Practice, Civil, Parties, Abatement. Bills and Notes. Notary Public. Bankruptcy. Partnership. Evidence, Presumptions and burden of proof, Res inter alios.
In an action against a member of a firm as an indorser of a promissory note by reason of an indorsement made by the defendant's partner in the firm name, where the partner who made the indorsement is not joined as a defendant, such nonjoinder can be taken advantage of only by an answer in abatement, and is not available as a defense at a trial of the case on the merits.
At the trial of an action on a promissory note against the second indorser, the certificate of a notary public, who protested the note, stating the maker's failure to pay it at maturity and notice to the indorser of the dishonor, under R.L.c. 73, § 13, is prima facie evidence of the facts thus stated.
Where the indorsement on a promissory note is in the name of a copartnership, by the express provision of R.L.c. 73, § 116, notice to one of the partners of the dishonor of the note "is notice to the firm, even though there has been a dissolution."
Under the bankruptcy act of 1898, § 11, a court in which an action of contract against a bankrupt is pending need not stay proceedings after the defendant's adjudication in bankruptcy, and may in its discretion enter judgment against him, while the bankruptcy proceedings still are pending as to his obtaining a discharge.
The fact that a promissory note signed by an individual, who is a member of a partnership, is made payable to his own order and is indorsed by him first in his own name and then in the name of the firm, does not give notice to a person who takes the note for value that the indorsement in the name of the firm was for the accommodation of the maker or that the maker is to receive the proceeds of the note for his private use.
A member of a commercial partnership, unless there are express limitations upon his authority, may borrow money for use in the business of the firm and issue in payment a promissory note of the partnership which will be binding upon his copartners although issued without their knowledge; and, even where there are limitations upon his authority, such limitations cannot affect a holder in due course who has no knowledge of them.
If a promissory note is made by one of two partners payable to his own order and is indorsed by him personally and in the name of the firm, and then without the authority or knowledge of his partner the maker of the note negotiates it and uses the proceeds for his individual purposes, and if his partner, after he has full knowledge of this transaction, agrees in the settlement of the affairs of the partnership to assume and pay the note, and subsequently on going into bankruptcy includes this note in his schedule and makes oath that it is an indebtedness due to the holder, this is a ratification of the note as an outstanding obligation of the firm.
In an action against one of two partners as the indorser of a promissory note made by the other partner and indorsed by him in the name of the firm, the defendant cannot be allowed to show that by an oral agreement between the defendant and his partner, made after the dissolution of the firm, the defendant's partner who made the note agreed to pay it because he had received commissions on sales of goods to the firm for which he had failed to account, as this agreement cannot affect the rights of the plaintiff who was not a party to it.
BRALEY, J.
The nonjoinder of the defendant's co-promisor could be taken advantage of only by an answer in abatement, and was not available as a defense at the trial on the merits. Wilson v. Nevers, 20 Pick. 20, 22. Leonard v. Speidel, 104 Mass. 356, 359.
The defendant contended that Flynn was a necessary party defendant.
If the plaintiff proved that he was a holder in due course, and that notice of non-payment had been given to the indorsers, Charles S. Gove and Company, then, under the answer, upon proof of their indorsement as a firm he was entitled to recover the face of the note with interest. R.L.c. 73, §§ 33, 132, cl. 2.
The notarial certificate, to control which no evidence was offered, furnished sufficient proof of the maker's failure to pay the note at maturity, and of notice of dishonor to the company, even if the partnership had been dissolved, and the defendant was not informed by his former partner of the protest. R.L.c. 73, §§ 13, 116, 122, 123.
Nor is the defendant's bankruptcy a defense. While a court in which an action in contract is pending against a bankrupt may after adjudication stay further proceedings pending the obtaining of a discharge, it is not required to do so, but can proceed to judgment. U.S. St. 1898, c. 541, § 11. Rosenthal v. Nove, 175 Mass. 559.
But, while these defenses are ineffectual, the defendant urgently contends that the delivery of the note was unauthorized and that the plaintiff took with notice of the infirmity. The partnership was engaged in the business of bottlers and wholesale dealers in liquors. It was composed of the defendant and one Flynn, by whom the note was made and issued with the indorsement of the firm name. But the tenor of the note and the order of the indorsements raise no conclusive presumption that the indorsement in the name of the firm was for the accommodation of the maker, or that upon negotiation he received the money for his private use. Wait v. Thayer, 118 Mass. 473. Unless there are restrictions limiting his authority, one member of a commercial firm may borrow money for use in their business and issue in payment the promissory note of the partnership, without knowledge of his associates, who will be bound by his action. Reed v. Bacon, 175 Mass. 407. But, even where there are such private limitations, they cannot affect a holder who takes the note without knowledge of them. Stimson v. Whitney, 130 Mass. 591, 594, 595.
If there was substantial evidence that the proceeds of the note had been used by Flynn for his private benefit, and that he hired the money for this purpose, using the firm's indorsement to obtain credit, the plaintiff put its right of recovery on two grounds, either that it took the note without knowledge of a defect in the title or of circumstances which should have put it upon inquiry, or that the defendant with knowledge of Flynn's use of the money had ratified his partner's act. Both questions were issues of fact upon which the plaintiff had the burden of proof. Fillebrown v. Hayward, 190 Mass. 472. Munroe v. Cooper, 5 Pick. 412. In the statements made by Flynn and the plaintiff's agent, who were witnesses at the trial, as to the negotiations which led to the making of the original note of which the note in suit was a renewal, there was evidence to be submitted to the jury that the plaintiff acted in good faith and without notice of any infirmity. If they found these conditions, the plaintiff was a holder in due course. R.L.c. 73, § 73. Fillebrown v. Hayward, ubi supra. Buzzell v. Tobin, ante, 1.
There also was ample evidence of ratification. The defendant testified that he first was informed of the misappropriation after the firm books had been audited and he had received the report. Yet with this knowledge he engaged specifically in the agreement for settlement of the affairs of the partnership to assume and pay the note, which is recited to have been negotiated solely for the personal benefit of Flynn. Subsequently, after having gone into bankruptcy, he included this note in his schedule and made oath that it was an indebtedness due to the plaintiff. The jury would be warranted in finding from this evidence, which was properly admitted, that he recognized the note as an outstanding obligation of the firm. Flagg v. Upham, 10 Pick. 147, 149. Swan v. Stedman, 4 Met. 548. Wheeler v. Rice, 8 Cush. 205, 208, 209. Knight v. Rothschild, 172 Mass. 547. U.S. St. 1898, c. 541, § 7, cl. 8.
The offer of the defendant to show, that by an oral contract between Flynn and himself subsequent to the agreement of dissolution Flynn agreed to pay the note held by the plaintiff, because without the knowledge of the defendant he had received commissions for the sale of whiskey for which he had failed to account, was excluded rightly. The plaintiff was a stranger to the contract, and could not be affected by it.
An exception to the admission in evidence of the statement of condition referred to in the agreement for dissolution, not having been argued, must be treated as waived.
By the verdict in favor of the defendant on the second count the requests for rulings are confined to the first count. But of these the first, second and thirteenth should not have been given for reasons previously stated, and there was no evidence to which the sixth was applicable. The third was given, and the questions which in one form or another were raised by the remaining requests were fully covered by the instructions to which no exceptions were taken. Graham v. Middleby, 185 Mass. 349.
Exceptions overruled.