Court Opinion

ID: 7193321
Source: CourtListenerOpinion
Date Created: 2022-07-24 16:59:34.88481+00
Date Added: 2024-06-11T16:16:14.969767
License: Public Domain

*733ON REHEARING.
Bermudez, C. J.
The admissions and the evidence establish that Galloway, using the name of the firm, Galloway & Co., without the knowledge of his co-partner, Burns, shipped cotton to Kirkpatrick & Co., with instructions to apply the proceeds to his individual purposes.
It likewise appears that the cotton was received in November, 1881, and on February 7, 1882; that the writ of attachment was issued and garnishment proceedings served on February 20, 1882; that the cotton was sold on the 25th and 27th following; five and seven days after service of the process.
The rule traversing the answers of the garnishees, Kirkpatrick & Co., has for its object to hold them responsible for the proceeds of the cotton, which they are practically charged -with having wrongfully diverted and applied. The argument advanced to exonerate them is: that they were the agents of Galloway & Burns; that they cannot be held responsible for having, as such, executed the instructions or orders of their principals; that as those principals could not hold them liable, no creditor of theirs, who has no greater righter than they possess, can be permitted to do so.
This is a glaring fallacy. It is not true that the firm authorized them to hold the cotton for account of Galloway, individually.
The cotton was shipped by Galloway & Co. to Kirkpatrick & Co. The letter of instructions was written by Galloway, in the name of the firm, but without the knowledge of the other partner, Burns. Kirkpatrick & Co. knew that the letter was thus written. They knew that the proceeds of partnership property were ordered by one partner, without the authority of the other, to be diverted and applied to his purposes. They were put and should have been, in law, on their guard under that state of facts, and should either have absolutely refused the consignment, or received it declining to carry out the instructions to misapply, until the consent and authority of Burns had been clearly obtained. Having failed to require that consent and having carried out the illegal instructions, they have acted at their risk and peril and should stand the consequences of their imprudence and rashness, the more so, as they sold the cotton, several days after the ga/rwishment proceedings had been served on them.
There is no better settled principle of commercial law than, that a partner cannot use partnership property for his individual purposes, without the consent or authority of his co-partner or partners and that when he attempts to do so, parties dealing with him are, by the very *734fact or nature of the transaction, warned and put on their guard, and that if the same is consummated, the burden of proving the knowledge, consent or authority of the other members rests upon such parties, who, when sought to be made responsible, must, at their risk and peril, succeed or fail according as they may or may not prove such ratification.
There can be no doubt that Burns, the partner whose consent or authority was necessary and not obtained, could recover from the consignees for the wrongful misapplication, otherwise, lie could be spoliated by a derelict partner and his accomplices, without any remedy, which is a legal impossibility. What rights he had or could exercise, accrue to the creditors of the firm when claims are liquidated by a final judgment which has become executory.
Story on Partnership, par. 132j says: that in such cases the party dealing with the partner and knowing the circumstances will be deemed to act mala fide and in fraud of the partnership, and the transaction by which the funds, securities or other effects of the partnership have been so obtained will be treated as a nullity * * * for it is a clear misapplication of the partnership credit. He further correctly adds : that the case would be different whore the other partner has directly or by fair implication authorized or confirmed the application of the partnership effects to the very purpose. (133.)
In 12 Pet. 221, Rogers vs. Batchelor, which is a leading case, Mr. Justice Story, after a review of applicable precedents, substantially held: that the time principle to be extracted from the authorities is that one partnership cannot apply partnership property for his own advantage without the consent of his co-partners ; that without such consent title to the property is not diverted in favor of the party whether he knew it or not to be partnership property. “In short, his right depends, not upon his Imiowledgc that it was partnership property hut upon the fact, lohether the other partners had assented to such disposition of it or not.” p. 232.
The law, says the Supremo Court of Virginia, in a similar suit and referring to the Rogers case, is now generally considered as accordingly settled. Sec. 1, Am. Lead.'Cas. 5th Ed., May, p. 453; Liberty Savings Bank vs. Campbell, July term, 1881, No. 24, Vol. XIT, p. 7(!(i; Reporter of 1881.
. In tlio absence of Burns’ consent or authority, title to the proceeds of the cotton continued to vest in the firm of Galloway & Co., the ap-plioation of them by Kirkpatrick & Co. was unauthorized and illegal and they should be held liable for the same.
*735Parsons is to the same effect. 121 and 128.
This doctrine was also emphatically recognized and applied by the present Court in 33 A. 1308 and 1315, after a full review of the authorities applicable in such instances.
In the later case of Allen, Nugent & Co. vs. Cary et al. we distinctly held, supported by unquestionable precedents, that even where a partner, acting apparently beyond the limits of his authority, untruly states his co-partner’s consent, his representations will not bind them, even in favor of parties dealing with him although in good faith, for the reason that it is the duty of every one who deals with a member of a commercial firm, out of the line of the business of the partnership, to require evidence of that partner’s special authority to bind his co-partners, and this at his risk and peril. 33 A. 1455.
From a recent case decided by the Supreme Court of Maine, reported in 10 Central L. T. p. 388 (Johnson vs. Hersey), it appears that a bank held the individual note of one of the members of an insolvent firm who without the knowledge of his co-partner drew the partnership funds in the bank to pay the note, and that the Court decided that the character of the transaction was notice to the bank of the character of the funds, and that the attachment levied could be sustained by the creditors.
In Caldwell vs. Scott, 54 N. H., the Court recognized the right of creditors to repudiate such diversions and to hold the delinquent parties responsible.
It would be indeed cumbersome to quote authorities in support of a proposition of law so manifestly correct.
It is immaterial whether the consignment and instructions be in one and the same or in different papers. If transactions so reprehensible and injurious to others concerned can be tolerated and enforced, when accomplished under cover of authority delegated by the same authority, the law eminently protective of partners and of partnership creditors becoihes a delusion, easy to be successfully evaded. Partners and creditors would bo unmercifully victimized by sanctified miscreants.
The law never designed that such transactions should be upheld, and the argument urged by counsel of the garnishees is simply heterodox in the extreme.
It is, therefore, ordered that our previous decree remain undisturbed.