Wilkin-Hale State Bank v. Tucker , 153 La. 47 ( 1922 )

LAND, J.

The Wilkin-Hale State Bank instituted suit against A. S. Tucker and Joseph St. Mary in the civil district court of the parish of Orleans as the makers of three promissory notes, each for the sum of $500, alleging that said bank was the holder of said notes in good faith and for value before maturity, and that the makers of said notes had failed to pay same in whole or in part after amicable demand.

The defendants admit that the three notes of §500 each were originally executed by them and delivered to Pruiett, Day & Sniggs, a law firm of Oklahoma City, Okl., as part of a fee for the defense of the brother of the defendant Joseph St. Mary, who had been charged with an infraction of the criminal laws of that state.

The defendant Joseph St. Mary pleads in his answer that said notes had been paid in their entirety long before the maturity of any of them, and that this negotiation was manifestly a fraud upon and against the rights of the respondent, and specially denies that plaintiff is a holder in due course of said notes.

The defendant A. S. Tucker admits the execution of the notes sued on; that, acting for Joseph St. Mary, he engaged the services of the law 'firm of Pruiett, Day & Sniggs; and, for further answer, adopts the defense set up by his eodefendant, Joseph St. Mary.

The case was tried by jury, and a verdict for $1,500 on the three notes, with interest and attorney’s fees, was returned against defendants.

On the trial of the case before the jury, the plaintiff offered in evidence the notes sued on, to which offer objection was made on the ground that the notes were not admissible, unless and until the indorsement of the payee, Pruiett, Day & Sniggs, be first proved. The objection being overruled, the plaintiff then offered in evidence the depositions of two of its officers, taken in Oklahoma City, and then rested, and there was no further evidence offered by the plaintiff, except proof of an Oklahoma statute governing the conventional rate of interest. The testimony of the plaintiff bank’s officers, taken under commission, declared that the plaintiff bank had acquired the notes sued on from Momon Pruiett, a member of the law firm of Pruiett, Day & Sniggs, the payee named in the two notes; that Pruiett had negotiated a loan of $3,600 from the bank on March 2, 1917, and on the same day the entire proceeds of the loan, less a discount of $90, were deposited in the plaintiff bank at the direction of Pruiett "to the credit of the Rush Creek Oil & Gas Company, and that Pruiett secured the loan by executing his personal note indorsed bjr Kellie M. Roach, Jean Day, and Mrs. Pruiett,' together with the three notes sued on. The vice president of plaintiff bank states in his deposition:

“The firm of Pruiett, Day & Sniggs got no money on credit. The credit was made to the Rush Creek Oil & Gas Company, by the direction of Momon Pruiett, of that firm. Credit was given by me as vice president of the bank, who handled the transaction for the bank, and the firm of Pruiett, Day & Sniggs had no interest in the Rush Creek Oil & Gas Company tp my knowledge.”

The bank’s witnesses further testified that they knew the law firm of Pruiett, Day & Sniggs and the individual members thereof for ten years; that it was their belief “that they had never been solvent”; that the plaintiff bank had never done any business with the law firm of Pruiett, Day & Sniggs, and did not want their business, and would not take it if they offered it.

Defendants offered their testimony as to the payment of the notes sued on in this case.

A motion for a new trial was made and overruled, and the case appealed to the Court of Appeal for the Parish of Orleans, which affirmed the judgment of the lower court.

The testimony shows that Momon Pruiett, a member of the law firm of Pruiett, Day & Sniggs, an ordinary partnership, used these notes, partnership assets, as collateral for an individual loan, and that these facts were at the time well known to the vice president of the plaintiff bank.

Article 2872 of the Civil Code provides:

“Ordinary partners are not bound in solido for the debts of the partnership, and no one of them can bind his partners, unless they have given him power so to do, either specially' or by the articles of partnership.”

We find in the record of this case no special authority given to Momon Pruiett by the other members of his firm to indorse and to use these notes as security for his private purposes, and, without such proof, it is clear that the title of the law firm, an ordinary partnership, to said notes was'not divested by the unauthorized and illegal indorsement of the firm name, and that plaintiff bank did not thereby become the holder of said notes.

In the case of Carter Bros. & Co. v. Galloway & Burns, 36 La. Ann. 733, we said on rehearing:

“There is no better settled principle of commercial law than, that a partner cannot use partnership property for his individual purposes,. without the consent or authority of his copartner or partners and that when he attempts to do so,' parties dealing with him are, by the very fact or nature of the transaction, warned and put on their guard, and- that if the same is consummated, the burden of proving the knowledge, consent or authority of the members rests upon such parties, who, when sought to be made responsible, must, at their risk and peril,. succeed- or fail according as they may or may not pi|ove such ratification.”

In this decision we quoted approvingly the following excerpt from Story on Partnership;

“That in such cases the party dealing with the partner, and knowing the circumstances, will be deemed to act mala fide and in fraud of the partnership, and the transaction by which the funds, securities or other effects of the partnership have been so obtained will he treated as a nullity * * * for it is a clear misapplication of the partnership credit.”

The vice president of plaintiff bank admits in his depositions in this case that he personally attended to the transaction in which Momon Pruiett used these firm notes as collateral for money borrowed from said bank, that said firm received no money or credit, but that the credit was made to an oil and gas company in which said firm had n6 interest; and, to quote the exact language of the vice president of plaintiff bank: “Wp did not want their business, and would not take it, if they offered it.”

In the face of the facts of this case and of the decision above cited, the plaintiff bank, knowing the circumstances, is deemed to have acted in bad faith in its dealings with Momon Pruiett, a partner of said law firm, and the transaction by which these notes were obtained is a nullity, as it was a clear misapplication of the partnership credit; and we find in the record no evidence offered to prove ratification of this transaction by the other members of said law firm.

As plaintiff was not the lawful owner of these notes, it was without interest or legal right to obtain judgment against defendants.

It is therefore ordered, adjudged, and decreed that the judgment of the district court and the judgment of the Court of Appeal be annulled, avoided, and reversed, and that plaintiff’s demand be rejected, and that this suit be dismissed, at the plaintiff’s cost.