Union Nat. Bank of Rahway v. Underhill

• Decision Date: 01 June 1886
• Citation: 7 N.E. 293,102 N.Y. 336
• Parties: UNION NAT. BANK OF RAHWAY, N. J., v. UNDERHILL, impleaded, etc.
• Court: New York Court of Appeals Court of Appeals

102 N.Y. 336

7 N.E. 293

UNION NAT. BANK OF RAHWAY, N. J.,

v.UNDERHILL, impleaded, etc.¹

Court of Appeals of New York.

June 1, 1886.

Appeal from general term supreme court, First department, affirming judgment for defendant.

Robert S. Green, for appellant, Union Nat. Bank of Rahway, N. J.

Hamilton Odell, for respondent, Howard M. Underhill, impleaded, etc.

EARL, J.

The plaintiff commenced this action against the defendants Cheney and Underhill, to recover against them upon three promissory notes, dated July 27, 1877, payable to the order of B. A. Vail, and made by Jesse S. Cheney & Co., a firm composed of the two defendants. The three notes amounted to about $5,700, and were, at or about their date, indorsed by Vail, and delivered to the plaintiff. The defendant Underhill alone interposed an answer, in which he alleges that these notes were made by Cheney without his knowledge or consent, and delivered to the bank in payment of Cheney's individual debt, and that the plaintiff knew this. After hearing the evidence, the court sustained Underhill's defense, and directed a verdict in his favor, and the main question for our determination is whether there was any evidence which required the submission of the case to the jury.

We think it was clearly established that these notes were made by Chency in the name of the firm, without the knowledge or consent of his partner, and they were delivered to plaintiff for the purpose of paying the individual debt of Cheney; that the plaintiff knew that Cheney was using his partnership paper to pay his individual debt, and it was bound to know that he had no right to use it for that purpose without the consent of his partner; and was chargeable with knowledge that the notes were wrongfully made and issued. Each member of a firm is the general agent of the firm in relation to all the business of the firm, and can bind the firm in what he says and does in such business; but when one partner has a transaction with a third person which is neither apparently nor really within the scope of the partnership business, the partnership is not bound by his declarations or acts in the transaction. He cannot, by his declarations, make that a partnership transaction which does not appear to be such, and which is apparently and really an individual transaction. In such a case the third person has notice that the transaction is outside of the partnership business, and he cannot rely upon the partnership credit. Byles, Bills, (7th Ed.) 48; Pars. Partn. (2d Ed.) 116; Rogers v. Batchelor, 12 Pet. 221;Mecutchen v. Kennady, 27 N. J. Law, 230; Wilson v. Williams, 14 Wend. 146;Thorn v. Smith, 21 Wend. 365;Kemeys v. Richards, 11 Barb. 312;Elliott v. Dudley, 19 Barb. 326;Farmers' & Mechanics' Bank v. Butchers' & Drovers' Bank, 16 N. Y. 125.

In Byles on Bills it is said: ‘The taking a joint security for a separate debt raises a presumption that the creditors who took it knew that it was given without the concurrence of the other partner.’

In Parsons on Partnership it is said that ‘whenever a party receives from any partner, in payment for a debt due from that partner only, whether the debt be created at the time, or before existing, or by way of settlement of, or security for, a debt, or indebtedness, an obligation of the firm, in any form, the presumption of the law is that the partner gives this, and the creditor receives it, in fraud of the partnership, and has consequently no demand upon them.’

In Farmers' & Mechanics' Bank v. Butchers' & Drovers' Bank it is said that ‘each of the partners is the agent of the partnership as to all matters within the scope of the partnership business, and can bind the firm by making, indorsing, and accepting bills and notes in such business; but he has no more authority than a mere stranger to execute such paper in his own business, or for the accommodation of others. If he gives the partnership note or acceptance for his own debt, it is void in the hands of any party having knowledge of the consideration for which it is given.’

Cheney, for some time prior to the giving of these notes, had been dealing with the plaintiff. He drew checks on the East River Bank of New York, and procured them to be cashed by the plaintiff, and these checks, for the security of the bank, were indorsed by Vail. At one of the times when he procured the plaintiff to cash a check he said to its president: ‘My partner has, or should have, the money for this to-day; but he has not got it, or cannot get it, and we want this amount.’ It is now claimed on the part of the plaintiff that this gave...