Ward v. Motter
Ward v. Motter
Opinion of the Court
The liability of a dormant partner depends not upon the terms, or the form, or the dignity of the contract between the creditor and the ostensible partner, but upon the relation which the dormant partner bears to the subject of and the parties to the contract. The creditor, ignorant of the existence of the dormant partner, has of course no transaction whatever with him, but deals exclusively with the ostensible partner, looks to his credit and responsibility alone, and never speculates upon the mere possibility of a dormant partner who may thereafter be accidentally discovered. The law subjects the dormant partner upon considerations of justice and policy. It is just that he who participates in the benefits should also be responsible for the engagements of the concern; and it would lead to much inconvenience and fraud, if the demands of creditors, growing out of the partnership business, should be affected by the secrecy of the connexion between the partners. This liability of the dormant partner, by operation of law, cannot be frustrated by any arrangements between the creditor and the ostensible partner; for such, in the nature of things, cannot be the intent of the creditor; and though it may be and usually is the intention of the ostensible as well as the dormant partner, that very intention it is the object of the law to overrule and defeat. It follows that all such arrangements, of whatever nature, whether by the separate security of the ostensible partner, or otherwise, are merely collateral to that joint undertaking which the law forces upon the members of the firm; an undertaking based upon the consideration which has enured to the benefit of the partnership, and governed by a rule broader than the stipulations of contracts, “ qui sentit commodum sentire debet et onus.”
The liability of the dormant partner, moreover, is not absolute, but dependant upon the election of the creditor; and that election must be made in due time, and by a proper course of proceeding. In Hoare v. Dawes, 1 Doug. 371. it was said by lord Mansfield, that a dormant partner is liable when discovered. But I do not understand him to mean whenever discovered, or whatever may have been the proceedings against the ostensible partner; but only that though the dealing has been with the ostensible partner alone, yet the dormant partner may be subjected, if discovered. The creditor must however take care that he do not, by proceeding upon the joint contract, implied or express, against the ostensible partner alone, thereby lose his remedy against the dormant partner. If he brings his action upon the
The case before us is unembarrassed by any separate proceedings on the part of the creditor against the ostensible partner. It is simply the case, as presented by the special verdict, of a sale of goods to the ostensible partner for the use and benefit of the partnership business, and a separate security taken from the ostensible partner therefor, without any knowledge at the
If the separate security given in this case by the ostensible partner were by simple contract, it is quite clear that the dormant partner would not be thereby exonerated. It is well settled that one simple contract, for the same consideration, does not extinguish another. If therefore a promissory note or bill of exchange be given for goods sold or money loaned, it does not bar the creditor’s right of action founded upon the consideration; unless, from the negotiable character of the instrument, and the creditor’s conduct or laches in relation thereto, the debtor is, in contemplation of law, subjected to the hazard of loss. Chitty on Bills p. 433. And if such note or bill be a separate security, it is immaterial, as to the effect of the instrument-merely, whether it be given for a joint or a separate debt. It may be evidence that the debt was in its origin separate, or that the debt originally joint has been converted by a subsequent agreement into a separate debt; but if the fact be otherwise, if the debt was originally joint and has not been so converted into a separate debt, the separate security is merely collateral to the joint responsibility. Where there are several ostensible partners of a firm, it is often a question of difficult solution, whether the debt demanded be the debt of the partnership, or the separate debt of one of its members; and the difficulty arises out of the circumstance that a partnership is usually limited in its objects, and therefore the members of the firm individually have their separate interests and business transáctions. The question in such cases turns, for the most part, upon the enquiry whether the credit
This view of the joint liability of a dormant partner, notwithstanding a simple contract security given by the ostensible partner, is well sustained by authority.
Judge Story, in his Law of Partnership, p. 215. § 138. says: “ In the case of a dormant and secret partner, the credit is manifestly given only to the ostensible partner. Still, however, it is not treated as an exclusive credit: for the law in all cases of this sort founds
Robinson v. Wilkinson, 3 Price 538. 1 Eng. Excheq. R. 417. was an action of assumpsit for goods sold and delivered, and the question was whether a concealed part-owner of a ship was liable for stores furnished the ship and master. The master drew bills for the demand on the ship’s agents in London. Afterwards Cay, the ostensible owner, obtained indulgence from the plaintiff, by agreeing to accept bills, in lieu of the former, at three, four and six months, which the plaintiff drew on him, but which were dishonoured by Cay, who proved insolvent, and to prevent his bankruptcy agreed to pay a composition of thirteen shillings in the pound, which was secured by the acceptance of his friend Wilson of a bill drawn by Cay at eight months. This bill, which was negotiated by the plaintiffi was also dishonoured, both drawer and acceptor having become bankrupt before the bill was due. At the period of these several transactions, the plaintiff considered Cay as the sole owmer of the ship, and did not know that the defendant was a part-owner. Immediately upon discovering this fact, the plaintiff made a demand upon
In Schermerhorn v. Loines, 7 Johns. R. 311. where a person supplied stores to a ship, of which there were several owners, on the order of one of them who acted as ship’s husband, and took his note in payment, and gave a receipt in full, it was held to be no discharge of the other owners, especially as it did not appear that the plaintiff knew at the time that there were other owners.
In Reynolds v. Cleveland, 4 Cow. 282. it was held that the partners were all liable for articles furnished for the benefit of the partnership, though the vendor did not know of the existence of the partnership, and supposed
It will thus be seen that if the separate security in this case can exonerate the dormant partner, it must be by force of the scroll attached to the instrument by way of seal, which gives to it the dignity of a specialty. It is upon this ground that the counsel for the plaintiff in error has very properly placed the cause; and what I have said in regard to the effect of a separate security by simple contract, has been with a view to its due consideration. In that connexion, it is evident that the defence is purely technical, there being no principles of justice or policy which are not equally applicable to the separate security of the ostensible partner, whether it be by specialty or simple contract.
It is argued in the first place, on the part of the plaintiff in error, that he is not chargeable upon a simple contract, because none such has ever existed, the specialty being, in the very nature of the transaction, the whole contract on the subject, and the sole evidence of the debt. But this is to confound the contract itself, to wit, the reciprocal agreement of the parties for the sale of the goods at a given price or value, with the security given by one of them for its performance on his part. The contract has been executed on the part of the seller, and it may be has been extinguished on the part of the purchaser; but its very extinguishment supposes its previous existence, and whether for a month or a moment is immaterial. The authority relied upon by the counsel for the plaintiff in error, 2 Leonard 110. Hooper’s case, and Pudsey’s case there stated, is one of extinguishment. The purport of it, as correctly expressed in 3 Bac. Abr. Extinguishment. D. is, that “ if a
In the cases from Leonard, the bond was executed for a sole simple contract debt; and the doctrine is unquestionable, that the simple contract is thereby extinguished, whether the obligation be given by the debtor, or by a stranger who, by agreement of the parties, (though not otherwise) is substituted for the original debtor. The doctrine is founded in good reason ; for the higher security furnishes a better remedy, and must have been intended as a substitute for the former remedy, and the debtor ought not to be harassed by a double action.
In the present case, the ostensible simple contract debt was the sole debt of the ostensible partner; and that was doubtless extinguished by the single bill given by him therefor. But the law, without the knowledge of the creditor, gave him (at his election so soon as discovered) a secret simple contract debt, upon the same consideration, due from the ostensible and dormant partners jointly; and the question is, whether that joint debt was extinguished by the separate obligation of the ostensible partner.
Where the partners of a firm are ostensible, I regard it as perfectly well settled that if a creditor accept the separate bond of one for a simple contract debt of the firm, the joint legal remedy is thereby destroyed : and in that sense thé simple contract may be considered as
In the case of ostensible partners, if the simple contract, instead of being joint only, (as it is at law, though not in equity, Story on Partn. p. 514. § 362.) were several, the separate bond of one of them would not extinguish the several remedy against the other. The simple contract would stand upon the same footing as a joint and several promissory note; and there it is clear that the several action would still remain against him who did not unite in the obligation, upon the same prin
I consider the case of Leslie v. Wilson, 7 Eng. Com. Law Rep. 395. an authority in point. There, goods conveyed by a ship having been spoiled in consequence of the negligence and unskilfulness of the captain, the freighter sued the owners, one of whom was the captain, for damages in an action on the case, and it was held that the action lay, though the captain had entered into a charter party under seal with the freighter, by
The able argument in this case has sought aid, on both sides, from authorities shewing the effect of a separate judgment against an ostensible partner, upon the right of action against his dormant partner; and these are worthy of consideration, inasmuch as they tend in some degree to elucidate, and rather more, it seems to me, to obscure, the principles belonging to the present subject.
In Sheehy v. Mandeville &c. 6 Cranch 253. the plaintiff Sheehy sold merchandise to Jameson, and took his sole promissory note therefor, on which he brought his action of debt and recovered judgment. Afterwards discovering that Mandeville was a dormant partner of Jameson at the time of the transaction, he brought bis
In Willings & Francis v. Consequa, 1 Peters’ C. C. R. 303. Kuhn was introduced as a witness on the part of the plaintiffs, and objected to by the defendant as incompetent by reason of his interest. It appeared that Kuhn and another, as the agents of Willings & Francis, gave
Penny v. Martin, 4 Johns. Ch. R. 566. is an authority upon the question of relief in equity after a several judgment on the joint implied contract. The judgment was rendered in an action of assumpsit against two partners for goods sold, and the bill filed against them and three others as dormant partners since discovered. The bill was dismissed on demurrer, for want of jurisdiction ; the chancellor, without deciding whether the plaintiffs had lost their remedy at law, being of opinion that their ignorance at the time of the judgment, of the fact alleged to have been since discovered, was not a sufficient ground for transferring to that court jurisdiction of a matter properly, if not exclusively, cognizable at law; no accident, mistake or fraud being shewn.
Ward v. Johnson &c. 13 Mass. Rep. 148. is an authority upon the effect of a several judgment on the express joint contract, upon a subsequent action against all the partners on the same contract. An action of assumpsitw&s brought and judgment rendered against one of two partners alone, on a promissory note given by him in the name of the firm. A subsequent action of
Robertson v. Smith &c. 18 Johns. R. 459. was an action of assumpsit against the defendants on a promissory note made by Soulden, Smith Sfco. The plaintiff had previously recovered judgment on the note against Peter Slcen Smith and William Soulden, the ostensible partners, under the firm of Soulden, Smith Sfco. In his declaration in the first suit, he averred them to be partners in trade, and that the note was made by them in their partnership name and firm. Not having obtained satisfaction of the judgment, and supposing that Peter Smith and Abraham Van Santmord were also partners under the same firm, he brought suit against the four defendants. And it was held that the former judgment against two of the defendants on the note was a bar to the subsequent action against the four defendants for the same cause of actionv This was the case of a separate judgment against the ostensible partners upon an express contract, the terms of which embraced the dormant partners, and a subsequent action against a\i upon the same joint contract. The reasoning and authorities adduced by Spencer, C. J. who delivered the opinion of the court, are entirely satisfactory to shew that the former recovery was a bar to the subsequent action. But he seems to have misapprehended the case of Sheehy v. Mandeville &c. in expressing his disapproval of the opinion delivered by chief justice Marshall. The separate judgment in that case was not, as he supposes, upon a joint, but a separate contract. Both declara
In Smith v. Black, 9 Serg. & Rawle 142. Black sold goods to Nathan Smith, and took his note therefor, upon which he recovered judgment. Afterwards discovering Newberry Smith to be a dormant partner, he brought his action against both. The first count was on the promissory note: the second and third counts were for goods sold. It was held that the separate judgment was a bar to the second action : and the decision was, by agreement, made upon the merits of the cause, without regard to the pleadings. Duncan, J. delivered the opinion of the court. He evidently treats the second action as founded upon the promissory note, and that note as evidencing a joint promise. He pays no regard to the effect of the separate security in authorizing and requiring the action thereupon to be several; and gives no thought to the implied joint contract raised by law, that broad basis of the recovery against a dormant partner. And he misapprehends the decision of the supreme court in Sheehy v. Mandeville, stating it from the erroneous marginal note of the reporter to be, “ that a several suit and several judgment against one of two makers of a promissory note is no bar to a joint action against both.” He reasons however very forcibly and satisfactorily to shew, that the merger occasioned by a judgment upon the joint promise cannot be obviated by the plaintiff’s ignorance, at the time, of the dormant part
It seems to me that there is nothing in the cases, thus examined, to justify the idea that the several security of the ostensible partner is to be regarded as the joint contract of the firm, which is at war with the well established doctrine on the subject; and that a want of attention to that doctrine is the source of the misapprehensions I have noticed of chief justice Marshall's opinion in Sheehy v. Mandeville &c. and of the difficulties which arose in that case. Much less is there any thing in those cases to warrant the inference, that the liability of the dormant partner is destroyed by the separate security of the ostensible partner. In truth they proceed upon the opposite idea, of their joint liability, and the merger thereof by a separate judgment upon the joint contract. And if I have succeeded in shewing that the separate simple contract security of the ostensible partner ought to be regarded as collateral to the joint implied contract of the firm, there is still more reason for so considering his separate specialty security; for the former may, under very special circumstances, be treated as the security of the partnership, but the latter in no case whatever.
The foregoing views, if correct, attain the substantial merits of the cause, and preserve in its true spirit and policy the liability of dormant partners ; and are not opposed by even technical obstacles, those stumbling-blocks in the path of justice, chiefly worthy of regard in order that they may be shunned. I think there is no error in the judgment of the circuit court.
The acuteness and ability with which this case was argued required the most careful and deliberate investigation of it. Such an investigation I have endeavoured to make, and now proceed to state the results.
The special verdict finds that the specialty was given for the payment of the price at the time the goods were sold and delivered. The purchase and the obligation by specialty to pay the price were cotemporary,—uno flatu; and it is plausibly, and I incline to think justly said, that the consummated contract for the purchase on the part of the purchaser was by specialty, on the giving of which, and not until then, his title to the goods and his obligation to pay became complete, so that at no time was the ostensible partner responsible in assumpsit, and consequently there was no contract preexisting the specialty on which a partner known or dormant could be sued. But as this view of the case is liable to be encountered by a criticism on the terms of the special verdict, and that criticism may involve in some doubt the interpretation of the verdict in this regard, I forbear to give a definitive opinion on this, and proceed to the consideration of the second question.
It is our province to enquire into and declare what the law is, not to speculate and reason and decide on what it ought to be. The law, on its own reason, has provided that where two or more are jointly bound by contract, the legal remedy must be pursued against all; and one or more of several jointly bound has the right to intercept judgment in a suit pretermitting others. A kindred principle is, that if, by act of the claimant in such joint contract, one or more of the parties jointly bound be discharged, so that all cannot be subjected to a joint judgment, none are liable to judgment on the joint contract; in other words, all are discharged from the legal remedy on the joint contract. Unity of action and unity of responsibility on the same contract must be coexisting, and the destruction of the one is the destruction of the other. Hence a release of one of several jointly bound operates a discharge of all, and this too though no such discharge was intended. The immediate corollary from this principle is, that unless the creditor who may have taken the specialty of, or prose
This being premised, I proceed to enquire whether the position taken by the defendant in error be sustained by authority. The passage cited from 3 Bac. Abr. 106, 7. does not support the broad proposition that a merger or extinguishment of a simple contract is not produced by a specialty, unless all jointly bound by the simple contract be also bound by the specialty. The case from 1 Mason 482. proceeds on the ground that a debt by statute was not merged in the specialty of a third person not bound for the debt, and would not have been merged, as would a simple contract debt, in the specialty of the debtor himself. The case of Sheehy v. Mandeville &c. 6 Cranch 253. will be the subject of future notice.
The cases hostile to the position of the counsel for the defendant in error are numerous, and in my estimation decisive.
Among the cases shewing that according to the principles of the common law a judgment obtained by the creditor on the joint contract, against one or more of the parties bound by it, merges or extinguishes the joint contract, as well in respect to the other parties originally bound by it, as in respect to the parties against whom the judgment may have been rendered, I refer to Robertson v. Smith &c. 18 Johns. R. 459. In that case a judgment had been obtained against two partners. Other partners, then unknown, were afterwards discovered, and suit was renewed on the original contract against them. To this the plea of the former
I also refer to the following cases:
Ward v. Johnson &c. 13 Mass. Rep. 148. Henry Johnson gave a promissory note to the plaintiff, on which judgment was rendered against him. It was afterwards discovered that Thomas Johnson was a dormant-partner, and the suit was renewed on the note against both. The judgment against Henry Johnson was pleaded in bar, and the plea was sustained.
Smith v. Black, 9 Serg. & Rawle 142. almost identical with Ward v. Johnson &c. in circumstances and result.
In the case of Willings & Francis v. Consequa, 1 Peters’ C. C. R. 301. the doctrine in respect to the legal effect of a judgment against an ostensible, on the liability of a dormant partner, is thus laid down: Should the creditor, after the judgment against the ostensible partner, bring suit against K. (the dormant partner) separately, he may be defeated by plea in abatement; and the judgment in this action (against the ostensible partner) would be a bar to any suit he might bring against Willings & Francis and K. The judgment would have as completely extinguished the original debt as to Willings fy Francis, as if they had given a bond for it, which it would clearly have done; the rule that a bond given by a stranger is no extinguishment of a simple contract of the real debtor, not applying to a case where it is given by one of two or more joint contractors.
Drake v. Mitchell &c. 3 East 251. In that case one of several joint covenantors gave a bill of exchange, which, however, was not taken in satisfaction. The
It may here be remarked, that in each of the cases from Johnson’s and Serg. & Rawle’s reports, the case of Sheehy v. Mandeville &c. was cited and commented on by the court. It was not deemed an authority governing those cases. And in the judgment of the court in the case of Ward v. Johnson &c. it is said, that in Sheehy v. Mandeville &c. “ it is admitted or strongly intimated that the facts disclosed in that case were sufficient, had they been properly pleaded, to bar the action against Jameson.'" A reference to the case itself will shew that there was warrant for the comments made on it by the courts of New York and Massachusetts; and in the complexity caused by the state of the pleadings, the general question now under consideration was not distinctly presented, argued or adjudicated. This is further evinced by the fact that judge Washington, who was one of the court concurring in the decision of Sheehy v. Mandeville &c. gave the judgment cited from 1 Peters’ C. C. R. Willings & Francis v. Consequa.
While in the foregoing cases the effect of a judgment against one of several joint contractors, on the legal responsibility of the others upon the original contract,
But the adjudications on the latter case are numerous and unvarying. Opinions to this effect are distinctly expressed by this court in its judgments in the cases of Sale v. Dishman's ex'ors, 3 Leigh 548. Galt's ex'ors v. Calland's ex'or, 7 Leigh 594. and Weaver v. Tapscott, 9 Leigh 424; and though it was justly remarked at the bar that in the first and last of these cases a decision of that question was not indispensable, yet in the case of Galt's ex'ors v. Calland's ex'or the court considered that as a material question, and adjudged it as one important to the decision of the case. That adjudication, not in conflict with any that the diligence and learning of the counsel for the defendant in error has discovered, is supported by those before referred to, and more precisely by Clement v. Brush, 3 Johns. Cas. 180. and Tom v. Goodrich &c. 2 Johns. R. 213.
The decision of judge Story in 1 Mason 482. conflicts with that of Tom v. Goodrich &c. on the point whether a bond for duties would merge the debt created by statute, but it does not conflict with the proposition of law on which the judgment in the case of Tom v. Goodrich &c. rests, to wit, that the specialty of one of two joint debtors by simple contract, in point of law extinguishes the simple contract.
It is urged, however, that the case of a dormant partner is distinguishable from that of an ostensible one, and that such a partner cannot be discharged from legal liability for the debts of the partnership, by the transactions of the creditor with the ostensible partner, in ignorance of the fact of partnership. In support of
The case of Robinson v. Wilkinson, 3 Price 538. 1 Eng. Exch. R. 417. appears, on a cursory view of the general expressions of chief baron Richards, more applicable and stringent. But on examination it is found that the dealings with the ostensible partner, in virtue of which the dormant partner claimed to be discharged, were of such a nature that the creditor was left at liberty to resort to the original contract, even against the ostensible partner. Those dealings had neither extinguished nor satisfied the original demand as to the ostensible partner, had he only been liable for it; and on that ground only was the action against the dormant partner sustained. Graham, baron, says, “The debt against Cay” (the ostensible partner) “ remained undischarged, and the plaintiff had a right to resort to his original remedy, which was then revived against all persons primarily liable.” Wood, baron, says, “ The drawing of the bill which was afterwards dishonoured is no discharge. If Cay had been discharged, the defendant as his partner would have been discharged, but that was-, not so here.” The remark of Richards, chief baron, that “a dormant partner cannot discharge himself from liability to pay the debts of a creditor through the medium of his ostensible partner, by any acts of his during the concealment of the unknown partner,” is to be limited in its generality to the case in
On the whole case my opinion is, that the giving and acceptance of the specialty of Fisher mentioned in the verdict extinguished the simple contract, and thereafter the creditor had no legal remedy on that simple contract against Fisher and his partner, whether ostensible or dormant, or against either of them ; and that the law arising on the verdict is for the plaintiff in error.
Concurring Opinion
concurring in the opinion of Stanard, J. the judgment of the circuit court was reversed with costs, and judgment entered on the special verdict for the defendant.
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