotiable instrument; and it is a fraud upon the firm for any member to violate it, for which his injured copartners may maintain an action. Byles on Bills (Sharswood's ed.) 128. But in the hands of a bona fide holder, without notice, the fact that partnership articles have been violated is no objection to the validity of the instrument, or his right to recover; for their association with the wrong-doer enabled him to commit the fraud. Michigan Bank v. Eldred, 9 Wallace 544: Kimbro v. Bullit, 22 Howard 256; Winship v