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company relating to such matters. (e) It has also been seen that debentures issued by directors in fraud of their shareholders, to a person cognizant of the fraud, are not only invalid in his hands but also in those of subsequent bona fide holders for value, without notice of the fraud. (ƒ) It has also been held that bonds for money lent issued by a railway company which has exhausted its statutory powers of borrowing are invalid. (g) But whether if the limit is not set by statute, an excessive exercise of a power to borrow would be held altogether invalid or would be held valid in favor of bond fide lenders without actual notice of such exercise, has not yet been determined. But the principles of The Royal British Bank v. Turquand (h) would probably be applied in such a case. The mere fact that money borrowed has been bonâ fide applied to partnership purposes is not sufficient to render the firm liable at law to repay it, where there was no actual or implied authority to borrow, and there has been no ratification of the loan. (2) As, however, will be seen hereafter, it is sometimes otherwise on equitable principles. (k) *273 *There is a practical difference between borrowing money and procuring works and materials on credit, which requires Difference be notice. The difference consists in this, that he who

Effect of haying had the benefit of money borrowed.

tween borrow

ing and obtain

on credit.

ing goods, &c., possesses power to borrow on the credit of another, has a much more extensive, and therefore more easily abused, trust reposed in him than one who is empowered only to pledge the credit of another for value received, when the pledge is given. A power, therefore, to incur debt, which is necessarily incidental to almost every partnership and company, by no means involves a power to borrow money; and the cases which show that adventures in cost-book mines are liable for supplies furnished to the mine (1), but not for money borrowed for the purposes of the

(e) Royal British Bank v. Turquand, 5 E. & B. 248, and 6 ib. 327; Agar v. Athenæum Ins. Soc. 3 C. B. N. S. 725; Magdalena Steam Nav. Co. Johns. 690, ante, p. 253.

(f) Athenæum Life Ass. Soc. v. Pooley, 1 Giff. 102, and 3 DeG. & J. 294, ante, p. 262.

(g) Ante, note (x)

(h) Ante, p. 253.

(i) See Gallway v. Matthew, 10 East,

264; Worcester Corn Exch. Co. 3 DeG.
M. & G. 180; Burmester v. Norris, 6 Ex.
796; Ricketts v. Bennett, 4 C. B. 686;
Hawtayne v. Bourne, 7 M. & W. 595.
'Sce ante, 269, note.

(k) This subject will be examined hereafter. See book ii. ch. 1, § 7, and book iii. ch. 3, § 1.

(1) Tredwen v. Bourne, 6 M. & W. 461; Hawken v. Bourne, 8 ib. 703.

mine (m), show that the difference here alluded to is judicially recognized. At the same time it must not be forgotten that in equity it has always been held more important to consider how the money has been applied than the form in which a debt has been contracted. (n)

banking ac

Although a company may have no power to borrow, its directors may overdraw its banking account; and if the overdraft Overdrawing is made in the ordinary course of banking business, count. the bankers may recover the amount of it (o) or enforce payment of bills which have been given by the company to secure it. (p)

Connected with the subject of borrowing money, is that of increasing capital. A sole trader who borrows

capital.

money for the *purpose of his trade, cannot *274 Increasing with propriety be said to increase his capital; but if two or more persons are in partnership, and each borrows money on his own separate credit, and the money is then thrown into the common stock, the the capitol of the firm, as distinguished from the separate capitals of the persons composing it, may with propriety be said to be increased. But, in this case, the firm is not the borrower, nor is it debtor to the lender for the moneyborrowed. If a firm borrows money so as to be itself liable for it to the lender, the capital of the firm is no more increased than is the capital of an ordinary individual increased by his getting into debt. When, therefore, it is said that one partner has no implied power to borrow on the credit of the firm for the purpose of increasing its capital, what is meant is, that one partner, as such, has no power to borrow, on the credit of himself and co-partners, money, which each was to obtain on his individual credit, and then to bring

(m) Hawtayne v. Bourne, 7 M. & W. 595; Burmester v. Norris, 6 Ex. 796; Ricketts v. Bennett, 4 C. B. 686; Brown v. Byers, 16 M. & W. 252. See, also, Beldon v. Campbell, 6 Ex. 886.

(n) See, infra, § 7, and book iii. ch. 3, § 1. The case of infants is analogous; an infant is liable for necessaries; but he was not liable at law for money lent, though applied in the purchase of necessaries. Darby v. Boucher, 1 Salk. 279. But see, in equity, Marlow v. Pitfield, 1. P. W. 558. So, a husband was

not at law liable for money lent to his
wife to enable her to obtain necessaries,
and applied by her for that purpose.
Knox v. Bushell, 3 C. B. N. S. 334. But
see in equity, Jenner v. Morris, 1 Dr. &
Sm. 218; and 3 De G. F. & J. 45;
Deare v. Soutten, 9 Eq. 151; and ob-
serve that in the last case the plaintiff
had no ground for suing in equity ex-
cept his inability to recover at law.
(0) Waterlow v. Sharp, 8 Eq. 501.
(p) Re Cefn Cilcen Mining Co. 7 Eq.

88.

into the common stock. (g) Unless the expression means this, it means nothing.

Omnibus Com

pany.

In Bryon v. Metropolitan Saloon Omnibus Company (r) the Bryon v. Metro- capital of a limited joint-stock company had been expolitan Saloon pended, and a majority of shareholders proposed to borrow money on the credit of the company. A dissentient minority sought to restrain the majority from so doing, and reliance was placed on the doctrine that the capital of the company could not be increased by borrowing money without the consent of all the shareholders. But it was held competent for the majority to borrow money on the credit of the company, and that the doctrine relied on had no application to the case; the capital of the company being one thing, and that which was sought to be increased by borrowing (viz., the cash in hand) being a different thing.

See further as to borrowing, infra, under the head Mortgages and Pledges.

10. Cheques. *275

[9 a. Charter Parties.]' 10. Cheques.-One partner has implied power to bind firm by cheques, not post dated (s), drawn on the bankers of the firm in the partnership name (t); and if one partner directs the bankers of the firm not to pay a cheque of the firm, the bankers incur no liability to the firm if they follow such directions. (u)'

(q) See Greenslade v. Dower, 7 B. & C. 635; Fisher v. Taylor, 2 Ha. 218, as to the power of one partner to do this. (r) Bryon v. Metropolitan Saloon Omnibus Company, 3 De G. & J. 123. 'See post, 278, note.

2

(s) See Forster v. Mackreth, L. R. Ex. 163; Bull v. O'Sullivan, L. R. 6 Q. B. 209.

(t) Laws v. Rand, 3 C. B. N. S. 442. As to cheques drawn by directors, see Gloucester, Aberystwith, &c. Rail. Co. 18 Jur. 815, L. J.

(u) An action for dishonoring the cheque would, of course, have to be brought in the names of all the partners, and in the case supposed such an action would not lie; see ante, p. 212, and infra, Book ii, Chap. 3.

"If a partner consents that a check of the firm may be applied on an individual debt of his co-partner, he may at any time before such application is in fact made, or the rights of third parties intervene, withdraw such consent, and after notice by him not to so apply the check, it cannot be so applied. National Bank of Jacksonville v. Mapes, 85 Ill. 67.

When a banker has the funds of a firm deposited with him for the purpose of its especial business, and knows that one of the firm is engaged in individual speculations, and transfers these funds to the separate account of this member, and with a knowledge that the latter appropriates the funds to such speculations, the banker is liable to the firm for

The bankers of a company which has no proper directors may, nevertheless, safely pay checques drawn in its name by those persons who in fact carry on its business, unless the bankers are aware of their want of authority. (x)

Bankers who allow a company to overdraw its account have no remedy against the directors personally; although they may have signed the checques or authorized others to sign them. (y)

11. Contracts.-One partner can bind his co-partners by varying a contract made with both in the ordinary course 11. Contracts. of business. (2)

Bil

the funds thus misapplied, unless they first assure him of their consent. lings v. Meigs, 53 Barb. 272.

If a bank pays out the money of a partnership to one of the partners upon his check, in fraud of the rights of the other partners, an action at law cannot 'be maintained in the firm name against the bank, but resort must be had to a court of equity for the relief of those partners claiming to be injured. Church v. First National Bank, etc. 87 Ill. 68. See Miller v. Price, 20 Wis. 117, as to the necessary parties.

G., a member of a firm, made a check in the firm name, payable to H. or bearer, for the purpose of paying an account due from the firm to H.; but, instead of using the check for that purpose, paid H.'s account by an account which he held individually against H., and by payment of the balance in cash, and subsequently transferred the check to the plaintiff, to pay an individual debt: Held, that as it appeared that the check was drawn in good faith to pay a partnership debt, an action would lie upon it against the firm. Gale v. Miller, 44 Barb. 420.

Where there are two establishments in the same place for carrying on the same business, both conducted by the same person, in one of which he is a partner, and in the other sole proprietor, and he obtains moneys from a bank on checks drawn by him and signed with

his own name as agent, in an action by the bank against the firm, they may show that they are not indebted to the bank, if they did not know the mode in which the checks were drawn. Mechanics', etc. Bank v. Dakin, 24 Wend. 411.

A person who is a member of two firms, gives the check of one firm to pay the note of the other, which had been deposited with a banker for collection. In this case, a mutual understanding between the firms may well be presumed, and the person receiving the proceeds of the note is not liable in an action by the former firm to restore them. Nor is the notorious insolvency of the member who drew the note and the check constructive notice of his want of authority. Murphy v. Camden, 18 Mo. 122.

(x) Mahony v. East Holyford Mining Co. L. R. 7 H. L. 869.

(y) Beattie v. Lord Ebury, L. R. 7 H. L. 102.

(z) Leiden v. Lawrence, 2 N. R. 283, Ex.

See post. 281, note.

One partner has a right to bind the firm to any extent by contracts within the scope of the partnership. Bank r. Gore, 15 Mass. 75; Boardman v. Gore, id. 331; Galloway v. Hughes, 1 Bailey, 553; Winship v. Bank, 5 Pet. 529; Storer v. Hinkley, Kirby, 147.

A contract to convey lands belonging to a firm, signed with the firm name by

12. Debentures.—See Borrowing Money and Mortgages; and as to debenture stock of companies governed by special acts of Parliament, see 26 & 27 Vict. c. 118, part 3; and 32 & 33 Vict. c. 48.

12. Debentures.

13. Debts.—If a debt is owing to a firm, payment by the debtor 13. Debts. to any one partner extinguishes the claim of all, each Payment to one partner being ostensibly the agent of all the rest to partner. get in debts owing to the firm. (a) After a dissolution, payment to any one of the partners discharges the debtor (b), even though a third person is appointed to collect the debts owing to the firm, and the creditor is aware of that fact; for it is said there is nothing in such an arrangement to exclude any partner from acting as usual (c). But if on a dissolution a debt due

one partner, under a verbal authority from the other partner, is binding on both. Lawrence v. Taylor, 5 Hill, 107. See Ewell's Evans on Agency, *17 note.

Where two persons as partners in the erection of buildings, have dealt largely with a person in the roofing business, and one of the partners employs such person in and about a building of his own, and the person doing such work has no notice that the work is for the individual partner, but does the work upon the credit of the firm as in prior dealings, a recovery by him for his services against the firm will not be disturbed. Bartlett v. Powell, 90 Ill. 331. (a) Anon. 12 Mod. 446.

4 Payment of a debt to one partner of a firm is good against the other partners, and a release by one partner to a debtor of the firm is obligatory on the others. Scott v. Trent, 1 Wash. (Va.) 77; Salmon v. Davis, 4 Binn. 375; Gregg v. James, Breese, 167; Yandes v. Lefavour, 2 Blackf. 371; White v. Jones, 14 La. Ann. 681; Vanderburg v. Bassett, 4 Minn. 242; Allen v. Farrington, 2 Sneed, 526.

Where one of two partners receives money on an executory contract, and the other partner subsequently ratifies the contract, both are liable, if the

contract is not fulfilled, though the money may not have been paid over from one partner to the other. Lawrence v. Taylor, 5 Hill, 107.

(b) Duff v. The East India Co. 15 Ves. 198; Brasier v. Hudson, 9 Sim. 1. See Phillips v. Phillips, 3 Ha. 281, as to the receipts of a surviving partner.

(c) Bristow v. Taylor, 2 Stark. 50; Porter v. Taylor, 6 M. & S. 156; King v. Smith, 4 Car. & P. 108.

"Neither the insolvency of the partner receiving the money, nor the application he makes of it, affects his right to receive it. Major v. Hawkes, 12 Ill. 298; Heartt v. Walsh, 75 Ill. 200.

A and B were partners, and on a dissolution of the firm transferred to C all the partnership effects, for the purpose of paying and collecting the debts of the firm. C afterwards transferred the partnership property to B. D, a debtor of the firm, after notice of the transfer, to C, paid his debt to A. B sued D for the debt: Held, that as C was not vested with the title of the partnership effects as assignee, payment to A, as one of the firm, was a good discharge of the debt. Gordon v. Freeman, 11 Ill. 14.

After the dissolution of a firm which had indorsed a note, the maker paid a sum of money to one of the late partners, and took a receipt signed with the

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