First National Bank of Antigo v. Larsen

This action is against George T. Smiley and Alfred Larsen upon four promissory notes signed Smiley Larsen and each note payable to the order of respondent. One note is dated November 21, 1908, for $100, one December 2, 1908, for $200, one December 5, 1908, for $100, and one December 16, 1908, for $400, in all aggregating $800 and bearing interest. It is averred that at the several dates of execution of the notes Smiley and Larsen were copartners. A fifth separate cause of action averred charges the defendants with money received on the dates aforesaid from the plaintiff to the use of defendants in the sum of $800. The answer admits liability on the first note only. It interposes denials as to the others and also avers that the other notes were made by Smiley, but not for indebtedness of the partnership of Smiley Larsen, but for indebtedness of Smiley individually or some debt of a prior firm of Smiley Egan. A verdict in favor of respondent was directed for the full amount claimed.

There was evidence that after authorizing the execution of the first note appellant, Larsen, forbade respondent to loan any more money to the copartnership; also that the appellant sold out his interest in the partnership except partnership credits on December 15, 1908, and notified the respondent of this fact before the last note was executed. The question is whether there was any showing made which could, if believed by a jury, have constituted a defense when the foregoing facts were supplemented by the following undisputed facts and circumstances:

Prior to October 19, 1908, the creamery business in question had been conducted by the copartnership of Smiley Egan. On the date last mentioned appellant bought out Egan's interest in the tangible personal property of the copartnership and formed a partnership with Smiley whereby Smiley conducted the creamery business of the firm of Smiley Larsen as financial manager and superintendent, and the appellant conducted his separate blacksmith business or occupation and took no part in the management of the affairs of the new partnership. This copartnership bought milk and cream from the adjacent farms and manufactured it into butter and resold such material and manufactured substance in the locality, and also shipped the butter for sale to the larger cities. The copartnership bought on such credit that for goods bought between October 15th and November 1st they would pay on November 15th; for goods bought between November 1st and November 15th on December 1st; for goods bought between November 15th and December 1st on December 15th; and so on. These days were also their regular pay-days and this was their mode of paying the expenses of operation. The appellant sold out to one Mayerl on December 15, 1908, just what he purchased from Egan, leaving the partnership transactions which occurred between October 19th and December 15th unsettled and in the hands of Smiley, with whom no express arrangements were made by appellant regarding liquidation. But appellant did acquiesce not only in the conduct of the partnership business during the existence of the copartnership, but also in the liquidation by Smiley of the credits and debits created and incurred by the copartnership. The appellant took no part in such liquidation and does not know whether there was money on hand or in the bank to pay the liabilities of this short-lived partnership, did not know what checks were issued or outstanding, but knew that Smiley had authority to draw checks in the firm name before and after December 15, 1908.

On this point the evidence plainly shows that, while there was no express agreement to that effect, the appellant acquiesced in the authority of Smiley to liquidate the affairs of the dissolved copartnership in the same way as he managed them during the existence of the copartnership. The appellant also offered evidence tending to show that, if all the credits of the copartnership had been collected by Smiley and merchandise on hand sold and proceeds properly applied, there would have been no more than enough to pay the partnership liabilities. The total amount of checks drawn on the bank by Smiley Larsen was $3,328.48, and the total deposits, including the avails of the several notes mentioned, only equaled this sum. The appellant knew of the mode of payments described, according to which there might be one month's firm liabilities in arrears, and he testifies that he knew Smiley was to draw checks for the firm and expected that the bank would pay such checks. A list of checks of Smiley Larsen upon the respondent bank was produced and admitted to be practically correct. At the close of business on the second pay-day of the copartnership, viz. December 1, 1908, Smiley Larsen had a credit balance in their checking account at this bank of only $65.80. This account would have been overdrawn on December 2d were it not for the proceeds of the discount of the note of that day. On December 5th there was a credit balance in this checking account of $83.02, and on December 16th, but for the avails of the note for $400 given to the bank on that day, this account would have been overdrawn $130. After December 15, 1908, this account had credit on account of moneys deposited by Smiley of six items aggregating about $460. On December 1, 1908, Smiley issued checks of the copartnership upon the respondent bank in the sum of about $745 with only $191.48 in the bank to meet the same, and at the close of business on that day the copartnership had a credit balance of only $65.80. The avails of the notes executed on the 2d and 5th of December were credited in this account and paid out on the checks last mentioned. On December 15, 1908, the copartnership had a credit balance of $64.90 in the bank, and on that day Smiley issued checks of the copartnership on this bank for more than $400 in excess of this credit balance. The next day Smiley went to the bank and gave the partnership note for $400. This amount was then placed to the credit of Smiley Larsen in the bank and used in paying the copartnership checks issued on and prior to December 15, 1908.

Were it not for the testimony of appellant that he examined the books from time to time and made no objection, it might be considered that the checks on the respondent bank issued and cashed before November 15, 1908, went to pay some other than copartnership liabilities, but prior to the date last mentioned there were also deposits to the copartnership credit, and there is no question but that Smiley had authority to draw checks on the copartnership funds in the bank, and the bank was not called upon to inquire into the consideration for which these authorized checks were drawn. The appellant failed to show that any of these checks were given for other than copartnership indebtedness and the testimony is not in dispute on this point. The fair inference is that if any conversion of copartnership funds was perpetrated by Smiley either in issuing checks during the first month of the copartnership and prior to the first pay-day for other than firm liabilities or in not paying into the bank all the proceeds of copartnership property sold or copartnership credits collected, this was entirely unknown to the bank; but even upon the point that Smiley did so there is nothing more than vague inferences. In all cases Smiley in drawing these checks was acting within his apparent authority as a partner.

With reference to the notes of December 2d and 5th it is not necessary to decide in this case whether, notwithstanding the notice byLarsen to the cashier, the sole managing partner had or had not authority to execute these notes. With reference to the note of December 16, 1908, executed the day after Larsen sold out his interest in the tangible copartnership property, and after this fact and the request by Larsen not to loan any more money to the copartnership were brought to the attention of the bank, we think Smiley had no authority to execute the copartnership note, although there are very respectable precedents to the contrary. See Fulton v. Central Bank, 92 Pa. St. 112. "After the stoppage of active operations by a partnership or after its dissolution a liquidating partner may give and renew notes to liquidate the partnership indebtedness." Meyran v. Abel, 189 Pa. St. 215, 42 A. 122. But see Wipperman v. Stacy, 80 Wis. 345, 50 N.W. 336; Young v.Tibbitts, 32 Wis. 79; Lange v. Kennedy, 20 Wis. 279; Gilmore v.Ham, 142 N.Y. 1, 40 Am. St. Rep. 565, 572, and cases in note;Potter v. Tolbert, 113 Mich. 486, 71 N.W. 849, and cases cited; 2 Bates, Partnership, § 694, and cases. See, also, Clement v.Clement, 69 Wis. 599, 35 N.W. 17.

It is well settled that, if the plaintiff would be entitled to recover on the original consideration if the note had not been given, the giving of a note void for lack of authority in the signer or for any other cause does not discharge the preexisting obligation, but the plaintiff may recover upon a cause of action separately stated in the complaint upon the original consideration. Such was the case of Thomson v.Elton, 109 Wis. 589, 85 N.W. 425. This case is imperfectly reported. There was in the complaint, as shown by the case and briefs on file and the original record, a count upon a municipal bond and another upon the consideration paid to the town therefor. Because of the invalidity of the bond for lack of authority in the signers to bind the town, recovery was allowed upon the original consideration. This is also decided inPaul v. Kenosha, 22 Wis. 266. Fry v. Patterson, 49 N. J. Law, 612,10 A. 390, applies the rule to the case of a promissory note given by one partner without the authority of the other. Stewart v. Lathrop Mfg.Co. 95 Tenn. 497, 32 S.W. 464; Edgell v. Stanford, 6 Vt. 551; and Fitch v. Bogue, 19 Conn. 285, are also in point.

We entertain no doubt that the copartnership was liable to the bank for checks drawn upon that bank in favor of copartnership creditors and paid by the bank. This latter liability may be predicated either on the express testimony of the appellant that he knew the checks were being drawn and expected the bank to pay the same, or upon the fact that he left the liquidation of the partnership affairs in the hands of Smiley, thereby authorizing the latter to employ the usual and ordinary business methods of meeting matured liabilities. The partnership creditor receiving one of those checks could maintain an action on it against the firm, so could any one to whom the check was indorsed, and so could the bank, indorsee accepting and paying the same. The notes in question, then, were merely evidence of an existing firm obligation to the bank, and upon any hypothesis that the notes were unauthorized and invalid as notes the respondent was entitled to recover the amount thereof upon the original consideration for which such notes were given. The mere fact that the recovery is in form upon the notes or upon the whole pleading is no sufficient ground for reversing the judgment.

By the Court. — Judgment affirmed.