Opinion
December Term, 1835.
1. A mercantile instrument given in the partnership name binds all the partners, unless the person who took it knew, or had reason to believe, that the partner who made it was improperly using his authority for his own benefit, to the prejudice, or in a way that might be to the prejudice of his associates.
2. But, per DANIEL, J., dissenting: A person who takes a mercantile instrument, in the partnership name, for the separate debt of one of the partners, cannot recover of the others, unless he can show that they had notice of and sanctioned it, whatever may have been his impressions as to the partner's being authorized to give such instrument.
3. The extent of the power and authority of each partner to bind the firm stated and discussed by RUFFIN, C. J., and DANIEL, J.
THE pleadings, exhibits and proofs in this cause, which were very voluminous, presented substantially the following case: In the month of June, 1826, the defendants, Evans, Andrews, Runyon, and William Ellison, associated themselves together as merchants and partners in trade, to commence business on the first of the ensuing month. The firm had two branches — one at Washington, in Beaufort, the books of which were kept in the name and style of Runyon, (285) Ellison Co., and of which William Ellison was the acting partner, assisted occasionally by Runyon. The other branch was established at Sparta, in Edgecombe County, the books of which were in the name and style of Evans, Andrews Co., and was managed by Evans and Andrews. Previous to the formation of this company, Evans and Andrews had been engaged in business at both those places in connection with Runyon and one Godwin Cotton, from which the two latter wished to retire. As a house at the shipping port of Tar River was necessary to the house above, it became an object to establish a new one at Washington. For some years previous, James and William Ellison had carried on an extensive business there, and were in good credit; and it appeared that both Mr. Evans and Mr. James Ellison had large separate properties and were esteemed rich. A. H. Van Bokkelin, one of the assignors of the plaintiffs, was the personal friend of all those parties, and had long been the factor and general agent of all their mercantile establishments, in New York, at which place, chiefly, they purchased merchandise, and to which they made shipments of produce. An agreement was made, early in 1826, between Evans and Andrews and the two Ellisons, that a connection should be formed between the house in Edgecombe and the house of the Ellisons in Washington, but upon what particular terms did not appear. Just before that time, Van Bokkelin, to whom James and William Ellison owed a considerable debt, had failed, and made an assignment for the benefit of his creditors. He was succeeded in business by R. M. White, the other assignor of the present plaintiffs, who had been his clerk, and to whom those North Carolina houses transferred their correspondence. This change in the business of Van Bokkelin was only nominal, for he continued to be substantially at its head, and some time after obtained a reassignment, and openly reassumed it in connection with White, under the name of Van Bokkelin White. In a letter, dated 6 April, 1826, addressed to Mr. White, Mr. Evens informed him of the proposed retirement of the persons who were then his partners in Washington, and desired him (286) "to let Mr. Bokkelin know that we have taken the two Mr. Ellisons into company. We shall join stocks in July." It appeared that, after this, James Ellison preferred retiring, and Runyon agreed to purchase his interest in "J. and W. Ellison's" goods, debts and responsibilities altogether; and he went, instead of James Ellison, into the new firm first above mentioned, which commenced business on the first of July, and, as before stated, was conducted at Washington by Runyon and William Ellison, though chiefly by the latter. The same two persons were to collect and pay the debts of James and William Ellison, that duty having devolved upon Runyon in connection with William Ellison in consequence of his purchase from James, and his covenant to indemnify him against the debts due from the said firm, the assets of which were about $24,000 and supposed to exceed its liabilities by $8,000 or $10,000. Immediately after this, William Ellison, in letters in his own name and that of Runyon, Ellison Co., assured White and Van Bokkelin that the change of the firm would not delay, but would expedite the payment of the old debts, and that remittances should be forwarded as soon as collections could be made, and he joined James Ellison in a request that he, James, should be discharged by the creditors, as Runyon, Ellison Co. had assumed the debts; but Van Bokkelin declined acceding to the request, because his assignees objected to parting from a responsible name. In July, and the subsequent months of that year, and for the next two years, produce to a large amount was shipped to New York in the name of Runyon, Ellison Co. Upon the first shipment received, Van Bokkelin requested, in a letter to Runyon, Ellison Co., to be advised whether the shipments in their name were to be passed to the credit of James and William Ellison. On 29 September, 1826, he again wrote to Runyon, Ellison Co., enclosing accounts of other creditors in New York of J. and W. Ellison, which had been left with him as their general agents, and said, "If you wish us to pay, return them with your directions." To these two letters it did (287) not appear that any specific answers were returned. All the proceeds of the shipments were, therefore, passed to the credit of Runyon, Ellison Co.; but during the autumn and winter Runyon, Ellison Co. paid debts at home of J. and W. Ellison to a considerable amount, and drew successive bills on White in favor of the New York creditors of J. and W. Ellison, to the amount of $4,493.95, which White accepted and paid. In all the dealings of these houses, those in North Carolina made no cash payments, but all the remittances were in produce, of the proceeds of which the appropriation was made by bills. Every draft in favor of the creditors of J. and W. Ellison in New York, and every payment to the creditors at home were regularly entered to the debit of J. and W. Ellison in the books of Runyon, Ellison Co., and the bills were duly charged in the accounts current, which were rendered every three or four months by White to Runyon, Ellison Co. Things were in this state when, in April, 1827, William Ellison remitted to Van Bokkelin the bill of Runyon, Ellison Co. on White for $5,000 in part payment of the debt of J. and W. Ellison to Van Bokkelin, and at the same time drew another bill on White for $492.30 in favor of another creditor of J. and W. Ellison, which was paid. Both of the last bills were also charged in the books of Runyon, Ellison Co.; and in September, 1827, when Mr. Andrews and Mr. Runyon were in New York together, the accounts current of the houses under their several charge were delivered to them, respectively; and in those of James and William Ellison with Van Bokkelin, and Runyon, Ellison Co. with R. M. White (which were delivered to Mr. Runyon), the bills of April, with others, appeared; and that for $5,000 was stated therein to be "on account of balance due A. H. Van Bokkelin by J. and W. Ellison." From that period, accounts current were rendered quarterly until the copartnership terminated, in the latter part of 1828 or beginning of 1829, and no intimation of any objection to these transactions reached the creditors from any quarter. There was no original (288) distinct agreement that Runyon, Ellison Co. should assume the debts of J. and W. Ellison, nor was there any evidence to show that Evans and Andrews knew of the bills being drawn on White in the name of Runyon, Ellison Co. in favor of the creditors of J. and W. Ellison, or that they in any manner sanctioned it, except what was inferable from the facts detailed above, and from proof that on one occasion Evans was seen at Washington, looking into the books of Runyon, Ellison Co. The bill was filed by the plaintiffs as assignees of Van Bokkelin and White, under their joint and several assignment, against the persons composing the firm of Runyon, Ellison Co., and against James Ellison, A. H. Van Bokkelin, and R. M. White, to charge, first, Runyon, Ellison Co. with all the debts of J. and W. Ellison, upon the ground that they had been expressly assumed; second, to recover the debts owing to Runyon, Ellison Co. to the assignors of the plaintiffs, upon the ground that the assignees could not sue at law. The first part of the case was disposed of by an agreement pending the suit, by which James Ellison undertook to pay all the debts of J. and W. Ellison due to Van Bokkelin and to White, except the sum of $5,000, the amount of the bill of exchange of April, 1827. This bill of exchange was charged by White to the debt of Runyon, Ellison Co., and was one of the debts professed to be assigned by him to the plaintiffs. Upon the second part of the case the court directed an account to be taken, and the commissioner made a report, in which he allowed the $5,000 as a debt due to White, and the defendants Evans, Andrews, and Runyon excepted to that item, upon the ground that the bill was drawn without their authority, and not for the benefit of Runyon, Ellison Co., and, therefore, did not bind them. They also excepted to the report because the commissioner had not allowed them as credits certain amounts due from Van Bokkelin and White to Evans, and also to Runyon, individually; and they excepted, thirdly, because they had been debited with the sum of $555 paid to William Ellison for Van Bokkelin and White under their directions to pay it to Runyon, Ellison Co. after White (289) had notice of the dissolution of that firm.
The case was argued at a former term by Devereux and J. H. Bryan for the plaintiffs, and by Badger and Winston for the defendants; but the judges, being unable to agree, held it under advisement until the present term, when, being still unable to agree, they delivered their opinions, seriatim, as follows:
The principal question between these parties turns upon the true nature and extent of the authority of one partner to bind another. The bill is drawn diverso intuitu: to charge, first, Runyon, Ellison Co. with all the debts of James and William Ellison, upon the ground that they had been expressly assumed by the first-mentioned house generally. That part of the case has been disposed of by an agreement, pending the suit, by which James Ellison has undertaken to pay all the debts to Van Bokkelin and R. M. White (who were the creditors of J. and W. Ellison), except the sum covered by the bill of exchange for $5,000 drawn by William Ellison in the name of Runyon, Ellison Co. on White in favor of Van Bokkelin in part of the sum due to him from J. and W. Ellison. The other aspect of the bill is to recover the debts owing by Runyon, Ellison Co. to the assignors of the plaintiffs, upon the ground that the assignees cannot sue at law. This bill of exchange is charged by White in account with the drawers, and consequently forms an item of the debt he professed to transfer to the plaintiffs, who are the assignees for the benefit of his creditors. The master has allowed it in his report; and if it stand, the defendants Runyon, Ellison Co. are found to be indebted to the plaintiffs in the sum of $4,481.34, including interest; but if otherwise, the balance due to that house would be $2,668.86. The propriety of the charge is the dispute, and it is brought before the Court upon the exception of Evans, (290) Andrews, and Runyon, three of the partners of Runyon, Ellison Co., who say that the bill was drawn without their authority, and not for the benefit of Runyon, Ellison Co., and does not bind them.
The authority of each partner has been admitted to be a general one in respect of transactions which appear to be and are for and on account of the partnership. But it has been contended for the defendants who have excepted that, in respect of matters which are not in fact on the joint account, it is special; and, consequently, that he, who claims upon an engagement in the names of the firm, must, when it is shown that the firm did not get the benefit, establish the special authority to the partner who gave the security, either by proving a previous express delegation of it, or by inferring that, from the subsequent knowledge and acquiescence of the other partners.
The position, taken fairly, presents the point on which the cause, as it seems to me, ought to be determined; and if it be correct, the plaintiffs cannot sustain their bill, because that knowledge is denied and is not affirmatively proved. But I think it is not correct, and that the true principle is that a mercantile instrument given in the partnership name does bind all the partners unless the person who took it knew or had reason to believe that the partner who made it was improperly using his authority for his own benefit, to the prejudice or in a way that might be to the prejudice of his associates. In other words, the question is not one of power simply, but of a known abuse of power; the inquiry being whether the security was obtained in good or bad faith.
No authority can be more general than that of partners. It does not depend upon the terms in which the copartnership is contracted; for it is implied by the law and needs no stipulation of the parties. The conduct and success of the trade demand it, as between the partners themselves, to the most unlimited extent; and the interest of each is promoted by it as long as it is honestly exercised — that is, for the purposes of the trade. But, besides that, the security of third persons forbids any restriction of it by agreement among the partners; and, therefore, let the articles be as explicit as they may that one of the partners shall not make contracts or give securities in the joint name, yet (291) if he is held out to the world and does act as a partner, and in that character gives a security for a joint transaction, it must be valid. Third persons can only know him as a partner generally, and he who made him a partner must bear the consequences of his unfaithfulness to their private engagements. Even a factor is deemed, in respect of the purchaser, the owner of goods which he sells without disclosing his principal, and the purchaser may, before notice from the principal, set off a debt to him from the factor, especially when the principal lives abroad, because he is then deemed to be ignorant of the party with whom the factor deals, and the whole credit is considered as subsisting between the actual parties to the transaction. 1 Atk., 248; 7 T. R., 359. That is upon the ground that the principal puts it in the power of the factor to represent himself to be the owner, and, therefore, when he does so represent himself, though falsely, the world may treat him as being really so. Much more is he, who is actually one of the joint owners of stock, to be taken prima facie as having in himself the entire power of all the partners, and as acting on the joint account in all cases in which he acts in the joint name. He has authority to give securities of a mercantile character in the name and upon the credit of the firm. When he does so, there is a presumption that it is rightful — that the partnership security was given for a partnership debt, or that the partnership is in some way to get the benefit of it; and, secondly, if that should turn out not to be the fact, that the person to whom the security was given had a right to consider and did consider it in that light from the very form of the transaction. But as the objects of the law in implying this very extensive authority are the benefit of trade and the indemnity of those who think they are dealing with the firm, and only getting an effectual security for what the firm ought to pay, it is plain that a partner who perverts his power by using it for his several advantage acts in bad faith; and equally plain that he who is cognizant of such bad faith participates in it, and ought not to claim from those against whom it was directed. But if he be not cognizant of it, he ought not to (292) suffer, for that would be to make him the victim of a fraud which the members of the firm put it in the power of one of themselves to practice on him by the use of their name. The implied authority, then, cannot in its terms be limited to the joint concerns. If it were, the plaintiff in every suit on an instrument in the partnership name must prove, in the first instance, that the transaction related to the common business. If it be not thus limited, it follows that the bad faith, singly, of the offending partner will not impair the extent of his power, except as between himself and his copartners; and hence the misapplication of the funds by one of the partners cannot destroy the remedy of the person from whom they were obtained on the partnership security given for them. In such case there is a loss to fall on one of two innocent persons; and the question is, which of them ought to bear it? Manifestly, he who entrusted the power. It was susceptible of abuse, and that he knew when he conferred it. It is not, in point of form, exceeded; and if it has been employed for a different purpose than that for which it was created, that is a risk that must have been seen and undertaken from the beginning. The act done is not void as being without authority. There is always at least an apparent authority, and that is real authority as to all those who had not reason to think otherwise.
These general observations are useful to a correct exposition of the general principle upon which the liabilities of partners depend, and conduce to a proper understanding of expressions which have dropped from the courts in cases of this sort. It seems to me clearly that the exoneration of the members of a firm, whose name has been pledged for the separate debt of one of the partners, does not arise from that act being without authority or exceeding the authority, but from the privity of the other party to the abuse of an ample authority, and its perversion to a purpose for which it was not originally intended. If so, all instruments in the partnership name bind all the parties, unless the party who obtains them be guilty of a fraud. The difference is important, because it changes the onus and enables the creditor to recover, not because no fraud has been practiced, but because he is innocent (293) of it.
The inquiry into the purposes for which the partnership has been pledged, with a view to the validity of the instrument, is but of recent origin — at least, in a court of law, where alone the notice of a want of authority, strictly speaking, is of any moment. The first case we find is Fordyce's, stated under the name of Hope v. Cust, in Shirreff v. Wilkes, 1 East, 48. Before that, it would seem as if parties were bound at law by whatever was done in their name by one of them; at least, there is no case upon the point. That went from the Court of Chancery, for what reason we do not know, unless it may have been that the creditor was the plaintiff in that court, and was therefore bound to establish a valid legal demand. But certainly that case does not put the liability or exoneration of partners upon any other ground than the one I have stated, which must always have been a clear ground of relief in equity to the injured partner, whatever may have been the legal obligation of the contract. Lord Mansfield left it to the jury explicitly upon the point of fraud, saying, indeed, that gross negligence amounted to fraud, to which all may agree, although there might be a difference of opinion, whether or not it appeared there. Fordyce owed Hope Co., of Amsterdam, a debt of his own, and sent them the guaranty of a house in London, of which he was a member, of which the other partners had no notice, and in which, consequently, they did not acquiesce. If it had been a question of power merely, it would have been settled by those facts in themselves, without any inference from them. But it was not. Lord Mansfield took the pains to show the jury why the ignorance of the other partners, and the fact that they derived no benefit did not excuse them, by stating the case of an accommodation guaranty or endorsement given by one partner for anybody's debt but his own, and said that clearly bound all. He therefore told them they must inquire whether there had been covin, which he defined to be a contrivance by two to cheat a third. "If the fact be clear that Hope Co. knew that this was done to cheat Fordyce's partners, there is no question in the cause. But it is manifest that they trusted to it as binding (294) on the partnership. Therefore, this brings it to the question whether it be not gross negligence, as they knew at the time that Fordyce was acting in his separate capacity, and this security was intended to indemnify them against his separate debt." In his report he said "he left it to the jury whether, under these circumstances, the taking of the guaranty was, in respect of the partners, a fair transaction, or covenous, with sufficient notice to the plaintiff of the injustice and breach of trust Fordyce was guilty of in giving it." The principle adopted by me is here distinctly stated. The guaranty was not made without power, but the exercise of that power for that purpose was a breach of trust; and if the creditor had sufficient notice of that, his conduct was not fair, but covenous. Those are the naked points of law laid down; and the jury were to decide whether there was in fact sufficient notice. They did so, although there was no evidence of an actual design on the part of Hope Co. to charge the other partners with what they knew they were unwilling to be bound for, which must have been upon the ground that, being a separate debt, they ought in that case to have presumed their unwillingness, and, therefore, ought not to have relied on it without inquiry from the other partners. That it should have been left to the jury to make that inference from those facts is the subject of Lord Eldon's animadversions, when he said, in Ex parte Bonbonus, 8 Ves., 540, it was doubted whether Hope Cust was not carried too far. But he admits that the law had then taken this course; that if, under the circumstances, the party taking the paper can be considered as advertised in the nature of the transaction, that it was not intended to be a partnership proceeding (as if it were for an antecedent debt), prima facie it will not bind; and he expressed his agreement in the opinion of Lord Kenyon, in Shirreff v. Wilkes, that as partners do not act in good faith when pledging the partnership property for the debt of the individual, so it is a fraud in the person taking that pledge. I yield a full assent to the conclusion drawn by Lord Eldon, as thus stated (295) by him. Nor do I doubt the propriety of its application to both the cases of Hope v. Cust and Shirreff v. Wilkes. In the latter there was simply the acceptance of a bill of exchange drawn by the creditor, knowing that Robson had no concern in the matter, and no assent of his found, and nothing, as Lord Kenyon remarked, to show that he had any knowledge of the transaction. There was no evidence of any previous or subsequent dealings of the firm with this creditor or any others who had been creditors of Wilkes and Bishop. It was an isolated transaction, and derived no support from any collateral circumstances — not even that an entry of that bill had been made in the books of the firm. Hope's case was still worse, if possible, for he did not even take an instrument which, in the ordinary course of business, would be entered in mercantile books, but a collateral guaranty, which could not, or at least was not, likely to come to the knowledge of the other partners, unless communicated directly by the holder. It was a fraud in those creditors to make men liable for money they did not owe, without their privity and under circumstances which denied them the opportunity of becoming privy to, or cognizant of, the transaction; for the creditors had not the least reason to believe that they had concurred or would concur with their partner in making his debts their debts.
I admit, therefore, that the cases cited, and numerous others, establish that, if a separate creditor take from his debtor a partnership security for his debt, that fact alone is conclusive evidence of fraud, and vitiates the security. I use the term fraud because I consider it as embracing not only actual collusion, but what has been called gross negligence, in reference to this subject; though it seems to me that the fault of the creditor is not so much one of laches as of positive wrong in gaining a security which he must know his debtor ought not to give, nor, consequently, he to take. That is certainly of itself a fraud. But the rule is like that of Edwards v. Hosben, 2 T. R., 587, respecting the possession of the vendor of chattels being per se fraudulent. It is only so where there are not circumstances to explain and justify the possession. Since this is the nature of the objection to the conduct (296) of the creditor, it fails when, from other circumstances, it is seen that he did not know that his debtor ought not to give the security, but has reasonable ground to think, and did think, that he ought, or that in giving it he was acting with the privity of his partners, and not against their interest. It was said at the bar that nothing short of consultation with the other partners, or bringing home to them actual notice of the particular transaction, without objection from them, can repel the argument of fraud. That is but another form of putting the first objection, of the defect of authority, since it requires evidence of specific approbation as a new and distinct authority in itself. I do not think that necessary. A fair ground for a rational opinion of the creditor that the other partners did approve is necessary, and it is also sufficient. Lord Eldon, in Ex parte Bonbonus, uses, indeed, the language, "that it will bind if you can show a previous authority or subsequent approbation; a strong case of subsequent approbation raising an inference of previous positive authority." Yet it is manifest that he does not there speak of authority in the sense that the general power of a partner is a naked legal power to deal on matters relating to the partnership, and on those only; nor of the indispensable necessity, for the purpose of enlarging it, of a communication between the separate creditors and all the partners, or between the partners themselves; for he immediately states a case where the liability of the other partners is placed by him, not on communication, but on its omission on their part. He says that other transactions are to be looked to, as well as that, at the time; for if the partners will permit the other to go on dealing in this way, without giving notice, it is approbation, and they would not be entitled to the benefit of the principle which is established for the safety of partners, thus repelling what otherwise might be crassa negligentia of the separate creditor by what is certainly neglect, equally gross, on the part of the other partners. Hence, in Ex parte Peele, 6 Ves., 602, much importance was attached to the length of the partnership and to the general transactions. The agreement had only (297) existed four months before a bankruptcy was declared, and, indeed, had never been confirmed by articles, and the incoming partner was plainly trepanned into an insolvent concern. Kirk had entered his separate debt in the books as a partnership debt, but Ford swore that he had no knowledge of it. Lord Eldon said, if the man had been a partner, upon a long-existing partnership, with a regular series of transactions, books, etc., a knowledge of what his partner had been doing might be inferred against him — that which in common prudence he ought to have known. But that was not the case. It was a treaty, and difficult to say that he knew of the entry, in which case he would be bound. But that fact had not been sufficiently inquired into; and even under those circumstances an inquiry was directed, whether any debts due from Kirk on account of his stock in trade were assumed, and any debts due to him carried into the partnership with the knowledge and consent of Ford.
It is clear, therefore, that Lord Eldon does not mean a specific assent to the particular transaction when he speaks of authority to make it, but that, under circumstances, it may be as binding as if the partners had, as between themselves, given the most express assent. The same observation applies to the terms in which Sir John Leach and Lord Lyndhurst are stated to have expressed themselves in Ex parte Goulding. True, the responsibility lies on the separate creditor to ascertain the fact whether the other partner knows of the pledging of the partnership name; and if the creditor knows that his debtor's partner is ignorant of such pledges of his credit, there is an end of the question. But the point to be sought by us is, what is a sufficient ascertaining of the fact of ignorance or knowledge — does it require direct and express consultation, or may the creditor safely act upon appearances which would satisfy any disinterested mind? The latter is my opinion, and, if true, it turns the question into one of fraud on the part of the creditor. We fortunately have Sir John Leach's own authority for saying that such is also his opinion, and for the true exposition of the language in Ex parte Goulding. It is not uncommon for courts, in laying (298) down new principles, to use the language of illustration instead of definition, and that it should afterwards be discovered that there was an inadvertent looseness of expression which might mislead. The latest case on this subject is that of Frankland v. McGusty, reported in Kapp's Priv. C. C., 274, a book not within our reach here. It is also found stated in the last edition of Comyn on Contracts, printed the present year. In that case the Vice Chancellor himself stated to the Privy Council "that, although it lies upon a separate creditor who takes a partnership security for his separate debt, if it be taken simpliciter, and there is nothing more in the case to prove that it was given with the consent of the other partners, yet, if there be circumstances to show a reasonable belief that it was given with the consent of the partnership, it lies upon the partners to prove the fraud." What is the fraud to be proved in such a case? Plainly, that the creditor knew that it was not given with the consent of the others, notwithstanding appearances to the contrary. This corresponds with the doctrine and decision in Ridley v. Taylor, 13 East, 179, where Ewbank had in fact drawn and endorsed a bill in the name of the partnership, and passed it, after it had been accepted eighteen days, to his separate creditor. The Court held that the creditor could not be deemed to know, from the circumstances, that Ewbank was committing a fraud, and, therefore, that they must give effect to the transfer, and say that the defendant, who relied upon covin as a defense, had not satisfactorily established it. This seems to me to be an intelligible principle, supported by just reasoning, and applicable to the ordinary transactions of life. It is the case of every day that a partner takes his market money or pays his tradesman's bill out of the shop till; and nobody ever thinks of going to the other partner, although in the same village, to ask whether he allows it. It is known that the partners must live, and it is in every such case expected that each partner will look into the conduct of the business sufficiently to satisfy himself whether the other honestly enters his expenditures or indulges in such as he cannot afford. But while the partnership continues, and a partner is seen daily to live out of its means, there is no (299) idea of fraud in one who takes the money from him for things towards his living; for the imputation of fraud may always be repelled by the fact of honest intention, with the further fact that the particular act which raises the presumption of fraud was done under such circumstances as might create in any man of common prudence and ordinary capacity, with honest purposes, the belief that he was not doing a dishonest thing — that which is to the prejudice of another and against his will. That can never be said by him who takes the effects or the security of the firm for the separate debt of one of the partners, and shows nothing else; nor can it be said of him who thus acts, under any circumstances which, as known or understood by him, do not raise a strong probability that his debtor was not violating the confidence of his partners. It may be assimilated to probable cause in actions for malicious prosecution. Circumstances may appear which in themselves might raise a strong suspicion; but if the person who prefers the prosecution knows any material circumstance not to be as it appears, his suspicion was pretended, and there was, as to him, no probable cause. So a separate creditor must show, in the circumstances of the transaction or the general dealings, grounds for a rational opinion that the act of his debtor was not against the consent of the other joint owners, and that he acted on that opinion in the particular instance. I admit, it will not do for him to say simply that he thought so. There must be something that would make other sound minds, unbiased by interest, concur with him; and even then it is open to the other party to show that in reality he did not think so. A separate creditor must, therefore, in all cases, make out a strong case of honest intentions, resting upon just reasons, for the act is prima facie fraudulent.
The circumstances of the present case seem to me to constitute a strong case, such as was entirely sufficient to induce, and did induce, a belief in Van Bokkelin and White that the bill was drawn in good faith, with the knowledge and acquiescence of the other partners, either prior or subsequent, and probably because the drawers had in their (300) hands the effects of the original debtors. I admit, the evidence does not establish an original distinct agreement that Runyon, Ellison Co. should assume the debts of J. and W. Ellison. James Ellison says, indeed, that he and Runyon so understood it, and that it was so understood at the time of taking the inventory, in June, 1826, at which Mr. Andrews was present, assisting. But that is denied by Andrews; and the instruments which passed between James Ellison and Mr. Runyon show that, whatever course those persons might suppose the business would practically take, it did not then, in point of form, purport to be an engagement of the new firm, as such, to collect and pay the debts of the former firm. But it is equally clear that those duties remained with William Ellison, and devolved upon Runyon, as assignee and successor of James Ellison, and they were the same persons that were to be the active partners of the new house of Runyon, Ellison Co.
Although Runyon, Ellison Co. did not assume the debts, Van Bokkelin, though erroneously, certainly thought they had. Both W. Ellison and James Ellison repeatedly stated it to be the fact in their letters of June, July, and August, 1826, at the very beginning of the new business. It is said that he ought not to have trusted to them, but applied to the other partners. True, that would have been more business-like, and if there were nothing more in the case I should deem the most unequivocal representations of the separate debtors inadequate to justify the creditor in taking the security of the firm, for the very act itself is, in every case, to some extent, an affirmation of the offending partner, that he is at liberty so to deal. But those representations were, here, sustained by collateral incidents, some of which were immediately connected with the other partners, which were sufficient to render them to the apprehension of a suspicious, not to say cautious, mind in the highest degree probable and credible.
Previous to the year 1826, Evans and Andrews, who did business in Edgecombe, had been connected in a house at Washington with Runyon, from which the latter wished to retire. As a house from the shipping port of Tar River was necessary to the house above, it became an object to establish a new one there. For some years previous, (301) James and William Ellison had carried on an extensive business there, and were in good credit; and it appears that both Mr. Evans and Mr. James Ellison had large separate properties, and each of them was esteemed rich. Van Bokkelin was the personal friend of all those parties, and had long been the factor and general agent of all their mercantile establishments in New York, at which place, chiefly, they purchased merchandise, and to which they made shipments of produce. An agreement was made early in 1826, between Evans and Andrews and the two Ellisons, that a connection should be formed between the house in Edgecombe and the house of the Ellisons in Washington, but upon what particular terms does not appear. Just before this time Van Bokkelin, to whom James and William Ellison owed a considerable debt, had failed, and made an assignment for the benefit of his creditors. He was nominally succeeded in his business by Mr. White, who had been his clerk, and to whom those North Carolina houses transferred their correspondence. It may be mentioned here that I allow no advantage to the plaintiffs from the change of names under which the New York houses were conducted, for I consider them all as substantially "A. H. Van Bokkelin." In a letter dated 6 April, and addressed to Mr. White, Mr. Evans informed him of the proposed retirement of the persons who were then his partners in Washington, and desired him "to let Mr. Van Bokkelin know that we have taken the two Mr. Ellisons into company: we shall join stocks in July." It appears that after this, James Ellison preferred retiring, and Runyon agreed to purchase his interest in "James and William Ellison's" goods on hand, debts and responsibilities altogether; and he went, instead of James Ellison, into the new business which began in June following, and was conducted at Washington by Runyon and William Ellison, though chiefly by the latter. The same two persons were collecting, and to pay the debts of James and William Ellison; the assets of that firm being about twenty-four thousand dollars, and supposed to exceed their engagements eight or ten thousand dollars. Immediately afterwards, William (302) Ellison, in letters in his own name and that of Runyon, Ellison Co., assured White and Van Bokkelin that the change of the firm would not delay but would expedite the payment of the old debts, and that remittances should be forwarded as soon as collections could be made; and he joined James Ellison in a request that he, James, should be discharged by the creditors, as Runyon, Ellison Co. had assumed the debts; and in July and the subsequent months of that year, and for the two next years, produce to a large amount was shipped to New York in the name of Runyon, Ellison Co. Van Bokkelin declined acceding to the request that J. Ellison should be released, not because he doubted the credit of Runyon, Ellison Co., or that they had assumed the debt, but because his assignees in trust did not think it proper to part from a responsible name. Still he appears to have intended to have conducted the business upon principles that should appear to be strictly proper, by keeping the transactions in the name of each house separate and distinct; for, upon the first shipments received, he requested in a letter to Runyon, Ellison Co. to be advised whether the shipments in their name were to be passed to the credit of James and William Ellison. On 29 September, 1826, he again wrote to Runyon, Ellison Co. enclosing accounts of other creditors in New York of J. and W. Ellison, which had been left with him as their general agent, and says, "If you wish us to pay, return them with your directions." To these two letters it does not appear that any specific answers were returned. Accordingly all the proceeds of the shipments were passed to the credit of Runyon, Ellison Co.; but during the autumn and winter Runyon, Ellison Co. paid debts at home of J. and W. Ellisons' to a considerable amount, and drew successive bills on White in favor of the New York creditors of J. and W. Ellison, to the amount of four thousand four hundred and ninety-three dollars and ninety-five cents, which White accepted and paid.
In all the dealings of these houses, those in North Carolina made no cash payments, but all the remittances were in produce, of the (303) proceeds of which the appropriation was made by bills. Could Van Bokkelin doubt, when he saw those funds applied for six or eight months to the debts of J. and W. Ellison, that the produce, though shipped in the name of Runyon, Ellison Co., was the proceeds of the debts owing to J. and W. Ellison? He must have thought so, otherwise he would not have accepted the bills in favor of other creditors, on which he had to pay out cash. If he had not been convinced that William Ellison was not committing a breach of trust, it is most improbable that he would have concurred in the act for the benefit of others, and without applying anything to his own debt. The first step in unfair dealing of this sort would have been to pay himself. But he acted otherwise, and was the last of J. and W. Ellison's creditors to get anything. He had no motive to act dishonestly for he was under no necessity, for the purpose of security, to get the responsibility of Runyon, Ellison Co. James Ellison was fully able himself to pay, and the debt of J. and W. Ellison was always deemed secure. His interest was against any undue preference of James Ellison, to the prejudice of the other persons, for the former had retired from business, and the latter were his active and profitable customers. But it is said that Evans and Andrews knew nothing of those transactions. How was Van Bokkelin to suppose that? He could not suppose that proper entries had not been made in the books, and that they would not be looked at by all concerned. The series of shipments, and the succession of bills, all in the same direction, was evidence to him of the highest character, for transactions to such an amount could not be concealed from the least vigilant through so long a period. He was in New York and the other partners near the scene of business, and from the very beginning Mr. Evans had used language calculated to produce the impression on his mind that William Ellison and James Ellison had told him the truth, and that the business was carried on as it was only because it was in conformity to the arrangements of the parties. What is to be understood by the correspondent of two mercantile houses when they tell him "that they have joined stocks?" Of itself, the expression denotes an entire union of all their common means and engagements. But when that is followed (304) up by actual transactions for two years, accordant with such an understanding of those terms, is not the conviction irresistible? In fact, however, they were not concealed from Evans and Andrews. Every draft in favor of the creditors of J. and W. Ellison in New York, and every payment to the creditors at home, were regularly entered to the debit of J. and W. Ellison in the books of Runyon, Ellison Co.; and the bills were duly charged in the accounts current, which were rendered every three or four months by White to Runyon, Ellison Co. Things were in this state when in April, 1827, William Ellison remitted to Van Bokkelin the bill of Runyon, Ellison Co. on White for five thousand dollars, in part payment of the debt of J. and W. Ellison to Van Bokkelin, and at the same time drew another bill on White for four hundred and ninety-two dollars and thirty cents in favor of another creditor of J. and W. Ellison, which was paid. Both of these last bills were also charged in the books of Runyon, Ellison Co.; and in September, 1827, when Mr. Andrews and Mr. Runyon were in New York together, the accounts current of the houses under their several charges were delivered to them respectively; and in those of James and William Ellison with Van Bokkelin, and of Runyon, Ellison Co. with R. M. White (which were delivered to Mr. Runyon), the bills of April, with others, appear; and that for five thousand dollars is stated therein to be "on account of balance due A. H. Van Bokkelin by J. and W. Ellison." From that period accounts current were rendered quarterly until the copartnership terminated in the latter part of 1828 or beginning of 1829, and no intimation of any objection to these transactions reached the creditors from any quarter. Now it is true that it turns out that William Ellison has most unfaithfully managed the business under his charge, and wasted or concealed the effects of Runyon, Ellison Co. and of James and William Ellison to a heavy amount; and it is likewise true that Evans and Andrews say that they did not examine the books and had no knowledge of these transactions. (305) Suppose that to be so, must it not be inferred against them, upon every principle on which vigilance is deemed a duty, and on which third persons are allowed to act safely upon the faith of the conduct of others? As Lord Eldon laid it down, it must be inferred as that which in common prudence they ought to have known. Here was not a business just begun, but one which continued for a period of at least two years and a half, having large transactions, with explicit entries of all those now impeached. More, if their partner had omitted the entries, the creditor took the usual means to convey information from himself by rendering accounts containing all the items to one of the managing partners of one house, in the presence of a managing partner of the other. To whom else should he have handed those accounts? Could he have expected less than that each of those partners should have asked of the others to see how their respective branches stood with their general agent and factor? and that upon refusal, application would be made to the factor himself? I am now considering what Van Bokkelin had reason to think, not what he did think. Upon this last point there is no room for a cavil. The very bill itself excludes every suspicion of an actual dishonest purpose. The first thing in an attempt at dishonest conversion is to cover over the transaction so that the owner can never trace his property. But here, the bill upon its face tells that it was not drawn for the debt, properly speaking, of the drawers, but for that of James and William Ellison. It is most improbable that Van Bokkelin would have taken the security in that form if he had not deemed it fair, and believed that Runyon, Ellison Co. had undertaken to pay, at least, that sum for their predecessors. But I have already said that I do not think that alone sufficient to sustain the security. There is a further inquiry, whether Van Bokkelin in the state of his information ought to have thought as he did? Now, from the previous payments to other creditors of J. and W. Ellison out of the shipments to him he saw a course of dealing which must, without notice to the contrary, have raised a strong belief that it met the approbation of the other partners. The Court would now infer that, if Mr. Evans and Mr. Andrews did not positively deny it. If (306) we should be obliged to make that inference, there must have been enough to make Van Bokkelin fall honestly into the same error, when he had not their denial to help his judgment. The truth is, those persons reposed an unreasonable and blind confidence in William Ellison and would not look into their affairs. Van Bokkelin could not anticipate such remissness in men of business, and such a neglect of their interests, when the evidence was spread so plainly before them in their own books and in his accounts. Supposing them to have looked into those documents, they must have seen everything, and, seeing it, their silence under such a train of transactions he had a right to deem acquiescence. He could not have entertained any other opinion or belief. The law regarded their safety, and has established a principle for their protection. But if they will not put themselves in a situation in which they can claim the benefit of it, if they will shut their eyes to what everybody else must have seen, and be guilty on their part of the gross negligence of making no examination of the letters of correspondents, the accounts rendered by factors, the books kept by their partners — will make no inquiry of any fact or from anybody, they cannot complain that other people, who had no design to cheat, have not taken care of them. They have not taken care of themselves. My opinion is, therefore, that their first exception be overruled.
So, we think, must the second. The debts are not mutual. Not being legal set-offs, the insolvency of the plaintiff's assignor does not impugn the assignment in favor of other bona fide creditors. Sellers v. Bryan, 2 Dev. Eq. Ca., 358. We do not regard the name in which the debt is contracted, but look to the real ownership. The master has properly credited the account of Runyon, Ellison Co. with a balance of six hundred and seventy-eight dollars and three cents due from Van Bokkelin and White to Evans, Andrews Co., for the two houses were composed of the same persons, with the same interest in each. But the other credits, as claimed in this exception, are for sums due to some of the partners individually, and had no connection with the (307) joint dealings.
Their third exception is allowed. James Ellison collected the sum of five hundred and fifty-five dollars for Van Bokkelin and White, with directions to deposit it with Runyon, Ellison Co., to be remitted. He paid it on 11 May, 1829, into the hands of William Ellison, who gave a receipt in the name of Runyon, Ellison Co. That does not bind the other partners, for the plaintiffs admit in their bill that White had notice in March, 1829, that at that time there had been a dissolution.
I was originally concerned in this cause for the plaintiffs, and feel the delicacy of the situation in which I am placed, in consequence of the disagreement between my brethren on the main subject of controversy between the parties. In the act of 1818 (Rev., ch. 963, sec. 8), supplementary to the act establishing this Court, there was a provision authorizing, in a case similarly circumstanced, one of the judges of the Superior Courts to occupy temporarily the place of the Judge who might deem himself incompetent to take a part in the decision.
But the repeal of this provision has been regarded as a legislative declaration, that no supposed bias of feeling or opinion should excuse a member of this Court from acting judicially upon any cause, when his aid is necessary to its determination. Thus circumstanced, I shall content myself simply with stating that, on deliberate and, as I trust, impartial examination of the case, I entirely concur with my brother Ruffin in the opinion which he has delivered.