Trust Co. 45 Minn. 495, 22 Am. St. Rep. 742, 48 N. W. 326; Carter Bros. v. Galloway, 36 La. Ann. 730; Cannon v. Lindsey, 85 Ala. 198, 7 Am. St. Rep. 38, 3 So. 676; Davies v. Atkinson, 124 Ill. 474, 7 Am. St. Rep. 354, 16 N. E. 100; Rogers v. Bachelor, 12 Pet. 221, 9 L. ed. 1063. There is no proof either of authority from Lutz to issue these notes or of his adoption or ratification thereof. It was therefore error for the circuit court to decree that Lutz is liable for the full amount of said notes and interest, and in so far as the decree so holds it is set aside and reversed.

While these notes are not valid, as such, against the partnership, yet by reason of the circumstances under which they were given and accepted they may be treated now as equitable assignments, pro tanto, of Miller's claim against the partnership. If its assets are insufficient to meet its debts, and upon a settlement of its affairs there should be found a contribution contribution due Miller therein from Lutz, then the Valley Grocery Company would be entitled to press its demands against such contribution. "A note in the name of the firm to one of the partners, is a writing somewhat anomalous in its character; it creates but an imperfect legal obligation; it is not enforceable at law according to its import, but if enforced at all, has to be regarded for that purpose, as imposing a separate legal liability on one of the partners. It is, in effect, merely the evidence of one item of

indebtedness in the account between the partners; its availability in equity depending upon the condition of the firm, and relative interests and liabilities of the partners as such. If assigned away the assignee takes it with all its imperfections and drawbacks, legal and equitable. And as the partner himself, had he still retained the note, could only enforce payment of its full amount from the firm, in the event that the firm effects were sufficient to discharge his as well as all other demands against it, his assignees are in no better condition, and their right to have the full amount of their demand made out of the other partner who has had the control and management of the partnership concerns, depends on the same contingency. The assignor, as one of the partners, is no doubt responsible to the assignees for the full amount of the consideration of the assignment, but the effort in this case by the assignees is to hold the other member of the firm (there being only two partners), individually responsible for the whole demand. To render him so liable, it should appear on a settlement of the partnership transactions and dealings, that he is indebted to his partner, the assignor, in that amount." Simrall v. O'Bannon, 7 B. Mon. 610.

Except as to its finding in favor of the Valley Grocery Company, the decree of the Circuit Court will be affirmed.

Petition for rehearing denied November 12, 1926.

I. Scope, 433.

II. In general, 433.

a. In general, 435.

IV. continued.

b. Through pledge, 439.

VII. Presumptions, 443.

VIII. Burden of proof, 443.

IX. Defenses, 444.

X. Miscellaneous, 444.

1. Scope.

This annotation is concerned with cases where one member of a firm has executed an obligation in the name of the firm, or has transferred by indorsement, assignment, pledge, or mortgage, assets or property of the firm, for the payment of his individual debts, or for the purpose of securing money for his own use.

It is not concerned with cases where the obligation is executed with the express approval or authority of the other members of the firm.

The annotation presupposes that the person dealing with the partner knows that the transaction is not for the benefit of the firm; and it is not, therefore, concerned with cases in which the firm is held responsible on a transaction which was in fact for the individual benefit of the partner, but that fact was not known to the other party. It is also assumed, so far as assets or property of the firm are concerned, that he knew that they belonged to the firm.

II. In general.

Where a person seeking to charge a partnership is apprised that the transaction is not for or on account of the firm, or knows that the firm credit is being pledged, or that a payment is being made out of firm moneys, to pay an individual debt, the copartners not consenting thereto will not be bound thereby. And the same holds true where ignorance of the fact arises from the gross ignorance of the person dealing with the partner, or where such third person has reason to believe that the partner is improperly using his authority for his own benefit. 20 R. C. L. p. 886, § 97.

Thus, in Johnson v. Crichton (1880) 56 Md. 108, the court said: "It is a 50 A.L.R.-28.

fundamental principle in the law of partnership that the authority of each. partner to dispose of the partnership funds and effects, strictly and rightfully, extends only to the partnership business. If, therefore, partnership securities, funds, credits, or effects are taken from one partner, without the previous knowledge and consent of the others, for a debt which the creditor knew at the time was the private debt of the particular partner, whether that debt be created at the time, or has antecedent existence, all the authorities concur in holding such transaction to be fraudulent, and therefore clearly void in respect to the partnership."

In Brewster v. Mott (1843) 5 III. 378, where there was an entry of credit on the firm books by one partner, in payment of his individual indebtedness, the court said: "It is . . established by authorities that one partner is in no case bound by the act of his copartner, done without his assent, ... and that, although his assent may be implied from their partnership relations in regard to all acts within the scope of their partnership transactions, it cannot be in reference to the payment by his copartner of his, the copartner's, individual indebtedness with the partnership funds or effects. In such case there must be extraneous evidence to prove such assent; and, in the absence of such evidence, it will be wholly immaterial whether the separate creditor knew that such payment had been made with the partnership funds or not; he will, in either event, acquire no property in the partnership funds, or be entitled to no discharge from his debt to the firm (as the case may be) as against the partner without whose assent such payment has been made."

And in Nichols & Co. v. Thomas (1915) 51 Okla. 212, L.R.A.1916B, 908, 151 Pac. 847, it was held that an intervener on behalf of a firm had a right to recover the amount of a check from one to whom a partner had indorsed it in the name of the firm, in payment of his past-due debt, without the knowledge, consent or approval of the other partner, since the indorsee was not a bona fide holder.

In Robinson v. Aldridge (1857) 34 Miss. 352, it was held that the payee of a note could not recover where the note was given in the name of a firm by one of the partners, for his private debt, and known to be so by the payee, unless he could show that the other partners had knowledge of or assented to the transaction.

In United States Exch. Bank v. Zimmerman (1908) 113 N. Y. Supp. 33, where a third party took a partnership note with knowledge that it was being given by one member of the firm for his individual debt, it was held that, unless he informed the other members of his intention of taking the note, or obtained their consent to it, he was confined in his remedy to the individual member from whom he took the note.

In Lucker v. Iba (1900) 54 App. Div. 566, 66 N. Y. Supp. 1019, where one member of a firm gave notes signed in his name and that of his partner, rather than in the partnership name, to secure a loan for his individual use, without the knowledge of his copartner, the court held that, even if the notes had been signed in the only firm name provided by the partnership articles, the lender of the money could not recover on the notes against the copartner, where he knew that they were given for the individual liability of the partner making them.

In Van Voorhis v. Brown (1898) 29 App. Div. 121, 51 N. Y. Supp. 440, the court said: "It is well settled that a note given by one partner in the firm name, in payment of his individual debt, cannot be enforced against the firm by one taking the note with full knowledge of the facts [citing cases]."

In Brown v. First Nat. Bank (1913) 35 Okla. 726, 130 Pac. 140, in an action

by a payee on a note drawn by one partner in the name of the firm, it was held that the other partner did not become liable to pay the note to the extent of items included therein not reasonably within the scope of the partnership, by his failure to dissent when demand of payment was made on him, where it appeared that the officers of the bank knew that the money was to be used for purposes not within the scope of the partnership business.

In Bell v. Faber (1853) 1 Grant, Cas. (Pa.) 31, where one member of a firm, with the consent of the manager, but without the consent of one of the partners, gave a note in the name of the firm in payment of a small debt of the firm and an individual indebtedness, the court, after holding that one partner could not make the firm liable for a note given by him for his individual debt by including in the consideration. a trifling debt which the firm owed, said that the plaintiffs were not innocent holders without notice, since they knew that the note was not given in the regular course of partnership business, and that it was their duty to see that the note was signed with the consent of all of the partners.

And in the reported case (LUTZ v. MILLER, ante, 426) where a partner made advances to his firm and signed the firm name on a note payable to himself, which he indorsed, and which was knowingly accepted by a creditor of his in payment of a personal debt, it was held that the creditor could not recover of the partnership without proof of assent, adoption, or ratification by the copartners.

In Shirreff v. Wilks (1800) 1 East, 48, 102 Eng. Reprint, 19, it was held that payees could not recover upon a bill of exchange which was drawn upon three partners composing a firm, and accepted by one member thereof in the name of the firm, without the consent of one of the copartners, where the payees accepted it with knowledge. that the third partner had no concern with the matter and was no debtor of theirs.

In Hood v. Aston (1826) 1 Russ. Ch. 412, 38 Eng. Reprint, 160, where a bill of exchange was accepted by one part

ner in the name of the firm, without the privity or consent of his copartners, and given in payment of his individual debt, the court, in holding that an injunction would lie to prevent further negotiation by the holder, said: "The mere circumstance that a partner gives a partnership bill for his separate debt may or may not lay a ground for the issuing of an injunction against its negotiation; for the person who takes it may or may not have some reason for supposing that his debtor had a right or authority so to use the partnership name. But where it appears that an individual partner, indebted to the partnership, being unable to pay his separate bill holden by his bankers, substitutes for it, by a negotiation with them, a partnership security, made and given without the consent or knowledge of his copartners, and the bankers are aware that it is so given without their consent or knowledge, that is a case which comes within the principle upon which the courts have always been in the habit of interfering by injunction."

III. Acceptance of negotiable instrument.

a. In general.

A creditor of an individual partner taking a negotiable instrument executed by the latter in the name of the firm cannot recover thereon against the other partner or partners, or the firm, unless he can show that the other partner or partners knew of and assented to the transaction, or that it was within the scope of partnership transactions, or that it inured to the benefit of the firm.

United States. Smyth v. Strader (1846) 4 How. 404, 11 L. ed. 1031. Alabama. Tyree v. Lyon (1880) 67 Ala. 1. Georgia.

Cody v. First Nat. Bank (1898) 103 Ga. 789, 30 S. E. 281. Illinois. Adams v. Long (1904) 114 Ill. App. 277.

New Hampshire. Davenport v. Runlett (1826) 3 N. H. 386; Williams v. Gilchrist (1841) 11 N. H. 535. New York. Livingston v. Hastie (1804) 2 Caines, 246; Farmers' & M. Bank v. Butchers & D. Bank (1857) 16 N. Y. 125, 69 Am. Dec. 678; Union Nat. Bank v. Underhill (1886) 102 N. Y. 336, 7 N. E. 293; Van Voorhis v. Brown (1898) 29 App. Div. 121, 51 N. Y. Supp. 440; Lucker v. Iba (1900) 54 App. Div. 566, 66 N. Y. Supp. 1019; United States Exch. Bank v. Zimmerman (1908) 113 N. Y. Supp. 33.

Tennessee. Crosthwait v. Ross (1839) 1 Humph. 23, 34 Am. Dec. 613. Virginia. Poindexter v. Waddy (1819) 6 Munf. 418, 8 Am. Dec. 749. West Virginia. LUTZ V. MILLER (reported herewith) ante, 426.

England. Hood v. Aston (1826) 1

Russ. Ch. 412, 38 Eng. Reprint, 160. Thus, in Stewart v. Caldwell (1854) 9 La. Ann. 419, where one member of a planting partnership drew a note in the name of the firm, it was held that the other partner was not liable in the absence of proof of authority to bind him, or of his knowledge of the note's existence, or ratification of it, or that its proceeds inured to the benefit of the firm.

In Brown v. Duncanson (1799) 4 Harr. & McH. (Md.) 350, 1 Am. Dec. 409, it was held that the payee of a bill of exchange could not sustain an action thereon, where it was drawn upon the firm by one member, and accepted by him in the name of the firm for the payment of his individual debt, without the knowledge or consent of the other partner.

In Chazournes v. Edwards (1825) 3 Pick. (Mass.) 5, it was held that a creditor taking a note executed in the name of the firm in payment of a partner's private debt could not recover thereon against an indorser of the note or against the other partners of the firm, where it was executed without their knowledge or consent and indorsed upon the supposition that it was a note made by the firm.

In Durrell v. Staples (1897) 169 Mass. 49, 47 N. E. 441, it was held that the payee of a firm note could not prove it in insolvency against the firm, where it was given in renewal of another note, signed in the name of the firm, which had been given in payment of a note signed by one partner, which was the last of a succession of renewals of a note originally given to the payee by him for money borrowed on his individual account, to enable him to pay his share of the capital in the partnership, where one member of the partnership had no knowledge of the transaction until after the second note was given, and there was no evidence that it was according to the usual course of the firm's business.

In Roberts v. Pepple (1884) 55 Mich. 367, 21 N. W. 319, it was held that one taking a note signed in the name of a firm by one member thereof for a private debt could not recover where the note was given without the other part

ner's knowledge or consent, did not pertain to firm business, and was without consideration to the firm.

In Hickman v. Kunkle (1858) 27 Mo. 401, in an action by a creditor upon a note given in the firm name by one member, it was held that if the note was given for a pre-existing debt of one partner the partnership was not liable, unless the creditor could show that it was expressly or impliedly sanctioned by the firm, and that, if the note was given by an individual partner for an indebtedness created in relation to a business transaction, the partnership would not be liable if they could show that the debt was contracted in a transaction entirely foreign to their business.

In Levi v. Latham (1884) 15 Neb. 509, 48 Am. Rep. 361, 19 N. W. 460, where an action was brought on a promissory note executed by one partner in the name of the firm, for the purpose of securing a loan for his individual use, without the knowledge or consent of the other partners, and without any of the funds being used by the firm, the court held, in view of the fact that it was a nontrading partnership, that the plaintiff could not recover unless he could show authority from the copartners, that the giving of such instrument was necessary to the carrying on of the partnership business, or that it was usual in similar partnerships.

In Davenport v. Runlett (1826) 3 N. H. 386, where a firm note was given by one partner in payment of his individual board bill, it was held that the payee could not recover on the note unless he could show that the board of the partner was within the scope of the partnership articles.

In Crosthwait v. Ross (1839) 1 Humph. (Tenn.) 23, 34 Am. Dec. 613, where one member of a copartnership, for the purpose of practising medicine, executed a note in the name of the partnership for his own benefit, it was held that the payee could not recover against the other partner, as the note was not given within the scope of the partnership business.

In Morris v. Sobey (1909) 12 West. L. R. (Can.) 558, where a note was