An action of debt was instituted in the district court of the
United States on an obligation under the hands and seals of two
persons. The action was against one of the parties to the
instrument. The laws of Mississippi allow an action on such an
instrument to be maintained against one of the parties only.
The funds of a partnership cannot be rightfully applied by one
of the partners to the discharge of his own separate preexisting
debts without the express or implied assent of the other parties,
and it makes no difference in such a case that the separate
creditor had no knowledge at the time of the fact of the fund being
partnership property.
Whatever acts are done by any partner in regard to partnership
property or contracts beyond the scope and objects of the
partnership must, in general, to bind the partnership, be derived
from some further authority express or implied, conferred upon such
partner, beyond that resulting from his character as partner.
The authority of each partner to dispose of the partnership
funds strictly and rightfully extends only to the business and
transactions of the partnership itself, and any disposition of
those funds by any partner beyond such purpose, is an excess of his
authority as a partner, and a misappropriation of those funds for
which the partner is responsible to the partnership: though in the
case of
bona fide purchasers, without notice for a
valuable consideration, the partnership may be bound by the acts of
one partner.
If one partner write a letter in his own name to his creditor,
referring to the concerns of the partnership and his own private
debts, to those to whom the letter is addressed, the letter not
being written in the name of the firm; it cannot be presumed that
the other partner had a knowledge of the contents of the letter,
and sanctioned them. Unless some proof to this effect was given,
the other partner ought not to be bound by the contents of the
letter.
In the District Court of Mississippi, an action of debt was
instituted on an obligation executed on the first day of January,
1824, by which John Richards & A. H. Buckholts promised, under
their respective hands and seals, to pay to N. Rogers & Sons,
on the first day of April, 1824, three thousand two hundred and
eighty-eight dollars, with interest from the date.
The defendant, Abel H. Buckholts, pleaded payment, and there was
a general replication. After a trial and verdict for the defendant
in 1833 and a new trial granted, the cause was again tried in
February, 1836, the administrators of A. H. Buckholts having
been
Page 37 U. S. 222
brought in after his decease, and a verdict was again found for
the defendant, the jury at the same time having certified that the
plaintiffs, N. Rogers & Sons, were indebted to the estate of A.
H. Buckholts, the sum of one thousand eight hundred and twenty-six
dollars.
A bill of exceptions was taken by the plaintiffs to the charge
of the court, and judgment having been rendered on the verdict for
the defendants, the plaintiffs prosecuted this writ of error. The
bill of exceptions stated that on the trial of the cause the
defendants set up offsets to the demand of the plaintiffs. They
were contained in an account made up to April 1, 1830, and show a
balance due to John Richards & Co., which firm was composed of
John Richards and Abel H. Buckholts. The balance due was one
thousand five hundred and forty-one dollars. The accounts credit N.
Rogers & Sons, the plaintiffs, with the amount of the note for
which the suit was instituted, and with interest on it for six
years, amounting to four thousand eight hundred and sixty-six
dollars, and charges several items as payments to the plaintiffs,
with interest on the same, showing the balance of one thousand five
hundred and forty-one dollars.
Two items on the debit side of the account were made the subject
of controversy,
viz., a charge of one thousand four
hundred and fifty dollars, received from Lambert & Brothers on
4 September, 1825, and a charge of three thousand dollars under
date of January, 1827, for John Richards' acceptance of the draft
of N. Rogers, &c.
The account was stated as follows:
"Dr. N. Rogers & Sons in account current (account to April
1, 1830) with John Richards & Co. Cr."
The debits, among others, were:
1825. Sept. 4. To cash from Lambert & Bro's $1,450.46
Interest on the same 530.62
---------
$1,981.08
1827. To acceptances of your draft on John
Richards & Co., payable at 6 mo. 3,000
Interest 800
---------
$3,800
The credits were:
1827. April 19. By amount of John Richards & A. H.
Buckholt's note due this day $3,325.25
Interest on same, 6 years 1,541.06
Page 37 U. S. 223
In support of this setoff, the defendants relied upon the
testimony of one Rowan, who testified that sometime in the year
1830, he was requested by Buckholts to be present at a conversation
he expected to have at his office, with a Mr. Rogers (a member of
the firm of Rogers & Sons, as he understands) relative to their
accounts, and requested him to note down and recollect the
conversation, that sometime after Rogers came into the office, and
a conversation ensued relative to their accounts; that the accounts
before them were accounts made out by Rogers & Sons, between
themselves and Richards & Buckholts, and John Richards &
Co. and John Richards, and Lambert & Brothers, in account with
John Richards & Co. Richards & Buckholts, and John
Richards, and an account made out by Buckholts between Richards
& Buckholts, and Rogers & Sons; that in their conversation
relative to those accounts Buckholts asked Rogers if the several
items charged in his account had not been received, and Rogers
admitted they had been; that among other items so admitted, was the
item charged in the account of offsets, filed under the plea of
payment of one thousand four hundred and fifty dollars and
forty-six cents, and the item of three thousand dollars.
The witness stated that in their conversation about the one
thousand four hundred and fifty dollars and forty-six cents item,
Rogers admitted that sum had been received by Rogers & Sons
from Lambert & Brothers, in New York, and was part of the
proceeds of seventy-four bales of cotton shipped by Richards &
Buckholts to Lambert & Brothers. That very little was said
about the item of three thousand dollars; the witness recollected
nothing more but an admission that it had been received. That
something was said between Buckholts and Rogers about the right to
apply moneys to the payment of John Richards' private debts,
Buckholts contending Rogers had no right to do so, and Rogers that
he had: but which particular item of payment witness did not
understand. This was all the evidence introduced by defendants in
support of the above two items of one thousand four hundred and
fifty dollars and forty cents and three thousand dollars. The said
witness further testified that he had understood the said John
Richards had once failed, before he went into partnership with the
said Buckholts. No other witness was introduced on the part of the
defendants. The defendants admitted that in the account made out by
Buckholts between Richards & Buckholts and Rogers & Sons,
above-mentioned, about which the said conversation between
Buckholts and Rogers took place; that the item of three
Page 37 U. S. 224
thousand dollars was charged by Buckholts in his said account as
an item received upon a bill of exchange, drawn in 1825 by Rogers
& Sons on John Richards alone.
The plaintiffs then introduced a letter from John Richards to
them dated Natchez, June 6, 1825, of which the following are
extracts:
"Today we have amount of sales of all the cotton we own (except
half interest in seventy-eight bales gone to England, which was
sold by Messrs. Lambert in New York, at twenty cents, subject to
benefit of half profits, without being accountable for any loss)
which, although bought lately, nearly netted twenty percent. Our
profits on cotton will be from four to five thousand dollars; and
our business is, I think, prospering. The following is about the
payments we have left in the hands of Messrs. Lambert, Brothers
& Co., to be divided between you and them: "
Part sales of seventy-eight bales of cotton, about . . .
$2,800
Foster & Steel's notes . . . . . . . . . . . . . . . . .
4,250
My three notes . . . . . . . . . . . . . . . . . . . . .
1,500
------
This intended to pay my own debts. . . . . . . . . . .
$8,550
On account of John Richards & Co.
The half profits of seventy-eight bales of cotton,
gone to England, which I hope may be. . . . . . . . . $1,500
J.R. & Co.'s notes. due next winter, at New Orleans . .
1,500
------
$3,000
"This day, sent to New Orleans six hundred and fifty-four
dollars and fifty-five cents, to purchase exchange on New York,
which will be forwarded as soon as received, to go to the payment
of J. R. & Co.'s debt to you and Messrs. Lambert, Brothers
& Co. With these payments I hope you will be satisfied until
next winter. I have hopes of selling my private residence, at a
sacrifice of two thousand five hundred dollars, which will be sent
to you as soon as realized. I have a prospect of getting for it
nine thousand dollars."
The plaintiffs, by their attorney, requested the court to charge
the jury:
"First, that the defendants are not entitled, upon the evidence
before them, to the item of one thousand four hundred and fifty
dollars
Page 37 U. S. 225
and forty cents as an offset to the plaintiff's claim. Second,
that the defendants are not entitled, upon the evidence before the
jury, to the item of three thousand dollars as an offset"
Which charge the court refused to give, and thereupon the
defendants requested the court to charge as follows:
"First, that if the jury believe the offset of one thousand four
hundred and fifty dollars was the proceeds of cotton of Richards
& Buckholts, or John Richards & Co., shipped on their joint
accounts, then it is a legal offset to a joint debt, and cannot be
applied to the individual debt of John Richards, without proof that
Buckholts was himself consulted, and agreed to it. Second, that if
the jury believed that the draft of three thousand dollars was paid
by Richards & Buckholts, or John Richards & Co., or out of
the effects of either of those firms, with the knowledge of Rogers
& Sons, then, in law, it is a legal offset to the joint debt of
said Richards & Buckholts, or John Richards & Co., and
cannot be applied to the private debt of either partner, without
the consent of the other partner. Third, that the letter of John
Richards, read in this case, is not evidence against Buckholts,
unless the jury believe that Buckholts knew of the letter and
sanctioned its contents, which letter is the one beforementioned in
this bill of exceptions. Which charge the court gave as
requested."
To which decision, in refusing to charge as requested by the
plaintiffs and in charging as requested by the defendants, the
plaintiffs excepted. The defendants remitted five hundred and sixty
dollars, part of the debt certified by the jury.
Page 37 U. S. 227
MR. JUSTICE STORY delivered the opinion of the Court.
This cause comes before us on a writ of error to the District
Court of the district of Mississippi. The original action was debt,
brought by the plaintiffs in error (Rogers & Sons) against Abel
H. Buckholts, upon the following writing obligatory --
"Natchez, Mississippi, $3,288 03. On the first day of April
next, we promise to pay N. Rogers & Sons or order three
thousand two hundred and eighty-eight dollars three cents, value
received, with interest from date. Witness our hands and seals this
first day of January, 1824. Jno. Richards [seal]. A. H. Buckholts
[seal]."
Upon such an instrument, by the laws of Mississippi, one of the
parties may be sued alone, and accordingly Richards was no party to
the suit. Upon the plea of payment issue was joined, and, pending
the proceedings, Buckholts died, and his administrators were made
parties, and upon the trial a verdict was found for the defendants
for the sum of eighteen hundred and twenty-six dollars and
seventy-four cents, being the balance due to them upon certain
setoffs set up at the trial. A bill of exceptions was taken at the
trial by the plaintiffs; and judgment having passed for the
defendants, the present writ of error has been brought to revise
that judgment.
Page 37 U. S. 228
By the bill of exceptions, it appears that the defendants set up
as a setoff an account headed "Dr. Messrs. N. Rogers & Sons in
account current to first of April, 1830, with John Richards &
Co. Cr.," on the debit side of which account were the two following
items, which constituted the grounds of the objections which have
been made at the argument -- "To cash, $,1450,46." "To our
acceptance of your draft, payable at six months, $3,000." To
support their case, the defendants offered the testimony of one
Rowan, who testified to a conversation had in his presence, in the
year 1830, between Buckholts and one of the plaintiffs relative to
their accounts; that the accounts then before them were accounts
made out by Rogers & Sons, between themselves and Richards
& Buckholts, and John Richards & Co., and John Richards
& Lambert & Brothers in account with John Richards &
Co., Richards & Buckholts, and John Richards, and an account
made out by Buckholts between Richards & Buckholts and Rogers
& Sons. In the conversation relative to these accounts,
Buckholts asked Rogers if the several items charged in his account
had not been received, and Rogers admitted they had been. Among
other items so admitted were the above items of fourteen hundred
and fifty dollars forty-six cents and three thousand dollars. In
the conversation about the item of fourteen hundred and fifty
dollars forty-six cents, Rogers admitted that sum had been received
by Rogers & Sons, from Lambert and Brothers in New York, and
that it was part of the proceeds of seventy-four bales of cotton
shipped by Richards & Buckholts to Lambert & Brothers. Very
little was said about the item of three thousand dollars. Something
was said between Buckholts and Rogers about the right to apply
moneys to the payment of John Richards' private debts, Buckholts
contending that he had no right so to do and Rogers that he had,
but which particular item of payment the witness did not
understand. This was all the evidence of payment introduced by the
defendants to support the above two items of fourteen hundred and
fifty dollars forty-six cents and three thousand dollars. The
witness stated that he had understood that John Richards had once
failed before he went into partnership with Buckholts. It was
admitted by the defendants that the item of three thousand dollars
was for a bill of exchange, drawn in 1825 by Rogers & Sons on
John Richards alone.
The plaintiffs then introduced a letter written by John Richards
to the plaintiffs, dated at Natchez, June 6, 1825 (and which is
in
Page 37 U. S. 229
the record), containing statements relative to a shipment of
seventy-eight bales of cotton, made to Lambert & Co. and to
certain payments which, the letter says, "we have left in the hands
of Messrs. Lambert, Brothers & Co., to be divided among you and
them." It then enumerates eight thousand five hundred and fifty
dollars "intended to pay my own debts," and on account of Richards
& Co. three thousand dollars. It then adds that the sum of six
hundred and fifty-four dollars fifty-five cents had been that day
sent to New Orleans to purchase exchange on New York, to be
forwarded, and go to the payment of John Richards and Co.'s debt to
plaintiffs, and Messrs. Lambert, Brothers & Co.
Upon this evidence, the plaintiffs requested the court to charge
the jury that the defendants were not entitled, upon the evidence
before them, to the item of fourteen hundred and fifty dollars
forty-six cents as an offset to the plaintiffs' claim, and also
that the defendants were not entitled, upon the evidence before the
jury, to the item of the three thousand dollars as an offset, which
charge the court refused to give, and in our judgment very properly
refused to give, as it involved the determination of matter of fact
properly belonging to the province of the jury.
The defendants then requested the court to charge the jury as
follows:
"First that if the jury believe the offset of fourteen hundred
and fifty dollars was the proceeds of cotton of Richards &
Buckholts, or John Richards & Co., shipped on their joint
accounts, then it is a legal offset to a joint debt, and cannot be
applied to an individual debt of John Richards without proof that
Buckholts was himself consulted and agreed to it. Second, that if
the jury believed that the draft of three thousand dollars was paid
by Richards & Buckholts or John Richards & Co., or out of
the effects of either of those firms, with the knowledge of Rogers
& Sons, then in law it is a legal offset to the joint debt of
the said Richards & Buckholts, or John Richards & Co., and
cannot be applied to the private debt of either partner without the
consent of the other partner. Third, that the letter of John
Richards, read in this case, is not evidence against Buckholts
unless the jury believe that Buckholts knew of the letter, and
sanctioned its contents."
The court gave the charge as requested, and the present bill of
exceptions has brought before us for consideration the propriety of
each of these instructions.
The first instruction raises these question: whether the funds
of a partnership can be rightfully applied by one partner to the
discharge
Page 37 U. S. 230
of his own separate preexisting debt without the assent, express
or implied, of the other partner, and whether it makes any
difference, in such a case, that the separate creditor had no
knowledge at the time of the fact of the fund being partnership
property. We are of opinion in the negative on both questions. The
implied authority of each partner to dispose of the partnership
funds strictly and rightfully extends only to the business and
transactions of the partnership itself, and any disposition of
those funds by any partner, beyond such purposes is an excess of
his authority as partner and a misappropriation of those funds for
which the partner is responsible to the partnership, though in the
case of
bona fide purchasers, without notice, for a
valuable consideration, the partnership may be bound by such acts.
Whatever acts, therefore, are done by any partner in regard to
partnership property or contracts beyond the scope and objects of
the partnership must, in general, in order to bind the partnership,
be derived from some further authority, express or implied,
conferred upon such partner, beyond that resulting from his
character as partner. Such is the general principle, and in our
judgment it is founded in good sense and reason. One man ought not
to be permitted to dispose of the property or to bind the rights of
another unless the latter has authorized the act. In the case of a
partner paying his own separate debt out of the partnership funds,
it is manifest that it is a violation of his duty and of the right
of his partners, unless they have assented to it. The act is an
illegal conversion of the funds, and the separate creditor can have
no better title to the funds than the partner himself had.
Does it make any difference that the separate creditor had no
knowledge at the time that there was a misappropriation of the
partnership funds? We think not. If he had such knowledge,
undoubtedly he would be guilty of gross fraud, not only in morals,
but in law. That was expressly decided in
Sheriff v.
Wilks, 1 East 48, and indeed seems too plain upon principle to
admit of any serious doubt. But we do not think that such knowledge
is an essential ingredient in such a case. The true question is
whether the title to the property has passed from the partnership
to the separate creditor. If it has not, then the partnership may
reassert their claim to it in the hands of such creditor. The case
of
Ridley v. Taylor, 13 East 175, has been supposed to
inculcate a different and more modified doctrine. But upon a close
examination, it will be found to have turned upon its own peculiar
circumstances. Lord Ellenborough, in
Page 37 U. S. 231
that case, admitted that one partner could not pledge the
partnership property for is own separate debt, and if he could not
do such an act of a limited nature, it is somewhat difficult to see
how he could do an act of a higher nature, and sell the property.
And his judgment seems to have been greatly influenced by the
consideration that the creditor in that case might fairly presume
that the partner was the real owner of the partnership security and
that there was an absence of all the evidence (which existed and
might have been produced) to show that the other partner did not
know, and had not authorized the act. If it had appeared from any
evidence that the act was unknown to or unauthorized by the other
partners, it is very far from being clear that the case could have
been decided in favor of the separate creditor, for his lordship
seems to have put the case upon the ground that either actual covin
in the creditor should be shown or that there should be pregnant
evidence that the act was unauthorized by the other partners. The
case of
Green v. Draker, 2 Starkie 347, before lord
Ellenborough, seems to have proceeded upon the ground that fraud or
knowledge by the separate creditor was not a necessary ingredient.
In the recent case
Ex Parte Goulding, cited in Collyer on
Partnership 283-284, the vice-chancellor (Sir John Leach) seems to
have adopted the broad ground upon which we are disposed to place
the doctrine. Upon the appeal, his decision was confirmed by Lord
Lyndhurst. Upon that occasion his lordship said
"No principle can be more clear than that where a partner and a
creditor enter into a contract on a separate account, the partner
cannot pledge the partnership funds or give the partnership
acceptances in discharge of this contract, so as to bind the
firm."
There was no pretense in that case of any fraud on the part of
the separate creditor, and Lord Lyndhurst seems to have put his
judgment upon the ground that unless the other partner assented to
the transaction, he was not bound, and that it was the duty of the
creditor to ascertain whether there was such assent or not.
The same question has been discussed in the American courts on
various occasions. In
Dob v. Halsey, 16 John. 34, it was
held by the court that one partner could not apply partnership
property to the payment of his own separate debt without the assent
of the other partners. On that occasion, Mr. Chief Justice Spencer
stated the difference between the decision in New York and those in
England to be merely this, that in New York the court required the
separate creditor who had obtained the partnership paper for the
private
Page 37 U. S. 232
debt of one of the partners to show the assent of the whole firm
to be bound, and that in England the burden of proof was on the
other partners to show their want of knowledge or dissent. The
learned judge added:
"I can perceive no substantial difference whether the note of a
firm be taken for a private debt of one of the partners by a
separate creditor of a partner, pledging the security of the firm
and taking the property of the firm upon a purchase of one of the
partners to pay his private debt. In both cases, the act is equally
injurious to the other partners. It is taking their common property
to pay a private debt of one of the partners."
The same doctrine has been on various occasions fully recognized
in the supreme court of the same state. And we need do no more than
refer to one of the latest, the case of
Evernghim v.
Ensworth, 7 Wend. 326. Indeed, it had been fully considered
long before in
Livingston v. Roosevelt, 4 John. 251.
It is true that the precise point now before us does not appear
to have received any direct adjudication, for in all the cases
above mentioned there was a known application of the funds or
securities of the partnership to the payment of the separate debt.
But we think that the true principle to be extracted from the
authorities is that one partner cannot apply the partnership funds
or securities to the discharge of his own private debt without
their consent, and that without their consent, their title to the
property is not divested in favor of such separate creditor,
whether he knew it to be partnership property or not. In short, his
right depends not upon his knowledge that it was partnership
property, but upon the fact whether the other partners had assented
to such disposition of it or not.
If we are right in the preceding views, they completely dispose
of the second instruction. The point there put involves the
additional ingredient, that the separate debt and draft of
Richards, for the three thousand dollars, was, with the knowledge
of the plaintiffs (Rogers & Sons) paid out of the partnership
funds, and if so, then unless that payment was assented to by the
other partner, it was clearly invalid and not binding upon him. It
is true that the draft of three thousand dollars was drawn on
Richards alone, and therefore it cannot be presumed that the
plaintiffs had knowledge that it was accepted by the partnership or
paid out of the partnership funds. But the question was left, and
properly left, to the jury to say whether the plaintiffs had such
knowledge, and if they had, unless the other partner consented, the
payment would be a fraud upon the partnership.
Page 37 U. S. 233
With the question whether the jury has drawn a right conclusion
it is not for us to intermeddle. It was a matter fairly before it
upon the evidence, and the decision upon matters of fact was its
peculiar province.
The third instruction admits of no real controversy. The letter
purports to be written by Richards alone, and not in the name of
the firm or by the orders of the firm. It embraces topics belonging
to his own private affairs as well as to those of the firm. Under
such circumstances, not being written in the name of the firm, it
cannot be presumed that the other partner had knowledge of its
contents and sanctioned them unless some proof to that effect was
offered to the jury. If the other partner did not know of the
letter or sanction its contents, it is plain that he ought not to
be bound by them, and such was the instruction given to the
jury.
Upon the whole, our opinion is that the judgment of the court
below ought to be
Affirmed with six percent interest and costs.
This cause came on to be heard on the transcript of the record
from the District Court of the United States for the District of
Mississippi and was argued by counsel. On consideration whereof it
is now here adjudged and ordered by this Court that the judgment of
the said district court in this cause be and the same is hereby
affirmed with costs and damages at the rate of six percentum per
annum.
