Stevens v. McLachlan
| Decision Date | 05 June 1899 |
| Citation | 120 Mich. 285,79 N.W. 627 |
| Court | Michigan Supreme Court |
| Parties | STEVENS v. MCLACHLAN ET AL. |
Error to circuit court, Wayne county; Willard M. Lillibridge Judge.
Action by Nathan H. Stevens against Duncan A. McLachlan and others. There was judgment for plaintiff, and defendants appeal. Affirmed. Gartner & Stricker and Harlow P. Davock, for appellants.
J. H Cole (Geer & Williams, of counsel), for appellee.
GRANT C.J. (after stating the facts).
The rules of law applicable to the commercial paper here in controversy are well established. As briefly as I am able to state them, they are as follows:
1. D. A. McLachlan & Co. being a trading or commercial partnership, each member of the firm, and especially the one intrusted with the transaction of its business, was authorized to bind his partner in all transactions pertaining to the business of the firm. Among these was the right to borrow money for the firm, and to issue notes therefor, or to draw drafts for the same purpose. The lender was entitled to assume that the money was borrowed for the use of the firm. Winship v. Bank, 5 Pet. 529; Stimson v. Whitney, 130 Mass. 591; Kimbro v. Bullitt, 22 How. 256; Dowling v. Bank, 145 U.S. 512, 12 S.Ct. 928; Smith v. Collins, 115 Mass 388; Sherwood v. Snow, 46 Iowa, 481; 4 Am. & Eng. Enc. Law (2d Ed.) 176; Feurt v. Brown, 23 Mo.App. 332.
2. If plaintiff took the paper in good faith for value, before maturity, and without knowledge, either actual or constructive, that it was tainted with fraud, his title thereto is perfect. In such case it is no defense that the money was misapplied by one of the partners. Nichols v. Sober, 38 Mich. 678; Fuller v. Percival, 126 Mass. 381; Bank v. Savery, 127 Mass. 75; Bank v. Morgan, 73 N.Y. 593; Gale v. Miller, 44 Barb. 420; Investment Co. v. Smith, 162 Pa. St. 441, 29 A. 855; Phillips v. Stanzell (Tex. Civ. App.) 28 S.W. 900; Whitaker v. Brown, 16 Wend. 505; Bank v. Foster, 44 Barb. 87.
3. The taker of a promissory note or bill of exchange may lawfully presume that it is a partnership transaction. Schwanck v. Davis, 25 Neb. 196, 41 N.W. 141; Doty v. Bates, 11 Johns. 544; Whitaker v. Brown, 16 Wend. 505; Haldeman v. Bank, 28 Pa. St. 440; Littell v. Fitch, 11 Mich. 523; Carrier v. Cameron, 31 Mich. 373.
4. The fact that such paper is payable to a member of the firm is no evidence that it is not a partnership transaction. Ihmsen v. Negley, 25 Pa. St. 297; Haldeman v. Bank, 28 Pa. St. 440; Feurt v. Brown, 23 Mo.App. 332.
5. The onus probandi was upon the defendant to show any fraud, lack of authority, or that the paper was not given for partnership purposes. Littell v. Fitch, 11 Mich. 524; Carrier v. Cameron, 31 Mich. 373; Doty v. Bates, 11 Johns. 544; Whitaker v. Brown, 16 Wend. 505; Sherwood v. Snow, 46 Iowa, 481; Phillips v. Stanzell (Tex. Civ. App.) 28 S.W. 900.
6. When such fraud is shown, the onus probandi then shifts to the plaintiff to show that he took the paper in good faith and for a valuable consideration. Vosburgh v. Diefendorf, 119 N.Y. 357, 23 N.E. 801, and authorities there cited.
7. Proof of circumstances which would be sufficient to put a prudent man upon inquiry is not sufficient to defeat recovery. The circumstances must be such as to show mala fides on the part of the holder. This may be shown by evidence of actual knowledge of the purposes for which the paper was given. Nichols v. Sober, 38 Mich. 678; New York Iron Mine v. Citizens' Bank, 44 Mich. 344, 6 N.W. 823; Miller v. Finley, 26 Mich. 249; Borden v. Clark, Id. 410; Chapman v. Remington, 80 Mich. 552, 46 N.W. 34; Goodrich v. McDonald, 77 Mich. 486, 43 N.W. 1019; Bank v. Savery, 127 Mass. 75; Goodman v. Harvey, 4 Adol. & E. 870.
8. If the plaintiff was a bona fide holder of the original paper, his right to recover is not defeated by renewals, and McLachlan was not released thereby. Tilford v. Ramsey, 37 Mo. 563; Bank v. Pierson, 112 Mich. 435, 70 N.W. 1013; Wilson v. Richards, 28 Minn. 337, 9 N.W. 872; Hopkins v. Boyd, 11 Md. 107.
We have cited only a few of the authorities referred to in the briefs of counsel. Mr. McLachlan saw fit to enter into a trading partnership with Mr. Linn, which expressly provided for the borrowing of money, the making of promissory notes, and the procuring of indorsements. Mr. Linn, both by express contract and by implication, had the power to borrow the money and make the paper in controversy. If there is any competent evidence in the record that the money obtained from plaintiff was not used in the partnership business, it has escaped my attention. Mr. Linn testified that it was. The only testimony to the contrary is that of Mr. Gourlay on redirect examination, who testified that Mr. Linn, after the controversy over these notes had arisen, said to him that "he put fifteen thousand or twenty thousand dollars into the elevator scheme." This testimony might be legitimate to impeach Mr. Linn, if the proper foundation had been laid, but it is not affirmative evidence of a diversion of the money obtained upon these notes from the business of McLachlan & Co. If, however, there were such evidence, the record is barren of testimony tending to show that plaintiff was guilty of any mala fides in the transaction, or that he had any knowledge that the moneys obtained from him were to be, or ever were, diverted from the partnership. Linn informed him of the partnership, told him what he wanted the moneys for, and plaintiff took the paper in full reliance upon Linn's representations. In some cases he advanced the money; in others he indorsed the paper, and the money was obtained at a bank. When the notes became due, he paid them. The mere fact that he was engaged in other transactions, and had indorsed other paper, and had loaned other moneys to Linn and Mattulath, is no evidence of bad faith, and does not tend to show that any of these moneys were appropriated for other purposes. Upon the record, the court properly directed a verdict for the plaintiff.
Some of these notes were renewed after McLachlan had notified plaintiff by letter, repudiating his liability upon them, and stating that Linn had no authority to make them. The partnership at the time was in existence, and, under the authorities above cited, McLachlan was not relieved by the mere renewals. Having power to make them, he had also the power to renew them while the partnership lasted.
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