U.S. Supreme Court
Winship v. Bank of the United States, 30 U.S. 5 Pet. 529 529 (1831)
Winship v. Bank of the United States
30 U.S. (5 Pet.) 529
If the particular terms of articles of partnership are unknown to the public, they have a right to deal with the firm in respect to its business upon the general principles and presumptions of limited partnerships of a like nature, and any special restrictions in the articles do not affect them. In such partnerships, it is within the general authority of the partners to make and endorse notes and to obtain advances and credits for the business and benefit of the firm, and if such was the general usage of trade, that authority must be presumed to exist, but not to extend to transactions beyond the scope and objects of the co-partnership.
Partnerships for commercial purposes, for trading with the world, for buying and selling from and to a great number of individuals, are necessarily governed by many general principles which are known to the public, which subserve the purposes of justice, and which society is concerned in sustaining. One of them is that a man who shares in the profit, although his name may not be in the firm, is responsible for all its debts. Another is that a partner, certainly the acting partner, has power to transact the whole business of the firm, whatever that may be, and consequently to bind his partners in such transactions as entirely as himself. This is a general power, essential to the well conducting of business, which is implied in the existence of a partnership.
When a partnership is formed for a particular purpose, it is understood to be in itself a grant of power to the acting members of the company to transact its business in the usual way. If that business be to buy and sell, then the individual buys and sells for the company, and every person with whom he trades in the way of its business has a right to consider him as the company, whoever may compose it. It is usual to buy and sell on credit, and if it be so, the partner who purchases on credit in the name of the firm must bind the firm. This is a general authority held out to the world, and to which the world has a right to trust.
The trading world, with whom the company is in perpetual intercourse, cannot individually examine the articles of partnership, but must trust to the general powers contained in all partnerships. The acting partners are identified with the company, and have power to conduct its usual business in the usual way. This power is conferred by entering into the partnership, and is perhaps never to be found in the articles. If it is to be restrained, fair dealing requires that the restriction should be made known. These stipulations may bind the partners, but ought not to affect those to whom they are unknown and who trust to the general and well established commercial law.
The responsibility of unavowed partners depends on the general principle of commercial law, not on the particular stipulations of the articles.
If promissory notes are offered for discount at a bank in the usual course of the business of a partnership by the partner entrusted to conduct the business chanroblesvirtualawlibrary
of the partnership and are discounted by the bank, and such discount was within such business, the subsequent misapplication of the money, the holders not being parties or privy thereto or of the intention to misapply the money, would not be deprived of their right of action against the dormant partners in such a co-partnership.
This was an action of assumpsit brought by the defendants in error against John Winship, Amos Binney, and John Binney, the present plaintiffs in error, as co-partners, under the name of John Winship.
The declaration contained seven counts, six of which set forth six different promissory notes, describing them. The notes were of different dates and amounts, drawn by Samuel Jacques, Jr., and payable to and endorsed by John Winship, Jr., the declaration alleging the notes to be payable to Amos Binney, John Binney, and John Winship, Jr., by the name and description of John Winship, and so endorsed to the Bank of the United States. Demand and notice were alleged to have been duly made. The seventh count was for $14,000, money lent.
The defendants pleaded the general issue. The plaintiffs below offered the testimony of Samuel Jacques, Jr., the drawer of the notes, which evidence was objected to on the following facts:
On 28 August, 1825, Samuel Jacques, Jr. having failed in business, made an assignment of his property to Samuel Etheridge and Henry Jacques, in trust for the payment of his debts, and among them of the claims which John Winship might have upon him on the promissory notes stated in this declaration. These notes are thus described:
"And among the creditors in this schedule are also to be included banks and individuals who are or may become holders of any of the notes in the following list, which have either been made by Samuel Jacques, Jr., as promisor, and John Winship as endorser, or by said Winship as promisor and said Jacques as endorser, but such banks or holders are to be considered creditors for the purposes of this instrument only for such part of the contents of such notes as came to said Jacques' use and possession, but for no more, and the assignees are to that extent to indemnify said Winship for said proportion of said notes pro rata with other creditors of this class,
and said Winship may execute this instrument as representing his interest in said notes when paid."
"And accounts between said Samuel Jacques, Jr., and said Winship, touching former transactions, are to be adjusted, and the balance, if in favor of said Jacques, is to go towards the indemnity above provided for said Winship, and if in favor of said Winship, is to be a debt in this second class of debts, as above stated."
Then follows a schedule of the notes drawn by Samuel Jacques, Jr., in favor of John Winship, amounting to $14,250, and of three notes drawn by John Winship in favor of Samuel Jacques, Jr., amounting to $4,200.
John Winship was, with other creditors of Jacques, a party to this assignment, and released the assignor in these terms:
"The creditors of the said Samuel Jacques, Jr., do hereby consent to and accept this assignment, and in consideration of the same, and of the covenants of the said Samuel Etheridge and Henry Jacques herein contained, for themselves respectively and their respective heirs, executors, administrators, and assigns, have hereby demised, released, and forever quitclaim to the said Samuel Jacques, Jr., his executors and administrators, all claims, demands, and causes of action which they have, or may hereafter have for or on account of the several debts and sums of money set opposite to their respective names on schedule, and do hereby acquit and discharge him and them therefrom."
The court overruled the objection to the admission of Jacques, and he testified
"That he knew of the existence of a co-partnership between the defendants by general reputation, but had never seen any articles of agreement between them; he considered that the Binneys were concerned with Winship in the soap and reputation, but had never seen any articles of agreement between them; he considered that the Binneys were concerned with Winship in the soap and reputation, but had never seen any articles of agreement between them; he considered that the Binneys were concerned with Winship in the soap and candle business, and he knew that it was generally so understood; that Winship did no other business to his knowledge; that he and Winship both lived in Charlestown, and saw each other every day; that he had dealings with Winship soon after the commencement of the partnership, and supplied him with rosin -- perhaps to the amount of $400 or $500 per year, sometimes more and sometimes less. And that he sometimes gave a note for the balance signed John Winship: that witness always took such notes on the credit of the
Binneys, with full confidence that they were interested and were men of property."
"And at some time in the year 1823, and perhaps a little previously, and until 1825, witness and Winship were in the habit of exchanging notes, which were discounted at the different banks; they began at the Manufacturers' Bank; there were none at the Branch Bank till 1824. They began with small notes, and finally exchanged notes for $2,000 and $2,500, sometimes signed by one and endorsed by the other, and vice versa. These notes were discounted at the different banks, but that he believed that none was discounted at the United States Bank until at later periods, and that Winship usually applied for the discounts. That he, Jacques, endorsed these notes on the credit of the firm. That Winship always represented them to be for the partnership account, and that witness never understood that they were on his private account."
"The notes in suit were generally presented by Winship for discount, but that witness might have presented some of them."
"There were some notes for his private account, but that he believed those in suit to have been for the firm."
"He could not state what portion of the money obtained on these notes he had received, but that as he and Winship exchanged notes, he could not say that he never received any of it. Some of those notes were given for renewals at this bank, and some to take up notes at other banks."
"It was his impression that some of the money thus obtained went to pay for rosin, and that one of them for $1,500 was originally made to take up a note which had been previously given at the Manufacturers' & Mechanics' Bank for rosin, being a material used in defendant's factory. He knew no particulars concerning the appropriation of the moneys obtained upon these notes, and knows of no other which Winship has made but for the use of the firm."
"The business of the firm required a great capital, and Winship often spoke of buying barilla and tallow for the factory, but that witness does not know that he alluded to these particular notes, nor that the proceeds of them were applied to any other business."
"This business of exchanging notes continued until 1825,
when he and Winship stopped payment. Winship kept a little note book, but witness, having great confidence in him, kept no accurate accounts."
"The particular occasion of witness' stopping payment was the nonpayment of his acceptance on a draft drawn on him by Winship for barilla, an article such as is used in the factory. He told Mr. A. Binney of it, who said he would do nothing about it. He furnished the factory of defendants with rosin from 1822 to 1825; he sometimes might have received payment in cash, but it was generally in notes. He has endeavored to trace the origin of the notes in suit, but can trace only two -- that of $800 and one of $806, originally given for rosin, were eventually included in the notes in suit, for $1,900, by means of successive renewals. Winship sometimes came to witness, and stated that he wanted his name instead of Amos Binney because he was absent, and got his name accordingly. He has a memorandum in his note book, of August 15th, 1825, stating that Winship applied to him to take up a note of Amos Binney of that date for $1,500, stating that he was out of town. This note originated 9 October, 1824, and was at first for $2,00, and renewed successively till 15 August, 1825, when it was reduced to $1,500; that the original note was Amos Binney's, not the last one."
Upon cross-examination he testified
"That he had known John Winship about twenty or twenty-five years; that he was in partnership with Messrs. Hydes, and that their names were in good credit, before his connection with Binney and not in extensive business. There are accommodation notes of this kind now outstanding amounting to about $21,000. No particular agreement ever subsisted between him and Winship concerning the proceeds of these accommodation notes; they sometimes divided the money and each took a portion. And sometimes he lent his name to Winship, and Winship lent his name to him. And at the conclusion of the whole matter, they bundled up all the notes that had been taken up and agreed to consider them as settled and discharged. "
"And as to the outstanding $21,000, he applied to adjust it with Winship, but he said that the papers were all in Binney's hands. He never applied to him to adjust them. When he went to Winship, the notes and checks were in a mass, and they agreed to consider them cancelled, to bundle them up and to pass receipts, and as to the residue which were outstanding, that they should be adjusted as well as they could."
"He has checks of Winship's amounting to about $1,700 or $2,000, and some notes, and that Messrs. Binneys hold notes and checks signed by him and given to them by Winship."
"He was engaged in an extensive speculation in hops; was indebted and mortgaged his estates in 1824 to Messrs. Thomson, for about $10,000. He never knew any actual use for the benefit of the firm for money obtained on the accommodation notes unless the taking up of the rosin notes, as stated in his testimony, be so considered."
"He understood that Winship was engaged in some shipments of the manufactures of the firm and also of some other articles, but always supposed them to be on account of the firm, and Winship always told him so."
"He was called upon to take up one of these accommodation notes signed by him, and borrowed money of Amos Binney upon collateral security by a mortgage of land for that purpose, and nothing was said to Binney about his being liable to pay the note, according to his recollection."
"The plaintiffs also introduced the testimony of other witnesses who, among other things, stated that they learnt the existence of a co-partnership between Winship and the Binneys in the soap and candle business by report and the declaration of Winship, but none of them ever learnt it from either of the Binneys. One witness stated that Winship offered to exhibit to him the articles of co-partnership, and Parker stated that the Binneys were engaged in large business as merchants, and he did not know that anyone ever supposed that they and Winship were connected except in the soap and candle business."
The defendants gave in evidence the articles of agreement entered into by the defendants at the formation of the co-partnership. chanroblesvirtualawlibrary
The agreement was executed on 25 September, 1817, and was between Amos Binney and John Binney of Boston and John Winship of Charleston, Massachusetts "for the manufacture of soap and candles."
Amos and John Binney agreed to furnish for that purpose a capital stock of $10,000, at such times as the same should be required to purchase stock and materials for carrying on the manufacture, and Winship agreed to conduct and superintend the same "under the name and firm of John Winship," to keep books open to the inspection of the parties, exhibit an annual statement of the capital or business, interest to be paid on the capital, and the profits to be divided one-half to Winship and one-half to A. & J. Binney and losses to be apportioned in the same manner. The agreement was to continue in force for two years and for a further term if the parties agreed thereto.
The capital was afterwards increased to $20,000, Amos Binney and John Binney advancing the same in equal proportions. This was acknowledged by John Winship on the back of the agreement.
They also gave in evidence a bond given by John Winship to Amos Binney on 25 September, 1817, in the penal sum of $10,000, with the condition following:
"The conditions of this obligation are such that whereas the above-bounden John Winship has this day made an agreement with Amos Binney and John Binney both of Boston aforesaid for the purpose of carrying on a manufactory of soap and candles in joint account of the parties aforesaid, and whereas the said A. Binney hath engaged to endorse the notes given by the said John Winship for the purchase of stock and raw materials for manufacturing, when necessary to purchase on a credit, and in consideration of which the said John Winship hath engaged not to endorse the notes, paper, or become in any manner responsible or security for any person or persons other than the said Amos Binney for the term of two years from the first day of October, 1817."
"Now therefore, if the said John Winship shall faithfully observe the conditions and wholly abstain from becoming the surety or endorser of any person to any amount other than
the same Amos Binney for the aforesaid term of two years from the first day of October, 1817, then this obligation to be void and of no effect; otherwise to remain in full force and virtue."
A witness, the clerk of Amos Binney, testified on the part of the defendants below that having all the books and papers of Winship in his hands after the failure of Winship, he examined them and could find no entry of any of the notes in suit, and none of which are stated to be renewals, except two, one for $800, the other for $806, which in the notebook are marked paid. That regular business notes appear to have been entered in the books and the payment of them entered in the cash book, but no entries of these accommodation notes appear. There are entries of notes signed by Winship and endorsed by the defendant to a large amount. Amos Binney advanced very large sums to pay the debts of the concern, amounting in all to about $46,828, and the whole amount sunk and lost to Amos and John Binney was about $70,000.
William Permenter said that he was clerk to Amos and John Binney from 1814 to 1824, and never heard of any of the accommodation notes of Winship.
Mr. Gould stated that he was foreman in the factory, and kept the books of the concern in a counting room; that he never saw John Binney there, nor Amos Binney more than once or twice, for the whole time until about the time of the failure. That he had carried on the business since Winship's failure, and it had been profitable.
And several other witnesses stated, among other things, that Amos and John Binney were severally engaged in other extensive business, and in good credit as merchants, Amos Binney being esteemed wealthy.
The plaintiffs also introduced William Gordon, who testified that he had always understood that there was a co-partnership in the manufacture of soap and candles, that Winship bought real estate, and that it was commonly reported that he bought and shipped other articles than those used in the manufactory.
Also, Thomas R. Thompson, Solomon Harvy, Samuel Raymond, chanroblesvirtualawlibrary
and Thomas Pike, who testified that it was generally understood that the defendants were co-partners and that Winship shipped articles other than soap and candles, or factory goods. It is not stated that any of the witnesses ever learnt the existence of the partnership from either of the Binneys.
The first exception taken on the trial in the circuit court, as stated in the bill of exceptions, was that the counsel for the defendants insisted that the co-partnership was in contemplation of law a secret co-partnership, and did not authorize the giving of credit to any other name than that of the said Winship, but to this the counsel for the plaintiffs did then and there insist before the said court that this was an open or avowed, and not a secret, co-partnership. And the presiding justice of the said court did state his opinion to the jury on this point, as follows:
"That according to his understanding of the common meaning of 'secret partnership,' those were deemed secret where the existence of certain persons as partners was not avowed or made known to the public by any of the partners. That where the partners were all publicly known, whether this was done by all the parties or by one only, it was no longer a secret partnership, for secret partnership was generally used in contradistinction to notorious and open partnership; that whether the business was carried on in the name and firm of one partner only or of him and company would in this respect make no difference; that if it was the intention of the Binneys that their names should be concealed and the business of the firm was to be carried on in the name of Winship only, and yet that Winship, against their wishes, in the course of the business of the firm, publicly did avow and make known the partnership, so that it became notorious who were the partners, such partnership could not, in the common sense of the terms, be deemed any longer a secret partnership; that if 'secret' in any sense, it was under such circumstances using the terms in a peculiar sense. That, however, nothing important in this case turned upon the meaning or definition of the terms 'secret partnership,' since the case must be decided upon the principles of law applicable to such a partnership, as this was in fact proved to be. That there was no stipulation for secrecy as to the Binneys' being partners
on the face of the original articles of co-partnership, and when those articles, by their own limitation, expired, the question what the partnership was, and how it was carried on for the future; whether upon the same terms as were contained in the original articles or otherwise was matter of fact from the whole evidence; that if the evidence was believed, Winship constantly avowed the partnership, and that the Binneys were his partners in the soap and candle manufactory business, and obtained credit thereby."
But he left the jury to judge for themselves as to the evidence.
Second exception. And the counsel of the defendants did then and there further insist that the jury had a right to infer from the evidence aforesaid, notwithstanding the entries of shipments in the invoice book kept by said Winship, that the said Amos Binney and John Binney had no knowledge thereof, and therefore could not be presumed to have adopted or ratified the conduct of said Winship making said shipments. But the presiding judge did then and there instruct the jury as follows:
"That whether the said Amos and John Binney or either of them knew of the said entries or not was matter of fact for the consideration of the jury upon all the circumstances of the case. That ordinarily the presumption was that all the parties had access to the partnership books, and might know the contents thereof. But this was a mere presumption from the ordinary course of business, and might be rebutted by any circumstances whatsoever which either positively or presumptively repelled any inference of access -- such, for instance, as the distance of place in the course of business of the particular partnership, or any other circumstances raising a presumption of nonaccess."
And he left the jury to draw their own conclusion as to the knowledge of the Binneys of the entries in the partnership books from the whole evidence in the case.
"And the counsel of the defendants did then and there further insist that by the tenor of the said recited articles of agreement and bond, the said Winship had no right or authority to raise money on the credit of the said firm, or to bind the firm by his signature for the purpose of borrowing
money. But the presiding judge did then and there instruct the jury as follows: "
" That if the particular terms of the articles of co-partnership were not known to the public or to persons dealing with the firm in the course of the business thereof, they had a right to deal with the firm in respect to the business thereof upon the general principles and presumptions of limited partnerships of a like nature, and that any secret and special restrictions contained in such articles of co-partnership varying the general rights and authorities of partners in such limited partnerships and of which they are ignorant, did not affect them. That the case of Livingston v. Roosevelt, 4 Johns. 251, had been cited by the defendants' counsel as containing the true principles of law on this subject, and this Court agreed to the law as to limited partnership as therein held by the court. That it was not denied by the defendants' counsel, and was asserted in that case, that it was within the scope and authority of partners generally in limited partnerships to make and endorse notes and to obtain advances and credits for the business and benefit of the firm, and if such was in fact the ordinary course and usage of trade, the authority must be presumed to exist. The court knew of no rule established to the contrary. That the authority of one partner in limited partnerships did not extend to bind the other partners in transactions, or for purposes, beyond the scope and object of such partnerships. That in the present articles of co-partnership, Winship was in effect constituted the active partner, and had general authority given him to transact the business of the firm. That he had so far as respects third persons, dealing with and trusting the firm, and ignorant of any of the restrictions of such articles, authority to bind the firm, to the same extent and in the same manner as partners in limited partnerships of a like nature usually possess, for the objects within the general scope of such a firm."
"That the articles limited the partnership to a particular period, after which it expired unless the parties chose to give it a future existence. That no new written articles were proved in the case, and the terms and circumstances under which it was subsequently carried on were matters to be decided upon the whole evidence. The fair presumption was that it was
subsequently carried on on the same terms as before unless other facts repelled that presumption. That the bond executed at the time of the execution of the articles ought to be considered as a part of the same transaction and contract."
And the said counsel of the defendants did then and there further request the court to instruct the said jury as follows, to-wit:
First, that if upon the whole evidence it is satisfied that the co-partnership, proved to have existed between the defendants under the name of John Winship, was known or understood by the plaintiffs to be limited to the manufacturing of soap and candles, it must find a verdict for the defendants unless it is also satisfied that these notes were given in the ordinary course of the co-partnership business or that the moneys obtained upon them went directly to the use of the firm with the consent of Amos Binney and John Binney, and that if it is satisfied that any part of these moneys did go to the use of the firm with such consent, that then it must find a verdict for the plaintiffs for such part only, and not for the residue.
"Secondly, that if it is also satisfied that the Messrs. Binneys furnished Winship with sufficient capital and credit for carrying on the business of the firm, no such consent can be implied from the mere fact that Winship applied these moneys or any part of them to the payment of partnership debts."
But the presiding judge refused to give the instruction first prayed for unless with the following limitations, explanations, and qualifications, viz.,
"That the defendants, as co-partners, are not bound to pay the notes sued on or money borrowed or advanced unless the endorsements of the same notes and the borrowing of such money was in the ordinary course of the business of the firm for the use and on account of the firm. But if the said Winship offered the notes for discount as notes of the firm and for its account, and he was entrusted by the partnership as the active partner, to conduct the ordinary business of the firm, and the discount of such endorsed notes was within such business, then, if the plaintiffs discounted the notes upon the faith of such notes being so offered by the said Winship, and as binding on the firm, the plaintiffs were entitled to recover, although Winship should have subsequently
misapplied the funds received from the discount of said notes, if the plaintiffs were not parties or privy thereto, or of any such intention. And if Winship borrowed money or procured any advances on the credit and for the use of the firm, and for purposes connected with the business of the firm in like manner, and under like circumstances, and the money was lent or advanced on the faith and credit of the partnership; the money so borrowed and advanced bound the partnership, and they were liable to pay therefor, although the same had been subsequently misapplied by Winship, the lender not being party or privy thereto, or of any such intention."
And with these limitations, explanations, and qualifications, he gave the instructions so first prayed for.
And the presiding judge gave the instructions secondly prayed for, according to the tenor thereof.
The defendants in the circuit court excepted to these opinions and decisions of the court; and a verdict and judgment having been rendered for the plaintiffs, the defendants prosecuted this writ of error. chanroblesvirtualawlibrary