Partner are individually responsible for tort committed by their
firm while acting within the general cope of it business, whether
they personally participate therein or not.
One who, being entrusted with the possession of corporate stocks
as security for an indebtedness, deliberately sells them and
appropriates the proceeds, in excess of the debt secured, without
the knowledge or consent of their owner, is guilty of a "willful
and malicious" injury to property within the meaning of § 17,
clause 2, of the Bankruptcy Act, as amended by the Act of February
5, 1903, 32 Stat. 798, and, consequently, his liability is not
released by a discharge in bankruptcy.
210 N.Y. 176 affirmed.
The case is stated in the opinion.
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
Plaintiff in error was a member of T. A. McIntyre & Company,
engaged in business as brokers. During February, 1908, the
partnership received certain stock certificates owned by defendant
in error, and undertook to hold them as security for his
indebtedness, amounting to less than one sixth of their market
value. Within a few weeks, without authority and without his
knowledge, they sold the stocks and appropriated the avails to
their
Page 242 U. S. 139
own use. Shortly thereafter, both firm and its members were
adjudged bankrupts. After his discharge in bankruptcy, this suit
was instituted against plaintiff in error, seeking damages for the
wrongful conversion. He set up his discharge and also personal
ignorance of and nonparticipation in any tortious act.
The trial court held the liability was for willful and malicious
injury to property and expressly excluded from release by § 17(2),
Bankruptcy Act, as amended in 1903, and that the several partners
were liable. A judgment for damages was affirmed by appellate
division, 128 App.Div. 722, and Court of Appeals, 210 N.Y. 175.
That partners are individually responsible for torts by a firm
when acting within the general scope of its business, whether they
personally participate therein or not, we regard as entirely clear.
Castle v.
Ballard, 23 How. 172,
Matter of Peck, 206
N.Y. 55. If, under the circumstances here presented, the firm
inflicted a willful and malicious injury to property, of course,
plaintiff in error incurred liability for that character of
wrong.
As originally enacted, § 17 of the Bankruptcy Act provided:
"A discharge in bankruptcy shall release a bankrupt from all of
his provable debts, except such as . . . (2) are judgments in
actions for frauds, or obtaining property by false pretenses or
false representations, or for willful and malicious injuries to the
person or property of another; . . . (4) were created by his fraud,
embezzlement, misappropriation, or defalcation while acting as an
officer or in any fiduciary capacity."
This was amended by Act February 5, 1903, so as to read:
"A discharge in bankruptcy shall release a bankrupt from all of
his provable debts, except such as . . . (2) are liabilities for
obtaining property by false pretenses or false representations, or
for willful and malicious injuries
Page 242 U. S. 140
to the person or property of another, or for alimony due or to
become due, or for maintenance or support of wife or child, or for
seduction of an unmarried female, or for criminal conversation; . .
. or (4) were created by his fraud, embezzlement, misappropriation,
or defalcation while acting as an officer or in any fiduciary
capacity."
The trial court found --
That on February 5, 1908, McIntyre & Company, by agreement,
obtained possession of Kavanaugh's stocks, worth approximately
$25,000, and held them as security for his indebtedness, amounting
to $3,853.32.
"That almost immediately after taking over said stocks by
certificates as aforesaid by the said firm of T. A. McIntyre &
Company, composed as aforesaid, and commencing on the very next
day, said firm of T. A. McIntyre & Company (the above-named
defendants being members thereof), without any notice to the
plaintiff, and without his authority, knowledge, or consent, or
demand of any kind upon him, sold and disposed of the identical
certificates of such stock and scrip so turned over to them as
aforesaid, and placed the avails thereof in the bank account of
said firm of T. A. McIntyre & Company to the credit of said
firm."
"That the various stocks aforesaid had all been disposed of
prior to the 18th day of March, 1908, and that three quarters in
value thereof had been disposed of on or prior to February 14th,
1908, or within nine days after the acquisition of the possession
thereof by defendant's firm as aforesaid."
"That the above-named defendants, together with the other
members of the said firm of T. A. McIntyre & Company, in
disposing of said stocks aforesaid, without notice to or demand
upon the plaintiff, and without his authority, knowledge, or
consent, and in depositing the proceeds and avails thereof in the
bank account to the credit of said firm of T. A. McIntyre &
Company, committed willful and malicious injury to the property of
the plaintiff. "
Page 242 U. S. 141
"That on April 23, 1908, the said firm of T. A. McIntyre &
Company filed a petition in bankruptcy in the United States
District Court for the Southern District of New York, and were
afterwards adjudicated bankrupts."
"That thereafter the plaintiff in this action proved his claim
against the bankrupt estate without waiving any legal rights in
this action or otherwise."
To deprive another of his property forever by deliberately
disposing of it without semblance of authority is certainly an
injury thereto within common acceptation of the words. Bouvier's
Law Dict., "Injury." And this we understand is not controverted;
but the argument is that an examination of our several Bankruptcy
Acts and consideration of purpose and history of the 1903 amendment
will show Congress never intended the words in question to include
conversion. We can find no sufficient reason for such a narrow
construction. And instead of subserving the fundamental purposes of
the statute, it would rather tend to bring about unfortunate if not
irrational results. Why, for example, should a bankrupt who had
stolen a watch escape payment of damages, but remain obligated for
one maliciously broken? To exclude from discharge the liability
arising from such transactions as those involved in
Crawford v.
Burke, 195 U. S. 176, and
here presented, not improbably was a special purpose of the
amendment.
In
Tinker v. Colwell, 193 U. S. 473,
193 U. S.
485-487, we said of original § 17(2):
"In order to come within that meaning as a judgment for a
willful and malicious injury to person or property, it is not
necessary that the cause of action be based upon special malice, so
that without it the action could not be maintained."
And further:
"A willful disregard of what one knows to be his duty, an act
which is against good morals and wrongful in and of itself, and
which necessarily causes injury and is done intentionally, may be
said to be done willfully and maliciously, so as to
Page 242 U. S. 142
come within the exception. It is urged that the malice referred
to in the exception is malice towards the individual personally,
such as is meant, for instance, in a statute for maliciously
injuring or destroying property, or for malicious mischief, where
mere intentional injury without special malice towards the
individual has been held by some courts not to be sufficient.
Commonwealth v. Williams, 110 Mass. 401. We are not
inclined to place such a narrow construction upon the language of
the exception. We do not think the language used was intended to
limit the exception in any such way. It was an honest debtor, and
not a malicious wrongdoer, that was to be discharged."
The circumstances disclosed suffice to show a willful and
malicious injury to property for which plaintiff in error became
and remains liable to respond in damages. The judgment below is
Affirmed.