Lyman Mix vs. Henry T. Muzzy and another

Lyman Mix vs. Henry T. Muzzy and another. The plaintiff, at the request of M, a member of the firm of M & H, made an accommodation note, payable to the order of the firm, and delivered it to M, taking from M in exchange therefor a note of the same amount, executed by M inlhe partnership name, the plaintiff supposing that his note was to be used for the benefit of the firm. M, however, without the knowledge of his partner, indorsed it in the partnership name, and delivered it to G- in payment of a private debt, G taking it with full knowledge of all the facts. When the plaintiff’s note fell due, he had learned the facts with ^regard to the fraudulent use made of it. He however gave a new [ *187 ] note to G for the amount due, and took up the former one, surrendering also to M the note which he held against M & H, and taking a new note of the same amount with his own, executed by M in the name of the firm. The plaintiff afterwards paid his note when it fell due. In a suit brought by him against M & H, on the note last taken by him, and for money paid'for their use, it was h.‘ld:.l. That the arrangement between M and G, under which the latter received the original note of the plaintiff, indorsed in the partnership name, in payment of his private claim against . M was a fraud on the other partner, and that G obtained thereby no right to the note, either against the firm or the plaintiff. 2. That as the plaintiff had full knowledge of the facts when he gave his new note, and took a new note in the name of the firm, he could not recover upon the latter note against the firm. 3. That as the plaintiff was not legally liable to pay to G the note originally given by him, his payment of the same, either in cash, or by giving a new note, would not give him a right to recover the amount as money paid to the use of the firm. Assumpsit upon a promissory note, with the common counts. The note was signed by the partnership name of the defendants, payable to the plaintiff’s order, four months from date, and dated November 12, 1855, for the sum of $825. The defendant Muzzy was defaulted. Huntly, the other defendant, pleaded the general issue, which was closed to the court, with notice of the special facts below stated. • • Upon the trial, the following facts were found by the court. The defendants entered into partnership on the 7th day of December, 1853, under the name of Muzzy & Huntly, which partnership continued until the 9th day of April, 1856, when it was dissolved. On the 26th day of July, 1855, Muzzy made an arrangement with the plaintiff, under which the latter gave to Muzzy his note of that date, for the sum of three hundred dollars, payable to the order of Muzzy & Huntly, at three months from date, and Muzzy made a note in the partnership name, of the same date, for the same sum, payable to the order of the plaintiff, and delivered it to the plaintiff in éxchange for his note. ' At the time of this exchange, Mix supposed that he was loaning his note to the partnership,. for its use, and was taking their note as security for the same. But Muzzy indorsed the note of the plaintiff in blank, in the partnership name, and delivered it to, and it was received by, the firm of H. E. & Gr. Merriman, in payment of a private debt due them from Muzzy. When this note of the plain- [ *188 ] tiff *became due, it was protested for non-payment. After it had been protested the plaintiff learned that it had been indorsed by Muzzy in the partnership name, and delivered to the Merrimans to pay his private debt, but supposing that he was liable to pay the note, he, on the 12th day of November, 1855, made a new note of that date, for the sum of $325, payable to the order of the Merrimans, at four months from date, and delivered it to them, and it was received by them in payment of the protested note; and, thereupon, Muzzy made and delivered to the plaintiff the note now in suit, as security for the new note so made by the plaintiff to the Merrimans. The Merrimans indorsed the plaintiff’s new note to Danforth & Church, to whom the plaintiff paid the same when it fell due. Huntly had no knowledge of any of these facts until about the time of the commencement of this suit. The question whether the plaintiff was entitled to recover against Huntly, upon 'the foregoing facts, was reserved for the advice of this court. Wells and Mitchell, for the plaintiff. Muzzy & Huntly were clearly liable as a firm to the plaintiff, on the note first given to him, as it was made in the partnership name, and taken by him with no knowledge or suspicion that the partnership was not to have the benefit of the note loaned by him, and which was the consideration for the note received by him. Collyer on Part., secs. 384, 391, 396, 401, 417, 422, 445. New York Firemen's Ins. Co. v. Bennett, 5 Conn., 574. Livingston v. Roosevelt, 4 Johns., 267. If they were so liable, that liability would be a good consideration for the second note given by them, which is the note in suit. It can make no difieren ce that, when the second note was received by him, the plaintiff had learned that Muzzy had fraudulently used the note of the plaintiff for his private benefit. The firm was legally indebted to him, and the new note therefore was given strictly to pay a partnership .debt. Besides, the declaration contains the common counts, as well as a special count upon the £ *189 ] note, and *the payment by the plaintiff of his original note, which was merely loaned to the firm, and which it was their duty to pay, created at once an indebtedness to him for money paid to their use—which indebtedness still exists, and will sustain the count for money paid. E. Johnson and Newell, for the defendant Huntly. The consideration of the note now in suit is not the former indebtedness of the firm of Muzzy & .Huntly to the plaintiff, but the note last given by the plaintiff to H. E. & Gr. Merriman. When he gave that note, he knew that he was lending it, not to the firm of Muzzy & Huntly, but to Muzzy alone. It is not enough that it was given to pay his former note which had been indorsed by Muzzy in the company name to the Merrimans, for it was a fraud on the part of the Merrimans to take that note, indorsed in the company name, in payment of their private debt, and they could not have recovered upon it, either against the plaintiff or against Muzzy & Huntly. It was the duty of the plaintiff, at that time, having learned all the facts, to refuse to pay that note, and in paying it, whether in cash or by a new note, he paid it in his own wrong. If he gave the note under a mistake of law as to his legal liability, we are not to suffer for his error. New York Fireman's Ins. Co. v. Bennett, 5 Conn., 583. Livingston v. Hastie, 2 Caines, 246. Davenport v. Runlett, 3 N. Hamp., 386, 391. Lansing v. Gaine, 2 Johns., 300. Dubois v. Roosevelt, 4 id., 262. Dob v. Hasley, 16 id., 34. Whitaker v. Brown, 11 Wend., 75. Baird v. Cockran, 4 Serg. & R., 397. Rogers v. Batchelor, 12 Pet., 221. 3 Kent. Com., 48, and notes. [MAJORITY — Waldo, J.] Waldo, J. It is an admitted principle that one partner has an implied authority to bind the firm by contract relating to the partnership, in whatever way such contract may be evidenced. Nor can any private arrangement between the partners limit their responsibility to third persons, unless such persons either expressly or impliedly assent to such arrangement. And it is equally true that there are instances in which one partner *may bind the firm by a contract in which the [ *190 ] firm has no interest; as when one partner gives out a negotiable note, made in the name of the firm, to a party who indorses it to another party for value, and the last party receives it without any knowledge that it was not made for a partnership transaction. In such case, the holder may recover the amount of the note of the firm, although no one of the firm, except the partner who made the note, knew that such a note was in existence. But one partner, as such, has no authority to bind the firm by a contract in which the firm has no interest, and which is outside of the scope of the partnership business, if these facts are known to the person with whom the contract is made. The proper application of these familiar principas will enable us to dispose of the question now before us. From the facts found bv the superior court, we see that Muzzy & Huntly were partners in business at the time of the transaction in question. Muzzy was then the debtor of the firm of H. E. & G, Merriman. He applied to Mix, the plaintiff, to assist him by an exchange of notes ; that is, he, Muzzy, was to give Mix the note of Muzzy & Huntly, for the sum of three hundred dollars, and Mix was to give Muzzy his, Mix’s, note for the same amount. The object of the parties doubtless was, to enable Muzzy to raise money upon the note of Mix, and so far as Mix was concerned, he supposed the money was to be raised for the benefit of the firm of Muzzy & Huntly. So far the transaction had nothing unusual in it, and was in a form very generally adopted by persons who raise, money upon accommodation paper. One note was the consideration of the other, and, in the hands of a bona fide holder, either could have been collected of the makers ; and if either had been paid by the maker to a bona fide holder, the other note might have been recovered of the maker thereof in an action upon the note in the name of the payee. But Muzzy, after obtaining the note from Mix, indorsed it in blank, in the name of the firm, and delivered it to H. E & G. Merriman, in payment of his private debt to them. The Merrimans had no right to receive the note of the part- [ *191 ] nership, *or the property of the partnership, in payment of their debt against one of the partners, without the knowledge or consent of the other partner. Such a transaction would be a fraud upon the other partner, or, more properly, it would be what is called cooin, which is by Lord Ellenborougli defined to be “ a contrivance between two to defraud or cheat a third.” It would be a contrivance between Muzzy and the Merrimans to appropriate the property of Huntly to pay a debt of Muzzy’s which of course Huntly was under no obligation to pay, and it would therefore operate as a fraud or cheat upon him ; and this too, would be done with a full knowledge of all the facts by Muzzy and the Merrimans, who also knew that Huntly was ignorant of the whole proceeding. This transaction, therefore, between Muzzy and the Merrimans, as found by the superior court, did not give the Merrimans any right to. resort to the firm of Muzzy & Huntly in any event.. Had they undertaken to sue the firm upon their indorsement of the note, after it had been protested, they must have failed. New York Firemen's Ins. Co. v. Bennett, 5 Conn., 574. Arden v. Sharpe, 2 Esp., 524. Chazournes v. Edwards, 3 Pick., 5. But it is said that, admitting that the Merrimans could not have recovered against Muzzy & Huntly on their--indorsement, still they might have recovered the amount of-the note against the maker, who parted with it upon a good and sufficient consideration. We can not assent to this proposition. In a suit by the Merrimans as indorsees against Mix, the maker, it would be competent for the defendant to show that the note was fraudulent in its inception, or was fraudulently put into circulation, and, either of these facts being established, before the plaintiffs would be entitled to a judgment, they would be required to show that they came by the note fairly, and had no knowledge of the fraud. Munroe v. Cooper, 5 Pick., 412. But the facts found show conclusively, not only that this note was fraudulently put into circulation as against Huntly, but also that the Merrimans were parties to that fraud and cognizant of it. To permit them to take *a judgment, under these cir- [ *192 ] cumstances, against the maker of the note, would be to allow them to take advantage of and perfect their own wrong, and would be the crowning act of a serious injury to the rights of an innocent person. It is further claimed that the plaintiffs should not be prejudiced by the covin of the Merrimans and Muzzy, because he supposed he was liable to pay the note to the Merrimans, and, entertaining this supposition, he gave the note of the 12th of November, 1855, in good faith, and took the note in suit as security therefor ; and now having paid the note last given, he ought to recover the amount paid from the persons on whose credit he loaned the first note. It is not necessary for us to express an opinion as to what would have been the rights of the parties, had‘Mix paid the first note at maturity, without notice of the manner in which it came to the Merrimans. This case presents another and different aspect; and we have to notice that, before Mix gave the second note and took the note in suit as security for the same, he had learned that the first note had been indorsed by Muzzy, in the partnership name, and delivered to the Merrimans, to satisfy a private debt of Muzzy to the Merrimans. Whatever, therefore, Mix did after he had this information, was done with a full knowledge of the covinous transactions between those parties. He knew that Muzzy was attempting to appropriate the property of the company to pay his own debt, and he knew this was a fraud upon his partner. Still, he proceeded to give a new obligation to the Merrimans, and take a new note, in the name of the firm, from Muzzy. It is said that he supposed he was liable to pay his first note, and this was the reason of his giving the second. We have shown that he was mistaken in relation to his liability on the first note. He voluntarily paid or satisfied a note which he could not have been compelled to pay. In doing this he might have made Muzzy his debtor, and being his debtor, he might have taken from him such security for his debt as he had authority to give. Muzzy did give the note in suit, but therq is nothing in the case to show that he had any authority, either express or [ *193 ] implied, to bind the firm to pajr his private *debts. The only security, therefore, that Mix took by this note, was the responsibility of Muzzy, whose private debt to the Merrimans he had paid. Nor can we perceive that the aspect of the case is at all changed because Mix supposed he was liable to pay the first note. If he made a mistake he should suffer its consequences. It will hardly be claimed that a misapprehension of- one’s legal liabilities, and a consequent pecuniary loss, can be remedied by subjecting to the same loss a person who had nothing to do with the transaction and was entirely ignorant of its existence. When Mix had learned the true nature of the transaction between Muzzy and the Merrimans, in relation to the first note, it was his-duty to have stopped, or, at least,-to have consulted the party whose legal lights were to be injuriously affected. Had he done so, no one would have been injured. It is true the Merrimans then held his note, which he had given Muzzy & Huntly; but they only held it as against Muzzy, and for his private debt. They would therefore have been in the same condition that they were in before they assented to the fraud upon Huntly, and neither Mix nor Huntly could have been held liable for any demand in their favor. The action of Mix, after a knowledge of all these facts, though done in good faith, and under a misapprehension of his legal rights, can not, we think, change the liability of Huntly. We therefore advise the superior court to render judgment for the defendant Huntly, In this opinion the other judges concurred. Judgment advised for the defendant Huntly.