Liberty Savings Bank v. Campbell

Burks, J., delivered the opinion of the court. In the opinion of this court, delivered by Judge Staples in Binns v. Waddill, 32 Gratt. 588, 594, it was said “ that the rule seems to be settled that the authority of each partner to dispose of partnership property extends only to the business and transactions of the partnership. And any disposition of the property beyond such purposes, without the consent of the co-partner, is an excess of authority. And further, one partner cannot pledge or sell the partnership property in payment of his individual debts, without the consent of his co-partner; and the title is not divested by such pledge or sale in favor of a separate creditor, even though the latter may not know it was partnership property.” Though, as stated, it was not deemed necessary in that case to express any decided opinion upon the subject, we are satisfied that the law was correctly expounded. Rogers & Sons v. Batchelor and others, 12 Peters, 221, cited by Judge Staples, is a leading case. Mr. Justice’ — 540 — Story, in delivering the unanimous opinion of the supreme court, said, “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 or not.” The law is now generally considered as settled in conformity with this decision of the supreme court of the United States, as may be seen by reference to the numerous cases cited by the annotators in 1 Amer. Lead. Cas. (5th Ed.), marg. p. 453. Nor does it make any difference whether the private debt to which the social effects are applied be created at the time they are so applied or has antecedent existence. See Johnson v. Crighton, recently decided by the court of appeals of Maryland, 11 Reporter, 811, 812, and cases cited. It is admitted that Jones and Campbell were partners, and that the two bonds of Holland, payable to them and due August 1, 1875, and August 1, 1876, respectively, were the property of the firm, and it is very clear from the proofs that these bonds were pledged by Jones to the bank as a security for the payment of the notes of Jones, discounted for his individual accommodation and benefit. We are also ■satisfied that the bonds were thus pledged without the knowledge or consent of Campbell, except as to the sum of three hundred dollars,' which Campbell had previously agreed that Jones might raise on one of the bonds for his private use. Whether the bank, at the time it took the bonds under the arrangement made with Jones, had knowledge that they belonged to the firm, is an immaterial inquiry under the rule of law which has been stated. — 541 — From these facts, admitted or proved, it results that the bank is accountable to the firm for these bonds and whatever it has collected upon them. But this liability is subject to the qualification that the bank (there being no actual fraud in the transaction on its part) is equitably entitled, as against the claim of the firm, to set-off not only the three hundred dollars which Campbell had consented that Jones should apply to his individual use, but also so much of the proceeds of the discounted notes as was applied by the bank, on the orders or checks of Jones, to the partnership debts. If the bonds had been absolutely bona fide sold and transferred to the bank upon an agreement that the bank should apply the consideration of the sale to the social debts and such application had been made, the bank would have been protected. And though the notes were discounted for the individual accommodation of Jones, yet, if the bank on his cheeks, and thus by his direction, paid any of the proceeds to the partnership debts, it would seem but just and equitable that in accounting for the bonds and the collections upon them, the bank should have credit for what was thus paid. The money was actually paid to partnership purposes. The amounts thus applied, as shown by the commissioner’s report, aggrégate $1,460.25. Adding to this the $300 which Jones had the right, by Campbell’s consent, to use for himself, makes $1,760.25. This sum exceeds the aggregate of the two bonds held by the bank, and after crediting the bonds with the amounts collected thereon by the bank, the balance owing by Holland on the bonds is less than the balance owing by Jones to the bank on the discounted notes, which had been repeatedly renewed. Objection is made here by the appellee to allowance of the credits, on the ground that the payments .by the bank were not made from the proceeds of the notes for which the bonds were pledged. It is a sufficient answer, that the — 542 — commissioner allowed the credits and the appellee did not except to the report on that account. The o'bj ection, if made by exception below, might, perhaps, have been met by additional extraneous evidence. Made here, for the first time, it comes too late. It has been often decided by this court that reports not excepted to in the court below, cannot be impeached before the appellate court in relation to matters which may be affected by extraneous testimony. 2 Rob. Practice (Old Ed.), 383, and cases there cited; Peters v. Neville’s Trustees and others, 26 Gratt. 549; Coles’ Committee v. Coles’ Adm’r, 28 Gratt. 365, 370; Simmons v. Simmons’ Adm’r and others, 33 Gratt. 451, 456. But if the exception had been duly taken, it could not have been sustained. It is clear that the sums paid were on the checks of Jones on account of partnership liabilities. That we do not understand to be disputed. Now, the first note (for $1,000), which was secured by Holland’s second bond, was dated January 18,1875. At that time there was nothing to the credit of Jones in the bank.' It was discounted and the proceeds placed to his credit, and the very next day he drew the check for $111.50 in favor of Hayward. The check for $248.70 was drawn about two weeks .afterwards. And as to the check in favor of Mrs. Saunders for $1,100, it appears distinctly that by agreement it was to be paid from the proceeds of the note for $1,200 which was secured by Holland’s third bond, and it was no doubt so paid. The note bears date September 4,1875, and the check September 6 (two days after the date of the note). These credits were virtually admitted to be correct by the, acquiescence of the appellee in the allowance by the commissioner, and we think that independently of this, it sufficiently appears from the evidence that they were properly allowed. So that, .upon a proper statement of the acconnt, debiting fihe bank'with the aggregate of the two bonds and credit — 543 — ing it with the §300 to which Jones was individually entitled, and with what had been properly applied from the proceeds of the discounted notes for which the bonds were pledged, the bank would be clearly entitled to the bonds as against the claim of the appellant, and also to the money which was collected upon them. This is perfectly manifest from the record. But the commissioner charged the bank, not only with what had been collected on the two bonds which have been mentioned, but also with the amount of another bond of Holland to Jones & Campbell payable August 1,1874, which had been transferred or pledged by Jones to the bank, and had been collected. The bank excepted to this charge, but the court overruled the exception. Of this action of the court the appellant chiefly complains, and, we think, the complaint is well founded. Ho question is raised by the pleadings as to this bond. It is merely mentioned in the bill, and it is there stated that it is “ paid oJf.” This would seem to be a plainly implied admission that it was properly paid. However that may be, the bill sets up no claim whatever against the bank on account of it, but seeks relief only as to the two bonds which have been mentioned, and asks that the bank be required to surrender these bonds and repay the amounts collected “ on the same ” with interest, or that Holland be required to pay the amounts improperly paid by him to the bank. Accordingly, the answer of the bank, admitting that the bond in question had been discharged, is otherwise confined exclusively to the allegations as to the other two bonds, and to matters of defence connected with them. Ho issue is raised or made, even remotely or impliedly, as to the bond referred to, and it surely cannot be necessary at this day to cite authority for the proposition, that what is not in issue is not in the case. What has been said in relation to this bond applies also to the bond of Holland for the cash payment of the land. — 544 — bought by him, or what was collected by the bank on that bond, which the appellee, by exception to the commissioner’s report, claimed should be charged against the bank, but the court overruled the exception. Ho reference whatever is made in the bill to this bond. But the appellee’s counsel attempts to meet the objection by saying, that the amounts collected by the bank on these two bonds are proper set-offs or counter set-offs to the claim of the bank in the answer, to credit for the payments made to the partnership debts. But this pretension cannot be sustained. When the bank disclosed its defence by its answer and asserted the claim to the credit, if the appellant intended to meet the claim by charging the bank with the proceeds of the first two bonds, he should have filed an amended bill for the purpose and put the matter in issue. But apart from the objection founded on the pleadings, it would seem that there is no liability on the bank for the proceeds of these bonds. Without going into a minute examination of the evidence, it sufficiently appears, we think, that the proceeds of notes discounted equivalent to the amounts of the bonds held as collateral security, were applied to partnership obligations. Jones paid to Mrs. Saunders, on account of the partnership liability, one thousand dollars by check on the bank June 10,1874. The bank probably then held Holland’s bond for the first installment of the purchase money for the land bought by him. It is true it was not then due, but Holland says that this bond was assigned to the bank before it was due, and that he was present when it was assigned, and that the agreement was made that the proceeds should go to Mrs. Saunders; and the cashier says that the payments made afterwards by Holland were credited on a note of Jones, for which the bond was held as collateral security. Then there is proof tending to show that other sums were paid by Jones towards the social debts by checks on the bank. — 545 — But it is not necessary to rest bur decision on this view of the case, though it may be a sufficient answer to the pretension of the appellant as to the two bonds first falling due. It is enough for us to see and to know that the claim preferred as to these bonds is outside of the pleadings and the issues made in the cause. For the reasons stated, we are of opinion that the decree of the circuit court is erroneous. It will therefore be reversed and the bill dismissed. Decree reversed.