
    Beach v. The State Bank.
    An authority to draw a bill is virtually an acceptance of the bill drawn in conformity to it.
    If a bill be accepted in the name of one partner only, and not in that of the firm, yet if the bill be addressed to the firm, all the members of it, whether dormant or not, will be bound by such acceptance. ' •
    One partner will be bound by the fraud of his co-partner in contracts relating to the partnership made with innocent third persons.
    A partner cannot bind his co-partner by an accommodation acceptance, unless that partner consent thereto, and that consent may be established by positive proof, or inferred, from the prior or subsequent conduct of such partner. And if the accommodation acceptance pass into the hands of a Iona fide indorsee for value, the co-partner will be bound to such indorsee, even if his consent cannot be shown.
    Where a debtor gives to his creditor collateral security upon the aggregate amount of several separate claims, the proceeds of such collateral security must be applied, pro rata, upon each of the claims.
    ERROR to the Cass Circuit Court.
    
      Tuesday, May 27.
   Perkins, J.

Assumpsit by the State Bank of Indiana, for the use of the branch at Michigan City, against Henry B. Williams, Lewis Chapin, and Ebenezer S. Beach, partners under the name of “ H. B. Williams and Co.” The declaration contains the common, and twenty-two special counts. The special counts are upon bills of exchange. Some of the counts describe bills drawn by S. P. Williams to the order of Williams and Hitchcock, upon H. B. Williams and Go., and indorsed to the bank by Williams and Hitchcock, and allege their acceptance by H. B. Williams and Co., by the name of H. B. Williams. Other counts describe bills drawn by S. P. Williams to the order of Williams and Hitchcock, on II. B. Williams and Co., and allege that they were drawn under a letter of credit from II. B. Williams and Co. authorizing the same, and that they were indorsed to the bank by Williams and Hitchcock, and, afterwards, presented by the bank to the. drawees for acceptance and for payment, and that acceptance and payment were refused, &c. Other of the counts still vary the description of the cause of action. No question arises upon the declaration, and no evidence, we may remark, was offered upon the common counts. Process was returned not found as to Williams and Chapin; Beach appeared and pleaded the general issue under oath. There was a jury trial; verdict and judgment for the plaintiff for over 10,000 dollars. The evidence and instructions are upon the record. A motion for a new trial was denied.

The plaintiff gave in evidence the following letter of credit, proved to have been drawn and signed by H. B. Williams:

Rochester, Sept. 4, 1841. The bearer, Samuel P. Williams, one of the firm of Williams and Hitchcock, is authorized to draw on us to the amount of twenty thousand dollars, at such times as he pleases.
H. B. Williams and Co.”

Also, five bills of exchange, each described in one or more of the counts in the declaration, as a sample of which the following is copied. The signature of S. P. Williams was proved:

“$2,000. Michigan City, September 10, 1841.
“ Four months after date, pay to the order of Williams and Hitchcock, at the Merchants’ Exchange Bank, New York, two thousand dollars, value received, which place to account of your obed’t serv’t. S. P. Williams.
To H. B. Williams and Co.”
Across the face of the bills was written, in blue ink, “ H. B. Williams, Oct. 2,1841,” in said Henry B. Williams’s hand-writing. The bill was indorsed, in the hand-writing of S. P. Williams, “ Williams and Hitchcock.”

It was proved that there were two firms at Rochester, New York, one named “ II. B. Williams and Co.,” the other “ Williams and Hitchcock,” and that the business of both was the purchasing of wheat and the manufacturing and selling of flour, but that there was no partnership connection in business between the two firms; that the former was composed of Henry B. Williams, Lewis Chapin, and Ebenezer S. Beach, the defendant below to this suit; and the latter of Samuel P. Williams and Irad Hitchcock, one of whom was a son, the other a brother-in-law, of Henry B. Williams of the former firm; that each firm transacted a large business with the banks, and that said Henry B., here usually designated H. B. Williams, was the active member of the firm of H. B. Williams and Co., and was in the habit of drawing bills, &c., in the firm name. It was also proved that he was in the habit of indorsing and accepting paper drawn upon him individually, in his own name, for the accommodation of Williams and Hitchcock, and of advising them in their business; and that all these facts were known to the Michigan City bank at the time the bills in question were discounted. It was also proved that H. B. Williams and Co. had an agent, Underhill Dunn, in the southern part of Michigan, purchasing wheat and flour for them, and that" Williams and Hitchcock had an agent, James McAdoo, in the northern part of Indiana, engaged for them in like business; that at the time it bears date, Samuel P. Williams, of the firm of Williams and Hitchcock, received at Rochester, New York, from Henry B. Williams, the letter of credit above set forth, came immediately with it to Indiana, deposited it with the Michigan City bank, and, under it, drew the bills of exchange sued on, indorsed them, and negotiated a part of them to the bank, received the money for them, and made arrangements for McAdoo, the agent of Williams and Hitchcock, and for Hitchcock, one of said firm, to negotiate the balance, which they afterwards did; that said bills were afterwards presented at the office of the firm of II. B. Williams and Co., in Rochester, for acceptance by said firm, and were there accepted by said Williams, as was understood, on behalf of the firm; that the money received from the bank for the bills was all expended in the purchase of wheat and flour for Williams and Hitchcock; that at the time the bills were discounted no questions were asked and nothing was said as to whose use the money was to be applied, though Orr, the president, and Andrews, the cashier of the bank, say, in their testimony, that they supposed it was for the use of H. B. Williams and Co., though the bank had confidence in both firms; that said Orr had had interviews, subsequently, with Chapin and Beach separately, without, however, having with him the bills or letter of credit; that they conversed upon the subject; that those men did not deny II. B. Williams’s authority to give the letter of credit, but that Beach complained of being sued; said he should give all the trouble he could; grumbled about the kind of money and the application of the proceeds of the collateral security; said they had a disastrous business year, &c.; that Williams and Hitchcock did business individually with the bank for H. B. Williams and Co., and that other agents of said firm were also in the habit of raising money at said bank, on drafts on H.. B. Williams and Co., for the purchase of produce in the west. Such substantially is the evidence upon the record. Numerous instructions were given to the jury, many of which, it is contended by the counsel for the plaintiff in error, are erroneous, and we are earnestly urged to rest our decision of the cause upon them and not upon the evidence. It was, in the first instance, a question for the jury, under proper instructions from the Court, whether or not Beach was liable in this suit; but the Court could set aside their finding if it was palpably wrong, and confirm it, if probably right; and we think it would hardly serve any good purpose to lengthen this opinion by incorporating into it those instructions and adding thereupon the necessary remarks, as the evidence appears to us satisfactory upon the point of liability.

Before examining the evidence, however, it will be proper to refer to two or three established legal principles.

1. “ An authority to draw a bill is virtually an acceptance of the bill drawn in conformity to it.” Ulster County Bank v. McFarlan, 5 Hill (N. Y.) R. 432. — Bayard v. Lathy, 2 McLean, 462, and the cases there collected.

2. “ If a bill be accepted in the name of one partner only, and not in that of the firm, yet if the bill be addressed to the firm, all the members of it, whether dormant or not, will be bound by such acceptance.” Coll, on Part, by Perk. 371,372. — Story on Part. 161, note 1.- — ■ 3 Kent, 41. — -Chit, on Bills, 69. This must be, of course, in cases where the firm would be bound, were the bill accepted in the name of the film.

3. One partner will be bound by the fraud of his co-partner, in contracts relating to the partnership made with innocent third persons.” Coll, on Part. 401.

The letter of credit in this case, then, being a virtual acceptance of the bills drawn under it, and those bills having been also, in legal effect, afterwards accepted, but one question arises upon the letter and bills, viz.: whether they were drawn and accepted under such circumstances that the firm was bound by them.

The bank is the indorsee for value of accepted bills, and, prima facie, the firm of H. B. Williams and Co. was liable upon them in this suit, and it devolved upon the defendant below to establish the contrary. Austin v. Vandermark, 4 Hill (N. Y.) 259. To remove this presumption of liability, it is assumed in argument, by the counsel for Beach, that the evidence shows that the acceptances in question were for the accommodation of Williams and Hitchcock, and that the bank knew, or had good reason to believe, the fact when she discounted them.

As a general rule a partner cannot bind his co-partner by an accommodation acceptance, unless that partner consent thereto; and that consent may be established by positive proof, or inferred from the prior or subsequent conduct of such pai’tner. And if the accommodation acceptance pass into the hands of a bona fide indorsee, for value, the co-partner will be bound to such indorsee, even if his consent cannot be shown. Coll, on Part. Perk. Ed. 38.1, note 2. But, in the case before us—

1. There is no direct proof of the fact assumed, viz.: that the acceptances were for the accommodation of Williams and Hitchcock; for (we may remark) we disregard altogether the testimony of H. B. Williams. He swore that they were, and that they were not, accommodation acceptances, and his statements are such as to completely neutralize each other. We have not noticed his testimony in stating the evidence in the cause. The letter of credit was not to the firm of Williams and Hitchcock, nor expressed to be for their benefit; and it was such an one as would have naturally been given to’a purchasing agent of their own firm by H. B. Williams and Co. True the proceeds of the bills did not go to the benefit of this latter firm, but this is not proof that they were not accepted with the expectation that those proceeds would be so applied. Agents sometimes misapply the means with which they are intrusted. And;

2. The circumstances in this case were not such as would lead the bank, when the bills were discounted, to suppose them to be accommodation bills. They do not seem to have been out of the usual course of H. B. Williams and Go., in raising money for their own purposes in the west. That firm uniformly accepted such bills drawn by their purchasing agents; and it seems, from the testimony, that Williams and Hitchcock were sometimes individually made such agents, and did business for said firm with the bank; and it would seem, therefore, that they drew bills separately upon H. B. Williams and Co., which were accepted and paid, for such was the only kind of business that that firm had with the bank. Whereas, when Williams and Hitchcock drew bills for their own accommodation, as a firm, they drew upon H. B. Williams alone, who was, and was known to be, their accommodation acceptor. This is an important fact in the testimony; and with reference to it, when Samuel P. Williams drew the bills in question and indorsed them to the Michigan City Bank, he, in effect, said to the bank, these bills are for the benefit of H. B. Williams and Co., and the previous course of that company in regard to such bills would seem to have authorized the bank to believe, what Williams virtually said, to be true. We think the transaction in this case had the appearance, to the bank, from all the circumstances, of being for the benefit of H. B. Williams and Co., and that the jury properly so found the fact, though had they found otherwise, their verdict would not have been set aside.

Another question in the case it is necessary for us to decide. Williams and Hitchcock received from the bank, at the time of its date, the following instrument:

“ Received, December 3, 1841, of Williams and Hitchcock, in the store of Goodhue and McAdoo, as per their receipts of this date, 13,500 bushels of wheat as collateral security for the payment of the following described drafts or bills of exchange heretofore negotiated at the branch bank by Williams and Hitchcock, to-wit, the draft drawn by Williams and Hitchcock accepted by H. B. Williams, dated August 30, 1841, at 4 mos. after date, $2,000. One other draft, same parties, dated Sept. 4, 1841, at 4 mos. date, $1,000. One other do., same parties, Sept. 7, 1841, at 4 mos. date, $1,000. One other do. same parties, Sept. 8, 1841, at 4 mos. date, $1,000. One other do., drawn by S. P. Williams, accepted by H. B. Williams and Co., dated Sept. 16, 1841, at 4 mos. date, $2,000. One other do., same parties, Sept. 16, 1841, at 4 mos. date, $1,000. One other do., same parties, Sept. . 11, 1841, at 4 mos. date, $1,000. One other do., same parties, Sept. 10, 1841, at 4 mos. date, $2,000. One other do., same drawer, accepted by H. B. Williams, dated Sept. 16, 1841, at 4 mos. date, $1,000. One other do., same parties, Sept. 10, 1841, at 4 mos. date, $1,000. One other do., drawn by Williams and Hitchcock, accepted by H. B. Williams, Sept. 16, 1841, at 4 mos. date, $1,000.” Then follows a description of four other drafts, same drawers and acceptor as in the last described, and the article proceeds: “It is understood that the last named drafts, amounting, in the aggregate, to ten thousand five hundred dollars, may be renewed by the payors substituting therefor, at or before maturity, the drafts of Williams and Hitchcock to the order of, and indorsed by, H. B. Williams and Go., on Eli Hart and Co., of New York, for same amount including interest, and payable on some fixed day in all the month of June next. It is further understood, that if the first six drafts herein described, amounting, in the aggregate, to eight thousand dollars, are paid at maturity agreeably with the tenor thereof, and the other nine drafts are paid or renewed as above, and accepted by Eli Hart, and Co., the wheat herein held as aforesaid to be delivered in store to the said Williams and Hitchcock, or their order; but in case the said drafts are not paid or arranged as above, the said wheat to be sold and the proceeds applied towards the payment of said drafts. In the meantime,” &c.
“A. P. Andrews, cashier,” áse.

The drafts were not paid or arranged as contemplated in said instrument, the bank sold the wheat and applied the proceeds exclusively upon those drafts drawn upon II. B. Williams alone, and this application was held right in the Court below. In this, we think there is error. We are referred, in support of the decision below, by the counsel for the bank, to the general rule that where the debtor fails to make application of a payment to a particular debt, the creditor may make the application. But the question in this case is, not what is the general rule on this subject, but has the debtor actually made an application, and if so, what? We think the instrument in question, by a proper and equitable construction, shows that an application was made by the debtor’s assigning the wheat, at the time of its assignment, and that it was an application of the proceeds of the wheat towards the payment of all the bills named, pro rata. This construction is supported by the case of Perris v. Roberts, Vern. 34. Perris became bound unto Roberts as surety for F. S. F. S. owes Roberts a further debt upon simple contract. F. S. and Roberts come to a stated account for all moneys owing to Roberts, as well for what was due on the bond in which Perris was bound as surety, as for what was due to Roberts upon simple contract; and there being due to Roberts on the foot of the account, 851, F. S. makes him a bill of sale towards satisfaction of the whole debt. It was insisted that the money raised by the bill of sale should be applied in the first place to satisfy the debt due on simple contract, it having been decided at the same term, in Hayward v. Lomax, Vern. 24, that where a man owes money on mortgage drawing interest, and to the same person, other money due on account not drawing interest, and he makes a general payment without mentioning the debt to which it should be applied, it should go to reduce the mortgage; but the chancellor held that the money raised by the bill of sale should be applied, pro rata, for the sinking of both debts, “and solely upon this reason, viz., that both debts had been cast into one stated account and the bill of sale made towards satisfaction of the whole debt.” The correctness of the decision in this case has -never been denied. Burge on Sure. 127. — Chit. on Cont., 7 Am. Ed. 756, note 1. See this note, also, for other cases of pro rata application.

Z. Baird, for the plaintiff.

D. D. Pratt and J. B. Niles, for the defendant.

Per Curiam.

The judgment is reversed with costs. Cause remanded, &c.

Note. — Upon the announcement of the decision, the defendant in error offered to remit the excess over the true amount for' which judgment had been rendered below, and was permitted to do so; whereupon the judgment was affirmed for the balance.  