89 Pa. 163 | Pa. | 1879
delivered the opinion of the court, May 7th 1879.
The court below having entered a judgment of nonsuit against the plaintiffs upon the trial, we have but to consider the single question whether there was sufficient evidence to entitle the case to go to the jury.
The case of the plaintiffs as presented was this: On the seventh day of November 1866, the defendants, Edward W. Gould, Theodore R. Strong and Jesse White, Jr., of the city of New York, and Pearson S. Peterson, of the city of Philadelphia, entered into articles of copartnership, under the name of Gould, Strong & Co., for the purpose of “buying and selling stocks on commission, making loans, collecting promissory notes, drafts and bills of exchange.” The partnership was' in the form of and was intended to be a limited partnership, the three gentlemen first named being the general partners, residing in New York, where the business was to be conducted, and the said Peterson being the special partner and contributing the sum of $20,000 as cash capital. The partnership was renewed annually to 1877 inclusive, but by an admitted informality in the renewals Peterson became a general partner at the end of the first year so far as the public are concerned, and continued so until its termination. As between the partners, it remained a
Theodore R. Strong, one of the partners, was one of the executors of Samuel L. Haven’s will. Mr. Haven resided in New York and died in the autumn of 1865. The other executor, Thomas S. Shepherd, took but little charge of the estate; Mr. Strong was practically the acting executor. In the month of February 1867, Gould, Strong & Co. borrowed from Mr. Strong $28,000 of the United States treasury notes, known as seven-thirties, which he held as executor and which belonged to Samuel L. Haven’s estate. These notes remained in the possession of the firm and were used by them for the purpose of raising money until June 1868, when, having been called in by the government, they were on the 19th of that month converted into other bonds known as five-twenties. Whether the conversion was by Strong or the firm is not clear. In Strong’s account as executor with the firm he is credited on July 6th 1868, with $28,000 seven-thirties at 109, less commission, $31,458.80, and on the same day he is debited with $28,000 five-twenties, new at 108-f, $30,485. Within a few days thereafter $25,000 of these five-twenties were entered on the blotters and ledger of the firm as loans from Strong. They were used for the business of the firm, as stated by Mr. Strong, “ to pay for stocks that we were carrying — stocks for our customers;” and again, “these stocks and bonds were used, during the years they were held by Gould, Strong & Co., as collaterals to raise money. This money was used in our business.” The five-twenties thus loaned to the firm and thus used by them, were never returned to Strong, but weue sold to Jay Cooke & Co. by Mr. Gould, on Dec. 14th 1871, for $28,437.50, and the proceeds used to pay a loan for which they had been pledged by Gould, Strong & Co. For the like purpose of raising money the firm borrowed from Strong, in 1869, 513 shares of the stock of the Pittsburgh, Fort Wayne and Chicago Railway Company, belonging to the said estate, which said stock was continuously used as collateral to raise money until January 8th 1872, when the' firm borrowed the sum of $45,000 from the City Bank upon these 513 shares of stock. The bank was repaid about January 22d of the same year $45,314.09 by the sale of 471 shares of said stock, and the balance thereof, forty-two shares -were delivered to Mr. Shepherd, the other executor, who appears to have then learned for the first time of Mr. Strong’s misapplication of the securities belonging to Mr. Haven’s estate.
No question has been made, indeed none could be made, as to the liability of Strong, Gould and White to Mr. Haven’s estate upon this state of facts. Strong, the executor, wras guilty of a fraud upon said estate, and Gould and White were participants therein. It was a misapplication of the assets of the estate, to use the polite and considerate term in general use to express a breach of trust. In the language of the law and of common honesty, it was an embezzlement. It was not the case of a loan of unemployed funds by an executor to his firm, for the purpose of gaining interest for his cesiuis que t?'ustent, but of the loan of interest-bearing securities to enable the firm to carry on its operations. Such breaches of trust have become so frequent and so startling within the last few years, that we would fail in our duty were we to omit to mark them, when they come before us, with the seal of our stern condemnation.
It remains to consider the question of Mr. Peterson’s liability. The right of the plaintiff to waive the tort and sue in assumpsit for money had and received is too well settled to need either argument or the citation of authority. It is alleged, however, that Mr. Peterson is not liable, for the reason, among others, that “by the terms of the partnership articles he was to be liable only to the extent of the capital he had contributed, and the terms of those articles were known to the executor of Haven’s will when the securities were delivered for use.” This position concedes Peterson’s liability to the extent of $20,000. It assumes, however, that the estate of Mr. Haven is in no better position than Strong, the executor, would be. Is this position sound ? I concede that if Strong had advanced his own money or his own securities to the firm, he would be bound by the limitation in the agreement between the partners. But this suit is not by Strong or for his benefit. The securities he loaned the firm were not his property. They belonged to Mr. Haven’s estate. In the ordinary legitimate dealings of an executor with the assets of an estate, the parties in interest are bound by his acts and perhaps affected with notice. In such case he may, in a qualified sense, be regarded as their agent. But surely this principle cannot apply where an executor is acting in fraud of the rights of the estate. It is opposed to every well-settled principle applicable to trust funds. Trust property squandered by a faithless trustee can be followed wherever found, and if earmarked equity will lay its strong hand upon it and restore it to its rightful
It is said, however, that Mr.. Peterson is not liable for the further reason that .the power of one partner to bind the others is at most an implied power; that each partner is the agent of his co-partners only when acting in the scope of his power, and in the usual course of the business of the firm, and that when his agency is denied or forbidden by his co-partner, with notice to the party assuming to deal with him, as the agent of the firm, his act is not that of the firm, but his individual act only. As an abstract proposition this is correct: Story on Partnership, sections 123 and 138, and note 1, p. 218; Parsons on Partnership 95; Gallway v. Matthew, 10 East 264; Spooner v. Thompson, 48 Vt. 259; Feigley v. Sponeberger, 5 W. & S. 564; Yeager v. Wallace, 7 P. F. Smith 365. It does not apply to this case as it stood before the jury when the judgment of nonsuit was entered. The cause has been argued upon the theory that the securities were borrowed for the purpose of using the money in wild speculations prohibited by the agreement of partnership. The evidence is not so. The money was used in the business of the firm, carrying stocks for their customers, &c. It was true the failure of the firm was caused by speculations in stocks in 1872, but there is no evidence that they were engaged in such speculations at the time the securities were borrowed, or that the securities were used for any such purpose. The borrowing of securities may be regarded as the equivalent of borrowing money so far as the responsibility of the firm is concerned. This has always been considered as among the implied powers of a partnership, and when exercised by a partner in the name of the firm, for the business of the firm, and the proceeds so applied, it has always been held to bind the firm unless actual notice can be traced to the person loaning the money that the partner had no authority for such purpose.
Our own books are meagre in authority upon the question of the responsibility of a firm under such circumstances. It h^s been
It is not meant to advance the broad proposition, that where one abuses his trust, and thereby obtains the means to advance money to a partnership, he thereby raises a contract between the partnership and the -person whose money has been so used. The rule is thus laid down in Bindley on Partnership, at page 327: “If a partner, being a trustee, improperly employs the money of his cestui que trust in the partnership business, or in payment of the partnership debts, this alone is not sufficient to entitle the cestui que trust to obtain repayment of his money from the firm.” To the same point are Ex parte Heaton, Buck 386; Ex parte Apsey, 3 Bro. Ch. C. 265; Jacques v. Marquand, 6 Cowen 497. If Mr. Strong had sold the securities belonging to Haven’s estate, and placed the proceeds in the firm as his sh&re of the capital, or had loaned it to the firm as his own money, and without knowledge on their part that it was trust money, they would not have been liable to an action by the representatives of Haven’s estate. Here the securities belonging to the estate were sold by the firm, with knowledge of the true ownership, and the proceeds used to pay its debts. This, under the authorities, treating Mr. Peterson as a general partner, which we think he is, would make him liable without notice or knowledge on his part of the borrowing of the securities or their conversion by his partners.
But even if we treat Mr. Peterson as a special partner, so far as Haven’s estate is concerned, this judgment must be reversed. As before observed, the right to recover against the general partners is undoubted. It is equally clear as to Mr. Peterson, if he had notice of these transactions, or might or ought to have known them. There was evidence that he did not know; not as to all, perhaps, or to the full extent of their operations. But he knew in April 1868 that his firm had borrowed $28,000 of the securities of the Haven
We are of opinion that the case should have gone to the jury, and that it was error to enter a judgment of nonsuit.
The judgment is reversed and a procedendo awarded.