1. A., having had no previous dealings with a firm but having
heard of its existence and who composed it, sold goods to one of
the partners and received in payment therefor a draft by him drawn
upon the firm and accepted in its name. At the time of the
transaction, the firm was in fact dissolved, but A. had no notice
thereof.
Held that in order to protect a retired partner
against such acceptance of the draft at the suit of A., evidence
tending to show a public and notorious disavowal of the continuance
of the partnership is admissible.
2. It is not an absolute, inflexible rule that there must be a
publication in a newspaper to protect a retiring partner. Any means
of fairly publishing the fact of such dissolution as widely as
possible in order to put the public on its guard -- as by
advertisement, public notice in the manner usual in the community,
the withdrawal of the exterior indications of the partnership --
are proper to be considered on the question of notice.
The testimony, as exhibited by the bill of exceptions, is set
forth in the opinion of the Court.
The court below charged the jury as follows:
"The facts in this case are in the main undisputed. The
plaintiffs seek to hold the defendant Lovejoy for the payment of
two acceptances of J. B. Shaw & Co. To establish his liability,
the plaintiffs must show that Lovejoy was a member of the firm of
J. B. Shaw & Co., and was a joint promisor, or that, having
ceased to be a member of the firm, he still remained liable for
obligations made in the name of the firm by reason of failure to
give proper notice of the dissolution of the firm to the public.
Had he been a member of the firm when the acceptances were given,
there would be no doubt of his liability. It is material for you to
decide whether credit on the sale of the lumber at Reed's was given
to J. B. Shaw alone, or to J. B. Shaw & Co. If to Shaw alone,
then Lovejoy would not be bound. From 1868 to May 12, 1870, Lovejoy
was a member of the firm of J. B. Shaw & Co. This is not
disputed. It also appears that on May 12, 1870, the firm was
dissolved. Plaintiff's claim, notwithstanding the dissolution,
Lovejoy is liable because the lumber was sold on the credit of the
company and no notice given them of any dissolution. If you find
that the sale at Reed's was in fact made to the firm, and that the
plaintiffs, in making such sale, gave the credit to the firm of J.
B. Shaw & Co.
Page 93 U. S. 431
and relied on such credit, then Lovejoy cannot escape liability
unless he has given legal notice. Many interesting questions, as to
what is proper notice to persons who have not been dealers with the
firm which has dissolved, have arisen in this case. It is not
necessary for me to go to the extent of those authorities which
hold that, in cases of dissolution, in order to avoid liability on
the part of retiring partners to strangers, that there must be
actual notice, or public notice by advertisement in a newspaper. I
do not say that these are the only kinds of proper notice that
might be given. In this case, there is no evidence of any public
notice; for private communications made to particular persons at
the place where the firm did business, or elsewhere, is not
sufficient notice to bind other persons."
"There are two questions for you to decide:"
"First, was there such a firm as J. B. Shaw & Co., and was
Lovejoy a member thereof up to May 12, 1870? This is
undisputed."
"Second, did plaintiffs, or their assignees, as in the case of
the Mead draft, have reasonable knowledge or information that the
firm of J. B. Shaw & Co. still existed at the time the lumber
was sold? Knowledge obtained from public notoriety, and from
individuals who had knowledge thereof, was sufficient to warrant
the plaintiffs in such a belief. If the evidence warrants you in
finding that Angell or Mead had reason to believe that the
dissolution had taken place at the time of the sale, then the
plaintiffs cannot recover. Now has there been any actual notice or
public notice? Without public notice or actual notice, good faith
makes Lovejoy responsible, and he cannot escape if the credit was
given to the firm. Angell and Mead were in possession of the
property. As to the arrangement with other parties, as testified
to, it is not material in this case. One partner can bind the firm
in a transaction for the benefit of the firm, and the other
partners would be responsible for his acts. In this case, J. B.
Shaw accepted these drafts in the name of J. B. Shaw & Co.; and
if the credit was given to the firm, and Lovejoy had omitted to do
anything to relieve himself from liability, then he is still
responsible."
To the following portions of this charge the defendant duly
excepted, and his exception was noted,
viz.:
"If you find that the sale at Reed's was, in fact, made to the
firm, and that the plaintiffs, in making such sale, gave credit to
the firm of J. B. Shaw & Co., and relied on such credit, then
Lovejoy
Page 93 U. S. 432
cannot escape liability unless he has given legal notice of the
dissolution of the firm."
"In this case, there is no evidence of any public notice, for
private communications made to particular persons at the place
where the firm did business, or elsewhere, is not sufficient notice
to bind other persons."
"Did the plaintiffs, or their assignees, as in the case of the
Mead draft, have reasonable knowledge or information that the firm
of J. B. Shaw & Co. still existed at the time the lumber was
sold? Knowledge obtained from public notoriety, and from
individuals who had knowledge thereof, was sufficient to warrant
the plaintiffs in such a belief."
The defendant requested the court to charge the jury as
follows:
"1. The evidence in this case shows that the firm of J. B. Shaw
& Co. was dissolved, and that the defendant had withdrawn
therefrom on the twelfth day of May, 1870, more than four months
before the lumber was purchased from plaintiffs, or their
assignees, and the bills of exchange in suit given and
accepted."
"2. That at the time said bills of exchange were given and
accepted, said J. B. Shaw had no authority to accept the same in
the name of the previous firm so as to bind the defendant by such
acceptance."
"3. The evidence shows that none of the persons selling lumber,
for which these acceptances were given, had had any dealing with J.
B. Shaw & Co., during its existence, and that they were not, at
the time said firm was dissolved, entitled to any notice of the
dissolution."
"4. When J. B. Shaw applied to purchase the lumber, and
represented that he had authority, as partner, to bind the
defendant, those having the lumber to sell were bound to inquire as
to the fact, whether he had such authority or not in the absence of
previous dealings. And, if the fact of the dissolution of the firm
was so publicly and generally known that the jury believe that a
reasonable inquiry by the persons selling the lumber would have
disclosed the fact of the dissolution, and that they neglected to
make any reasonable inquiry, the defendant is not bound."
"5. If the jury find that the fact of the dissolution of the
firm of J. B. Shaw & Co. was made known to the business men
engaged in the same business as those who sold the lumber to Shaw,
in the town where they resided and did business, and was so
communicated
Page 93 U. S. 433
as to be likely to come to their knowledge, the jury may infer
that fact, if they believe it, from the evidence and
circumstances."
"6. That, as the persons selling the lumber in this case had not
had any dealings with the firm of J. B. Shaw & Co., during its
existence, they were not justified in presuming that defendant was
a member of that firm, on the statement of any one or two persons
who are not shown to have ever had any dealing with that firm
during its existence."
"7. That, as to persons who had never dealt with the firm of J.
B. Shaw & Co., the defendant, on the dissolution of that firm,
was not bound to give notice directly of such dissolution. Neither
was it absolutely necessary that notice of the dissolution should
have been published in any newspaper, in order to protect Lovejoy
against persons who had never dealt with the firm. The jury are at
liberty to consider, from the generality and extent to which
knowledge of the fact of the dissolution had been spread,
especially in the vicinity where the plaintiffs and their assignees
lived and did business, and from the lapse of time occurring after
the dissolution, whether notice of the dissolution had not reached
the plaintiffs, or their assignees, or would not have been
ascertained upon such inquiry as they were reasonably bound to
make."
"8. If the jury believe that the purchase of lumber, by Shaw,
was made for his own benefit alone, and this was known to the
sellers, or there were circumstances connected with the sale from
which they ought to have known this, the defendant is not
bound."
"9. That the fact, that Shaw drew the acceptances in his own
name, as drawer, is a circumstance which tended to show that the
purchase was for his individual benefit, and that the draft, on the
face of it, was for his own funds in the hands of the drawee."
In reference to such requests of the defendant, the court
charged as asked in the first and the second, with the
qualification that it was true if he had given legal notice of the
dissolution of the firm, and eighth requests; but as to all the
other requests and every of them, the court said, "I have already
stated to you all the law which I deem applicable to this case, and
therefore decline to charge as requested by the defendant," and
declined to give any of said requests except the first and second
as above, and eighth; and the defendant duly excepted, and his
exception was noted, to the refusal of the court to give each of
the requests so refused severally.
Page 93 U. S. 434
The jury retired to consider their verdict, and afterwards came
into court for further instructions, in response to which the court
said,
"The first proposition which I charged you was, that there is no
dispute that the partnership existed in 1868 and 1869, and that it
was in fact dissolved May 12, 1870. So far as Lovejoy is concerned,
unless he had done something to bring public or actual notice of
the dissolution to these plaintiffs or their assignors, or had
given public notice of the dissolution, he would continue liable,
and cannot escape, if you are satisfied credit was given to the
firm."
To all that portion of the charge which follows after the words
and figures "May 12, 1870," the defendant duly excepted, and his
exception was noted.
The jury returned a verdict in favor of the plaintiffs; judgment
was rendered thereon. The defendant then sued out this writ of
error.
MR. JUSTICE HUNT delivered the opinion of the Court.
The action was by the holder of two drafts dated Sept. 27, 1870,
drawn by J. B. Shaw upon J. B. Shaw & Co., and accepted in the
name of J. B. Shaw & Co. The object of the action was to charge
Lovejoy as a partner. The firm of J. B. Shaw & Co. was formed
on the fifteenth day of April, 1868, transacted a lumber business
at Davenport, Iowa, and continued until the twelfth day of May,
1870, when it was dissolved by an instrument in writing. In fact,
Lovejoy was not a member of the firm of J. B. Shaw & Co., nor
was there in existence such a firm when the drafts were accepted in
its name. The acceptance in the firm name was a fraud on the part
of Shaw.
The questions arising upon the bill of exceptions grow out of
the sufficiency of the notice of the dissolution of the firm given
by the retiring member.
Formal notice was given to all those who had previously dealt
with the firm. It does not appear whether there had been any change
of signs, nor whether the firm had any external sign.
No evidence was given that notice of the dissolution was
published
Page 93 U. S. 435
in any newspaper, and it was proved that two daily papers were
published in Davenport at the time of the dissolution. After that
time, the business was carried on in the name of J. B. Shaw
alone.
Prior to the present transaction, the plaintiffs, in discounting
its paper, had heard of the firm, and who were its members. They
testified that they had no information of the dissolution till some
time after its occurrence.
The drafts in suit were given for lumber sold by the plaintiffs
and by one Mead, were drawn by Shaw, and accepted by him in the
name of the firm at Read's Landing, where the lumber was sold.
There was no evidence that the firm had ever had any other
transaction at Eau Claire or Read's Landing.
No evidence was given of the relative position of the places in
question; but from the maps and gazetteers we learn that Eau Claire
is in the interior of the State of Wisconsin, and distant several
hundred miles from Davenport, in the State of Iowa. Read's Landing
is not far from Eau Claire.
The case was tried by the circuit court upon the theory that to
discharge a member of a firm from the claim of one who had had no
dealing with it prior to its dissolution, but who knew of its
existence and who were its members, it was necessary that the
latter should have received actual notice of the dissolution or
that notice should have been published in a newspaper at the place
of business. This doctrine was not announced in terms, but such was
the result of the trial. Either of these notices was held to be
sufficient, but it was held that without one of them, the retiring
member could not protect himself. In terms, the holding of the
judge was that there must be either actual notice or public notice,
and it will be seen from the offers and exclusions presently to be
stated that this public notice could mean only a newspaper
publication.
Thus the witness Barnard, after testifying that he had been in
business at Davenport prior to May 12, 1870, until the time of the
trial, that he had business relations with all the lumber dealers
at that place and knew them all, and that he knew of the
dissolution when it occurred -- was then asked whether or
Page 93 U. S. 436
not it was generally known at Davenport at the time the firm was
dissolved that such dissolution had taken place.
To which the plaintiffs objected on the ground that the same was
incompetent and immaterial, which objection was sustained, and the
defendant Lovejoy excepted, and his exception was noted.
Defendants' counsel then asked the witness: "State whether or
not it was generally known at this time along the river that this
dissolution had taken place."
To which plaintiffs made the same objections as before, and the
objection was sustained and an exception taken by defendant Lovejoy
and noted.
Defendants' counsel then asked the witness:
"Did you at or near the time of the dissolution communicate the
fact that it had occurred to any persons other than the plaintiffs,
and, if so, to whom and in what manner?"
To which the plaintiffs made the same objection as before, which
objection was sustained, and an exception was taken and noted for
the defendant Lovejoy.
Counsel for defendant Lovejoy stated, in connection with the
questions to the witness Barnard, that he did not expect to prove
actual notice of the dissolution to the plaintiffs, or to the
persons who sold the lumber.
John C. Spetzler was sworn as a witness in behalf of the
defendant, and testified that in May, 1870, he was in the
employment of J. B. Shaw & Co., in their yard at Davenport, as
salesman; that the business was conducted after the dissolution by
Shaw, in the name of J. B. Shaw.
The defendant proposed to prove by the witness that the
dissolution, immediately upon its occurrence, was a matter of
general repute and knowledge in the city of Davenport, where the
firm did business, and that all lumber dealers in Davenport were
informed of it.
To which plaintiff objected, on the grounds that the same was
incompetent and immaterial, which objection was sustained. To which
the defendant Lovejoy excepted, and his exception was noted.
Sumner W. Farnham, not a partner, was sworn on behalf of the
defendant, and testified that in September, 1870, and
Page 93 U. S. 437
before the transaction in question, he visited Eau Claire in
company with J. B. Shaw, was there two or three days, and called on
the lumber dealers of that place. The witness was then asked
whether on that occasion he or Shaw gave any notice to the lumber
dealers at Eau Claire of the dissolution of the firm of J. B. Shaw
& Co. If so, to whom and in what manner?
To which the plaintiffs objected, on the grounds that the same
was incompetent and immaterial, unless the defendant proposed to
prove actual notice to plaintiffs, or to those who sold the lumber,
or notice by publication in a newspaper. The objection was
sustained by the court, and the defendant Lovejoy excepted, and his
exception was noted.
The defendant then offered to prove by this witness that while
he and Shaw were at Eau Claire on this occasion, and before the
sale of the rafts in question, the said Shaw, in the presence of
the witness, notified all or nearly all of the lumber dealers in
Eau Claire, where plaintiffs then lived and did business, and in
the vicinity, that the firm of J. B. Shaw & Co. had dissolved,
and that Farnham & Co. had sold out to Shaw.
To which the plaintiffs objected, on the grounds that the same
was immaterial and incompetent, unless the defendant proposes to
show actual notice to the plaintiffs, or to those who sold the
lumber; which objection was sustained, and the defendant Lovejoy
excepted, and his exception was noted.
In
Pratt v. Page, 32 Vt. 11, cited as an important
case, it was held that, to entitle a plaintiff to recover in a case
like the present, these facts must appear:
1. The claimant must have known at the time of making his
contract that there had been a partnership.
2. That he did not then know of its dissolution.
3. That he supposed he was entering into a contract with the
company when he made it. In the court below the plaintiff
recovered, on the ground of want of sufficient notice of
dissolution, but in the appellate court that question was not
reached.
In
City Bank of Brooklyn v. McChesney, 20 N.Y. 240, the
bank having had previous knowledge of the existence of the firm of
Dearborn & Co., of which the defendant McChesney was a member,
discounted a note made in the firm name, but after the partnership
was in fact dissolved, without knowledge
Page 93 U. S. 438
or information on the part of the bank; it was held, there being
no publication of dissolution, that the retiring partner was
liable. The court makes no examination of the law, but adopts as
the basis of its judgment the opinion of Senator Verplanck in
Vernon v. Manhattan Company, 22 Wend. 183.
In that case, Senator Verplanck made use of this language:
"Now, following out this principle, how is a person, once known
as a partner, to prevent that inducement to false credit to his
former associates which may arise after the withdrawal of his
funds, from the continued use of the credit which he assisted to
obtain? How shall he entitle himself to be exempted from future
liability on their account? The natural reply is he must take all
the means in his power to prevent such false credit being given. It
is impossible for him to give direct notice of his withdrawal to
every man who may have seen the name of his former firm or have
accidentally received its check or note. No man is held to
impossibilities. But he does all he can do in such a case by
withdrawing all the exterior indications of partnership and giving
public notice of dissolution in the manner usual in the community
where he resides. He may have obtained credit for his copartnership
by making his own interest in it known through the course of trade.
So far as those are concerned who have had no direct intercourse
with the firm, he does all that is in his power to prevent the
continuance and abuse of such credit if he uses the same sort of
means to put an end to that credit which may have caused it. But
there are persons with whom he or his partners may have transacted
business in the copartnership name and received credit from. To
such persons he has given more than a general notice of the
partnership, for he has directly or indirectly ratified the acts of
the house and confirmed the credit that may have been given, either
wholly or in part, upon his own account. He knows or has it in his
power to know who are the persons with whom such dealings have been
had. Public policy, then, and natural justice alike demand that he
should give personal and special notice of the withdrawal of his
responsibility to everyone who had before received personal and
special notice, either by words or acts, of his actual
responsibility and interest in the copartnership. Justice requires
that the severance of
Page 93 U. S. 439
the united credit should be made as notorious as was the union
itself. This is accomplished by the rule that persons having had
particular dealings with the firm should have particular notice of
the dissolution or alteration, but that a general notice, by
advertisement or otherwise, should be sufficient for those who know
the firm only by general reputation."
Both the Senator and the Chancellor, and the court in
McChesney's case, agree in the opinion that persons who
merely take or receive for discount the paper of a firm are not to
be deemed dealers with the firm, so as to be entitled to actual
notice.
In
Bristol v. Sprague, 8 Wend. 423, which was an action
against a retired partner upon a note made after the dissolution,
Nelson, J., says,
"It is well settled that one partner may bind another after
dissolution of the firm, if the payee or holder of the note is not
chargeable with notice, express or constructive, of the dissolution
of the partnership, 6 Johns. 144; 6 Cowen 701, and that such notice
must be specially communicated to those who had been customers of
the firm, and as to all others by publication in some newspaper in
the county, or in some other public and notorious manner."
In
Ketcham v. Clark, 7 Johns. 147, Van Ness, J.
said,
"In England it seems to be necessary that notice should be given
in a particular newspaper, the 'London Gazette;' but we have no
such usage or rule here. I think, however, we ought at least to go
so far as to say that public notice must be given in a newspaper of
the city or county where the partnership business was carried on,
or in some other way public notice of the dissolution must be
given. The reasonableness of it may perhaps become a question of
fact in the particular case."
Mr. Parsons, in his Treatise on Partnership, pp. 412, 413, gives
this rule:
"In respect to persons who have had dealings with the firm, it
will be necessary to show either notice to them of a dissolution or
actual knowledge on their part, or at least adequate means of
knowledge of the fact. As to those who have not been dealers, a
retiring partner can exonerate himself from liability by publishing
notice of the dissolution, or by showing knowledge of the
fact."
He adds:
"A considerable lapse of time between the retirement and the
contracting the new debt would, of course, go far to show that it
was not or
Page 93 U. S. 440
should not have been contracted on the credit of the retiring
partners."
Mr. Justice Story, in his work on Partnership, says, the
retiring partner
"will not be liable to mere strangers who have no knowledge of
the persons who compose the firm, for the future debts and
liabilities of the firm, notwithstanding his omission to give
public notice of his retirement; for it cannot be truly said in
such cases that any credit is given to the retiring partner by such
strangers."
Sec. 160. In a note he discusses the doctrine as laid down by
Bell and Gow, and adheres to the rule as above announced.
Mr. Watson says that to dealers actual notice must be given; as
to strangers, he says, "An advertisement in the
London Gazette'
is the most usual and advisable method of giving notice of a
dissolution to the public at large." Watson on Part. 385.
In his Commentaries on the Law of Scotland, Professor Bell, in
speaking of a notice to dealers, says,
"An obvious change of firm is notice, for it puts the creditor
on his guard to inquire, as at first. So the alteration of checks
or notes, or of invoices, is good notice to creditors using those
checks and invoices."
As to notices to strangers, he says,
"As it is impossible to give actual notice to all the world, the
law seems to be satisfied with the 'Gazette's advertisement,
accompanied by a notice in the newspaper of the place of the
company's trade, or such other fair means taken as may publish as
widely as possible the fact of dissolution.'"
The "Gazette" notice he holds to be one circumstance to be left
to the jury. 2 Bell's Com. 640, 641.
In
Wardwell v. Haight, 2 Barb.S.C. 549, 552, Edmonds,
J., says,
"The notice must be a reasonable one. It need not be in a
newspaper. It may be in some other public and notorious manner. But
whether in a newspaper or otherwise, it must, so far as strangers
and persons not dealers with the firm are concerned, be public and
notorious, so as to put the public on its guard."
In view of these authorities, we are of the opinion that the
rule adopted by the judge on the trial of this cause was too rigid.
We think it is not an absolute inflexible rule that there must be a
publication in a newspaper to protect a retiring partner. That is
one of the circumstances contributing to or
Page 93 U. S. 441
forming the general notice required. It is an important one, but
it is not the only or an indispensable one. Any means that, in the
language of Mr. Bell, are fair means to publish as widely as
possible the fact of dissolution; or which, in the words of Judge
Edmonds, are public and notorious to put the public on its guard;
or, in the words of Judge Nelson, notice in any other public or
notorious manner; or, in the language of Mr. Verplanck, notice by
advertisement or otherwise, or by withdrawing the exterior
indications of partnership and giving public notice in the manner
usual in the community where he resides -- are means and
circumstances proper to be considered on the question of
notice.
When, therefore, the defendant proved that actual notice had
been given to all those who had dealt with the firm; that all
subsequent business was carried on in the name of the remaining
partner only, thus making a marked change in the presentation of
the firm; when the claimants received and obtained the draft at a
distance of several hundred miles from the place where the firm did
business, and there was no evidence that the firm had ever before
transacted any business in that place -- we think the evidence
offered should not have been excluded. When the defendant offered
to prove that it was generally known along the Mississippi River
that the dissolution had taken place, and offered evidence showing
to whom, to what extent, and in what manner, notice had been given;
that all the lumber dealers in Davenport were notified and knew of
the dissolution; that at Eau Claire, on the occasion of the
transaction in question, and before the drafts were made, notice
was there given to all, or nearly all, of the lumber dealers in
that place that the firm had been dissolved -- we think the
evidence was competent to go before the jury.
The question is not exclusively whether the holders of the paper
did in fact receive information of the dissolution. If they did,
they certainly cannot recover against a retired partner. But if
they had no actual notice, the question is still one of duty and
diligence on the part of the withdrawing partner. If he did all
that the law requires, he is exempt, although the notice did not
reach the holders. The judge held peremptorily that there must be
either actual notice or public notice -- in
Page 93 U. S. 442
effect, that it must be through a newspaper -- and excluded
other evidence tending to show a public and notorious disavowal. In
this we think he erred.
He refused to admit evidence which would have sustained the
fifth request to charge that if the notice was so generally
communicated to the businessmen of Eau Claire as to be likely to
come to the claimants' knowledge, the jury are at liberty to find
such knowledge. In this we think he erred.
Without prescribing the precise rule which should have been laid
down, we are of the opinion that the errors in the rulings were of
so grave a character that a new trial must be ordered.
New trial ordered.
