Friday, October 19, 2012

National Biscuit Company v. Stroud case brief

National Biscuit Company v. Stroud
106 S.E.2d 692 (1959)

SYNOPSIS: The defendant non-assenting partner sought review of a decision of the Superior Court (North Carolina), which awarded plaintiff company a judgment of $ 171.04 with interest and costs in an action brought by the company against the non-assenting partner and the assenting partner for sums due based upon the company's sale of bread to the partnership.

-Stroud (D) and Freeman entered into a partnership to operate a grocery store. Nothing in the partnership agreement stated that Freeman had less control over the daily business operations than Stroud (D). However, Stroud (D) informed Freeman that he would no longer be held financially responsible for any bread purchased from National Biscuit Co. (Nabisco) (P).
-Although Nabisco (P) was informed of Stroud's (D) statement, it delivered bread to the partnership at Freeman's request.
-Nabisco (P) sued Stroud (D) to recover payment for the bread after Stroud (D) and Freeman dissolved the partnership and all partnership assets and debts were assigned to Stroud (D) for liquidation.

ISSUE: Can a general partner restrict the authority of another partner to act of behalf of the partnership?

HOLDING:  Every partner is an agent of the partnership and all partners are jointly and severally liable for the acts and obligations of the partnership,” unless the partner has no authority to act in that particular matter and the third party knows of the restriction.

RULES: The Supreme Court, held that purchase of bread by food store operated as going concern by two partners was an ordinary matter connected with partnership business within statute to effect that any difference arising as to ordinary matter connected with partnership business may be decided by majority of partners, and although partner told the bread seller he would not be personally responsible for additional bread sold to store, the partner and the partnership were both liable for the copartner's purchase.

-Stroud (D) can be held liable for the deliveries.
"Partners are jointly and severally liable for the actions of the partnership."
-Freeman’s conduct in allowing the deliveries was within the scope of the business and he has a right to make these decisions unless a majority of the partners vote to deny him of these rights.
-Since Stroud is only one half of the partnership, and not a majority, he is unable to prevent Freeman from exercising his rights.
-Stroud (D) could have avoided the charge by dissolving the partnership earlier or by amending the partnership agreement when he believed Freeman’s management should be restricted. The business also received a benefit from the delivery, and therefore it was not a complete loss for Stroud.
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Text of Case

PARKER, Justice.

C. N. Stroud and Earl Freeman entered into a general partnership to sell groceries under the firm name of Stroud's Food Center. There is nothing in the agreed statement of facts to indicate or suggest that Freeman's power and authority as a general partner were in any way restricted or limited by the articles of partnership in respect to the ordinary and legitimate business of the partnership. Certainly, the purchase and sale of bread were ordinary and legitimate business of Stroud's Food Center during its continuance as a going concern.

Several months prior to February 1956 Stroud advised plaintiff that he personally would not be responsible for any additional bread sold by plaintiff to Stroud's Food Center. After such notice to plaintiff, it from 6 February 1956 to 25 February 1956, at the request of Freeman, sold and delivered bread in the amount of $171.04 to Stroud's Food Center.

In Johnson v. Bernheim, 76 N.C. 139, this Court said: "A and B are general partners to do some given business; the partnership is, by operation of law, a power to each to bind the partnership in any manner legitimate to the business. If one partner go to a third person to buy an article on time for the partnership, the other partner cannot prevent it by writing to the third person not to sell to him on time; or, if one party attempt to buy for cash, the other has no right to require that it shall be on time. And what is true in regard to buying is true in regard to selling. What either partner does with a third person is binding on the partnership. It is otherwise where the partnership is not general, but is upon special terms, as that purchases and sales must be with and for cash. There the power to each is special, in regard to all dealings with third persons at least who have notice of the terms." There is contrary authority. 68 C.J.S. Partnership § 143, pp. 578-579. However, this text of C.J.S. does not mention the effect of the provisions of the Uniform Partnership Act.

The General Assembly of North Carolina in 1941 enacted a Uniform Partnership Act, which became effective 15 March 1941. G.S. Ch. 59, Partnership, Art. 2.

G.S. § 59-39 is entitled "Partner Agent of Partnership as to Partnership Business", and subsection (1) reads: "Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority." G.S. § 59-39(4) states: "No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction."
G.S. § 59-45 provides that "all partners are jointly and severally liable for the acts and obligations of the partnership."

G.S. § 59-48 is captioned "Rules Determining Rights and Duties of Partners." Subsection (e) thereof reads: "All partners have equal rights in the management and conduct of the partnership business." Subsection (h) hereof is as follows: "Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners; but no act in contravention of any agreement between the partners may be done rightfully without the consent of all the partners."
695*695 Freeman as a general partner with Stroud, with no restrictions on his authority to act within the scope of the partnership business so far as the agreed statement of facts shows, had under the Uniform Partnership Act "equal rights in the management and conduct of the partnership business." Under G.S. § 59-48(h) Stroud, his co-partner, could not restrict the power and authority of Freeman to buy bread for the partnership as a going concern, for such a purchase was an "ordinary matter connected with the partnership business," for the purpose of its business and within its scope, because in the very nature of things Stroud was not, and could not be, a majority of the partners. Therefore, Freeman's purchases of bread from plaintiff for Stroud's Food Center as a going concern bound the partnership and his co-partner Stroud. The quoted provisions of our Uniform Partnership Act, in respect to the particular facts here, are in accord with the principle of law stated in Johnson v. Bernheim, supra; same case 86 N.C. 339.

In Crane on Partnership, 2d Ed., p. 277, it is said: "In cases of an even division of the partners as to whether or not an act within the scope of the business should be done, of which disagreement a third person has knowledge, it seems that logically no restriction can be placed upon the power to act. The partnership being a going concern, activities within the scope of the business should not be limited, save by the expressed will of the majority deciding a disputed question; half of the members are not a majority."
Sladen, Fakes & Co. v. Lance, 151 N.C. 492, 66 S.E. 449, is distinguishable. That was a case where the terms of the partnership imposed special restrictions on the power of the partner who made the contract.

At the close of business on 25 February 1956 Stroud and Freeman by agreement dissolved the partnership. By their dissolution agreement all of the partnership assets, including cash on hand, bank deposits and all accounts receivable, with a few exceptions, were assigned to Stroud, who bound himself by such written dissolution agreement to liquidate the firm's assets and discharge its liabilities. It would seem a fair inference from the agreed statement of facts that the partnership got the benefit of the bread sold and delivered by plaintiff to Stroud's Food Center, at Freeman's request, from 6 February 1956 to 25 February 1956. See Blackstone Guano Co. v. Ball, 201 N.C. 534, 160 S.E. 769. But whether it did or not, Freeman's acts, as stated above, bound the partnership and Stroud.

The judgment of the court below is


RODMAN, J., dissents.

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