147 Va. 802 | Va. Ct. App. | 1925
Lead Opinion
delivered the opinion of the court.
This case is before the court on a writ of error awarded to a judgment upon a verdict for the plaintiff in an action, instituted by a notice of motion, in which the defendant in error, the Virginia National Bank, was plaintiff, and the plaintiff in error was one of the defendants, being sued as “Eugene S. Hobbs, surviving partner of J. W. Thomas, deceased, and himself, the said Eugene S. Hobbs, partners, trading as J. W. Thomas & Company.” The claim was upon several negotiable notes made and endorsed by “J. W. Thomas & Company.” The defendant, Hobbs, filed an affidavit denying that he was a surviving partner of the firm of J. W. Thomas & Company, or that he had ever at any time been a partner of J. W. Thomas.
Upon the trial, the execution of the notes by J. W. Thomas & Company was not denied, and the sole issue to be determined was whether or not the. plaintiff in error, Hobbs, was liable upon the notes as a partner of J. W. Thomas. After considerable testimony had been adduced by both plaintiff and defendant, and the court had given instructions, the jury found a verdict for the plaintiff in the sum of $18,970.12, upon which judgment was rendered.
For convenience the parties will be designated in this opinion according to the positions they occupied respectively before the trial court.
It is assigned as error here that the verdict was contrary to the law and the evidence, and we will consider this assignment first.
The following facts were established by the evidence without dispute:
The defendant being desirous to put Thomas in a position to conduct the business with success, agreed that he might be regarded as a partner, and to that end they entered into the following agreement, which was signed by both of them in person:
“Articles of agreement, made and entered into this first day of February, 1900, between E. S. Hobbs, of the one part, and J. W. Thomas, of the other part;
“Whereas, the said E. S. Hobbs and J. W. Thomas have agreed, and by these presents do agree, to become copartners together in the trade of china, crockery ware, willow ware, and kindred articles, and all things thereto belonging, and also in buying, selling, and retailing all sorts of wares, goods and commodities belonging to said trade, which said copartnership is to continue from the date hereof, for and during the pleasure of the said parties, to be terminated at any time by either of them; and
*811 “Whereas, the said copartnership is formed for the sole accommodation of the said J. W. Thomas for the purpose of giving him credit in and about the said trade; and
“Whereas, the said E. S. Hobbs is to have no interest in any of the property or profits of the said copartnership, and is to put in no money, goods or stock of any kind into the said copartnership;
“Now, therefore, this agreement witnesseth: That for and in consideration of the premises, the said J. W. Thomas doth covenant and agree to and with the said E. S. Hobbs, that he, the said J. W. Thomas, will pay all of the debts contracted and to be contracted by the said copartnership in and about the said business, and also that all such losses as shall happen in the said joint trade by bad debts, ill commodities or otherwise, and all wages, charges, expenses, rents, purchases and payments whatsoever, relative to and in the- said joint trade, shall be paid and borne by the said J. W. Thomas; it being understood and agreed that all such gain, profit and increase that shall come, go, or arise for or by reason of the said joint trade, shall be, during the said co-partnership, wholly and solely the property of the said J. W. Thomas. And the said J. W. Thomas doth further covenant to and with the said E. S. Hobbs that all of his, the said J. W. Thomas’s estate, real, personal, and mixed, shall be applied to the payment of any and all debts due or to become due during the said term by the said copartnership, and that he will indemnify and save harmless the said E. S. Hobbs from all liability of any kind whatsoever, which at any time may grow out of the said copartnership; and that he will repay any and all sums which the said E. S. Hobbs may be called upon to pay by reason of the said copartnership. And the said J. W. Thomas doth hereby waive the benefit of*812 his homestead, and all other exemptions as to this obligation.
“Witness the following signatures and seals:
“E. S. Hobbs (Seal)
“J. W. Thomas (Seal).”
The original of this agreement was found among Thomas’s papers after his death, and being in possession of Hobbs as his administrator was put into evidence by him. Thomas conducted the business up to the time of his death, which occurred in October, 1923, when he died by his own hand; and upon examination the business was found to be in a very insolvent condition, as Thomas, under the style of J. W. Thomas & Company, had incurred very large liabilities, in comparison with which the assets appear to have been almost negligible.
On the part of the plaintiff, testimony was introduced tending to show that Thomas had reported to numerous persons in the course of his business transactions— bankers, merchants, wholesale dealers, and others— that Hobbs was a partner in the business with him; and that for many years preceding his death it was commonly considered in business circles in Petersburg that J. W. Thomas & Company consisted of two partners, Thomas and the defendant, Hobbs.
The plaintiff introduced as witnesses agents for Bradstreet and for Dun, the well known mercantile agencies, One of these companies commencing to take reports from Thomas soon after he started in business; and from information received from Thomas and others, both mercantile agencies, in their reports, carried this business as conducted under the style of J. W. Thomas & Company, the partners being Thomas and Hobbs.
An agent for the Bradstreet Company had for a period of approximately fifteen years gone to the office of J. W. Thomas & Company from time to time and
“Do you pledge, sell or otherwise dispose of any of your accounts receivable? No.
“If so, to what extent are any of the accounts in above statement so disposed of? None.
“General partners, J. W. Thomas and E. S. Hobbs.
“Date and expiration of partnership. Indefinite.
“When was business established? 1900.
“Sales for year ending. 15,000
“Average terms of sale. Thirty days.
“Amount of rent paid per annum. $112.50
“Amounts charged'off for depreciation and bad debts. I have none I consider bad; been very cautious who I sold this year.
“Amount of insurance? On stock $4,000.00.
“Are accounts insured, and if so, in what company? None.
“Date signed. January 1, 1922.
“Please sign firm name. J. W. Thomas & Co.
“J. W. Thomas and E. S. Hobbs.”
It was admitted that E. S. Hobbs signed this statement in person. The National Bank of Petersburg gave accommodation to J. W. Thomas & Company on the faith of Hobbs’ financial rating and standing. It was further testified for the plaintiff that in the year 1919, Thomas opened an account for J. W. Thomas & Company at the plaintiff bank, stating that Hobbs was his
On the part of the defendant there was testimony to the effect that Thomas, in applying for a license to the commissioner of revenue in Petersburg, made application in his individual name as owner of the business of J. W. Thomas & Company, and received licenses in that form. Also that Thomas, in making annual reports to the collector of internal revenue for the assessment of Federal income tax of J. W. Thomas & Company, stated on the forms required that he was the owner of the business, or that J. W. Thomas was trading as J. W. Thomas & Company, and that from the return the collector regarded Thomas as the individual owner of the business, as a partnership was required to file a partnership return. Mr. Hobbs testified himself at some length. He stated that he never had any interest in the business; that he had put no capital in it and had never received anything from it; that he had never held himself out as a partner to the Virginia National Bank as being in any way connected with the business; that he did not keep up with the condition of the business and knew nothing about it until Thomas’ death, nor did he know until after
The general doctrine as to a nominal or osten
Mr. Hobbs in bis evidence does not give any details as to the circumstances under which the agreement between himself and Thomas was entered into, and does not state by whom it was drawn. This agreement is a very unusual paper and must have been the subject, beforehand of careful consideration. It was drawn up by some one acquainted with legal forms, and is phrased in technically apt language. It is a formal document under seal. The first clause was sufficient to constitute the' parties actual partners. The subsequent stipulations between the parties show that legally Hobbs did not become an actual partner of Thomas. Nevertheless, in all of those stipulations, the effect of the first clause is referred to as the “said joint trade” and the “said copartnership,” thus emphasizing the fact that the parties were to be taken and regarded in all respects as partners. Mr. Hobbs must have been aware of the fact that an actual partnership is a coalescence of business personalities; indeed, the law likens it to the closeness of the tie formed by marriage. It is difficult to conceive of a more formal and absolute blanket authority to Thomas to conduct the business in respect to third persons just as if there was an actual copartnership formed, consisting of himself and Hobbs. It is difficult to conceive how any one can read this agreement and reach any other conclusion. It was perfectly natural, therefore, that with this-agreement at all times in his possession, Thomas should consider himself in the position to say to all persons with whom he had dealings, or from whom he sought credit, that Hobbs was his partner unless and until Hobbs had forbidden him so to do, and so terminate the agreement as he had, in ac
It was argued by learned counsel for the defendant that inasmuch as the agreement stated that the copartnership was formed “for the sole accommodation of the said J. W. Thomas for the purpose of giving him credit in and about the said trade,” it followed that the credit so referred to meant credit on the purchase of goods or stock in trade, and did not include money borrowed at banks. We do not think the language is capable of such a restricted construction. In these days it may be said, as to the great mass of business, that credit at the banks is one of the most important items of credit. It is commonly known that wholesalers sell to the retailers for a stated price, less a certain discount or percentage if paid within ten days or within some other period from the time of delivery, and that the retail merchants are in the habit of borrowing from banks in- order to take advantage of purchases on such terms. Certainly credit “in and about the trade” would include all credit reasonably incidental to the business, and it is well settled that mercantile partnerships have the .right to borrow money and may be expected to do it. See Commercial Bank v. Miller, 96 Va. 365, 31 S. E. 812.
Upon a review of the evidence it was indeed scarcely possible for the jury to find any other verdict than one holding Mr. Hobbs liable as a partner by estoppel. In the ordinary case there is a mere holding out by the known party or some third party or outside agency, and 0 the effort of the plaintiff is to bring home to the defendant sought to be held, knowledge of the holding out and a failure on his part to take steps to repudiate it. Here, however, the holding out to the trade and to persons giving credit to J. W. Thomas & Company, apparently a firm consisting of more than one person, was expressly authorized in 1900, and holding out under such authority further acquiesced in by writing in 1922, so that the holding out was done from the inception with his authority and consent. It was fairly established that the creditor gave credit upon the faith of a holding out or statement directly traceable not merely to the conduct, or silence or negligence of Mr. Hobbs, but to his affirmative act and consent.
We see no error in the action of the court in overruling the motion to set aside the verdict.
We have so far made no reference to the uniform
The testimony as to the common reputation in Peters-burg of the existence of the copartnership and the testimony as to statements made by Thomas that Hobbs was his partner, were objected to by the defendant, on the ground that knowledge of these matters was not brought home to him; and, therefore, the defendant could not be estopped to deny the partnership because he did not know of the reputation and these statements.
It is settled that the common report, or general reputation, is not admissible upon an issue of general partnership, and cannot be used to prove an actual partnership. It seems, however, to be also well settled that when it is sought to hold a person as a partner by estoppel, general reputation is admissible if known to him, or brought about with his consent, or by his acts. 3 Wigmore on Evidence, section 1624; L. R. A. 1918D, pages 510-513. In the ease of Anfenson v. Banks, 180 Iowa, 1066, 163 N. W. 608, to which the citation just made is an annotation, depositors in a bank sought to hold the defendant as an ostensible partner in a banking concern because the bank had issued a circular in which it was stated that the defendant was interested in the bank, and upon which circular the depositors had relied. It appeared that the defendant was not an actual part
We do not in any way derogate from the established principle that general reputation of a man’s being a partner of another is not of itself admissible to hold one liable as a partner; it must be supported by evidence showing knowledge of the existence of the reputation and a failure to deny it under such circumstances as to create the estoppel. Likewise the holding out of a person by some one other than himself without his knowledge is not sufficient to bind him to a partnership liability. But here the reputation was naturally and necessarily brought about by his own conduct, and as said in one of the cases just cited was the consequence of his own act. The law holds a person to intend, have knowledge of, and to be responsible for the natural consequences of his own act or undertaking.
■ The question in the instant case was not merely whether reputation was known to the defendant, for the admissibility of such evidence here stands upon the broader basis, that it was naturally a consequence of the act of the defendant in making the agreement with
In the ease of Hinman v. Littell, 23 Mich. 484, Littell sued the defendants, Wiggins, Smith and Hinman, as partners, for the price of goods sold. The court said: “The main question in the ease, as it comes before us, is whether there was any evidence tending to show that Smith and Hinman (two of the defendants claimed to be members of the firm) had held themselves out as partners with Wiggins.” In deciding the ease it was held as follows: “But the testimony of Wiggins, while its direct tendency was to establish a partnership in fact between the three defendants, tended also (and none the less on this account) to show that he was authorized by Smith and Hinman to act as a partner in the business with them, and to hold them out to the plaintiff and others as partners with him in that firm; and that he did, as thus authorized, represent and hold them out to the plaintiff (below) as such before the latter sent forward to the firm the goods, for the price of which the action was brought; and that the plaintiff, therefore, had a right to rely upon the truth of such representations in making
In the instant case, the authority to represent to others that Hobbs was a partner did not rest merely upon parol testimony, but upon an instrument in writing to that effect. See also Smith v. Hill, 45 Vt. 90, 12 Am. Rep. 189. We think the objections to this class of testimony should have been and were properly overruled.
Defendant excepted to the admission of the written statement made to the National Bank of Petersburg in 1922, signed by both Thomas and Hobbs himself, and to the preceding similar statements signed by Thomas only. It is urged in support of this exception that the plaintiff bank knew nothing of the dealings between Thomas and the National Bank, and also that the statement to that bank, signed by Hobbs in 1922, was made subsequent to the time Thomas borrowed the money in suit from the plaintiff bank. It is scarcely possible that, when Thomas at the instance of the National Bank called upon Hobbs to sign the statement required by the bank in 1922, Hobbs did not then acquire the information that Thomas had been-for some years past carrying a partnership account with that bank, and that Thomas had been accustomed to signing similar statements. The statement of 1922 and the prior statements were admissible for several reasons. They were proof, finally, over the signature of Hobbs, that since 1900 there had existed a partnership under the style of J. W. Thomas & Company, consisting of himself and Thomas.
The defendant.exeepted to the instructions given by the court and certain instructions offered on his part and refused. At the end of the testimony the court gave the following instructions:
“1. The defendant, E. S. Hobbs, has introduced in evidence in this case a certain agreement made between him and J. W. Thomas, dated February 1, 1900. With respect to this, the court instructs the jury that by the said agreement the said E. S. Hobbs authorized the said J. W. Thomas to hold him, the said E. S. Hobbs, out to the world as a partner for the purpose of giving the said Thomas credit in and about the trade therein mentioned.
“If the jury believe from the evidence that the said*827 J. W. Thomas held the said E. S. Hobbs out to the world as his partner in the firm of J. W. Thomas & Company, and the plaintiff had general knowledge or information of such holding out, or that the said J. W. Thomas, before securing the loans from the said plaintiff, represented to the said plaintiff that the said E. S. Hobbs was his partner in the business of J. W. Thomas & Company, and the said plaintiff loaned the said J. W. Thomas & Company the money represented by the notes sued on in this case on the faith that such partnership existed, then the said E. S. Hobbs will be liable as a partner as to such transaction.
“2. Testimony has been given by a number of witnesses in this case as it being an accepted fact or understanding in mercantile and financial circles in Peters-burg that J. W. Thomas & Company was a partnership composed of J. W. Thomas and E. S. Hobbs. The court instructs the jury that such testimony cannot be considered for the purpose of establishing said partnership; but, if the jury believe by a preponderance of the evidence that such partnership did exist, such testimony can be considered by the jury as to whether the defendant, E. S. Hobbs, was a known partner of such firm, and as to whether credit was extended by the Virginia National Bank on the faith of his being a partner in the said firm.
“3. The jury are instructed that, under the law, each member of a partnership is the agent of the other members and that when created each partner has full power and authority to bind all the partners by his acts or contracts in relation to the business of the partnership, including the borrowing of money and the making and delivery of the notes of the partnership therefor; and as between the firm, and third persons dealing with them in good faith, it is of no consequence whether the part*828 ner is acting in good faith, with his copartners or not, provided the act done is within the scope of the partnership business and professedly for the firm.”
These instructions succinctly but fairly submitted to the jury the issue as to the liability of Hobbs as an ostensible partner. The first instruction places upon the articles of partnership a construction in consonance with the views already expressed in this opinion. We see nothing in the other instructions of which the defendant can complain. The second instruction is not clear in its purport and effect. It correctly states that testimony as to its being an accepted fact in financial circles that Hobbs was a member of the firm could not be considered at all for the purpose of establishing the partnership, if we presume the court meant an actual partnership. If by the rest of this instruction it was intended to tell the jury that if they believed an actual partnership did exist, such testimony could be. considered by the jury to determine whether Hobbs was a known partner and whether credit was extended on the faith of his being a partner, then the instruction becomes meaningless because if Hobbs was actually a partner in the firm of J. W. Thomas & Company, he was bound for the partnership liabilities whether he was known or not. If the court intended by this instruction to submit to the jury the question of an actual partnership, we think this instruction should not have been given, as the evidence was not sufficient to justify it. Considering the overwhelming tendency of the evidence to establish the partnership by estoppel, the clear statement of the law in the first instruction, and the statement of the law as a whole resulting from considering the two instructions together, we see no possibility of the jury having been misled by any ambiguity in the second instruction, and if there were error in its being
Rehearing
ON REHEARING.
delivered the opinion of the court.
In the argument upon the rehearing it was urged by the learned counsel for plaintiff in error that the court had, in its opinion, attached too great weight to the statement of the condition of the firm of J. W. Thomas & Company rendered to the National Bank of Petersburg in 1922, and signed by Thomas and also by Hobbs as the two persons comprising the partnership under that name; it was also again insisted that the statement was not relevant in this case as its existence was unknown to and did not influence the plaintiff bank, and was therefore inadmissible. That the statement was admissible as competent testimony in the case is too clear to be questioned. Mr. Hobbs’ oral testimony in the ease is brief, but in the course of it he denied that any arrangement in the nature of a partnership at any time existed between Thomas and himself. This written statement signed by him is in complete refutation of that testimony. Mr. Hobbs denied that the agreement of 1900 authorized Thomas to represent to any one that he was a partner in the concern. This written statement was a declaration
In order that the importance of this statement of 1922 to the ascertainment of .the extent to which Mr. Hobbs had authorized Thomas to represent to third parties that Hobbs was a partner with him in the firm of J. W. Thomas & Company, it is here transcribed in full as it appears in the record:
“THE NATIONAL BANK OF PETERSBURG.
“Name (firm style): J. W. Thomas & Co.
“Business; General house furnishing goods. “Location: 125 N. Syc.
“For the purpose of procuring credit from time to time, borrowing money and obtaining discounts from you, the undersigned declare the following to be an accurate, true and full statement of the financial con*832 dition of the undersigned on January 1, 1922, understanding that the officers of the bank in granting said credits rely upon the accuracy of this statement.
“If at any time the condition of the undersigned should be materially changed, notice will be given you immediately in writing, stating the nature of such changed condition, and in the event of not doing so it shall be evidence that the condition is unchanged.
“dsseis.
“Cash in the National Bank of Petersburg ..$ 300.00
Accounts receivable from customers (good).. 1,500.00
Merchandise finished (how valued) inven-
tory................ 2,500.00
Real estate in fee belonging to partners individually.......................... 75,000.00
Machinery and fixtures_______________________________________ 500.00
Other assets and of what composed:
Bonds, stocks, etc.................... 50,000.00
- “Liabilities.
Bills payable for merchandise____________ None
Bills payable to others........................ None
Bills receivable, discounted................ None .
Open accounts, not due...................... B 500.00
Open accounts, part due...................... None
Mortgage or lien on real estate.. — ..... None
Chattel mortgage or other lien.......... None
Confidential loans from friends or
relatives (and from whom)____________ None
Please list real estate in detail on other side
Contingent
Liability
Accommodations on endorsement...... None
Guarantees on bonds...................... None
*833 “Do you pledge, sell or otherwise dispose of any of your accounts receivable? No.
If so, to what extent are any of the accounts in above statement so disposed of? None.
General partners: J. W. Thomas and E. S. Hobbs. Date and expiration of partnership Indefinite.
When was business established 1900.
Sales for year ending: 15,000.
Average term of sale: 30 days.
Amount of rent paid per annum: $112.50.
Amounts charged off for depreciation and bad debts. I have none I consider bad; been very cautious who I sold this year.
Amount of Insurance: On stock $4,000.
Are accounts insured, and if so, in what company? None.
Date signed. January 1st, 1922.
“Please sign firm name: J. W. Thomas & Co.
“J. W. Thomas & E. S. Hobbs.”
Reading this entire statement in connection with the articles of partnership executed in 1900, we gain a fairly clear idea of the conception of both parties as to the arrangement between them and as to the effect of the so-called articles of partnership, not from dim memory under the stimulus of testifying post litem motam, however upright in intention the witness may be, but from documentary proof, the highest vehicle of proof. Unquestionably the parties who signed these two papers understood and intended that they should be taken by the business world as partners, that the property of Mr. Hobbs accounted as $75,000.00 in real estate and $50,000.00 of securities should be considered as a financial backing of the firm of J. W. Thomas & Company, in which he stated he was a partner, and that the partnership, acting through either one of thepartners,
It is further contended by the learned counsel for plaintiff in error that Thomas perpetrated a fraud upon Mr. Hobbs when he obtained his signature to the financial statement, and points to the fact that Thomas, who doubtless prepared the statement, placed the liabilities of the firm at only $500.00, whereas they must have been greatly in excess of the amount. The only testimony given by Mr. Hobbs as to the statement consists in his evidence that he did not remember when or where he signed the statement, and he would not have signed it if the liabilities had been correctly stated instead of having been put down at only $500.00. But this is beside the mark. The question here is not whether he would have terminated the agreement. He had a right to do so at any time. The condition of the business, the possibility of his incurring loss by reason of his partnership agreement with Thomas, were matters at all times Open to investigation by him, and he could have terminated his further liability any time at his pleasure. But the fact is that he acknowledged the authority of Mr. Thomas to continue the business under the agreement which made him liable as a partner, and his further authority to borrow an unascertained amount of money from a bank upon his credit as a partner.
By the first instruction given to the jury which is copied in the opinion of this court, the court instructed the jury that by the agreement between Hobbs arid Thomas, Hobbs had authorized the latter
It is true, as stated in the books, that the liability of one not actually a partner with another rests upon the doctrine of estoppel. This, however, does not mean that it necessarily rests upon that branch of law relative to estoppel by silence, when a man stands aside and knowingly permits a false statement to be made concerning Mm. The cases cited in argument show that in the application of the doctrine of estoppel to the ease of one sought to be held liable as a partner by holding out, there is a distinction between the cases where the holding out is shown to be by the consent or authority of the defendant, and the eases in wMch the liability is rested upon a statement shown
The estoppel involved in the case at bar is not that character of estoppel which closes the mouth of a defendant because he did not speak when he
In Thompson v. National Bank, 111 U. S. 529, 4
“No person can be fixed with liability on the ground that he has been held out as a partner, unless two things concur, viz, first, the alleged act of holding out must have been done either by him or by his consent, and secondly, it must have been known to the party seeking to avail himself of it. In the absence of the first of these requisites, whatever may have been shown cannot be imputed to the person sought to be made liable; and in the absence of the second, the person seeking to make him liable has not in any way been misled.” In concluding the opinion the court sums up the doctrine, alluding to a New York case, as follows:
“And the judgment of the Court of Appeals in the later ease of Savings Bank v. Walker, 66 N. Y. 424, clearly implies that in the opinion of that court a person not in fact a partner cannot be made liable to third persons. on the ground of having been held out as a partner, except upon the ground of equitable estoppel, that he authorized himself to be so held out and that the plaintiff gave credit to him.”
The instruction in the instant case is in exact accord with those principles.
Both of the requisites essential to a recovery having
These principles of the common law are restated in section 16 of our uniform partnership act: “When a partnership liability results, he is liable as though he were an actual member of the partnership,” and further: “When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is the agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation.” McCaskey Register Co. v. Blakeney (Mo. App.), 224 S. W. 62; First National Bank v. Spangler, 49 Cal. App. 133, 192 Pac. 874; Boise, etc., Lumber Co. v. Sarrett, 38 Idaho 278, 221 Pac. 130; Dimon v. Romeo, 99 Conn. 197, 121 Atl. 352.
The principle of law, upon which the decision in this case rests, was properly applied in the Michigan case of
The court instructed the jury in the third instruction given to it that each member of a partnership has authority “to bind all the partners by his acts or contracts in relation to the business of the partnership, including the borrowing of money and the making and delivering of the notes of the partnership therefor; and, as between the firm and third persons dealing with them in good faith, it is of no consequence whether the partner is acting in good faith with his copartner or not, provided the act is done within' the scope of the partnership business and professedly for the firm.
The principle of law enunciated in this instruction is well settled and is applicable to all commercial or trading partnerships; and it is clear that J. W. Thomas & Company were engaged in a commercial or trading business. Without seeking other authority, it is sufficient that the doctrine embodied in the instruction has been acknowledged in Virginia. In Commercial Bank v. Miller, 96 Va. 357, 31 S. E. 912, the court, quoting with approval from Daniel on Negotiable Instruments, holds it to be “settled law” that “the borrowing of money and negotiation of bills and notes being incident to, and usual in, the business of copartnerships formed for the purpose of trade, it follows that when a copartner borrows money professedly for the firm and execution therefor a negotiable instrument
In oral argument on the rehearing it was contended that Thomas had perpetrated a fraud upon the defendant in borrowing so large a sum, when the statements of the condition of the business showed that the sums loaned were out of proportion to the amount of business done by J. W. Thomas & Company, and therefore the bank should have taken cognizance of this condition. The evidence from financial and business men is overwhelming to the effect that in business, financial and trade circles in Petersburg the concern of J. W. Thomas & Company was considered to be a partnership composed of Thomas and Hobbs, and that Thomas was in the habit of borrowing from banks and trading generally upon the faith of such a partnership. Both the mercantile agencies, for many years prior to the death of Thomas, carried this information with the usual items as the financial worth of the partners individually in their reports. As the reporter for Dun’s agency testified: “The general inf ormation, from sources that I have consulted from time to time and presumed to be well informed sources, was to the effect that it was composed of the two individuals I have mentioned, Mr. J. W. Thomas and Mr. E. S. Hobbs. That was the general understanding of the prominent business concerns, banks, insurance companies, real estate agents, wholesale houses, etc., that we have consulted at times.” There is some direct evidence tending to show that Mr. Hobbs knew Thomas was carrying on the business upon the faith of such a partnership, but.
“Inventory.........................-......-..........$ 4,500.00
Open accounts...................................... 1,500.00
Store fixtures.......................•................. 500.00
Real and personal property................ 100,000.00
Bonds, stocks, etc. .............................. 50,000.00
Life insurance...................:............ — ..... 30,000.00
“$ 186,500.00.”
The only liabilities given was the amount of $450.00 due on open accounts, and “deduct our accommodation from the above.”
In January, 1921, the bank was furnished with the following statement:
“For the purpose of procuring credit with the above named bank on our negotiable paper, we furnish the following as being a fair and accurate statement of our financial condition on the 1st day of January, 1921:
“Assets.
“Cash on hand and in bank..................$ 1,000.00
Accounts receivable — good___________ 1,500.00
Accounts receivable — doubtful.......... 19.85
Accounts receivable — bad........... 30.00
Real estate..................... 90,000.00
Fixtures..................... 500.00
Merchandise — -how valued: Estimated market value........................ 4,000.00
Other accounts:
Stocks and bonds.............................. 50,000.00
Life insurance....................... 25,000.00
$ 172,049.85
*848 “Liabilities:
“Notes payable for merchandise..........None
Notes payable to banks......................$ 16,600.00
Notes payable to individuals..............None
Open accounts payable........................ 387.56
Mortgages on real estate....................None
Mortgages or liens on personal property....................................................None
Total liabilities......................................$ 16,987.56
Net worth..............................................• 155,062.29
Total......................................................$ 172,049.85
“Names of partners: J. W. Thomas & E. S. Hobbs. How long in business, 20 years.
Contingent liability, such as aecommondation endorsement, etc. None.
“Amount of insurance on stock............$ 4,000.00
Amount of total sales per annum______ 25,000.00
Gross earnings per annum.................. 7,600.00
Amount of expenses per annum........ 4,000.00
Net earnings per annum...................... 3,600.00
“(Signed) J. W. Thomas & Co., “Per J. W. Thomas.”
A similar statement rendered in January, 1922, is in the main the same as in 1921, except the cash on hand is listed at $600.00, uierchandise at $2,500.00, and the life insurance is omitted so that the total assets are placed at $155,100.00; the individual worth of the partners is placed at $130,000.00, the total sales per annum at $15,000.00, the gross earnings at $5,000.00, and the net earnings at $2,000.00. Mr. Thomas died in October, 1922.
The bank officials probably knew when the loans originated that the business conducted by J. W. Thomas
“Q. Mr. Wright, at the time those loans upon these notes were obtained from the Virginia National Bank, was there any statement made to you as an officer of the bank as to what was to be done with the money, the proceeds of the notes?
“A. Mr. Thomas told me that it was to pay the National Bank.
“Q. To pay the National Bank?
“A. Yes, sir.
“Q. Do you know to whose account the money was placed?
“A. To J. W. Thomas & Company.”
Mr. Wright was placed upon the stand on three different occasions during the course of the trial, and on none of them was he cross-examined at all. His testimony remains undisputed and therefore the facts are that the bank loaned the money in the regular course of business, in perfectly good faith, to a firm of known financial ability, and for a purpose regularly within the scope of a trading partnership, i. e., to discharge indebtedness it owed.
We find nothing in the record to impugn the good faith of the bank officials, or to put them on their guard, otherwise than to satisfy themselves that the loans could and would be repaid by the firm.
This duty of - inquiry, however, may arise in another phase of the ease brought to our attention in the oral argument on the rehearing. By the record brought to this court, and the verdict of the jury, it is placed beyond further dispute, and must be regarded as settled law of the case that Hobbs is. to be taken, in considering his liability for the debt sued upon, as a partner with Thomas in the firm of J. W. Thomas & Company, and as a partner in fact. There was evidence tending to show that the officialism of the bank, when the loans of money commenced in November, 1920, knew the business of J. W. Thomas & Company was small, and that the large advances made to the firm seemed out of proportion to the necessities of the business conducted on the scale appearing in the statements made to the bank in January, 1921, and the following year. W.a,s there anything in the amounts of money borrowed, under all the circumstances shown in evidence, to arouse suspicion on the part of the bank that Thomas was exceeding the authority, which was conferred upon him as a partner, to bind the partnership? The firm was a
“In general, a commercial partnership will be liable for money borrowed by one of its members on the credit of the firm, for commercial partnerships are engaged in buying and selling, and within the scope of buying and selling, it is an incident of the business to borrow money, therefore the power to borrow money for the firm and the authority to bind the firm by the loan is implied in each partner. Moreover the lender, in order to charge all of the several partners, is not required to see that the money thus borrowed is applied to partnership purposes. All that is necessary is that he act in good faith and without knowledge, actual or constructive, that the borrower intends to use the money to further his own individual interests. But if the lender, at the time of making the loan, knows or has reason to believe that the partner is seeking to obtain money for his individual benefit, or that the transaction is out of the ordinary course of business, then the firm is not liable.”
What is “out of the ordinary course of business” must depend upon the circumstances of each case. If Thomas had undertaken to purchase a coal mine and had executed the note of the partnership in payment of the price thereof, the transaction would have been on its face beyond the scope of his implied authority as a partner in the firm dealing in china ware and like articles, although he had implied authority generally to borrow money for the firm.
The power of a partner to bind the partnership is thus expressed in the uniform partnership law, Code (ed. 1924), section 4359 (9):
“(1) Every partner is an agent of his partnership for the purpose of its business and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.
“(2) An act of a partner which is not apparently for the carrying on of the business of the partnership in the*853 usual way does not bind the partnership unless authorized by the other partners.”
In the instant case it is clearly established that Thomas had general power to bind the partnership by borrowing money, and to execute a note therefor, in carrying on the business in the usual way. Were the notes in question here so executed, or do the large sums borrowed, apparently unnecessary for the small business, indicate to a prudent money lender otherwise, or that there was something amiss about the transaction.
In Cotter v. Porter, 88 Mich. 549, 50 N. W. 658, the plaintiff loaned money to a partnership in which her brother was a member, and it was contended that the brother had secured the loan for his personal use. The court applied the principles of law thus:
“The jury were also instructed, and we think correctly, that when partners were engaged in such a grocery business as this was, where they were doing a wholesale and retail business, they had the right to borrow money for the necessary purposes of the business ; but, if it was not borrowed for the necessary purposes of the firm, the plaintiff could not recover, if she knew it was not borrowed for such purposes; but she had a right to rely upon the implied power of Coller to borrow money, and if she loaned the money in good faith, and did so without knowledge or notice of such facts as would lead an ordinarily prudent person to suspect that the loan was for .her brother, she had the right to recover.”
In 1 Joyce on Defenses to Commercial Paper (2nd ed.), section 175, the author deals with the ostensible or apparent authority of a partner to borrow money, and there says:
“If one of several partners obtains a loan of money for his individual use, by giving the note or cheek of the*854 firm, but without their authority, the other partners will nevertheless be bound thereby unless there be something in the transaction to induce the lender to suspect that the money is not borrowed for their benefit or the circumstances were such as to put him upon inquiry.”
Without undertaking to state the evidence in detail, there is, in our opinion sufficient testimony in .the record to have allowed the jury to pass upon the following two questions, viz: (1) Whether, in making the loans from the plaintiff bank, Thomas was borrowing for his personal benefit, or otherwise not for the reasonable requirements of the firm’s business, and Avithout the knowledge of and in fraud of his partner, Hobbs; (2) whether under all the circumstances in evidence and with the knowledge which may be shown to be possessed by the bank and by Hobbs respectively, notice should be imputed to the bank that the transactions of Thomas in making the loans were suspicious and should have put the bank upon inquiry, and inquiry would have disclosed that Thomas was exceeding his implied power as a partner without the assent of Hobbs. In the event of an affirmative answer to these two questions, the verdict should be for the defendant, otherwise for the plaintiff. We will reverse the case and remand it for a new trial to be had only upon the said two issues, all other questions in the case to be taken as settled in accordance with the views expressed by this court. The first instruction given by the court practically excluded from the jury the consideration of these issues, though otherwise correct and in accord Avith the general rule enunciated in Commercial Bank v. Miller, supra. An order will be entered setting aside the verdict of the jury and reversing and remanding the case for a new trial as indicated.
Reversed and remanded.
Dissenting Opinion
dissenting:
The legal principles involved in this ease are of such public importance and I differ so radically from the majority of the court, that I feel it my duty to discuss the case in detail.
This was a proceeding by notice of motion brought to the April term, 1925, of the court, by the Virginia National Bank of Petersburg, Virginia, against Eugene S. Hobbs surviving partner of J. W. Thomas, deceased, and himself, trading as J. W. Thomas & Company, and Willie H. Thomas as endorser, to recover $19,390.00, evidenced by eighteen negotiable notes executed by J. W. Thomas in the name of J. W. Thomas & Company and endorsed by his wife, Willie H. Thomas. There was a verdiet after trial for $19,120.52 with interest from various dates when the notes became due and payable. The defendant, Hobbs, moved the court to set aside the verdiet and grant him a new trial because there was no evidence to sustain the verdict and for errors committed by the court during the trial, and in giving and refusing certain instructions, but the court overruled the defendant’s motion and entered up judgment upon the verdict. Whereupon the case, with all exceptions, was brought up for review by writ of error.
Hobbs filed a plea with affidavit denying the partnership, and that he had ever held himself out as a partner in the business of J. W. Thomas & Company. Upon this plea issue was joined, and the case tried. Thus the burden of proof was on the plaintiff to- prove that there was a contract of partnership, express or implied, between J. W. Thomas and Eugene S. Hobbs whereby they agreed to combine thei-r property or services as principles in the business for mutual profit.
The record discloses that in February, 1900, J. W.
After the notes were introduced and proven to have been signed and negotiated by Thomas, who had committed suicide in September, 1922, B. T. Kinsey, cashier, was put on the stand to prove the notes and their protest as to the endorser, and after testifying as to those facts, he was asked if he knew who composed the firm of J. W. Thomas and Company. He stated that he did. It was composed of J. W. Thomas and E. S. Hobbs.
The defendant objected to the question and answer-as a mere opinion of the witness, but his objection was overruled, and the evidence was permitted to go to the jury. This was clearly prejudicial error as witness testifies that he knows of a contract, but fails to show how he knew it, or anything about the partnership contract. His knowledge that he claimed to have was merely an opinion or belief, and has no probative effect,
G. C. Wright, president of the plaintiff bank, was then put upon the stand and testified that he extended the line of credit to J. W. Thomas and Company in 1919 upon the financial ability of E. S. Hobbs, and that the only evidence he had of Hobbs being a partner in the firm of J. W. Thomas & Company was the statement of Thomas that “the firm was composed of J. W. Thomas and E. S. Hobbs,” and the mercantile reports. This was all the evidence that the bank had that Hobbs was in any way connected with the concern, and upon that statement the credit was given and continued until the day of Thomas’ death. The defendant objected to the admission of this evidence as illegal. A person cannot be proven to be a partner of another by the statements of that party not made in his presence. This evidence was objected to and admitted over the protest of defendant.
It is true that the court said it would admit it for the present, but the plaintiff never claimed or showed any approval or ratification of the statement by Hobbs, nor did the court ever strike out this improper evidence upon which its whole claim was based. The defendant had the plain right to have that statement excluded at the time unless the plaintiff claimed it could show-subsequent approval or ratification after knowledge of all the facts, which it did not do or attempt to do.
The law upon this subject, without dissent, is laid down in 20 Ruling Case Law, page 847, section 53:
“The fact that a certain person was a member of a partnership, and therefore liable for the firm debts,*858 at a specific time, may be proved by Ms admissions that he was a partner. But the declarations of one partner, not made in the presence of his copartner, are not competent to prove the existence of a partnership between them as against such other partner.” Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 31 So. 81, 90 Am. St. Rep. 907; Chapman v. Wilson, 1 Rob. (40 Va.) 267.
In 30 Cyc., page 409, citing in note 91 eases from practically every jurisdiction in the United States as authority, the law is stated as follows: “Admissions of a partnership’s existence by one partner cannot be given in evidence against an alleged copartner unless made in the latter’s presence or unless the latter authorized or assented to the admission, or has adopted or ratified it.” Partnership being a mutual agency the authority or assent must be proven independently of the statement of the partner before the admission can be received in evidence.
Wright is conclusively presumed to know the law, and he was legally bound to make inquiry into the authority of Thomas before extending credit upon his statement that Hobbs was his partner. Failing to do so, the bank gave credit to Thomas alone, unless Hobbs was an actual partner, and this statement should have been excluded when offered. “Such admissions or representations are not competent evidence to establish the existence of the partnersMp relation, nor the extent of the maker’s authority to bind the firm.” 30 Cyc., 523.
The reason for the rule of law is, that to admit such evidence would open a door to fraud; for a trader in poor credit would be tempted to state that a man of wealth was his partner in order to secure credit (as was done in the instant ease) and his creditors
The plaintiff was allowed by the court to introduce, by C. E. Plummer, president of the National Bank of Petersburg, a statement dated January 1, 1922, signed by Thomas and Hobbs, and secured by Thomas at the request of the National Bank, which did not state the true indebtedness of J. W. Thomas and Company but which was never seen by the plaintiff’s officers until after the death of Thomas, as evidence that Hobbs was a partner of Thomas. The court, after admitting this evidence, refused to permit Hobbs to explain the circumstances under which this statement was signed, and who denied ever signing it.
The court also allowed B. B. Jones, president of the Union Trust Company, to testify to a conversation with Hobbs after the death of Thomas in which he admitted that he was a partner of Thomas. “The fact that a certain person was a member of a partnership and therefore liable for the firm debts, at a specific time, may be proved by his admissions that he was a partner.” 20 R. C. L., section 53, page 847; Herman Kahn v. Bowden, 80 Ark. 23, 96 S. W. 126, 10 Ann. Cas. 132; Dawson v. Pogue, 180 Ore. 94, 22, page 637, 6 L. R. A. 176. But before this admission is admissible the plaintiff must show that he relied on the same and gave credit on the faith of the statement. The plaintiff never heard of these admissions for years after the credit was extended, and it is not shown that Hobbs admitted that he was a partner when the loans were made. Hence the evidence should have been excluded.
A number of witnesses, over the objection of the defendant, were permitted to testify as to their understanding, and the understanding in business circles or general reputation in Petersburg that Hobbs was a
It should be noted that the notice of motion charges Hobbs as an actual partner and there is no allegation or count charging him as a partner by holding out or equitable estoppel. The proof of the latter, for fixing liability upon a person as a member of a partnership, is very different from that required for an actual partnership, and should be alleged, but no point of this was made by Hobbs, but his plea denied that he was a partner of Thomas either actually or by holding out. This principle is adverted to simply because some cases have, upon certain peculiar conditions, permitted evidence of general reputation or notoriety to establish a partnership by holding out or equitable estoppel, but the great majority of courts hold that general reputation is inadmissible to establish the existence of a partnership between individuals. An actual partnership certainly cannot be established by common understanding, notoriety or general reputa
Reputation is a question which plays a larger part in the matter of an alleged ostensible partnership than an actual partnership, but barring an occasional loose or inapt expression to be found in a few decisions, the rule that a partnership is not to be proved by current gossip or vague general understanding is applicable to all partnerships whether actual or ostensible. Anfenson v. Banks, 180 Iowa 1066, 163 N. W. 608, L. R. A. 1918-D, 482-496, note (la) page 505; Central R., &c., Co. v. Smith, 76 Ala. 572, 52 Am. St. Rep 353. This almost universal principle of law has been adopted in Virginia by the uniform partnership act.
In the Anfenson Case, decided in 1917, the rule in reférence to general reputation to prove partnership is reviewed and it is shown by the large majority of the courts to be as above set forth, and the note to this case in L. R. A. 1918-D, page 505 and (la), gives a list of the cases, and there is hardly an exception to the rule. To allow one person who desires to improve his credit to circulate, without authority, a report, that some person of wealth was his partner, and thereby give rise to a reputation of the existence of such partnership relation, and then hold that such reputation may be put in evidence to prove its own truth, would assuredly not appeal to one’s natural sense of justice, nor have a tendency to enhance one’s respect for the law. The Connecticut court holds that to admit such evidence would be to open the door to fraud: “For a trader in poor credit would be tempted to circulate the rumor that a man of wealth was a member of his firm in order to help his credit, and his
The burden of proving the existence of a partnership is on him who alleges and relies on the fact of its existence, or the facts that constitute an equitable estoppel. 20 R. C. L., section 54, 30 Cyc., page 403. It will be observed that there is no evidence in this case, from the plaintiff, to take it to the jury, as the credit was extended entirely upon the statement of Thomas that Hobbs was his partner, and Wright made no inquiry or investigation of the truth of that statement, although Hobbs could have been easily reached by telephone, and he saw him once a month at the meetings of another financial institution.
“Where a business is being conducted by a number of persons who are owners of that business, it is necessary that each of the persons so owning it shall be invested with power to do all things in the regular, necessary and usual course of the business, and when they do so it is necessary and proper that those who deal with them shall be protected. These considerations led the courts to require of persons who deal with partnerships to take notice of the partnership, its business and the general course of that business, as the public owes to the partnership the same fidelity, when dealing with its individual members, that the partnership owes to the public in such eases.” Morrison v. Austin State Bank, 213 Ill. 472, 72 N. E. 1109, 104 Am. St. Rep. 225-228.
Notwithstanding the plaintiff had not made out a prima facie case, the defendant was required to prove that he was not a partner nor liable in any wajr upon the notes. He went upon the stand and denied that he was a partner with Thomas; that he had never held
“Articles of agreement made and entered into this first day of Febru'ary, 1900, between E. S. Hobbs, of the one part, and J. W. Thomas, of the other part;
“Whereas, the said E. S. Hobbs and J. W. Thomas have agreed, and by these presents do agree, to become copartners together in the trade of china, crockery ware, willow ware, and kindred articles, and all things thereto belonging, and also in buying, selling, and retailing all sorts of wares, goods and commodities belonging to said trade, which said copartnership is to continue from the date hereof, for and during the pleasure of the said parties, to be terminated at any time by either of them; and,
“Whereas, the said copartnership is formed for the sole accommodation of the said J. W. Thomas for the purpose of giving him credit in and about the said trade; and,
“Whereas, the said E. S. Hobbs is to have no interest in any of the property or profits of the said copartnership, and is to put in no money, goods or stock of any kind in the said copartnership;
“Now, therefore, this agreement witnesseth: That for and in consideration of the premises,* the said J. W. Thomas doth convenant and agree to and with the*864 said E. S. Hobbs, that he, the said J. W. Thomas, will pa.y all of the debts contracted and to be contracted by the said copartnership in and about the said business, and also, that all such losses as shall happen in the said joint trade by bad debts, all commodities or otherwise, and all wages, charges, expenses, rents, purchases and payments whatsoever, relative to and in the said joint trade, shall be paid and borne by the said J. W. Thomas; it being understood and agreed that all such gain, profit and increase that shall come, go or arise, for or by reason of the said joint trade, shall be, during the said copartnership, wholly and solely the property of the said J. W. Thomas. And the said J. W. Thomas doth further covenant to and with the said E. S. Hobbs that all of his, the said J. W. Thomas’ estate, real, personal, and mixed, shall be applied to the payment of any and all debts due or to become due during the said term by the said copartnership, and that he will indemnify and save harmless the said E. S. Hobbs from all liability of any kind whatsoever, which at any time may grow out of the said copartnership; and that he Avill repay any and all sums Avhich the said E. S. Hobbs may be called upon to pay by reason of the said copartnership. And the said J. W. Thomas doth hereby waive the benefit of his homestead, and all other exemptions, as to this obligation.
“Witness the following signatures and seals:
“E. S. Hobbs (Seal)
“J. W. Thomas (Seal).”
When the evidence was concluded, the plaintiff asked the court by its instructions to construe this, agreement as .making Hobbs and Thomas actual partners, and the court so construed it. • This was error, as the agreement does not contain the most
Whether the agreement constitutes a partnership depends upon their intention as legally ascertained. If the rights and obligations created by the terms of the contract are those of partners, such will be deemed to haAre been their legal intention, Avithout regard to their declared purpose, and if their contract is inconsistent AArith the partnership relation, they are not partners, even though they may have so called them
Construing the agreement of February, 1900, between Hobbs and Thomas in the light of the law, there is not contained the necessary elements therein to constitute arpartnership and none of the powers or liabilities of partners are conferred thereby on either of them. If the word copartners had not been used by the draftsman no question as to its purpose could arise. Therefore, .instruction number two and the latter part of number one which left to the jury to find that such partnership did exist was erroneous, and said agreement conferred no power upon Thomas to execute notes for borrowed money upon the credit of Hobbs. It is true that where there is an actual partnership for the purpose of conducting a mercantile business, each partner has authority to borrow money for use in the business as an incident to their relation as partners. But if there is no partnership, no such power to execute notes for borrowed money can exist, hence instruction number three was not applicable to this case and it was error to give the same.
The plaintiff’s president is conclusively presumed to know the law of partnerships, and that he could not justify the loan to Thomas, and make such loan the personal obligation of Hobbs upon the mere statement of Thomas to Wright that Hobbs was his partner, and Wright should have known that he could not rely upon that statement, as a basis of credit, and if he had investigated and known the truth he would have hardly loaned a cent on that agreement, and Hobbs if asked would have told him he was not a partner.
It is a rule of justice, as well as law, as stated by the
When the agreement of February 1, 1900, was introduced in evidence by Hobbs, the plaintiff claimed that if the agreement, with the evidence produced, did not make him liable on the notes as an actual partner, nevertheless it was authority to Thomas to hold him out to the world as a partner and thereby execute the notes in suit for the money loaned Thomas. It is hardly necessary to state that partnership is a branch of the law of agency, and if a party lends money upon the mere statement of a person that another is his partner, or he has authority to represent another as his partner, the lender acts at his peril, and should it turn out that there was no consent to the representation or the borrower exceeded his apparent authority, the person represented as a partner is not liable. When the question of an agent’s or partner’s consent to representations or authority is put in issue, and such claimed consent or authority is in writing, it must be found within the four corners of the writing, construed in the light of the circumstances and subsequent conduct of the parties.
The learned judge of the trial court, in addition to permitting the jury to consider the agreement as constituting evidence of an actual partnership, in the first .part of instruction No. 1, told the jury-as a matter of law that the agreement of February, 1900, was author
The liability as a partner of a person who holds himself out as a partner, or permits others to do so, is predicated on the doctrine of estoppel, and on the policy of the law seeking to prevent frauds on those who lend their money on the apparent credit of those who are held out as partners. 20 R. C. L. section 312; Morgan v. Farrel, 58 Conn. 413, 20 Atl. 614, 18 Am. St. Rep. 282, notes 22 Am. St. Rep. 757, 115 Am. St. Rep. 442, 18 L. R. A. (N. S.) 988.
In the case of Anfenson v. Banks, supra (a case very similar to the one at bar, except the claimed holding out was by circular and general notoriety), there is a review of the authorities on the doctrine of equitable estoppel, as applied to partnerships by holding out, and the law is stated in substance to be: The burden of liability as a partner can be imposed on one not actually a partner
There was no act done by Hobbs which could in any sense be termed an equitable estoppel, but when that agreement was produced the court and counsel must have concluded that by the statement that a partnership was thereby formed, the use of the term partnership constituted a mutual agency between the parties thereto. This is not true as a legal proposition, for partnership is only a name for a contract which must constitute a co-ownership in business for profit before any partnership rights and liabilities attach to either party. But if in ignorance of law parties make a contract which is void as a partnership, and subsequently hold themselves out in a public manner, then the doctrine of equitable estoppel would apply. Thus it will be seen that two things are necessary in order for a void partnership agreement to make one not an actual partner liable, to-wit, he must thereby consent that his apparent copartner may represent him as a partner in a public manner and he must be held out in a public manner. It is obvious then how
The eases from which the doctrine of equitable estoppel has been deduced are those where it was done by means of firm advertisements, bill heads, and signs, and from these circumstances the jury may infer knowledge and assent to the same. 20 R. C. L. section 314; Fletcher v. Pullen, 70 Md. 205, 16 Atl. 887, 14 Am. St. Rep. 355.
A very few of the early decisions had held that general reputation or understanding in the community may be given in evidence as authority for such holding out, but the vast majority of the cases now hold that general reputation, understanding or gossip are inadmissible to show a holding out or authority to hold out. That is all of the evidence offered in this case of any holding out of Hobbs to the public as a partner. This proposition of law has never been directly passed upon in Virginia, but the uniform partnership act adopts the general line of authority on this subject, and the legislature, in adopting that act, has made the rule laid down by the courts in the great majority of the States and United States Supreme Court the law in this State.
Section 16, uniform, partnership act, Acts 1918,’ page 541, sets forth the essential conditions that constitute an ostensible partnership or partnership by equitable estoppel. The burden is upon the plaintiff to prove (a) that the person sought to be charged
It is not necessary that a partnership should have a name. If there is no firm name agreed upon in articles of partnership, then the parties by separate agreement must agree upon a firm name. One party has no right to use another’s name as a partner without his consent. A partner by agreement prior to the statute might become a silent or dormant partner. 30 Cyc. 420, 20 R. C. L. 5. It must be noted that there was no agreement for the firm name of J. W. Thomas & Company contained in the agreement of February, 1900, and that during the entire twenty-two years that it is claimed this agreement has been in
But it is also claimed that after laying dormant for many years this agreement was all the time vital and binding because of the provision, “which said co-partnership is to continue from date hereof, for and during the pleasure of the said parties, to be terminated at any time by either of them.” Is not this a contradiction in terms? If the agreement was in law a nullity as a partnership, and never came into existence as the legal entity known as a partnership how can it continue during pleasure when it never existed?
While in an actual partnership a partner may not limit his liability fixed by law, or the authority of the other partner, yet in ease of an ostensible partnership the ostensible partner may consent to be represented as such to an individual, or to the particular trade, and the owner of the business cannot exceed his authority. If the agreement be construed as still in
It is the almost universal rule of law now, that before the plaintiff can bind the ostensible partner, because he consented to another representing him as a partner, it must be proven that the plaintiff extended the credit on the faith of such representation. Thompson v. Toledo First National Bank, supra, 30 Cyc. page 394 and note 93 where cases are cited from United States Supreme Court, England and nearly every State in the Union in support of the rule of law. Where the party to be charged has consented to the representation being made in' a public manner and such representation has been so made, to-wit, by advertisement, etc., and if the person giving the credit had general knowledge of such public holding out, by the terms of the uniform partnership act it is presumed that he gave credit by reason of the same. Thomas never represented Hobbs as a partner in a public manner, there
The plaintiff evidently realized that there was no evidence that Hobbs had consented that Thomas might represent him as a partner in a public manner in the firm of J. W. Thomas & Company, or that he had ever done so, or that the bank had any general knowledge of such representation, therefore, it added to instruction number one the following fact upon which the credit was based, and the proposition of law that gave it the right to recover, to-wit: “Of that the said J. W. Thomas, before securing the loans from the said plaintiff, represented to the said plaintiff that the said E. S. Hobbs was his partner in the business of J. W. Thomas & Company and the said plaintiff loaned the said J. W. Thomas & Company the money represented by the notes sued on in this case on the faith that such partnership existed, then the said E. S. Hobbs will be liable as a partner as to such transaction. ’ ’ Wright admitted that he gave the credit on the faith of Thomas’ statement that Hobbs was an actual partner, and never claimed that the credit was given on any representation of Hobbs as an ostensible partner. The facts were not in dispute, and the plaintiff’s sole right to recover is placed in its instructions upon the existence of an actual partnership between them under style of J. W. Thomas & Company. This was a question of law for the court and not fact for the jury. The uniform partnership act, section 6, fixes by definition in Virginia when a partnership exists: “A partnership is an association of two or more persons to carry on as co-owners a business for profit,” and section 7 provides: “Except as provided by section sixteen persons who are not partners as to each other
But if it was not intended that the statement of Thomas to Wright constituted Hobbs an ostensible partner in J. W. Thomas & Company, there was no authority contained in the agreement of February,, 1900, to warrant that position. Under the law a person may consent to be represented to an individual or particular trade and not to banks, and Hobbs distinctly states that the partnership was formed for the sole accommodation of Thomas to give him credit in and about the trade of buying and selling chinaware, crockery and kindred articles, and that he has never consented that Thomas might represent him to banks with power to execute notes for any sum of money that said banks would lend Thomas on his financial worth, and thereby squander a large part of his estate.
The law of partnership by equitable estoppel is well settled now. It is a legal duty of the lender of money to a concern where the person sought to be charged is not apparently a partner to make investigation, and he is affected with notice of all that inquiry would reveal. However, if the person sought to be charged has consented to be represented as a partner in a public manner, then such public holding out relieves the lender from the duty of inquiry, and the ostensible partner having created an appearance which is false, is estopped to-prove the truth. • • .
Applying the law to the instant case, when Thomas came to the plaintiff and sought loans from it upon his statement that Hobbs was his partner (the latter not appearing to be such), it was the duty of the plaintiff to
But suppose Hobbs was an actual or ostensible partner in J. W. Thomas & Company, still is he liable upon the notes in suit?
As a general proposition, a copartner has the right to give a promissory note in the name of the firm, if given in good faith, for partnership purposes, or to one who gives for it a valuable consideration, without notice that it is given for a purpose not within the scope of the partnership. The uniform partnership act, section 9 (2) provides: ‘ ‘An act of a partner which is not apparently for the carrying on of the business in the usual way does not bind the partnership unless authorized by the other partners.” So that if Hobbs was a partner either actual or ostensible, Thomas had the right to bind him by making notes only in the usual course of business as a part of the usual routine of their affairs. When Thomas came to Wright to borrow for the business of J. W. Thomas & Company the large sum of twelve thousand dollars, afterwards increased to nineteen thousand three hundred dollars, it was his duty to investigate the affairs or course of the business of the firm. He knew, apparently, that the concern was not worthy of credit, as he says he loaned the money upon the worth of Hobbs, or investigation would have disclosed that the total invested capital of the firm amounted to about $4,500.00, with debts for merchandise of $500.00, and whether Thomas was going to use the money to pay off notes due the National Bank of Petersburg to which at that time, as disclosed by the records before us, the firm of J. W. Thomas & Company was indebted in the
Prom the foregoing discussion of the law and evidence, the instructions should not have been given as there was no evidence from which an actual partnership or an authority to hold Hobbs out publicly as a partner in J. W. Thomas & Company, and, therefore, as section 6388, Virginia Code, is mandatory, this court should enter judgment for the defendant, Hobbs.
