Beauregard v. Case/Opinion of the Court

This was an action brought by the plaintiff, as receiver of the First National Bank of New Orleans, against the defendants, Beauregard, May, and Graham, to recover a sum exceeding two hundred and thirty-seven thousand dollars, alleged to have been overdrawn from the bank on their account. Three questions are presented by the record for our determination: First, whether the agreement entered into by the defendants on the 18th of April, 1866, created a copartnership between them in operating the New Orleans and Carrolton Railroad, by which the defendant Beauregard became liable with them for the partnership debts before their advances were reimbursed; second, whether if a copartnership were thus created, and the defendant Beauregard became from its commencement jointly liable with the other defendants, the indebtedness of the copartnership to the bank was compensated and extinguished by the indebtedness at the time of the bank to the defendant May; and, third, whether the verdict was defective in that it found against each defendant served only his proportional third of the whole partnership debt, instead of finding against these defendants the whole amount of the indebtedness.

The agreement of April 18, 1866, provided, on the one hand, that Beauregard should obtain in his own name, but for the joint account of the defendants, a lease of the railroad, and take charge of and control and manage it at a designated monthly salary, for their mutual benefit; and, on the other hand, that May and Graham should furnish the money necessary, not exceeding for each the sum of one hundred and fifty thousand dollars, to carry out the enterprise, to be reimbursed with interest out of its annual net profits; and then declared that after the payment of the capital thus invested, and interest, the annual net profits, gains, and increase should be equally divided between the parties, share and share alike; and that all losses, from bad debts or otherwise, should be equally borne between them. It designated in terms the contract as one of partnership, and declared that it should continue from the date of the lease of the railroad for the period of twenty-five years.

There was in this agreement all the essential conditions for the creation of a partnership, -provisions for a union of services and money, and a division of profits and losses. The postponement of a division of profits between the three partners until the capital advanced by two of them should be refunded, with interest, did not alter the character of the agreement as one of partnership, nor the liability of all the partners to third persons for debts contracted in the prosecution of its business. It was sufficient to create the partnership relation that profits to be ultimately divided between the parties were contemplated from their joint enterprise (Civil Code of 1870, art. 2811); and the agreement in fixing the commencement of the partnership determined the date of their joint liability.

The partnership belonged to that class of partnerships which is designated in the law of Louisiana as ordinary partnerships, as distinguished from those which are commercial. The latter are such as are formed for the purchase and sale of personal property as principals, or as factors or brokers, or for the carriage of personal property for hire in ships or other vessels. Ordinary partnerships embrace all other kinds, and they differ essentially from the former in the powers and liabilities of the several partners. That which is material in the present case is, that, in ordinary partnerships, each partner is only bound individually for his share of the partnership debts; but to that extent a debt contracted by one partner, even without authority from the others, binds them if it be proved that the partnership was benefited by the transaction. Civil Code of 1870, arts. 2872, 2894. In the present case, there was evidence tending to show that the moneys overdrawn by Beauregard were applied to the purposes of the copartnership. The instruction presented by his counsel assumed that they were thus used; and, if such were the case, there can be no doubt of his liability for the same jointly with his partners, unless by the terms of the contract with them they were to furnish the moneys used on their separate responsibility, and the bank had notice of the contract at the time. The addition placed by the court to the instruction was, therefore, a just and proper qualification.

The indebtedness of the partnership to the bank was in no respect affected by the attempted credit of the note of Beauregard, signed by May, for $40,000, and the draft of May on Graham for $125,000. These instruments were mere devices of May to show on the books of the bank a reduction of the large amount which was overdrawn on the partnership account. They had at no time any existence as instruments of value entitled to credit at the bank. The draft was never transmitted to New York, where Graham resided, and was never presented to him. The instruments never having been paid, the indebtedness of the partnership to the bank remained as it existed previously.

That indebtedness was not compensated and extinguished by operation of law by the indebtedness at the time of the bank to May, if such existed. Personal debts are only set off to each other, or compensated the one by the other, by oreration of law, when they are of the same personal character. A partnership debt is not thus offset or compensated by a demand of one individual member against the creditor. There is no mutuality in such cases between the parties.

It is true, as already stated, that the members of an ordinary partnership, by the law of Louisiana, are only liable to their common creditor for their proportional part of the indebtedness of the partnership; and, in a suit by the creditor against the firm, a partner having an individual demand against the creditor may, by way of defence, or by exception, as it is termed in the practice of the State, offset or oppose the compensation of his demand to that of the creditor. But this is a very different thing from one partner attempting to offset or oppose the compensation of the personal demand of his associate to the claim of their common creditor. For this position we can find no authority in the code of Louisiana or the decisions of its courts. In the present case, for example, the defendant May might have set up against the claim of the plaintiff his personal demand against the bank, had he not previously disposed of that demand to the United States; but the defendant Beauregard could not set up that demand of May's in compensation of the bank's claim against him for his share of the partnership indebtedness, any more than he could set up a similar demand of a stranger.

The instruction presented by his counsel assumed that the defendant May might have been individually indebted for the whole of the amount of the moneys obtained from the bank for the joint enterprise, and saked, in that event, that the jury be charged that the debt in suit was compensated and extinguished by the indebtedness of the bank to him. At the time this instruction was presented, the contract of partnership was before the court, with evidence tending to show that the moneys obtained had been expended for the joint enterprise. It thus appeared that there was or might be a joint liability of the partners to the bank, whatever the extent of their individual liability for the same indebtedness. The qualification placed by the court to the instruction was, therefore, a proper limitation upon the doctrine of compensation applicable to the case. If there was any liability on the part of May for the indebtedness of the firm, except as partner, it was a liability as surety; and there could be no compensation, by operation of law, between the demand of the bank against him as surety and the indebtedness of the bank to him personally.

The verdict and judgment do, it is true, vary from the prayer of the petition. That seeks a judgment against all the defendants in solido for the whole amount of the partnership debt. It is based upon the hypothesis that the defendants were commercial partners, and were thus jointly and severally liable for the whole amount of the partnership debts. But the facts alleged by the pleadings and disclosed by the proofs showing that the partnership between the defendants was not a commercial one within the law of Louisiana, but one there designated as an ordinary partnership, no verdict would have been legal that found any greater sum against each of the partners served than his proportional share of the indebtedness. Code of 1870, art. 2086. There was in this no such departure from the issues made as to vitiate the verdict and judgment thereon. The reported decisions of the Supreme Court of Louisiana show numerous instances where similar verdicts upon like petitions have been sustained.

Judgment affirmed.