Gilruth v. Decell

Whitfield, J., delivered the opinion of the court. It is not alleged in the bill that Gilruth actually participated in the fraud by which Decell converted the trust-fund to his own use, and afterwards paid it into the firm ip payment of the balance of his subscription to its capital stock; nor that he had any actual knowledge of anything done by Decell in connection therewith. The acts and doings of Decell throughout were wholly outside the scope of the partnership business. Under these circumstances, whilst there may be some cases to the contrary — as 68 Ala., 382, and 31 Ga., 362 — it is well settled in Mississippi (Pickels v. McPherson, 59 Miss., 216), and generally, that a bill cannot be maintained against the firm to recover from it the trust-fund thus put, by the guilty partner, without participation or knowledge on the part of the others, into the assets of the firm. Knowledge of the guilty partner in such case is not the knowledge of the firm. Liability of the other partners in such case, if it exist, must grow out of participation as joint wrongdoers in the fraud, and not out of the fact that they are partners, or their liability as partners. Bates on Partnership, section 481; Evans v. Bidleman, 3 Cal., 435; Lindley on Partnership, vol. 1, star pages 142-3. Jessel, M. K,., thus emphatically puts it, in Williamson v. Barbour, 9 Ch. Div., 529: “When we come to a question of fraud, different considerations arise. It is not true that the knowledge of a fraud by a partner is necessarily the knowledge of the firm. A very obvious instance may be shown, and it is best *235 shown by an example. Suppose there is a firm with half a dozen partners, who have a clerk, and the clerk has been in the habit of receiving presents from one of the sellers to the firm, in order to pass goods of short weight, and, further, suppose that the clerk, not having been found out, is taken into partnership as a junior partner, and continues the practice. Is it to be imagined, under these circumstances, that, in a court of equity, the other partners could not sue the- vendor of the goods for the fraud, and not only sue him, but their partner also ? I emphatically deny that any such doctrine could, by any possibility, be laid down by any judge, and I need not say it never has been laid down. Of course, fraud must be an exception. I put the case of a clerk knowing it before he became a partner, and not interfering with it afterwards. But it is immaterial that the knowledge was acquired during, the partnership. It appears to me that that kind of notice will not do, when it is applied to cases of fraud.” And says.Mr. Lindley: “If one partner is a trustee, and he improperly employs the trust-funds in the partnership business, his knowledge that he is so doing is not imputable to the firm, and therefore to affect the other-partners with a breach of trust, further evidence must be adduced. ’ ’ It is not within the' scope of the bill to subject Decell’s interest in the partnership assets. Besides, his administrator is not a party. Robertshaw v. Hanway, 52 Miss., 713, 717. The decree is reversed, demurrer sustained and bill dismissed.