Story Case

James Pinckney and Harvey Pope were partners in a Mississippi Eiver Steamboat Company, carrying freight between St. Louis and New Orleans. Pinckney was the general manager in St. Louis, and Pope superintended the shipping. As general manager, Pinckney executed a promissory note in the name of the firm for a loan of money and gave mortgage on one of the boats as security. The loan was made from Fred Harvey, who was not aware that Pinckney intended to use the money for his own purposes. When the note was not paid as it came due, Harvey attempted to foreclose the mortgage on the boat. Pope maintained that the mortgage was not good, since Pinckney had no authority to execute the note. Harvey answered that, as general manager of the firm, Pinckney was acting within the apparent scope of his authority.

Is this correct?

Ruling Court Case. Pooley Vs. Whitemore, Volume 10 Tennessee Reports, Page 633; Same Case, Volume 27 American Reports, Page 733

Whitemore Brothers was a partnership, composed of Edwin Whitemore and W. A. Whitemore. The partners were engaged in the business of publishing a newspaper in the city of Memphis, and also did some job printing. W. A. Whitemore made out two promissory notes to the order of Whitemore Brothers; he indorsed them in that name to one Cannon, in payment of a personal debt owed by him to Cannon. The note later came into the hands of Pooley, who claims to be a bona fide purchaser without notice of the use of the money. He brings this action against Edwin White-more, the surviving member of the partnership.

Decision

In a trading partnership where the business consists in buying and selling, each partner has implied power to give promissory notes, which will bind the partnership, and any person who takes such a note without notice of lack of power on the part of the partner drawing it will be protected. In a non-trading partnership, however, the general rule is otherwise, and a partner in such a firm has no implied power to issue notes which will be binding upon the partnership. Accordingly, every one who receives such an instrument holds it subject to the right of the partnership to repudiate it as a partnership obligation. The Court was of the opinion that Whitemore Brothers constituted a non-trading partnership and therefore, the plaintiff was charged with notice of any excess of authority by the partner in issuing these notes.

Mr. Justice Burton said in part: "The consequence of this distinction between trading and non-trading partnerships is very important, in reference to the main defense relied upon in this case. If a partner in a banking firm, for instance, should indorse a bill or note for his private debt and it should get into the hands of a bona fide purchaser without notice, his firm would be bound by it. Since the indorsing or making of such paper is the usual mode of conducting that business, the public has a right to suppose that each partner is empowered to accept or indorse for the firm, and is not bound to inquire whether, in a given instance, the act was done with the assent of his copartners. But not so with a non-trading partnership occupation whose business does not ordinarily require dealing in commercial paper. One who becomes a member of such a firm does not confer implied power on his copartners to bind him by dealing in bills or notes. He is not clothed with apparent power so to bind his firm, and no person dealing with the firm has the right to suppose that the powers of one member are more extensive than is implied by the ordinary mode of conducting such business."

Ruling Law. Story Case Answer

Whether a partner may bind his firm by negotiable paper depends upon the principles just announced in the foregoing section. There is no difficulty about a case where a partner has been authorized expressly to sign negotiable paper. The trouble arises in those cases where he has not been given express authority, and the question arises as to when and under what circumstances such power will be implied. If a partner has not been expressly authorized to sign bills and notes in the firm name, in order to hold the firm, it must be shown that such power was within the apparent scope of the partner's authority. Here, again, it must be said that apparent scope of authority is a question of fact for the jury.

In determining what is the apparent scope of authority in reference to making negotiable paper, the Courts have laid down a very important distinction between trading and non-trading firms. Each member of a trading partnership is said to be clothed with implied authority to make negotiable paper in the usual course of the partnership business. It is the usual business of a trading partnership to buy and sell, and it is necessarily incidental to buying and selling that each partner have the power to sign negotiable paper. But, in a non-trading partnership, it is not the usual course of business to buy and sell, and, consequently, the Courts have laid down, the rule that a member of a non-trading firm has not been vested with implied authority to bind the firm by signing or accepting bills and notes. Since a steamboat firm is not a trading partnership, Pinck-ney was not acting within the apparent scope of his authority in the Story Case and Harvey cannot foreclose on the mortgage.