Stegall v. Coney

SiMRALL, J., delivered the opinion of the court: In November, 1865, Coney, Rice & Gaines, formed a partnership, to carry on the business of dry goods merchants, at Smithville, in this State. Coney and Rice, were residents of the State of Alabama, at a place about 130 miles distant from Smithville. The business was to be under the management of Gaines, who was to furnish whatever additional assistance was needed, and also the store-house, at his own expense. The profits to be equally divided between the three. A stock of goods costing, at Cincinnati, between $10,000 and $11,000, were purchased, and received by Gaines at Smithville. The bill charges that a combination and conspiracy was entered into by Gaines, Henry W. Stegall and Danbery, to swindle the complainants out of the goods and proceeds, .-which was almost or quite succesfully accomplished. . It would seem that it was understood that the goods should be sold for cash, or for cotton, and that the proceeds, so far as necessary, should be applied to pay for their purchase. The complainants, one or both of them, in February, 1866, visited Smithville, for the purpose of looking into the condi — 766 — tion of the business. Gaines Was_abspnt, but had left his aFairs in charge of other persons. It is proved that the actual condition of the business was misrepresented to the complainants, and that pains were taken by putting out of the way the books, to prevent an examination into the condition of the business. In August, of the same year, the nonresident partners again visited Smithville, and on taking an inventory of stock, it was ascertained that about $4,100 worth of goods were on hand; about $75 of money was said by Gaines, to be in his possession, and there were bills' receivable, amounting to between $1,400 and $1,500, most of Which are reported by the receiver to be worthless. The goods had mostly been sold for cash. None of the debts of the firm had been paid, except $50 or $60. It is manifest that Gaines grossly mismanaged the business. No explanation is given of what disposition was made of the goods, or their proceeds. But the fact remains that a stock of about $11,000 of goods, was reduced in six months, about two-thirds, leaving a residuum of stock of about $4,000, and no joint liabilities paid. • A large amount of cash must have been realised by Gaines. The evidence is ample to characterize his conduct towards his partners and creditors as fraudulent, But he makes no complaint of the decree. The question is, whether Henry W. Stegall combined and assisted Gaines in making a fraudulent disposition of the goods, or any part of them. It was proved that when the complainants were about completing taking an inventory of stock, that W. H. Stegall came into the store-house, took possession of the keys, and ordered them, in a most peremptory manner, to leave the house. The testimony is not harmonious as to the pretenses set up for this conduct. Rice, in his. deposition, says« That Stegall claimed the goods under a transfer made by Gaines in the name of the firm, he had in his hand a written obligation, the firm signature being exposed. Rice told Stegall that they would hold him responsible for the goods. — 767 — Stegall answered that he was responsible. It should be stated in this connection, that Gaines did not appear at the store on the afternoon of this day, but sent a note to the complainants that he was sick and wanted nothing more to do with the goods, but they must be moved, as Mr. Stegall wanted the house. During the same afternoon one of the complainants had been making enquiries of a suitable place' where the goods might be placed. Stegall states that when the replevin bonds were signed by himself and brother, the verbal' agreement with Gaines was that they were to hold possession of the goods, but Gaines was to go on and sell as usual. It is an undisputed fact in the case, that about this time Gaines, in the name of the firm, had executed a written transfer and assignment of all the assets to W. IN Stegall. The motive given by Gaines and Stegall was to protect the effects from other attachments. But it would not be extravagant to infer that the intent was to enable Gaines to make a disposition of the goods without accounting to his partners or creditors for their proceeds. Since such a paper was in existence, the deduction is legitimate, that it Was by virtue of the right which it conferred, that Stegall ejected the complainants from the house, and took possession of the goods. Stegall admits that he was to use this assignment to keep off creditors. There is satisfactory testimony that he did employ it to deprive the complainants of the goods. From the exchange of notes between Gainfes and some person at StegalTs house, and his going there once or more in the forenoon of this day, it is plain, from after occurrences, that Stegall Was advised of the exact posture of affairs, and that was, that Gaines would de-cliné further interest or interference with the assets, that as Stegall wanted his store-house, the goods must be removed. Whilst arrangements were being made to do that, Stegall makes his claim and takes possession. Within four or five days this suit was brought; four ol‘ five weeks afterward, the receiver applied to Stegall and. Gaines for the goods, and neither of them knew anything — 768 — about them, or what had become of them. Nothing was left except a lot of remnants, estimated at about $170. Yet it is in proof that during those few weeks, whilst the front and back doors were both closed, a most active sale and removal of the stock was going on. There are many other circumstances, less prominent and important, not necessary to be detailed. In view of the testimony, the Chancellor held W. El. Stegall responsible for the value of the goods at the time he took possession of them, and also for whatever balance, on his account, might be found due the firm. Is that conclusion sustained by the rules of law applicable ■to the case? Each partner of a mercantile firm, like this, has authority to sell the goods. The scheme of the business is to buy and sell for a profit. The retail merchant sells generally by the yard, the pound, or the gallon. Yet there is no principle of law, which prohibits one member of the firm from selling by the piece or the package. Indeed he may be said to have the abstract right to sell the major part, or the entire stock in solido, but such a transaction being rather unusual, may excite suspicion, and would bind or not the other partners and creditors, as the act may be lona fide and fair, or otherwise. So one partner may make an assignment of personal assets for the benefit of creditors. Anderson v. Tompkins, 1 Brock. Rep., 457. There is no controversy about the general principle. The doctrine rests on the nature and necessities of mercantile partnerships, and the character of the business. The baijSe formation of such an association, communicates to each member power to do, within the scope of the business in their dealings with others, what all unitedly might do. It pertains to the right of each partner to sell, in parcels, joint property to pay a joint debt. So each may transfer notes or accounts for the same purpose ; so either may create a valid lien on the assets for the benefit of joint creditors. These and such like acts are fairly in the line of the business, and devote the property to a legitimate purpose. But if a single — 769 — partner appropriate the goods or credits of the firm to the payment of his private and individual debts, this is such a use of them'as is destructive of the joint business, and would not be binding on the other partners, nor would a right thereby be conferred upon the purchaser or assignee ; for either would be cognizant of the unlawful conversion. It would not need the support of authority to .establish another proposition, that if the active partner dealt with the' joint assets, so as to put them beyond the reach of the other partners, and deprive them of all profit and benefit thereof, and was aided and assisted in the fraudulent scheme by another, that such confederate, to the extent of his participation, would be responsible. To the extent that the property and effects could be traced to such confederate, to that degree would he be held as trustee. The authority of a partner is limited to those things-done in the regular course of the business of the firm-; outside of this he has no authority. Parson on Part., 163. If he sells the whole or a part of the assets, with the intent to apply the proceeds to his own use, and thereby defraud his partners, if the purchaser from him has knowledge of such an intent, or the transaction was attended with such circumstances as would have imparted knowledge, but for his gross negligence, then the purchaser’s title is affected and vitiated. Parson on Part., 164. If the attempt be to mortgage or assign, and that be done in an unusual way, or under suspicious circumstances, such an act would be of no effect, as against the parties injured thereby. Ib., and cases in notes. A transfer by a partner, of the joint effects, in fraud of a copartner,, will constitute the transferree, who received them with notice or without consideration, as trustee for the benefit of the firm or its creditors. If the joint funds were'employed by one partner, to purchase property, either in his own name, or that of another, with the intent to cheat his copartners or the creditors of the firm, then the property so purchased will be treated as trust funds for the firm and its. — 770 — creditors. Croughton et al. v. Forrest et al., 17 Mo. Rep., 140 (and 2d Bennett Mo. Rep., 140). The authorities have quite clearly established the principle, that it depends on the special circumstances of each case, whether an assignment of all the joint effects to trustees, for creditors, is valid or not. Such assignments have been sustained, where the other partners are absent from -the country, or the assignor is sole managing partner, or if it may be legitimately inferred in any other way that such power has been conferred upon the assignor. Anderson v. Thompson, 1 Brock, 456.; McCullock v. Sommerville, 8 Leigh, 433, 436; Robinson v. Crowder, 4 McCord, 519; Harrison v. Serry, 5 Cranch, 300. It is plain that the transaction between Gaines and Stegall) is condemned by these principles. The assignment under which Stegall claims was not made to trustees, nor for the benefit of all the creditors of the firm. Indeed, the avowed purpose was to enable Gaines to consummate a fraud upon the creditors and his partners. The conduct of Stegall doubtless deprived the complainants of goods to the amount of $4,100.00, or thereabouts, and ought to impose upon h'im the- duties and responsibilities of a trustee. If, after taking possession of the house and merchandise, he permitted Gaines or others to dispose ofthem, that ought not to relieve him of accountability. We affirm the decree.