Richardson v. Erckens

Patterson, J.:

The defendant appeals from a judgment entered upon a verdict directed for the plaintiff. The action was upon a promissory note, dated January 23, 1896, made in the firm name of Hinck & Ould, for the sum of $20,000, payable twelve months after date to the order of Christopher Richardson, the plaintiff. The members of the firm, the makers of the note, were Henry J. Hinck, Thomas Ould and John Oscar Erckens. Erckens alone defended. In his answer he admits the copartnership, and that the note sued on had not been paid, but he asserts that it was not an obligation of his firm, and affirmatively claims that it was made without his authority as a member of the firm; that it was not given in the course of business of the firm or for any copartnership purpose, nor for any consideration whatever moving to the defendant or Ms jvrm / and he further alleges that the plaintiff had knowledge of those facts. As the case was tried, and upon the record presented to us on this ap¡3eal, the primary question seems to be the right of the plaintiff to cast upon the defendant the burden of establishing the affirmative defense, and secondly, whether, on the proofs as made, the defendant has sustained that burden.

We take it to be the settled law of this State that in an action upon a promissory note, even between the original parties, the possession and production of the note at the trial raise the legal presumption that it was given in the course of business and for value, and that it is to be paid by the maker as the primary debtor. (Bank of Orleans v. Barry, 1 Den. 116; First Nat. Bank v. Green, 43 N. Y. 298.) And, further, that where a bill or note is given in a partnership name it is presumed, in the absence of contrary evidence, to have been given in the partnership business. (Doty v. Bates, 11 Johns. 544; National Union Bank v. Landon, 66 Barb. 193 ; Church v. Sparrow, 5 Wend. 223 ; Whitaker v. Brown, 16 id. 507.)

Doty v. Bates (supra) was a case in which a note was made by one partner. It recited, “ I promise to pay,” but was signed in a copartnership name. In a suit by the payee, it was held that the note was binding upon the firm, and not upon the partner alone who executed it, and that where a note is made by one partner in the name of the firm, it will be presumed that it was made in the course of partnership dealings, and if it were not so given, that fact is a matter of defense which must be proved by the party seeking to take advantage of it.

In Whitaker v. Brown (supra), referring to Doty v. Bates, it is said that the note of a firm is deemed in the commercial community prima facie to have been given in the legitimate course of the partnership business, and such is the judgment of the law; and, consequently, the partner objecting to be made liable is bound to make out a case which will exonerate him, and upon him is cast the onus ■probandi.

As recently as the case of Martin v. N. F. P. Mfg. Co. (122 N. Y. 174), still referring to Doty v. Bates, it is said that when such a note is given in a transaction unconnected with the partnership business, and known to be so by the person taking it, the other partners are not bound without their consent, but prima facie the firm note binds all the partners, and the burden of proving want of authority lies upon the firm.

We think the presumption, in its full effect, applies as well as between the original parties to the note as to subsequent transferees, but when it is made to appear in an action between the original parties that the note was given outside of the business of the firm, then it becomes incumbent upon the holder to show that he is a bona fide purchaser, or that the note was authorized to be made by all the members of the partnership. The rule is stated in Smith v. Weston (159 N. Y. 195) to be “ while upon the production of the note by the plaintiff, and proof of the signatures of the parties thereto, * -x- * a jyrima fiade case was established in his favor, as soon as it appeared that the note was indorsed outside of the firm business and without the authority of all the members, the burden of proof shifted, and in order to recover, it wras- necessary for the plaintiff to show that he was a bona fide purchaser, or that the indorsement was authorized.”

The plaintiff in this action, therefore, could have presented his note, the signature of the firm thereto being admitted, have stood upon the presumptions attaching to it, and in the absence of proof upon the part of the defendant impeaching the paper, wnuld have been entitled to recover. But for some reason, which is not dis-

closed, the plaintiff was examined as a witness in liis own behalf, and certain facts were proven from which the appellant now contends that, in connection with the provisions of the copartnership articles between Hinck, Ould and himself, it was shown that the note sued on was not business paper of the firm. Thus we are brought to the question secondly presented, viz., whether the record shows a state of facts overcoming the legal presumption which would make this note in the plaintiff’s h&nds prima-facie a valid and enforcible obligation of the firm. According to the testimony of the plaintiff, and upon which the defendant relies, the firm signature to the note was made by Mr. Hinck, one of its members. In 1893 there existed a special partnership under the name of Hinck & Ould, of which they were the general partners and Richardson the special partner. Richardson had contributed as capital to that limited partnership the sum of $100,000. That partnership was dissolved on the ,30th of December, 1893, and on the same day Hinck, Ould and Erckens formed a general partnership under the firm name of Hinck & Ould. On the 2d of January, 1894, ten notes, aggregating $100,000, were delivered by Hinck to Richardson. The 30th of December, 1893, was a Saturday; on the next business day, which was January 2, 1894, the ten notes were delivered to the plaintiff. The note sued on in this action was a renewal of part of those ten notes. The plaintiff gave up all of his interest in the assets of the old firm as consideration for the original ten notes. The assets of that old firm consisted of book accounts, advances made to manufacturers, stock and everything that went to make up the business of Hinck & Ould, of which the plaintiff was a special partner. In the copartnership articles between Hinck, Onld and Erckens, which partnership was entered into the very day of the dissolution of the old firm, it is recited that whereas Hinck and Ould have been doing business as copartners with Christopher Richardson, trading under the name of Hinck & Ould in the selling of dry goods on commission, and whereas they, Hinck and Ould, are about to form a new copartnership for selling dry goods on commission with Erckens, upon his contributing $100,000 in money, therefore the articles witness that the parties reciprocally promise and agree to and with each other to form a copartnership, the firm name of which should be Hinck & Ould, the general nature of the business to be selling of dry goods on commission and “ the amount of capital which the said John Oscar Erclcens shall contribute to the common stock of said partnership shall be the said sum of one hundred thousand dollars ($100,000), ivhich sum he shall actually and in good faith pay in, in cash, for the purposes aforesaid. And the said Henry John Hinck and the said Thomas Ould shall also each contribute to said common stock all his share a/nd interest in the assets of the said business now or lately conducted by said Hinck, Ould and Richardson as above mentioned as the same shall be on the thirtieth day of December, 1893 (which they believe will be together of about the value of one hundred thousand dollars), as the same shall then appear by the books of said firm.” The period at which the partnership was to commence was to be the 1st of January, 1894, and to continue for three years. The articles also provided that neither of the partners should pledge the partnership funds or credit to any person, except for the purchase or consignment of merchandise in the ordinary course of the business, and also that neither of the parties should sign or execute any note, bill or other writing for the payment of money for the accommodation or security of or otherwise becoming surety, etc., for any other person or persons, etc., without the permission of all the other parties to the agreement first obtained.

The testimony of Richardson is all we have before us respecting the origin of the promissory note in suit and the nature of the transaction out of which it arose. Can it be fairly said from it that the defendant Erclcens has, by proof, overcome the legal presumption attaching to this note in Richardson’s hands ? Has he shown that it was not made in the course of business or for the benefit of, or for a consideration given to this firm ? The situation would seem to indicate that it was a transaction entered into by the new firm for the purpose of acquiring the whole of the business of the prior firm and all the assets of that firm and all interests in those assets so that they could be put as an entirety into that which was intended to be a going business from the date of the formation of the partnership. That business depended upon the contribution of the capital of Hinck & Ould who were to put in their interests as sjyecifie assets transferred or carried over from the old firm as those interests might appear by the books of the old firm on the 30th of December, 1893. The position of the parties was this: Mr. Erckens paid in his capital of $100,000; Hinck & Ould were to contribute their interest in the assets of the prior firm, estimated to be worth $100,000. Those assets were to be put in as of the date named, and then the business was to be inaugurated as an active concern. Meantime, Richardson’s capital was invested in those assets. It would be absurd to claim that the new partnership was to go on without the contribution of the capital of Hinck & Ould until the affairs of the old special partnership could be settled up, which might take anindefinite length of time. The shares of Hinck & Ould in the assets of the prior firm were to be put in in specie, and at once. They could not be separated, they could not be taken out of the old firm so as to be put into the new one without the consent of Richardson or without in some way acquiring his interest as special partner. Hinck & Ould had no control of these assets in such a way as to authorize them to appropriate or separate them or put them into an independent business, but they were bound to liquidate; not to acquire all of them for themselves and then put them all in the firm as their contribution. They were bound to contribute only their share of the assets and not Richardson’s interests or rights. There was, as before remarked, no way in which the new partnership could be formed so that the interest of Hinck & Ould in those assets of the old firm could .be put at once into the new firm, unless Richardson consented to it, or the new firm in some way acquired them. The new firm practically succeeded to the old and continued its business. Erckens has not shown ignorance of the situation, nor of the acts of his partners in giving Richardson the ten notes.

I am of the opinion that, organized as this partnership was, with the impossibility of the firm being constituted with the capital and assets that were to form the basis of the copartnership business, without acquiring Richardson’s interest, it cannot be said that the giving of the original ten notes to Richardson was a transaction outside of the firm business or for a consideration not moving to it; for the procurement of that interest seemed to be necessary to the constitution of the new firm and those assets were taken over and delivered into the possession of the new firm —formed part of that upon which it did business — and Erckens, by continuing in the firm as a general partner and going on with that business with those assets in it, stands as assenting to the transaction which was had with Richardson. Of course the validity and enforcibility of this renewal note depends upon the validity and enforcibility of the original ten notes. . Mr. Erckens has failed to show that those original notes were given outside of the business of the copartnership, and there was not sufficient evidence to take the case to the jury on any issue of fact.

The judgment should be affirmed, with costs.

O’Brien and Hatch, JJ., concurred; Van Brunt, P. J., and Rumsey, J., dissented.