JVi. 
 
 UNIVERSITY 
 
 OF CALIFORNIA 
 
 LOS ANGELES 
 
 SCHOOL OF LAW 
 LIBRARY
 
 "2- C? 
 
 ^
 
 CASES ON 
 LAW OF ASSOCIATION 
 
 
 By 
 
 George Wharton Pepper, LL. D. 
 
 and 
 
 William Draper Lewis, Ph.-D. 
 
 Professor of Law in the Law School of the Unioersily of Pennsylvania 
 
 [Compiled in tlie Biddle Memorial Law Library of the University. of Pennsylvania.] 
 
 PHILADELPHIA: 
 
 INTERNATIONAL PRLNTING CO, 
 I915
 
 T 
 
 COPYRIGHT 1910 
 
 BY 
 
 Gf.ori.e Wharton Pepper 
 
 AND 
 
 VVii.i.iAM Draper Lewis
 
 CHAPTER I. 
 
 THE AGENT'S POWER TO SUBJECT HIS 
 PRINCIPAL TO LIABILITY. 
 
 SECTION I.— LIABILITY ON CONTRACT AND 
 FOR POSITIVE MISFEASANCE. 
 
 HERN z'. NICHOLS. 
 At Nisi Prius, before Holt, Chief Justice. 
 
 I Salkcld's Reports, 289. 
 
 In an action on the case for a deceit, the plaintiff set 
 
 forth, that he bought several parcels of silk for silk, 
 
 whereas it was another kind of silk; and that the defendant, 
 
 well knowing this deceit, sold it him for silk. On 
 
 trial, upon not guilty, it appeared that there was no actual 
 deceit in the defendant who was the merchant, but that it 
 was in his factor beyond sea: And the doubt was. If this 
 deceit could charge the merchant? And Holt, C. J., was 
 of opinion, that the merchant was answerable for the deceit 
 of his factor, though not criminalitcr, yet civiliter; for see- 
 ing somebody must be a loser by this deceit, it is more reason 
 that he that employs and puts a trust and confidence in the 
 deceiver should be a loser, than a stranger. And upon this 
 opinion the plaintiff had a verdict.
 
 2 AGENT'S POWER TO SUBJECT PRLNXIPAL TO LIABILITY 
 
 BOULTON r. ARLSDEN. 
 At Nisi Prius, before Holt, Chief Justice, 1697. 
 
 3 Salk eld's Report, 234. 
 
 In this case it was held, that where a scrz'aiif usually 
 buys for his master upon tick, and takes up things in his 
 master's name, but for his own use, that the master is liable, 
 but it is not so where the master usually gave him ready 
 money, ^ 
 
 WILTSHIRE z'. SIMS. 
 At Nisi Prius, before Lord Ellenborough. 1808. 
 
 I Campbell's Reports, 258. 
 
 Action for not transferring stock. 
 
 The only witness was W'atkins, the broker in this 
 transaction, who stated that the defendant gave him orders 
 to sell out £500 of the stock of the trustees of the Commer- 
 cial Road ; that on the 27th of August he agreed to sell it to 
 the plaintiff; that as the transfer could not be made till the 
 expiration of a fortnight, when there was to be a meeting 
 of the trustees, the plaintiff paid him for the stock by a 
 promissory note at fourteen days ; that in taking the note 
 he acted with a view to his employer's advantage, thinking 
 the stock might fall before the transfer could be made ; that 
 he paid in the note to his bankers, where it was attached for 
 a debt of his own; and that at the end of the fortnight the 
 defendant refused to make the transfer, as he had received 
 no part of the purchase money. 
 
 * The other declarations of principles of law are omitted. For 
 another report of the case purporting to give the facts, see i Lord 
 Raymond's Reports, 224.
 
 WILTSHIRE V. SIMS 3 
 
 It was contended for the plaintiff, that the sale of the 
 stock on the 27th of August was binding on the defendant. 
 Watkins was his authorized agent, and had acted bona fide 
 for his benefit. He must be supposed to have empowered 
 his agent to sell the stock in the manner most for his interest, 
 and the loss ought to fall upon him, not upon the plaintiff, 
 who had paid for the stock, under the natural impression 
 that Watkins had authority to sell it immediately, though a 
 short time was to intervene before the stock could be trans- 
 ferred in the books ^ the trustees. 
 
 Lord Ellen .ough : When the defendant employed 
 the broker to seii .le stock, he employed him to sell it in the 
 usual manner. He made him his agent for common pur- 
 poses in a transaction of this sort. But did any one ever 
 Lear of stock being absolutely exchanged for a bill at four- 
 teen days? Has a broker in common cases power to give 
 credit for the price of the stock which he agrees to sell? 
 The broker here sold the stock in an unusual manner ; and 
 unless he was expressly authorized to do so, his principal is 
 not bound by his acts. 
 
 Plaintiff non-suited.
 
 4 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 PECK z: HARRIOTT. 
 In the Supreme Court of Pennsylvania, 1820. 
 
 6 Sergeant and Rawle's Reports, 146. 
 
 Duncan, J., delivered the opinion of the court. ^ 
 The plaintiffs in error, being the owners of certain 
 lands in the counties of Erie, Crawford, Warren and Ve- 
 nango, on the 17th October, 181 5, constituted one Seth 
 Young, their attorney, in their names to contract for sale, 
 sell and convey, any parts or parcels of the lands, ratifying 
 and confirming all that their said attorney might lawfully 
 do in the premises. On the 29th December, in the same 
 year, Young contracted to sell to the defendants two parcels 
 of the lands. The vendees covenanted to pay the purchase 
 money in four annual instalments, with interest, and make 
 settlements, and certain specified improvements on the land. 
 The first instalment became due on the 29th December, 
 181 6, and in March and April, 181 7, the vendees paid 
 Young three hundred and seventy-six dollars fifty cents. 
 By this article the vendors by their attorney, covenanted, on 
 payment of the whole, or a satisfactory part of the money 
 and interest, within the specified time, the improvements 
 being completed, that they, or their representative, would 
 execute a conveyance, a good and sufficient warrantee deed 
 in fee, provided, such party should, on giving the said deed, 
 give bond and mortgage on the said premises for the con- 
 sideration money, or so much thereof as should be due. 
 
 This action was brought for the whole consideration 
 money, and the question submitted to the Court below was 
 on the validity of the payments. The Court adjudged they 
 were valid, and on this opinion we are now called on to 
 decide. 
 
 ^ The statement of facts as given by the Reporter is omitted.
 
 PECK V. HARRIOTT 5 
 
 Every general grant implies the grant of all things 
 necessary to the enjoyment of the thing granted, without 
 which it could not be enjoyed. Every general power neces- 
 sarily implies the grant of every matter necessary to its 
 complete execution. An attorney who has power ^o con- 
 vey, has so essentially the power to receive the purchase 
 money, that a voluntary conveyance, without receiving the 
 stipulated price or security for it, would be fraudulent, and 
 either the whole contract might be rescinded by the prin- 
 cipal or the vendee liable for the purchase money. The 
 principal authority includes all mediate powers which are 
 necessary to carry it into effect. The payment of the pur- 
 chase money was an intermediate act between the articles 
 and the conveyance. The receipt of the purchase money is 
 within the general scope of an authority to sell and convey, 
 as a mediate power, as an act without which the conveyance 
 would be fraudulent. No words could confer a more ample 
 authority than is conferred by this instrument. He has 
 power to contract for sale, and having so contracted, to 
 convey. All the acts he performs, necessary in the premises, 
 are ratified and confirmed. 
 
 I cannot yield to the argument, that having contracted 
 for sale, his power ended, because the language of the power 
 is very explicit, that he has not only power to enter into 
 executory contracts, but that, having entered into them, he 
 has power to execute them by conveyances, and we must not 
 stop at the words contract for sale, and say, that is a 
 distinct power, but must go on with the whole sentence, 
 sell and convey. Articles are the first step usual in the sale 
 of lands; the conveyance, the last act which the attorney is 
 authorized to perform. If he had conveyed on the receipt 
 of the whole purchase money, it is admitted that this would 
 have bound the principal. If he had power to receive the 
 whole, he had power to receive any part, and it surely lies 
 not in the mouth of the principal to say, that because he has 
 not conveyed, he has no right to receive the money ; for the
 
 6 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 same objections would arise had he received the whole 
 money and refused to convey. The validity of the pay- 
 ment does not rest on the actual conveyance, but the power 
 to convey ; the payment is to precede the conveyance. There 
 is notliing in the nature of the thing, to justify such a con- 
 struction, nor in the words of the instrument, and it is a 
 proposition which never can be maintained, that he had only 
 power to receive the money when he had conveyed, and that 
 it is the conveyance which renders the payment valid; 
 whereas, the conveyance could only be good, if the money 
 were paid, if he had power to receive the money, and convey. 
 If he has received the money and not conveyed, the pay- 
 ment must, in all reason and justice, be binding on the 
 principal. 
 
 That the attorney here did not exceed his authority in 
 making the contract is admitted by this action calling for 
 its execution. If he did not exceed his authority in making 
 the contract, he had power to carry it into execution by 
 conveyance. In order to enable him to do this, payment of 
 the money, or security, was so necessary an incident, that 
 without it the act would be fraudulent. He had power to 
 convey ; to convey without payment, would have been a 
 fraud on the principal ; to receive the purchase money, could 
 not be a fraud. 
 
 It is not pretended, that the power was revoked; much 
 less, that notice of the revocation before payment, was given. 
 It is not made any part of the case, that there was any fraud 
 on the part of the defendants. 
 
 The power of attorney, is unrestrained as to time, 
 credit, or condition. All the authority that the principals 
 could confer, they did. They substituted Young, with all their 
 powers, to part with their title ; to convey the estate in fee ; 
 to bind them with covenants of general warranty. He could 
 sell on credit, having the power to sell on credit; he could 
 receive the money from the vendee, unless there was some- 
 thing in the instrument restrictive of this. It would be
 
 PECK V. HARRIOTT 7 
 
 rather an unusual mode of conducting business, to empower 
 an attorney to sell and convey, and restrain him from re- 
 ceiving tlie purchase money. Here, he is not so restricted, 
 and the implication would be a constrained one; it would be 
 dangerous for the Court to look for a hidden meaning, 
 where the terms are neither obscure, nor equivocal, or to 
 imply a restriction of a power granted in general terms. 
 The power is not required to be executed uuo flatii; there are 
 several acts to be done, at several times ; the last act, the 
 conveyance, not to be immeditely executed, not to be exe- 
 cuted until all the conditions were complied with by the 
 vendees. The several payments were to come around ; and 
 until paid, or a satisfactorj' part, and mortgage given for 
 the balance, under the general power to contract for sale, 
 and to convey, unrestrained as to the extent of authority, 
 unlimited in its duration, remaining in full force at the 
 time of payment, the Court of Common Pleas decided 
 rightly, in determining these payments to be valid ; and the 
 judgment is affirmed. 
 Judgment affirmed. - 
 
 -Compare: Penfold v. Warner, 96 Mich. 179, 1893. (A was the 
 owner of land X. A and his wife B joined in a power of attorney 
 authorizing C to sell any and all real estate belonging to them. A 
 quit claimed X to B. A died. C sold and conveyed X to D. B sold 
 and conveyed X to E. D brought ejectment against E. Judgment 
 in favor of E, affirmed on the ground that such powers of attorney 
 should be strictly construed, and that the power in question only 
 covered B's dower interest in X at the time of the execution of the 
 power. ) 
 
 Payne v. Potter, 9 Iowa, 549, 1859. (B authorized C to sell his, 
 B's, horse. C purported to sell the horse to A, A giving his note there- 
 for. A took possession of the horse, and B brought an action of 
 replevin. At the trial the Court charged the jury "That an authority 
 to sellthe horse did not confer upon the agent authority to sell him 
 upon time, and if the defendant in justification shows simply an author- 
 ity to sell, he must in addition show that the sale was for cash." Judg- 
 ment for plaintiff. On appeal held, that the charge was correct.)
 
 8 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 NORTH RIVER BANK v. AYMAR. 
 In the Supreme Court of New York, 1842. 
 
 3 Hill's Reports, 262. 
 
 Error to the Superior Court of the city of New York. 
 The action in the court below was by the North River Bank 
 against Aymar and Embury, executors, &c., of Pexcel 
 Fowler, deceased, on eleven promissory notes, six of which 
 purported to have been made on behalf of the defendants' 
 testator, and were signd thus : "Pexcel Fowler — Jacob D. 
 Fowler, att'y." Of these six notes, four were payable to 
 the order of David Rogers & Son, and by them endorsed ; 
 and the other two were payable to the order of Jacob D. 
 Fowler, and were endorsed by him, and by D. Rogers & 
 Son. The remaining five notes purported to have been made 
 by Jacob D. Fowler, payable to the order of Pexcel Fowler, 
 and were endorsed in the same form in which the other six 
 notes were signed — viz. : "Pexcel Fowler — Jacob D. Fow- 
 ler, att'y" — and were also endorsed by D. Rogers & Son. 
 The case, as it further appeared on the trial, was this : The 
 defendants' testator, in his lifetime, executed to Jacob D. 
 Fowler a letter of attorney in these words : "Know all men, 
 &c., that I, Pexcel Fowler, of, &c.. have made, &c., Jacob D. 
 Fowler, of, &c., my true and lawful attorney, for me and in 
 my name, place and stead, and to my use, to ask, demand, 
 &c., all such sum and sums of money, debts, &c., which are 
 or shall be due, owing, &c., to me, Sic. I do further authorize 
 and empower the said Jacob D. Fowler to draw all checks 
 or draffs upon any of the banks in the city of A-czv York 
 for all moneys deposited in my name, to endorse any promis- 
 sory note or notes, bills of e.rcluDige or drafts, to accept all 
 bills of exchange or drafts, or in my name to draw any note 
 or notes, to enter merchandise at the custom house, &c., and 
 to manage and negotiate any business from time to time in
 
 NORTH RIVER BANK v. AYMAR 9 
 
 the same manner as if I was personally present. Giving 
 and granting unto my said attorney full power and authority 
 in and about the premises, &c. In witness," &c. About the 
 time this power was executed, Pexcel Fowler and Jacob D. 
 Fowler called together at the banking house of the plaintiffs 
 and left it in their possession, where it had ever since re- 
 mained. The notes in question were all made during the 
 life of the defendants' testator, and after the execution of 
 the power. Nine of them were not made or endorsed in the 
 business of the defendants' testator, nor for his use or 
 benefit, but for the accommodation of David Rogers & Son, 
 under an agreement between them and the firm of Fowler, 
 Gordon & Co. (of which Jacob D. Fowler was a member) 
 for the mutual exchange of accommodation paper. Fowler, 
 Gordon & Co. failed in business, leaving unpaid a large 
 number of notes made and endorsed under this agreement, 
 on which D. Rogers & Son were liable, and which had been 
 discounted by the plaintiffs. The notes in question were 
 procured by D. Rogers & Son for the purpose of relieving 
 themselves from such liability, and were passed by them to 
 the plaintiffs in exchange for the said notes of Fowler, Gor- 
 don & Co. At the time the notes in question were received 
 by the plaintiffs, Samuel D. Rogers, a member of the firm of 
 D. Rogers & Son, and who was also one of the directors of 
 the bank, declared the notes to be business paper, given for 
 goods sold. The defendants admitted that the plaintiff's 
 were entitled to recover on two of the eleven notes ; and, in 
 respect to the others, the Court charged the jury that Jacob 
 D. Fowler exceeded his authority — that the power being 
 special, the plaintiffs were affected by the excess, and were 
 not therefore entitled to recover. The plaintiffs excepted. 
 The jury rendered a verdict for the amount of the two notes 
 in favor of the plaintiffs, who, after judgment, sued out a 
 writ of error. Some other facts necessary to a more full 
 understanding of the case will he found stated in the follow- 
 ing opinions.
 
 10 AGENT'S POWER TO SUBJECT PRIXXIPAL TO LIABILITY 
 
 CowEN, J. : As the notes in question were received by 
 the plaintiffs in exchange for the notes of Fowler, Gordon 
 & Co., the former are entitled, so far as their rights are in 
 question on this writ of error, to be considered bona fide 
 holders in the fair course of trade and for a valuable con- 
 sideration. 
 
 That the power conferred by the letter of attorney was 
 limited to notes in the proper business of the testator, and 
 that it would have been so independently of the words to his 
 use, there can be no doubt. {St airier v. Tysen, post, p. 279; 
 Nichol V. Green, Peck's Rep. 283 ; Butcher v. Tysen, U. S. 
 Circ. Court, Nov., 1840, 4 Hunt's Merch. Mag. 456.) To 
 fulfil this purpose of the power, it was essential that the 
 making and endorsing should be upon a consideration pass- 
 ing to Pexcel Fowler, the testator. There is nothing in the 
 nature or effect of such a power which authorizes the attor- 
 ney to use it for his own benefit or the benefit of any one 
 excepting the principal. And if this limitation be such that 
 an appointee would be bound to notice the fact that the attor- 
 ney overstepped it, then these plaintiffs were properly cut 
 off b}^ the Court below from their claim upon the contested 
 notes and endorsements. 
 
 The general rule, that when an attorney does any act 
 beyond the scope of his power, it is void even as between 
 the appointee and the principal, has always prevailed, and is 
 indeed elementary in the doctrine of powers. The ground 
 on which the rule rests is familiar. The appointee need not 
 deal with the attorney unless he choose; and it is very rea- 
 sonable that he should be bound to inspect the power, when 
 in writing, or to learn its language in the best way he can, 
 when it is by parol. On becoming acquainted with it, he 
 shall be holden to understand its legal effect, and must see, 
 at his peril, that the attorney does not transgress the pre- 
 scribed boundary in acting under it. I say in acting under it ; 
 for it is easy to compare the act with the words to which it 
 must conform ; and so far, there is nothing unreasonable —
 
 NORTH RIVER BANK v. AYAIAR 11 
 
 nothing impossible or even difficult. In speaking of the 
 attorney's acts, I certainly mean to include his declarations 
 made at the time, or in the business which he transacts under 
 the power; for his declarations are a part of the res gestae, 
 and bind his principal equally with the act to whii:h they 
 relate. They are always received as evidence against the 
 principal. I authorize a man to borrow a sum of money for 
 me. The power being limited, he has no authority to borrow 
 for himself or his neighbor. He goes to the lender and 
 borrows in my name, showing him my written power, and 
 declaring at the same time that he takes the loan on my 
 account. Both his acts and declarations are evidence against 
 me. 
 
 A question often arises upon this and the like cases, how 
 far the appointee is responsible for the agent's ndelity. Take 
 it, in the instance supposed, that his acts and professions 
 make out a case within the terms of his authority ; is the man 
 who advances his money accountable for the truth or the 
 good faith of a transaction winch, so far as he can see and 
 has reason to believe at the time, is in honest conformity 
 with such authority ? Take it that the attorney comes with a 
 falsehood, meaning the loan for his own use, or the use of 
 another whom he desires to accommodate ; must the ap- 
 pointee lose his money ? He brings his action against the 
 principal, and proves the letter of attorney and the loan as 
 stated ; is it necessary to do more ? or can the principal turn 
 round upon him and show that his attorney was false to his 
 interest, and so infer that the man who trusted to his letter 
 and made a loan apparently according to its purview, must 
 himself be visited with the consequences of the fraud? I 
 confess that, until I heard the argument in this cause, I had 
 supposed the mere statement of such a case furnished its 
 own answer; and that to allow such a defence, would be 
 pushing the duty of enquiry on the part of the appointee far 
 beyond the principle on which it is founded — indeed, to an 
 extent absolutely impracticable.
 
 12 AGENT'S POWER TO SUBJECT PRINXIPAL TO LIABILITY 
 
 The case I have instanced is, in principle, the one now 
 before us. The plaintiffs were apprised that Jacob D. Fow- 
 ler had power to make and endorse notes in the business of 
 the testator; and notes actually made and endorsed by the 
 attorney, and purporting to have been so made and endorsed 
 in conformity with the power, were presented to and, in 
 effect, discounted by the plaintiffs. This act was equivalent 
 to an express declaration that the notes were made and 
 endorsed in the business of the testator. A man gives a 
 power to sell land, and the attorney executes a deed in the 
 name of the principal. The transaction imports the same 
 thing as a recital or express declaration referring to the 
 power ; and the principal is equally estopped to deny that the 
 authority has been pursued. 
 
 There are a few general principles entirely settled and 
 universally acted upon, especially in dealing with negotiable 
 paper, which it may be well to remember. One was laid 
 down in Hem v. N^ichoh (i Salk. 289). The defendant's 
 factor being authorized to sell silk, defrauded the vendee ; 
 and Holt, Ch. J., held, that the principal was liable for the 
 deceit; "for," said he, "seeing somebody must be. a loser by 
 this deceit, it is more reason that he that employs and puts a 
 trust and confidence in the deceiver, should be a loser, than a 
 stranger." (Sec also Bozvlcs v. Stczvart, i Sch. & Lef. 222; 
 The Monte AUegre, 9 Wheat. 644.) An application of this 
 principle to men who had authorized an agent to endorse for 
 them was made in Putnam v. Sullivan (4 Mass. Rep. 45), 
 a case coming very near if not quite up to the one before us. 
 The defendants, who were merchants, having occasion to be 
 absent, left their names with a clerk on blank paper, to be 
 filled up by him and advanced on the sale of goods by the 
 house upon commission, or to renew the notes of the house 
 when due at the banks. On some he was authorized to bind 
 them as makers, and on others as endorsers. A man ob- 
 tained one of the latter from the clerk by false pretences, 
 wrote and signed a note on the other side, and got money
 
 NORTH RIVER BANK i: AYMAR 13 
 
 Upon it for his own use on the credit of th.e endorsement, the 
 lenders having no notice of the fraud. The defendants were 
 held liable. The plaintiffs were informed, too, that it was a 
 blank endorsement which had been left with the clerk, to be 
 used in the business of the defendant. Parsons, Ch. JL, said : 
 "Here one of two innocent parties must suffer. The en- 
 dorsees confided in the signature of the defendants; and 
 they could have no reason to suppose that it had been im- 
 properly obtained. On the other hand, the loss has been 
 occasioned by the misplaced confidence of the endorsers iu a 
 clerk too young or inexperienced to guard against the arts 
 of the promisor." Looking at the fact that the plaintiffs 
 knew the clerk was limited to use the note in the business of 
 his principals, the power was the same in respect to them, 
 as that of Jacob D. Fowler here in respect to the bank. 
 They found, as the bank did, that the agent had delivered out 
 the note to the promisor, but not that he had exceeded his 
 power, though he had done so in fact. Why not require 
 them to stop and ascertain whether it had been delivered 
 out upon a consideration passing to the defendants? The 
 answer is, that they had put their agent in a condition which 
 enabled him to impose upon strangers by apparently pursuing 
 his authority. They had given him a discretion to speak for 
 them, both by words and actions. The neglect or falsehood 
 of their agent, therefore, was legally imputable to them. 
 The paper being issued without consideration, whether by 
 their agent or themselves, was indeed void as between the 
 original parties; but there being in each case a power to issue 
 paper valid in form, it could not be impeached in the hands 
 of a bona fide holder. Everybody knows that a partner who 
 issues a note of the firm for his own benefit, exceeds his 
 power; but the firm cannot avail themselves of the objection 
 as against a bona fide holder. Another case is that of Prcs- 
 cott V. Flynn (reported in Chitty on Bills, 35, note Am. ed. 
 of 1839). In that case it was proved by circumstances that 
 the clerk of the defendants was authorized to endorse for
 
 14 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 them in their business. Availing himself of that authority, 
 he endorsed their names on two bills of exchange which he 
 procured to be discounted for his own benefit, and absconded 
 with the money. It was hardly pretended that the plaintiff 
 was bound, though he knew of the limitation, to enquire 
 whether in truth the money was intended for the principals. 
 Indeed, when the case came to be reported in 9 Bing. 19, 
 the reporter thought the fraud to be so entirely immaterial 
 that he did not even mention it. According to both reports, 
 the Court took it for granted that the agent acting for him- 
 self, instead of his principals, could make no difference as 
 between them and the plaintiff. It was enough that he had 
 power to act in the defendants' business, and did apparently 
 so act. In Nczi'Iand v. Oakley (6 Yerg. 489). an attorney 
 having power to assign notes for his principal, did so ; but 
 embezzled the money which he got. That he thus assigned 
 for his own benelit was held not to affect the right of a 
 person to whom one of the notes came in the course of trade. 
 These cases respecting the limited powers of agents to 
 make endorsements accord with the proposition concerning 
 powers in general as it was submitted to us by the counsel 
 for the plaintiff in error, viz. : "Whenever the very act of 
 the agent is authorized by the terms of the power, that is, 
 whenever by comparing the act done by the agent with the 
 words of the power, the act is in itself warranted by the 
 terms used, such act is binding on the constituent as to all 
 persons dealing in good faith with the agent. Such persons 
 are not bound to enquire into facts aliunde. The apparent 
 authority is the real authority." Such a rule was substan- 
 tially laid down by Lord Ellenborough. Ch. J., in Pickering 
 V. Btisk (15 East, 38, 43). He says: "I cannot subscribe to 
 the doctrine that a broker's engagements are necessarily and 
 in all cases limited to his actual authority, the reality of 
 zvhich is afterzvards to he tried by the fact. It is clear that 
 he may bind his principal within the limits of the authority 
 with which he has been apparently clothed by the principal
 
 XORTH RIVER BANK v. AYMAR 15 
 
 in respect to the subject matter; and there would be no 
 safety in mercantile transactions, if he could not." (Aji- 
 drcws V. Knecland, 6 Cowen, 354, 357, 358, and the books 
 there cited ; Rossifcr v. Rossitcr, 8 Wend. 498, 499, and the 
 cases there cited. ) 
 
 How were the plaintiffs in the case before us to ascer- 
 tain whether Jacob D. Fowler had acted in good faith to- 
 wards his principal? On their agent asking one of the 
 payees, Samuel D. Rogers, of the firm of David Rogers & 
 Son, he answers that the notes were business paper, given 
 for goods sold ; and this is another circumstance tending to 
 perfect the parallel with Putnam v. Sullivan. 
 
 The only adjudged case cited on the argument for the 
 defendants in error, giving color to the idea that the ap- 
 pointee must look behind the power, is Atwood v. MioDiings 
 (I Mann. & Ryl. 66; 7 Barn. & Cress. 42, S. C). The 
 power in that case was extremely limited, being tied up to 
 the acceptance of bills particularly described The words 
 were: "For me. and on my behalf, to pay and accept such 
 bill or bills, &c., as shall be drawn, &c., on me by my 
 agents or correspondents, as occasion shall require." The 
 bill there in question was drawn by Burleigh, a partner of 
 the defendant, for the benefit of the joint concern; and, as 
 the Court held, he was neither a correspondent nor agent 
 within the meaning of the power. There was indeed no need 
 of giving effect to the bill by an acceptance under the power ; 
 for Burleigh was authorized to bind the defendant as his 
 partner. The Court held that, as the power described the 
 persons whose names must appear upon the bill, the authoritv 
 was overstepped if the names were not there. In other 
 words, a power to accept a bill drawn by an agent did not 
 extend to a bill drawn by one who was not an agent. Here 
 the power contains no such limitation. Tlie case cited 
 accords with one of the most familiar rules for the con- 
 struction of powers; but it does not apply. If the principal 
 will describe the particular condition on which a bill shall
 
 16 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 be accepted, however idle, even to the writing of it with a 
 steel pen, it must be fulfilled. There it was to be drawn by 
 a correspondent or agent; and not being so drawn, but by- 
 one who was a principal, the condition failed. The ap- 
 pointee was admonished to see at his peril that all the pre- 
 scribed requisites were combined. The principal would not 
 trust the attorney, even to judge of the parties. There was 
 another clause in the power which, as Bayley, J., inclined 
 to think, also amounted to a condition. The bills were to be 
 drawn as occasion should require. It was not necessary to 
 say that the plaintiff was bound on this clause to see the 
 occasion did require; and a majority of the judges who 
 spoke to the cjuestion (Holroyd and Littledale, JJ.) did not 
 say so. The two reporters do not entirely agree. In 7 
 Barn. & Cress., both of the two latter judges are made to 
 discuss the question; in i Mann. & Ryl., Littledale, J., is 
 represented as having given a naked assent to what Holroyd, 
 J., said ; but in neither does it appear that any but Bayley, J., 
 considered the actual occasion of accepting as a condition. 
 The report of his argument is substantially the same in both, 
 though in Barn. & Cress, he seems to have thought it suffi- 
 cient to have called for the letter of advice. Littledale, J., 
 in Barn. & Cress., thought the words, as occasion shall re- 
 quire, did not vary the question; and that the power should 
 be read without them. This was conceding the ground taken 
 by counsel, that the attorney had a discretionary power to 
 judge of the occasion. I have looked into some authorita- 
 tive books on agency to find how this case has been consid- 
 ered by learned writers who had studied the subject. It is 
 introduced into the late edition of Paley on Agency (p. 192) 
 by a simple statement of the case, with the opinion of Bayley, 
 J. ; or rather, as illustrating the general remark, that all 
 written powers are to receive a strict interpretation, the 
 authority never being extended beyond that which is given 
 in terms, or is absolutely necessary for carrying the author- 
 ity into effect. Judge Story mentions the case several times
 
 NORTH RIVER BAXK r. AYMAR 17 
 
 in his work on agency (pp. 22, 65 to 67, 69), but evidently 
 considers it as holding no more than that the appointee is 
 bound to see the proper parties introduced. He is evidently 
 of opinion, with Littledale, J., that the words, "as occasion 
 shall require," were no more than what the nature of such 
 a power would imply without them, viz., an authorityin the 
 agent to govern himself according to the emergencies of 
 business. The necessity mentioned by Mr. Justice Bayley 
 of calling for the letter of advice was, I think, virtually 
 denied by what Best, Ch. J., and the whole Court afterwards 
 held as to letters of instruction in Withington v. Herring 
 (5 Bing. 492 ; 3 Moore & Payne, 30, S. C. ). Such letters are 
 often confidential between the parties, and contain matters 
 not fit to be divulged. He said, all that was necessary for 
 the plaintiffs to enquire for, was the authority. The case of 
 Atwood V. Aliinnings was mentioned by Park, J., and he, 
 like Judge Story, understood it, not as imposing the duty to 
 enquire into the state of the principal's affairs, but only as to 
 the character of the drawers. Indeed, there is hardly any 
 rule better settled or of more universal application, than that 
 the appointee need not enquire as to matters in their own 
 nature private or confidential between the agent and prin- 
 cipal. It may be doubted, says Air. Justice Story, if upon 
 this subject there is any solid distinction between a special 
 authority to do a particular act, and a general authority to 
 do all acts in a particular business. Each includes the usual 
 and appropriate means to accomplish the end. (Story on 
 Agency, 70.) Is it among those means that the appointee 
 shall lose his money, because the attorney happens to betray 
 the interests of his principal ? Would not such a rule rather 
 be a means to make the power utterly unavailable? No 
 prudent man would advance his money under such a respon- 
 sibility. The rule supposes a degree of capacity to look 
 into the affairs and even the private intentions of others, 
 which no human being possesses. 
 
 In the case at bar, the principal was much abroad, an 1
 
 18 AGENT'S POWER TO SUBJECT PRLXCIPAL TO LIABILITY 
 
 had left this letter of attorney with the bank for the very- 
 purpose of obtaining credit there. It had been repeatedly 
 and for a long time acted upon, the testator having an ac- 
 count at the bank; and the power of Jacob D. Fowler never 
 having been drawn in question. This very case admits the 
 validity of two out of the eleven notes in question. Such 
 circumstances, even without the letter of attorney, should 
 bind the testator's estate. In Prcscoft v. Flyiui, the defend- 
 ants' clerk having been introduced as confidential, drawn 
 bills, and on one occasion only been empowered to endorse 
 in their business, they were, from that circumstance alone, 
 held liable on his subsequent endorsement of their names 
 for his own benefit. Here we have a stronger case. Both 
 the testator and Jacob D. Fowler came with the letter of 
 attorney, and deposited it with the plaintiffs; the attorney 
 had drawn and endorsed through a course of five or six 
 years ; the testator, a ship master, being frequently at home, 
 and knowing and approving every act nearly up to the time 
 of the making and endorsing now in question. 
 
 In Nichol v. Green (Peck's Rep. 288), the attorney, 
 under a power like the present, dealt directly with the plain- 
 tiff', purchasing on his own account, as the plaintiff" knew ; 
 and then, under the power, made and endorsed the note in 
 question. Haywood and Peck, J J. held what we have just 
 now decided in Staiiier v. Tysen (Post, p. 279), on the dis- 
 tinction between taking the note with or without knowledge 
 of the fraud. One judge dissented, and one took no part in 
 the cause. It does not appear how it was finally decided. 
 The case of Butcher v. Tysoi, which was before the Circuit 
 Court of the U. S., in November term, 1840 (4 Hunt's 
 Merch. Mag. 456), decides the same point the same way. 
 The plaintiff cannot complain that the defendant clothed his 
 agent with the means of perpetrating a fraud when none 
 has been actually committed. The difference rests entirely 
 upon that fact. In the cases cited, the question in debate 
 was, whether by authorizing the agent to issue notes in the 
 name of the principal, without words expressly restricting
 
 NORTH RIVER BANK v. AYMAR 19 
 
 the issue to his own business, he did not confer the power 
 of issuing them for the benefit of everybody, even including 
 the attorney. That the power is to be thus construed, was 
 contended in the case before us, and in Staincr v. Tysen. 
 We have arrived at the conclusion without much difficulty, 
 that to give the power so great an effect, the principal must 
 go farther, and expressly declare his meaning that the attor- 
 ney ma}- use his notes for the benefit of others beside the 
 principal. 
 
 On the distinction which I have endeavored to estab- 
 lish in favor of a bona fide holder, I am of opinion that, in 
 the case at bar, the Court below erred when they charged 
 that the attorney had exceeded his power in that sense whicli 
 avoided these notes in the hands of the plaintiffs. As 
 against his principal, he did exceed his power; but the ex- 
 ecutors must look to him, not the plaintiffs, for their in- 
 demnity. 
 
 The point that the bank had notice through Samuel D. 
 Rogers, the director, does not arise. There was indeed evi- 
 dence that he had notice and acted as director in respect to 
 nearly if not quite all the notes. If these things finally turn 
 out to be so, of course the plaintiffs cannot recover on those 
 notes in respect to which they were thus affected with notice. 
 {Bank of the United States v. Davis, 2 Hill, 451.) But 
 the question was entirely excluded, by the charge, from the 
 consideration of the jury; and, for aught we can see, the 
 Court laid no stress upon it. They put the case on the naked 
 independent question of authority; and, under the chargs 
 given, the jury were bound to find for the defendants, 
 although they believed the plaintiffs were bona fide holders. 
 I have, therefore, as in duty bound, considered them sucli. 
 No doubt they were so in fact. If not so constructively, 
 owing to one of their agents having had notice, they must 
 fail ; but they are none the less entitled to have the question 
 tried and disposed of upon that issue. 
 
 Some other minor points were mentioned on the argu- 
 ment by the counsel for the defendants in error; but the
 
 20 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 same answer applies. They were not passed upon in the 
 Court below. On the whole, I am of opinion that the judg- 
 ment should be reversed; a z'cnirc dc novo to go from the 
 Court below, the costs to abide the event. ^ 
 
 ^ Bronson, J., concurred. The dissenting opinion of Nelson, Ch. 
 J., is omitted, the reasoning being the same as that of Chief Justice 
 Shaw in Mussey v. Beecher, infra. 
 
 Compare: New York & New Haven R. R. Co. v. Schuyler, 34 
 N. Y. 30, 1865. (The directors of the C Co. appointed their president 
 B as a" stock transfer agent. As such agent B was authorized to note 
 the transfer of certificates on the books of the company, to issue new 
 certificates on the surrender of old certificates, and when the company 
 sold stock to issue certificates to the purchasers. B, for his own 
 purposes, transferred into his own name, and afterwards sold stock, 
 which had no existence in fact, but for which he issued certificates 
 on their face apparently valid. These spurious certificates were pur- 
 chased by A, ct al, who were ignorant of B's fraud. As between A 
 ct al.. and the C Co. it was held that the spurious stock was not stock 
 of the company, but that the property of the company was liable for 
 the injurv to A et al.. on the ground stated by Comstock, J., in Gris- 
 wold V. Hernen, 25 N. Y. 601, namely: "That where the authority of 
 an agent depends upon some fact outside the terms of his power, and 
 which, from its nature, rests particularly within his knowledge, the 
 principal is bound by the representation of his agent." p. 68).
 
 GRANT f. NORWAY 21 
 
 GRANT z: NORWAY. 
 
 In the Court of Common Pleas, 1851.- 
 
 10 Common Bench Reports, 665. 
 
 This was an action upon the case by the endorsees of 
 a bill of lading, against the owners of a vessel, to recover 
 the amount of advances made by the former upon the bills 
 of lading, the goods never ha^•ing in fact been shipped.^ 
 
 Jervis, C. J., now delivered the judgment of the Court. 
 
 This case was argued before my brothers Cresswell 
 and Williams, and myself. It arises upon a special verdict, 
 and presents a Cjuestion of considerable importance, both 
 to those who take bills of lading on the faith of their rep- 
 resenting property which passes by the transfer of them, and 
 to the ship-owner, whom it is attempted to bind by all bills 
 of lading which his captain may think fit to sign. The point 
 presented by the several pleas is substantially one and the 
 same, viz., whether the master of a ship, signing a bill of 
 lading for goods which have never been shipped, is to be 
 considered as the agent of the owner in that behalf, so as 
 to make the latter responsible. The authority of the master 
 and necessary for the use and enjoyment of the ship; but is 
 of a ship is very large, and extends to all acts that are usual 
 subject to several well-known limitations. He may make 
 contracts for the hire of the ship, but cannot vary that which 
 the owner has made. He may take up money in foreign 
 ports, and, under certain circumstances, at home, for nec- 
 essary disbursements, and for repairs, and bind the owners 
 for repayment; but his authority is limited by the necessity 
 of the case, and he cannot make them responsible for money 
 not actually necessary for those purposes, although he may 
 
 ^ The rest of the Reporter's statement of facts, and his notes of the 
 arguments of counsel are omitted.
 
 22 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 pretend that it is. He may make contracts to carry goods 
 on freight, but cannot bind his owners by a contract to carry 
 freigv.t free. So, with regard to goods put on board, he 
 may sign a bill of lading, and acknowledge the nature and 
 quality and condition of the goods. Constant usage shows 
 that masters have that general authority; and, if a more 
 limited one is given, a party not informed of it is not af- 
 fected by such limitation. "The master is a general agent 
 to perform all things relating to the usual employment of 
 his ship; and the authority of such an agent to perform all 
 things usual in the li)ie of business in which he is employed, 
 cannot be limited by any private order or direction not 
 known to the party dealing with him." 
 
 Is it then usual, in the management of a ship carrying 
 goods on freight, for the master to give a bill of lading for 
 goods not put on board? for, all parties concerned have a 
 right to assume that an agent has authority to do all which 
 is usual. The very nature of a bill of lading shows that it 
 ought not to be signed until goods are on board ; for, it be- 
 gins by describing them as shipped. It was not contended 
 that such a course is usual. In Lickharrow v. Mason, 
 Buller, J., says: "A bill of lading is an acknowledgment 
 by the captain of having received the goods on board his 
 ship; therefore, it would be a fraud in the captain to sign 
 such a bill of lading, if he had not received the goods on 
 board; and the consignee would be entitled to his action 
 against the captain for the fraud." 
 
 It is not contended that the captain had any real au- 
 thority to sign bills of lading, unless the goods had been 
 shipped : nor can we discover any ground upon which a 
 party taking a bill of lading by endorsement, would be jus- 
 tified in assuming that he had authority to sign such bills, 
 whether the goods were on board or not. 
 
 If, then, from the usage of trade, and the general 
 practice of shipmasters, it is generally known that the mas- 
 ter derives no such authority from his position as master, 
 the case mav be considered as if the party taking the bill
 
 GRANT z: NORWAY 23 
 
 of lading had notice of an express limitation of the author- 
 ity ; and, in that case, undoubtedly, he could not claim to 
 bind the owner by a bill of lading signed, when the goods 
 therein mentioned were never shipped. It would resemble 
 the case of goods or money taken up by the master under 
 pretence that they were wanted for the ship, when in fact 
 they were not; or a bill of exchange accepted or endorsed 
 per procuration, when no such agency existed ; Alexander v. 
 Macken::ie, 6 Com. B. 766 (E. C. L. R., vol. 60). The 
 words "per procuration" give notice to all persons that the 
 agent is acting under a special and limited authority; and 
 therefore the party taking such a bill has to establish the 
 existence of the authority ; it is not enough to show that 
 other bills similarly accepted or endorsed have been paid, 
 although such evidence, if the acceptance were general, by 
 an agent in the name of the principal, would be evidence of 
 a general authority to accept in the name of the principal. 
 So, here, the general usage gives notice to all people that 
 the authority of the captain to give bills of lading, is lim- 
 ited to such goods as have been put on board; and a party 
 taking a bill of lading, either originally, or by endorsement, 
 for goods which have never been put on board, is bound to 
 show some particular authority given to the master to sign 
 it. 
 
 There is little to be found in the books on this subject. 
 It was discussed in Berkley v. Watting, 7 Ad. & E. 29 (E. 
 C. L. R., vol. 34), 2 N. & P. 178. That case was decided 
 on another point: but Littledale, J., stated, that, in his opin- 
 ion, a bill of lading is not conclusive upon the ship owner. 
 
 For these reasons, we are of opinion that the issues 
 should be entered for the defendants, and that the defend- 
 ants are entitled to judgment. 
 
 Judgment for the defendants.
 
 24 AGENT'S POWER TO SUBJECT PRLNXIPAL TO LIABILITY 
 
 MUSSEY V. BEECHER. 
 In the Supreme Court of Massachusetts, 1849. 
 
 57 Massacliitsctts Reports, 511. 
 
 Shaw, C. J., delivered the opinion of the majority of 
 the Court. ^ 
 
 This is an action of assumpsit for goods sold 
 and delivered, which are alleged to have been purchased 
 of the plaintiff by the defendant, through the agency of Wil- 
 liam Pierce, acting under a power of attorney from the de- 
 fendant. The question is upon the legal construction of the 
 defendant's power of attorney to Pierce, which is in writing. 
 
 "Know all men by these presents, that I, Laban S. 
 Beecher, of Roxbury, in the county of Norfolk (doing busi- 
 ness in Boston), leather dealer, do hereby constitute and 
 appoint William Pierce, of Andover, in the county of Es- 
 sex, bookseller, my sufficient and lawful attorney, for me, 
 in my behalf and as my agent, to purchase books, paper and 
 stationery, for the purpose of carrying on business in said 
 Andover ; and the same to sell again, for my benefit and on 
 my account, on such credit and at such prices as he may 
 deem meet ; to collect, recover, demand and receive all debts 
 and sums of money due and receivable for and on account 
 of the sales of said goods and merchandise, and generally 
 to do and perform such matters and things as are neces- 
 sary and proper for the carrying on and conducting of said 
 business. 
 
 Provided, however, that said Pierce shall not make 
 purchases or incur debts exceeding in amount at any one 
 time the sum of two thousand dollars, and also that this 
 
 * Having inserted in the opinion the power given by the principal 
 to the agent, the statement of facts as given by the Reporter is omitted.
 
 MUSSEY V. BEECHER 25 
 
 power or agency shall not extend for a period of time more 
 than one year from the date hereof, or beyond the ist day 
 of January, A. D. 1842. Hereby ratifying and confirming 
 whatsoever my said attorney may do in the premises. In 
 testimony whereof, I have hereunto set my hand aud seal 
 this first day of January, in the year eighteen hundred and 
 forty-one. 
 
 E. N. Badger, wdtness. Labax S. Beecher, (seal.) 
 
 Boston, Jan. i, 1842. 
 
 The power was afterwards extended by a memoran- 
 dum to the 1st of January, 1843. 
 
 The presumption is, that the plaintiff knew of the 
 terms of this power and of its limitation, before he sold 
 goods to Pierce, on the strength of it, and on the credit of 
 the defendant; and indeed, the evidence was, that he had 
 seen the instrument. Various cjuestions of fact were sub- 
 mitted to the jury, on the evidence, as to the extension of 
 the power, or a waiver of the limitation, and the like; but 
 the real question arises upon the correctness of the instruc- 
 tions, in matter of law. 
 
 The Court instructed the jury, that the plaintilT must 
 show, that such goods were sold under the power to Pierce, 
 as his agent, and not upon the personal credit of Pierce; 
 and that, although the power was limited, and such limita- 
 tion was known to the plaintiff, yet that the defendant 
 would be liable fo^ Pierce's purchases, even though he had 
 already exceeded the amount authorized by the power; if 
 they were satisfied, from the evidence, that, at the time of 
 the purchases. Pierce represented, that by such purchases 
 he would not exceed his limit. 
 
 In another connection, the same instruction, in effect, 
 was given, with a slight variance of form, as follows : "that 
 if the plaintiff had inquired of Pierce about the agency, 
 and had been informed by him that it was not full, and he 
 had no reason to suspect the truth of Pierce's declaration, 
 and if the plaintiff then sold goods to Pierce, as agent, as
 
 26 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 aforesaid, the defendant would be liable for such goods, 
 even though the agency was then full." 
 
 The former part of this instruction, that it must ap- 
 pear, that the goods were not sold on the personal credit of 
 Pierce, is unquestionably correct; but, in regard to the lat- 
 ter part, which makes the defendant responsible for the 
 veracity and accuracy of Pierce, a majority of the Court 
 are of opinion, that it was not correct in point of law. 
 
 This power of attorney, which is in the nature of a 
 letter of credit, is precise and limited in amount; and, 
 though it contains some expressions, intimating that the 
 attorney is the general agent of the constituent, to purchase 
 and sell goods, yet this is controlled by the proviso and ex- 
 press condition; and, taken all together, as every written 
 instrument must be, it is an authority to purchase in the 
 name and on the credit of the author of the power, to the 
 amount of $2,000, and no more. 
 
 The precise point is this, whether, if Pierce, through 
 design or mistake, represented to the plaintiff, that wdien he 
 made the purchase in question, he had not purchased on the 
 credit of his principal to the amount of $2,000, when, in 
 truth, his purchases exceeded that sum, the defendant was 
 bound by it. It is unquestionably true, that the statements 
 and representations of an agent, in transacting the business 
 of his principal, within the scope of his authority, are as 
 binding on his principal, as any other acts done within the 
 scope of his authority ; they are res gestae, and are acts. But 
 an agent cannot enlarge his authority any more by his dec- 
 larations, than by his other acts; and the rule is clear, that 
 the acts of an agent, not within the scope of his authority, 
 do not bind the principal. It js often said, indeed, that one 
 is bound by the acts of a general agent, though done against 
 his instructions. This is because the acts are within the 
 scope of his authority; and the violation of his instructions, 
 in the execution of such authority, is a matter solely be- 
 tween himself and his principal, which cannot affect a 
 stranger dealing with him without express notice.
 
 MUSSEY z: BEECHER 27 
 
 The argument is, that the defendant ought to be bound, 
 because Pierce was his agent, and he, by his letter of attor- 
 ney, had put it in his power to make such purchase. This, 
 it appears to us, assumes the very point to be proved. The 
 plaintiff knew that he was limited to $2,000; he knew,,there- 
 fore, that if he had purchased to that amount, his power, 
 by its own limitation, was at an end. If it were otherwise, 
 a power to purchase to the amount of $2,000, would operate 
 as a power to purchase to an unlimited amount. But it is 
 urged, that, upon this construction, no one could safely deal 
 with the agent. This objection, we think, is answered by 
 the consideration, that no one is bound to deal with the 
 agent ; whoever does so is admonished of the extent and 
 limitation of the agent's authority, and must, at his own 
 peril, ascertain the fact, upon which alone the authority to 
 bind the constituent depends. Under an authority so pecu- 
 liar and limited, it is not to be presumed that one would 
 deal with the agent, who had not full confidence in his hon- 
 esty and veracity, and in the accuracy of his books and ac- 
 counts. To this extent, the seller of the goods trusts the 
 agent, and if he is deceived by him, he has no right to com- 
 plain of the principal. It is he himself, and not the princi- 
 pal, who trusts the agent beyond the expressed limits of the 
 power; and, therefore, the maxim, that where one of two 
 innocent persons must suffer, he who reposed confidence 
 in the wrong-doer must bear the loss, operates in favor of 
 the constituent, and not in favor of the seller of the goods. 
 Parsons v. Armor, 3 Pet. 413; Stainer v. Tyscn, 3 Hill, 
 279; Attzvood V. Miinnings, 7 Barn. & Cr. 278. The case 
 of Piitnani v. Sullivan, 4 Mass. 45, was decided on the 
 ground, that the defendants, by leaving blank indorsements 
 with their clerk, had authorized him by his act to bind them 
 as indorsers. 
 
 On the whole, a majority of the Court are of opinion, 
 that the verdict must be set aside, and a new trial granted. 
 
 Wilde, J. I have been unable to agree with my learned 
 brethren in the decision of the question raised at the trial of
 
 28 AGENT'S POWER TO SUBJECT PRLXCIPAL TO LIABILITY 
 
 this cause; although I fully admit the principles on which 
 the question has been decided. 
 
 In my judgment, with great deference to the opinion 
 of my brethren, these principles are not applicable to the 
 present case. The question, as it seems to me, turns on a 
 well established principle of law, which I am not aware has 
 ever been disputed. 
 
 The principle is this, that wherever one of two inno- 
 cent persons must suffer by the acts of a third, he who has 
 enabled such third person to occasion the loss must sustain 
 it. It is so laid down by Ashhurst, J., in Lickharrozv v. 
 Mason, 2 T. R. 63, 70. "The rule," says the learned judge, 
 "is founded purely on principles of law, and not on the cus- 
 tom of merchants." The same rule of law is laid down by 
 Holt, C. J., in Hern v. Nichols, i Salk. 289, a case very 
 like the present. That was an action on the case for a de- 
 ceit practiced on the plaintiff', by the defendant's factor, in 
 the sale of several parcels of silk; and it was held by the 
 learned chief justice, that the defendant was answerable for 
 the deceit of his factor, though not criininalitcr, yet cirili- 
 tcr; for seeing somebody must be a loser by this deceit, it 
 is more reasonable that he that employs and puts a trust 
 and confidence in the deceiver, should be a loser, than a 
 stranger." The same principle is laid down by Parsons, C. 
 J., in Putnam v. Sullivan, 4 Mass. 45, 54, and by Cowen, 
 J., in North River Bank v. Ayniar, 3 Hill, 263. 
 
 I admit that the plaintiff was bound to inquire into the 
 agent's authority, and whether the sales to him, on the credit 
 of the defendant, would not exceed the amount limited in 
 his power of attorney. But of whom was he to inquire? 
 He certainly had no means of knowing; and if he might not 
 rely on the representations of the agent, the consequence 
 would be, that no sale could safely be made on credit under 
 the power. But the power was given to be used for the 
 benefit of the defendant, and if given in such a form as to 
 enable the agent to perpetrate a fraud, by obtaining credit
 
 MUSSEY V. BEECHER 29 
 
 by false representations, and credit was so obtained, and a 
 loss occurred, it should be sustained by the defendant, and 
 not by the plaintiff, who dealt with the agent in good faith, 
 without knowing, or having any means of knowing, that he 
 was exceeding his authority. 
 
 Verdict set aside and new trial granted. - 
 
 ' Compare in accord with opinion of Shaw, C. J., Baines v. Ewing, 
 4 H. & C, 511, 1866. (At Liverpool there is an Underwriters' Associa- 
 tion, and when a person desires to become an underwriter he author- 
 izes a broker to underwrite for him. It is well known that in almost 
 all cases, a limit is put on the amount for which the broker can sign 
 his principal's name, but when the principal's name is given to the 
 association that limit is not mentioned. B authorized C, a broker, to 
 underwrite for him "marine risks not exceeding £100 by any one 
 vessel." C underwrote a policy on A's ship, in B's name, for ii5o. The 
 ship was lost. A sued B on the policy. Plea, that B did not subscribe 
 to the policy. A verdict was obtained for £150, leave being reserved 
 to enter a non-suit, or reduce the verdict to iioo unless, etc. Rule 
 absolute for a non-suit. Martin, B.")
 
 30 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 UDELL V. ATHERTON. 
 In the Court of Exchequer, 1862. 
 
 7 Hurlstone and Norman's Reports, 171.' 
 
 Wilde, B. I am of opinion that the rule ought to be 
 absolute to enter the verdict for the plaintiff; and I have 
 the authority of the Lord Chief Baron for saying that he 
 agrees with the judgment. 
 
 This was an action of deceit. The cause was tried be- 
 fore my brother Martin, who will state the facts more fully. 
 But the short result of them was, that the plaintiff bought 
 of the defendant's agent a log of mahogany: that he was 
 induced to do so by certain statements of the agent which 
 were false to his own knowledge, dishonest, and fraudu- 
 lent. He has paid the defendants the price so obtained, 
 which is twice the real value of the log, and he brings his 
 action accordingly. 
 
 The question is thus raised, whether a principal, who 
 has had the benefit of a contract made by his agent, is re- 
 sponsible for a deliberate fraud committed by his agent in 
 the making of the contract, by which fraud alone the con- 
 tract was obtained. 
 
 I say "responsible" generally, because I am not aware 
 that if this action of deceit does not lie against the princi- 
 pal any other form of action will. If this be so, the conse- 
 cjuences appear to be as follows : 
 
 The man who has reaped the benefit of a fraud com- 
 mitted on his behalf keeps the fruits in his pocket; the man 
 defrauded in the contract has to look to the intermediate 
 person, and not him zvith whom he contracted. If the agent 
 is a man of no means this remedy would be fruitless. If 
 
 ' The facts as given by the Reporter, and the opinion of Bram- 
 well, B., concurring with Martin, B., are omitted.
 
 UDELL z'. ATHERTON 31 
 
 the agent is able to pay he does so without remedy over, 
 and the person defrauded is reinstated out of the funds of 
 one man, while the fruits of the fraud are retained by an- 
 other. 
 
 These results make it desirable to examine closely the 
 principles upon which such a decision is to be supported. 
 
 It is said that a man who is himself innocent cannot be 
 sued for a deceit in which he took no part, and this whether 
 the deceit was by his agent or a stranger. To this, as a 
 general proposition, I agree. All deceits and frauds prac- 
 ticed by persons who stand in the relation of agents, general 
 or particular, do not fall upon their principals. For, unless 
 the fraud itself falls within the actual or the implied au- 
 thority of the agent, it is not necessarily the fraud of the 
 principal. 
 
 On this principle it was that the Court of Common 
 Pleas, in Grant v. Norzvay, lo C. B. 665 (E. C. L. R., vol. 
 70), held a shipowner not responsible for the fraud of the 
 captain in signing bills of lading without any goods on 
 board; and so, in the case of Coleman v. Riches, 16 C. B. 
 104 (E. C. L. R., vol. 81), a wharfinger was held not liable 
 for a false receipt, which his agent had given, represent- 
 ing that goods had been received at the wharf, which liad 
 not so been received. In neither of these cases did the prin- 
 cipal authorize or in any way adopt or obtain the benefit of 
 the fraudulent act. But does this principle apply to fraud 
 committed in the making of contracts which the principal 
 has adopted, and of which he has claimed and obtained the 
 benefit? 
 
 The contract is made by the agent for the principal, 
 but when made, if authorized or adopted, it becomes in law 
 the contract of the principal. Can the principal treat the 
 contract as his, and repudiate the fraud upon which it was 
 built as the agents? In the making of the actual contract, 
 when the agent speaks he does so with the voice of the prin- 
 cipal, for it is the principal's contract he is making. 
 
 In the representations which immediately preceded the
 
 Z2 AGExXT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 contract, is the agent speaking only for himself? If so, on 
 what principle is it that the principal could not sue upon a 
 contract in itself valid, but preceded and brought about by 
 fraudulent representations of the agent? And yet this is 
 the plain law. 
 
 This brings me to another difficulty. For it would 
 surely be an anomalous state of things, that the innocent 
 principal could not recover upon his contract because fraud- 
 ulently obtained by his agent, but that, if before discovery 
 the contract be performed, he may ever after keep the bene- 
 fit of it. Can the buyer's right, upon any sound principle, 
 be made to depend on the extent to which the transaction 
 has been completed? If the fraud had been discovered be- 
 fore the log was cut, could not the buyer have rescinded the 
 contract? If so, why may he not recover now, when the 
 state of things is unaltered by any laches or default of his? 
 
 A distinction has indeed been made in equity between 
 contracts performed and unperformed. The latter are 
 sometimes set aside for mistake or surprise, while the for- 
 mer are not. But no such distinction has ever been made in 
 favor of fraud. Fraud, in all Courts and at all stages of 
 the transaction, has, I believe, been held to vitiate all to 
 which it attaches. 
 
 Next, as to the authorities. — There is, I believe, no 
 case in which the principal's immunity, under such circum- 
 stances, has been established. The only dictum in favor of 
 it is, I believe, that of Lord Campbell, in the course of argu- 
 ment in Wilde v. Gibson, i H. L. 605, 615. It may be 
 doubted if it is correctly reported, at any rate it is to be 
 taken, in my opinion, in reference only to the point then 
 under argument. 
 
 The authorities the other way are as it seems to me 
 overwhelming. Baron Parke, in Moens v. Hcyivorth, 10 M. 
 & W. 157, says: — "To support this action for false repre- 
 sentation, it is necessary "to prove that by words or acts of 
 the defendants, or their agents, it was made falsely, and 
 for the improper purpose of inducing the other party to
 
 UDELL r. ATHERTOX 33 
 
 purchase." Again, in irilson v. Fuller, 3 Q. B. yy (E. C L. 
 R., vol. 43 ), Tindal, C. J., in delivering the considered judg- 
 ment of the full Court of Exchequer Chamber, says : — 
 "There was there a fraudulent concealment by Wadeson 
 (the agent) which it must be admitted would bind Mrs. 
 Wilson if proved." And here Wadeson was only agent and 
 Mrs. Wilson avowedly innocent, and the action against her, 
 as here, for deceit. Again, the Chief Justice, says : — "As 
 to the representation made by Wadeson, which if fraudu- 
 lent it may he admitted would hind her," &c. And again, 
 in the much canvassed case of Cornfoot v. Fozvke, 6 AI. & 
 W. 2>72)^ Baron Parke, who certainly w^as not disposed to 
 overstrain the rigid rules of law in favor of any general 
 views of equity, said: — "It must he conceded that if one 
 employ an agent to make a contract, and that agent, though 
 the principal be perfectly guiltless, knowingly commit a 
 fraud in making it, not only is the contract void hut the 
 principal is liable to an action." Lastly, this poi)it z>.'as de- 
 cided in Hern v. Nichols^ 1 Salk. 289, often quoted, and 
 so far as I know never impeached. 
 
 To these dicta must be added the authority of the Ex- 
 chequer Chamber in a still later case, Omrod v. Huth, 14 
 M. & W. 651. It was an action for deceit for fraudulently 
 putting forward certain parcels of cotton as fair samples; 
 and the defendants, the sellers, were there charged, as here, 
 with making the fraudulent representation. At the trial it 
 appeared that the sale was by the defendants' brokers. Colt- 
 man, J., who tried the cause, directed the jury, "That unless 
 they could infer that the defendants, or their brokers, were 
 acquainted with the fraud that had been practiced in the 
 packing, or had acted in the transaction against good faith 
 or with a fraudulent purpose, the defendants were entitled 
 to the verdict." On a bill of exceptions the Exchequer 
 Chamber upheld this ruling, saying: — "If, indeed, the rep- 
 resentation was false to the knozvledge of the party making 
 it, this would be conclusive evidence of fraud." And the 
 "party making it" in that case was, if anybody, the agent.
 
 34 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 I find no case in which this principle has been seriously 
 doubted. I find no text writer who does not adopt it. It is 
 well stated in Mr. Story's Principal and Agent at sect. 134: 
 "For where the acts of the agent will bind the principal, 
 there his representations, declarations, and admissions re- 
 specting the subject-matter will also bind him, if made at 
 the same time and constituting a part of the res gestae." 
 And again, at sect. 135, he says: — "If the agent at the time 
 of the contract makes any representations, declaration, or 
 admission, touching" the matter of the contract, it is treated 
 as the representation, declaration, or admission of the prin- 
 cipal hiniself." 
 
 The defendant has adopted the sale made by his agent 
 and received the price. He has, by the fraudulent state- 
 ments of the agent, obtained rather more than tw"ice what 
 he could have obtained by an honest sale. It is not the case 
 of any matter collateral, as a warranty may be. It is not 
 the case of a representation made out of and beyond the 
 particular business then transacting by the agent on the 
 principal's behalf. It is the representations made in the very 
 dealing itself, in the conversation that resulted in the con- 
 tract, that are in question. 
 
 The defendant claims the right of separating the con- 
 tract from that which induced it, of holding the price and 
 ignoring the false statements which largely enhanced it. 
 In my opinion, justice, the common reason of mankind, and 
 every sound rule of law are opposed to his doing so. W'hat- 
 ever his previous authority to the agent, whatever his own 
 innocence, he must, as it seems to me, adopt the whole con- 
 tract, including the statements and representations which in- 
 duced it, or repudiate the contract altogether. 
 
 There are, no doubt, man}- frauds committed by agents 
 which would not bind their principals. But I hold that the 
 statements of the agent which are involved in the contract 
 as its foundation or ijidiiceiuent are in law the statements 
 of the principal. 
 
 To this most equitable and reasonable extent the iden-
 
 UDELL z: ATHERTON 35 
 
 tity of the principal with the agent has I conceive been long 
 established in our laws. It has been much discussed whether 
 an untrue but innocent statement by an agent, when coupled 
 with a knowledge in the principal, would support an action 
 of deceit against the principal or bar an action on the con- 
 tract. Such were the cases of Cornfoot v. Fozvkc and 
 Fuller V. JVilson. 
 
 The artificial identification of the agent and principal, 
 by bringing the words of the one side by side with the 
 knowledge of the other, induced the apparent logical conse- 
 quence of fraud. On the other hand the real innocence of 
 both agent and principal repelled the notion of a construct- 
 ive fraud in either. A discordance of views, varying with 
 the point from which the subject was looked at, was to be 
 expected. And the result is found in the elaborate reason- 
 ing of the judgments in the above cases. 
 
 But what bearing have they upon the case now in hand ? 
 - — a remarkable one. The point now in dispute was tacitly 
 conceded by every one. If the agent's statements were not 
 those of the principal, it was needless to inquire whether 
 they were fraudulent. It would have been enough to estab- 
 lish that what the agent had said he had said without au- 
 thority, and the immunity of the employer would have been 
 established — it was needless to inquire whether the state- 
 ment was fraudulent. According to the defendant's argu- 
 ment in the present case, the statements by the house agent 
 in Coiiifoot V. Fozckc, not being authorized, in no way af- 
 fected his principal whether fraudulent or not; and yet the 
 whole inquiry was confined to whether they were fraudu- 
 lent or not — a needless investigation if they did not bind the 
 principal at all. 
 
 But the same question has arisen and been the subject 
 of decision in another form. I mean on the question of ad- 
 missibility of evidence, ^\'hene^'er the unauthorized state- 
 ments of the agent are not in law the statements of the 
 principal, they would not be admissible in evidence against 
 the principal. To whatever extent they are admissible, they
 
 36 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 must in law be considered the statements of and binding on 
 the principal. 
 
 Xow, what is the rule and where is the line between 
 admissibility and inadmissibility drawn? There was no 
 more careful and accurate judge than Sir William Grant, 
 and he states the rule thus : — "What the agent has said may 
 be what constitutes the agreement of the principal, or the 
 representations or statements may be the foundation of or 
 the inducement to the agreement. Therefore, if writing is 
 not necessary by law, evidence must be admitted to prove 
 the agent did make that statement or representation :" Fair- 
 lie V. Hastings, lo Ves. 126. And this, said Tindal, C. J., 
 in Garth v. Howard, 8 Bing. 451, 453 (E. C. L. R., vol. 21 ), 
 "is the leading case on the subject." 
 
 Other judges have laid down a similar rule. In Lang- 
 ham V. Allnutt, 4 Taunt. 511, 519, Gibbs, C. J., says: — 
 "When it is proved A is agent of B, whatever A does, or 
 says, or writes, in the making of a contract as agent of B, 
 is admissible in evidence, because it is part of the <:ontract 
 which he makes for B, and therefore binds B." In Doe v. 
 Martin, 4 T. R. 39, 66, Lord Kenyon says : — "Without im- 
 puting any fraud to Martin, and, indeed, it is negatived by 
 the verdict, the maxim, that the principal is civilly responsi- 
 ble for the acts of his agent, universally prevails, both in 
 Courts of law and equity; and, therefore, whatever mis- 
 conduct and fraud are imputed to Cruttenden, it must affect 
 his principal, Martin." 
 
 It remains to answer some of the objections made. It 
 is said that the reason why no action could be maintained 
 by the seller on the contract is, that the principal cannot 
 stand in a better position than the agent who actually made 
 the contract ; and that as the agent could not sue on the con- 
 tract the principal cannot. But this reasoning applies only 
 to derivative rights. Whereas here the contract is the prin- 
 cipal's from the first though made by the agent ; and as his 
 title is not derivative so it is not prejudicially affected by 
 any acts but those which are in the eye of the law his own.
 
 UDELL z: ATHERTON 37 
 
 Another principle has been invoked, as it seems to me 
 improperly. When one of two innocent people must suffer, 
 he who has intrusted the fraudulent agent must it is said 
 be content to bear the loss. If such a principle applied to 
 this case, I should have thought that he who intrusted was 
 the seller and not the buyer, who was deceived. But to me 
 it appears to have no application. It applies, as it seems to 
 me, only to cases in which by the fraud of the agent both 
 parties, he who employed him as agent and he who dealt 
 with him, have been defrauded. Whereas here there is 
 only one sufferer, the other being largely a gainer by the 
 deceit as matters now stand; and if made to pay the excess 
 of price back would still retain the real value of the log. 
 
 I will only add that the great importance of the ques- 
 tion, and the sincere respect I have for those who take an 
 opposite view, have induced me thus fully to vindicate what 
 I believe to be the law, in favor of those who have been 
 cheated and against those who claim to retain the proceeds 
 of the cheat. 
 
 Martin, B. This action was tried before me without 
 a jury, and the facts are these: The defendants authorized 
 a person called Youngman to sell a log of mahogany. 
 Youngman fraudulently concealed from the plaintiff a de- 
 fect in the log, who, upon the assurance that it was sound, 
 bought it at 3^'. per foot. There was evidence that it was 
 not worth is. 3d. The price was payable by two bills, which 
 were given to the defendants and paid by the plaintiff. The 
 log was delivered to the plaintiff and sawn up, and partly 
 used by him. It was admitted that neither directly or in- 
 directly were the defendants personally guilty, or had they 
 any knowledge of the fraud ; and the question is, whether 
 they are liable to an action for a false and fraudulent mis- 
 representation. 
 
 Tile circumstance that the defendants have received the 
 full consideration of a contract which the plaintiff might 
 have avoided for fraud, and the alleged injustice of permit- 
 ting them to retain the price of t,s. per foot for an article
 
 38 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 worth only is. 3d., and which price was agreed to be paid 
 by the plaintiff upon a false and fraudulent misrepresenta- 
 tion made by the agent of the defendants, has been strongly 
 urged as creating a liability ; but, notwithstanding, I think 
 there is none. The contract was procured by fraud, and 
 was therefore voidable by the plaintiff. It was not void, 
 for the plaintiff might have insisted upon its performance. 
 It»was voidable at his election. The fraudulent misrepre- 
 sentation was not part of the contract ; it was a collateral 
 matter which would have entitled the plaintiff to have 
 avoided it. There would have been no legal objection to the 
 defendants suing as plaintiffs in an action; but it is clear 
 that a plea of fraud would have been a good ansAver. The 
 plaintiff only knew Youngman in the transaction; and 
 although the defendants might sue upon the contract, they 
 could have no greater right against the plaintiff than Young- 
 man had, and as the plaintiff would have an answer to the 
 action if brought by Youngman, he must also have one to 
 an action brought by the defendants. So, also, I apprehend, 
 if the plaintiff had discovered the defect before he had so 
 used the log as to incapacitate him from returning it, he 
 might have returned it to the defendants and rescinded the 
 contract. In truth the contract was voidable for fraud 
 against every one so long as it was executory and capable 
 of being avoided. But the contract has been executed. 
 The plaintiff has taken the log and used it, and the de- 
 fendants have received the price, and whatever remedy 
 exists for the plaintiff must be by way of action. The alle- 
 gation in the declaration upon which the plaintiff's right of 
 action rests is, that the defendants made a false and fraudu- 
 lent representation. But how can it be said with truth that 
 the defendants made such a representation? They them- 
 selves never made it : they never authorized Youngman to 
 make it ; they never knew of it until long afterwards and 
 until after the contract had been executed. All that they 
 did was to authorize Youngman to sell the log honestly. 
 No doubt they afforded the occasion upon which the fraud-
 
 UDELL v. ATHERTON 39 
 
 ulent misrepresentation was made, but they did nothing 
 more; and in my opinion this is too remote to render them 
 liable to this action. Youngman, however, is clearly liable 
 upon the facts as assumed, and if he be a solvent man the 
 plaintiff may obtain from him the redress to which he is 
 entitled. I do not think the circumstance, that he possibly 
 may be a person not capable of paying damages, is one 
 which can legally be taken into consideration in order to 
 determine the liability of the defendants. The ability to 
 pay does not affect the question of legal liability for a 
 wrong: all that can reasonably be required is, that the law 
 should afford redress against the individual who commits it. 
 For these reasons, if there were no authorities upon 
 the subject, I should be of opinion that the defendants are 
 not responsible, but I think the weight of authority is in 
 favor of the defendants. It is true there are dicta of most 
 eminent Judges in favor of the action, but they are dicta 
 only. The first is by Lord C. J. Tindal, in the judgment of 
 the Exchequer Chamber in Wilson v. Fuller, 3 O. B. 68 
 (E. C. L. R. vol. 43), that a principal is bound in a civil 
 action by a fraudulent concealment of which his agent was 
 guilty. The next is by Baron Parke in Cornfoot v. Fowke, 
 6 M. & W. ^"/T), that if one employ an agent to make a 
 contract, and that agent (though his principal be perfectly 
 guiltless) knowingly commit a fraud in making it, not only 
 is the contract void, but the principal is liable to an action, 
 and he cites Hern v. Nichols, i Salk. 289. This was a 
 j decision at nisi priiis by Lord Holt, and, as in many other 
 I old cases, it is extremely difficult to say whether it was an 
 action upon a warranty or one for deceit, properly so called ; 
 if it were upon a warranty or contract it would be no au- 
 thority upon the present point. In Coleman v. Riches, here- 
 inafter mentioned, Air. J. Cresswell, in speaking of it, says 
 it was not a case of fraud. So also, in Murray v. Mann, 2 
 Exch. 538, Baron Parke again said, if an agent be found 
 guilty of fraud in transacting his principal's business the
 
 40 AGENT'S POWER TO SUBJECT PRINXIPAL TO LIABILITY 
 
 principal is responsible. There was another case referred 
 to, Grammar z'. Nixon, i Str. 653, but in reality it has no 
 bearing upon the present. It was the case of a servant, not 
 an agent. The relation of master and servant is entirely 
 different from that of a principal vendor and his agent or 
 brokers to sell. I quite agree that no higher authority of 
 the kind can be cited than the opinions of Lord C. J. Tindal 
 and Baron Parke, but, upon the other hand, there is the 
 authority of the Lord Chancellor, Lord Campbell, in Wilde 
 7'. Gibson, i H. L. 605, the other way. He there says: "In 
 an action upon contract the representation of an agent is 
 the representation of the principal, but in an action on the 
 case for deceit the misrepresentation must be proved against 
 the principal." This, in my opinion, is an accurate statement 
 of the law. But I think this case is concluded by adjudged 
 cases. In the case of Grant 7\ Norway, 10 C. B. 665 (E. C. 
 L. R. vol 70), where the master of a ship had signed bills 
 of lading for goods which had never been shipped, it was 
 held that his doing so did not make his owner responsible to 
 one who had made advances upon the faith of the bills of 
 lading. That is a much stronger case than the present. The 
 master of the ship is the general agent of the owner; Young- 
 man was not the general agent of the defendants; he was 
 merely the agent to sell this single log. The representation 
 of the master was a false and fraudulent misrepresentation ; 
 it was false, and false to his knowledge, and this constitutes 
 a false and fraudulent misrepresentation : Pothill v. Walters, 
 3 B. & Ad. 114 (E. C. L. R. vol. 23) ; yet the owner was 
 held not to be responsible. So also, in Coleman t'. Riches, 
 16 C. B. 104 (E. C. L. R. vol. 81), the defendant was a 
 wharfinger at Bristol, and one Board was his general man- 
 ager at the wharf. The plaintiff had bought a parcel of 
 wheat from one Lewis ; Board signed a wharf receipt, in 
 the usual form, for the wheat as received from Lewis at the 
 wharf. Upon the production of the receipt, and on the 
 faith of it, the plaintiff paid the price to Lewis. In fact,
 
 UDELL V. ATHERTON 41 
 
 the wheat had not been deHvered, and the receipt was fraud- 
 ulently concocted between Lewis and Board. The Court of 
 Common Pleas held that the defendant was not liable in an 
 action for a false and fraudulent misrepresentation. This 
 case seems to me in point, and I concur with what Mr. J. 
 Cresswell says, which I think applicable to the present, 
 "that the agent was employed, not to make statements, but 
 contracts." It has been decided that an agent to sell a 
 chattel has not authority to give a warranty except spe- 
 cially authorized. This matter was much discussed in 
 Coleman v. Riches, i6 C. B. (E. C. L. R. vol. 8i), and i\Ir. 
 J. Cresswell expresses his clear opinion that the agent has no 
 such authority, and this is in accordance with principle. 
 The mere authority to an agent to sell must be to sell ac- 
 cording to the ordinary rule of law, and that is caz'cat 
 emptor. But the point has been expressly decided by the 
 Court of Common Pleas in Brady v. Todd, 9 C. B., N. S. 
 592 (E. C. L. R. vol. 99), where it was held that an agent, 
 being a servant, authorized to sell a horse, had not authority 
 to bind his master by a warranty that the horse was sound 
 and quiet in harness. This case therefore substantially 
 overrules the nisi prius decision in Alexander z'. Gibson, 2 
 Camp. 555. If. therefore, an agent to sell has not authority 
 to bind the principal by a warranty, how is it possible that 
 he can render him liable as upon a false and fraudulent mis- 
 representation? In my judgment, therefore, the present 
 case is concluded by adjudged cases, and if the plaintiff is 
 to succeed it ought to be by the judgment of a court of error. 
 For my own part, as I have already said, I am satisfied upon 
 legal principle the defendants are not liable. I use the tests 
 applied by IMr. J. Cresswell in Coleman z'. Riches, 16 C. B. 
 104 (E. C. L. R. vol. 81 ). First, was Youngman in fact au- 
 thorized by the defendants to make the representation? He 
 was not. Secondly, was his situation such as to bring the 
 representation he made within the score of his authority? 
 I think not. He was employed to sell in accordance with
 
 42 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 the ordinary rule of law, but he was not employed to repre- 
 sent that to be true which he knew to be false. 
 
 For these reasons I am of the opinion that the defend- 
 ants are not responsible, and that the plaintiff must seek his 
 remedy against Youngman, who, upon the evidence in the 
 case, made the false and fraudulent misrepresentation. 
 
 Some passages were referred to from Mr. Justice 
 Story's work, and also some placita from Rolle's Abridg- 
 ment. They were cited to the Court of Common Pleas in 
 the cases before mentioned, and I do not think it necessary to 
 refer to them. 
 
 As to the alleged hardship upon the plaintiff, there is 
 none. He dealt exclusively with Youngman, and if he be 
 not of ability to pay, the plaintiff is only in the condition of 
 all persons who have received a wrong at the hands of a 
 person unable to make redress. As to the defendants, I do 
 not know the authority as to price given by them to Young- 
 man, but it may have been that he was not to sell the ma- 
 hogany at a lower price than 3s. per foot ; in other words, 
 that the defendants would keep their wood if they did not 
 receive in exchange for it a sum of money equal to 3s. per 
 foot. Now the plaintiff has taken the log and has used it. 
 By reason of his own act he cannot restore it to the defend- 
 ants. Why then should they be deprived of the price or 
 any part of it? It is said that the circumstance of the de- 
 fendants having received the price agreed to be given upon 
 the false representation made by their agent, renders them 
 liable to pay the difference between the contract price and 
 the real value. But is this so in reason and justice? It may 
 well have been that the defendants insisted that no lower 
 price should be accepted than 3s. per foot. If the log had 
 turned out worth 20s. per foot the plaintiff would have had 
 the benefit. The defendants may have only received what 
 they insisted upon having before they parted with the log. 
 The plaintiff by his own act has deprived the defendants of 
 the possibility of its ever being restored to them. What
 
 UDELL V. ATHERTON 43 
 
 right has he in reason or justice to deprive the defendants 
 of any portion of that price which they may have insisted 
 upon having before they parted with their property? If 
 Youngman has committed a wrong he is responsible for it ; 
 but why are the defendants, who have committed none, to 
 be deprived of their property, and also of a part of what 
 may have been the stipulated price? The maxim of law is. 
 In pari delicto potior est conditio defendentis. I think 
 the same rule ought to prevail in this case, where there is 
 equal innocence. 
 
 The result of our judgment is that the rule [to take off 
 the non-suit] will be discharged.
 
 44 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 BARWICK z'. ENGLISH JOINT STOCK BANK. 
 In the Exchequer Chamber, 1867. 
 
 Lazv Reports, 2 Exchequer Cases, 259.^ 
 
 May 1 8. The judgment of the Court (Willes, Black- 
 burn, Keating, Mellor, JNIontague Smith and Lush, JJ.) 
 was dehvered by 
 
 Willes, J. : This case, in which the Court took time to 
 consider their judgment, arose on a bill of exceptions to the 
 ruling of my Brother ]\Iartin at the trial that there was no 
 evidence to go to the jury. 
 
 It was an action brought for an alleged fraud, which 
 was described in the pleadings as being the fraud of the 
 bank, but which the plaintiff alleged to have been committed 
 by the manager of the bank in the course of conducting 
 their business. At the trial, two witnesses were called, first, 
 Barwick, the plaintiff, who proved that he had been in the 
 habit of supplying oats to a customer of the bank of the 
 name of Davis; and that he had done so upon a guarantee 
 given to him by the bank, through their manager, the effect 
 of which probably was, that the drafts of the plaintiff upon 
 Davis were to be paid, subject to the debt of the bank. 
 W^hat were the precise terms of the guarantee did not 
 appear, but it seems that the plaintiff became dissatisfied 
 with it, and refused to supply more oats without getting a 
 
 * The statement of facts as given in the report, and the Reporter's 
 notes of the arguments of counsel, and the last part of the opinion 
 relating to a point in pleading arc omitted. 
 
 Compare: Rhoda v. Annis, 75 Mc. 17, 1883. (B was the owner 
 of a farm. B employed C to sell the farm. In the course of the nego- 
 tiations for the sale of the farm to A, C stated "that said farm for 
 several years then last past had produced and cut eighteen tons of 
 hay each year." This and other similar representations were false. A 
 sued B to recover damages for deceit. The Court charged the jury 
 that the "defendant was responsible for all the acts and representations 
 of her agent in making the sale." Judgment for plaintiff, exceptions 
 overruled.)
 
 BARWICK z'. EXGLISH JOIXT STOCK BANK 45 
 
 more satisfactory one; that he applied to the manager of the 
 bank, and that after some conversation between them, a 
 guarantee was given, which was in this form : — 
 
 "Dear Sir — Referring to our conversation of this 
 morning, I beg to repeat that if you sell to, or purchase for, 
 J. Davis & Son not exceeding looo quarters of oats for the 
 use of their contract, I will honor the cheque of Messrs. J. 
 Davis & Son in your favor in payment of the same, on 
 receipt of the money from the commissariat in payment of 
 forage supplied for the present month, in priority to any 
 other payment, except to this bank; and provided, as I ex- 
 plained to you, that they, J. Davis & Son, are able to con- 
 tinue their contract, and are not made bankrupts. 
 
 (Signed) "Don. M. Dewar, Manager." 
 
 The plaintiff stated that in the course of conversation 
 as to the guarantee, the manager told him that whatever 
 time he received the government cheque, the plaintiff should 
 receive the money. 
 
 Now, that being the state of things upon the evidence 
 of the plaintiff, it is obvious that there was a case on which 
 the jury might conclude, if they thought proper, that the 
 guarantee given by the manager was represented by him to 
 be a guarantee which would probably, or might probably, 
 be paid, and that the plaintiff took the guarantee, supposing 
 that it was of some value, and that the cheque would prob- 
 ably, or might probably, be paid. But if the manager at the 
 time, from his knowledge of the accounts, knew that it was 
 improbable in a very high degree that it would be paid, and 
 knew and intended that it should not be paid, and kept back 
 from the plaintiff the fact which made the payment of it 
 improbable to the extent of being as a matter of business 
 impossible, the jury might well have thought (and it was a 
 matter within their province to decide upon) that he had 
 been guilty of a fraud upon the plaintiff. 
 
 Now, was there evidence that such knowledge was in 
 the mind of the manager? The plaintiff had no knowledge
 
 46 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 of the state of the accounts, and the manager made no com- 
 munication to him with respect to it. But the evidence of 
 Davis was given for the purpose of supplying that part of 
 the case; and he stated that, immediately before the guar- 
 antee had been given, he went to the manager, and told him 
 it was impossible for him to go on unless he got further 
 supplies, and that the government were buying in against 
 him ; to which the manager replied, that Davis must go and 
 try his friends ; on which Davis informed the manager that 
 the plaintiff would go no further unless he had a further 
 guarantee. Upon that the manager acted ; and Davis added, 
 "I owed the bank above £12,000.'' The result was that oats 
 were supplied by the plaintiff to Davis to the amount of 
 £1227, that Davis carried out his contract with the govern- 
 ment, and that the commissariat paid him the sum of 
 £2676, which was paid by him into the bank. He thereupon 
 handed a cheque to the plaintiff, who presented it to the 
 bank, and without further explanation the cheque was re- 
 fused. 
 
 This is the plain state of the facts ; and it was contended 
 on behalf of the bank that, inasmuch as the guarantee con- 
 tains a stipulation that the plaintiff's debt should be paid 
 subsequent to the debt of the bank, which was to have 
 priority, there was no fraud. We are unable to adopt that 
 conclusion. I speak sparingly, because we desire not to 
 anticipate the judgment which the constitutional tribunal, 
 the jury, may pass. But they might, upon these facts* justly 
 come to the conclusion that the manager knew and intended 
 that the guarantee should be unavailing; that he procured 
 for his employers, the bank, the government cheque, by 
 keeping back from the plaintiff the state of Davis' account, 
 and that he intended to do so. If the jury took that view 
 of the facts, they would conclude that there was such a fraud 
 in the manager as the plaintiff complained of. 
 
 If there be fraud in the manager, then arises the ques- 
 tion, whether it was such a fraud as the bank, his employers,
 
 BARWICK z: ENGLISH JOINT STOCK BANK 47 
 
 would be answerable for. With respect to that, we conceive 
 we are in no respect overruling the opinions of my Brothers 
 JMartin and Bramwell in Udell v. Athcrton, the case most 
 relied upon for the purpose of establishing the proposition 
 that the principal is not answerable for the fraud of his 
 agent. Upon looking at that case, it seems pretty clear that 
 the division of opinion which took place in the Court of 
 Exchequer arose, not so much upon the question whether the 
 principal is answerable for the act of an agent in the course 
 of his business — a question which was settled as early as 
 Lord Holt's time — but in applying that principle to the 
 peculiar facts of the case ; the act which was relied upon 
 there as constituting a liability in the sellers having been an 
 act adopted by them under peculiar circumstances, and the 
 author of that act not being their general agent in business, 
 as the manager of a bank is. But with respect to the ques- 
 tion, whether a principal is answerable for the act of liis 
 agent in the course of his master's business, and for his 
 master's benefit, no sensible distinction can be drawn be- 
 tween the case of any other wrong. The general rule is, 
 that the master is answerable for every such wrong of the 
 servant or agent as is committed in the course of the serv- 
 ice and for the master's benefit, though no express com- 
 mand or privity of the master be proved. That principle is 
 acted upon every day in running down cases. It has been 
 applied also to direct trespass to goods, as in the case of 
 holding the owners of ships liable for the act of masters 
 abroad, improperly selling the cargo. It has been held 
 applicable to actions of false imprisonment, in cases where 
 officers of railway companies, intrusted with the execution 
 of by-laws relating to imprisonment, and intending to act 
 in the course of their duty, improperly imprison persons who 
 are supposed to come within the terms of the by-laws. It 
 has been acted upon where persons employed by the owners 
 of boats to navigate them and to take fares, have com- 
 mitted an infringement of a ferry, or such like wrong. In
 
 48 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 all these cases it may be said, as it was said here, that the 
 master has not authorized the act. It is true, he had not 
 authorized the particular act, but he has put the agent in his 
 place to do that class of acts, and he must be answerable 
 for the manner in which the agent has conducted himself 
 in doing the business which it was the act of his master 
 to place him in. Venire de novo.
 
 ARMOUR V. MICHIGAN CENTRAL R. R. CO. 49 
 
 ARMOUR V. MICHIGAN CENTRAL R. R. CO. 
 Before THE Commission of Appeals, New York, 1&75. 
 
 65 New York Reports, in. 
 
 Appeal from a judgment of the General Term of the 
 Superior Court of the city of New York affirming a judg- 
 ment in favor of defendant, entered upon the report of a 
 referee.^ 
 
 DwiGHT, C. : The defendant in this action issued at 
 Chicago to the plaintiffs, on October 7, i><67, a: bill of lading 
 of 100 tierces of lard of the brand "I. T. Suhd'erlaiid, M.,'* 
 containing 36,150 pounds. The bill stated that t^e lard ws^s 
 received from one D. D. Michaels, and was consigned to the 
 plaintiffs, and was to be transported over the defendant's 
 line and delivered to the consignee or owner at New York, 
 the owner or consignee paying freight. The bill was signed 
 by W. W. Street, agent for the defendants. On October 
 12, 1867, a similar bill was issued by the defendant to the 
 same consignees of a like number of tierces marked "S.," 
 also received from Michaels, which were to be also trans- 
 ported over the defendant's line and delivered to the con- 
 signee or owner at Ward's inspection yards. New York. 
 This bill called for 36,150 pounds of lard, and was signed 
 by the same agent. The freight in each case was not to 
 exceed eighty-five cents per 100 pounds. The defendant, 
 at the time of issuing these bills, had no lard in its posses- 
 sion or under its control. It was induced to issue them from 
 the fact that Michaels exhibited to Street a paper purporting 
 to be a warehouse receipt of one I. T. Sunderland, a ware- 
 houseman in Chicago, for 200 tierces of lard in favor of 
 Alichaels. This receipt was indorsed over to the defendant 
 
 ^ The statement of facts as given by the Reporter, Iiis notes of the 
 arguments of counsel, and opinion of Gray, C, are omitted.
 
 50 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 and delivered to Street, who, on the faith of it, issued the 
 two bills of lading already described/ The receipt purport- 
 ing" to be signed by Sunderland was a forgery. The result 
 was, that, though the defendant had issued the bills of 
 lading, it had no lard to represent them, nor a right to any 
 lard in Sunderland's warehouse owned by Michaels. The 
 latter person had an interest in some tierces of lard there, 
 but on that a firm, known as Walbridge, Watkins & Co., had 
 a prior lien and were entitled to the possession. The de- 
 fendant was informed by Michaels, at the time that the bills 
 of lading were issued, that he intended to use them at bank 
 on the days on which they were respectively dated. No 
 particular inqui^'y was made as to the genuineness of the 
 warehouse recviipt; the defendant's agent, Street, having 
 confidence in Michaels, and having constant transactions 
 v/ith him. At the times above specified, Michaels drew his 
 sight drafts on the plaintiffs, payable to the order of a bank 
 in Chicago in two sums of $3,600 each. The bills of lading 
 accompanied the drafts, which were accepted and paid by the 
 plaintiffs on the faith thereof. 
 
 As between the common carrier and the plaintiffs, this 
 was a New York contract. It was to be performed in New 
 York, and the acceptance of the drafts was made here. 
 
 After the defendant had discovered the forgery of the 
 warehouse receipt, made over to it by ]\Iichaels, on October 
 23, it commenced a replevin suit against I. T. Sunderland, 
 the warehouseman and took out of his possession 197 tierces 
 of lard and shipped them to New York. These tierces did 
 not have the same brands as those mentioned in the forged 
 receipts. After the arrival of these tierces in New York, 
 Walbridge, A\^atkins & Co. replevied them by an action in 
 the Supreme Court, commenced November i, 1867, against 
 the Hudson River Railroad Company, in whose possession 
 they were. The plaintiffs received formal notice of this 
 second replevin suit on December 10, but took no steps to 
 defend the action. Judgment was suesequently recovered 
 by Walbridge & Watkins against that company, it being
 
 ARMOUR v. MICHIGAN CENTRAL R. R. CO. 51 
 
 adjudged tliat they had the right to recover the possession 
 of the lard. 
 
 The plaintiffs duly demanded the lard of the defend- 
 ant. Its value in Xew York, after deducting freight, was 
 
 ********* 
 
 It is now necessary to consider how far the fact 
 that the company had no lard aft'ects this question. This 
 inquiry divides itself into two branches. One concerns t!:2 
 power of Street to bind the company by issuing bills of 
 lading when it has no goods to correspond with the bills. 
 The other is to consider the eft'ect of the bills, assuming that 
 the agent had the requisite authority. The defendant insists 
 that Street could not bind it by issuing fictitious or non- 
 representative bills of lading. It claims that his authority 
 was confined to bills for goods actually within its control. 
 It cites, to this effect, Grant z\ Norway (lo Com. Bench, 
 665) ; Schooner Freeman z: Buckingham (18 How. [U. S], 
 182). 
 
 Grant z: Norway has been subject to much and severe 
 criticism, as being adverse to the general view prevailing in 
 the courts of this State, where confidence has been reposed 
 in an agent and an apparent authority conferred upon him, 
 that the principal must suffer from an actual exercise of 
 authority not exceeding the appearance of that which is 
 granted. When one of two innocent persons must suffer 
 in such a case, that person must bear the loss who reposed 
 the confidence. So far as Grant r. Norway stands in the 
 way of this doctrine, it must be deemed to be overruled. 
 (Remarks of Davis, J., in N. Y. and N. H. R. R. Co. r. 
 Schuyler, 34 N. Y. 73. ) Grant z'. Norway, however, is not 
 precisely parallel with the present case. In that case the bill 
 of lading was issued to a party who knew that the bill of 
 
 ' His discussion of the question of what would have been the 
 rights of the plaintiff in case the defendant had had the lard in its 
 possession is omitted.
 
 52 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 lading was issued by an agent without authority, and was 
 then transferred to a purchaser acting in good faith. It 
 may, accordingly, be said with plausibility that the represen- 
 tation was made to the assignee, who simply acquired the 
 title of the fraudulent consignee. It would have resembled 
 the case at bar if the plaintiffs had known of the forgery of 
 Michaels when they took the bills of lading, and had then 
 transferred them to persons paying value and acting in 
 good faith. The case would then have been governed by the 
 rule that an assignee of a thing in action must abide by the 
 case of him of whom he buys. (Remarks of Selden, J., in 
 Griswold v. Haven, 25 N. Y. 604-606. ) 
 
 Street, having power to issue bills direct to consignees 
 for goods actually in the possession of the defendant, and 
 the present bills being in no ways distinguishable in form 
 from those which were usually employed, he must be con- 
 sidered as having the necessary authority as to the plain- 
 tiffs acting in good faith. ^ 
 
 All concur, except Earl, C, dissenting. 
 
 Judgment reversed.^ 
 
 ^ In the rest of the opinion the learned Commission maintains that, 
 assuming Street to have authority to sign the bill of lading, the defend- 
 ant is esLopped from denying it had the lard. 
 
 * Compare: Pollard z: Vinton, 105 U. S. 7, 1881. (C was the 
 general agent of B for shipping purposes at X. C signed and gave to 
 D a bill of lading for goods purporting to have been shipped on B's boat 
 at X. No such goods had been shipped. D assigned the bill of lading 
 for value and without notice of the fraud to A. A sued B for the 
 non-delivery of the goods. Judgment for B affirmed. ]\Iiller, J., "This 
 authority [of C's] to execute and deliver bills of lading has two limita- 
 tions ; namely, they could only be delivered to shippers, and they could 
 only be delivered for freight shipped on the steamboat. Before the 
 power to make and deliver a bill of lading some person must have 
 shipped goods on the vessel." p. 9.) 
 
 Bank of Batavia z'. New York, Lake Erie and Western R. R. Co., 
 106 N. Y. 195, 1887. ( C was the agent of the B R. R. Co. authorized to 
 issue bills of lading for goods received. C in collusion with D gave D 
 a bill of lading reciting that the B Co. had received certain goods from 
 D for shipment, signing the bill as agent for the B Co. No such 
 goods had been i^eceived. D assigned the bill of lading to A for value. 
 A sued the B Co. for the non-delivery of the goods and recovered. 
 Judgment afifirmed. Finch, J.: "It is settled doctrine of the law of 
 agency in this State that where the principal has clothed his agent with 
 power to do an act upon the existence of some extrinsic fact neces-
 
 ARMOUR c'. ^IICHIGAX CENTRAL R. R. CO. 53 
 
 sarily and peculiarly within the knowledge of the agent, and of the 
 existence of which the act of executing the power is itself a represen- 
 tation, a third person dealing with such agent in entire good faith, 
 pursuant to the apparent power, may rely upon the representation, and 
 the principal is estopped from denying its truth to his prejudice. 
 
 "It is obvious, also, upon the case as presented, that the fact or 
 condition essential to the authority of the agent to issue the bills of 
 lading was one unknown to the bank and peculiarly within the-knowl- 
 edge of the agent and his principal. If the rule compelled the trans- 
 feree to incur the peril of the existence or absence of the essential fact, 
 it would practically end the large volume of business founded upon 
 transfers of bills of lading. Of whom shall the lender inquire, and 
 how ascertain the fact ? Naturally he would go to the freight agent, 
 who had already falsely declared in writing that the property had been 
 received. Is he any more authorized to make the verbal representa- 
 tion than the written one? Must the lender get permission to go 
 through the freight house or examine the books? If the property is 
 grain, it may not be easy to identify, and the books, if disclosed, are 
 the work of the same freight agent. It seems very clear that the vital 
 fact of the shipment is one peculiarly within the knowledge of the 
 carrier and his agent, and quite certain to be unknown to the trans- 
 feree of the bill of lading, except as he relies upon the representation of 
 the freight agent." 
 
 Phillips V. Mercantile National Bank, 140 N. Y. 556, 1894. (The 
 Bank B appointed C cashier, and gave him authority for the purposes of 
 the bank to draw checks on other banks in favor of third persons. For 
 his own fraudulent purpose he drew checks on the A bank in favor of 
 third persons, endorsed the names of the payees, collected the moneys 
 from A through a broker, and absconded. Held, that B was estopped 
 from denying the validity of the checks.)
 
 54 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 REYNOLDS v. WITTE. 
 In the Supreme Court of South Carolina, 1879. 
 
 13 South Carolina Reports, 5.' 
 
 Mark Reynolds sent to his agents, J. M. Caldwell & 
 Sons, certain monies to invest for him, Reynolds. J. M. 
 Caldwell & Sons lent the money to C. O. Witte and took 
 from him notes with collateral security. It was the under- 
 standing of all i^arties that J. M. Caldwell & Sons should 
 collect the interest and the principal for Reynolds and retain 
 possession of the collateral. J. M. Caldwell appropriated the 
 collateral to their use and became insolvent. Witte claimed 
 that he, Witte. had a right to recover from Reynolds the 
 value of the collaterals. The controversy was submitted to 
 the Circuit Court under the provisions of Section 389, with- 
 out action. The Circuit Court found that Reynolds was not 
 liable for the fraud of J. M. Caldwell & Co. Witte brought 
 this appeal. 
 
 McGowAN, A. J. : 
 
 There is nothing to distinguish this from the ordinary 
 case where one, for convenience, employs another to act as 
 his agent in a particular business, or to exempt Reynolds and 
 Caldwell & Sons from the principles which ordinarily attach 
 to the relation of principal and agent. Of all these prin- 
 ciples there is not one more important than that which makes 
 the act of the agent, within the scope of his authority, the act 
 of the principal — "qtii jack per aliuin, facit per se." Cald- 
 well & Sons were the agents of Reynolds, and they mis- 
 appropriated, and thereby, for the purpose of this case, de- 
 stroyed the collaterals of Witte. Is Reynolds liable for that 
 
 ^ The facts are restated, and only so much of the opinion of the 
 Court is reprinted as relates to the question stated.
 
 REYNOLDS f. WITTE 55 
 
 act? If Reynolds himself had done the act there can be 
 no doubt that he would have been liable to Witte. Then 
 what is his responsibility when not done by himself, but by 
 his agents? ]\Iust the result to Witte be different for the 
 reason that Reynolds chose to perform his part of the-l)usi- 
 ness through agents selected by himself? If Caldwell & 
 Sons as the agents of Reynolds had lost these collaterals by 
 negligence merely, if they had left their safe unlocked and 
 in consequence the bonds had been stolen, it is conceded 
 that Reynolds would have been liable ; but it is insisted that 
 he should not be held liable for the loss occasioned by their 
 "criminal act ivilfully committed." 
 
 The circuit Judge says : "The only question in the case 
 is whether the plaintiff is liable for the wilful misappropria- 
 tion of the defendant's securities by his agent in the absence 
 of all fault on his part. The law seems to be well settled 
 that whilst the principal is liable for the negligence of his 
 agent, he is not liable for the criminal acts wilfully com- 
 mitted by him — such acts not being within the scope of his 
 agency." 
 
 It may be true that, generally, the principal is not 
 liable criminally for the acts of his agent done without his 
 authority, nor civilly to third persons with whom he has 
 no privity for his wilful trespasses. 
 
 This is not a criminal but a ciz'il claim to charge Reyn- 
 olds with the value of the collateral appropriated by Cald- 
 well & Sons. It is difficult to understand upon what ground 
 the principal should be held liable for the negligence of his 
 agent and not for his fraud, where the act is done or omitted 
 to be done to the very property as to which the agency exists 
 and in the course of the agency. Fraud by which the prop- 
 erty is lost is generally considered one of the forms of gross 
 negligence. What is the proper understanding of the phrase 
 "within the scope of the agency?"' Does "the scope" include 
 negligence and exclude fraud? It cannot properly be re- 
 stricted to what the parties intended in the creation of the 
 agency, for that would also exclude negligence, as no agent
 
 56 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 is appointed for the purpose of being negligent, any more 
 than for the purpose of acting fraudulently. The question 
 cannot be determined by the authority intended to be con- 
 ferred by the principal. We must distinguish between the 
 authority to commit a fraudulent act and the authority to 
 transact the business in the course of which the fraudulent 
 act was committed. Tested by reference to the intention 
 of the principal, neither negligence nor fraud is within "the 
 scope of the agency ;" but tested by the connection of the 
 act with the property and business of the agency, fraud in 
 taking the very property is as much "within the scope of the 
 agency" as negligence in allowing others to take it. The 
 proper inquiry is, zvhefhcr the act zvas done in the course of 
 the agency and by virtue of the authority as agent. If it was, 
 then the principal is responsible, whether the act was merely 
 negligent or fraudulent. Here the fraudulent act was the 
 appropriation of the very property of the agency — without 
 which agency they would not have had possession of the 
 property and could not have done the act. 
 
 We have not had our attention directed to any decided 
 case precisely in point, nor have we been able to find one, 
 but the principles announced by eminent judges and elemen- 
 tary writers fully cover the point. 
 
 In the case of Scott, Williams & Co. v. Joseph Crews, 
 2 S. C. 522, the defendant, Crews, borrowed money from the 
 plaintiffs, bankers, gave them notes for the money, and 
 secured them by pledging as collateral bills of the bank of 
 the State. These bills were not fraudulently appropriated 
 by the bank, but were taken from its vaults by robbery. The 
 question was simply one of negligence as bailees, and upon 
 that issue the plaintiffs were held not liable. 
 
 The case of Foster et al., Executors, v. President and 
 Directors of the Essex Bank, 17 Mass. 478, comes much 
 nearer the precise point involved here. A special deposit of 
 $50,000 of gold was made, which was stolen by the cashier 
 and the chief clerk of the bank. The corporation was ex- 
 onerated from responsibility, upon the grounds that it was
 
 REYXOLDS z: WITTE 57 
 
 a gratuitous deposit without compensation, but for safe 
 keeping merely, and the theft was not the act of the corpora- 
 tion, but the unauthorized act of the cashier and clerk, out- 
 side of their business as officers, and therefore as mere 
 strangers. The whole case shows that if the corporation, 
 through its proper officers and as its own act, had fraudu- 
 lently appropriated the money, the court would have held 
 them liable. Chief Justice Parker, in delivering the judg- 
 ment of the court, states the principle as well as its quali- 
 fications. He says : "It was contended by one of the counsel 
 for the plaintiff, as a proposition universally true, that the 
 principal is civilly answerable for all frauds done by his 
 agents ; and he is supported in the use of this language by a 
 doctrine of Lord Kenyon, in the case of Doe r. oMartin; 
 and also by Lord Ellenborough in i Camp. 127, and yet it 
 must strike the mind of every man of sense that this univer- 
 sal proposition will admit of, and, indeed, upon principles 
 of common sense, actually requires qualifications. No one 
 will suppose, if my servant commits a fraud relative to a 
 subject that does not concern his duty to me, that I shall 
 be civilly answerable for such fraud. If I send him to mar- 
 ket and he steps into a shop and steals, or, upon false pre- 
 tences, cheats the shopkeeper of his goods, I think that all 
 mankind would agree that I am not answerable for the 
 goods he may thus unlawfully acquire. The proposition 
 can be true only when the agent or servant is, ivhile com- 
 mitting the fraud, acting in the business of his principal or 
 master." 
 
 In Story on Bailments, it is said : "But good faith 
 alone is not sufficient. If there is any loss occasioned by 
 their negligence or mistake or inadvertence, which might 
 fairly have been guarded against by ordinary diligence, they 
 will be held responsible therefor; and, a fortiori, they zvill 
 be held responsible ivhcn they are guilty of any misfeasance." 
 
 In Smith's Mercantile Law it is said : "The principal 
 has been thought to be responsible, not rnerely for the negli- 
 gence, but for the deliberate fraud of his agent committed
 
 58 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 in the execution of his employment, though without the 
 principal's authority, as, for instance, by selling false jewels 
 for true ones." The reason given for this by Lord C. J. 
 Holt, appears a sensible one. "Seeing," says he, "that some 
 one must be loser by the deceit, it is more reasonable that 
 he wlio employs and confides in the deceiver, should be the 
 loser than a stranger. Such, certainly, was the opinion of 
 the Roman lawyers." 
 
 The principle is well stated in Story on Agency, Section 
 452 : "It is a general doctrine of law that, although the 
 principal is not ordinarily liable (for he sometimes is) 
 in a criminal suit for the acts or misdeeds of his agent, 
 unless, indeed, he has authorized or co-operated in them, 
 yet he is held liable to third persons in a civil suit for the 
 frauds, deceits, concealments, misrepresentations, negli- 
 gences and other malfeasances, misfeasances and omissions 
 of duty of his agent, in tlic course of his employment, 
 although the principal did not authorize or justify or par- 
 ticipate in, or indeed know of such misconduct, or even if 
 he forbade the acts or disapproved of them. In all such cases 
 the rule applies respondeat superior; and it is founded upon 
 public policy and convenience, for in no other way could 
 there be any safety to third persons in their dealings, either 
 directly with the principal or indirectly with him, though 
 the instrumentality of agents. In every such case the prin- 
 cipal holds out his agent as competent and fit to be trusted, 
 and thereby, in effect, he warrants his fidelity and good con- 
 duct in all matters within the scope of the agency." 
 
 The judgment below is reversed and a new trial or- 
 dered. 
 
 Willard, C. J., and Mclver, P. J., concurred.- 
 
 "Compare: Foster v. The Essex Bank, 17 Mass. 479 1821. (A left 
 at the bank, B, a cask containing $50,000 in gold. The bank, through its 
 cashier, C, accepted the cask "for safe keeping," but the bank received 
 no reward. A gave several orders on the bank to pay out different sums 
 of money from the cask to the holders of the orders, and the cask was 
 opened by C for this purpose. C took and converted to his own use
 
 REYNOLDS v. WITTE 59 
 
 $32,000 out of the cask. After A's decease, C gave to his executors 
 a memorandum signed by C as cashier, admitting that the bank had 
 on special deposit for them as executors the amount deposited by A 
 less only A's drafts. Held, that it was within the province of the bank 
 to receive the deposit ; that the extent of the bank's duty as bailee 
 was to keep as their goods of a similar kind ; that the bank would be 
 liable for the fraud of their agent when the agent was acting within 
 the scope of his authority; that the cashier when he went to the cask 
 to abstract the gold was not acting within the scope of his authority, 
 and that, therefore, as between the executors of A and the bank, the 
 loss resulting from C's fraud should fall on the estate of A.) 
 
 Dougherty v. Wells, Fargo & Co., 7 Nev. 368, 1872. (A held a 
 certificate of deposit given him by the B Express Company at Y. C 
 was B Co.'s agent at X. A gave C the certificate with directions to 
 send to Y, have renewed, and returned to him. A, at X. C obtained 
 the money on the certificate, and did not return to A either the money 
 or the certificate. A sued the B Co. Held, on appeal that the plaintiff 
 could recover, on the ground that C was held out by the B Co. as a 
 person to be trusted as their agent in the character of business 
 committed to him by A. p. 373.)
 
 60 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 THE BRITISH MUTUAL BANKING CO. v. CHARN- 
 WOOD FOREST RAILWAY CO. 
 
 In the Court of Appeal, 1887. 
 
 Lazv Reports, 18 Queen's Bench Division, 714. 
 
 Appeal from an order of the Queen's Bench Division 
 (Manisty and Mathew, ]].) directing judgment to be 
 entered for the plaintiffs. 
 
 The action was brought to recover damages for fraud- 
 ulent misrepresentations alleged to have been made by the 
 defendants through their secretary. At the trial before 
 Lord Coleridge, C. J., it appeared that certain customers 
 of the plaintiffs had applied to them for an advance on 
 the security of transfers of debenture stock of the defend- 
 ant company. The plaintiffs' manager called upon Tre- 
 mayne, the defendants' secretary, and was informed in effect 
 that the transfers were valid, and that the stock which they 
 purported to transfer existed. The plaintiffs thereupon made 
 the advances. It subsequently appeared that Tremayne, in 
 conjunction with one Maddison, had fraudulently issued 
 certificates for debenture stock in excess of the amount 
 which the company were authorized to issue, and the trans- 
 fers as to which the plaintiffs inquired related to this over 
 issue. The plaintiffs accordingly lost their security. The 
 defendants did not benefit in any way by the false state- 
 ments of Tremayne, which were made entirely in the inter- 
 est of himself and Maddison. There was some question 
 whether Tremayne was still secretary at the time the state- 
 ments were made, but the jury found that the inquiries 
 were made of him as secretary, and that the defendants 
 held him out as such to answer such inquiries. The jury 
 assessed the damages, and the Chief Justice left either of 
 the parties to move for judgment. A motion was accord-
 
 BAXKIXG CO. z: CHARXWOOD FOREST RAILWAY CO. 61 
 
 ingly made on behalf of the plaintiffs before ]\Ianisty and 
 Mathew, ]]., who directed judgment to be entered for them. 
 The defendants appealed.^ 
 
 Lord Esher, ]\I. R. In this case an action ha^ been 
 brought by the plaintiff's to recover damages for fraudulent 
 misrepresentation by the defendants, through their secre- 
 tary, as to the validity of certain debenture stock of the de- 
 fendant company. The defendants are a corporation, and 
 the alleged misrepresentations were in fact made by a person 
 employed in the capacity of their secretary, and it cannot 
 be doubted that when he made the statements he had a 
 fraudulent mind, and made them knowing them to be false. 
 
 I differ from the judgment of the Divisional Court, 
 but I do not think the ground on which my decision is based 
 was present to the minds of the learned judges. The point 
 principally argued in the Divisional Court seems to have 
 been that the defendants could not be liable on account of 
 their being a corporation. It seems to me, however, that 
 there is a defect in the plaintiffs' case irrespective of the 
 question whether the defendants were a corporation or not. 
 The secretary was held out by the defendants as a person to 
 answer such questions as those put to him in the interest 
 of the plaintiffs, and if he had answered them falsely on 
 behalf of the defendants, he being then authorized by them 
 to give answers for them, it may well be that they would be 
 liable. But although what the secretary stated related to 
 matters about which he was authorized to give answers, 
 he did not make the statements for the defendants but for 
 himself. He had a friend whom he desired to assist and 
 could assist by making the false statements, and as he made 
 them in his own interest or to assist his friend, he was not 
 acting for the defendants. The rule has often been ex- 
 pressed in the terms, that to bind the principal the agent 
 must be acting "for the benefit" of the principal. This, 
 
 ^ The Reporter's notes of the argument of counsel are omitted.
 
 62 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 in my opinion, is equivalent to saying that he must be act- 
 ing "for" the principal, since if there is authority to do the 
 act it does not matter if the principal is benefited by it. I 
 know of no case where the employer has been held liable 
 when his servant has made statements not for his em- 
 ployer, but in his own interest. The attention of the learned 
 judges seems to have been drawn off from this view of the 
 case by the argument founded on the defendants being a 
 corporation, and I think their judgment must be overruled.- 
 
 ^The opinion of Bowen, L. J., and Fry, L. J., who concurred in 
 allowing the appeal, are omitted. Fry, L. J., follows the reasoning of 
 the Master of the Rolls; Bowen, L. J., while maintaining that a prin- 
 cipal cannot be held liable for a deceit committed by his agent for the 
 agent's benefit, holds that in this case, had the directors of the corpora- 
 tion authorized the deceit, as such an action was beyond the power of 
 the corporation, the plaintiff could not have held the corporation liable 
 in damages.
 
 M'MANUS z: CRICKETT 63 
 
 SECTION 2.— LIABILITY FOR POSITIVE MIS- 
 FEASANCE CONTINUED— WILFUL INJURY 
 BY SERVANT. 
 
 M'MANUS r. CRICKETT. 
 In the Court of King's Bench, 1800. 
 
 I East's Reports, 106. 
 
 This case was very much discussed at the bar, upon a 
 motion to set aside a verdict for the plaintiff and enter a 
 nonsuit, by Gibbs and Wood, against the rule, and Gar- 
 row and Giles in support of it. The Court took time to 
 consider of their judgment ; and afterwards entered so fully 
 into the cases cited and the arguments urged at the bar, that 
 it is unnecessary to detail them in the usual form. 
 
 Lord Kenyon, C. J., now delivered the unanimous 
 opinion of the Court. 
 
 This is an action of trespass, in which the declaration 
 charges that the defendant with force and arms drove a 
 certain chariot against a chaise in which the plaintiff was 
 riding in the king's highway, by which the plaintiff was 
 thrown from his chaise and greatly hurt. At the trial it 
 appeared in evidence that one Brown, a servant of the de- 
 fendant, wilfully drove the chariot against the plaintift"s 
 chaise, but that the defendant was not himself present, 
 nor did he in any manner direct or assent to the act of the 
 servant, and the question is, if for this wilful and designed 
 act of the servant an action of trespass lies against the de- 
 fendant his master? As this is a question of ven,- general 
 extent, and as cases were cited at the bar. where verdicts 
 had been obtained against masters for the misconduct of 
 their servants under similar circumstances, we were desir- 
 ous of looking into the authorities on the subject before
 
 64 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 we gave our opinion; and after an examination of all that 
 we could find as to this point, we think that this action 
 cannot be maintained. It is a question of very general 
 concern and has been often canvassed ; but I hope at last 
 it will be at rest. It is said in Bro. Abr. tit. Trespass, pi. 
 435 : "If my servant contrary to my will chase my beasts 
 into the soil of another I shall not be punished." And 
 in 2 Roll. Abr. 553: "If my servant without my notice 
 put my beasts into another's land, my servant is the tres- 
 passer and not I — because by the voluntary putting of the 
 beasts there without my assent, he gains a special property 
 for the time, and so to this purpose they are his beasts." 
 I have looked into the correspondent part in Vin. Abr. 
 and as he has not produced any case contrary to this, I 
 am satisfied with the authority of it. And in Noy's Max- 
 ims, ch. 44. "If I command my servant to distrain, and 
 he ride on the distress, he shall be punished not I." And 
 it is laid down by Holt, C. J., in Middleton v. Fowler, 
 Salk. 282 as a general position, "that no master is charge- 
 able with the acts of his servant but when he acts in the 
 execution of the authority given him." Now when a 
 servant quits sight of the object for which he is employed, 
 and without having in view his master's orders pursues 
 that which his own malice suggests, he no longer acts in 
 pursuance of the authority given him, and according to the 
 doctrine of Lord Holt his master will not be answerable 
 for such act. Such upon the evidence was the present case ; 
 and the technical reason in 2 Roll. Abr. with respect to 
 the sheep applies here; and it may be said that the servant 
 by wilfully driving the chariot against the plaintiff's chaise 
 without his master's assent gained a special property for 
 the time, and so to that purpose the chariot was the ser- 
 vant's. This doctrine does not at all militate with the cases 
 in which a master has been holden liable for the mischief 
 arising from the negligence or unskilfulness of his ser- 
 vant who had not purpose but the execution of his master's 
 orders ; but the form of those actions proves that this action
 
 M'MAXUS i: CRICKETT 65 
 
 of trespass cannot be maintained; for if it can be sup- 
 ported, it must be upon the ground that in trespass all are 
 principals ; but the form of those actions shows, that where 
 the servant is in point of law a trespasser, the master is 
 not chargeable as such ; though liable to make a compensa- 
 tion for the damage consecjuential from his employing of 
 an unskilful or negligent servant. The act of the master 
 i? the employment of the servant ; but from that no im- 
 mediate prejudice arises to those who may suffer from 
 some subsequent act of the servant. If this were other- 
 wise the plaintiffs in the cases mentioned in i Lord Raym. 
 739. (one where the servants of a carman through negli- 
 gence ran over a boy in the streets and maimed him ; and 
 the other, where the sers-ants of A with his cart ran 
 against the cart of B and overturned it, by which a pipe of 
 wine was spilt;) must have been nonsuited from their mis- 
 taking the proper form of action, in bringing an action 
 upon the case, instead of an action of trespass; for there 
 is no doubt of the servants in those cases being liable as 
 trespassers, even though they intended no mischief ; for 
 which, if it was necessary, Weaver v. Ward in Hobart 134, 
 and Dickinson v. Watson in Sir Thomas Jones 205, are 
 authorities. But it must not be inferred from this that in 
 all cases where an action is brought against the servant for 
 improperly conducting his master's carriage, by which mis- 
 chief happens to another, the action must be trespass. 
 Michael v. Allcstrec in 2 Levinz 172, where an action on 
 the case was brought against a man and his servant for 
 breaking a pair of horses in Lincoln's Inn Fields, where 
 being unmanageable they ran away with the carriage and 
 hurt the plaintiff's wife, is an instance to shew that tres- 
 pass on the case may be the proper form of action. And 
 upon a distinction between those cases where the mischief 
 immediately proceeds from something in which the defend- 
 ant is himself active, and where it may arise from the 
 neglect or other misconduct of the party, but not immedi- 
 ately, and which perhaps may amount only to a non-fea-
 
 66 AGENTS POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 zance, we held in Ogle v. Barnes, 8 Term Rep. i88, that the 
 plaintiff was entitled to recover. The case of Savignac 
 and Roome, 6 Term Rep. 125, which was much pressed as 
 supporting this action, came before the Court on a motion 
 in arrest of judgment ; and the only question decided by 
 the Court was, that the plaintiff could not have judgment, 
 as it appeared that he had brought an action on the case for 
 that which in law was a trespass : for the declaration there 
 stated that the defendant by his servant wilfully drove 
 his coach against the plaintiff's chaise. Day v. Edzvards, 
 5 Term Rep. 648 was also mentioned; which was an ac- 
 tion on the case, in which the declaration charged the de- 
 fendant personally with furiously and negligently driving 
 his cart, that by and through the furious negligent and im- 
 proper conduct of the defendant the said cart was driven 
 and struck against the plaintiff's carriage : and on demurrer 
 the Court were of opinion, that the fact complained of was 
 a trespass. And in the last case that was mentioned of 
 Br lick er v. Fromcnt, 6 Term Rep. 659 the only point 
 agitated was, whether evidence of the defendant's servant 
 having negligently managed a cart supported the declara- 
 tion, which imputed that negligence to the defendant : and 
 the Court with reluctance held that it did, on the authority 
 of a precedent in Lord Raymond's Reports 264 of Turbes- 
 ville and Stamp. In none of these cases was the point now 
 in question decided ; and those determinations do not con- 
 tradict the opinion we now entertain, which is, that the 
 plaintiff cannot recover, and that a nonsuit must be en- 
 tered. 
 
 Per Curiam, Rule absolute for entering a nonsuit.^ 
 
 ^Compare: Bowcher v. Noirdstrom, i Tauton, 568, 1809. (B was 
 the captain of a vessel. He was asleep in the cabin, and the vessel was 
 in charge of the pilot. The vessel became entangled with A's vessel, 
 which was at anchor. The pilot to extricate B's vessel ordered a sailor 
 to cut the hawser attached to A's vessel, which was done. A brought 
 an action of trespass against B. Verdict for A. Rule nisi to set aside 
 the verdict. Rule absolute. "The Court held that it did not appear 
 that the captain had done any act in this case." Sed queare, if trespass 
 on the case could have been brought?)
 
 ^I'MAXUS z: CRICKETT 67 
 
 Croft r. Alison, 4 Barn. & Aid. Rpo, 1821. (A was owner of a 
 certain chariot. The chariot was stanaing in the road when it became 
 entangled with a coach belonging to B and driven by B's servant, C. 
 C struck the horses of A ; they moved forward and the chariot was 
 overturned and damaged, for which damage A sued B. The Court 
 charged the jury that if the original entangling arose from the fault of 
 C, then the verdict should be for A. Per curiam : 'Tf a servant 
 driv.ing a carriage, in order to effect some purpose of his own, wan- 
 tonly strike the korses of another person, and produce the accident, the 
 master will not be liable. But if, in order to perform his master's 
 orders, he strikes but injudiciously, and in order to extricate himself 
 from a difficulty, that will be negligent and careless conduct, for which 
 the master will be liable, being an act done in pursuance of the 
 servant's employment.")
 
 68 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 WRIGHT V. WILCOX. 
 
 In the Supreme Court of Judicature of New York, 
 
 1838. 
 
 19 Wendell's Reports, 343. 
 
 The suit was brought for an injury sustained by the 
 son of the plaintiff, who was a minor, in being run over by a 
 wagon driven by S. Wilcox, the son of J. Wilcox, whilst in 
 the employment of the father. The plaintiff's son was a 
 very young lad, and on his way to school asked S. Wilcox 
 to permit him to ride; who answered that he might do so, 
 when he got up a hill which he was then ascending. When 
 the hill was ascended, the lad took hold of the side of the 
 wagon between the front and hind wheels. S. Wilcox did 
 not stop his team. He was cautioned by a by-stander that 
 if he did not stop he would kill the boy. He looked be- 
 hind him; the horses were then walking; and seeing the 
 plaintiff's son and other boys attempting to get on the 
 wagon, he cracked his whip and put the horses upon a trot. 
 The plaintiff's son fell and one of the hind wheels passed 
 over him, and greatly injured him. A joint action was 
 brought against the defendants. A motion was made for a 
 nonsuit, which was denied. The judge charged the jury, 
 that both defendants were answerable whether the injury 
 was wilful, or only attributable to negligence. The jury 
 found a verdict for the plaintiff against both defendants 
 with $109 damages. A motion was made for a new trial. ^ 
 
 CowEN, J. : It is impossible to sustain this verdict 
 aeainst the father. It is difficult to infer from the evidence, 
 anything short of a design in Stephen the servant, to throw 
 the plaintiff's boy from the wagon; and the judge, as I 
 
 ^ The statement of facts is slightly abbreviated and the parts of the 
 opinion dealing with questions of practice are omitted.
 
 WRIGHT z: WILCOX 69 
 
 understand the charge, told the jur>^ that the defendants 
 were jointly liable in that view. If Stephen, in whipping 
 the horses, acted with the wilful intention to throw the 
 plaintiff's boy off, it was a plain trespass, and nothing 
 but a trespass, for which the master of Stephen is no 
 more liable than if his servant had committed any other 
 assault and battery. xA-ll the cases agree that a master is 
 not liable for the wilful mischief of his servant, though 
 he be at the time, in other respects, engaged in the ser- 
 vice of the former, i Chit. PI. 69, ed. of 1828. M'Manus 
 V. Crickett, i East, 106. Ham. on Part, to Actions, 83. 
 Croft V. Alison, 4 Barn. & Aid. 590. i Chit. Gen. Pr. 80. 
 Brozvcher v. Noidstrom, i Taunt. 568. Why is the master 
 chargeable for the act of his servant? Because, what a 
 man does by another he does by himself. The act is 
 within the scope of the agency. Reeve's Dom. Rel. 357. "A 
 master is not answerable," says ]\Ir. Hammond, "for every 
 act of his servant's life, but only for those done in his 
 relative capacity. To charge the master, it must always 
 be shown or presumed, that the relation of master and 
 servant subsisted between them in the particular affair. 
 If the master is liable under other circumstances, he is so, 
 not quatcniis master, but as any one would be who in- 
 stigates an injury." The dividing line is the wilfulness of 
 the act. If the servant make a careless mistake of com- 
 mission or omission, the law holds it to be the master's 
 business negligently done. It is of the very nature of 
 business that it may be well or ill done. We frequently 
 speak of a cautious or careless driver in another's emplov- 
 ment. Either may be in the pursuit of his master's busi- 
 ness, and negligence in servants is so common, that the 
 law will hold the master to the consequences as a thing that 
 he is bound to foresee, and provide against. But it is dif- 
 ferent with a wilful act of mischief. To subject the master 
 in such a case, it must be proved that he actually assented, 
 for the law will not imply assent. In the particular affair, 
 there is, then, no longer the presumed relation of master
 
 70 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 and servant. The distinction seems to resolve itself into 
 a question of evidence. A man shall be presumed to intend 
 the ordinary consequences of his own acts; and especially 
 so far as such consequences may be innocent of all evil 
 intention; for these he may be safely held accountable. But 
 for those which are remote or barely possible, he is not ac- 
 countable; and if they be at the same time criminal, it 
 would be violating one of the plainest principles of pre- 
 sumptive evidence to say that he intended them. "The 
 master's liability has never been questioned," says Judge 
 Reeve, "when a servant does an act injurious to another, 
 through negligence or ivant of skill, on the principle that 
 the master should at his peril employ servants who are 
 skilful or careful." Reeve's Dom. Rel. 357, 8. He admits 
 that the English cases deny the master's liability where the 
 servant's act is wilful; but questions the soundness of the 
 distinction, if the wilful act be done in the immediate per- 
 formance of his master's business; in which I understand 
 the learned judge at the circuit to have followed him in the 
 case at bar. The answer is that the law holds such 
 wilful act a departure from the master's business. Judge 
 Reeve remarks that one of two innocent persons must 
 suffer, and that should be the man who put it in the power 
 of the servant to do the injury; and the reason is as strong 
 that the master should run the risk of his servant's unruly 
 passions, as his want of care. Clearly the argument proves 
 too much. It would make the master accountable for 
 everv niischievous act of the servant, which he is enabled to 
 commit in consequence of the general relation; for aught I 
 see, including the credit which the servant may obtain with 
 his merchant. The learned writer puts a distinction involv- 
 ing the very question we are considering. A servant 
 driving a wagon, leaves it and commits an assault and 
 battery; for that he admits the master is not liable; other- 
 wise, if he should drive it violently over a man with intent 
 to injure him. "In the first place, (he says,) the servant 
 had abandoned his master's business ; in the latter, he was in
 
 WRIGHT V. WILCOX 71 
 
 the immediate pursuit of it; in the first, he was not driving 
 his master's wagon, in the last he was." Now the author- 
 ities deny that when the servant wilfully drives over the 
 man, he is in his master's business. They hold it a departure, 
 and a going into the servant's own independent business. 
 It is true, he is still driving his master's wagon, and so he 
 would be though he should use it to run away from ser- 
 vice. It will hardly be contended, that after he has com- 
 pleted his escape, the master would be liable for his run- 
 ning over a man; and why? Because he has taken up a 
 new and distinct object of his own, and is engaged in ex- 
 ecuting that ; and has he not, to every material purpose, 
 done the same whenever he commits a wilful injury to 
 another? In M' Manns v. Crickctt, the servant, while driv- 
 ing a chariot on the road as authorized by his master, wil- 
 fully drove against the plaintifif's chaise. Lord Kenyon 
 said that the act being wilful, the chariot might be con- 
 sidered for that purpose in the possession of the servant 
 as his special property, and not the master's. He said : 
 "When a servant quits sight of the object for which he is 
 employed, and without having in view his master's orders, 
 pursues that which his own malice suggests, he no longer 
 acts in pursuance of the authority given him." He puts 
 the master's liability on the ground of negligence or un- 
 skil fulness with no purpose but the execution of his orders. 
 Judge Reeve says it is difficult to reconcile such a doctrine 
 with the cases which hold a sheriff liable for the wilful 
 misfeasance of his deputy. But such cases are clearly, as 
 / stated by Mr. Hammond, exceptions to the general rule 
 for reasons of policy. Hamm. on Part, to Actions, ^t^, 
 4. The master is liable in case only ; but the action against 
 the sheriff is trespass, and lies against him for every act of 
 his officer done colore officii, even the execution of process 
 after the return day, and the seizing of the goods of a third 
 person. Id. Ackzuorth v. Kempe, i Doug. 40. Parrot v. 
 Mulford, 2 Esp. N. P. Cas. 585. So for arresting under
 
 12 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 color of process without having any in his hands. Smart V. 
 Hutton, 2 New. & Mann. 426. 
 
 The line where the master's liability shall terminate 
 must be placed somewhere; and the acquiescence of West- 
 minster Hall for many years in the rule we have cited as 
 laid down by Lord Kenyon, is an evidence of the com- 
 mon law not to be resisted, especially as it will not be 
 found, I imagine, to conflict with any general principle 
 of that law. 
 
 New trial granted.
 
 ROUNDS V. D. & L. R. R. CO. 73 
 
 ROUNDS V. THE DELAWARE AND LACKA- 
 WANNA RAILROAD COMPANY. 
 
 In the Court of Appeals of New York, 1876.^ 
 
 64 Neiv York Reports, 129. 
 
 Appeal from judgment of the General Term of the 
 Supreme Court in the third judicial department, in favor of 
 plaintiff, entered upon an order denying a motion for a 
 new trial and directing judgment on a verdict. (Reported 
 below, 3 Hun, 329; 5 T. & C, 475.) 
 
 This action was brought to recover damages for in- 
 juries sustained by plaintiff in consequence of being kicked 
 oft" of one of defendant's baggage cars by the baggage- 
 man. 
 
 The transaction resulting in the injury occurred at 
 Norwich, May 3, 1872. The defendant operated a broad- 
 gauge railroad from Binghamton to Norwich and a nar- 
 row-gauge road from Norwich to Utica. The passenger 
 train from Binghamton on this occasion as usual ran to the 
 depot at Norwich and transferred the passengers and 
 freight to the Utica train and then backed south on a 
 switch, a distance of about sixty rods, to the round-house 
 to make up the new train which was to run back to Bing- 
 hamton. The train consisted of the engine, an express car, 
 a baggage and smoking car, one car divided into two com- 
 partments and one passenger car. The conductor of the 
 train got off with the passengers at the depot and left it 
 in charge of the baggageman to run back on the switch 
 and make up the new train. While the train was un- 
 loading and transferring the passengers at the depot the 
 plaintiff", a boy twelve years old. living near the depot. 
 
 ^ The Reporter's statement of facts is somewhat abbreviated, and 
 his notes of the arguments of counsel are omitted.
 
 74 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 got on the platform of the baggage and smoking car, at 
 the rear end, to ride down to the round-house. A quan- 
 tity of wood was piled at one point along near the west 
 side of the track for a distance of over lOO feet. While 
 the train was backing down the track, and when it ar- 
 rived at the wood pile, the baggageman in charge of the 
 train discovered the plaintiff on the platform and ordered 
 him of¥. According to the plaintiff's testimony, he re- 
 plied: "I can't, the wood is right here; I want you to help 
 me," and thereupon the baggageman kicked him off. He 
 fell against the wood and rolled under the car, the wheel 
 of which passed over and crushed his leg. A printed 
 notice was posted up in the baggage car and another one near 
 where the plaintiff was standing on the platform, as fol- 
 lows: "No person will be allowed to ride on this baggage 
 car except the regular train men employed thereon. Con- 
 ductor and baggagemen must see this order strictly en- 
 forced." Another printed notice was contained in the 
 posted time cards as follows: 'Train baggagemen must 
 not permit any person to ride in the baggage car, except 
 the conductor and news agent connected with the train. 
 Conductor and baggageman will be held alike account- 
 able for a rigid enforcement of this rule." 
 
 The Court charged the jury, among other things, that 
 the plaintiff was a trespasser on the car, but if the baggage- 
 man, nevertheless, in the discharge of his duty, pushed him 
 off the train in an improper manner and at a dangerous 
 place the defendant was liable; to which the defendant 
 excepted. The Court also charged the jury that if the 
 baggageman pushed the boy off the train, and in doing so 
 was acting as the employee of the defendant in good faith 
 in the discharge of a duty he owed the company, the de- 
 fendant would be liable for the careless and negligent dis- 
 charge of his duty; but if he was acting wilfully and malic- 
 iously toward the plaintiff, outside of and in excess of his 
 duty, then the baggageman alone would be responsible in 
 law for the consequences; to which the defendant ex-
 
 ROUNDS V. D. Si. L. R. R. CO. 75 
 
 cepted and requested the Court to modify the charge or to 
 charge that defendant was not liable if the baggageman 
 acted wilfully and wantonly without authority from de- 
 fendant. This the Court refused. 
 
 Andrews, J. : There is, at this time, but little conflict of 
 judicial opinion in respect to the general rule by which the 
 liability of a master for the misconduct of his servant, re- 
 sulting in injur}' to third persons, is to be tested and ascer- 
 tained. In Higgins v. The Watcrvliet Turnpike Company 
 (46 N. Y., 27^) this subject was considered by this court, 
 and the rule was declared to be, that the master was 
 responsible civiliter for the wrongful act of the servant 
 causing injury to a third person, whether the act was one 
 of negligence or positive misfeasance, provided the servant 
 was at the time acting for the master, and within the 
 scope of the business intrusted to him. The master is 
 liable only for the authorized acts of the servant, and the 
 root of his liability for the servant's acts is his consent, 
 express or implied, thereto. \M'ien the master is to be 
 considered as having authorized the wrongful act of the 
 servant, so as to make him liable for his misconduct, is 
 the point of difficulty. Where authority is conferred to 
 act for another, without special limitation, it carries with 
 it, by implication, authority to do all things necessary to its 
 execution ; and when it involves the exercise of the discre- 
 tion of the scrv^ant, or the use of force towards or against 
 another, the use of such discretion or force is a part of the 
 thing authorized, and when exercised becomes, as to third 
 persons, the discretion and act of the master, and this, al- 
 though the servant departed from the private instructions 
 of the master, provided he was engaged at the time in 
 doing his master's business, and was acting within the 
 general scope of his employment. It is not the test of 
 the master's liability for the wrongful act of the servant, 
 from which injury to a third person has resulted, that he 
 expressly authorized the particular act and conduct which 
 occasioned it. In most cases where the master has been
 
 76 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 held liable for the negligent or tortious act of the serv^ant, 
 the servant acted not only without express authority to do 
 the wrong, but in violation of his duty to the master. 
 
 It is, in general, sufficient to make the master re- 
 sponsible that he gave to the servant an authority, or made 
 it his duty to act in respect to the business in which he 
 was engaged when the wrong was committed, and that 
 the act complained of was done in the course of his em- 
 ployment. The master in that case \vill be deemed to 
 have consented to and authorized the act of the servant, and 
 he will not be excused from liability, although the ser- 
 vant abused his authority, or was reckless in the perform- 
 ance of his duty, or inflicted an unnecessary injury in 
 executing his master's orders. The master who puts the 
 servant in a place of trust or responsibility, or commits 
 to him the management of his business or the care of his 
 property, is justly held responsible when the servant, 
 through lack of judgment or discretion, or from infirmity 
 of temper, or under the influence of passion aroused by 
 the circumstances and the occasion, goes beyond the strict 
 line of his duty or authority and inflicts an unjustifiable 
 injury upon another. But it is said that the master is not 
 responsible for the wilful act of the servant. This is the 
 language of some of the cases, and it becomes necessary to 
 ascertain its meaning when used in defining the master's 
 responsibility. 
 
 The case of McMamts v. Crickctt (i East, io6) turned 
 upon the form of the action and the distinction between 
 trespass and case, but Lord Kenyon, in pronouncing the 
 judgment of the court, said : "\\'here a servant quits sight 
 of the object for which he was employed, and without hav- 
 ing in view his master's orders, pursues that which his own 
 malice suggests, his master will not be liable for such 
 acts." This language was cited with approval in JVright v. 
 Wilcox (19 Wend., 343), and the master was held not 
 to be responsible where the servant, in driving his master's 
 wagon along the highway, wilfully whipped up his horses
 
 ROUNDS z'. D. & L. R. R. CO. 77 
 
 while the plaintiff's son, a young lad, was standing between 
 the front and back wheels, attempting, with the implied 
 permission of the servant, to get into the wagon, in con- 
 sequence of which the boy was thrown down, run over 
 and injured. The servant was cautioned by a bystapder 
 that if he did not stop he would kill the boy. The Court, 
 in the opinion delivered, assumed that the evidence showed 
 that the servant whipped up the horses with a wilful design 
 to throw the boy off. The act of the servant was im- 
 minently dangerous, and it might reasonably be inferred 
 from the evidence that he designed the injury which re- 
 sulted from it. "The law," said Cowen, J., "holds such 
 a wilful act a departure from the master's business." So 
 in Vanderbilt v. The Richmond Turnpike Company (2 
 Comst, 479), the master of the defendant's boat inten- 
 tionally ran into the boat of the plaintiff, and the Court 
 held that this was a wilful trespass of the master for which 
 the defendant was not liable. In Lyons v. Martin (8 Ad. & 
 El., 512) it was held that where a servant merely author- 
 ized to distrain cattle damage-feasant, drives cattle from 
 the highway into his master's close, and there distrains 
 them, the master is not liable. In Mali v. Lord (39 N. Y., 
 381) the act complained of was an illegal imprisonment of 
 the plaintiff by the servant of the defendant, and the Court 
 held that the authority to do the act could not be im- 
 plied from the general employment of the servant. The im- 
 prisonment, assuming that the suspicion upon which it was 
 made was well founded, was illegal. The master could not 
 lawfully have detained the defendant if he had been present, 
 and the Court were of the opinion that the servant could 
 not be said to be engaged in his master's business when 
 he assumed to do what his master could not have done 
 himself. (See, also, Bolinghroke v. The Local Board, etc., 
 L. R., 9 C. P., 575.) It is quite useless to attempt to 
 reconcile all the cases. The discrepancy between them 
 arises not so much from a difference of opinion as to
 
 7% AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 the rule of law on the subject as from its application to the 
 facts of a given case. 
 
 It seems to be clear enough from the cases in this 
 State that the act of the servant causing actionable injury 
 to a third person does not subject the master to civil re- 
 sponsibility in all cases where it appears that the servant 
 was at the time in the use of his master's property, or be- 
 cause the act, in some general sense, was done while he was 
 doing his master's business, irrespective of the real nature 
 and motive of the transaction. On the other hand, the mas- 
 ter is not exempt from responsibility in all cases on show- 
 ing that the servant, without express authority, designed 
 to do the act or the injury complained of. If he is 
 authorized to use force against another when necessary 
 in executing his master's orders, the master commits it 
 to him to decide what degree of force he shall use; and if, 
 through misjudgment or violence of temper, he goes be- 
 yond the necessity of the occasion, and gives a right of 
 ■ action to another, he cannot, as to third persons, be said 
 to have been acting without the line of his duty, or to have 
 departed from his master's business. If, however, the ser- 
 vant, under guise and cover of executing his master's ord- 
 ers, and exercising the authority conferred upon him, wil- 
 fully and designedly, for the purpose of accomplishing his 
 0W41 independent, malicious or wncked purposes, does an 
 injury to another, then the master is not liable. The rela- 
 tion of master and servant, as to that transaction, does not 
 exist between them. It is a wilful and wanton wrong and 
 trespass, for which the master cannot be held responsible. 
 And when it is said that the master is not responsible for the 
 wilful wrong of the servant, the language is to be under- 
 stood as referring to an act of positive and designed injury, 
 not done with a view to the master's service, or for the pur- 
 pose of executing his orders. In this view, the judge at the 
 trial correctly refused to qualify his charge or to charge that 
 it was sufficient to exempt the defendant from liability that 
 the act of the brakeman in putting the plaintiff off the
 
 ROUNDS V. D. & L. R. R. CO. 79 
 
 car was wilful. He had already charged that if the brake- 
 man acted "wilfully and maliciously towards the plaintiff, 
 outside of and in excess of his duty," in putting him off 
 of the car, the defendant was not liable. If the counsel 
 intended to claim that the defendant was exempt from 
 responsibility if the brakeman acted wilfully, although 
 without malice, the point was not well taken. That the 
 brakeman designed to put the plaintiff off the car was not 
 disputed, and this was consistent with the authority and 
 duty entrusted to him. But a wilful act which will exempt 
 a master from liability for the tort of his servant, must be 
 done outside of his duty and his master's business. The 
 charge was, therefore, strictly correct, and the exception 
 was not well taken. 
 
 Neither was the defendant entitled to have the Court 
 rule, as matter of law, that, upon the circumstances as 
 shown by the evidence on the part of the plaintiff", the de- 
 fendant was not responsible. It is conceded that the re- 
 moval of the plaintiff from the car was within the scope 
 of the authority conferred upon the baggageman. The 
 plaintiff had no right to be there. He was not a passenger 
 or servant, and had no express or implied permission to 
 be upon the car. The brakeman, in kicking the boy from 
 the platform, acted violently and unreasonably, and to do 
 this while the car was in motion, and when the space be- 
 tween it and the wood-pile was so small, was dangerous in 
 the extreme. But the Court could not say from the evi 
 dence that the brakeman was acting outside of and without 
 regard to his employment, or designed to do the injury 
 which resulted, or that the act was wilful within the rule we 
 have stated. If the master, when suit for an injury re- 
 sulting from the tortious act of his servant while ap- 
 parently engaged in executing his orders, claims exemp- 
 tion upon the ground that the servant was in fact, pursuing 
 his own purposes, without reference to his master's busi- 
 ness, and was acting maliciously and wilfully, it must, or- 
 dinarily, be left to the jury to determine this issue upon a
 
 80 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 consideration of all the facts and circumstances proved. 
 (See Jackson v. The Second Ave. R. R. Co., 47 N. Y., 274.) 
 There may be cases where this rule does not apply, and 
 where the Court would be justified in taking the case from 
 the jury; but where different inferences may be drawn from 
 the facts proved, and when, in one view, they ma}^ be con- 
 sistent with the liability of the master, the case must be 
 left to the jury. The fact that the plaintiff was a trespasser 
 on the cars is not a defence. The lad did not forfeit his 
 life, or subject himself to the loss of his limbs, because he 
 was wrongfully on the car. The defendant owed him no 
 duty of care by reason of any special relation assumed or 
 existing between the company and him, but he was en- 
 titled to be protected against unnecessary injury by the de- 
 fendant or its servants in exercising the right of removing 
 him, and especially from the unnecessary and unjustifiable 
 act of the brakeman by which his life was put in peril, 
 and which resulted in his losing his limb. {Sanford v. 
 Eighth Are. R. R. Co., 23 N. Y., 343 ; Lovett v. Salem, etc., 
 R. R. Co., 9 Allen, 557; Holmes v. Wakefield, 12 id., 580.) 
 
 No error of law was committed on the trial, and the 
 judgment of the General Term should be affirmed, with 
 costs. 
 
 All concur. 
 
 Judgment affirmed.^ 
 
 == Hoffman v. The New York Central R. R. Co., 87 N. Y. 25, 1881. 
 (It is contrary to the Statute law of the state to put off a trespasser 
 from a moving train. B was a brakeman on a passenger train of a 
 railroad company. C, a small boy of eight, was stealing a ride on the 
 platform of the car. B kicked C off the train when it was in motion, 
 and C was injured. C sued the company and recovered judgment. 
 Affirmed on the ground that from his position B might be presumed to 
 have the power to remove passengers, and that his act, though wilful 
 and unlawful, was within the scope of his employment.) 
 
 Illinois Central R. R. Co. V. Latham, 72 Miss. 32, 1894. (The rules 
 of a railroad company made it the duty of a brakeman to report persons 
 refusing to pay their fare and to act only under the conductor's orders 
 in ejecting those who so refused. C was a brakeman in the employ of 
 the company. B was stealing a ride on a train. C for his own use 
 demanded a sum less than the fare, and on B's refusal to pay, kicked 
 him off the train and injured him. B brought an action against the
 
 ROUNDS z'. D. & L. R. R. CO. 81 
 
 company. Held, that on the facts the Court should have given binding 
 instructions for the defendant.) 
 
 Compare the following cases in which the master was held liable 
 for the z<.nlful and wanton injury of a third person by the misuse by 
 the servant of an instrument intrusted to his care by the master. 
 
 Toledo, Wabash & Western R. R. Co. r. Harmon, 47 111. 298, 1868. 
 (A was injured by the running away of his team, caused by the escape 
 of steam from an engine belonging to the company. The engineer in 
 charge of the locomotive had caused the steam to escape. In an action 
 by A against the company, the defendants asked the Court to charge 
 that if the jury believed the injury to have been caused by the wilful 
 and malicious act of the agent of the defendants, they must find for the 
 defendants. The Court refused the instruction. Verdict for the 
 plaintiff. Judgment affirmed. Walker, J. : "He was their servant, was 
 engaged in the performance of the duty assigned to him, and if. while 
 so engaged, he used the engine put into his possession and under his 
 control, to accomplish the wanton or wilful act complained of, why 
 should not the company be held liable?" p. 306. Accord: Texas & P. 
 Ry. Co. V. Scoville, 62 Fed. 730, 1894, on identical facts.)
 
 82 AGENT'S POWER TO SUBJECT PRE\XIPAL TO LIABILITY 
 
 SECTION 3.— LIABILITY FOR NONFEASANCE 
 NEGLIGENCE OF SERVANTS. 
 
 JOEL -c'. MORISON. 
 In the Court of Exchequer, 1834. 
 
 6 Carrington and Payne's Reports, 501. 
 
 The declaration stated, that, on the i8th of April, 
 1833, the plaintiff was proceeding on foot across a certain 
 public and common highway, and that the defendant was 
 possessed of a cart and horse, which were under the care, 
 government, and direction of a servant of his, who was 
 driving the same along the said highway, and that the de- 
 fendant by his said servant so carelessly, negligently, and 
 improperly drove, governed, and directed the said horse and 
 cart, that, by the carelessness, negligence, and improper 
 conduct of the defendant by his servant, the cart and horse 
 were driven against the plaintiff, and struck him, whereby 
 he was thrown down and the bone of one of his legs was 
 fractured, and he was ill in consequence, and prevented 
 from transacting his business, and obliged to incur a great 
 expense in and about the setting the said bone, &c., and a 
 further great expense in retaining and employing divers 
 persons to superintend and look after his business for six 
 calendar months. Plea — Xot guilty. 
 
 From the evidence on the part of the plaintiff it ap- 
 peared that he was in Bishopsgate street, when he was 
 knocked down by a cart and horse coming in the direction 
 from Shoreditch, which were sworn to have been driven 
 at the time by a person who was the servant of the 
 defendant, another of his servants being in the cart with 
 him. The injury was a fracture of the fibula.
 
 JOEL z: MORRISON 83 
 
 On the part of the defendant witnesses were cahed, 
 who swore that his cart was for weeks before and after 
 the time sworn to by the plaintiff's witnesses only in the 
 habit of being driven between Burton Crescent Mews 
 and Finchley, and did not go into the City at all. 
 
 Thcsiger, for the plaintiff, in reply, suggested that 
 either the defendant's servants might in coming from 
 Finchley have gone out of their way for their own pur- 
 poses, or might have taken the cart at a time when it was 
 not wanted for the purpose of business, and have gone to 
 pay a visit to some friend. He was observing that, under 
 these circumstances, the defendant was liable for the acts 
 of his serv^ants. 
 
 Parke, B. — He is not liable if, as you suggest, these 
 young men took the cart without leave; he is liable if they 
 were going extra Z'iai)i in going from Burton Crescent 
 Alews to Finchley; but if they chose to go of their own 
 accord to see a friend, when they were not on their mas- 
 ter's business, he is not liable. 
 
 His Lordship afterwards, in summing up said — This is 
 an action to recover damages for an injury sustained by the 
 plaintiff, in consequence of the negligence of the defend- 
 ant's servant. There is no doubt that the plaintiff has 
 suffered the injury, and there is no doubt that the driver 
 of the cart was guilty of negligence, and there is no doubt 
 also that the master, if that person was driving the cart 
 on his master's business, is responsible. If the servants, 
 being on their master's business, took a detour to call upon 
 a friend, the master will be responsible. H you think the 
 servants lent the cart to a person who was driving without 
 the defendant's knowledge, he will not be responsible. Or, 
 if you think that the young man who was driving took the 
 cart surreptitiously, and was not at the time employed on 
 his master's business, the defendant will not be liable. The 
 master is only liable where the servant is acting in t!:e 
 course of his employment. If he was going out of his way, 
 against his master's implied commands, when driving on
 
 84 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 his master's business, he will make his master liable ; 
 but if he was going on a frolic of his own, without being 
 at all on his master's business, the master will not be liable. 
 As to the damages, the master is not guilty of any offence, 
 he is only responsible in law, therefore the amount should 
 be reasonable. 
 
 Verdict for plaintiff — damages, 30/.^ 
 
 ^Compare: Sleath z: Wilson, 9 C. & P. 607, 1839. (B directed his 
 servant C to drive to the "Red Lion," in Castle-street, Leicester-square, 
 but the servant improperly drove to Old-street Road, four miles out of 
 his way, to deliver a parcel of his own, and negligently drove over A 
 in Old-street Road. A brought an action against B. Erskine, J., in 
 summing up, said that the action might be maintained. He left the 
 case to the jury, who found for the plaintilf.) 
 
 Stone V. Hills, 45 Conn. 44, 1877. (B ct al. sent their servant D 
 with a team to C at Y, telling D to return by a particular route. C told 
 D to go on with team to X and then return to him. C. D did so, and 
 while at X left the horses unhitched. The horses ran away and injured 
 A, for which injury A sued B. Judgment for A reversed on appeal.) 
 
 Quinn v. Power, 87 N. Y. 535, 1882. (B directed the pilot of his, 
 B's, ferry boat to take the boat from X to Y. The pilot agreed, without 
 compensation, with a boatman on the shore to put the boatman on a 
 passing tow. To do this the ferry deviated from its usual course and 
 while so doing negligently ran into another boat. In the collision C 
 was thrown into the river and drowned. An action for damages for 
 C's death was brought by A, his, C's, representative. The trial court 
 directed a verdict for B ; on appeal a new trial was granted, on the 
 ground that the facts as disclosed made the master responsible for the 
 negligence of the pilot. Finch, J. : "Even if the motive [of the devia- 
 tion] was some purpose of their own, they were still about their 
 usual employment. * * * They were still engaged in their master's 
 business of transporting freight and passengers across the river." 
 
 P- 539) 
 
 Ritchie T'. Waller, 6;^ Conn. 155, 1893. (B directed his servant C to 
 drive to X and procure a load of manure and return with it. C drove 
 to X, procured the manure, and, instead of going directly home, drove 
 out of his way to stop at a shoemaker's to get his own boots mended. 
 C left the team unhitched and unattended while he went into the shoe- 
 maker's. The team started and the wagon came in contact with A's 
 wagon, injuring A. A brought an action against B, which was tried 
 without a jury. Judgment for A affirmed. Torrance, J. : "In cases 
 where the deviation is slight and not unusual, the court may, and often 
 will, as matter of law, determine that the servant was still executing 
 his master's business. So to, where the deviation is very marked and 
 unusual, the court in like manner may determine that the servant was 
 not on the master's business at all, but on his own. Cases falling be- 
 tween these extremes will be regarded as involving merely a question of 
 fact, to be left to the jury or other trier of such questions," pp. 161, 162. 
 The Court thought that the facts as stated warranted the trial Court 
 holding as a question of law that the servant, at the time of the 
 injury, was still executing his master's orders.)
 
 MITCHELL V. CRASSWELLER 85 
 
 MITCHELL V. CRASSWELLER. 
 In the Court of Common Pleas, 1853. 
 
 13 Common Bench Reports, 2yj. 
 
 This was an action by Iiusband and wife, to recover a 
 compensation in damages for injuries sustained by them 
 through the alleged negligent driving of the defendants' 
 servant. 
 
 The cause was tried before Jervis, C. J., at the sittings 
 at Westminster after the last term. The facts appeared 
 to be as follows : — The defendants are ironmongers car- 
 rying on an extensive business in Welbeck Street, and 
 were possessed of a horse and cart, with which their 
 carman had on the day mentioned in the declaration been 
 out to deliver goods. Returning home at a late hour in 
 the evening, the carman drove up to the shop door to get 
 the keys of the stable, for the purpose of putting up the 
 horse and cart. Having got the keys, the carman was about 
 to proceed to the stable, which was in an adjoining street, 
 and within five hundred yards of the shop, when the de- 
 fendants' foreman, who was unwell, asked him to drive him 
 a part of his way home ; whereupon the carman went to the 
 house for the purpose of asking the permission of one of 
 his employers, but, not finding either of them at home, re- 
 turned to the foreman, and, observing that "he would chance 
 it," he drove him as far as Euston Square. In returning 
 thence to the stable, he accidentally ran over the plain- 
 tiffs. 
 
 Upon this state of facts, it was contended on the part 
 of the defendants that they were not responsible, the acci- 
 dent having happened whilst the carman was doing some- 
 thing out of the scope of his duty. 
 
 His lordship directed the jury to find for the plain- 
 tiffs, telling them at the same time to assess the damages
 
 86 AGENTS POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 tliey considered the plaintiffs entitled to. The jury accord- 
 ingl}' assessed the damages at 30/. for the injury done to 
 the plaintiff, Thomas Mitchell, and at 10/. for the injury to 
 his wife. And leave was reserved to the plaintiffs to move 
 to enter the verdict for them, if the Court should think that 
 the defendants were under the circumstances responsible for 
 the negligence of their carman.^ 
 
 Jervis, C. J. * * * * * * *" 
 That brings us to the principal point, whether, under 
 the circumstances disclosed by the evidence, the defendants 
 are responsible for the injury which the plaintiffs have 
 sustained. Each case must depend upon its own particular 
 circumstances. No doubt a master may be liable for injury 
 done by his servant's negligence, where the servant, being 
 about his master's business, makes a small deviation, or 
 even where he so exceeds his duty as to justify his master in 
 at once discharging him. But, here it cannot be denied, 
 that, though it was the duty of the carman, on his arrival 
 with the horse and cart at Welbeck Street, immediately to 
 take them to the stable, he, in violation of that duty, and 
 without the sanction or knowledge of his employers, instead 
 of going to the stable, started on a new journey, wholly 
 unconnected with his masters' business, — as my Brother 
 Parke expresses it in Joel v. Morrison, "on a frolic of his 
 own." I think, at all events, if the master is liable where 
 the servant has deviated, it must be where the deviation 
 occurs in a journey on which the servant has originally 
 started on his master's business ; in other words, he must be 
 in the employ of his master at the time of committing the 
 grievance. I think that was not the case here, and therefore 
 I think the defendants are not liable to this action.^ 
 Rule discharged. 
 
 ^ The Reporter's statement of facts is abbreviated, and his notes of 
 the arguments of counsel omitted. 
 
 * Only so much of the opinion as relates to the question of a mas- 
 ter's responsibility for the acts of his servant is printed. 
 
 ' The concurring opinions of Maule, Cresswell, and Williams, JJ., 
 are omitted.
 
 RAILWAY z'. SHIELDS 87 
 
 RAILWAY r. SHIELDS. 
 In the Supreme Court of Ohio, 1890. 
 
 47 Ohio State Reports, 387. 
 
 Error to the Circuit Court of Preble County.^ 
 
 MiNSHALL, C. J. : The suit below was an action by 
 Shields, a small boy, prosecuted by his next friend, against 
 The Pittsburgh, Cincinnati & St. Louis Railway Company 
 for an injury caused by the explosion of a torpedo, wan- 
 tonly and negligently left on its track by one of its servants, 
 at a point where the children and inhabitants living along 
 the line of the track, were daily in the habit of passing with 
 the knowledge and acquiescence of the company. The tor- 
 pedo, a dangerous instrument, used by the company as a 
 signal in the operation of its road, was picked up by a com- 
 panion of the plaintiff, carried some distance away and 
 caused to explode by one of them hitting it. They were 
 ignorant of its character, and at the time, trying to satisfy 
 their curiosity about it. The same accident caused the in- 
 jury for which the original action in Harriuian v. Railroad 
 Company, 45 Ohio St. 11, was brought, the judgment in 
 which was reversed by this Court, for error in sustaining a 
 demurrer to the petition; and the petition in the Harriman 
 case is substantially the same as in this case. 
 
 After the decision in the Harriman case, the defendant 
 below filed an answer in this case, the second defence, of 
 which and to which a demurrer was sustained, is as follows : 
 
 "The defendant, for its second defence, says, that it 
 carries upon its trains signal torpedoes to be used in addi- 
 tion to its regular signals, when, from fog or other cause, 
 the other signals cannot be seen or relied upon, and that if 
 said torpedo was placed upon the track as alleged in said 
 
 ^ The Reporter's notes of the argument of counsel are omitted.
 
 88 AGENT'S POWER TO SUBJECT PRINXIPAL TO LIABILITY 
 
 amended petition, by the employees of this defendant (a 
 fact which defendant wholly denies), that then said em- 
 ployees placed the same upon the track, at a time and place 
 in broad daylight, when and where there was no necessity 
 for the use thereof, or of any signals of any kind whatso- 
 ever, and that said use was without the knowledge or con- 
 sent or authority, express or implied, of the defendant ; 
 was against and contrary to its rules and regulations, as 
 said employees well knew, and that said torpedo was so 
 used by them outside and beyond the scope of their employ- 
 ment, and in no wise connected w^ith the control, manage- 
 ment or operation of said train of cars or railroad, and 
 was so placed for the accomplishment of an independent 
 and wrongful purpose of their own, in this, to w4t: that 
 said employees, or one of them, while said train was taking 
 water at said water-tank, for the purpose of having sport 
 with some lady passengers who were upon said train, took 
 torpedoes from the place wdiere kept on said train, and 
 without the knowledge of said lady passengers, with whom 
 said employees were well acquainted, placed the same upon 
 the iron rails of the track, in front of the wheels of the 
 caboose in which said lady passengers were riding, with 
 the intention to frighten them by the sudden and unexpected 
 explosion of said torpedoes, which would result with a 
 loud noise by the passage of the caboose over them; when 
 said train started forward, one of said torpedoes failed to 
 explode, and was found as stated in said amended peti- 
 tion." 
 
 The sustaining of the demurrer to this defence is as- 
 signed for error. There is also an exception to the ruling of 
 the court in refusing to charge as requested. But this rul- 
 ing need not be noticed, as it presents simply the same ques- 
 tion as is presented by the demurrer to the answer. 
 
 It would seem that the question raised by this defence, 
 was presented by the demurrer to the petition in the Harri- 
 man case, and determined by the decision of this court 
 therein. The fourth proposition of the syllabus being, in
 
 RAILWAY z'. SHIELDS 89 
 
 substance, that the raih-oad company was liable for the neg- 
 ligence of its servant, in placing and leaving the torpedoes 
 on its track at a point where the public, including children, 
 were permitted to pass, "notwithstanding such negligent acts 
 of the servant were wanton, reckless and needless." 
 
 But the counsel for the plaintiff in error think that it 
 was not, and claim that there is clear error in the case for 
 the reason, that the act of the conductor in placing the tor- 
 pedoes on the track, was a mere caprice of his own, out- 
 side of his employment as a servant, and contrary to the 
 rules of the company; and that, therefore, the company is 
 not liable. 
 
 We do not adopt this view, and shall show that the 
 negligence of the conductor in this regard, though wanton 
 and contrary to the rules of the company, occurred within 
 his employment, and is, therefore, imputable to the com- 
 pany. 
 
 The law requires of persons having in their custody 
 instruments of danger that they should keep them with the 
 utmost care, i Milliard on Torts, 3 ed., 127. "Sometimes," 
 says Pollock, "the term 'consummate care' is used to de- 
 scribe the amount of caution required, but" he says, "it is 
 doubtful whether even this is strong enough. At least, we 
 do not know any English case of this kind (not falling 
 under some recognized head of exception) where unsuc- 
 cessful diligence on the defendant's part was held to exon- 
 erate him." Pollock on Torts, 407. See also, Wharton 
 on Negligence, Sec. 851. 
 
 And, it stands to reason, that one charged with a duty 
 of this kind cannot devolve it upon another, so as to exon- 
 erate himself from the consequences of injury being caused 
 to others by the negligent manner in which the duty in re- 
 gard to the custody of such an instrument may be per- 
 formed. Speaking of the absolute duty imposed by statute 
 in certain cases, and, also, of the duties required by com- 
 mon law "of common carriers, of owners of dangerous ani- 
 mals or other things involving, by their nature or position,
 
 90 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 Special risk or harm to neighbors," Pollock observes, "the 
 question is not by whose hand an unsuccessful attempt was 
 made, whether that of the party himself, of his servant, or 
 of an 'independent contractor,' but whether the duty has 
 been adequately performed or not." Pollock on Torts, 64. 
 
 We in no way limit, nor question the soundness of the 
 general rule, which exonerates the master from liability for 
 the acts of his servant done outside of his employment. 
 What has been stated is strictly within the reason and prin- 
 ciple of the rule, which is, that whatever the servant is en- 
 trusted by the master to do for him, must be done with the 
 same care and prudence that would be required of the mas- 
 ter, acting in that regard for himself ; if it be the custody of 
 dangerous instruments, he must observe the utmost care. 
 
 The inability of the master to shift the responsibility 
 connected with the custody of dangerous instruments, em- 
 ployed in his business, from himself to his servants en- 
 trusted with their use, is analogous to, and may be said to 
 rest upon the same principle, as that which disenables him 
 from shifting to an independent contractor, liability for 
 negligence in the performance of work that necessarily tends 
 to expose others to danger, unless the work is carefully 
 guarded. It seems by the great weight of authority and 
 reason that this cannot be done. See Railroad Company v. 
 Morcy, 47 Ohio St. 207, and cases there cited. Also, see, 
 Lazvrcncc v. Shipman, 39 Conn. 586, 589; and Cooley on 
 Torts, 2d ed., 644, 646. 
 
 And the relation of master and servant and that of em- 
 ployer and independent contractor, are, in this regard, 
 treated in one view by Pollock in his work on Torts, as 
 will appear from consulting his work at page 64. 
 
 Now, in this case, it must be observed, that the duty 
 entrusted by the railway company to the conductor in re- 
 gard to these torpedoes was, not only to use them as signals 
 with the requisite care and caution, but to observe like care 
 and caution in the custody of them, when not in use. The 
 servant's custody of them, when not in use, was as much a
 
 RAILWAY z: SHIELDS 91 
 
 part of his employment, as was the use of them as signals 
 when required. In taking them from the place where they 
 were carried when not in use, and, in mere caprice, placing 
 them on the track for the purpose of frightening the ladies, 
 he was not, it is true, within his employment as to the use 
 of them; but, in so doing, he violated the duties connected 
 with his employment as the custodian of them, and thereby 
 made his master liable for the consequences of his neglect, 
 in the same manner, and to the same extent, as if it had 
 been done by the company itself. 
 
 It is necessary in this, and in all similar cases, to distin- 
 guish between the departure of a servant from the employ- 
 ment of the master, and his departure from, or neglect of, a 
 duty connected with that employment. A servant may de- 
 part from his employment without making his master liable 
 for his negligence when outside the employment of the mas- 
 ter; and he so departs whenever he goes beyond the scope 
 of his employment and engages in affairs of his own. But 
 he cannot depart from the duty entrusted to him, when that 
 duty regards the rights of others in respect to the employ- 
 ment of dangerous instruments by the master in the prose- 
 cution of his business, without making the master liable for 
 the consequences; for the first step in that direction is a 
 breach of the duty entrusted to him by the master, and his 
 negligence in this regard becomes at once the negligence of 
 the master; otherwise the duty required of the master in 
 respect to the custody of such instruments employed in his 
 business, may be shifted from the master to the servant, 
 which cannot be done so as to exonerate the master from the 
 consequences of a neglect of the duty. 
 
 To better illustrate the ground of this distinction, we 
 may, for example, suppose a servant, with others under his 
 control, employed with a construction train repairing the 
 track of his master. He may, for a time, quit his employ- 
 ment, and, with his men, go off on affairs of his own. 
 Whilst thus out of the master's employment, he may build a
 
 92 AGENT'S POWER TO SUBJECT PRIXXIPAL TO LIABILITY 
 
 fire, which, through his iiegHgence, may consume the prop- 
 erty of another; and, in the meantime, loss of Hfe and prop- 
 erty may result from a collision with the train negligently 
 left standing on the track. Now whilst, as has been held, 
 the master would not be liable for the loss resulting from 
 the fire, because the act was done outside the servant's em- 
 ployment {Moricr v. Raihi^ay Company, 31 Minn. 351), yet 
 it is equally certain that, for the loss occasioned by the 
 servant's negligence in leaving the train on the track, the 
 master would be liable in damages; for the plain reason 
 that, in abandoning the custody of the train, he was guilty 
 of negligence in the employment of the master, whilst, in 
 building the fire, he was not. 
 
 That what was done by the conductor contravened the 
 purpose and instructions of the company, in regard to the 
 use of these torpedoes, does not vary its liability for the neg- 
 ligence of the conductor in the custody of them. In dis- 
 cussing the master's liability for his servant, it is said by 
 Professor Wharton, "It is not necessary, in order to make 
 the master liable, that there should be specific directions as 
 to the particular act. It is enough if the general relation of 
 master and servant, within the range of such act, exists. 
 The Cjuestion is simply whether the wrong inflicted was in- 
 cidental to the discharge of the servant's functions. It may 
 have been capricious. It may have contravened the master's 
 purposes or directions. But a master who puts in action a 
 train of servants, subject to all the ordinary defects of 
 human nature, can no more escape liability for injury caused 
 by such defects, than can a master, who puts machinery in 
 motion, escape liability, on the ground of good intentions, 
 for injury accruing from defects of machinery. Out of the 
 servant's orbit, when he ceases to be a servant, his negli- 
 gences are not imputable to the master. But within that 
 orbit, they are so imputable, whatever the master may have 
 meant." Wharton on Negligence, Sec. 160; see, also. Wood 
 on Master and Servant, Sec. 283; and Cooley on Torts, 
 632 (539*)-
 
 RAILWAY '.'. SHIELDS 93 
 
 The custody of these torpedoes was within the servant's 
 orbit. Negligently leaving them on the track was a negli- 
 gence within that orbit, and therefore imputable to the mas- 
 ter. If a master has a duty to perform and intrusts it to a 
 servant, who disregards it to the injury of another, it Is im- 
 material, so far as the liability of the master is concerned, 
 with what motive or for what purpose, the servant neglects 
 the duty. This is illustrated by the case of Wood v. Rail- 
 road Company, 17 N. Y. 362, which was an action against 
 the company for failure to carry the plaintiff to her destina- 
 tion with reasonable dispatch. The delay was caused by the 
 wilful act of the conductor in wrongfully detaining the 
 train at a station; and which the defendant claimed exoner- 
 ated it from liability. But the Court held otherwise ; it being 
 observed, among other things, in the opinion, that "The obli- 
 gation to be performed was that of the master, and delay in 
 performance, from intentional violation of duty by an agent, 
 is the negligence of the master." 
 
 We do not see that this, in any way, conflicts with the 
 decision in Railroad Company v. Wetmorc, 19 Ohio St. no. 
 There the plaintiff got into a quarrel with the baggage- 
 master of the company about checking his baggage; and, 
 under the influence of anger, the latter struck the plaintiff 
 with a hatchet, and it was held that the company was not 
 liable for the injury. A hatchet is not an instrument of 
 danger, within the rule above stated — it includes only such 
 instruments as are such within themselves. The danger of 
 a hatchet is in the hand and spirit of the man who may use 
 it. If, in this case, the instrument left on the track had been 
 a hatchet, the company would not have been liable to a child 
 who might afterwards have picked it up and been injured 
 by it. For the company would have been under no such 
 duty as to its custody, as it was under in regard to this dan- 
 gerous explosive. 
 
 Judgment aflivmed.- 
 
 ^Compare: Cousins z'. Hannibal & St. Joseph R. R. Co., 66 Mo. 572,
 
 94 AGENT'S POWER TO SUBJECT PRL\'CIPAL TO LIABILITY 
 
 1877. E and F were servants of railroad. E had charge of a 
 round house ; F's duty was to run the engines from round house to the 
 3ard. G, another employee of the railroad, was taken sick with cholera. 
 To obtain a doctor E and F, E acting as engineer and F as fireman, ran 
 an engine down the track outside the yard, and in so doing negligently 
 ran over A's cattle. Held, in an action by A against the company, that 
 the company was not liable.) 
 
 Salisbury v. Erie R. R. Co., 66 N. J. L. 233, 1901. (A railroad com- 
 pany placed a push car in the hands of a foreman of a gang of men 
 for the purpose of burning waste railroad ties. The foreman loaned 
 it to C to take away the ties for his, C's, own use. C in pushing the 
 car on the tracks of the company negligently injured A. Held, that 
 the company was responsible for the injury to A, on the ground that 
 it was the duty of the foreman to keep the car under his own super- 
 vision while on the track).
 
 LAUGHER z'. POINTER 95 
 
 SECTION 4.— LIABILITY FOR NONFEASANCE, 
 CONTINUED — WHAT CONSTITUTES THE 
 RELATION OF MASTER AND SERVANT. 
 
 LAUGHER z'. POINTER. 
 In the Court of King's Bench, 1826. 
 
 5 Barnezi'al! and CresszixH's Reports, 547. 
 
 Case. The first count of the declaration alleged that 
 the plaintiff was possessed of a horse, and defendant was 
 possessed of a carriage, and two horses harnessed to and 
 drawing the same, and which carriage and horses were under 
 the care, government, and direction of a person, bcijig the 
 servant of the defendant in that behalf, who was driving 
 the same, yet that the defendant, by his said servant, so 
 negligently and improperly drove and directed his said car- 
 riage and horses that by the negligence and improper con- 
 duct of the defendant, by his said servant, the carriage ran 
 and struck against the plaintiff's horse, &c. The second 
 count differed from the first, only, by omitting to state that 
 the defendant was possessed of the horses. The third and 
 last count alleged that the defendant was possessed of a car- 
 riage drawn by two horses under the care, government, and 
 direction of the defendant, yet that the defendant so negli- 
 gently and improperly drove, governed, and directed the 
 carriage and horses that, by the negligence and improper 
 conduct of the defendant, the carriage ran and struck 
 against the plaintiff's horse, S:c. At the trial before Ab- 
 bott, C. J., at the London sittings after ]^Iichaelmas term, 
 1823, it appeared in evidence that the defendant, a gentle- 
 man usually residing in the country, being in town for a 
 few days with his own carriage, sent in the usual way to a
 
 96 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 Stable-keeper for a pair of horses for a day. The stable- 
 keeper accordingly sent the pair of horses and a person to 
 drive the same. The defendant did not select the driver, 
 nor had any previous knowledge of him. The stable- 
 keeper sent such person as he chose for this purpose. The 
 driver had no wages from his master, but depended upon 
 receiving a gratuity from the persons whose carriages he 
 drove ; the defendant gave him 5^. as a gratuity for his day's 
 work, but the driver had no power to demand anything. 
 The Lord Chief Justice thought that the evidence did not 
 support the declaration, and directed a non-suit. A rule 
 )iisi for a new trial was afterwards granted, and upon the 
 argument, there being a difference of opinion on the bench, 
 the case was directed to be argued before the twelve judges, 
 all of whom (except the Lord Chief Baron) met for that 
 purpose in Serjeant's Inn Hall, on the 2d of Februarv. 
 1825.^ 
 
 LlTTLEDALE^ J. * * * * * *^ 
 
 According to the rules of law\ every man is answer- 
 able for injuries occasioned by his own personal negligence; 
 and he is also answerable for acts done by the negligence 
 of those whom the law denominates his servants, because 
 such servants represent the master himself, and their acts 
 stand upon the same footing as his own. And in the pres- 
 ent case the question is, whether the coachman, by whose 
 negligence the injury was occasioned, is to be considered a 
 servant of the defendant. 
 
 For the acts of a man's own domestic servants there 
 is no doubt but the law makes him responsible, and if this 
 accident had been occasioned by a coachman who consti- 
 tuted a part of the defendant's own family, there would 
 be no doubt of the defendant's liability; and the reason is, 
 that he is hired by the master either personally or by those 
 who are entrusted by the master with the hiring of servants. 
 
 ^ The Reporter's notes of the arguments of counsel are omitted. 
 *His restatement of the facts of the case is omitted.
 
 LAUGHER V. POIXTER 97 
 
 and he is therefore selected by the master to do the business 
 required of him. 
 
 This rule applies not only to domestic servants who 
 may have the care of carriages, horses, and other things 
 in the employ of the family, but extends to other servants 
 whom the master or owner selects and appoints to do any 
 work or superintend any business, although such servants 
 be not in the immediate employ or under the superintend- 
 ence of the master. As, for instance, if a man is the owner 
 of a ship, he himself appoints the master, and he desires 
 the master to appoint and select the crew; the' crew thus 
 become appointed by the owner, and are his servants 
 for the management and government of the ship, and if 
 any damage happens through their default, it is the same 
 as if it happened through the immediate default of the 
 owner himself. So the same principle prevails if the owner 
 of a farm has it in his own hands, and he does not per- 
 sonally interfere in the management, but appoints a 
 bailiff or hind who hires other persons under him, 
 all of them being paid out of the funds of the owner, 
 and selected by himself or by a person specially de- 
 puted by him, if any damage happen through their de- 
 fault the owner is answerable, because their neglect or 
 default is his, as they are appointed by and through 
 him. So in the case of a mine, the owner employs a 
 steward or manager to superintend the working of the 
 mine, and to hire under workmen, and he pays them on 
 behalf of the owner. These under workmen then be- 
 come the immediate servants of the owner, and the 
 owner is answerable for their default in doing any acts 
 on account of their employer. This, however, is not 
 the case of a man employing his own immediate servants, 
 either domestic servants, or others, engaged by him to con- 
 duct any business, or employment, or occupation carried on 
 by him. For the jobman was a person carrying on a dis- 
 tinct employment of his own, in which he furnished men 
 and let out horses to hire to all such persons as chose to
 
 98 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 employ him. This coachman was not hired to the defend- 
 ant ; he had no power to dismiss him. He paid him no 
 wages. The man was only to drive the horses of the job- 
 man. It is true the master paid him no wages, and the 
 whole which he got was from the person who hired the 
 horses, but that was only a gratuity. It is the case with 
 servants at inns and hotels. Where there is a great deal of 
 business they frequently receive no wages from the owner 
 of the inn or hotel, and trust entirely to what they receive 
 from the persons who resort to the inn or hotel, and yet 
 they are not the less the servants of the innkeeper ; they are 
 not servants upon wages, but servants upon expectation of 
 gratuities. And, therefore, if the defendant is in this case 
 to be answerable for the acts of the driver provided by the 
 jobman, it must be upon this principle, that if a man either 
 for his benefit or pleasure employs an agent to conduct any 
 business, such agent is to be looked upon in the same light 
 as if he was the immediate servant of the employer, and 
 that the owner of the property by employing such an agent 
 to transact his business, confides to him the choice of die 
 under workmen, and then the principle must go on to this, 
 that such agent and under workmen are to be considered in 
 the same light as the foreman or manager of a person in 
 conducting his business, and as the workmen selected by 
 such foreman or manager; and that it makes no differ- 
 ence to persons who receive an injury in what light the 
 offending party stands to the principal, whether as an 
 under workman employed by an agent, or an under 
 workman employed by the foreman of the principal. 
 And that the only thing to be looked to is, whether in 
 the end the principal pays for the employment in the course 
 of which the injury is occasioned. 
 
 But I think that, upon principle, this rule cannot be 
 carried so far. In Bush v. Stcinnian [i Bos. & Pul. 407], 
 indeed, Mr. Justice Heath expresses it as his opinion, that 
 if a person hires a coach upon a job, and a job coachman 
 is sent with it and does any injury, the hirer of the carriage
 
 LAUGHER V. POINTER 99 
 
 is answerable. That is certainly entitled to great weight, 
 as. being the opinion of a very able judge. It was, how- 
 ever, only an obiter dictum, and in a case where, like the 
 present, there is a difference of opinion amongst the judges, 
 the question must, if possible, be determined upon princi- 
 ple and decided cases. If a man charters a ship for a voy- 
 age or for time, and the master and mariners are appointed 
 by the owner, this ship is employed for the benefit and for 
 transacting the business of the charterer, just the same as 
 if he had a ship of his own employed in the same service, 
 and it might be said that he deputes to the owner the selec- 
 tion of the master and mariners ; but in such a case the law 
 has never considered the charterer liable to third persons 
 for the negligence of the master and mariners. In Fletcher 
 V. Braddick [2 N. R. 182], the owners had chartered the 
 vessel to the commissioners of the navy, who were to 
 put an officer on board, under whose direction the master 
 was to act, and though there was a king's pilot on board, 
 yet the owners were nevertheless held liable for running 
 down the plaintiff's ship. In Nicholson \. Mounsey [15 
 East, 384], a captain of a man-of-war was held not liafele 
 for the default of the lieutenant whose watch it was when 
 an injury was committed. Suppose a man has a ship or a 
 carriage or other thing to repair, and he, instead of having 
 the repairs done on his own premises and by his own serv- 
 ants, sends it out to be repaired by a person who exercises 
 the public employment under which it would be repaired, 
 and any damage happens in the course of the repair by the 
 negligence of the persons employed ; these are employed by 
 a person who may be considered the agent of the principal, 
 and yet the law would not hold the principal liable. If a 
 man hires a carriage and horses to travel from stage to 
 stage, the carriage and horses are employed for the benefit 
 or pleasure of the traveller, instead of using his own. which 
 he may not do either from inability to keep horses or a de- 
 sire of expedition, and yet the law has never considered 
 the traveller liable. There is no difference in principle
 
 100 AGENTS POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 between a man's travelling by the stage or travelling by 
 the day. In one case and the other the traveller is using 
 the carriage and horses for his benefit; he pays so much 
 by the day instead of so much by the mile; he pays the 
 coachman a gratuity in one case, and the postilion in the 
 other case, and yet the traveller has never been held liable. 
 As to this latter point, there are some decisions in point. 
 Samnicll v. Wright [5 Esp. 263], where the horses were 
 hired to go to Windsor, and the owner of the horses was 
 held liable, because they were under the care and direction 
 of his servants. The carriage belonged to the traveller, 
 who was the JMarchioness of Bath. The case of Dcaii v. 
 Branthwaite [5 Esp. 35], arose on a dispute between the 
 owner of the carriage and the owner of the horses, which 
 were hired to go to Epsom. Lord Ellenborough says, a 
 person who hires horses under such circumstances has not 
 the entire management and power over them, but that they 
 continue under the controul and power of the stable-keeper's 
 servants who were entrusted with the driving; and that he 
 would be answerable for any accident occasioned by the 
 po^t boy's misconduct on the road, and then he mentions 
 a case which had occurred of that kind. In this case, also, 
 the party travelling had his own carriage. The same rule 
 would apply to a hackney coach; a man, instead of hiring 
 his own carriage and servants, employs a hackneyman to 
 drive him; there it is for the profit or convenience of the 
 person riding in the coach, and yet the person so riding 
 is not liable. 
 
 The cases referred to before Lord Ellenborough only 
 shew, indeed, the owner of the horses to be liable, but 
 it may be said the traveller is liable also. I think not. 
 The coachman or postilion cannot be the servant of both. 
 He is the servant of one or the other, but not the servant 
 of one and the other; the law does not recognize a several 
 liability in two principals who are unconnected. If they are 
 jointly liable you may sue either, but you cannot have two 
 separately liable ; you must bring your action either against
 
 LAUGHER v. POINTER 101 
 
 the principal, or the person who commits the injury, Stone 
 V. Cartivright [6 T. R. 411]. There it was held that an 
 action for an injury sustained through the improper work- 
 ing of a mine, must be brought against the owner of the 
 mine, or against the workmen who did the injury, but that 
 it could not be brought against an agent who hired the 
 workmen. The allowing two principals to be severally lia- 
 ble would tend to a multiplicity of actions, because if the 
 traveller was liable, he might have an action against the 
 stable-keeper for supplying improper drivers and horses, 
 and then the stable-keeper might have an action against his 
 own drivers. If, indeed, several persons are concerned 
 in a trespass, or other tortious act, they are liable jointly 
 or severally, at the election of the party injured, but the 
 several liability arises from the joint liability, and from the 
 rule of law that a party injured need not sue all who are 
 guilty of the wrongful act ; but what I say is, that two per- 
 sons cannot be made separately liable at the election of the 
 party suing, unless in cases where they would be jointly 
 liable : and there cannot be any ground for saying that the 
 hirer of the horses and the jobman would be jointly liable. 
 There are, however, cases which have been determined upon 
 principles not altogether consonant to what I have 
 before considered are those upon which the liabilities of 
 parties should be determined, where persons have been held 
 liable for the negligence of individuals who were not their 
 owai immediate servants, but the servants of agents w4iom 
 they had employed to do their work. In^ Bush v. Sfcinman 
 [i Bos. & Pul. 404], the owner of a house had employed a 
 surveyor to do some work upon it : there were several sub- 
 contracts, and one of the workmen of the person last em- 
 ployed put some lime on the road, in consequence of which 
 the carriage of the plaintiff was overturned ; and it was held 
 that the owmer of the house was liable, though the person 
 who occasioned the injury was not his own immediate 
 servant. So in Sly v. Edglcy [6 Esp. 6], a person had 
 employed a bricklayer to make a sewer, who left it open;
 
 102 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 in consequence of which the plaintiff fell in, and broke his 
 leg. The person who employed the bricklayer was held 
 liable, upon the principle of respondeat superior, that he 
 had employed the bricklayer, and was answerable for what 
 he had done. These cases appear to establish that in these 
 particular instances the owner of the property was held 
 liable, though the injury were occasioned by the negligence 
 of contractors or their servants, and not by the immediate 
 servants of the owner. 
 
 But supposing these cases to be rightly decided, there 
 is this material distinction, that there the injury was done 
 upon or near and in respect of the property of the defend- 
 ants, of which they were in possession at the time. And 
 the rule of law may be that in all cases where a man is in 
 possession of fixed property he must take care that his 
 property is so used and managed that other persons are not 
 injured, and that, whether his property be managed by his 
 own immediate servants or by contractors or their serv- 
 ants. The injuries done upon land or buildings are in the 
 nature of nuisances, for which the occupier ought to be 
 chargeable when occasioned by any acts of persons whom 
 he brings upon the premises. The use of the premises is 
 confined by the law to himself, and he should take care not 
 to bring persons there who do any mischief to others. But 
 as to Bush V. Stcinman [i Bos. & Pul. 404], there are some 
 observations to be made. Lord Chief Justice Eyre, in the 
 first place at nisi prius, was of opinion the action was not 
 maintainable ; and when the case came before the Court, he 
 says in the beginning of his judgment, "that he finds great 
 difficulty in stating with accuracy the grounds on which 
 it is to be supported. The relation of master and servant 
 as commonly exemplified in actions brought against the 
 master is not sufficient ; and the general proposition that a 
 person shall be answerable for any injury which arises in 
 carrying into execution that which he has employed another 
 to do seems to be too large." And in the conclusion he also 
 says, that he still feels difficulty in stating the precise prin-
 
 LAUGHER z: POINTER 103 
 
 ciple on which the action is founded. This case, therefore, 
 does not rest upon the same basis as it would if no such 
 doubt had been expressed. The case is mainly grounded 
 upon that of Littledalc v. Lord Lonsdale; but in that case 
 the defendant had a foreman or steward paid by him, and 
 he engaged all the under workmen, who were paid out of 
 the funds of the defendant. All the machinery and utensils 
 belonged to the defendant, and all the persons employed 
 were his own immediate servants, just as much as his do- 
 mestic servants engaged and hired by his house steward. 
 There is the case of Leslie v. Pounds [4 Taunt. 649], which 
 has some resemblance to the last cases. Lord Chief Justice 
 Mansfield says that it is a very singular case. The tenant 
 of a house was bound to repair it. but the landlord superin- 
 tended the repairs; and, on being remonstrated with by the 
 commissioners of pavement as to the dangerous state of the 
 cellar, had promised to take care of it, and had put up some 
 temporary boards as a protection to the public, but they 
 proved insufficient; and an accident having happened, he 
 was held liable. That was decided on the ground of the 
 defendant's personal interference about his own property. 
 It may be said that the defendant in the present case was 
 owner of the carriage, and that therefore the principles of 
 these latter cases apply ; but, admitting these cases, the same 
 principle does not apply to personal movable chattels as to 
 the permanent use and enjoyment of land or houses. 
 
 ' Houses and land come under the fixed use and enjoyment 
 of a man for his regular occupation and enjoyment in life; 
 
 I the law compels him to take care that no persons come 
 about his premises wdio occasion injury to others. The 
 use of a personal chattel is merely a temporary thing, the 
 enjoyment of w'hich is, in many cases, trusted to the care 
 and directions of persons exercising public employments, 
 and the mere possession of that, where the care and direc- 
 tion of it is entrusted to such persons, who exercise public 
 employments, and in virtue of that furnish and provide the 
 ineans of using it, is not sufficient to render the owner lia-
 
 104 AGENT'S POWER TO SUBJECT PRIXCIPAL TO LIABILITY 
 
 ble. Movable property is sent out into the world by the 
 owner to be conducted by other persons : the common inter- 
 course of mankind does not make a man or his own servants 
 always accompany his own property ; he must in many cases 
 confide the care of it to others who are not his own sen^ants, 
 but whose employment it is to attend to it. And in the in- 
 stances of various kinds of carriages, they are frequently, 
 in the common intercourse of the world, confided to the 
 care of persons, who provide the drivers and horses, and 
 it is not considered that the drivers necessarily belong to 
 the owner of the carriage. And I think that there cannot 
 be any difference, in point of law, as to the liabilities of 
 these persons arising from the mere ownership of the 
 carriage, and that the ownership of the carriage makes 
 him no more responsible than it would do if it had been 
 sent to be repaired by a coachmaker who, in the course 
 of repair, had occasioned any damage to other persons ; 
 but if the injury arises from the driver, it is he, or the 
 person who appoints him. that is to be responsible. It may 
 be said that, according to this doctrine, a person who hired 
 job horses and a coachman for a year would not be answer- 
 able for the negligence of the coachman: if the coachman 
 remain the mere servant of the jobman, not otherwise em- 
 ployed in the service of the hirer, I think the hirer would 
 not be liable for whatever time he hired the coachman and 
 horses; but where the coachman is hired for a year, it will 
 very often happen that he is employed in other services 
 besides the mere attention to the coach and horses; and if, 
 by such circumstances, he becomes the servant of the hirer, 
 besides being the servant of the jobman, the "case might then 
 admit of a different consideration. In Chilcot v. Bromley 
 [i2 Ves. 114], testator bequeathed to all his servants 500/. 
 each; and it was held, that a coachman supplied by a job- 
 master, together with a carriage and horses which were 
 hired by the year, was not entitled to be considered a serv- 
 ant. 
 
 This, however, is not the case of a servant employed
 
 LAUGHER V. POINTER 105 
 
 for a year or a month, and upon the whole of the circum- 
 stances of this case. I am of opinion that this defendant is 
 not hable for the damage that has occurred, and that the 
 rule for setting aside the non-suit should be discharged. 
 
 There are many cases where questions have arisen 
 upon the liabilities of postmasters, of captains of ships of 
 war, and of owners of ships who have taken pilots, and of 
 factors who have acted for their principals, and others, as 
 to what degree of possession is kept by the owner. These I 
 have not thought it necessary to notice, because I think the 
 sole question here is, whether if a man employs another to 
 do work respecting personal movable property, and that 
 other furnishes a servant, that servant is to be considered in 
 the same light as a servant appointed by the person him- 
 self. 
 
 HOLROYD, /,****** *3 
 
 It was contended in the argument, not only that the 
 defendant was not responsible for the driver, but that the 
 plaintiff could not recover on this declaration, each count 
 of which contained as a material allegation that the act was 
 done by the defendant's servant, whereas the driver 
 could not be considered as his servant. But my mind has 
 come to the conclusion, that the defendant is responsible 
 for the driver's negligence, and responsible too upon this 
 declaration, the driver being to be considered, in my 
 opinion, for this purpose as. in law, his servant. It appears 
 to me, that the defendant stands in the same situation of 
 responsibility as if the horses had been driven by Bryant 
 himself, or as if they had been driven by a person chosen by 
 the defendant himself, for the driving is equally under the 
 authority and orders of the defendant, and equally for his 
 profit, benefit, or pleasure, and the driver is, I think, equally 
 the defendant's servant for that purpose, whether the driver 
 be Bryant himself, the person directly hired and employed 
 by the defendant, or be another person selected and ap- 
 
 His restatement of the facts is omitted.
 
 106 AGENT'S POWER TO SUBJECT PRINCIPALTO LIABILITY 
 
 pointed by the defendant himself, or a person selected 
 and appointed by Bryant under the authority or per- 
 mission of the defendant. The question is not whether 
 Bryant, as the owner of the horses and the immediate 
 master of the driver, might or might not have been 
 made responsible for the driver's negligence, nor is this the 
 case of a letting for a particular purpose only, such as going 
 to a particular place, as in Dcaii v. Branthivaitc [5 Esp. 
 35], and Sammcll v. Wright [5 Esp. 263], where the hirer 
 was considered not to have the entire management and con- 
 trol over the things so hired ; from which cases the present 
 is distinguishable, because the present hiring was for no 
 such particular purpose, but to go with the carriage where 
 the defendant chose, and to be under his general authority 
 and orders in that respect for a certain time. By such a 
 letting for a certain time the defendant became possessed 
 in law of the horses so let to him whilst he was using them 
 under such letting. It would be so clearly, if they had not 
 been retained in the custody of a driver provided by Bryant, 
 according to the doctrine of Lord Ellenborough in Lotan 
 V. Cross [2 Camp. 464], where he says, "show a letting" (sc. 
 of the chaise) for a certain tirrie to Brown, and the pos- 
 session would be in him;" and in Holl v. Pickard [3 Camp. 
 187], whereby the horses being let to hire to Dr. Carey for 
 a certain term, he, and not the owner, was deemed to be the 
 person in possession of them, as he, Dr. Carey, had a right 
 to retain them till that time was expired, though in that 
 case indeed Dr. Carey is stated to have been driving them 
 by his own servants when the mischief was done. But in 
 the present case, although the horses were continued in the 
 custody of a driver provided by Bryant, yet as the horses 
 and the driver were to be for the use and subject to the 
 general directions of the defendant, and as the defendant 
 had a right to retain them till the time for which they were 
 hired was expired, and as they were at the time the mis- 
 chief was done in the use and under the directions of the 
 defendant, I think that the driver was for this purpose in
 
 LAUGHER V. POINTER 107 
 
 the employ, and in law, the servant of the defendant, and 
 that the defendant was in law answerable for the driver's 
 negligence in the execution of the defendant's orders in 
 such employ, in whatever situation the driver might also 
 stand with respect to Bryant, with regard to Bryant'^ re- 
 sponsibility for him, at the election of the plaintiff. A 
 person may stand in the relation of servant to two different 
 persons as his masters in two different respects with regard 
 to the same thing, and this even though the service done, or 
 to be done, be special and limited to a single act, as appears 
 in 2 Roll's Abr. 556, pi, 14; though that indeed was a case 
 in which the party employing the officer, who was consid- 
 ered as his sen-ant, would not be responsible for the con- 
 duct of the officer as his servant, but that would be so on 
 account of the duties and obligations upon the officer, and 
 upon grounds not applicable to the question of the de- 
 fendant's responsibility in the present case. There it is 
 said, "If a Serjeant of London, or bailiff in a county, take a 
 man upon a capias in process at my suit, and J. S. rescue 
 him out of his possession, I may have a general writ of 
 trespass against him, because the serjeant is as well my ser- 
 vant to this purpose as the servant of the king;" (that is, 
 as it is expressed in Hobart 180, minister as well to the per- 
 son suing out the process as to the court) ; "and therefore 
 the taking out of the possession of the serjeant, who is my 
 servant, is a taking out of my possession.'' Tr. 15 Ja. 
 entre Wheatley and Stone, adjudged in a writ of error at 
 Serjeant's Inn. So in the present case, I think the horses 
 were to be considered in law as in the possession of the de- 
 fendant, and the driver as the defendant's servant, for the 
 purpose for which he was sent to the defendant; and I 
 think, that a taking of the horses or driver away from the 
 defendant's service during the time for which he had hired 
 them, would have been a taking them away from him, for 
 which he might have maintained an action of trespass, as 
 for a taking them out of his possession and service; and, 
 consequently, that he was answerable for the driver's negli-
 
 108 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 gence in driving him, the defendant, whilst under his, the 
 defendant's, orders, and it is to be considered, I think, as 
 the defendant's driving of the carriage and horses by his 
 servant. That the responsibihty is not confined to the im- 
 mediate master of the person who committed the injury, 
 and that the action may be brought against the person from 
 whom the authority flows to do the act, in the neghgent 
 execution of which the injury has arisen, is estabHshed by 
 the case of Bush v. Stcinman [ i Bos. & Pul. 404], where 
 the owner of a house having contracted with a surveyor to 
 repair the house for a stipulated sum, and the surveyor hav- 
 ing contracted with a carpenter to do it, who employed a 
 bricklayer, who contracted for a quantity of lime with a 
 lime burner, the owner of the house was held responsible 
 for the damages occasioned by the lime burner's servants 
 improperly laying that lime in the high road. The prin- 
 ciples on which that case was decided apply, I think, directly 
 to the present case, and shew the responsibility of the 
 present defendant; and, indeed, Heath, J., puts the very 
 case, that where a person hires a coach upon a job, and a 
 job coachman is sent with it, the person who hires the coach 
 is liable for any mischief done by the coachman while in 
 his employ, though (as the Judge is there made to say), he 
 is not his servant. But under the circumstances of the 
 present case the defendant was, I think, liable for the negli- 
 gence of the driver as his servant, driving the defendant 
 pursuant to his orders (the driver being, in law, his ser- 
 vant, in my opinion, for that purpose according to the decla- 
 ration), and, consequently, that the non-suit ought to be 
 set aside and a new trial granted.* 
 Rule discharged. 
 
 *The opinion of Bailey, J., in favor of the plaintiff, and Abbott, 
 C. J., in favor of the defendant, are omitted.
 
 JOXES v. SCULLARD 109 
 
 JONES r. SCULLARD. 
 
 In the Queen's Bench Division of the High Court of 
 Justice, 1898. 
 
 Lazu Reports, 2 Queen's Bench Division, 565. 
 
 Further consideration before Lord Russell of Killowen 
 C. J., after trial with a jury. 
 
 The plaintiff was a jeweller carrying on business at 
 368, Holloway Road. On June 22, 1897, the day of the 
 Queen's Jubilee, whilst the defendant was being driven in 
 his brougham in the Holloway Road, the driver of the 
 brougham lost control of the horse, which bolted and 
 dashed through the window of the plaintiff's shop, doing 
 considerable damage. The plaintiff sued the defendant for 
 his loss, which he claimed to have been caused by the 
 negligence of the driver. The evidence showed that the 
 horse which was driven in the brougham was a hard- 
 mouthed horse and a puller, and that the driver ought to 
 have known that fact by inspection of its mouth, which 
 showed signs of hardness caused by pulling; that the reins 
 ought consequently to have been fastened to the bar, where- 
 as they were improperly fastened to the cheek of the bit ; 
 that the curb was not sufficiently tightened, and that it was 
 by reason of this adjustment of the reins and curb that the 
 driver lost control of the horse. It appeared that the broug- 
 ham, the horse, the harness, and the suit of livery which 
 the driver was wearing were the property of the defend- 
 ant; but the driver, a man named Loveday, was a coach- 
 man in the employment of a livery-stable keeper named 
 Walker, at whose stable the defendant kept the brougham 
 and horse. The defendant had kept his horses and car- 
 riage at livery at Walker's stable since January 3, 1897. He 
 first began to be driven by Loveday on May 10; but from
 
 no AGENT'S POWER TO SUBJECT PRINCIPALTO LIABILITY 
 
 that date down to the time of the accident Loveday invari- 
 ably drove for him. After Loveday had driven for him 
 a short time, between May 24 and May 31, the defend- 
 ant snppHed him with the snit of hvery which he was wear- 
 ing at the time of the accident. The particular horse 
 which caused the accident had only been recently pur- 
 chased by the defendant in the country, and was first 
 brought up to London on June 14. between which date and 
 June 22 it was driven by Loveday at most some three or 
 four times. The defendant, who disputed that the horse 
 was hard-mouthed or improperly fitted, also contended that, 
 even if it were, he was not responsible, on the ground that 
 Loveday was not his servant, but was the servant of Walker, 
 the livery-stable keeper. The Chief Justice left to the jury 
 the question of negligence only. The jury returned a ver- 
 dict for the plaintifY. The cjuestion as to the person who was 
 responsible for Loveday's negligence was reserved for fur- 
 ther consideration, it being agreed that the judge should 
 have power to draw all necessary inferences of fact.^ 
 
 Aug. 9. Lord Russell of Killowen, C. J. : This is 
 a case which has given me considerable anxiety as to how 
 I ought to decide it. It raises a point of importance, which 
 I think it is eminently desirable should be considered in the 
 Court of Appeal. 
 
 The question which arises for decision upon the facts 
 of this case is whether the fact that Loveday was undoubt- 
 edly in a general sense the servant of Walker and could not 
 be dismissed from Walker's emploj-ment by any act of 
 the defendant is sufficient to relieve the defendant from 
 responsibility for the negligence of Loveday while driving 
 him. It is clear upon the authorities that it is not at all 
 impossible for a man to be in the practical relation of ser- 
 vant to two different employers. It is clear that, although 
 Loveday was in the general employment of Walker, he 
 may at the time have been in the particular employment of 
 
 ^ The Reporter's statement of the facts of the case is omitted.
 
 JONES V. SCULLARD 111 
 
 the defendant, and the servant of the defendant in relation 
 to the particular matter of driving the defendant's carriage. 
 The question is whether he was so. 
 
 I will now proceed to examine the leading authorities 
 upon this subject, because I do not hesitate to say that, If it 
 were not for those authorities, I should not have felt the 
 perplexity which I have felt as to how the case should be 
 decided. At the same time, I should add that no one of 
 those cases is, in all essential characteristics, on all fours 
 with the present. In no one of those cases is there the con- 
 junction of all the facts which exist here, namely, the own- 
 ership by the defendant of the brougham, the horse, and 
 the harness, the fact that the livery was supplied to the 
 driver by the defendant, and the fact that the horse which 
 was being driven was one to which the driver had not been 
 previously accustomed. 
 
 The first of the authorities to which I have referred is 
 Laugher v. Pointer [5 B. & C. 547]. The point there raised 
 was considered of such importance that it was the subject of 
 consideration, not only by the Court of King's Bench, but 
 also by the whole body of the common law judges. 
 The King's Bench were equally divided, and it was 
 stated by Parke, B., when delivering the judgment of 
 the Court of Exchequer in Quannan v. Burnett [6 AI. 
 & W. 499, at p. 507], that the twelve judges also 
 differed in opinion. Whether they also were equally 
 divided or not I have been unable to ascertain, although I 
 have been at some pains to do so. The decision of the 
 twelve judges is unreported, and a search in the Record Of- 
 fice has, I understand, thrown no further light upon the 
 matter. The report in Barnewall and Cresswell gives the 
 decision of the King's Bench only, and the head-note to that 
 report is as follows : "Where the owner of a carriage hired 
 of a stable-keeper a pair of horses to draw it for a day, 
 and the owner of the horses provided a driver, through 
 whose negligent driving an injury was done to a horse be- 
 longing to a third person : Held, by Abbott. C. J. and Lit-
 
 112 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 tledale, J., that the owner of the carriage was not 
 liable to be sued for such, injury, Bayley and Holroyd, 
 JJ. diss." In his judgment Abbott, C. J. [5 B. & C 
 at page 577], says: "I must own that I cannot per- 
 ceive any substantial difference between hiring a pair of 
 horses to draw my carriage about London for a day, 
 and hiring them to draw it for a stage on the road I am 
 travelling, the driver being in both cases furnished by the 
 owner of the horses in the usual way ; nor can I feel any 
 svibstantial difference between hiring the horses to draw 
 my own carriage on these occasions and hiring a car- 
 riage with them of their owner." With that obser- 
 vation I am disposed to agree. Later on he says 
 [5 B. & C. at page 580] : "I have acknowledged 
 the difficulty of drawing a line with reference to time 
 and distance; and I think we must look to other 
 circumstances in order to ascertain the obligation of the 
 hirer. Length of time may in itself be a circumstance 
 deserving of attention, because it may be evidence of the 
 subsequent approbation and continuance, if not of the 
 original choice, of the coachman." That, I think, is an 
 observation pregnant with good sense. It may be that 
 case is well decided; but in my opinion it does not govern 
 the present. 
 
 The next case to which I wish to refer is that of 
 Brady v. Giles [i Mood. & Rob. 494]. There the 
 defendant, who was a carriage-jobber in London, let 
 on hire to a Mr . M'Kinlay a barouche and four 
 horses for a trip to Windsor and back. The horses 
 were driven by two of the defendant's postilions. On 
 the journey back to town the barouche, owing, it was 
 alleged, to the negligence of the postilions, came into col- 
 lision with the plaintiff's gig. A question arose at nisi 
 prius as to whether the postilions were acting as the servants 
 of the defendant or of M'Kinlay. Lord Abinger, before 
 whom the case was tried, left the question to the jury, and 
 said that "it had always appeared to him that the Court
 
 JONES z: SCULLARD 113 
 
 of King's Bench had pursued an erroneous course in 
 Laugher v. Pointer [5 B. & C. 547] when they al- 
 lowed the cpestion now raised to be discussed as if 
 it were a question of law for the judge to decide. It 
 always appeared to him that it was quite impossible 
 to lay down any rule of law on such a point. No 
 satisfactory line could be drawn at which, as a mat- 
 ter of law, the general owner of a carriage, or rather 
 the general employer of the driver, ceased to be responsible 
 and the temporary hirer became so. Each case of this 
 class must depend upon its own circumstances." That ap- 
 pears to me to be a sound view ; and it was in consequence 
 of w^hat was there said that in the present case I thought 
 it right that, when reserving this case for further con- 
 sideration, I should be empowered to draw all proper in- 
 ferences from the facts. 
 
 The next case is Ouarmau v. Burnett [6 M. & 
 W. 499]. There the defendants, two ladies, who kept 
 a carriage, had for a period of about three years 
 been in the habit of hiring for the day or for the 
 drive horses and a coachman from a particular job- 
 mistress. They had during that time always been driven 
 by the same coachman, to whom they paid a small 
 gratuity for each drive. Owing to the negligence of 
 the coachman in leaving the horses unattended while 
 the carriage was standing at the door of the defend- 
 ants' house, the horses started off and came into collision 
 with the plaintiff's chaise. A verdict having been found 
 for the plaintiff, the Court of Exchequer set it aside, on the 
 ground that there was no evidence that the coachman was 
 acting as the servant of the defendants. That case might 
 appear to be an authority in favor of the defendant; but 
 I would point out that its facts dift'er from those in the 
 present case in two material particulars. In the present 
 case the horse which was being driven was the property of 
 the defendant ; and, secondly, not only was it his property. 
 but it was one which he had only recently purchased, and
 
 114 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 with which consequently the driver supphed by the Hvery- 
 stable keeper had but an imperfect acquaintance. Both 
 those matters are to my mind material. The materiality of 
 the ownership of the horse lies in this : so long as the 
 hirer contracts with the livery-stable keeper for the sup- 
 ply of a complete equipage to drive him by the day or 
 hour, as the case may be, and the stable keeper in pur- 
 suance of that contract supplies carriage, horses, and the 
 man to drive them, the hirer has no control whatever over 
 the driver, except so far as he can indicate the direction in 
 which he wishes to be driven. He could not order him 
 to increase the speed, for the driver might lawfully refuse 
 to do so on the ground that he was acting under his mas- 
 ter's orders in driving slowly. . But where the hirer of 
 the coachman is himself the owner of the horse, he is en- 
 abled to dictate to the driver as to how fast he shall drive, 
 and the driver is bound to take his orders from him. The 
 driver is in that case under the control of the hirer as to 
 the manner of his driving. Then comes the further con- 
 sideration that the horse was one which had only come 
 into the possession of the defendant a few days before 
 the date of the accident, and had been driven by Loveday 
 an insufficient number of times to enable him to learn the 
 peculiarities of the horse's temper and the manner in 
 which, having regard to that temper, the bit and reins 
 required to be adjusted. Further, although the defendant 
 could not dismiss Loveday from Walker's employment, he 
 could if dissatisfied with his manner of driving refuse to be 
 driven by him. These matters, to my mind, form elements 
 to be considered in determining the relation of the driver 
 to the defendant. 
 
 The only two other cases to which I wish to 
 refer seem directly to support the view which I have 
 taken in the present case. The first of those two 
 cases is Roiirkc v. White Moss Colliery Co. [2 C. 
 P. D. 205]. There the defendants, having begun sink- 
 ing a shaft in their colliery, for which purpose they
 
 JONES z: SCULLARD 115 
 
 had fixed an engine near the mouth of the shaft, 
 agreed with W to do the sinking and excavating at a cer- 
 tain price per yard, W to find all labor, the defendants to 
 provide and place at the disposal of W the necessary en- 
 gine-power with an engineer to work the engine (who'was 
 employed and paid by the defendants), the engine and 
 engineer to be under the control of W. The plaintiff, who 
 was one of the men employed and paid by W. while work- 
 ing at the bottom of the shaft was injured by the negli- 
 gence of the engineer. It was held that, though the en- 
 gineer remained the general servant of the defendants, yet, 
 being under the orders and control of W at the time of the 
 accident, he was acting as the servant of W, and not of 
 the defendants, who were, therefore, not liable for his 
 negligence. That case makes it quite clear that a man may 
 l>e the general servant of one person, and yet at the same 
 time be the servant of another in relation to a particular 
 matter, and it also shews that the important element, 
 whereby to determine whether he is the servant of the 
 one person or of the other in relation to the particular 
 business on which he is engaged, is which of the two per- 
 sons had the control of him in the conduct of that busi- 
 ness. 
 
 The other case is Donovan v. Laing, Sc, Syn- 
 dicate. [1893, I O. B. 629.] There the defendants 
 contracted to lend to a firm who were engaged in 
 loading a ship at their wharf a crane with a man 
 in charge of it. The man in charge of the crane 
 received directions from the firm or their servants as to 
 the working of the crane, and the defendants had no con- 
 trol in the matter. The plaintiff, who was a servant of 
 the wharfingers and was employed by them to direct tlie 
 working of the crane, sustained an injur}^ through being 
 struck by it by reason of the negligence of the man in 
 charge, and sued the defendants on the ground that tlie 
 nesflieence was the act of their servant. It was held that 
 though the man in charge of the crane remained the gen-
 
 116 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 eral servant of the defendants, yet, as they had parted 
 with the power of controlHng him with regard to the matter 
 on which he was engaged, they were not hable for his negH- 
 gence while so employed. That case is on all fours with 
 Rourkc V. White Moss Colliery Co. [2 C. P. D. 205]. 
 Now. apply the principle of those cases to the facts of the 
 case before me. What control had the livery-stable keeper 
 over the driver while driving the defendant's horse? Abso- 
 lutely none. The whole control was in the defendant, who 
 could have ordered the driver to go fast or slow, or stop or 
 go on, just as he pleased, or to keep the horse without food, 
 or otherwise manage the horse as he directed. Bowen, L. J., 
 in the course of his judgment in Donovan v. Laing, &c., 
 Syndicate [1893, i 0. B. 629], indeed says [1893, i O. 
 B. at p. 634] : "The principal part of the argument for the 
 plaintiff was founded on what may be called the carriage 
 cases: Laugher v. Pointer [5 B. & C. 547] and 
 Qiiarman v. Burnett [6 M. & W. 499] ; but they 
 really have nothing to do with the point presented in 
 this appeal. If a man lets out a carriage on hire to 
 another, he in no sense places the coachman under 
 the control of the hirer, except that the latter may 
 indicate the destination to which he wishes to be driven. 
 The coachman does not become the servant of the person 
 lie is driving; and if the coachman acts wrongly, the 
 hirer can only complain to the owner of the carriage." But 
 in so distinguishing the case with which he was dealing 
 from the carriage cases, it is clear that he only intended to 
 include under that latter term cases in which the stable- 
 keeper is letting out a complete equipage, carriage, horses, 
 and man, and did not intend to include under it such a 
 case as the present. 
 
 The principle, then, to be extracted from the cases is 
 that, if the hirer simply applies to the livery-stable keeper 
 to drive him between certain points or for a certain period 
 of time, and the latter supplies all necessary for that pur- 
 pose, the hirer is in no sense responsible for any negli-
 
 JONES V. SCULLARD 117 
 
 gence on the part of the driver. But it seems to me to be 
 altogether a different case where the brougham, the horse, 
 the harness, and the livery are the property of the person 
 hiring the services of the driver. And in such a case, especi- 
 ally if, as here, the driver has driven the hirer for a ^con- 
 siderable period of time and been approved by him, and 
 the horse is one the characteristics or peculiarities of which 
 neither the livery-stable keeper nor his driver have had any 
 practical opportunity of becoming acquainted with, there 
 is, it seems to me, evidence upon which a jury would be 
 justified in coming to the conclusion that the driver was 
 upon the occasion in question acting as the servant, not of 
 the livery-stable keeper, but of the person who hired 
 him. I have come to that conclusion. There must be 
 judgment for the plaintiff. 
 
 Judgment for the plaintiff.
 
 118 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 DEMPSEY c'. CHAMBERS. 
 
 In the Supreme Judicial Court of Massachusetts, 
 
 1891. 
 
 154 Massachusetts Reports, 330.* 
 
 Holmes, J. : This is an action of tort to recover dam- 
 • ages for the breaking of a plate-glass window. The glass 
 was broken by the negligence of one McCullock, while 
 delivering some coal which had been ordered of the de- 
 fendant by the plaintiff. It is found as a fact that Mc- 
 Cullock was not the defendant's servant when he broke 
 the window, but that the ''delivery of the coal by Mc- 
 Cullock was ratified by the defendant, and that such 
 ratification made McCullock in law the agent and servant 
 of the defendant in the delivery of the coal." On this find- 
 ing the Court ruled "that the defendant, by his ratifica- 
 tion of the delivery of the coal by McCullock became re- 
 sponsible for his negligence in the delivery of the coal." 
 The defendant excepted to this ruling, and to nothing else. 
 We must assume that the finding was warranted by the 
 evidence, a majority of the court being of opinion that the 
 bill of exception does not purport to set forth all the evi- 
 dence on which the finding was made. Therefore, the 
 only question before us is as to the correctness of the rul- 
 ing just stated. 
 
 If we were contriving a new code to-day, we might 
 hesitate to say that a man could make himself a party to a 
 bare tort, in any case, merely by assenting to it after it 
 had been committed. But we are not at liberty to refuse 
 to carry out to its consequences any principle which we 
 believe to have been part of the common law, simply be- 
 cause the grounds of policy on which it must be justified 
 
 ' The Reporter's notes of the arguments of counsel are omitted.
 
 DEMPSEY V. CHAMBERS 119 
 
 seem to us to be hard to find, and probably to have be- 
 longed to a different state of society. 
 
 It is hard to explain why a master is liable to the ex- 
 tent that he is for the negligent acts of one who at the 
 time really is his servant, acting within the general scope 
 of his employment. Probably master and servant are 
 "fained to be all one person" by a fiction which is an echo 
 of the patria potcstas and of the English frankpledge. By- 
 ington v. Simpson, 134 Mass. 169, 170; Fitz. Abr. Corone, 
 pi. 428. Possibly the doctrine of ratification is another as- 
 pect of the same tradition. The requirement that the 
 act should be done in the name of the ratifying party looks 
 that way. Nciu England Dredging Co. v. Rockport Gran- 
 ite Co., 149 Mass. 381, 382; Fuller & Trimwell's case, 
 2 Leon. 215, 216; Sext. Dec. 5. 12, De Reg. Jur., Reg. 9. 
 D. 43. 26. 13. D. 43. 16. I, sec. 14, gloss. See also cases 
 next cited. 
 
 The earliest instances of liability by way of ratification 
 in the English law% so far as we have noticed, were where 
 a man retained property acquired through the wrongful act 
 of another. Y. B. 30 Ed. I. 128 (Rolls ed.) ; 38 Lib. Ass. 
 22T,, pi. g; S. C. 38 Ed. in. 18, Engettement de Garde. 
 See Plowd. 8 ad fin., 2y, 31 ; Bract, fol. 158 b, 159 a, 171 b; 
 12 Ed. IV. 9, pi. 23. But in these cases the defendant's 
 assent was treated as relating back to the original act, and 
 at an early date the doctrine of relation was carried so far 
 as to hold that, where a trespass would have been justified 
 , if it had been done by the authority by which it pur- 
 ported to have been done, a subsequent ratification might 
 justify it also. Y. B. 7 Hen. IV. 34, pi. i. This decision 
 is qualified in Fitz. Abr. Bayllye, pi. 4, and doubted in 
 Bro. Abr. Trespass, pi. 86 ; but it has been followed or 
 approved so continuously, and in so many later cases, that 
 it would be hard to deny that the common law was as 
 there stated by Chief Justice Gascoigne. Godbolt. 109, 
 no, pi. 129; 5. C. 2 Leon. 196, pi. 246; Hull v. Pickers- 
 gill, I Brod. & Bing. 282; Miiskctt v. Drunnnond, 10 B. &
 
 120 AGENT'S POWER TO SUBJECT PRINCIPAL TO LIABILITY 
 
 C. 153, 157; Enroll v. Dounan, 2 Exch. 167, 188; Secre- 
 tary of State ill Council of India v. Kaiiiachee Boye Sahaba, 
 13 Moore, P. C. 22, 86; Chcctham v. Mayor of Manches- 
 ter, L. R. 10 C. P. 249; Wiggins v. United States, 3 Ct. of 
 CI. 412. 
 
 If we assume that an alleged principal by adopting an 
 act which was unlawful when done can make it lawful, it 
 follows that he adopts it at his peril, and is liable if it 
 should turn out that his previous command would not have 
 justified the act. It never has been doubted that a man's 
 subsequent agreement to a trespass done in his name and 
 for his benefit amounts to a command so far as to make 
 him answerable. The ratihahitio iiiandato comparatur of 
 the Roman lawyers and the earlier cases (D. 46. 3. 12, sec. 
 4; D. 43. 16. I, sec. 14; Y. B. 30 Ed. I. 128) has been 
 changed to the dogma aeqiiiparatur ever since the days of 
 Lord Coke. 4 Inst. 317. See Bro. Abr. Trespass, pi. 113; 
 Co. Lit. 207 a; Wingate's Maxims, 124; Com. Dig. Tres- 
 pass, C, I ; Eastern Counties Railway v. Broom, 6 Exch. 
 314, 326. 327 ; and cases hereafter cited. 
 
 Doubts have been expressed, which we need not con- 
 sider, whether this doctrine applied to the case of a bare 
 personal tort. Adams v. Freeman, 9 Johns. 117, 118. Ander- 
 son and Warberton, JJ.. in Bishop v. Montague, Cro. Eliz. 
 824. If a man assaulted another in the street out of his 
 own head, it would seem rather strong to say that, if he 
 merely called himself my servant, and I afterwards as- 
 sented, without more, our mere words would make me a 
 party to the assault, although in such cases the canon 
 law excommunicated the principal if the assault was upon 
 a clerk. Sext. Dec. 5. 11. 23. Perhaps the application of 
 the doctrine would be avoided on the grounds that the 
 facts did not show an act done for the defendant's benefit. 
 Wilson V. Barker, i Nev. & ]Man. 409; 5. C. 4 B. & Ad. 614, 
 et seq.; Smith v. Lozo. 42 ]Mich. 6. As in other cases it 
 has been on the ground that thev did not amount to such
 
 DEMPSEY V. CHAMBERS 121 
 
 a ratification as was necessary. Tucker v. Jcrris, 75 iMaine, 
 184; Hyde v. Cooper, 26 Vt. 552. 
 
 But the language generally used by judges and text 
 writers, and such decision as we have been able to find, is 
 broad enough to cover a case like the present when the 'rati- 
 fication is established. Perley v. Georgetozvn, 7 Gray, 464; 
 Bishop V. Montague, Cro. Eliz. 824; Sanderson v. Baker, 
 2 Bl. 832; 5". C. 3 Wils. 309; Barker v. Braham, 2 Bl. 866, 
 868; 5. C. 3 Wils. 368; Bodkin v. Powell, Cowper, 476, 
 479; Wilson V. Tununan, 6 Man. & G. 236, 242; Lezvis v. 
 Read, 13* M. & \V. 834; Buron v. Denman, 2 Exch. 167, 
 188; Bird V. Brozvn, 4 Exch. 786, 799; Eastern Counties 
 Railway v. Broom, 6 Exch. 314. 326, 327; Roe v. Birken- 
 head, Lancashire, & Cheshire Junction Railzvay, 7 Exch. 
 ^6, 41; Ancona v. Marks, 7 H. & N. 686, 695; Condit 
 V. Baldzvin, 21 N. Y. 219, 225; Exuni v. Brister, 35 Miss. 
 391 ; Galveston, Harrisburg, & San Antonio Railzvay v. 
 Donahoe, 56 Texas, 162; Murray v. Lovejoy, 2 Cliff. 191, 
 195 ; see Lovejoy v. Murray, 3 Wall. 1,9; Story on Agency, 
 sees. 455. 456.- 
 
 Exceptions overruled. 
 
 ' The Court's discussion of the question whether the ratification 
 was established is omitted. An affirmative conclusion on this question 
 was reached.
 
 CHAPTER II. 
 
 LIABILITY OF AN UNDISCLOSED 
 PRINCIPAL. 
 
 RAILTOX V. HODGSON. 
 
 In the Court of Common Pleas, before Mansfield, C. 
 
 J., 1804. 
 
 4 Taunton's Reports, 576, note a. 
 
 The facts were, that the defendant, Hodgson, had for- 
 merly been a clerk with Smith, Lindsay, and Co., and after- 
 wards set up in business for himself, and had a counting- 
 house for himself at the house of Smith, Lindsay, and Co., 
 which the vendors knew ; that he purchased goods himself, 
 and directed the vendors to draw bills upon Smith, Lind- 
 say, and Co., and make out invoices to that house, which 
 was then a house of good credit, and without whose secur- 
 ity Hodgson could not have obtained credit and made the 
 purchases. Smith, Lindsay, and Co. received from the de- 
 fendant a commission of from 2 and one-half to 5 per cent, 
 upon the goods. The vendors entered the goods in their own 
 books, in the names of Smith, Lindsay, and Co., made out 
 the invoices in the names of, and sent them to Smith, Lind- 
 say, and Co., and drew bills upon them for the amount, 
 which Smith, Lindsay, and Co. accepted: the defendant in- 
 sisted that he purchased as the agent of Smith, Lindsay, 
 and Co., and in their names, and on their account, as he 
 used to do when in their employ. There was proof, how- 
 ever, of his being the principal, and having bought the 
 goods on his own account : The plaintiffs obtained a ver- 
 dict, and Mansfield, C. J., in summing up the evidence, ob- 
 
 (123)
 
 124 LIABILITY OF AX UNDISCLOSED PRINCIPAL 
 
 served to the jury, "that it was admitted these goods were 
 never dehvered to Smith, Lindsay, and Co. ; the defendant 
 had the goods, and the profits and loss : Smith, Lindsay, 
 and Co. were only to have a commission, for which they 
 lent their credit. Suppose a principal authorizes a factor to 
 sell goods, and he sells in his own name, the principal may 
 call upon the vendee for payment. It appeared that Hodg- 
 son had been a trader from 1798. Suppose Hodgson had 
 not been known to be the buyer, he would have been liable ; 
 Smith, Lindsay, and Co. would only have been nominal 
 buyers. H Hodgson had really paid Smith, Lindsay, and 
 Co., it would have depended upon circumstances whether he 
 would be liable to pay for the goods over again; if it would 
 have been unfair to have made him liable, he would not 
 have been so. What pretence was there that the plaintiffs 
 should be thrown upon the insolvent estate of Smith, Lind- 
 say, and Co., who never had the goods? This was a 
 stronger case than that of a dormant partner. The buyer 
 must be liable, though a third person may also, unless there 
 is an express agreement that the buyer shall not be liable." 
 The jury found a verdict for the plaintiffs. A motion was 
 made in the following term to set aside the verdict, and 
 have a new trial; but the Court refused it.^ 
 
 ^Accord: Isham v. Burgett, 157 Mass. 546, 1893. (The X Co. was 
 incorporated to build an electric line. No capital was paid in. B and C 
 built the line with their own funds and received all the stock of the 
 company in payment. During the course of construction B ordered 
 from A certain poles, stating that they were for the company. A 
 sued B for the price of the poles and recovered. Holmes, J. : "The 
 Judge was warranted in finding that the real principal, as well as the 
 mouth piece of the transaction, was the defendant, so that, although he 
 used the name of his creature, the corporation, in such a way as to 
 bind it to the plaintiffs at their election, still, when they discovered the 
 facts, they had the right also to go against him. * * * jf tj^g defendant 
 saw fit to use the name of the corporation on his own behalf, as rep- 
 resenting himself when engaged in a particular business, he cannot 
 complain of being held if the fact happens to be discovered.")
 
 THOAISOX V. DAVENPORT 125 
 
 THOMSON V. DAVENPORT. 
 
 In the Court of King's Bench, 1829. 
 
 9 Barncwall and Crcsswell's Reports, 78. 
 
 This was a writ of error, brought upon a judginent 
 obtained in the borough court of Liverpool against the 
 plaintiff in error. The plaintiff below declared for goods 
 sold and delivered. Plea, general issue. Upon the trial 
 before the mayor, and bailifTs, assisted by the recorder, a 
 bill of exceptions was tendered to the direction given by 
 the mayor, bailiffs, &c., by the said recorder to the jury. 
 The bill of exceptions stated, that one Thos. AI'Kune was 
 produced and examined upon oath as a witness by the coun- 
 sel for the plaintiffs, to maintain the issue on their parts. 
 And jM'Kune stated in evidence, that he. ^^I'Kune, was 
 established in Liverpool as a general Scotch agent and, 
 amongst others, acted as agent for the defendant, who re- 
 sided in Dumfries; that, in ]^Iarch, 1823, he received from 
 the defendant a letter, containing an order to purchase 
 various goods, and, amongst others, a quantity of glass and 
 earthenware ; which letter, with the order, was produced by 
 the plaintiffs' attorney, and was read in evidence as fol- 
 lows: — "Dumfries, 29th March, 1823. Annexed is a list of 
 goods which you will procure and ship per Nancy. Mem- 
 orandum of goods to be shipped : twelve crates of Stafford- 
 shire ware, crown window glass, ten square boxes," &c., &c. 
 That he, M'Kune, provided himself with the goods men- 
 tioned in this letter, and that he got the glass and earthen- 
 ware from the plaintiffs, who were glass and earthenware 
 dealers in Liverpool; that at the time he ordered the glass 
 and earthenware, he saw the plaintiff, IMountford Fynney, 
 himself, and, to the best of his recollection, told him, that 
 he, M'Kune, had an order to purchase some goods, and
 
 126 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 that they were the same house for wliom he had purchased 
 goods from the plaintiffs the preceding year; and he also 
 stated, to the best of his recollection, that as he was a 
 stranger to the nature of the goods, he hoped that the plain- 
 tiffs would let him have the same as before, to save him 
 from blame by his employer;" but he, M'Kune, did not 
 shew the plaintiffs the letter containing the order, nor did 
 he mention the name of any principal; that he then either 
 gave the plaintiff. Mountford Fynney, a copy of the order, 
 or produced to him the original order, that Fynney might 
 himself take a copy, but he rather thought the former was 
 the fact, and that the plaintiff, Fynney, did not see the 
 original, though he could not say positively; that the plain- 
 tiff accordingly furnished the glass and earthenware, the 
 amount of which, deducting the discount, was 193/. ys. Sd., 
 but adding the discount, 219/. 10s., and rendered invoices 
 thereof to M'Kune, headed thus: "Mr. Thomas INFKune 
 bought of John and James Davenport" (which was the 
 plaintiffs' firm) ; that M'Kune entered the net amount (193/. 
 /S. 8d.) to the credit of the plaintiffs in an account with 
 them in his books, and charged the same sum, with the ad- 
 dition of 2 per cent, for the commission, to the debit of the 
 defendant in an account with him, which was according to 
 his invariable course of dealing; and that he sent to the 
 defendant a general invoice of all the goods purchased, 
 comprising the glass and earthenware, but not mentioning 
 the plaintiffs' names; that afterwards, in April, 1823, and 
 before the credit for the goods had expired, M'Kune be- 
 came insolvent, though up to the day of his stopping pay- 
 ment he was in good credit, and could have bought goods 
 on trust to the amount of 20,000/. ; whereupon the said 
 mayor and bailiffs, by the said recorder, after stating the 
 evidence, told the jury that, from the distance of time since 
 the sale took place, there was some uncertainty in the evi- 
 dence of M'Kune as to the precise words used by him to 
 t;:2 plaintiffs at the time he gave them the order for the 
 goods; but it appeared to them (the said recorder) upon
 
 THOMSON V. DAVENPORT 127 
 
 the- evidence, that the name of the defendant as principal 
 was not then communicated or known to the plaintiffs; 
 and directed the jury, that if they were of opinion that 
 the defendant's name as principal was mentioned by 
 M'Kune to the plaintiffs at the time the order was given, or 
 that the plaintiffs then knew that the defendant was the 
 principal, their verdict ought to be for the defendant; but 
 if they were of opinion that the defendant's name as the 
 principal was not mentioned by ^M'Kune to the plaintiffs 
 at the time of the order being given, and that the plain- 
 tiffs did not then know that the defendant was the prin- 
 cipal, and they did not think, upon all the said facts of the 
 case, that the plaintiffs at the time of the order being given 
 knew who the principal was, so that they then had a power 
 of electing whether they would debit the defendant or 
 M'Kune, they ought to find a verdict for the plaintiffs ; and 
 that, although the plaintiffs at the time of the sale might 
 think that ^I'Kune was not buying the goods upon his own 
 account, yet if his principal was not communicated or made 
 known to them, that circumstance ought to make no differ- 
 ence in the case. The jury, after finding as a fact that the 
 letter containing the order was not shewn and made known 
 to the plaintiffs, gave their verdict for the plaintiffs below 
 for 219/. 10^. It was contended, that the mayor and bail- 
 iffs, by the recorder, ought to have directed the jury that 
 if they were satisfied that Davenport, &c., at the time of 
 the order being given knew that M'Kune was buying die 
 goods as an agent, even though his principal was not com- 
 municated or made known to them, they, by afterwards 
 debiting ]M'Kune, and so rendering the said invoices, had 
 elected to take him for their debtor, and had precluded 
 themselves from calling on Thomson.^ 
 
 Lord Tenterden, C. J. : I am of opinion that the 
 direction given by the learned Recorder in this case was 
 right, and that the verdict was also right. I take it to be 
 
 The Reporter's notes of the arguments of counsel are omitted.
 
 128 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 a general rule, that if a person sells goods (supposing at 
 the time of the contract he is dealing with a principal), 
 but afterwards discovers that the person with whom he has 
 been dealing is not the principal in the transaction, but 
 agent for a third person, though he may in the meantime 
 have debited the agent with it, he may afterwards recover 
 the amount from the real principal ; subject, however, to 
 this qualification, that the state of the account between the 
 principal and the agent is not altered to the prejudice of 
 the principal. On the other hand, if at the time of the sale 
 the seller knows, not only that the person who is nominally 
 dealing with him is not principal but agent, and also knows 
 who the principal really is, and, notwithstanding all that 
 knowledge, chooses to make the agent his debtor, dealing 
 with him and him alone, then, according to the cases of 
 Addison V. Gandasscqui [4 Taunt. 574], and Patcrson v. 
 Gandasscqui [15 East, 62], the seller cannot afterwards, on 
 the failure of the agent, turn round and charge the principal, 
 having once made his election at the time when he had the 
 power of choosing between the one and the other. The pres- 
 ent is a middle case. At the time of the dealing for the goods 
 the plaintiffs were informed that M'Kune, who came to 
 them to buy the goods, was dealing for another ; that is, 
 that he was an agent, but they were not informed who 
 the principal was. They had not, therefore, at that time 
 the means of making their election. It is true that they 
 might, perhaps, have obtained those means if they had 
 made further enquiry; but they made no further enquiry. 
 Not knowing who the principal really was, they had not 
 the power at that instant of making their election. That 
 being so, it seems to me that this middle case falls in sub- 
 stance and effect within the first proposition which I have 
 mentioned, the case of a person not known to be an agent; 
 and not within the second, where the buyer is not merely 
 known to be agent, but the name of his principal is also 
 known. There may be another case, and that is where a 
 British merchant is buying for a foreigner. According to
 
 THOMSON V. DAVENPORT 129 
 
 the universal understanding of merchants, and of all per- 
 sons in trade, the credit is then considered to be given to 
 the British buyer, and not to the foreigner. In this case, 
 the buyers lived at Dumfries ; and a question might have 
 been raised for the consideration of the jury. Whether, 
 in consequence of their living at Dumfries, it may not have 
 been understood among all persons at Liverpool, where 
 there are great dealings with Scotch houses, that the plain- 
 tiffs had given credit to jM'Kune only, and not to a person 
 living, though not in a foreign country, yet, in that part 
 of the king's dominions which rendered him not amenable 
 to any process of our courts? But, instead of directing the 
 attention of the Recorder to any matter of that nature, 
 the point insisted upon by the learned counsel at the trial 
 was, that it ought to have been part of the direction to 
 the jury, that if they were satisfied the plaintiffs, at the 
 time of the order being given, knew that AI'Kune was 
 buying goods for another, even though his principal might 
 not be made known to them, they, by afterwards debiting 
 M'Kune, had elected him for their debtor. The point made 
 by the defendant's counsel, therefore, was, that if the 
 plaintiffs knew that M'Kune was dealing with them as 
 agent, though they did not know the name of the principal, 
 they could not turn round on him. The Recorder thought 
 otherwise : he thought that though they did know that 
 MTvune was buying as agent, yet, if they did not know 
 who his principal really was, so as to be able to write him 
 down as their debtor, the defendant was liable, and so he 
 left the question to the jury, and I think he did right in so 
 doing. The judgment of the Court below must therefore 
 be affirmed.^ 
 
 ■The opinions of Bayley, J., and Littledale. J., reaching the same 
 result are omitted. In the course of his opinion Bayley, J., says : 
 "Where a purchase is made by an agent, the agent does not of necessity 
 so contract as to make himself personally liable; but he may do so. If 
 he does make himself personally liable, it does not follow that the 
 principal may not be liable also, subject to this qualification, that the 
 principal shall not be prejudiced by being made personally liable, if the
 
 130 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 Judgment affirmed.^ 
 
 justice of the case is that he should not be personally liable. If the 
 principal has paid the agent, or if the state of accounts between the 
 agent here and the principal would make it unjust that the seller 
 should call on the principal, the fact of payment, or such a state of ac- 
 counts, would be an answer to the action brought by the seller where 
 lie had looked to the responsibility of the agent." Littledale, J., does 
 not touch on the etifect on the rights of the third person of the undis- 
 closed principal's settlement with his agent. Parke, J., having been con- 
 cerned as counsel gave no opinion. 
 
 ^ As to xcliat amounts or does not amount to an election see: 
 Priestly v. Fernie, 3 H. & C. 977, 1865. (C, master of a vessel 
 signed a bill of lading in his own name. A sued C and obtained a judg- 
 ment. The judgment remaining unsatisfied A brought suit against 
 B, the owner of the vessel, for the non-delivery of the goods. B 
 pleaded the suit against C. Demurrer to plea overruled, and judg- 
 ment for B. Bramwell, B : "Where the agent, having made a contract 
 in his own name, has been sued on it to judgment, there can be no 
 doubt that no second action would be obtainable against the principal. 
 The very expression that where a contract is so made the contractee 
 has an election to sue agent or principal, suppose he can only sue one 
 of them, that is to say, sue to judgment.") 
 
 Calder z'. Dobell, L. R. 6 C. P. 486, 1871. (B appointed C his, B's, 
 agent to buy cotton. C bought cotton from A giving B as his principal, 
 bought and sold notes being exchanged between A and C. A made out 
 an invoice to C, and A demanded payment from C. C refused. A 
 sued B. Held: that the acts of A did not amount to an election to 
 look only to C and that he, A, could now recover from B.) 
 
 Curtis V. Williamson, L. R. 10 Q. B. 57, 1874. { C was the agent of 
 B. Without disclosing agency C purchased for B goods of A. C be- 
 came insolvent and A became aware of the agency. A sent an affidavit 
 of proof of debt due against estate of C, which affidavit, against A's 
 subsequent protest, was filed. A sued B. Verdict for A. Rule to enter 
 non-suit on the ground that A had elected to hold the agent discharged. 
 Quain, J. : "In general, the question of election can only be properly 
 dealt with as a question of fact for the jury * * * but there may no 
 doubt be cases in which the act of the contractee in regard to his deal- 
 ings with or proceeding against the agent, with full knowledge of the 
 facts and freedom of choice, may be such as to preclude him in point 
 of law from resorting to the principal." 
 
 Merrill v. Kenyon. 48 Conn. 314, 1880. (C was the agent of B. C 
 bought goods from A without disclosing agency. A subsequently took 
 notes from C on account of debt. A sued B for the price of the goods. 
 B asked the Court to charge that if A knew that C was an agent, and 
 then received the notes, the presumption was that A received C as his 
 debtor and he. A, could not recover. The Court refused to charge as re- 
 quested, but did charge that if A at the time he took the notes knew 
 that C was the agent of B, then the presumption was that A had 
 made an election. The Court also charged that A was not obliged to 
 make their election on a mere rumor, "but only on such information as 
 they could rely upon." Verdict for A. On appeal, held : that the law 
 had been properly presented to the jury.) 
 
 Byington z: Simpson, 134 ^lass. 169, 1883. (C was the agent of B. 
 C entered into a contract for B with A signinc the contract as "agent" 
 but not disclosing who he was agent for. A sued B and recovered. 
 Holmes, J., said : "The most that could fairly be argued in any case 
 would be, that, under some circumstances, proof that the other party
 
 TH0M50X z: DAVENPORT 131 
 
 knew of the agency, and yet accepted a writing which did not refer 
 to it, and which in its natural sense bound the agent alone, might tend 
 to show that the contract was not made with any one but the party 
 whose name was signed ; that the agent did not sign as agent, and was 
 not understood to do so, but was himself the principal. But these are 
 questions of fact, and, as a matter of fact, it is obvious, and it is 
 found, that the defendant was the principal, and that the contract, was 
 made with her.")
 
 132 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 FRADLEY v. HYLAND. 
 
 In the Circuit Court of the United States, for the 
 Southern District of New York, 1888. 
 
 S7 Federal Reporter, 49. 
 
 Wallace, J. : The libel sets forth two causes of action 
 for supplies purchased by one Gibson.^ 
 
 The facts which appear in evidence are these : During 
 the period in which the supplies were purchased, one Gib- 
 son, who was the owner, and was managing certain canal- 
 boats of his own, was employed by the appellant, to manage 
 certain canal-boats for the latter. Gibson was to obtain 
 employment for the boats, and return the net earnings 
 monthly to appellant, after paying for all repairs and sup- 
 plies, and deducting his own commissions. His instructions 
 were not to obtain supplies upon credit, but, if not in funds 
 from the earnings, to call upon the appellant. Monthly set- 
 tlements of account took place between Gibson and the ap- 
 pellant, in which Gibson was allowed all items for supplies 
 paid or contracted for by him against the earnings of the 
 boats, and a considerable fund was always left in his hands 
 by the appellant. Gibson ceased to act as appellant's agent 
 September i, 1886. The supplies were sold to him prior to 
 that time. The libellant supposed that Gibson was the 
 owner of all the boats he was managing, and dealt with 
 him as such, selling him supplies for all indiscriminately, 
 charging the price to him, and taking his notes from time 
 to time, or those of one Isham, his clerk. The claim to re- 
 cover the part of these supplies used on appellant's boats 
 is the first cause of action set forth in the libel. One Kelly 
 had also sold supplies to Gibson for the same boats, sup- 
 
 ' Only that part of the opinion which relates to the first cause of 
 action is reprinted.
 
 FRADLEY v. HYLAND 133 
 
 posing that Gibson was the owner, and had received Gib- 
 son's notes, or notes of Gibson's clerk, for the amount. 
 After these notes had matured, Gibson asked the Hbellant 
 to pay them for him to Kelly, and the Hbellant did so, re- 
 ceiving new notes from Gibson for the amount. There'was 
 no assignment to libellant of Kelly's original demand against 
 Gibson. The claim for the supplies thus sold by Kelly to 
 Gibson is the second cause of action set forth in the libel. 
 After Gibson ceased to act as agent for appellant, the libel- 
 lant discovered that some of the supplies had been pur- 
 chased for the appellant's boats, and, being unable to col- 
 lect his demands of Gibson, made claim against the appel- 
 lant therefor. Until then the appellant did not know of the 
 transactions between Gibson and the libellant, or between 
 Gibson and Kelly. The moneys left by appellant in Gib- 
 son's hands were at all times more than the amount of the 
 libellant's demands, and Gibson was indebted to the appel- 
 lant in more than that amount when he left the appellant's 
 employ, and when this libel was filed. 
 
 As to the first cause of action no question is made by 
 the appellant that it is not of admiralty cognizance, but he 
 insists that he is not liable as a principal for the supplies 
 sold to his agent by the libellant, under the circumstances 
 of the case. The general rule is familiar that, when goods 
 are bought by an agent, who does not at the time disclose 
 that he is acting as agent, the seller, although he has relied 
 solely upon the agent's credit, may, upon discovering the 
 principal, resort to the latter for payment. But the rule 
 which allows the seller to have recourse against an undis- 
 closed principal is subject to the qualification stated by Lord 
 Mansfield, in Railton v. Hodgson, 4 Taunt. 576, and by 
 Tenterden, C. J., and Bayley, J., in Thomson v. Daven- 
 port, 9 Barn. & C. 78. As stated by Mr. Justice Bayley, 
 it is "that the principal shall not be prejudiced by being 
 made personally liable if the justice of the case is that he 
 should not be personally liable. If the principal has paid 
 the agent, or if the state of accounts between the agent
 
 134 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 here and the principal would make it unjust that the seller 
 should call on the principal, the fact of payment or such a 
 state of accounts would be an answer to the action brought 
 by the seller, where he has looked to the responsibility of 
 the agent." The principal must respond to and may avail 
 himself of a contract made with another by an undisclosed 
 agent. When he seeks to enforce a bargain or purchase 
 made by his agent the rule of law is that, if the agent con- 
 tracted as for himself, the principal can only claim subject 
 to all equities of the seller against the agent. In the lan- 
 guage of Parke, B. : "He must take the contract subject 
 to all equities, in the same way as if the agent were the sole 
 principal" (Beckham v. Drake, 9 Mees. & W. 98), and 
 accordingly subject to any right of set-off on the part of 
 the seller (Borries v. Bank, 29 L. T. N. S. 689). Thus 
 the rights of the principal to enforce, and his liability upon, 
 a contract of sale or purchase made by his agent, without 
 disclosing the fact of the agency, are precisely co-extensive, 
 as regards the other contracting party, if the limitation of 
 his liability is accurately stated in the earlier cases. The 
 qualification of the principal's liability to respond to his 
 agent's contract, as stated in the earlier authorities men- 
 tioned, was narrowed by the interpretation adopted in Heald 
 V. Kcnworthy, 10 Exch. 739, to the effect that the principal 
 is not discharged from full responsibility unless he has been 
 led by the conduct of the seller to make payment to or set- 
 tle with the agent; and the doctrine of this case has been 
 reiterated in many subsequent cases, both in England and 
 in this country, where the agent did not contract as for him- 
 self, but as a broker, or otherwise as representing an un- 
 disclosed principal. One of the more recent English cases 
 of this class is Davison v. Donaldson, 9 O. B. Div. 623. 
 but, as is shown in Armstrong v. Stokes, L. R. 7, Q. B. 599, 
 the version of Heald v. Kenworthy, while a correct inter- 
 pretation of the rule of the principal's liability, when ap- 
 plied to cases in which the seller deals with the agent rely- 
 ing upon the existence of an undisclosed principal, is not
 
 FRADLEY v. HYLAND 135 
 
 to be applied in those in which the seller has given credit 
 solely to the agent, supposing him to be the principal. This 
 case decides that the principal is not liable when the seller 
 has dealt with the agent supposing him to be the principal, 
 if he has in good faith paid the agent at a time when ihe 
 seller still gave credit to the agent, and knew of no one else. 
 See, also, Irz'inc v. Watson, 5 O. B. Div. 102. Under such 
 circumstances it is immaterial that the principal has not 
 been misled by the seller's conduct or laches into paying or 
 settling with his agent. It is enough to absolve him from 
 liability that he has in good faith paid or settled with his 
 agent. In that case the court was dealing with a contract 
 made by an agent which was within the scope of the author- 
 ity conferred on him, but which was nevertheless made by 
 the agent as though he were acting for himself as principal. 
 In the present case Gibson had no authority at all to make 
 a purchase upon the credit of the appellant. But as it ap- 
 pears that appellant, in the monthly settlements of account 
 with Gibson, allowed him out of the earnings charges for 
 supplies for which the latter had not actually paid, he must 
 be deemed to have authorized Gibson to purchase supplies 
 for him upon Gibson's own credit. Under the circum- 
 stances, if Gibson had purchased supplies, purporting to 
 act as an agent of appellant in doing so, appellant, by con- 
 senting to their being used for his benefit, and by allowing 
 the price in his settlements with Gibson, would have been 
 liable to those who sold to him upon the theory of ratifica- 
 • tion. But, as Gibson did not assume to act as agent in 
 making the purchases, there is no basis for applying the 
 doctrine of ratification. 
 
 Very different considerations govern the case in which 
 an agent who assumes to represent an undisclosed principal 
 buys of a seller upon credit, and one in which the agent 
 assumes to be acting for himself, and the seller deals with 
 him, and gives him exclusive credit, supposing him to be 
 the only principal. In the first, if the agent has authority, 
 express or implied, to buy upon credit for the principal, or
 
 136 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 ostensible authority to do so, upon which the seller relies, 
 then, by the familiar rules of law, tlie contract is the con- 
 tract of the principal, and is none the less so because the 
 name of the principal does not happen to have been dis- 
 closed. The principal is bound by the acts of his agent 
 within the scope of his real or apparent authority; and the 
 seller understands that, even though he may hold the agent 
 personally responsible, he may also resort to the undisclosed 
 principal. But in the other, as the seller does not rely upon 
 any ostensible authority of the one with whom he contracts 
 to represent a third person, he can only resort to the third 
 person as principal, and charge him as such, \yhen the pur- 
 chase is made by one having lawful authority to bind the 
 third person. It is immaterial, in such a case, whether the 
 contract is made by an agent who is employed, in a contin- 
 uous employment or in a single transaction, by a principal, 
 or whether he is one who may be deemed a general, instead 
 of a special agent. "When the agency is not held out by 
 the principal by any acts or declarations or implications to 
 be general in regard to the particular act or business, it 
 must from necessity be construed according to its real na- 
 ture and extent; and the other party must act at his own 
 peril, and is bound to inquire into the nature and extent of 
 the authority actually conferred. In such a case there is 
 no ground to contend that the principal ought to be bound 
 by the acts of the agent beyond what he has apparently 
 authorized, because he has not misled the confidence of the 
 other party who has dealt with the agent." Story, Ag. Sec. 
 133. It is therefore difficult to understand how, as an orig- 
 inal proposition, it could be reasonably maintained that 
 there is any liability on the part of one who has employed 
 another to manage his interests in a business, or series of 
 transactions, in which, as an incident, purchases of goods 
 are to be made, has given him instructions not to purchase 
 on credit, and has supplied him with funds to purchase for 
 cash, to a seller who has sold to the person employed upon 
 credit, and dealt with him as the only principal. Taft v.
 
 FRADLEY v. HYLAND 137 
 
 Baker, lOO Mass. 68. Of course he would be liable, and 
 the instructions not to buy on credit would go for nothing, 
 if he did not supply the agent with funds to pay for the 
 necessary goods, because in that case the agent would have 
 implied authority to buy them on credit. So, also, in aj:ase 
 which may be supposed, where a principal knows, or ought 
 to know, that the agent is buying on credit in his own name, 
 yet the principal takes all the income of the business with- 
 out making any provision for payment to those who have 
 trusted the agent, the principal would be liable, because in 
 such a case his conduct would be inconsistent with good 
 faith, and he ought not to be permitted to avail himself of 
 tlie benefits without incurring full responsibility for the 
 agent's acts. But it is probably too late to consider the 
 questions thus suggested upon principle; and it may be ac- 
 cepted as law that the seller, under the circumstances of a 
 case like the present, upon discovery of the principal, can 
 resort to and recover of him, if he has not bona fide paid 
 the agent in the meantime, or has not made such a change 
 in the state of the account between the agent and himself 
 that he would suffer loss if he should be compelled to pay 
 the seller. Story, Ag. Sec. 291, i Pars. Cont. 63; Fish v. 
 Wood, 4 E. D. Smith, 327; Thomas v. Atkinson, 38 Ind. 
 248; Clealand \. Walker, 11 Ala. 1058; McCidlough v. 
 Thompson, 45 N. Y. Super. Ct. 449; Laing v. Butler, 2)7 
 Hun, 144. In the case last cited the Court used this lan- 
 guage : "Where the purchase has been made by the agent 
 upon credit authorized by the principal, but without disclos- 
 ing his name, and payment is subsequently made by the 
 principal to the agent in good faith before the agency is dis- 
 closed to the seller, then the principal would not be liable." 
 According to these authorities, if it should be conceded 
 that the facts in the present case warrant the inference that 
 the appellant gave Gibson authority to buy either upon his 
 own credit or upon the credit of the appellant, the libellant 
 cannot recover. It certainly is not material that the appel- 
 lant did not pay Gibson, or make any settlement with him,
 
 138 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 on account of the libellant's demands specifically. It is 
 enough that he did settle with Gibson for, and allowed him 
 to retain in his hands sufficient moneys to pay, all outstand- 
 ing liabilities contracted by him for the appellant's benefit, 
 including the demands of the libellant. At the time of 
 the last settlement the appellant had paid the libellant's de- 
 mands and all outstanding liabilities contracted by Gibson 
 as between Gibson and himself, and this was before the 
 libellant knew any principal in the purchases other than 
 Gibson himself.
 
 HEFFRON V. POLLARD 139 
 
 HEFFRON V. POLLARD. 
 In the Supreme Court of Texas, 1889. 
 
 ~i Texas Reports, 96. 
 
 Appeal from Galveston. Tried below before Hon. W. 
 H. Stewart. At the trial the judgment was for the plain- 
 tiff.i 
 
 Gaines, Associate Justice :^ 
 
 The appellee brought the suit in the court below. He 
 alleged that the defendant, who is appellant here, agreed in 
 writing to pay W. H. Pollard & Co. and one F. W. Hen- 
 dricks a certain price for certain pipe, the dimension of 
 which he described in his petition, and that he was the 
 owner of the claim by assignment from Hendricks and his 
 partner, who with himself constituted the firm of W. H. 
 Pollard & Co. The substance of the allegations in the peti- 
 tion with reference to the execution of the agreement is 
 that W. H. Pollard & Co. and F. W. Hendricks "entered 
 into a contract in writing with defendant, the said defend- 
 ant so contracting in the name of John W. Fry, by which 
 the said Pollard & Co. and the said Hendricks bargained 
 and sold to the said defendant a large amount of property," 
 etc. There is an alternative allegation in the petition in 
 which the execution of the contract is set out in substanti- 
 ally the same language, but which alleges a different effect 
 as to time of delivery and payment. The defendant pleaded 
 non est factum. Upon the trial the plaintiff offered in evi- 
 dence a contract in writing, of which the following is a 
 copy: 
 
 "The County of Galveston, State of Texas. — This 
 
 * The 'Reporter does not state the facts of the case. His notes 
 of the arguments of counsel are omitted. 
 
 * Part of the opinion which deals with a question of practice is 
 omitted.
 
 140 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 agreement, made and entered into by and between John W. 
 Fry on the one part and F. W. Hendricks and W. H. Pol- 
 lard & Co. on the other part. It is hereby understood that 
 the said John W. Fry shall take all of the 24 inch pipe (con- 
 crete), not exceeding 430 lineal feet, and all of the 18 inch 
 pipe (concrete), not exceeding 700 lineal feet, at the fol- 
 lowing prices, viz., the 24 inch pipe at $1.50 per foot and 
 the 18 inch pipe at $1.25 per foot. This said pipe to be 
 paid for at the above rate as used by the said John W. 
 Fry, and that the said John W. Fry shall not manufacture 
 or use any other pipe of the above quoted sizes until all the 
 above noted pipe is consumed in the city of Galveston. 
 
 [Signed] "John W. Fry, per Heffron, 
 
 "W. H. Pollard & Co., 
 "F. W. Hendricks. 
 ^'Witnesses : 
 
 "K. A. Olcott, 
 "W. J. Junker." 
 
 In order to prove the execution of the contract so of- 
 fered plaintiff was sworn as a witness and testified that 
 "the written contract was signed J. W. Fry, per Heffron, 
 and that it was so signed by Heffron for himself and in his 
 presence" — meaning in the presence of the plaintiff. He 
 also testified that he had made diligent search for the sub- 
 scribing witnesses but could not find them. The defendant 
 was then placed on the stand by plaintiff and testified that 
 he signed the contract "as it purported J. W. Fry, per Heff- 
 ron, but that he signed it as the agent of Fry and not for 
 himself, and that he had no personal interest in it." The 
 Court thereupon admitted the contract over the objection of 
 the defendant and the defendant excepted. 
 
 We may treat the case for the purposes of this opinion 
 as if there was sufficient evidence introduced to show that 
 in executing the contract Heffron used the name of Fry 
 in order to make the contract for his own benefit. We 
 think the evidence subsequently introduced, though con-
 
 HEFFROX i: POLLARD 141 
 
 flicting, warranted the jury in finding that the plaintiff's 
 theory of the case was the true one, and it may be doubted 
 whether this would not have cured the error of introducing 
 it for want of sufficient evidence upon that point, if error 
 it were. 
 
 But the question presents itself whether in a contract 
 like this, which is made in the name of a principal and 
 which is signed in his name by another as his agent, it is 
 competent to show by parol evidence in order to recover on 
 the written contract itself that in signing the agreement 
 the one who purported to sign as agent signed the name of 
 the principal for his own benefit and with the intention to 
 bind himself? We have been unable to find any case in 
 which this exact point has been determined. There are few 
 branches of law that have given rise to more adjudications 
 than that of principal and agent, and the cases are especi- 
 ally numerous in which the liability of the principal or agent 
 as to third parties is discussed. There are certain princi- 
 ples, however, wdiich are well settled. If the principal be 
 disclosed, and it appear upon the face of the contract that 
 agent does not intend to bind himself, the agent is not lia- 
 ble. If the principal be not disclosed it is universally con- 
 ceded as to non-negotiable contracts not under seal that 
 parol evidence is admissible to show the principal and to 
 hold him liable upon a contract made in the name of the 
 agent for his benefit. This may seem to be an exception to 
 the rule that parol evidence is not admissible to vary the 
 terms of a written contract, but it is not so held. It is said 
 not to vary the terms of the contract, but to bring in a new 
 party whom the law holds bound by it by reason of his 
 relation to the party in whose name it is executed for his 
 benefit. In such a case the principal may either sue or be 
 sued. But a plaintiff can not sue both ; he must make his 
 election. If, however, the principal be disclosed, and the 
 face of the writing shows that the agent is bound, it is pre- 
 sumed that the other party has elected in the contract itself
 
 142 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 to look to the agent, and the principal is not liable upon 
 it. 
 
 Chandler v. Cox, 54 N. H. 561, was a case in which 
 the principals were sued upon a contract which was signed 
 by their agent but which did not upon its face disclose the 
 agency. It was, however, a question of fact whether or 
 not the principals were known to be such at the time the 
 contract was executed. The Court in an able and elaborate 
 opinion, which reviews all the authorities, hold that if the 
 principals were not known when the agreement was signed 
 parol evidence was admissible to show the agency of the 
 signer and to charge the principal; but that if in point of 
 fact agency was then disclosed, such evidence tended to 
 vary the writing and could not be admitted. The ground 
 of the ruling upon the latter point was that if the plaintiff 
 knew when the contract was entered into that it was made 
 for the benefit of third parties the writing showed that they 
 had elected to look to the agent for its performance, and 
 parol evidence was not admissible to vary the writing by 
 showing that they did not so elect. The contract now be- 
 fore us presents a different case, but we think a stronger 
 one for the defendant. As to the legal effect of this contract 
 upon its face there can be no doubt. It discloses the names 
 and relation of all the parties connected with it. It binds 
 Fry, the principal, and does not bind Heffron, the agent. 
 If it had said in express terms that Fry was bound by the 
 contract and Heffron not, the meaning in the light of the 
 law would not have been more unmistakable. 
 
 Can Heffron be held liable upon this written agree- 
 ment? Is it permissible in order to bind him to show by 
 parol testimony an intention exactly contrary to that ex- 
 pressed on the face of the writing, namely, that Heffron 
 was bound by it and that Fry was not bound ? In our opin- 
 ion this can not be done without violating a cardinal rule 
 of evidence. It is very different from the case of an undis- 
 closed principal. The law makes him responsible for the 
 act of his agent. The act of the agent made for his benefit
 
 HEFFRON z>. POLLARD 143 
 
 and within the scope of the authority conferred by him is 
 his act. In such a case parol evidence may be resorted to to 
 show that by reason of a fact existing at the time the con- 
 tract is made, not known to one of the parties, there is a 
 third party for whose benefit it is made who is bound by it. 
 The relation of principal and agent being unknown to one 
 of the contracting parties he could not make an election at 
 that time, and it is not to be presumed that he intended to 
 look alone to the agent should it subsequently appear that 
 the contract was made for the benefit of another who has 
 given authority for its execution. The undisclosed princi- 
 pal may sue on a contract made for him in the name of 
 his agent, and for a similar reason he is held liable to be 
 sued. But we apprehend that if a contract in writing should 
 expressly declare that if it should subsequently be disclosed 
 that a party signing had a principal such principal should 
 not be bound no evidence would be admitted to show a lia- 
 bility contrary to such express terms. 
 
 But there is another point of view from which this case 
 must be considered. The effort in the court below was to 
 show that the defendant assumed the name of Fry in order 
 to make the contract for his own benefit. We understand 
 the law to be that when a party for the purpose of trans- 
 acting business adopts an assumed name, whether it be fic- 
 titious or the name of another, he is bound by a contract 
 made in that name. In Triicman v. Loder, 1 1 Adolphus & 
 Ellis, 589, Lord Denman says: "Parol evidence is always 
 necessary to show that the party sued is the person making 
 the contract and bound by it. Whether he does so in his 
 own name or in that of another or in a feigned name, or 
 whether the contract be signed by his own hand or that of 
 agent, are inquiries not different in their nature from the 
 question, who is the person who has just ordered goods in 
 a shop." In that case the principal had been engaged in 
 doing business in the name of his agent and the contract 
 was signed by the agent in his own name. See also Mcl- 
 Icdgc V. Iron Co., 59 Mass. 158; Broivn v. Parker, 89 Mass.
 
 144 LIABILITY OF AN Ux\DISCLOSED PRINCIPAL 
 
 2)2)7- In the present case also the name is not a fictitious 
 one. It is the name of a real person. But the contract 
 purports to bind him alone, and upon its face is inconsist- 
 ent with the idea that the defendant in signing it may have 
 intended to use it for his own business name. His signa- 
 ture as agent clearly negatives the conclusion that any such 
 construction was intended to be put upon it. The intention 
 of the parties to a written contract must be derived from the 
 writing itself when its meaning is clear. Can it be said that 
 the admission of parol evidence to show that the contract 
 before us was made for the benefit of defendant and was 
 intended to bind him does not violate this rule? We think 
 not. The contract clearly shows the relation of all the 
 parties to it, who was to be bound and who was not to be 
 bound, and its legal effect can not be varied by such evi- 
 dence. 
 
 The rule is further illustrated by the well recognized 
 rule that although in case of an undisclosed principal the 
 plaintiff may show there was a principal in order to bind 
 him, yet the agent is not permitted to prove the same fact 
 in order to free himself from responsibility. Such a con- 
 tract shows clearly upon its face that he is bound, and the 
 law will not permit him to show the contrary. To this 
 there is an apparent but not a real exception. The agent 
 may show in order to relieve himself from liability upon 
 an apparent written agreement, which if real would bind 
 himself upon its face, that it was agreed when it was signed 
 that it should not take effect as a contract, but that the 
 real contract was an unwritten one, which bound only his 
 principal. In other words he may show that the writing 
 was a mere colorable transaction and was understood by 
 the parties to be not a contract at all and that the real con- 
 tract was not in writing and bound only his principal. 
 Rogers v. Hadlcy, 2 Hurl. & Colt, 227. So in this case 
 we think that if it were true that the writing offered in 
 evidence was understood and agreed to be a mere color- 
 able transaction, intended to obscure defendant's real con-
 
 HEFFRON '.'. POLLARD 145 
 
 nection with the contract, and if he really purchased the 
 pipe the plaintiff could have recovered upon the real agree- 
 ment notwithstanding the apparent contract entered into in 
 writing. 
 
 If the plaintiff had alleged and proved a want of au- 
 thority on the part of the defendant to make the contract 
 for Fry, then also he could have maintained his action 
 against defendant. But even in that case according to what 
 appears to us the better reason and the weight of authority, 
 his action would have been not upon the contract itself 
 but upon the implied warranty or for the deceit. Bartlett 
 V. Tucker, 104 Mass. 336; Lander v. Castro, 43 Cal. 497; 
 Hall V. Randall, 29 Cal. 567. The defendant testified in 
 effect that he had authority from Fry to make the agree- 
 ment for him. The testimony of plaintiff is not necessarily 
 inconsistent with the idea that he did have such authority, 
 although in signing the agreement he may have acted for 
 himself. 
 
 If the contract had been signed in the name of Fry 
 only it would have been proper to have permitted it to be 
 read to the jury upon proof that defendant signed it, that 
 the contract was made for his benefit, and that he assumed 
 the name of Fry as his business name in the transaction. 
 But the writing was inconsistent with the theory that Fry's 
 name was used as the name of the defendant, and there- 
 fore did not establish the plaintiff's case and should have 
 been excluded. For the error in admitting it the judg- 
 .ment must be reversed. 
 
 ' In order for defendant to have availed himself of the 
 
 illegality of the contract as a defence he should have pleaded 
 it. (i Chitty's Plead., 16 Am. ed., 506.) 
 
 Judgment reversed and the cause remanded.^ 
 
 ^ On the question of admitting parol evidence to charge the undis- 
 closed principal where the agent has signed as principal, see the fol- 
 lowing : 
 
 "There is no doubt, that wliere such an agreement is made, it is com- 
 petent to show that one or both of the contracting parties were agents for
 
 146 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 other persons, and acted as sucli agents in making the contract, so as to 
 give the benefit of the contract on the one hand to, and charge with 
 liabihty on the other, the unnamed principals : and this, whether the 
 agreement be or be not required to be m writing by the Statute of 
 Frauds : and this evidence in no way contradicts the written agreement. 
 It does not deny that it is binding on those whom, on the face of it, [it] 
 purports to bind ; but shows that it also binds another, by reason that 
 the act of the agent, in signing the agreement, in pursuance of his 
 authority, is in law the act of the principal." Park, B., in Higgins v. 
 Senior, 8 M. & W., p. 844. 
 
 "The most plausible explanation which has been attempted pursues 
 the same thought more clearly. It is said that the principal is liable 
 'because he is taken to have adopted the name of the [agent] as his 
 own, for the purpose of [the] contract.' 2 Smith's Leading Case (8th 
 ed.), 408, note to Thomson v. Davenport." Holmes, J., in Byington v. 
 Simpson, 134 Mass., p, 170.
 
 BORCHERLING z: K.\TZ 147 
 
 BORCHERLING z'. KATZ. 
 In the Court of Chancery, New Jersey, 1883. 
 
 2~ Nezc Jersey Equity Reports, 150. 
 
 Van Fleet, V. C. : 
 
 This is a novel case. The complainant seeks to hold 
 the defendants for the rent reserved by a lease made by 
 him to other persons than the defendants. The special 
 ground on which he seeks to do this is, that the defend- 
 ants were the real lessees, that, though the demise was made 
 to other persons, they acted simply as the agents of the 
 defendants, who were the principals in the affair and enti- 
 tled to the benefit of the demise. The legal principle on 
 which he rests his right to relief, is that which entitles a 
 vendor who, having made a sale to a person whom he be- 
 lieved at the time to be the principal in the transaction, is 
 afterwards discovered to have been the agent of a third 
 person, to recover the price of the goods of the principal, 
 though he has in the meantime debited the agent. 
 
 The following summary presents all the important 
 facts: On the 22d of October, 1877, the complainant made 
 a lease, under seal, to Rudolph Heller and William Katz, 
 partners, doing business under the name of Heller & Katz, 
 demising certain premises, situate on Mulberry street, in 
 the city of Newark, for a term of two years and five months 
 from the 1st day of November, 1877, at an annual rent 
 of $840, payable monthly in advance. The lease was ex- 
 ecuted by both parties. It gave the lessor the right to re- 
 enter for the breach of any covenant on the part of the 
 lessees. The lessees covenanted not to underlet, nor to 
 assign the lease, or any part of their term, without the 
 written consent of the lessor. On the 31st day of Octo- 
 ber, 1877, the defendants, Bernard Katz and Philip Katz, 
 constituted and appointed Heller & Katz their attorneys,
 
 148 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 empowering them to carry on and conduct the business then 
 owned by the defendants in the city of Newark, and to do 
 and perform all and every act and thing whatsoever requi- 
 site and necessary to be done in carrying on the business. 
 Heller &' Katz took possession of the demised premises soon 
 after the commencement of the term, and continued to 
 occupy them, jointly, until December, 1878, when Heller 
 left. Afterwards Katz continued to occupy them alone 
 until April ist, 1879, when he left. At the time the prem- 
 ises were abandoned there was $220 rent in arrear, which 
 the complainant attempted to collect by distress, but the 
 defendants claimed the property seized, and the complain- 
 ant surrendered it. This claim by the defendants was, in 
 part at least, false. They now admit that most of the 
 chattels seized belonged to Heller & Katz. The complain- 
 ant subsequently brought an action at law against the 
 lessees for the rent in arrear, but, on discovering the power 
 of attorney, proceeded no further. He did not know of 
 the existence of the power of attorney until May, 1879, 
 some time after he had commenced his action at law. For 
 the purpose of putting the case in the most favorable form 
 for the complainant, I shall assume that the business car- 
 ried on on the demised premises was the business of the 
 defendants, and that Heller & Katz were the agents of the 
 defendants when the lease was executed, although the 
 weight of the evidence shows both facts to have been other- 
 wise. 
 
 Some of the complainant's legal propositions are so 
 firmly established as to be beyond dispute. There can be 
 no doubt that a principal is bound by the acts of his agent 
 within the authority expressly given to the agent, and also 
 for such acts as are necessary and requisite to be done in 
 order that the agent may accomplish the object of his ap- 
 pointment. It is also true, as a general rule, that where a 
 contract is made by an agent, without disclosing his prin- 
 cipal, and the other contracting party afterwards discovers 
 that the person with whom he dealt was not the principal,
 
 BORCHERLING v. KATZ 149 
 
 but that a third person stood behind him as the real party in 
 interest, he may abandon his right to look to the agent per- 
 sonally, and resort to the principal. And this he may do 
 even when the contract is in writing, and is such as is re- 
 quired by the statute of frauds to be in writing, for, In 
 such case, parol evidence, showing that an additional party 
 is liable, in no way contradicts the written instrument. "It 
 does not deny that it is binding on those whom, on its face, 
 it purports to bind, but shows that it also binds another, 
 by reason that the act of the agent, in signing the agree- 
 ment, in pursuance of his authority, is, in law, the act of 
 his principal." Higgins v. Senior, 8 M. & W. 834, 844. 
 Parol evidence is admissible in such cases to charge the 
 principal, but not to discharge the agent. 2 Smith's Lead. 
 Cas. 226. But where an agent makes a lease in his own 
 name, and executes it in his own name, though the rent 
 is reserved to his principal, and all the covenants purport 
 to be made with his principal, the principal cannot main- 
 tain an action on it, for the reason that on a deed inter 
 partes no person can maintain an action except a party to 
 it Berkeley v. Hardy, 5 B. & C. 355 ; Sheldon v. Diin- 
 lap, I Harr. 245. 
 
 The complainant puts his right to relief against the 
 defendants, on these legal rules. He justifies his resort to 
 this court in this wise : He insists that by force of the 
 legal rules just stated, his right to hold the defendants for 
 the rent is clear, but that he cannot maintain an action at 
 law against them because they are not parties to the lease. 
 He says he cannot maintain an action for use and occupa- 
 tion, for the statute declares that such action can only be 
 maintained where the agreement for the occupation of the 
 land is not by deed (Rev., p. 570, Sec. 3) ; he claims, there- 
 fore, that his case falls within that principle of equity juris- 
 prudence which declares that where there is a right there 
 ought to be a remedy, and, if the law gives none, it ought 
 to be administered in equity. This conclusion, I think, 
 may be admitted to be sound, provided it is found that the
 
 150 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 defendants are subject to the legal principle on which the 
 complainant mainly rests his right to relief. This, in my 
 judgment, is the test question of the case. 
 
 Neither the researches of counsel, nor my own, have 
 resulted in the discovery of a precedent for this action. I 
 think it may safely be said that no instance exists in which 
 some other person than the lessee named in a lease, under 
 seal, has been held liable in equity for the rent reserved 
 by the lease, on the ground that he was the undisclosed 
 principal in the transaction, and liable, as such, by force 
 of the rule which renders an unnamed and unknown ven- 
 dee liable for the price of goods purchased by him through 
 his agent. The only case to which my attention has been 
 directed, which can be regarded as authority for the com- 
 plainant's position, is Clavcring v. IVestley, 3 P. Wms. 402. 
 There the plaintiff made a lease of a coal mine to A for 
 twenty-one years. A then declared a trust of the lease for 
 five persons. These five persons entered into possession, 
 worked the mine, and took its products, but some time 
 after, the lessee becoming insolvent, and the mine unprofit- 
 able, they abandoned it. The lessor then brought his bill 
 against the lessee and ccstids que trust to compel them to 
 pay the rent in arrear, and also the accruing rent, insisting 
 that though the lease was made to A, yet it being declared 
 by him to be in trust for the five persons, as tenants in 
 common, it was the same thing as if it had been made to 
 them originally. The master of the rolls (Sir Joseph 
 Jekyll) held that the ccstuis que trust were not liable, and 
 dismissed the bill. His reason was this : That inasmuch 
 as the plaintiff had chosen to let the mine to A alone, and 
 to accept his covenant for the rent, he should be restricted 
 to the security he had voluntarily accepted. Having ac- 
 cepted the covenant of the lessee, his remedies were lim- 
 ited to that. Lord Talbot, on appeal, reversed this decree, 
 and decreed that the lessee was primarily liable, but in case 
 the rent could not be collected of him, then that each of the 
 five cestuis que trust should pay one-fifth of the rent in
 
 BORCHERLING v. KATZ ISl 
 
 arrear, and also that which should afterwards accrue. The 
 report of this case, on appeal, is extremely meagre and un- 
 satisfactory. The conclusion of the lord chancellor is simply 
 given, without more. No reasons are given, and we have 
 not even a hint of the legal rule which it was supposed 
 the judgment of the master of the rolls had overlooked or 
 disregarded. 
 
 But this case has since been overruled. It is no longer 
 an authority in the court which deceived it ; on the con- 
 trary, its doctrine has been repudiated. Lord Cranworth, 
 in Walters v. Northern Coal Mining Co., 5 De G. M. & G. 
 629, after expressing regret that the grounds of Lord Tal- 
 bot's decision are not given, says: "If he is to be taken as 
 laying down a general proposition that whenever a legal 
 lessee is trustee for another, the rent becomes an equitable 
 debt from the cestui que trust, to be recovered by bill in 
 this court, I must, with all respect, say that is a proposition 
 to which I cannot assent. I rest my judgment on the ground 
 that no such general principle exists." Lord Cranworth 's 
 discussion of the question on which the decision here must 
 turn, is so exhaustive and unanswerable that this case may 
 be decided by a single quotation from his opinion. He 
 says : "The rights of a landlord against those who occupy 
 his land are legal rights, well defined and understood. 
 Where a tenant is holding under a demise at a stipulated 
 rent, the landlord has his remedy by distress or action of 
 debt. If the lessee assigns to another, the landlord has 
 against the assignee, so long as he remains in possession, 
 the same rights which he had against the original tenant. 
 If instead of assigning his interest, the lessee creates a 
 tenancy under himself, then the original landlord may 
 either distrain on the under-tenant, or may bring his action 
 of debt or covenant, as the case may be, against the orig- 
 inal lessees. * * * 'pj-ie object of the present bill is 
 to give to the landlord an additional remedy in case the 
 legal lessee is a mere trustee for others, who have in fact 
 occupied the lands, to enable the landlord, in such a case,
 
 152 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 to treat the ccstitis que trust as equitable debtors for the 
 amount of the rent. But I can discover no principle to 
 warrant such a proposition. The relation between the 
 owner of the land and those who occupy it is of a purely 
 legal character. The circumstance that there is a relation 
 of an equitable character subsisting between the lessee and 
 the actual occupier cannot give any equitable rights to one 
 who claims by a title paramount both to the trustee and the 
 cestui que trust. Whatever be the relation between the 
 lessee and the occupier, the landlord's rights are unaffected. 
 He has his legal remedy by distress, or he may bring his 
 action against the lessee." The same doctrine, substanti- 
 ally, was enforced by Lord Justices Knight Bruce and 
 Turner, in Cox v. Bishop, 8 De G. M. & G. 815. An at- 
 tempt was made there to hold the equitable assignee of a 
 lease for the rent which accrued during the time he was in 
 the actual possession and enjoyment of the demised prem- 
 ises. Lord Justice Knight Bruce said: "They [possession 
 and enjoyment] do not, in my judgment, create a contract 
 between the lessor and the equitable assignee which can 
 give the former a title to the relief prayed against the lat- 
 ter. The possession by itself would not, nor would the 
 equitable assignment by itself, have given the lessor the 
 equitable right which he is here asserting against the lessee ; 
 neither, I think, can the union of the two." 
 
 It is quite impossible to distinguish these cases from 
 the one under consideration. They are, in all material and 
 essential points, identical, and must all be governed by the 
 same general rules of justice. The fact that the complain- 
 ant has chosen to describe the relation existing between 
 the defendants and the lessees in this case, as principal and 
 agent, and that in the cases just referred to the relation 
 which existed between the lessees and the persons sought 
 to be charged with the rent was spoken of as trustee and 
 cestuis que trust, is without the least significance in legal 
 estimation. The difference is in terms or names, and not 
 in the legal character of the relation. The relation, in prin-
 
 BORCHERLIXG v. KATZ 153 
 
 ciple and substance, is the same, whether it is described by 
 one set of terms or the other, and its rights and obHgations 
 are the same, whether called by one name or the other. 
 In every instance in which an agent takes title in his own 
 name to property purchased for his principal, he makes 
 himself, in equity, the trustee of his principal. And if, 
 in the transaction under consideration. Heller & Katz were 
 the agents of the defendants, then in taking the lease in 
 their own names they made themselves the trustees of the 
 defendants, and the more accurate description of the rela- 
 tion of the parties, in that case, would be trustee and cestui 
 que trust, rather than principal and agent. 
 
 The precedents are against the complainant. I think 
 reason is also against him. No reason of justice or policy 
 can be suggested why landlords should have the additional 
 remedy sought in this case. A creditor of that kind is 
 already highly favored by the law. He may distrain either 
 against the tenant or the under-tenant; if the person in 
 possession fails or refuses to pay the rent in arrear, the 
 landlord may dispossess him, and thus recover the posses- 
 sion of the premises, and in addition, he may use the only 
 means within the reach of ordinary creditors — bring his 
 action at law. li with these ample remedies at his com- 
 mand he fails to secure the payment of his rent, it may be 
 safely concluded it is not for the want of adequate reme- 
 dies. 
 
 The complainant's bill must be dismissed, with costs. ^ 
 
 ^Accord: Briggs v. Partridge, 64 N. Y. 357, 1876; 
 
 Kiersted v. The Orange and Alexander Railroad Co., 69 N. Y. 343, 
 1877. 
 
 Stanger v. Warren, 91 Tex. 472, 1898. (A statute in the jurisdiction 
 provided: "No private seal or scroll shall be necessary to the 
 validity of any contract, bond or conveyance, whether respecting real 
 or personal property, * * * nor shall the addition or omission of a 
 seal or scroll in any way affect the force and effect of the same." A 
 owned land. By an unsealed indenture A conveyed land to B, B in 
 words covenanting to pay purchase price. Held, that A could not 
 proceed against C, B's undisclosed principal, because the statute did not 
 change the nature of a deed or the effect of promises recited therein.) 
 
 Compare the foUozi'ing case in "which the principal li'as known to 
 the plaintiff at the time of contract.
 
 154 LIABILITY OF AN UNDISCLOSED PRINCIPAL 
 
 Jn re International Contract Co. 6 Ch. App. Cas. 525, 1871. (A was 
 the owner of two concessions granted by the Peruvian Government. B 
 stated that he wanted to buy for company. B was managing director 
 of the company. A consigned the concession to B and B covenanted 
 to pay the price. The company paid A a part of the price. An order 
 was made for the winding up of the company, and A carried in a 
 claim on the company for the balance due on B's covenant. James, L. 
 J. : "I am of opinion that the appellant's case entirely fails * * * There 
 is an assignment of property to a trustee, who enters into covenant 
 with an assignor. In such a case the assignor has no equity to proceed 
 against the cestui que trust. The appeal must be dismissed with costs.")
 
 CHAPTER III. 
 
 LIABILITY OF OWNER OF PROPERTY 
 NOT USED IN BUSINESS. 
 
 SIMPSON V. SEAVEY. 
 In the Supreme Judicial Court of Maine, 183 i. 
 
 8 Maine Reports, 138. 
 
 This was an action on the case, in which the plaintiffs 
 alleged that they were owners of a saw-mill on the East 
 Machias river, below a saw-mill of the defendants ; and that 
 the latter, having erected two lath-mills within their own 
 saw-mill, threw their lath-edgings into the river, which being 
 carried by the current into the plaintiff's flume, choked and 
 obstructed his gate-way, and diverted the water from his 
 mill, &c. 
 
 Mellen, C. J.^ By inspection of the writ it appears 
 that whatever injury the plaintiffs have sustained, has been 
 occasioned by the two lath-mills, which have been made 
 within the frame of the saw-mill Unity, and by the throwing 
 of lath-edgings from them into the river, which floated down 
 and obstructed the plaintiff's saw-mill. By the reported 
 statement of facts it appears that Dickenson was a part 
 owner of the saw-mill Unity, during the time mentioned in 
 the will ; yet there is no proof that he owned any part of 
 either of the lath-mills above mentioned ; but it does appear 
 that, during the said period, Dickenson occupied no part of 
 said lath-mills ; but one was wholly owned and occupied and 
 
 ^ Only that part of the opinion which relates to the liability of the 
 defendant Dickenson is printed. 
 
 (155)
 
 156 PROPERTY NOT USED IN BUSINESS 
 
 improved by Pope, Talbot and Seavey, three of the defend- 
 ants; and the other was built and owned by the deceased 
 Hovey. On these facts, we see no privity, in respect to the 
 lath-mill, between Dickenson and the other three surviv- 
 ing defendants, which can implicate him in the transactions 
 complained of by the plaintiffs, and subject him to damages; 
 of course he is considered by the court as not guilty, and 
 judgment is to be entered in his favor for his legal costs.
 
 BROOKS z;. HARRIS 157 
 
 BROOKS v. HARRIS. 
 In the Supreme Court of Alabama^ 1847. 
 
 12 Alabama Reports, 555. 
 
 Assumpsit by Charles A. Kelly, against the plaintiffs in 
 error, on the following instrument: "Mobile, 11 Oct. 1841. 
 Due Charles A. Kelly, or bearer, three hundred and thirty 
 dollars, 29-100, for work and labor done, on steamboat 
 'Jewess.' 
 
 (Signed) for steamboat 'Jewess', and owners. 
 
 Alphonso Brooks." 
 
 Upon which the following declaration was filed : 
 
 Charles A. Kelly, &c., complains of Alphonso Brooks, 
 and Levin J. Wilson, joint owners of the steamboat called 
 the "Jewess," in custody, ficc. For that, &c., on the irth 
 October, 1841, the said defendant, Alphonso Brooks, for 
 himself and the said Levin J. \\^ilson, joint owners of the 
 said steamboat, made his certain due bill in writing, bearing 
 date, &c. ; and thereby, and then and there, for himself and 
 the said Wilson, as owners of the said steamboat, promised 
 to pay the said plaintiff, the said sum of $330.29. By means 
 whereof, &c. There was also a count for work and labor. 
 
 A judgment was rendered in favor of the plaintiff on 
 the verdict of a jury. 
 
 A bill of exceptions found in the record, discloses, that 
 the plaintiff offered evidence, tending to prove, that Wilson 
 was an owner of the steamboat, prior to the date of the due 
 bill, and the defendant, Wilson, having offered no evidence, 
 except such as tended to show he was not a joint owner of 
 the boat, the court charged the jury, that defendants being 
 sued on a due bill, expressly made the foundation of the 
 action, without a plea denying under oath the instrument 
 declared on, it is evidence of the debt it expresses. And if
 
 158 PROPERTY NOT USED IN BUSINESS 
 
 there was sufficient proof, that Wilson was part owner, at 
 the time the due bill was given, this, with the due bill, will 
 bind him upon the pleadings.^ 
 
 Ormond^ J. : The due bill upon which the action is 
 founded, was not executed by the defendant, Wilson, in per- 
 son, and to bring it within the influence of the statute, mak- 
 ing the instrument sued on, evidence of the debt, or duty, 
 for which it was given, unless its execution is denied by a 
 sworn plea, it must be alledged in the declaration, to have 
 been executed by one, having authority to bind him. This 
 is supposed to be the effect of the allegation here, but in our 
 opinion no such effect can be accorded to it. It deduces the 
 right of Brooks, to bind Wilson, from the fact that Wilson 
 is a part owner with Brooks of the steamboat. The language 
 of the declaration, is, that the due bill was made by Brooks, 
 acting for himself, and as joint owner with Wilson, of the 
 boat. But one part owner has not the power to charge an- 
 other, by contracting debts in his name, and there is no al- 
 legation, that Brooks had authority, as agent of Wilson, to 
 bind him by the execution of a note in his name. In Childress 
 V. Miller, 4 Ala. Rep. 447, an attempt was made to charge 
 the owners of a steamboat, on a due bill made by the clerk 
 of the boat, "for steamboat 'Choctaw,' and owners." It was 
 held that these words, did not in themselves, import an au- 
 thority to bind the owners, and that as the clerk of the boat 
 as such, had not the right to admit an indebtedness on the 
 part of the owners, the action could not be maintained. This 
 is a decision expressly in point, as the statute applies only to 
 such instruments, as are the foundation of the action; and 
 this not being signed by the party sought to be charged, could 
 only be obligatory on him, by being executed in his name, 
 by one duly authorized to bind him. 
 
 Let the judgment be reversed and the cause remanded.- 
 
 ' Only so much of the facts and opinion as relates to the correctness 
 of this charge is printed. 
 
 'Compare: Merrill v. Berkshire, 11 Pick. 269, 1831. (A and B were 
 tenants in common. Part of the land was taken by the county for a
 
 BROOKS v. HARRIS 159 
 
 highway and allowances made by the commissioners. B signified his 
 assent to what the commissioners had done. Held, that B's assent did 
 not estop A from petitioning for a jury to make alterations in the loca- 
 tion of the highway, and to increase the allowances made by the com- 
 missioners.) 
 
 Pearis v. Covilland, 6 Cal. 617, 1855. (A, B et al. were tenants in 
 common. They made a joint contract for the sale of land to D, D 
 giving his note. On the maturity of the note payment was demanded 
 and refused. More than three years later D tendered the amount of 
 the note to A and demanded deed. A refused. D made the same tender 
 to B. B accepted the money and gave D a memorandum reciting that 
 he, D, was entitled to a deed. D brought a bill for specific perform- 
 ance against A, B ct al. Refused, except as to B's interest, one of the 
 grounds of the refusal being that D had no power to accept the purchase 
 money and promise a deed so as to bind the other owners of the 
 property.) 
 
 Thurston v. Horton, 82 Mass. 274. i860. (C ordered an engine from 
 A, which was to be erected on land which A thought belonged to C, but 
 which in fact was the property of B. When the engine was being in- 
 stalled B stood by and said it was satisfactory. A sued B and C for the 
 price of the engine. Hoar, J., instructed the jury, that the above recited 
 facts were not sufficient to maintain an action ap-ainst B. On appeal 
 affirmed.) 
 
 St. Paul's Church v. Ford, 34 Barb. 16, i860. (A, B and C were 
 tenants in common of a pew, and jointly and severally liable to pay 
 ' rent. Each separately and at different times signed a paper agreeing to 
 a readjustment of the rent. The church readjusted the rent, and sued 
 A, B and C jointly for the increased rent. Held, the defendants were 
 not jointly liable from the mere fact of their co-ownership, as each had 
 merely agreed separately to an increased assessment on his undivide 1 
 share.) 
 
 Morrison v. Clark, 89 Me. 103, 1896. (A and B were tenants in 
 common of a reasonable and convenient way across Cs lot. A adopted 
 and used a right of way on the east side of Cs lot. C brought an action 
 of trespass against A, and had judgment, on the ground that A had 
 agreed to use a way on the west side of Cs lot. A used the way on the 
 east side again. C sued A again in trespass. A justified as licensee of 
 his wife, B. Held, that the former judgment against A was not con- 
 clusive against him in this case, as B had a right to the determination 
 of a jury of the question whether the eastern way was or was not a 
 reasonable way.)
 
 160 PROPERTY NOT USED IN BUSINESS 
 
 MARSH V. HAND. 
 In the Supreme Court of New York, 1886. 
 
 40 Hun's Reports, 339. 
 
 Appeal from a judgment in favor of the plaintiff, en- 
 tered at the Broome Circuit upon the verdict of a jury, and 
 from an order denying a motion for a new trial made upon a 
 case and exception. 
 
 The plaintiff, in April, 1884, resided in the town of 
 Binghamton, upon a farm adjoining premises occupied by 
 the defendant Cumber, which last mentioned premises were 
 owned by one Stephen D. Hand at the time of his death, 
 and were occupied by said Cumber, under an agreement 
 with the defendants Walter M. Hand and George F. Hand, 
 as executors of the last will and testament of said Stephen 
 D. Hand. The defendant Cumber took possession of the 
 premises April 3, 1882, and continued in possession under 
 extensions of the same contract up to the time of the trial. 
 The defendants Hand left a quantity of stock on the farm 
 at the time that Cumber took possession; and some months 
 after, and in November, 1882, Cumber exchanged the ram 
 upon the place for another, which exchange was made with- 
 out the knowledge of the Hands, nor did they ever know of 
 such exchange, or that the ram was on the place, until after 
 the injuries complained of by the plaintiff. 
 
 April I, 1884, this ram went upon the premises of 
 plaintiff, and while upon his premises butted plaintiff and 
 inflicted injuries upon him, and this action was brought to 
 recover for the injuries so received. 
 
 It is conceded, for the purposes of this appeal, that the 
 defendant Cumber knew the ram in question to be vicious, 
 and that the other defendants did not know it. 
 
 Boardman, J. : The plaintiff recovered for injuries in-
 
 MARSH V. HAND 161 
 
 iiicted upon him by a vicious ram, which had trespassed upon 
 Lis premises from lands owned by defendants Hand, but oc- 
 cupied by defendant Cumber under a pecuhar contract. It 
 is conceded that Cumber knew the ram was vicious and that 
 the defendants who appeal, the Hands, had no such knowl- 
 edge prior to plaintiff's injury, unless Cumber's knowledge 
 is to be imputed to them. We will refer to the contract set 
 out in the case for the language used, without repeating the 
 same here. 
 
 The learned justice at Special Term holds, that the 
 Hands, by virtue of the contract, remain the owners of the 
 sheep left on the place when Cumber took it — that it was not 
 a sale of the sheep to Cumber. We are inclined to accept 
 that as a just conclusion, though there are features in the 
 contract leading to a different result, notably where it pro- 
 vides that Cumber "shall leave upon the farm as large a 
 quantity of hay and stock, and as good as he found on taking 
 possession, or pay the Hands the cash value of the same." 
 This language indicates an absolute right of disposition of 
 the stock and but for other clauses of the contract we should 
 so hold. However that may be. Cumber exchanged the ram 
 left on the place by the Hands, without their knowledge 
 and consent, for the vicious ram which did the injury. So 
 far as appears the Hands never knew of such exchange prior 
 to plaintiff's injury. 
 
 li the title to the sheep remained in the Hands after 
 Cumber went into the possession of the farm, it has not been 
 divested by Cumber's act in making the exchange. The con- 
 tract does not give Cumber any right to sell or convert the 
 property of the Hands and they have never authorized or 
 ratified Cumber's act. Cumber may be liable under the final 
 clause of the contract above quoted for the value of the ram 
 disposed of, unless he substitutes therefor something of equal 
 value, which the Hands choose to accept as equally good. 
 Until the end of the contract and such acceptance the vicious 
 ram so acquired remained the property of Cumber. He 
 kept it on the farm in and for the joint benefit and interest
 
 162 PROPERTY NOT USED IN BUSINESS 
 
 of the defendants. It was there for use, and though owned 
 by Cumber, the defendants without knowing it had an in- 
 terest in it and in its being kept there. It was not kept on the 
 fami at the expense of the farm for the benefit of Cumber 
 or others, but for their joint benefit. If this view of the case 
 be correct, the defendants Hand were not the owners or 
 possessors of this vicious ram and were not responsible for 
 injuries done by him through Cumber's neghgence. 
 
 If it could be held that the defendants were tenants in 
 common of the vicious ram, it seems to us that the Hands 
 could not be held responsible for the negligence of Cumber 
 who was in the sole possession, and had the right to such 
 possession until the end of his year. {Bozvman v. Travis, 54 
 N. Y., 640.) 
 
 The cases cited by the learned judge in his opinion deny- 
 ing a new trial do not seem to sustain his views in their ap- 
 plication to the facts in this case. The case of Ward v. 
 Warren (82 N. Y., 265), holds that the knowledge of one 
 tenant in common in the occupation of land, of the use of 
 an easement over it, is knowledge in and will bind all his 
 co-tenants. In Lcggett v. Hyde (58 N. Y., 2^2), on the 
 facts one was held to be a partner and liable for co-partner- 
 ship debts. In Roberts v. Johnson (58 N. Y., 613), the 
 employer was held liable for the negligence of his employee, 
 a stage driver, whereby a passenger was injured. In Stroher 
 V. EI ting (97 N. Y., 102), the parties had a contract rela- 
 tion making in the process of its execution each the agent 
 of the other, and each liable for the negligence of the other 
 while engaged in the common enterprise. In Champion v, 
 Bostwick (18 Wend., 175), the defendants were held to 
 be co-partners and liable as such for negligent injury. Ex- 
 cept the first case, which does not apply to a cause of ac- 
 tion arising out of negligence, none of them lays down any 
 rule of law about tenants in common. 
 
 It is not possible to hold that the defendants were part- 
 ners in the ownership of the original sheep or the vicious 
 one. It was not so held in the court below. Nor can we
 
 I^IARSH V. HAND 163 
 
 see how there could be an agency to do a wrong, or, by 
 neghgence of the agent, permit a wrong to be done for which 
 his principal should be bound, where the agent was not at 
 the time engaged in the prosecution of his principal's busi- 
 ness. Undoubtedly the act of an agent within the sco'pe 
 of his authority, and while engaged in his principal's busi- 
 ness, would bind the principal and make him liable for re- 
 sults. (Rounds V. Dei, Lack, and West. R. R. Co., 64 N. 
 Y., 129.) But in no such sense was Cumber the agent of 
 the Hands. He had, during the existence of the contract, 
 the absolute control and possession of the stock. The Hands 
 could not deprive him of it. They had no power to avoid 
 the contract or disturb Cumber's possession. How could 
 he then be deemed their agent, or why should they be liable 
 for his negligence or wrong? How are his acts to be 
 deemed the acts of the Hands to the extent of making them 
 liable for his wrong, or imputing to them his knowledge 
 so as to make them liable for the wrong? (Van Slyck v. 
 Sncll, 6 Lans., 299; King v. N. Y. C. and H. R. R. R. Co., 
 66 N. Y., 181.) For these reasons we think the Hands 
 were not liable to the plaintiff for the injury he suffered. 
 
 I do not find in the case any evidence that the sheep 
 were wrongfully upon the plaintiff's farm by reason of any 
 negligence of the defendants or either of them. Unless the 
 sheep were unlawfully there a recovery cannot be sustained 
 against the defendants Hand without proof of a scienter. 
 {Van Leuven v. Lykc, i Comst., 515; Moak Underbill on 
 Torts, 303.) We do not think that any such evidence has 
 been given or that the Hands are made liable by reason of 
 any knowledge possessed by Cumber. Little importance, 
 however, is attached to this feature of the case, since it seems 
 to have been assumed during the trial that the sheep were 
 trespassing on plaintiff's farm at the time of the injury, 
 and no such specific objection was taken to the recovery. 
 The right of Cumber to make the exchange of rams is denied 
 by the second ground taken on the motion for nonsuit.
 
 164 PROPERTY NOT USED IN BUSINESS 
 
 The judgment and order should be reversed, and a new 
 trial granted, with costs to abide the event. 
 
 Hardin, P. J., and Follett^ J., concurred. 
 
 Judgment and order reversed, and a new trial ordered, 
 with costs to abide the event. 
 
 ^Compare: Bernard v. Aaron, ii C. B., n. s. 889, 1862. (B and C 
 were joint owners of a ship. C rented B's share in ship for one-third 
 gross profits. A was injured by a defect in some tackle on the ship. 
 A sued B and C for the injury and obtained a verdict. Rule to set aside 
 verdict as to C made absolute. Williams, J. : "It is not disputed, that if 
 the facts be taken to be that [C] hired [B's] share of the ship, at a rent 
 of one-third of its gross earnings, [B] is, in that case, not liable for the 
 negligence of the master, who, under these circumstances, is exclusively 
 the servant of Aaron.")
 
 HEETER V. LYON 165 
 
 HEETER r. LYON. 
 In the Superior Court of Pennsylvania, 1897. 
 
 5 Pennsylvania Superior Court Reports, 260. 
 
 Assumpsit to recover price of the drilling of a well. 
 Before Greer, P. J. 
 
 The facts sufficiently appear in the opinion of the 
 Court. 
 
 Verdict for plaintiff for $217.14. Defendant appealed. 
 
 Errors assigned were: (i) In answering the defend- 
 ant's first point, which point and answer are as follows : 
 "Plaintiff having entered into a written contract with all the 
 joint owners in the lease except defendant for a specific 
 sum, he cannot maintain the suit against the defendant for 
 a pro rata share of the expenses or contract price as laid 
 in the original contract, it not being divisible. Answer : Re- 
 fused." (2) In answering the defendant's second point, 
 which point and answer are as follows : "2. Plaintiff in this 
 action being a joint owner or tenant in common with de- 
 fendant, cannot maintain assumpsit without an express con- 
 tract. Answer : Affirmed. The plaintiff cannot recover 
 without a contract; this is fully explained in the general 
 charge." (3) In answering the defendant's third point, 
 which point and answer are as follows: "3. From all the 
 evidence in this case the verdict should be for the defend- 
 ant. Answer: Refused." ^ 
 
 Orlady, J. : The defendant in this case was the owner 
 of an undivided one-eighth interest in a leasehold for oil and 
 gas purposes in Butler county. In the improvement of the 
 property, it was agreed by all interested therein save the de- 
 fendant (and plaintiff contends with him also), that a new 
 well should be drilled on the premises, the cost of which 
 
 *The argument of counsel for appellant is omitted.
 
 166 PROPERTY NOT USED IX BUSINESS 
 
 was to be $2,600. This sum was to be paid to the plaintiff 
 by the owners, in proportion to their respective interests. 
 All of the owners, save the defendant, went on the ground 
 and fixed the location of the new well and directed the 
 manner in which it was to be drilled. The plaintiff con- 
 tends that the matter was subsequently brought to the at- 
 tention of the defendant, who ratified the contract, and 
 agreed to pay his share of the $2,600, and on the faith of 
 this promise, the work was done in a manner to which there 
 was no objection, and the plaintiff brings this action to re- 
 cover from the defendant his proportionate share of the 
 cost. The whole question was one of fact, and the right of 
 one joint tenant or tenant in common to recover in as- 
 sumpsit, for property improvement without an express con- 
 tract from one equally interested, does not apply in this case. 
 It was not contended that the work was done improperly. 
 The defendant denied authorizing it. The plaintiff as- 
 serted that he had full authority from him to do the work, 
 and while the others signed a written contract, it was at 
 a time when the work was nearly completed, and the de- 
 fendant's objection to signing the writing, was only be- 
 cause he was not satisfied with the location adopted by the 
 others interested in the title. 
 
 The question was fairly submitted to the jury, who 
 were told "if there was no agreement or consent of Mr. 
 Lyon with Mr. Heeter, so to drill this well, then the verdict 
 must be for the defendant, because the majority consenting 
 to it would not bind him ; but if the well was drilled, which 
 is admitted, and if its drilling would have benefited Mr. 
 Lyon and it is admtited it would have, then if Mr. Lyon 
 consented to its drilling, etc., joining in with the others al- 
 though not in writing, then he would be liable to pay his 
 share, whatever that share is reasonably worth." This was 
 a fair submission of the only question in controversy, to the 
 only tribunal authorized to dispose of it. 
 
 The assignments of error are overruled and the judg- 
 ment is affirmed.
 
 CHAPTER IV. 
 
 LIABILITY OF SOLE OWNER OF PROP- 
 ERTY USED IN BUSINESS. 
 
 EDMUNDS z: BUSHELL. 
 In the Court of Queen's Bench, 1865. 
 
 Lain Reports, i Court of Queen's Bench, g~. 
 
 This was an action commenced under the Summary- 
 Procedure on Bills of Exchange Act, 1855 (18 & 19 Vict., 
 c. 67). The defendant Bushell had not appeared, and 
 judgment had been signed against him. 
 
 The declaration was against Jones, as acceptor of a 
 bill for 184/., dated ist of February, 1865, at four months 
 after date, drawn by one Britten to his order, and indorsed 
 by him to Taylor, and by Taylor to the Birmingham and 
 Midland Banking Company, of which the plaintiff was the 
 public officer. 
 
 Plea, that the defendant Jones did not accept the bill 
 
 The cause was tried at the last Surrey Summer As- 
 , sizes, before Crompton, J., and the following facts were 
 proved. The defendant Jones was a wholesale straw hat 
 manufacturer, who carried on business at Luton, in Bed- 
 fordshire, and also until May, 1865, had a branch establish- 
 ment in Milk Street, London. The business in London was 
 carried on under the name of "Bushell & Co." By an 
 agreement between the two defendants it was agreed that 
 Bushell should enter Jones's service as manager of the estab- 
 lishment in London, and that he should be paid for his 
 
 services quarterly an amount equal to one-half of the net 
 
 (167)
 
 168 PROPERTY USED IN BUSINESS— SOLE OWNERSHIP 
 
 profit to be derived from the business carried on in Lon- 
 don. Jones opened an account in the name of "Bushell 
 & Co.," at the London and County Bank, into which ac- 
 count Bushell was to pay all sums which he received to the 
 amount of 5/. He had authority from Jones to draw 
 cheques in the name of Bushell & Co. for the purposes of 
 the business, but he had no authority to draw or accept 
 bills. In July, 1864, Bushell accepted a bill in the name 
 of Bushell & Co., dated 9th of April, 1864, drawn upon 
 Bushell & Co., and made payable at the London and County 
 Bank. This bill was paid at maturity, and Jones did not 
 know of the transaction until he saw the amount entered in 
 his pass-book as a payment. Jones then told Bushell he had 
 no authority to accept bills, and forbade him to do so. 
 Bushell, however, accepted three other bills, dated in No- 
 vember and December, 1864, which fell due in February 
 and March following, and were paid at the London and 
 County Bank, and charged to Jones. These four bills 
 were given to persons with whom "Bushell & Co." had 
 dealings in the way of business. In consequence of these ir- 
 regularities Bushell was dismissed in May, 1865. 
 
 The acceptance to the bill sued upon was in the style 
 of "Bushell & Co.," and was proved to be in the handwrit- 
 ing of Bushell. The bill was taken by the banking com- 
 pany from Taylor, a customer, for a good consideration, 
 the company knowing nothing of Bushell & Co. 
 
 The jury found a verdict for the plaintiff, for 185/. 
 17,?., leave being reserved to move to enter a verdict for 
 the defendant, if the Court should be of opinion that there 
 was no reasonable evidence of the defendant Jones's lia- 
 bility.^ 
 
 CocKBURN, C. J. In this case there ought to be no 
 rule. The defendant carried on business both at Luton 
 and in London. Li London the business was carried on in 
 the name of Bushell & Co., Jones at the same time employ- 
 
 * The argument of counsel for the rule is omitted.
 
 EDMUNDS r. BUSHELL 169 
 
 ing Bushell as his manager ; Bushell was therefore the agent 
 of the defendant Jones, and Jones was the principal, but 
 he held out Bushell as the principal and owner of the busi- 
 ness. That being so the case falls within the well-established 
 principle, that if a person employs another as an agent in 
 a character which involves a particular authority, he can- 
 not by a secret reservation divest him of that authority. It 
 is clear, therefore, that Bushell must be taken to have had 
 authority to do whatever was necessary as incidental to car- 
 rying on the business ; and to draw and accept bills of ex- 
 change is incidental to it, and Bushell cannot be divested of 
 the apparent authority as against third persons by a secret 
 reservation. I think Jones was properly held to be liable 
 on the bill.- 
 
 Rule refused. 
 
 *The concurring opinions of Mellor and Shee, JJ., are omitted.
 
 170 PROPERTY USED IN BUSINESS— SOLE OWNERSHIP 
 
 WATTEAU V. FENWICK. 
 
 In the Queen's Bench Division of the High Court of 
 Justice, 1893. 
 
 Law Reports [1893], i Queen's Bench Division, 346. 
 
 Appeal from the decision of the county court judge 
 of Middlesborough. 
 
 From the evidence it appeared that one Humble had 
 carried on business at a beerhouse called the Victoria Hotel, 
 at Stockton-on-Tees, which business he had transferred 
 to the defendants, a firm of brewers, some years before the 
 present action. After the transfer of the business, Humble 
 remained as defendants' manager; but the license was al- 
 ways taken out in Humble's name, and his name was painted 
 over the door. Under the terms of the agreement made be- 
 tween Humble and the defendants, the former had no au- 
 thority to buy any goods for the business except bottled 
 ales and mineral waters; all other goods required were to 
 be supplied by the defendants themselves. The action was 
 brought to recover the price of goods delivered at the 
 Victoria Hotel over some years, for which it was admitted 
 that the plaintiff gave credit to Humble only : they consisted 
 of cigars, bovril, and other articles. The learned judge al- 
 lowed the claim for the cigars and bovril only, and gave 
 judgment for the plaintiff for 22/. 12^-. 6d. The defendants 
 appealed. 
 
 1892. Nov. 19. Finlay, O. C. (Scott Fox, with him), 
 for the defendants. The decision of the county court 
 judge was wrong. The liability of a principal for the acts 
 of his agent, done contrary to his secret instructions, de- 
 pends upon his holding him out as his agent — that is, upon 
 the agent being clothed with an apparent authority to act 
 for his principal. Where, therefore, a man carries on busi- 
 ness in his own name through a manager, he holds out his 
 own credit, and would be liable for goods supplied even
 
 WATTEAU r. FENWICK 171 
 
 where the manager exceeded his authority. But where, as 
 in the present case, there is no holding out by the principal, 
 but the business is carried on in the agent's name and the 
 goods are supplied on his credit, a person wishing to go 
 behind the agent and make the principal liable must diew 
 an agency in fact. 
 
 [Lord Coleridge, C. J. Cannot you, in such a case, 
 sue the undisclosed principal on discovering him?] 
 
 Only where the act done by the agent is within the 
 scope of his agency; not where there has been an excess 
 of authority. Where any one has been held out by the prin- 
 cipal as his agent, there is a contract with the principal by 
 estoppel, however much the agent may have exceeded his 
 authority; where there has been no holding out, proof must 
 be given of an agency in fact in order to make the principal 
 liable. 1 
 
 Dec. 12. Lord Coleridge, C. J- The judgment which 
 I am about to read has been written by my brother \\^ills, 
 and I entirely concur in it. 
 
 Wills, J. The plaintiff sues the defendants for the 
 price of cigars supplied to the Victoria Hotel, Stockton- 
 upon-Tees. The house was kept, not by the defendants, but 
 by a person named Humble, whose name was over the door. 
 The plaintiff gave credit to Humble, and to him alone, and 
 had never heard of the defendants. The business, however, 
 was really the defendants', and they had put Humble into 
 it to manage it for them, and had forbidden him to buy 
 cigars on credit. The cigars, however, were such as would 
 usually be supplied to and dealt in at such an establishment. 
 The learned county court judge held that the defendants 
 were liable. I am of opinion that he was right. 
 
 There seems to be less of direct authority on the sub- 
 ject than one would expect. But I think that the Lord 
 Chief Justice during the argument laid down the correct 
 principle, viz., once it is established that the defendant was 
 
 *The argument of council for the plaintiff is omitted.
 
 172 PROPERTY USED IN BUSINESS— SOLE OWNERSHIP 
 
 the real principal, the ordinary doctrine as to principal and 
 agent applies — that the principal is liable for all the acts 
 of the agent which are within the authority usually con- 
 fided to an agent of that character, notwithstanding limita- 
 tions, as between the principal and the agent, put upon 
 that authorit}'. It is said that it is only so where there has 
 been a holding out of authority — which cannot be said of a 
 case where the person supplying the goods knew nothing of 
 the existence of a principal. But I do not think so. Other- 
 wise, in every case of undisclosed principal, or at least in 
 every case where the fact of there being a principal was un- 
 disclosed, the secret limitation of authority would prevail 
 and defeat the action of the person dealing with the agent 
 and then discovering that he was an agent and had a prin- 
 cipal. 
 
 But in the case of a dormant partner it is clear law 
 that no limitation of authority as between the dormant and 
 active partner will avail the dormant partner as to things 
 within the ordinary authority of a partner. The law of 
 partnership is, on such a question, nothing but a branch of 
 the general law of principal and agent, and it appears to 
 me to be undisputed and conclusive on the point now under 
 discussion. 
 
 The principle laid down by the Lord Chief Justice, and 
 acted upon by the learned county court judge, appears to be 
 identical with that enunciated in the judgments of Cock- 
 burn, C. J., and Mellor, J., in Edmunds v. Bushcll, the 
 circumstances of which case, though not identical with those 
 of the present, come very near to them. There was no 
 holding out, as the plaintiff knew nothing of the defendant. 
 I appreciate the distinction drawn by Mr. Finlay in his ar- 
 gument, but the principle laid down in the judgments re- 
 ferred to, if correct, abundantly covers the present case. I 
 cannot find that any doubt has ever been expressed that it 
 is correct, and I think it is right, and that very mischievous 
 consequences would often result if that principle were not 
 upheld. 
 
 Appeal dismissed.
 
 POPE z: DISTILLING CO. 173 
 
 POPE V. MEADOW SPRING DISTILLING 
 COMPANY. 
 
 In the United States Circuit Court for the Eastern 
 District of Wisconsin^ 1884. 
 
 20 Federal Reporter, 35. 
 
 Dyer^ J., (charging jury.) These are two actions, one 
 brought by Charles Pope and the other by D. W. Ryan, 
 against the Meadow Spring Distilhng Company, to recover 
 in the one case the purchase price of a certain quantity of 
 malt, and in the other case the purchase price of a quantity 
 of barrels, which it is alleged came to the possession of the 
 defendant company through a sale of the same, in the first 
 instance, to one Leopold Wirth, and of which property, it is 
 alleged, the defendant had the use and benefit. The com- 
 plaint in the case of Pope charges that in August, 1883, 
 Leopold Wirth, who was the president of the defendant 
 company ordered of the plaintiff, who was a maltster in 
 Chicago, two car-loads of malt suitable for use in a dis- 
 tillery, and the plaintiff Pope, at the request of Wirth, ship- 
 ped to him such two car-loads of malt on the twenty-eighth 
 and twenty-ninth days of August, 1883 ; that the same were 
 of the value of $1,255.78; that Wirth made the order and 
 request for the malt for the use and benefit, and with the 
 knowledge and on behalf, of the defendant, and for the 
 purpose of getting the same into the possession of the de- 
 fendant ; that the defendant company realized the whole 
 benefit and' advantage of the purchase, and received the 
 malt in pursuance of the shipment by the plaintifT, and used 
 the same, and became thereby indebted to the plaintiff in the 
 amount of the purchase price, $1,255.78. In the case of 
 Ryan, the same state of facts and grounds of alleged lia- 
 bility are stated, except that the property described consisted 
 of three carloads of barrels, the value and purchase price
 
 174 PROPERTY USED IN BUSINESS— SOLE OWNERSHIP 
 
 of which are alleged to have been $775.25, which is the 
 amount sought to be recovered by the plaintiff Ryan. 
 
 It is undisputed that the plaintiffs in the several actions, 
 at the time they sold the property in question, made the 
 sales on the individual credit of Wirth, and shipped the 
 property to him as the purchaser and personal consignee 
 thereof, and respectively received and accepted his individ- 
 ual acceptances for the purchase price, which acceptances 
 were ultimately not paid. It seems that at the time of these 
 transactions the IVIeadow Spring Distilling Company was a 
 corporation owning and operating a newly-constructed dis- 
 tillery in this city, of which corporation Leopold Wirth was 
 the president, and of which, in the conduct of its business, 
 William Bergenthal was the general manager. It is claimed 
 by the plaintiffs, in their respective cases, that immediately 
 after the arrival of the malt and barrels in Milwaukee, the 
 same were removed to the distillery of the defendant com- 
 pany, and that the defendant had the full use and benefit of 
 the property in its business. The theory of the plaintiffs 
 is that although Wirth negotiated for and ordered the malt 
 and barrels in question in his own name and on his in- 
 dividual credit, he in fact made the purchase for the use and 
 benefit of the defendant company; that the property was 
 purchased to be used at the distillery of the defendant, and 
 on behalf and with the knowledge of the company, and that 
 the defendant in fact had the use and received the whole 
 benefit of the property, and therefore ought to pay, and in 
 law became liable to pay, for the same. The claim of the 
 defendant in both cases is that the purchases were made by 
 Leopold Wirth on his own account, for his own use, and on 
 his sole credit; that the purchases were not made by him 
 as an agent; that he had no authority so to act for the 
 defendant; that the defendant company at the time had no 
 knowledge of the transactions ; that the purchases were not 
 originally made for its use and benefit ; that it had no con- 
 nection therewith, and did not authorize the same, and 
 that subsequently, after Wirth had become the owner of
 
 POPE i: DISTILLING CO. 175 
 
 the property in his own right, it purchased the malt and 
 barrels from him as a subsequent and independent transac- 
 tion, and paid him therefor; that, therefore, it is under no 
 liability to the plaintiffs. 
 
 In submitting the cases to you, gentlemen, the Court 
 will not enter upon any discussion of the testimony. * * * 
 It is the law that where goods are sold to a person who is 
 in fact an agent of another, and on the credit of such per- 
 son, but without knowledge of the agency on the part of 
 the seller, the latter has the right to make the principal his 
 debtor on discovering him ; and the fact that he may have 
 taken the note or acceptance of such buyer for the goods 
 before discovering the principal, will not affect his right 
 to pursue the real principal. So, too, if the party making 
 the purchase in fact purchases the property, not for himself, 
 but for the use and benefit of a third party, and if such 
 third party, knowing of such purchase, takes the property 
 and appropriates it to his own use and benefit, he is liable 
 for the value thereof to the seller, although the seller may 
 not have known, when he made the sale, that such third 
 party was the real party in interest, and may have under- 
 stood at the time that he was making the sale to the party 
 with whom he directly dealt, and may have made the sale 
 on the credit of such party. It is also a principle of law that 
 where the purchaser of goods upon credit is known to the 
 seller to be an agent of a known principal, and the seller 
 with such knowledge gives exclusive credit to the agent by 
 taking his note or acceptance for the goods, the agent alone 
 is responsible to the seller. 
 
 Applying these principles to this case, if you should 
 find that Wirth, when he purchased the malt and barrels in 
 question, was in fact the agent of the defendant company in 
 making the purchase ; that he purchased the property for the 
 defendant, and for its use and benefit ; and that the plaintiffs 
 were at the time ignorant of such agency, — then, on dis- 
 covery that the defendant was the real principal in the 
 transactions, the plaintiffs had the right to assert their claims
 
 176 PROPERTY USED IN BUSINESS— SOLE OWNERSHIP 
 
 against the defendant, and, upon such state of facts being 
 estabHshed, they are entitled to recover from the defend- 
 ant the value of the property so sold, although they took 
 the personal acceptances of Wirth for the property. Or if 
 you should find that, although Wirth had no original au- 
 thority to make the purchases, he did in fact purchase the 
 malt and barrels for the use and benefit of the defendant, 
 and on its behalf, and that the defendant company, by its 
 president and general manager, knew of such purchase, and 
 with this knowledge received the property, and had the use 
 and benefit of it, then the plaintiffs are entitled to recover, 
 although they may not have known, when they made the 
 sales, that the defendant was the real party in interest, and 
 may have understood at the time that they were selling to 
 Wirth, and, in ignorance of the real party in interest, may 
 have taken his acceptances for the property. But if Wirth 
 was the autorized agent of the defendant in the purchase of 
 the property, and if the plaintiffs knew such to be the fact, 
 and knew the ]\Ieadow Spring Distilling Company to be his 
 principal, and to be liable on the purchases, and the prop- 
 erty was sold on the exclusive credit of Wirth, the plaintiffs 
 electing to trust him and not the defendant company, then 
 the plaintiffs are not entitled to recover. Further, if Wirth 
 was not the authorized agent of the defendant, and did not 
 purchase the malt and barrels for the use and benefit of the 
 defendant, or on its behalf, but purchased them for himself, 
 in his own individual right, and on his own ac- 
 count, then he became the owner of the property, and was 
 solely liable therefor to the plaintiffs, and in that event he 
 would have the right to sell the same to the defendant, or 
 any other person; and if you should find such to be the state 
 of the case, your verdict should be for the defendant.^ 
 Verdict for plaintiffs. 
 
 * The Court's discussion of the evidence is omitted.
 
 CHAPTER V. 
 
 PARTNER'S POWER TO SUBJECT HIS 
 COPARTNER TO LIABILITY. 
 
 SECTION I. — LIABILITY ON CONTRACT— THE 
 CREATION OF A PARTNERSHIP. 
 
 GRACE c'. SMITH. 
 In the Court of Common Pleas, 1776. 
 
 2 William Blackstoiic's Reports, 998. 
 
 Assumpsit for Goods sold and delivered. On Trial 
 at the Sittings after last Term, Verdict for the Defendant; 
 and now Davy moved for a new Trial ; the Verdict, as he 
 said, being contrary to Law and Evidence. 
 
 De Grey Chief Justice reported, that this was an Ac- 
 tion brought against Smith alone, as a secret Partner with 
 one Robinson [vide Abbot and Smith. P. 14 Geo. 3. p. 947. 
 devanf] to whom the Goods were delivered, and who be- 
 came Bankrupt in 1770. That on the 30th of March 1767, 
 Smith and Robinson entered into Partnership for seven 
 Years, but in the November afterwards some Disputes 
 arising, they agreed to dissolve the Partnership. The Ar- 
 ticles were not cancelled ; but the Dissolution was open and 
 notorious, and was notified to the Public on the 17th of 
 November 1767. The Terms of the Dissolution were, that 
 all the Stock in Trade and Debts due to the Partnership 
 should be carried to the Account of Robinson only. That 
 Smith was to have back 4200/. which he brought into the 
 Trade, and 1000/. for the Profits then accrued, since the 
 Commencement of the Partnership: That SiiiifJi was to 
 lend Robinson 4000/. part of this 5200/, or let it remain in 
 
 (177)
 
 178 PARTNER'S POWER TO BIND COPARTNER 
 
 his Hands for seven Years, at five per Cent. Interest, and 
 an Annuity of 300/^ per Anmiui, for the same seven Years. 
 P'or all which Robinson gave Bond to Smith. In June 1768, 
 Robinson advanced to Smith 600/. for two Years Payment 
 of the Annuity and other Sums by way of Interest, and 
 Gratuities, and other large Sums at different Times to en- 
 able him to pay the Partnership Debts, Smith having agreed 
 to receive all that was due to the Partnership, and to pay 
 its Debts, but at the Hazard of Robinson. That on the ist 
 of August 1768, the Demands of Smith were all liquidated 
 and consolidated into one — vis. 5200/, due to Him on the 
 Dissolution of the Partnership 1500/. for the remaining 
 five Years of the Annuity, and 300/. for Smith's Share of 
 a Ship : in all 7000/. for which Robinson gave a Bond to 
 Smith. That on the 22d of August 1769 an Assignment 
 was made of all Robinson's Effects to secure the Balance 
 then due to Smith, which was stated to be 10,000/. Soon 
 after the Commission was awarded. 
 
 Davy for the Plaintiff insisted, that the Agreement be- 
 tween Robinson and Smith was either a secret Continuance 
 of the old Partnership, or a secret Commencement of a 
 new one; being for the retiring Partner to leave his Money 
 in the visible Partner's Hands, in order to carry on his 
 Trade ; and to receive for it twelve and an half per Cent. 
 Profit, which could not be fairly done, unless it be under- 
 stood to arise from the Profits of the Trade. And that he 
 ought therefore to be considered as a secret Partner. And 
 he relied much on a Cafe of Bloxham and Fourdrinier 
 against Pell and Brooke, tried at the same Sittings (7th of 
 March 1775) before Lord Mansfield in the King's Bench 
 as in point. "This was also a Partnership for seven Years 
 between Brooke and Pell; but at the End of one Year 
 agreed to be dissolved, but no express Dissolution was had. 
 The Agreement recited, that Brooke being desirous to have 
 the Profits of the Trade to himself, and Pell being desi- 
 rous to relinquish his Right to the Trade and Profits, it 
 was agreed, that Brooke should give Pell a Bond for 2485/,
 
 GRACE V. SMITH 179 
 
 which Pell had brought into the Trade with Interest at 
 five per Cent, which was accordingly done. And it was 
 farther agreed, that Brooke should pay to Pell 200I. per 
 Annum for six Years, if Brooke so long lived, as in lieu 
 of the Profits of the Trade; and Brooke covenants, that 
 Pell should have free Liberty to inspect his Books. Brooke 
 became a Bankrupt before any thing was paid to Pell. 
 And this x\ction being brought for a Debt incurred by 
 Brooke in the Course of Trade, Lord Mansfield held that 
 Pell was a secret Partner. This was a Device to make 
 more than legal Interest of [Money, and if it was not a 
 Partnership it was a Crime. And it shall not lie in the De- 
 fendant Pell's jMouth to say. It is Usur}-, and not a Part- 
 nership." 
 
 Grofe and Adair for the Defendant argued, that the 
 present Case is very distinguishable from that of Bloxham 
 and Pell. Pell was to be paid out of the Profits of the 
 Trade, as appears from the Covenant to inspect the Books, 
 which else would be useless. His Annuity was expressly 
 given, as and in lieu of those Profits. It was contingent 
 in another View, as it depended on the Life of Brooke, by 
 whom those Profits were to be made. In our Case the 
 Annuity is certain, not casual ; it does not depend on carry- 
 ing on the Trade, nor to cease when that is left off, but 
 is due out of the Estate of Robinson. It is not a neces- 
 sary- Dilemma, that it must be either Usury or Partner- 
 ship. It may be, and probably was, a Premium for the 
 Goodwill of the Trade. Two thousand Guineas is no un- 
 common Price for turning over the Profits of a Trade so 
 beneficial, that it appears to have been rated at 1000/. to 
 each Partner in the Space of less than eight Months. And 
 whether that Sum is agreed to be paid at once, or by seven 
 Installments, it is the same Thing. Besides, whether there 
 be or be not a secret constructive Partnership, is a Question 
 proper for a Jury, who have here decided it on Considera- 
 tion of all the Circumstances.
 
 180 PARTNER'S POWER TO BIND COPARTNER 
 
 De Grey Chief Justice. 
 
 The only Question is, what constitutes a secret Part- 
 ner? Every Man who has a Share of the Profits of a 
 Trade, ought also to bear his Share of the Loss. And if 
 any one takes Part of the Profit, he takes a Part of that 
 Fund on which the Creditor of the Trader relies for his 
 Payment. If any one advances or lends IVIoney to a Trader, 
 it is only lent on his general personal Security. It is no 
 specific Lien upon the Profits of the Trade, and yet the 
 Lender is generally interested in those Profits ; he relies 
 on them for Repayment. And there is no Difference 
 whether that Money be lent dc novo, or left behind in Trade 
 by one of the Partners who retires. And whether the 
 Tenns of that Loan be kind or harsh, makes also no man- 
 ner of Difference. I think the true Criterion is, to en- 
 quire whether Smith agreed to share the Profits of the 
 Trade with Robinson, or whether he only relied on those 
 Profits, as a Fund of Payment : A Distinction not more 
 nice than usually occurs in Questions of Trade or Usury. 
 The Jury have said this is not payable out of the Profits; 
 and I think there is no Foundation for granting a new 
 Trial. 
 
 Gould Justice, same Opinion. 
 
 Blackstonc Justice, same Opinion. I think the true 
 Criterion (when Money is advanced to a Trader) is to 
 consider whether the Profit or Premium is certain and de- 
 fined, or casual, indefinite and depending on the Accidents 
 of Trade. In the former Case it is a Loan (whether usuri- 
 ous or not, is not Material to the present Question) in 
 the latter a Partnership. The Hazard of Loss and Profit 
 is not equal and reciprocal, if the Lender can receive only 
 a limited Sum for the Profits of his Loan, and yet is made 
 liable to all the Losses, all the Debts contracted in the Trade, 
 to any Amount. 
 
 Nares Justice, same Opinion. 
 
 Rule discharged.* 
 
 ^Compare: Hoare v. Dawes, i Douglas, 371, 1780. (B, C, D et al.
 
 GRACE V. SMITH 181 
 
 separately employed A to buy and sell tea. A, in executing the orders, 
 purchased one lot of tea ; two-sixteenths for B and the rest for himself 
 and the others in different amounts according to the orders he had re- 
 ceived. B, C, D et al. never saw each other, but each when he gave his 
 order probably knew that A would execute it by buying one lot of tea 
 for a number of customers. On the purchase A received a warrant, 
 which he pledged with a bank for an advance of the purchase j)rice. 
 Tea falling in value, the lot purchased was resold for less than the 
 advance. B paid to the Bank two sixteenths of the unpaid advance. 
 A, C ct al. having died or become bankrupts, the Bank brought an 
 action for the balance of the unpaid advance against B, on the theory 
 that A, B, C et al., were partners. Verdict for B. Lord Mansfield: "Is 
 this a partnership between the buyers? I think it is not; but merely an 
 undertaking with the broker by each, for a particular quantity. There 
 is no undertaking by one to advance money for another, nor any agree- 
 mert to share with one another in the profit or loss." 
 
 Young v. Axtell. mss. note of IMr. Serjt. Le Blanc, cited in 2 H. Bl.. 
 p. 242, 1785. "An action to recover 600/. and upwards, for coals sold and 
 delivered by the plaintiff, a coal merchant, an agreement between the 
 defendants was given in evidence, stating, that the defendant, Mrs. 
 .A..xtell, had lately carried on the coal trade, and that the other defend- 
 ant did the same ; that Mrs. Axtell was to bring what customers she 
 could into the business, and that the other was to pay her an annuity, 
 and also 2s. for every chaldron, that should be sold to those persons 
 who had been her customers, or were of her recommending. The 
 plaintiff also proved, that bills w^ere made out for goods sold to her 
 customers, in their joint names; and the question was, whether Mrs. 
 Axtell was liable for the debt? Lord ]\Iansfield says, he should have 
 rather thought on the agreement only, that Mrs. Axtell would be liable, 
 not on account of the annuity, but the other payment, as that would be 
 increased in proportion as she increased the business. However, as she 
 suffered her name to be used in the business, and held herself out as a 
 partner, she was certainly liable, though the plaintiff did not, at the time 
 of dealing, know that she was a partner, or that her name was used. 
 And the jury accordiils'ly found a verdict for the plaintiff." 
 
 Cooper V. Eyre, i H.' Bl. 37, 1788. (A, B, C and D entered into an 
 agreement to purchase goods in the name of A only, and to take aliquot 
 shares of the purchase. There was no agreement to resell the goods. 
 A purchased the goods from E and failed to pay. E sued B. C and D 
 for the price as partners. A verdict was directed for the defendants 
 and a rule to show cause why a new trial should not be granted was 
 discharged.) 
 
 Compare the following early Scottish case in which it was held that 
 one who had separately agreed with one of the partners for a proportion 
 of his share, was not a general partner. Fairholm v. Majoribanks, 17 
 Diet., 14558, 1725. See to the same effect, Burnett v. Snyder, 81 N. Y. 
 55. 1880.
 
 182 PARTNER'S POWER TO BIND COPARTNER 
 
 WAUGH V. CARVER. 
 In the Court of Common Pleas, 1793. 
 
 2 Henry Blackstone's Reports, 235. 
 
 This action of assumpsit for goods sold and deliv- 
 ered, work and labour done, &c. was tried at Guildhall, be- 
 fore the Lord Chief Justice, when a verdict was found for 
 the Plaintiff, subject to the opinion of the Court, on a case 
 stated. 
 
 Erasmus and William Carver were in the shipping 
 business at Gosport; Archibald Giesler was in the shipping 
 business at Plymouth. The Carvers and Giesler entered 
 into an agreement. Under this agreement Giesler removed 
 his business to Cowes. The Carvers sent a certain class 
 of business to Giesler, and also paid Giesler a certain pro- 
 portion of the commissions they received; Giesler sent a 
 certain class of business to the Carvers, and also paid the 
 Carvers a certain proportion of the commissions he re- 
 ceived. In the agreement it was expressly stipulated that 
 neither of the parties should be answerable for the acts, 
 deeds, or receipts of the others; but each separately for his 
 own losses. The suit was against all the parties to the 
 agreement as partners.^ 
 
 The substance of the argument for the plaintiff was 
 as follows: 
 
 The question in this case is, whether the articles of 
 agreement entered into by the Defendants, constituted a 
 partnership between them? That, such was the effect of 
 these articles, will appear by considering the general rules 
 of law respecting partners, and the particular circumstances 
 of the case. The law is, that wherever there is a participa- 
 tion of profits a partnership is created; though there is a 
 
 * The facts have been restated.
 
 WAUGH V. CARVER 183 
 
 difference between a participation of profits and a certain 
 annual payment. * * *" 
 
 It appearing therefore, from these authorities, that a 
 participation of profits is sufficient to constitute a partner- 
 ship, it remains to be seen, whether the agreement in ques- 
 tion did not estabhsh such a participation of the profits of 
 the agency business, between the Defendants, as to make 
 them hable as partners. In the first place, it Is stated in 
 the recital, that the Carvers and Giesler had agreed to al- 
 low each other certain proportions of each others commis- 
 sions and profits. It is then agreed, that Giesler should, 
 when required by the Carvers, remove from Plymouth to 
 Cowes, and there establish a house : and in consequence of 
 the Carvers' recommendation and assistance to support the 
 house, Giesler is to allow them a moiety of the commis- 
 sion on ships putting into the port of Cozves, or remaining 
 in the road to the Westward, addressed to him, and a moi- 
 ety of the discount on the tradesmen's bills, employed on 
 such ships : he also covenants to advise with the Carvers, 
 and pursue such measures as may appear to them to be for 
 the interest of the concerned. On the other hand, the Car- 
 vers agree to pay Giesler three-fifths of the agency of all 
 vessels, which shall come from Cowes to Portsmouth, and 
 put themselves under the direction of the Carvers, by the 
 recommendation of Giesler, one half per cent, on trades- 
 men's bills, and certain proportions of warehouse rent and 
 agency. Each party is likewise to produce true copies of 
 the accounts of the ships to the other, and neither is to 
 form any other connection in the agency business, during 
 the period agreed upon: and they are to meet once a year 
 at Gosport, to settle their mutual accounts, and pay over 
 the balance. Now it was not possible to express in clearer 
 terms, an agreement to participate in the profits of the busi- 
 ness of ship agents, and to establish a joint concern between 
 
 cases 
 
 ' The discussion of the case of Grace v. Smith, supra, and other 
 given in the notes to that case is omitted.
 
 184 PARTNER'S POWER TO BIND COPARTNER 
 
 the two houses. It may be objected, that there is a proviso, 
 that neither of the parties shall be answerable for the losses 
 of the other; but this would certainly be not binding on the 
 creditors. Lord Craven v. Widdozvs, 2 Chan. Cas. 139, 
 Heath V. Percival, i Pre. JJ'uis. 682. Rich v. Coe, Cowp. 
 636. An agreement to share profit alone, cannot prevent 
 t;ie legal consequence of also sharing losses, for the benefit 
 of creditors. Perhaps it may be difficult to find an exact 
 definition of a partnership, but it has been always holden, 
 that where there is a share of profits, there shall also be 
 share of losses, for whoever takes a part of the capital, 
 or of the profits upon it, takes a part of that fund to which 
 the public have given credit, and to which they look for 
 payment. If there be no original capital, the profits of the 
 trade are themselves a capital, to which the creditor is to 
 have recourse. Thus if in the year 1791, the profits were 
 100/. and in the year 1792, there was a loss of 10/. of course 
 the profits of the preceding year, would be the stock to 
 which the creditor would resort for the payment of the 
 debts which constituted part of the loss of the succeeding 
 year. Indeed it is by no means necessary that to constitute 
 a partnership, the parties should advance money by way 
 of capital ; many joint-trades are carried on, without any 
 such advance : there is therefore no ground to object, in 
 the present instance, that neither party brought any money 
 into a common stock, in order to carry on their business. 
 
 On behalf of the Defendants, the arguments were as 
 follows. The question is, whether this agreement creates 
 such a partnership, as to make all liable to the debts of 
 each. A partnership may be defined to be, "the relation 
 of persons agreeing to join stock or labour, and to divide 
 the profits." Thus Pujfendorf described it, "Contractus 
 societatis est, quo duo pluresve inter se peciiniam, res, aut 
 operas confenint eo fine, ut quod hide redit lucri inter 
 singulos pro rata diz'idatur." lib. 5. cap. 8. Partners there- 
 fore, can only be liable on the ground of their being joint- 
 contractors, or as partaking of a joint stock. In many
 
 WAUGH V. CARVER 1S5 
 
 cases, in which questions of this sort have arisen, and the 
 persons have been holden to be partners, goods had been 
 sold, and a common fund estabhshed, to which the credi- 
 tor might look for payment ; and there it was highly reason- 
 ble to hold, that if many persons purchase goods on tlieir 
 joint account, though in the name of one only, and are to 
 share the profits of a re-sale, they shall be considered as 
 joint-contractors, and therefore liable as partners. So if 
 a joint-stock or capital, or joint-labour be employed, each 
 party is interested in the thing on which it is employed, and, 
 in the profits resulting from it. But in the present case, 
 there is no joint-contract for the purchasing goods, nor any 
 joint-stock or labour, but the parties are to share in certain 
 proportions, the profits of their separate stock, and sepa- 
 rate labour : there was no house of trade or merchandize 
 established, but two distinct houses, for the purpose of 
 carrying on the business of ship agency, on two distinct 
 accounts. The profits are not a capital, unless carried on 
 as capital, and not divided. Ship agents are not traders, 
 but their employment is merely to manage the concerns of 
 such ships in port, as are addressed to them. Suppose two 
 fishermen were to agree to share the profits of the fish that 
 each might catch, one would not be liable for mending the 
 nets of the other. So if two watermen agree to divide 
 their fares, neither would be answerable for repairing the 
 other's boat. Nor would any artificers who entered into 
 similar agreements to share the produce of their separate 
 labour, be obliged to pay for each other's tools or materials. 
 And this is not an agreement as to the agency of all ships, 
 with which the parties were concerned, for such as came 
 to the particular address of one, were to be the sole profit 
 of that one. It was indeed clearly the intent of the parties 
 to the agreement, and is so expressed, that neither should 
 be answerable for the losses, acts or deeds of the other, 
 and that the agreement should not extend to their sepa- 
 rate mercantile concerns. It must therefore be a strong 
 and invariable rule of law, that can make the parties to
 
 186 PARTNER'S POWER TO BIND COPARTNER 
 
 the agreement responsible for each other, against their ex- 
 press intent. But all cases of partnership which have been 
 hitherto decided, have proceeded on one or other of the fol- 
 lowing grounds : i . Either there has been an avowed au- 
 thority given to one party to contract for the rest. 2. Or 
 tliere has been a joint-capital or stock. 3. Or, in cases of 
 dormant partners, there has been an appearance of fraud in 
 holding out false colours to the world. Now the present 
 case, is not within either of those principles : because there 
 was no authority given to either party to contract for the 
 others; nor was there any joint-capital or stock; nor were 
 the public deceived by any false credit ; no fraud is stated 
 or attempted to be proved, nor can the Court collect from 
 the articles that any was intended : it was merely a purchase 
 of Gicslcr's profits by giving him a share of those of the 
 Carvers, to prevent a competition between them. 
 
 Lord Chief Justice Eyre. — This case has been ex- 
 tremely well argued, and the discussion of it has enabled 
 me to make up my mind, and removed the only difficulty 
 I felt, which was. whether by construing this to be a part- 
 nership, we should not determine, that if there was an 
 annuity granted out of a banking house, to the widow, for 
 instance, of a deceased partner, it would make her liable 
 to the debts of the house, and involve her in a bankruptcy. 
 But I think this case will not lead to that consequence. 
 
 The definition of a partnership cited from Piijfendorf 
 is good as between the parties themselves, but not with re- 
 spect to the world at large. If the question were between 
 A. and B. whether they were partners or not, it would be 
 \tr\ well to inquire whether they had contributed, and in 
 what proportions, stock or labour, and on what agreement 
 they were to divide the profits of that contribution. But in 
 all these cases, a very different question arises, in which 
 that definition is of little service. The question is generally, 
 not between the parties, as to what shares they shall divide, 
 but respecting the creditors, claiming a satisfaction out of 
 the funds of a particular house, who shall be deemed liable
 
 WAUGH V. CARVER 187 
 
 in regard to these funds? Now a case may be stated, in 
 which it is the clear sense of the parties to the contract, that 
 they shall not be partners; that A. is to contribute neither 
 labour nor money, and, to go still farther, not to receive 
 any profits. But if he will lend his name as a partner-, he 
 becomes as against all the rest of the world, a partner, not 
 upon the ground of the real transaction between them, but 
 upon principles of general policy, to prevent the frauds to 
 which creditors would be liable, if they were to suppose that 
 they lent their money upon the apparent credit of three or 
 four persons, when, in fact, they lent it only to two of them, 
 to whom, without the others, they would have lent nothing. 
 The argument gone into, however proper for the discussion 
 of the question, is irrelevant to a great part of the case. 
 Whether these persons were to interfere more or less, with 
 their advice and directions, and many small parts of the 
 agreement, I lay entirely out of the case ; because it is plain 
 upon the construction of the agreement, if it be construed 
 only between the Carvers and Giesler, that they were not, 
 nor ever meant to be partners. They meant each house to 
 carry on trade without risk of each other, and to be at 
 their own loss. Though there was a certain degree of con- 
 trol at one house, it was without an idea that either was to 
 be involved in the consequences of the failure of the other, 
 and without understanding themselves responsible for any 
 circumstances that might happen to the loss of either. That 
 was the agreement between themselves. But the question 
 is, whether they have not, by parts of their agreement, con- 
 stituted themselves partners in respect to other persons. 
 The case therefore is reduced to the single point, whether 
 the Carvers did not entitle themselves, and did not mean to 
 take a moiety of the profits of Giesler's house, generally and 
 indefinitely as they should arise, at certain times agreed upon 
 for the settlement of their accounts. That they have so 
 done, is clear upon the face of the agreement : and upon 
 the authority of Grace v. Smith, he takes a moiety of all 
 the profits indefinitely, shall, by operation of law, be made
 
 188 PARTNER'S POWER TO BIND COPARTNER 
 
 liable to losses, if losses arise, upon the principle that 
 by taking a part of the profits, he takes from the creditors a 
 part of that fund which is the proper security to them for 
 the payment of their debts. That was the foundation of 
 the decision in Grace v. Smith, and I think it stands upon 
 the fair ground of reason. I cannot agree,- that this was a 
 mere agency, in the sense contended for on the part of the 
 Defendants, for there was a risk of profit and loss; a ship 
 agent employs tradesmen to furnish necessaries for the ship, 
 he contracts with them, and is liable to them ; he also makes 
 out their bills in such a way as to determine the charge of 
 commission to the ship owners. With respect to the com- 
 mission indeed, he may be considered as a mere agent, but as 
 to the agency itself, he is as much a trader as any other man, 
 and there is as much risk of profit and loss, to the person 
 with whom he contracts, in the transactions with him, as 
 with any other trader. It is true, he will gain nothing but 
 his discount, but that is a profit in the trade, and there may 
 be losses to him, as w^ell as to the owners. If therefore the 
 principle be true, that he who takes the general profits of a 
 partnership must of necessity be made liable to the losses, in 
 order that he may stand in a just situation with regard to 
 the creditors of the house, then this is a case clear of all 
 difficulty. For though with respect to each other, these 
 persons were not to be considered as partners, yet they 
 have made themselves such, with regard to their transac- 
 tions with the rest of the world. I am therefore of opin- 
 ion that there ought to be judgment for the Plaintiff. 
 
 Gould, J. I am of the same opinion. 
 
 Heath, J. I am of the same opinion. 
 
 RooKE, J. having argued the case at the bar, declined 
 
 giving any opinion. 
 
 Judgment for the Plaintiff.^ 
 
 ^Rcid V. Hollingshead, 4 B. & C. 867, 1825. (A, a merchant, directed 
 B, a broker, to purchase cotton, allowing B one-third interest therein in 
 lieu of commission. In the correspondence between A and B the matter 
 was referred to as "joint account," "joint concern," etc. Held, that A 
 and B were partners.)
 
 WAUGH V. CARVER 189 
 
 Barklic v. Scott, I H. & B. S3, 1827. (C and D were in partnership. 
 A invested money in the firm for A's infant son, B. C and D wrote to 
 A acknowledging the receipt of the money as "B's capital put into this 
 house," and agreed to account to A as trustee of B for one-third of the 
 profits, and to be governed and directed by A's advice in all matters 
 pertaining to the business. A had no personal interest in the business, 
 nor did he reserve any power as trustee for B of drawing out the^prin- 
 cipal or profits. Held, that A was not a partner.) 
 
 Cox V. Delano, 3 Dev. 85, N. C. 1831. ("Memorandum of an agree- 
 ment by and between Benjamin Delano, and Samuel Whelden. The 
 said Delano agrees to let a schooner to him belonging, * * * |^q jj^g 
 said Whelden, upon the condition as follows : Said Whelden to pay all 
 charges which may arise on said schooner, as long as he shall have 
 possession of her, except * * * one-half expenses of port charges, 
 one-half the expense of lights vised on board, and the wages of one 
 seaman. The said Whelden is to return the schooner at the expiration 
 of six months, in like good order as delivered. The said Whelden is 
 empowered to invest the proceeds of freight in such merchandise as he 
 may think of mutual interest. All profit over and above the expenses 
 above mentioned, to be equally divided." Held, that the agreement 
 constituted the parties to it partners. Henderson, C. J. : "He who 
 shares in the profits, which are nothing but the net earnings, should 
 also share in the losses, if there be any. The moral right of making 
 gains is based upon this principle. The rule is easily laid down ; the 
 difficulty is in its application. Where a part of the profits themselves 
 is the property of the party, he is then a partner. Where their amount 
 merely ascertains the amount of a debt or duty, but they themselves do 
 not belong to the party, there is not a partnership.") 
 
 Goddard v. Hodges, i Cr. & M. 2)2i, 1832. (The shareholders in a 
 certain company were partners. A was the solicitor of the company. 
 B at the request of A became the holder of certain shares for the 
 benefit of A, A paying all expenses on the shares. A brought a suit 
 in assumpsit for money paid out by him in travelling for the company. 
 Held, that he, A, was a partner; and, therefore, could not sue the other 
 partners at law until a balance was ascertained.) 
 
 Leggett v. Hyde, 58 N. Y. 272, 1874. (A advanced to B and C for 
 use in their business $2,000. A was to receive one-third of the profits 
 to be settled half yearly, and at the end of the year if he did not wish 
 to go into partnership the $2,000 was to be repaid. A never received 
 any profits or exercised any control. D sued A as a partner with B 
 and C for goods sold to the firm. The Court directed a verdict in favor 
 of D. Judgment affirmed. Folger, J. : "It was one-third of the profits 
 that he was to have, and not a sum in general, equal to that one-third. 
 So that he was to take it as profits, and not as an amount due ; not as a 
 measure of compensation, Isut as a result of capital and industry," 
 p. 277.) As to how far this case represents the present law in New 
 York, see opinion in Beecher v. Burk and case of Hackett v, Stanly, 
 infra.
 
 190 PARTNER'S POWER TO BIxND COPx\RTNER 
 
 WILKINSON V. FRASIER. 
 At Nisi Prius, in the Court of Common Pleas, 1803. 
 
 4 'Espinasse's Reports, 182. 
 
 Assumpsit against the Defendant, who was the 
 Captain of a ship employed in the Southern Whale-Fishery, 
 to recover seamens' wages. 
 
 The action was brought, and the Plaintiff declared 
 on the usual articles for voyages on that fishery; by which 
 the seamen are, by their articles, to receive a certain share 
 of the produce of the cargo in lieu of wages. 
 
 The Plaintiff proved the articles; which were signed 
 by the Plaintiff, as a mariner; and by the Defendant, as 
 captain; the sailing of the vessel on the voyage, and the 
 Plaintiff's service; and that the oil, of which the cargo was 
 composed, had been sold, and produced a certain sum; for 
 the share of which the Plaintiff went. 
 
 These articles stipulated, on the part of the sailors. 
 That they should proceed on the voyage, do their duty, &;c. ; 
 and on the part of the captain, That the produce of the 
 voyage should be divided in certain proportions : via. A 
 certain proportion to the owners, a certain proportion to 
 the captain, and the rest to the other officers and seamen. 
 The proportion of a common sailor was, a one-hundred and 
 ninetieth part. 
 
 Best, Serjt. objected: That the action could not be 
 maintained against the Captain, who was the present De- 
 fendant; because the Defendant, as well as the Plaintiff, 
 was to be paid out of the profits of the voyage: that they 
 were therefore partners ; and as one partner could not main- 
 tain this action against another, the action was not main- 
 tainable. 
 
 Lord Alvanley said, He would not nonsuit the Plain- 
 tiff on such an objection: That the Plaintiff, and the other
 
 WILKINSON V. FRASIER 191 
 
 sailors, were hired by the Defendant and the owners, to 
 serve on board the ship for wages to be paid to him; and 
 the share was in the nature of wages, unHqiiidated at the 
 time, but capable of being reduced to a certainty on the 
 sale of the oil, which had taken place : and that he should 
 not therefore consider them as partners, but as entitled to 
 wages to the extent of their proportion in the produce of 
 the voyage. 
 
 There was a verdict for the Defendant.^ 
 
 ^Compare: Hesketh v. Robertson, 4 East. 144, 1803. (A authorized 
 B to purchase goods for him. A, B for his trouble to have half the 
 profits. B paid for the goods, and sued A in assumpsit for the money. 
 Held, he could recover.) 
 
 French v. Styring, 2 C. B., n. s., 357, 1857. (A and B being joint tenants 
 of a race horse, it was agreed between them that A should keep and 
 train and have the general management of the horse, conveying him to 
 and entering him for the different races; that the expenses of keep 
 should be borne jointly, and the horse's winnings be equally divided 
 between them. Held, that even if this agreement constituted a part- 
 nership in the management of the horse, a question on which the Court 
 was divided in opinion, nevertheless A could sue B for a moiety of 
 advances made by A on account of the keep of the horse as being in the 
 nature of an advance of capital for B.)
 
 192 PARTNER'S POWER TO BIXD COPARTNER 
 
 DUNHAM V. ROGERS. 
 In the Supreme Court of Pennsylvania, 1845. 
 
 I Pennsylvania Reports. 255. 
 
 This was an appeal by Dunham from the judgment of 
 a justice of the peace, before whom Rogers brought suit 
 against Dunham for the value of certain lumber, sold and 
 appropriated to the use of the defendant.-^ 
 
 Gibson, C. J. : 
 
 It is not alleged that this lumber was sold immediately 
 to Dunham, and as it was furnished to Bronson and used 
 by him, if Dunham is not liable for the price of it as Bron- 
 son's partner, he is not liable for it at all. Do the terms 
 of their agreement make him liable for Bronson's pur- 
 chases to third persons? Bronson let his storehouse, with 
 the unenclosed ground, to Dunham, for the purposes of a 
 store and lumber yard; and agreed to furnish him wooden 
 handles for shovels and other implements, made to order, 
 out of Bronson's stuff, and to be paid for, according to a 
 tariff of prices, out of the store or the proceeds of the han- 
 dles; while Dunham agreed to stock the store and conduct 
 the business of it. So far the agreement discloses no fea- 
 ture of partnership; but in further compensation of Bron- 
 son's labour, skill, and the rent of the storehouse, Dunham 
 agreed to allow him a commission of fifty per cent, on the 
 net profits of the whole. Now, it has been so often and 
 so invariably ruled in England and America, that a com- 
 mission on profits is not such an interest in the concern as 
 constitutes partnership, that the point is at rest. What 
 staggers the mind, in this instance, is the apparent shallow- 
 ness of the distinction, when it is considered that a com- 
 mission of fifty per cent, is no more nor less than an equal 
 
 * The statement of the case in the report, and the arguments of 
 counsel are omitted.
 
 DUNHAM f.. ROGERS 193 
 
 division of the profits ; but it must not be forgotten that 
 the distinction is an arbitrary one, resting on authority, 
 not principle ; and that, whatever be the proportion, the re- 
 lation produced by a compensation in the form of a com- 
 mission is in every instance the same. 
 
 But, by the terms of the contract, Bronson, and not 
 Dunham, was to procure and pay for the stuff; and they 
 were not to be partners in that part of the business. This 
 provision, I admit, would be inoperative against strangers, 
 if the parties had held themselves out to the public as part- 
 ners, both in buying and selling ; but assuming, for the mo- 
 ment, that there was indeed a partnership in the handles 
 when furnished, and in the store when stocked with goods, 
 yet it is to be borne in mind that the handles, as well as 
 the store-goods, were to be put into the concern as sepa- 
 rate contributions to the joint-stock; and that, as the stuff 
 for the handles was to be procured by Bronson, it was, con- 
 sequently to be paid for by him. just as the store-goods 
 were to be procured and paid for by Dunham, having been 
 purchased on separate account. There may be a partner- 
 ship for selling, and not for buying; or, for buying, and 
 not for selling; or, for both buying and selling, which is 
 the most usual: as, if several put separate quantities of 
 wheat into a common stock, to be ground into flour and 
 sold on joint account ; or agree to buy jointly, and divide 
 the article when bought ; or agree to buy and sell on joint 
 account. In the first case, each would be liable for his own 
 purchases only; but in the second and third cases, each 
 would be liable for the whole. Now, if there were any 
 partnership in this instance, it would be of the first class; 
 and in any view of the case, the defendant would not be 
 liable. 
 
 Judgment reversed, and venire de novo awarded.^ 
 
 'Compare: Heap v. Dobson, 15 C. B.. n. s., 460, 1863. (A. B and C 
 agreed that each should furnish £3,000 worth of goods, to be shipped on 
 a joint adventure, the profits to be divided according to the amount of 
 their several shipments. Held, that B and C were not responsible for 
 goods bought by A to furnish his quota of the cargo.)
 
 194 PARTNER'S POWER. TO BIND COPARTNER 
 
 HOLMES V. OLD COLONY RAILROAD CO. 
 In the Supreme Judicial Court of Massachusetts, 
 
 1855- 
 
 5 Gray's Massachusetts Reports, 58. 
 
 Action of contract against James S. Parker, Henry 
 C. Tribou and the Old Colony Railroad Corporation, de- 
 scribed as copartners and keepers of the Samoset House 
 in Plymouth, under the style of Parker & Tribou, to re- 
 cover for supplies furnished by the plaintiffs to that hotel. 
 Parker and Tribou pleaded certificates of discharge in in- 
 solvency, and the plaintiffs discontinued against them; and 
 the plaintiffs and said corporation submitted the case to the 
 decision of the court. ^ 
 
 Dewey, J. It is contended on the part of the plain- 
 tiffs, that the stipulations existing between the Old Colony 
 Railroad Corporation and Parker and Tribou, the lessees 
 of the hotel called the Samoset House, in relation to the 
 leasing of said house, were such as to render the Old Col- 
 ony Railroad Corporation a partner in the concern, and 
 liable, as such, to creditors who may have furnished pro- 
 visions and other articles for the hotel, at the request of 
 Parker and Tribou. 
 
 Such copartnership is supposed to arise from the agree- 
 ment between these parties, providing that the Old Colony 
 Railroad Corporation shall receive for the use of the prem- 
 ises leased, in addition to the sum of five hundred dollars 
 for the use of the furniture, "one-half of the net proceeds 
 arising from keeping the house as a hotel." 
 
 Whatever doubts may formerly have existed as to the 
 effect of an arrangement like that made in the present case, 
 entitling the lessee to receive, as a compensation for the 
 
 ' The Reporter's statement of the facts of the case is omitted.
 
 HOLMES z: OLD COLONY RAILROAD CO. 195 
 
 use of his property or capital stock, one moiety of the net 
 proceeds arising from the business transacted, that ques- 
 tion seems now fully settled at least in this commonwealth. 
 
 It is no longer true that receiving one-half of the 
 profits, or one-half the net profits, arising from articles 
 manufactured and sold, or resulting from business in which 
 one furnishes the stock in trade and another performs the 
 labor, necessarily creates a partnership. It is always com- 
 petent to look at the particular circumstances of the case, 
 and ascertain thereby whether it may not be merely a com- 
 pensation to a party for his labors and services, or for fur- 
 nishing the raw materials, or a mill privilege, or a factory, 
 from which the other is to earn profits. Story on Part. 
 Sec. 36. 
 
 This question was very fully considered in the case of 
 Denny v. Cabot, 6 Met. 82, where it is said by Judge Wilde, 
 in delivering the opinion of the court, "where a party is to 
 receive a compensation for his labor, in proportion to the 
 profits of the business, without having any specific lien 
 upon such profits, to the exclusion of other creditors, there 
 seems to be no reason for holding him liable as a partner, 
 even to third persons." 6 Met. 92. 
 
 That case was followed by Bradley v. JVhite, 10 ]\Iet. 
 303, where the question arose upon an agreement that A 
 should furnish the goods for a store, and pay all expenses, 
 and B should transact the business of the store, and re- 
 ceive half the profits for so doing; and it was held, that 
 this did not constitute B a partner, and that he was not 
 liable to a creditor who had furnished goods for such 
 store. 
 
 It may be further remarked, that in relation to con- 
 tracts for the chartering of vessels, where it was stipulated 
 that the owner of the vessel should receive a certain per- 
 centage on the profits of the voyage, it was early held that 
 such an interest in the profits did not constitute a partner- 
 ship. Reynolds v. Toppan, 15 Mass. t^jt,. Cutler v. Win- 
 sor, 6 Pick. 335.
 
 196 PARTNER'S POWER TO BIND COPARTNER 
 
 In looking at the particular contract existing between 
 these parties, it is quite obvious that no partnership was 
 contemplated by them. It was a part of the stipulation, 
 clearly expressed, that the labor and expenditures in carry- 
 ing on the hotel were matters solely in the hands of Parker 
 and Tribou, and all bills were to be paid by them. The 
 articles bought by them were their own property, as were 
 all moneys received from the guests of the house, and the 
 Old Colony Railroad Corporation had no right or author- 
 ity over either. It seems to us to have been, on the part 
 of the Old Colony Railroad Corporation, a mere leasing 
 of the house and furniture, but making the rent of the for- 
 mer to depend wholly upon the success of the establishment. 
 If no profits were realized, they would receive no rent; 
 but, beyond this, they were not to be affected by the losses 
 that might occur in the keeping of the hotel. 
 
 The agreement on the part of Parker and Tribou to 
 keep exact accounts of all receipts and expenditures, which 
 should be open to the inspection of the corporation, was a 
 proper arrangement to carry out the fulfilment of the stip- 
 ulation to pay one-half of the net proceeds arising from 
 keeping the 'house, for rent of the same, and does not nec- 
 essarily import any partnership in the proceeds thus re- 
 ceived by Parker and Tribou. 
 
 Applying to the present case the legal principles so 
 fully settled in the cases above referred to, the court are 
 of opinion that this action cannot be maintained against 
 the Old Colony Railroad Corporation. 
 
 Judgment for the defendants.
 
 cox V. HICKMAN 197 
 
 COX v. HICKMAN. 
 In the House of Lords, i860. 
 
 8 House of Lords Cases, 268. 
 
 This was an action on three bills of exchange, given 
 by one of the managers of the Stanton Iron Company, for 
 goods supplied to that company. The declaration con- 
 tained a count in the usual form as against acceptors on 
 each bill, alleging it to have been "directed to the De- 
 fendants by and under the name of the Stanton Iron Com- 
 pany;" also counts for goods sold and delivered, and the 
 money counts. The Defendants severed in pleading, each 
 denying the acceptance of the bills; and, as to the other 
 counts, pleading never indebted. 
 
 For some time previously to the year 1849, Benjamin 
 Smith and Josiah Tim mis SinitJi carried on business at the 
 Stanton Iron Works, in Derbyshire, as iron masters and 
 corn merchants, under the name of B. Smith and Son. 
 In that year they became embarrassed in their circum- 
 stances, and a meeting of their creditors took place. 
 Among these were Cox and JJlieatcroft. On the 13th 
 November 1849, a deed of arrangement was executed by 
 more than six-sevenths in number and value of the credi- 
 tors. The parties to this deed were the Sniiths, of the first 
 part; Frajicis Sandars, John TJwmpson, James Haywood, 
 David IVheatcroft, and Samuel ]Valkcr Cox, all of whom 
 were creditors, of the second part; and the general creditors 
 (including those previously named as trustees), whose 
 names were also set forth in a schedule, of the third 
 part. The deed recited a lease from 1846 for twenty-one 
 years to the Smiths, that they were unable to pay their 
 debts, and that it liad been agreed that there should be 
 an assignment by them to the parties of the second part, 
 as trustees on behalf of the creditors, to have and hold the
 
 198 PARTNER'S POWER TO BIND COPARTNER 
 
 premises for the term of the lease, the machinery, &c., and 
 all the estate, &;c., subject to the powers and provisions 
 thereinafter contained. The trusts were then enumerated, 
 and, in substance, they were to carry on the business under 
 the name or style of "The Stanton Iron Company," with 
 power to do w^hatsoever was necessary for that purpose, 
 and to pay the net income, after answering all expenses; 
 which net income was always to be deemed the property of 
 the two Sniiths, among the creditors of the Smiths. And 
 provision was made for the meetings of the creditors; and, 
 at any such meeting, a majority in value of the creditors 
 present was to have the power to make rules as to the 
 mode of conducting the business, or to order the discon- 
 tinuance of it. And when all the debts had been paid, 
 the trustees were to hold the trust estates, &c., in trust for 
 the two SmifJis. The deed contained a covenant by the 
 parties executing it, not to sue the Smiths for existing debts. 
 Cox never acted as trustee; and Wheatcroft resigned six 
 weeks after the execution of the deed, and before the goods 
 for which the bills were given had been supplied ; no new 
 trustee was appointed in the room of either. The business 
 of the compafly was carried on by the three other persons 
 named as "parties of the second part." In the course of 
 it goods were supplied by Hickman, who, in March, April, 
 and June 1855, drew three bills of exchange in respect 
 thereof. The first of these bills, which was the same in 
 form as those afterwards accepted, was in these words : 
 
 "Grafton Iron Ore Works, Blisworth, 
 £. 300. 10 March 1855. 
 
 "Four months after date pay to my order, in London, 
 three hundred pounds, value received. John Hickman." 
 "To the Stanton Iron Company, near Derby." 
 
 The acceptance was in the following form : "At Messrs. 
 Smith, Payne & Co., London. Per proc. The Stanton 
 Iron Company. — James Haywood." 
 
 The cause was tried in 1856 before the late Lord Chief
 
 cox V. HICKMAN 199 
 
 Justice Jcrvis, when a verdict was found for the Defend- 
 ants; but on motion on leave reserved, the verdict was 
 entered for the Plaintiff [i8 Com. Ben. Rep. 617]. The 
 case was taken to the Exchequer Chamber, when three 
 judges, Justices Coleridge, Eric, and Croniptoji, were^for 
 affirming the judgment of the Common Pleas, and three 
 other judges. Barons Martin, BranizvcU, and Watson, were 
 for reversing it [3 Com. Ben. Rep., N. S., 523. The case 
 was also before the Master of the Rolls (noin. Re Stanton 
 Iron Company, 21 Beav. 164) under the Winding-up Acts, 
 when his Honor held, that such a company as existed under 
 the deed was not within those Acts]. The judgment there- 
 fore stood, and was afterwards brought up to this House 
 
 The Judges were summoned, and Lord Chief Baron 
 Pollock Mr. Justice Wightnian, Air. Justice JViUionis, Mr. 
 Justice Crompton, Mr. Baron Channell, and Mr. Justice 
 Blackburn attended.-' 
 
 The Lord Chancellor (Lord Campbell ) proposed the 
 following question for the Judges : — "Are the Defendants 
 in this case liable as acceptors of the bills of exchange de- 
 clared upon?" — Agreed to. 
 
 Mr. Justice Blackburn: 
 The Defendants in this case are liable as acceptors of 
 the bills of exchange declared upon. The question entirely 
 depends on the effect of the deed of arrangement. If the 
 effect of that deed is such that creditors executing it thereby 
 give authority to those managing the Stanton Iron Com- 
 (pany, to bind them to third persons in the usual course of 
 business by accepting bills, the Defendants have given such 
 authority. If the effect of the deed is not such that credi- 
 tors executing that deed give authority to bind them as to 
 third persons, the Defendants are not shown to have given 
 any such authority, for they have never acted as trustees ; 
 nor does it appear that they have done any act beyond what 
 
 'The Reporter's notes of the argument of counsel are omitted.
 
 200 PARTNER'S POWER TO BIXD COPARTNER 
 
 was proper to carry out the arrangement contained in that 
 deed. 
 
 The princi];al object of the deed of arrangement is to 
 divide the property of the Smiths amongst the creditors 
 according to the rules observed in banktruptcy; and for 
 this purpose their property is assigned to trustees. The 
 goodwill of the business which had been carried on by the 
 Smiths, was part of their joint estate, and those who had the 
 making of the arrangement appear to have thought it a 
 valuable part of the joint estate. Instead of disposing of it 
 to third persons, or suffering it to be lost, the arrangement 
 made was. that the business should in future be carried on 
 under a new style, that of "the Stanton Iron Company," by 
 the trustees, in the manner stipulated for in the deed to 
 which the creditors are parties. The question is, whether 
 the stipulations are such as to render those creditors who 
 are parties to the deed partners in the Stanton Iron Com- 
 pany, so far, at least, as regards liability to third persons. 
 
 Some of the Judges in the Court below have expressed 
 an opinion that there is a distinction between the present 
 question-and that which would have arisen if the question 
 had been whether the Defendants were liable for the con- 
 sideration of these bills. I am, however, of opinion 
 that no such distinction exists. I apprehend that all cases 
 as to liability of partners to contracts are branches of the 
 law of agency, and that the question always is. whether the 
 contract entered into is within the scope of the authority 
 conferred by those, who are sought to be charged, upon 
 the person actually making the contract. But I take it 
 that, as matter of law. those who are partners in a trading 
 firm, do confer upon those who are permitted to manage 
 the concern, authority to make all contracts which in the 
 exigency of the business are necessary and proper and cus- 
 tomary. This prima facie authority may be restricted by 
 express agreement, but unless those who deal with the firm 
 have notice of this restriction, they are entitled to hold all 
 who are partners bound by the prima facie authority con-
 
 cox V. HICKMAN 201 
 
 ferrecl on the manager, and that equally whether the 
 persons sought to be charged were persons to whom the 
 creditors gave credit, or dormant partners, of whose exist- 
 ence they were unaware. I think the justice of this rule, 
 as applicable to dormant partners, very questionable, but I 
 do not think it open to question that it is the rule of law. 
 I think that where, as in the present case, the accepting of 
 bills is a necessary and customary part of the business, the 
 authority to accept them is conferred as much as the autho- 
 rity to contract the debts for which they are given. It is 
 true the authority is limited to accepting bills in the name 
 of the firm, and binds only those included in that firm, but 
 all who are partners are included in the firm. 
 
 I think, therefore, as already said, that the question is, 
 whether the stipulations in the deed are such as to consti- 
 tute a partnership quoad third persons, and to determine 
 that question we must look to the terms of the deed. The 
 material stipulations, as it seems to me, are the following : 
 the trustees are, as soon as possible, to convert into money 
 such parts of joint property of the two Smiths as shall 
 not be necessary to carry on the said business (that ex- 
 cepted property not to exceed 4,000/. ) ; they are to carry 
 on the business under the name of the Stanton Iron Com- 
 pany, for which purpose they are clothed with all the powers 
 proper to be confided to the managers of such a concern. 
 It is agreed that after paying all the expenses and losses 
 to be incurred or sustained in carrying out the business, 
 they shall pay and divide the net income of the said busi- 
 ness, remaining after answering the purposes aforesaid, 
 into and among the creditors of the Smiths, in ratable 
 proportions according to the amount of their respective 
 debts, subject to the provisions thereinafter contained. The 
 deed then provides that the trustees at any time may, and 
 on the requisition of joint creditors whose debts together 
 amount to 3000/., must call a meeting of the creditors, 
 and that the decision of the majority of such meeting shall 
 have full power for the general benefit of the creditors to
 
 202 PARTNER'S POWER TO BIND COPARTNER 
 
 give any directions for the discontinuance of the busi- 
 ness, or "for the present or future management thereof", 
 which shall be binding on all the creditors whether con- 
 curring or not. The Siiiifhs have no vote in determining 
 how the business is to be managed, and the trustees are 
 absolutely bound to obey the directions of the meeting of 
 creditors. If the concern is wound up, the clear residue of 
 the monies, after paying all expenses, shall be divided 
 among the creditors of the Smiths ratably as joint prop- 
 erty. It is provided that where the debts of the several 
 creditors are paid in full the trustees shall make over the 
 property for the benefit of the SniifJis, and this clause is 
 to be noticed as being the only clause in which the trusts 
 are for the benefit of the Smiths, except so far as they are 
 benefited by the liquidation of their debts. And it is to be 
 noticed that, from its nature, it can only come into opera- 
 tion when the trade of the Stoiifoii Iron Company ceases. 
 It is provided amongst other things that every creditor 
 shall have a right at all times to inspect the books of the 
 firm. No such power of inspection is given to the Smiths. 
 Then follows a provision for the trustees, "by and with the 
 consent of the majority of creditors in value, attending any 
 meeting of creditors," to appoint fresh trustees in the room 
 of those retiring. The Smiths have no voice in this. Then 
 follows an agreement that all creditors executing or be- 
 coming otherwise bound by the deed should accept its pro- 
 visions in full satisfaction of their claims upon the Smiths, 
 and that in case any of them sue for their debts that this 
 deed may be pleaded as a release. 
 
 These, I think, are the whole of the material parts of 
 the deed. There is no stipulation in the deed, as to who 
 is to provide for payment of the partnership liabilities in 
 case the losses should be so great, as to exceed the sum of 
 4,000/., which the trustees were authorized to retain for 
 the purpose of carrying on the business. The parties seem 
 not to have anticipated, or at all events not to have provided 
 for such a contingency, which, though a probable one, is
 
 cox v. HICKMAN 203 
 
 often overlooked by those entering on a trade, but the rule 
 of law is clear enough, that those who are partners in the 
 concern must bear such liabilities ; so that I once more re- 
 peat, the question comes round to whether the stipulations 
 are such as to constitute a partnership amongst the creditors. 
 
 Now, on looking at the provisions of the deed, it 
 seems to me that they are, in substance, such as would be 
 proper if the creditors constituted themselves a joint stock 
 company, such as it would have been at common law, and 
 made the trustees their managing directors, but agreed 
 that the partnership should cease as soon as a certain sum, 
 in this case the amount of their debts, was realized. I find 
 that the business is to be carried on by the trustees under 
 the control of the creditors, who may give what directions 
 they think fit as to the management of the business ; that 
 the creditors are to have a voice in nominating fresh trus- 
 tees in case they are changed ; and that the creditors are 
 to have a right to inspect the books. And moreover, I find 
 that the creditors alone are to have these powers, no similar 
 powers being given to the Smiths. Then I find also that 
 the trustees are bound to pay over the net income, after 
 paying all expenses of the concern, ratably among the 
 creditors. It was suggested at your Lordships' bar, that 
 there was some distinction between the net income, after 
 paying all out-goings, and the net profits, but I am unable 
 to understand what that distinction is. 
 
 The arrangement is that the trading might terminate 
 on the creditors being paid, which perhaps was the termina- 
 tion which the persons entering into the arrangement hoped 
 for. In that case, the deed provides that the property 
 shall be made over to the Smiths, but by so doing the trade 
 of the Stanton Iron Company ceases. Whoever the part- 
 ners in that firm might be, they are no longer to carry on 
 the business after the property is assigned to the Smiths. 
 It might terminate by the concern being stopped by the 
 creditors whilst it was yet solvent ; that event is anticipated 
 by the deed, and in that case it is provided that the sur-
 
 204 PARTNER'S POWER TO BIND COPARTNER 
 
 plus, after paying all losses, should be divided amongst the 
 creditors. It might continue for an indefinite period, nei- 
 ther so productive as to pay the creditors in full, nor so bad 
 as to be stopped; and whilst it was so continued, the cre- 
 ditors were to have the net income or profits, and the con- 
 trol of the management of the concern, and they were only 
 to have these powers. Does this make them interested in the 
 property or profits, so as to make them partners? That 
 question depends on the effect of the deed, and it will be 
 answered when we have determined the extent of their in- 
 terest in the property of the firm. Suppose, a not impos- 
 sible case, that the trustees had, as individuals, contracted 
 a joint debt for some purpose unconnected with the Stanton 
 Iron Company; could the partnership property of the 
 Stanton Iron Company have been taken to pay the debt? 
 Or, if the trustees had become reduced to one person, and 
 he had become a bankrupt, would the assets of the Stanton 
 Iron Company have passed to his assignees? Or would 
 the creditors, who were parties to the deed of arrange- 
 ment, have been entitled in either case to say that 
 the property was in equity theirs, and that the trustees, 
 except in so far as they were creditors, had no beneficial 
 interest in it? That is a question that depends on the 
 construction of the deed. I think the construction of the 
 deed is such, that the creditors, parties to the deed, have 
 bargained that they shall have a hold over the whole prop- 
 erty of the firm, divided or undivided, and I think this bar- 
 gain is effectual, and, if so, that the creditors do take the 
 profits of the concern, so as to make them their property, 
 before they are divided. 
 
 Th-e deed does not provide what is to be done In the 
 case which has actually happened, viz., that of the concern 
 proving insolvent ; but the law declares that those who take 
 the profits of a trading concern as such, are liable to the 
 losses, even if they have stipulated to the contrary, Waiigh 
 V. Carver and the notes thereto.
 
 cox V. HICKMAN 205 
 
 The phrase, taking the profits as such, is not a happy 
 one, and there is some difficulty at times in defining what 
 it means, but I think it at all events means this : it is not pos- 
 sible, according to the common law, to cause a trading con- 
 cern to be carried on, on the terms that the advantages of 
 a partnership, including the participation in profits, and the 
 partnership lien and security over the assets of the firm, 
 shall belong to those who have but a limited liability. I 
 am aware of no case or authority inconsistent with the 
 proposition thus guarded. Now, it seems to me, that the 
 present defendants have, by the deed to which they are 
 parties, stipulated that the business shall be carried on for 
 their benefit, and under their control ; that they shall be 
 interested in all the property of the firm to such an extent 
 as to have a partnership lien upon it. This shows that 
 they are not merely persons permitting the Smiths or the 
 trustees to carry on the business, and relying on it as a 
 fund for payment, but that they take the profits as such, 
 and having done so, they are partners as regards third 
 persons. I agree that the question is one of agency, viz., 
 whether the defendants authorized the managers of this 
 firm to bind them, but I think it is an incident attached by 
 law to a participation in the profits to the above extent, that 
 such authority is given to those managing the concern. I 
 think, for the reasons I have given, that this arrangement 
 deed does amount to a stipulation for a participation in 
 the profits as such by the creditors. 
 
 For these reasons, I am of opinion that the defendants 
 are liable as acceptors of the bills of exchange declared 
 upon. 
 
 Mr. Baron Channell:^ 
 
 The provisions of the deed are carefully analyzed and 
 sufficiently set forth in the judgment of the Master of the 
 Rolls, which is with the papers before your Lordships; I 
 refer to that judgment for the provisions of the deed. I 
 
 *Only a portion of his opinion is reprinted.
 
 206 PARTNER'S POWER TO BIND COPARTx\ER 
 
 think that no new trade or concern was carried on. It 
 seems to me, that it was the old concern, though carried on 
 under the management of trustees, and under a new name; 
 that it was to be carried on by parties in whom the Smiths 
 on the one hand, and the general body of creditors on the 
 other hand, placed confidence, that is to say, by the trus- 
 tees; but that it was the business of the Smiths; that the 
 creditors who had rights against the Smiths, which they 
 might have enforced by legal proceedings, in effect, in con- 
 sideration of the arrangement that the trade for the future 
 should be carried on by the trustees, and not under the 
 management of the Smiths, agreed to forego their ordinar}' 
 rights, as creditors, against their debtors, and to receive a 
 sum equivalent to what was the amount of their debts, 
 when the net profits (that is, as I understand, profits made 
 after satisfying all new debts), should enable the trustees 
 to pay the parties of the tliird part such equivalent sum. 
 
 The business was, I think, the business of the Smiths, 
 carried on with a view to their ultimate benefit ; and the 
 fact, that the creditors had power to put an end to the 
 management by the trustees, and to discontinue the busi- 
 ness, and to require the property, the capital, to be sold 
 and divided amongst them in satisfaction or part satisfac- 
 tion of monies, which, according to my understanding of 
 the deed, and by virtue of the deed of arrangement, became 
 a charge on the property of Messrs. Smith, does not vary 
 the case so as to constitute the creditors of the third part 
 partners in the business. The creditors of the third part 
 had no power, I think, by virtue of the deed to take upon 
 themselves the management of the business. 
 
 Supposing that I am wrong in considering the business 
 carried on under the deed as the old business under a new 
 name, and that the business is to be considered a new 
 business, I think the creditors, parties to the deed of the 
 third part, may be likened to parties who had made loans 
 to the new partnership to the extent of their debts against 
 the old concern, and that by stipulating to receive pay-
 
 cox V. HICKMAN 207 
 
 ment of their loans out of the net profits, the amount to be 
 received not varying with the rate of the net profits so as 
 to give them any interest beyond the amount of their loan, 
 they did not render themselves partners. That was the 
 view taken by his Honour the Master of the Rolls with 
 reference to this deed. No doubt his judgment is to be 
 considered as only deciding that this deed did not consti- 
 tute a partnership within the meaning of the Winding-up 
 Acts. But the whole reasoning goes to show that in the 
 opinion of that learned Judge there was no partnership 
 created by the deed; and I adopt that view.^ 
 
 On August 3rd. The Lord Chancellor (Lord Camp- 
 bell), and Lords Brougham. Cranworth, Wensleydale and 
 Chelmsford voted unanimously to reverse the judgment. 
 
 Lord Cranworth ;•* 
 
 I do not propose to consider in detail all the provisions 
 of the deed. I think it sufficient to state them generally. 
 In the first place there is an assignment by Messrs. Siiiifh 
 to certain trustees of the mines and all the engines and 
 machinery used for working them, together with all the 
 stock in trade, and in fact, all their property, upon trust, 
 to carry on the business, and, after paying its expenses, to 
 divide the net income ratably amongst the creditors of 
 Messrs. Smith, as often as there shall be funds in hand 
 sufficient to pay one shilling in the pound; and, after all 
 the creditors are satisfied, then in trust for jMessrs. 
 Smith. 
 
 Up to this point the creditors, though they executed 
 the deed, are merely passive, and the first question is, what 
 would have been the consequence to them of their executing 
 the deed if the trusts had ended there? Would thev have 
 
 'The opinions of Justices Crompton and Williams advising that the 
 defendants should be held liable, and the opinion of Mr. Justice Wight- 
 man and Chief Baron Pollock that they should not be so held are 
 omitted. 
 
 * A portion of his opinion and the opinion of the Lord Chancellor are 
 omitted.
 
 208 PARTNER'S POWER TO BIND COPARTNER 
 
 become partners in the concern carried on by the trustees 
 merely because they passively assented to its being carried 
 on upon the terms that the net income, i. c. the net profits, 
 should be applied in discharge of their demands? I think 
 not; it was argued that as they would be interested in the 
 profits, therefore they would be partners. But this is a 
 fallacy. It is often said that the test, or one of the tests, 
 whether a person not ostensibly a partner, is nevertheless, 
 in contemplation of law, a partner, is, whether he is en- 
 titled to participate in the profits. This, no doubt, is, in 
 general, a sufficiently accurate test ; for a right to partici- 
 pate in profits affords cogent, often conclusive evidence, 
 that the trade in which the profits have been made, was 
 carried on in part for or on behalf of the person setting up 
 such a claim. But the real ground of the liability is, that 
 the trade has been carried on by persons acting on his 
 behalf. When that is the case, he is liable to the trade 
 obligations, and entitled to its profits, or to a share of 
 them. It is not strictly correct to say that his right to 
 share in the profits makes him liable to the debts of the 
 trade. The correct mode of stating the proposition is to 
 say that the same thing which entitles him to the one 
 makes him liable to the other, namely, the fact that the 
 trade has been carried on on his behalf, i. c, that he stood 
 in the relation of principal towards the persons acting 
 ostensibly as the traders, by whom the liabilities have been 
 incurred, and under whose management the profits have 
 been made. 
 
 Taking this to be the ground of liability as a partner, it 
 seems to me to follow that the mere concurrence of 
 creditors in an arrangement under which they permit their 
 debtor, or trustees for their debtor, to continue his trade, 
 applying the profits in discharge of their demands, does not 
 make them partners with their debtor, or the trustees. The 
 debtor is still the person solely interested in the profits, 
 save only that he has mortgaged them to his creditors. 
 He receives the benefit of the profits as they accrue, though
 
 cox V. HICK^IAN 2U9 
 
 he has preckided himself from applying them to any other 
 purpose than the discharge of his debts. The trade is not 
 carried on by or on account of the creditors ; though their 
 consent is necessary in such a case, for without it all the 
 property might be seized by them in execution. But the 
 trade still remains the trade of the debtor or his trustees; 
 the debtor or the trustees are the persons by or on behalf 
 of whom it is carried on. 
 
 I have hitherto considered the case as it would have 
 stood if the creditors had been merely passively assenting 
 parties to the carrying on of the trade, on the terms that 
 the profits should be applied in liquidation of their demands. 
 But I am aware that in this deed special powers are given 
 to the creditors, which, it was said, showed that they had 
 become partners, even if that had not been the consequence 
 of their concurrence in the previous trust. The powers 
 may be described briefly as, first, a power of determining 
 by a majority in value of their body, that the trade should 
 be discontinued, or, if not discontinued, then, secondly, a 
 power of making rules and orders as to its conduct and 
 management. 
 
 These powers do not appear to me to alter the case. 
 The creditors might, by process of law, have obtained pos- 
 session of the whole of the property. By the earlier pro- 
 visions of the deed, they consented to abandon that right, 
 and to allow the trade to be carried on by the trustees. 
 The effect of these powers is only to qualify their consent. 
 .They stipulate for a right to withdraw it altogether; or, if 
 not, then to impose terms as to the mode in wdiich the 
 trusts to which they had- agreed should be executed ; I do 
 not think that this alters the legal condition of the credi- 
 tors. The trade did not become a trade carried on for 
 them as principals, because they might have insisted on 
 taking possession of the stock, and so compelling the aban- 
 donment of the trade, or because they might have pre- 
 scribed terms on which alone it should be continued. Any 
 trustee miglit have refused to act if he considered the terms
 
 210 PARTNER'S POWER TO BIND COPARTNER 
 
 prescribed by the auditors to be objectionable. Suppose 
 the deed had stipulated, not that the creditors might order 
 the discontinuance of the trade, or impose terms as 
 to its management, but that some third person might 
 do so, if, on inspecting the accounts, he should deem it 
 advisable, it could not be contended that this would make 
 the creditors partners, if they were not so already; and I 
 can see no difference between stipulating for such a power 
 to be reserved to a third person, and reserving it to them- 
 selves. 
 
 I have, on these grounds, come to the conclusion that 
 the creditors did not, by executing this deed, make them- 
 selves partners in the Stanton Iron Company, and I must 
 add that a contrary decision would be much to be depre- 
 cated. Deeds of arrangement like that now before us, are, 
 I believe, of frequent occurrence; and it is impossible to 
 imagine that creditors who execute them, have any notion 
 that by so doing they are making themselves liable as part- 
 ners. This would be no reason for holding them not to be 
 liable, if, on strict principles of mercantile law, they are 
 so; but the very fact that such deeds are so common, and 
 that no such liability is supposed to attach to them, affords 
 some argument in favour of the Appellant. The deed 
 now before us was executed by above a hundred joint cre- 
 ditors; and a mere glance at their names is sufficient to 
 show that there was no intention on their part of doing 
 anything which should involve them in the obligations of 
 a partnership. I do not rely on this; but, at least, it 
 shows the general opinion of the mercantile world on the 
 subject. I may remark that one of the creditors I see 
 is the Midland Railway Company, which is a creditor for 
 a sum only of 39/., and to suppose that the directors could 
 imagine that they were making themselves partners is 
 absurd. 
 
 The authorities cited in argument did not throw much 
 light upon the subject. I can find no case in which a per- 
 son has been made liable as a dormant or sleeping partner,
 
 cox z: HICKMAN 211 
 
 where the trade might not fairly be said to have been 
 carried on for him, together with those ostensibly con- 
 ducting it, and when, therefore, he would stand in the posi- 
 tion of principal towards the ostensible members of the 
 firm as his agents. This was certainly the case in Wangh 
 V. Carver. There Messrs. Carver, who were ship agents 
 at Portsmouth, agreed with Gicsler, a ship agent at 
 Plymouth, that if he would establish himself as a ship 
 agent at Cozues, they would share between them the profits 
 of their respective agencies in certain stipulated propor- 
 tions. When, therefore, Gicsler, in pursuance of the agree- 
 ment, did establish himself at Con'cs, and there carry on 
 the business of a ship agent, he in fact, carried it on for 
 the benefit of Messrs. Carver as well as of himself; and the 
 Court held that,, in these circumstances, the stipulation which 
 they had entered into that neither party to the agree- 
 ment should be answerable for the acts of the other, was 
 a stipulation which they could not make so as thereby to 
 affect third persons. Each firm was carrying on business 
 on account, not only of itself but also of the other firm; 
 this, therefore, made each firm the agent of the other. 
 
 Lord Wensleydale :^ 
 
 A man who allows another to carry on trade, whether 
 in his own name or not, to buy and sell, and to pay over 
 all the profits to him, is undoubtedly the principal, and the 
 person so employed is the agent, and the principal is liable 
 for the agent's contracts in the course of his employment. 
 So if two or more agree that they should carry on a trade, 
 and share the profits of it, each is a principal, and each is 
 an agent for the other, and each is bound by the other's 
 contract in carr^nng on the trade, as much as a single 
 principal would be by the act of an agent, who was to give 
 the whole of the profits to his employer. Hence it be- 
 comes a test of the liability of one for the contract of 
 another, that he is to receive the whole or a part of the 
 
 °A portion of his opinion is omitted.
 
 212 PARTNER'S POWER TO BIND COPARTNER 
 
 profits arising from that contract by virtue of the agree- 
 ment made at the time of the employment. I beheve this 
 is the true principle of partnership liability. Perhaps the 
 maxim that he who partakes the advantage ought to bear 
 the loss, often stated in the earlier cases on this subject, is 
 only the consequence, not the cause, why a man is made 
 liable as a partner. 
 
 Can we then collect from the trust deed that each of 
 the subscribing creditors is a partner with the trustees 
 and by the mere signature of the deed constitutes them 
 his agents for carrying on the business on the account of 
 himself and the rest of the creditors? I think not. It is 
 true that by this deed the creditors will gain an advantage 
 by the trustees carrying on the trade; for if it is profitable, 
 they may get their debts paid; but this is not that sharing 
 of profits which constitutes the relation of principal, agent, 
 and partner. 
 
 If a creditor were to agree with his debtor to give the 
 latter time to pay his debt till he got money enough out of 
 his trade to pay it, I think no -one could reasonably con- 
 tend that he thereby made him his agent to contract debts 
 in the way of his trade ; nor do I think that it would make 
 any difference that he stipulated that the debtor should pay 
 the debt out of the profits of the trade. 
 
 The deed in this case is merely an arrangement by the 
 SniitJis to pay their debts, partly out of the existing funds, 
 and partly out of the expected profits of their trade; and 
 all their effects are placed in the hands of the trustees, as 
 middlemen between them and their creditors, to effect the 
 object of the deed, the payment of their debts. These effects 
 are placed in the hands of the trustees as the property of 
 the Smiths, to be employed as the deed directs, and to be 
 returned to them when the trusts are satisfied. I think 
 it is impossible to say that the agreement to receive this 
 debt, so secured, partly out of the existing assets, partly out 
 of the trade, is such a participation of profits as to con-
 
 cox :■. HICKMAX 213 
 
 stitute the relation of principal and agent between the cre- 
 ditors and trustees.^ 
 
 ^Compare: Kilshazi' v. Jukes, 3 B. & Sm. 847, 1863. (A and B were 
 indebted to C. A, B and C entered into an agreement by which they 
 agreed to jointly purchase land; A and B to erect houses thereon; C 
 to furnish the iron and receive from the sale of the houses the amount 
 of A and B's original indebtedness to him and the price of the iron. 
 A, B and C purchased the land from D and agreed with D to erect 
 certain houses. In erecting the houses A and B contracted a debt for 
 lumber with E. E brought suit on this debt against C as a partner of 
 A and B. The jury found a verdict for the defendant. A rule to show 
 cause why this verdict should not be set aside was discharged by the 
 vote of Mellor and Blackburn, JJ. ; Wightman, J., contra. Mellor 
 follows Cox V. Hickman; Blackburn believed that the evidence of the 
 contract with D was sufficient to have supported a verdict for the plain- 
 tiff, but was not sufficient to warrant the verdict for the defendant being 
 set aside.) 
 
 Bullen V. Sharp, L. R.. i C. P. 86, 1S65. _ (B agreed with F that F 
 should manage his, B's, business of marine insurance, B to do nothing 
 in the business without consent of F. A advanced to B £5,000 to be used 
 in B's business. B agreed to repay A at all events, to pay A annually 
 £500, or a sum equal to one-fourth the net annual profits of the business. 
 Afterwards B agreed in addition to pay A et al. all the profits of the 
 business to be held in trust by A ct al.; first to pay A £500; second, to 
 pay B £500; third, to accumulate the surplus until it reached £8,500 as a 
 fund to insure against losses in the business; fourth, if the sum of 
 £8,500 remained intact for two years to pay A £5,000, the balance to be 
 for the benefit of B's wife and children. A was sued on a debt incurred 
 in the course of the business as a partner. Held, that the fact that A 
 received all the profits on certain trusts did not make him a partner; 
 that A was not a partner because he had a lien on the profits for a 
 repayment of the money he advanced ; that the fact that F was the 
 person who conducted the business, and that F was practically selected 
 by A, while a fact from which a jury could infer that the whole arrange- 
 ment was a cloak to hide A's ownership of the business was also con- 
 sistent with a distrust of B's steadiness and a desire on the part of a 
 creditor to secure a careful management of the business, and that as 
 this case had been left to the judges with power to draw necessary 
 inferences of fact, fraud should not be inferred where another inference 
 was possible. Per Blackburn. J., Channel!, B., and Bramwell, B. ; dis- 
 senting, Shee, J., and Pigott, B.
 
 214 PARTNER'S POWER TO BIND COPARTNER 
 
 MOLLWO, MARCH & CO. v. THE COURT OF 
 WARDS. 
 
 In the Privy Council, 1872. 
 
 Lazv Reports, 4 Privy Council Appeal Cases, 419.* 
 
 Sir Montague Smith : 
 
 The action which gives occasion to this appeal Avas 
 brought by the Plaintiffs (the Appellants), Merchants of 
 London, against the late Rajah Pertah Chnnder Sing, to 
 recover a balance of nearly three lacs of rupees claimed to 
 be due to them from the firm of W. N. Watson S Co., of 
 Calcutta. 
 
 The Rajah having died during the pendency of the 
 suit, the defence was continued by the Respondent, the 
 Court of Wards, on behalf of his minor heir. 
 
 The Plaintiff alleged that the Firm of IV. N. Watson 
 & Co. consisted of William Nod Watson, Thomas Ogilvie 
 Watson, and the Rajah, and sought to make the Rajah liable 
 as a Partner in it. 
 
 It may be assumed, although the exact amount is a 
 question in dispute in the appeal, that a large balance be- 
 came due from the Firm to the Plaintiffs during the time 
 when it is contended that the Rajah was in partnership with 
 the two Watsons. 
 
 The questions in the appeal depend, in the main, on the 
 construction and effect of a written Agreement entered into 
 between the Watsons and the Rajah; but it will be neces- 
 sary to advert to some extrinsic facts to explain the circum- 
 stances under which it was made and acted on. 
 
 The two Watsons commenced business in partnership, 
 as Merchants at Calcutta, in 1862, under the Firm of W. N. 
 Watson & Co. Their transactions consisted principally in 
 
 ^ The Reporter's statement of the facts, and his notes of the argument 
 of counsel are omitted.
 
 MOLLWO, ^lARCH & CO. v. THE COURT OF WARDS 215 
 
 making consignments of goods to Merchants in England, 
 and receiving consignments from them. 
 
 In January, 1863, they entered into an agreement with 
 the Plaintiffs regulating the terms on which consignments 
 were to be made between them, and under which W-. N. 
 IP^atson & Co. were authorized, within certain limits, to 
 draw on the Plaintiffs in London against consignments. 
 
 The Watsons had little or no capital. The Rajah sup- 
 ported them, and in 1862 and 1863 ^^^ made large advances 
 to enable them to carry on their business, partly in cash, but 
 chiefly by accepting Bills, for which the Watsons obtained 
 discount, and which the Rajah met at maturity. In the mid- 
 dle of 1863 the total amount of these advances was consid- 
 erable, and the Rajah desired to have security for his debt, 
 and for any future advances he might make, and also wished 
 to obtain some control over the business by whicli he might 
 check what he considered to be the excessive trading of the 
 Watsons. 
 
 Accordingly, an agreement was entered into on the 
 27th of August, 1863, between the Rajah of the one part, 
 and "Messrs. W. N. Watson & Co." of the other part, by 
 which, in consideration of money already advanced, and 
 which might be thereafter advanced by the Rajah to them, 
 the Watsons agreed to carry on their business subject to the 
 control of the Rajah in several important particulars, which 
 will be hereafter adverted to. They further agreed to, and 
 in fact did, hand over to him "as security" the title deeds of 
 certain tea plantations, and they also agreed, that "as fur- 
 ther security" all their other property, landed or otherwise, 
 including their stock in trade, should be answerable for the 
 debt due to him. 
 
 The loth and 13th clauses of the Agreement were as 
 follows : 
 
 "loth. In consideration of the said advances made, and 
 the liability incurred as aforesaid by the Rajah, and in con- 
 sideration of any future advances which may be made bv 
 him, the Firm agrees that he shall receive from them a
 
 216 PARTNER'S POWER TO BIND COPARTNER 
 
 commission of 20 per cent, on all net profits made by the 
 Firm from time to time, commencing from the ist of May, 
 1S62, or until such time as the whole amount of the debt 
 due to him shall be paid ofT, and the liability so incurred by 
 him as aforesaid shall be wholly extinguished. 
 
 "13th. The Firm shall in addition to the said commis- 
 sion pay to the Rajah interest at the rate of 12 per cent, per 
 annum upon all cash advances which have been or are to be 
 l:ereafter made by him to the Firm, and shall also pay to 
 the banks all discount and interest now as hereafter payable 
 on the said acceptance." 
 
 This Agreement is not signed by the Rajah, but he was 
 undoubtedly an assenting party to it. 
 
 Subsequently to the Agreement, the Rajah made fur- 
 ther advances, and the amount due to him ultimately ex- 
 ceeded three lacs of rupees. 
 
 In 1864 and 1865, the Firm of IV. N. Watson & Co. 
 fell into difficulties. An arrangement was then made under 
 which the Rajah, upon the JJ^atsoiis executing to him a for- 
 mal mortgage of the tea plantations, to secure the amount 
 of his advances, released to them, by a Deed bearing date 
 the 3rd of March, 1865, all right to commission and interest 
 under the Agreement of August, 1863, and all other claims 
 against them. 
 
 In point of fact, the Rajah up to this time had never 
 received possession of any of the property or moneys of the 
 Firm, nor any of the proceeds of the business, and did not 
 in fact receive any commission. A sum of Rs. 27,000. on 
 this account was, indeed, on the 30th of September, 1863, 
 placed to his credit in the Books of the Firm in a separate 
 account opened in his name, but the sum so credited was 
 never paid to him. and was subsequently "written back" by 
 the JJ^atso)is. 
 
 Some evidence was given as to the extent of the inter- 
 ference of the Rajah in the control of the business. It seems 
 the Rajah knew little of its details, and it is unnecessary to 
 go, with any minuteness, into the facts on this part of the
 
 AIOLLWO, MARCH & CO. z: THE COURT OF WARDS 217 
 
 case; for it was conceded that the Rajah availed himself 
 only in a slight degree of the powers of control conferred 
 upon him by the agreement; in fact, that he did not more, 
 but much less, than he might have done under it, so that the 
 question really turns on the effect of the contract itself. .-The 
 subsequent acts of the Rajah do not in any way add to or 
 enlarge his liability. 
 
 Before proceeding to the main questions which have 
 been argued in the appeal, it may be as well to clear the way 
 for their consideration by saying that no liability can in this 
 case be fastened upon the Rajah on the ground that he was 
 an ostensible partner, and, therefore, liable to third persons 
 as if he was a real partner. It is admitted that he did not so 
 hold himself out ; and that a statement made by one of the 
 JJ'atsoiis to the Plaintiffs, to the effect that he might be in 
 law a partner, by reason of his right to commission on pro- 
 fits, was not authorized by the Rajah. 
 
 The liability, therefore, of the Rajah for the debts 
 contracted by W. N. ] Vat son & Co. must depend on his real 
 relation to that Firm under the agreement. 
 
 It was contended, for the Appellants, that he was so 
 liable : 
 
 First, because he became by the Agreement, at least as 
 regards third persons, a Partner with the JVatsons ; and 
 
 Secondly, because, if not "a true partner" (the phrase 
 used by Mr. Lindlcy in his argument), the JVatsons were 
 the Agents of the Rajah in carrying on the business ; and the 
 debt to the Plaintiffs was contracted within the scope of their 
 agency. 
 
 The case has been argued in the Courts of India and at 
 their Lordships' Bar, on the basis that the law of England 
 relating to partnerships should govern the decision of it. 
 Their Lordships agree that, in the absence of any law or 
 well-established custom existing in India on the subject, 
 English law may properly be resorted to in mercantile affairs 
 for principles and rules to guide the Courts in that Country 
 to a right decision. But whilst this is so, it should be ob-
 
 218 PARTNER'S POWER TO BIND COPARTNER 
 
 served that in applying them, the usages of trade and habits 
 of business of the people of India, so far as they may be 
 peculiar, and differ from those in England, ought to be 
 borne in mind. 
 
 The Agreement, on the face of it, is an arrangement 
 between the Rajah, as Creditor, and the Firm consisting of 
 the two Watsons, as Debtors, by which the Rajah obtained 
 security for his past advances; and in consideration of for- 
 bearance, and as an inducement to him to support the Wat- 
 sons by future advances, it was agreed that he should receive 
 from them a commission of 20 per cent, on profits, and 
 should be invested with the powers of supervision and con- 
 trol above referred to. The primary object was to give 
 security to the Rajah as a Creditor of the firm. 
 
 It was contended at the Bar, that whatever may have 
 been the intention, a participation in the net profits of the 
 business was, in contemplation of law, such cogent evidence 
 of partnership that a presumption arose sufficient to estab- 
 lish, as regards third parties, that relation, unless rebutted 
 by other circumstances. 
 
 It appears to their Lordships that the rule of construc- 
 tion involved in this contention is too artificial ; for it takes 
 one term only of the contract and at once raises a presump- 
 tion upon it. Whereas the whole scope of the agreement, 
 and all its terms, ought to be looked at before any presump- 
 tion of intention can properly be made at all. 
 
 It certainly appears to have been at one time under- 
 stood that some decisions of the English Courts had estab- 
 lished, as a positive rule of law, that participation in the net 
 profits of a business made the participant liable as a partner 
 to third persons. (See this pointedly stated by Mr. Justice 
 Blackburn, in Bullcn v. Sharp [Law Rep. i C. P. 109].) 
 The rule had been laid down with distinctness by Eyre, C.J., 
 in Waugh v. Carver [2 H. Bl. 235], and the reason of the 
 rule the Chief Justice thus states : "Upon the principle that, 
 by taking a part of the profits, he takes from the Creditors a 
 part of that fund which is the proper security to them for
 
 MOLLWO, MARCH & CO. v. THE COURT OF WARDS 219 
 
 the payment of their debts. That was the foundation of 
 Grace v. Smith [2 W. Bl. 998 j, and we think it stands upon 
 fair grounds of reason." 
 
 The rule was evidently an arbitrary one, and subsequent 
 discussion has led to the rejection of the reason for, it as 
 unsound. Whilst it was supposed to prevail, much hardship 
 arose from its application, and a distinction, equally arbi- 
 trary, was established between a right to participate in profits 
 generally "as such," and a right to a payment by way of 
 salary or commission "in proportion" (to use the words of 
 Lord Eldon) "to a given quantum of the profits." 
 
 The distinction was stated to be "clearly settled" and 
 was acted upon by Lord Eldon in Ex parte Hamper [17 
 Ves. 412], and in other cases. It was also affirmed and 
 acted on in Pott v. Eyton [3 C. B. 32], where Tindal, C.J., 
 in giving the judgment of the Court, adopts the rule as laid 
 down by Lord Eldon, and says, "Nor does it appear to make 
 any difference whether the money is received by way of 
 interest on money lent, or wages, or salary as Agent, or 
 commission on sales [Ibid. 40]." 
 
 The present case appears to fall within this distinction. 
 The Rajah was not entitled to a share of the profits "as 
 such ;" he had no specific property or interest in them qua 
 profits, for, subject to the powers given to the Rajah by way 
 of security, the Jl^atsons might have appropriated or assigned 
 the whole profits without any breach of the agreement. The 
 Rajah was entitled only to commission, or a payment equal 
 in proportion to one-fifth of their amount. 
 
 This distinction has always been admitted to be thin, 
 but it may be observed that the supposed rule itself was 
 arbitrary in the sense of being imposed by law and of being 
 founded on an assumption opposed in many cases to the real 
 relation of the parties ; and when the law thus creates a rule 
 of liability and a distinction both equally arbitrary, the dis- 
 tinction which protects from liability is entitled to as much 
 weight as the rule which imposes it. 
 
 But the necessity of resorting to these fine distinctions
 
 220 PARTNER'S POWER TO BIXD COPARTNER 
 
 has been greatly lessened since the presumption itself lost 
 the rigid character it was supposed to possess' after the full 
 exposition of the law on this subject contained in the judg- 
 ment of the House of Lords in Cox v. Hickman [8 H. L. C. 
 268] and the cases which have followed that decision. It 
 was contended that these cases did not overrule the previous 
 ones. This may be so, and it may be that JVaugJi v. Carver 
 [2 H. Bl. 235], and others of the former cases, were rightly 
 decided on their own facts; but the judgment in Cox v. 
 Hickuian had certainly the effect of dissolving the rule of 
 law which had been supposed to exist, and laid down prin- 
 ciples of decision by which the determination of cases of 
 this kind is made to depend, not on arbitrary presumptions of 
 law, but on the real contracts and relations of the parties. 
 It appears to be now established that although a right to 
 participate in the profits of trade is a strong test of partner- 
 ship, and that there may be cases where, from such percep- 
 tion alone, it may, as a presumption, not of law but of fact, 
 be inferred ; yet that whether that relation does or does not 
 exist must depend on the real intention and contract of the 
 parties. 
 
 It is certainly difficult to understand the principle on 
 which a man who is neither a real nor ostensible Partner 
 can be held liable to a Creditor of the Firm. The reason 
 given in Grace v. Smith, that by taking part of the profits 
 he takes part of the fund which is the proper security of the 
 Creditors, is now admitted to be unsound and insufficient to 
 support it ; for of course the same consequences might follow 
 in a far greater degree from the mortgage of the common 
 property of the firm, which certainly would not of itself 
 make the Mortgagee a Partner. 
 
 Where a man holds himself out as a Partner, or allows 
 others to do It, the case is wholly different. He is then 
 properly estopped from denying the character he has as- 
 sumed, and upon the faith of which Creditors may be pre- 
 sumed to have acted. A man so acting may be rightly held 
 liable as a Partner by estoppel.
 
 MOLLWO, MARCH & CO. v. THE COURT OF WARDS 221 
 
 Again, wherever the agreement between parties creates 
 a relation which is in substance a partnership, no mere 
 words of declarations to the contrary will prevent, as re- 
 gards third persons, the consequences flowing from the real 
 contract. 
 
 Numerous definitions by text-writers of what consti- 
 tutes a partnership are collected at the end of the introduc- 
 tion to Mr. Lindlcy's excellent Treatise on this subject. 
 Their Lordships do not think it necessary to refer particu- 
 larly to any of them, or to attempt to give a general defini- 
 tion to meet all cases. It is sufficient for the present deci- 
 sion to say, that to constitute a partnership the parties must 
 have agreed to carry on business and to share profits in some 
 w^ay in common. 
 
 It was strongly urged, that the large powders of control, 
 and the provisions for empowering the Rajah to take pos- 
 session of the consignments and their proceeds, in addition 
 to the commission on net profits, amounted to an agreement 
 of this kind, and that the Rajah was constituted, in fact, the 
 managing Partner. 
 
 The contract undoubtedly confers on the Rajah large 
 powers of control. Whilst his advances remained unpaid, 
 the Watsons bound themselves not to make shipments, or 
 order consignments, or sell goods, without his consent. No 
 money was to be drawn from the Firm without his sanction, 
 and he was to be consulted with regard to the office business 
 of the Firm, and he might direct a reduction or enlargement 
 of the establishment. It was also agreed that the shipping 
 documents should be at his disposal, and should not be soKl 
 or hypothecated, or the proceeds applied, without his con- 
 sent; and that all the proceeds of the business should be 
 handed to him, for the purpose of extinguishing his debt. 
 
 On the other hand, the Rajah had no initiative power; 
 he could not direct what shipments should be made or con- 
 signments ordered, or what should be the course of trade. 
 He could not require the JVatsoiis to continue to trade, or 
 even to remain in partnership; his powers, however large,
 
 222 PARTNER'S POWER TO BIND COPARTNER 
 
 were powers of control only. No doubt he might have laid 
 his hands on the proceeds of the business; and not only so, 
 but it was agreed that all their property, landed and other- 
 wise, should be answerable to him as security for his debt. 
 
 Their Lordships are of opinion, that by these arrange- 
 ments the parties did not intend to create a partnership, and 
 that their true relation to each other under the Agreement 
 was that of Creditor and Debtors. The iratsous evidently 
 wished to induce the Rajah to continue his advances, and for 
 that purpose were willing to give him the largest security 
 they could offer; but a partnership was not contemplated, 
 and the Agreement is really founded on the assumption, not 
 of community of benefit, but of opposition of interests. 
 
 It may well be, that where there is an agreement to 
 share the profits of a trade, and no more, a contract of part- 
 nership may be inferred, because there is nothing to shew 
 that any other was contemplated ; but that is not the present 
 case, where another and different contract is shewn to have 
 been intended, viz., one of loan and security. 
 
 Some reliance was placed on the Statute. 2S & 29 Vict. 
 c. 86, sect. I. which enacts, that the advance of money to a 
 firm upon a contract that the Lender shall receive a rate of 
 interest varying with the profits, or a share of the profits, 
 shall not, of itself, constitute the lender a Partner, or render 
 him responsible as such. It was argued, that this raised 
 an implication that the Lender was so responsible by the law 
 existing before the passing of the Act. The enactment is 
 no doubt entitled to great weight as evidence of the law, 
 but it is by no means conclusive ; and when the existing law 
 is shewn to be dift'erent from that which the Legislature sup- 
 posed it to be, the implication arising from the Statute can- 
 not operate as a negation of its existence. What may be 
 the effect of the positive enactment contained in the 5th 
 clause of the Act, so far as regards England, it is not neces- 
 sary for their Lordships to consider. The Indian Act, No. 
 XV. of 1866, passed after this contract was made, does not 
 contain that provision.
 
 MOLLWO, MARCH & CO. v. THE COURT OF WARDS 223 
 
 It was strongly insisted for the Appellants that if "a 
 true partnership," had not been created under the Agree- 
 ment, the Watsons were constituted by it the Agents of the 
 Rajah to carry on the business, and that the debt of the 
 Plaintiffs was contracted within the scope of their age-iicv. 
 
 Of course, if there was no partnership, the implied 
 agency which flows from that relation cannot arise and the 
 relation of Principal and Agents must on some other ground 
 be shewn to exist. It is clear that this relation was not ex- 
 pressly created, and was not intended to be created by the 
 Agreement, and that if it exists it must arise by implication. 
 It is said that it ought to be implied from the fact of the 
 commission on profits, and the powers of control given to the 
 Rajah. But this is again an attempt to create, by operation 
 of law, a relation opposed to the real agreement and inten- 
 tion of the parties, exactly in the same manner as that of 
 Partners was sought to be established, and on the same facts 
 and presumptions. Their Lordships have already stated the 
 reasons which have led them to the conclusion that the trade 
 was not agreed to be carried on for the common benefit of 
 the Watsons and the Rajah so as to create a partnership ; and 
 they think there is no sufficient ground for holding that it 
 Avas carried on for the Rajah, as principal, in any other char- 
 acter. He was not, in any sense, the Owner of the business, 
 and had no power to deal with it as Owner. None of the or- 
 dinary attributes of Principal belonged to him. The Watsons 
 were to carry on the business; he could neither direct them 
 to make contracts, nor to deal with particular Customers, 
 nor to trade in the manner which he might desire : his pow- 
 ers were confined to those of control and security, and sub- 
 ject to those powers, the JJ^otsons remained Owners of the 
 business and of the common property of the firm. The 
 Agreement in terms and, as their Lordships think, in sub- 
 stance, is- founded on the relation of Creditor and Debtors, 
 and establishes no other. 
 
 Their Lordships' opinion in this case is founded on 
 their belief that the contract is really and in substance what
 
 224 PARTNER'S POWER TO BIND COPARTNER 
 
 it professes to be, viz., one of loan and security between 
 Debtors and their Creditor. If cases should occur where any 
 persons, under the guise of such an arrangement, are really 
 trading as Principals, and putting forward, as ostensible 
 Traders, others who are really their Agents, they must not 
 hope by such devices to escape liability ; for the law, in 
 cases of this kind, will look at the body and substance of 
 the arrangements, and fasten responsibility on the parties 
 according to their true and real character. 
 
 For the above reasons their Lordships think that the 
 Judges of the High Court, in holding that the Rajah was not 
 liable for the debts of the Firm of IV. N. IVafson & Co., 
 took a correct view of the case; and they will, therefore, 
 humbly advise Her Majesty to affirm their judgment, and to 
 dismiss this appeal with costs. - 
 
 ^Compare: Badeley v. Consolidated- Bank, L. R., 38 Ch. D. 238, 1888. 
 (The plaintiff advanced money to a contractor to enable him to carry 
 out a contract with a railway company for the construction of a railway, 
 and the parties executed a deed by which the contractor assigned to the 
 plaintiff all his machinery, plant, &c., and all shares and debentures he 
 might receive from the company to secure the repayment of the loan. 
 The deed contained the following provisions: (i) that the plaintiff 
 should receive 10 per cent, interest on the money advanced and 10 per 
 cent, of the net profits of the contract; (2) that the contractor should 
 apply all the moneys advanced in carrying on the works; (3) that if the 
 contractor should become bankrupt the plaintiff might enter and com- 
 plete the works ; (4) that the plaintiff might sell the property in case of 
 default, but that he should not sell the shares or debentures within 
 twelve months after the completion of the contract; (5) that in calcu- 
 lating the net profits the contractor should be allowed to draw out 
 £1,000 a year for his services. Letters passed between the plaintiff and 
 the contractor in which the money advanced was spoken of as "capital" 
 and "working capital," and expressions were used shewing that both 
 parties had a common interest in the works. Held, that the stipulations 
 in the deed and expressions in the correspondence were all consistent 
 with the object of securing repayment of the money advanced, and were 
 not sufficient evidence to show a partnership between the parties.)
 
 EASTMAN V. CLARK 225 
 
 EASTMAN v. CLARK. 
 In the Supreme Court of New Hampshire, 1872, 
 
 53 New Hampshire, 276. 
 
 Assumpsit, by Cyrus Eastman against Curtis C. Clark, 
 Damon Y. Clark, and Nicholas T. Stillings, to recover a bal- 
 ance alleged to be due for three hundred and seventy-five 
 bushels of corn sold by the plaintiff to the defendants in the 
 summer of 1864. The two first defendants were defaulted, 
 and Stillings pleaded the general issue. 
 
 At the trial, it appeared that in the summer of 1864 
 the defendants were engaged in running a line of stages be- 
 tween the Crawford house in the White ^Mountain Notch 
 and the town of Jackson. It was agreed between them that 
 the two Clarks should furnish a coach and two six-horse 
 teams and driver and other appointments for the use of this 
 line, and that Stillings should furnish the same amount of 
 stock ; and the parties did so furnish such stock. 
 
 There was conflict in the evidence as to the way the 
 teams and other material were to be supported, the plaintiff's 
 testimony tending to prove that the teams were supported 
 at the joint expense of all the defendants, and that the 
 profits of the entire business were divided by the parties, one- 
 half to the Clarks and one-half to Stillings, while the de- 
 fendants' testimony tended to prove that each party was to 
 support and maintain his stock at his own expense and not 
 at the joint expense of the three defendants, and that it was 
 so maintained, and that the gross receipts of the business 
 were to be divided between the parties, one-half to the 
 Clarks, and one-half to Stillings, and that they were so 
 divided. 
 
 The court instructed the jury that the defendants would 
 be partners in respect to third persons, whether by the agree- 
 ment the profits or the gross receipts were so divided, and
 
 226 PARTNER'S POWER TO BIND COPARTNER 
 
 would be jointly liable for supplies furnished for the busi- 
 ness, unless the plaintiffs had notice that there was to be no 
 such joint liability. To these instructions the defendants 
 excepted. The jury returned a verdict for the plaintiff, but, 
 in answer to a question put to them, found that the profits 
 were not divided, but that the gross receipts were divided. 
 The plaintiff's evidence also tended to prove that Stillings 
 expressly authorized Curtis C. Clark to purchase this corn 
 on joint account of the three defendants, and that he 
 did so purchase it, but the jury, in answer to a question 
 put by the court, found that no such express authority 
 was given by Stillings. The defendants move for a new 
 trial for error in the instructions aforesaid, and in case 
 there is error in those instructions, as to the effect of a 
 division of the gross receipts, the verdict is to be set aside, 
 and a general judgment entered for the defendant Stillings. 
 Some time after the jury had retired, they sent to the pre- 
 siding justice this question : "If the jury find that the Clarks 
 and Stillings divide the gross receipts, does that bind them 
 jointly to the third party?" — to which this answer was made 
 in writing, with directions to return it into court with the 
 other papers: "If the jury find that the Clarks and Stillings 
 ran the staging together upon the agreement to divide the 
 gross receipts between them, they are liable for supplies fur- 
 nished for that business." The defendants' counsel except 
 to these instructions, because of omitting the qualifications 
 that the defendants would be liable jointly unless the plaintiff 
 had notice that there was to be no such joint liability; which 
 qualification had been before distinctly given. If there is 
 error in omitting this qualification, the verdict is to be set 
 aside, — but no judgment entered for Stillings. unless error 
 is found in the instructions as to gross receipts.^ 
 
 Doe, J. : When Judge Story had written his treatise on 
 agency, he began his commentaries on the law of partnership 
 thus : "Having completed our review of the law of agency, we 
 
 ^ The Reporter's notes of the opinion of Chief Justice Bellows, who 
 died before the decision was reached, is omitted.
 
 EASTMAN V. CLARK 227 
 
 are naturally conducted, in the next place, to the consideration 
 of the law of partnership ; for every partner is an agent of 
 the partnership, and his rights, powers, duties, and obliga- 
 tions are, in many respects, governed by the same rules and 
 principles as those of an agent. A partner, indeed, virtually 
 embraces the character both of a principal and of an agent. 
 So far as he acts for himself and his own interest in the 
 common concerns of the partnership, he may properly be 
 deemed a principal ; and, so far as he acts for his partners, 
 he may as properly be deemed an agent." Story on Part., 
 sec. I. 
 
 "The authorities are uniform in maintaining the doc- 
 trine that, where the principal is unknown to the vendor at 
 the time of a sale, he may, upon discovering the principal, 
 resort to him for payment, although, in the absence of such 
 knowledge, the credit may have been given to the agent 
 alone, and his individual note alone have been taken for the 
 debt. Story on Agency 291 ; Paterson v. Gandascqui, 15 
 East, 62; Raymond v. Crozi'ii & Eagle Mills, 2 Met. 324; 
 Thomson v. Davenport, 9 B. & C. 78. The same principle, 
 which seems to have been uniformly applied to the case of 
 principal and agent, is equally applicable to that of an 
 individual partner and his firm. Each partner is an author- 
 ized agent for the firm; and if the individual partner obtain 
 money or goods on his own credit for the use of the firm, 
 without disclosing the interest of the partnership in the trans- 
 action, the debt contracted is the debt of the firm, notwith- 
 standing the note of the individual partner alone may have 
 been given and taken therefor." Tucker v. Peaslee, 36 N. H, 
 167, 176; Farr v. Ulieeler, 20 N. H. 569, 575. "As the de- 
 fendants were partners, they were both liable to the plain- 
 tiffs, notwithstanding at the time of the sale the plaintiffs 
 supposed that they were giving credit to Smith only. In 
 purchasing the goods, he was the authorized agent of the 
 copartnership, * * and the plaintiffs * * may well 
 sustain an action against those who were in truth the pur- 
 chasers." Smith v. Smith, 27 X. H. 244. 253.
 
 228 PARTNER'S POWER TO BIND COPARTNER 
 
 When A authorizes B to make a contract in his behalf, 
 the contract is, in a certain sense and for some purposes, 
 the contract of A. In contemplation of law he makes it. 
 Whether he makes it personally, by the exercise of his own 
 mind, hand, or voice, or instrumentally by the mind, hand, 
 or voice of his agent B, is immaterial so far as his own 
 liability is concerned. He is as much the principal in one 
 case as in the other. So he is equally a principal whether he 
 is sole principal and B his agent, or whether B is a joint 
 principal with him as well as his agent. If they are partners, 
 B makes the contract as a principal, and also as agent of A. 
 If we say he makes it as an agent of the firm, we mean that 
 he makes it as agent of A, and also as agent of himself. 
 And as the contract is equally A's contract, whether B is 
 merely his agent, or his agent and also a joint principal with 
 him, so in each case A is equally bound, wdiether he is or is 
 not known to the other contracting party to be a principal. 
 The cases in which A is not liable because the other contract- 
 ing party, knowing him to be a principal, elects not to con- 
 tract with him, stand upon the ground of the election thus 
 made by the other party. Without reference to that excep- 
 tional class of cases, and with sole reference to the general 
 question raised in this case, if B is agent, A is liable because 
 he is the principal : if B is a joint principal as well as agent, 
 A is liable because he is a principal: if A is known to the 
 other contracting party to be a principal, he is liable because 
 he is a principal : if he is not thus known, he is liable because 
 he is a principal. 
 
 In the case supposed by Brother Smith, where A em- 
 ploys B to make a purchase in B's name for him (A), upon 
 a secret agreement between A and B that A is not to be 
 responsible to the seller for the price, a difficulty arises from 
 an ambiguity in the terms, "A employs B to make a pur- 
 chase in B's name for him (A)." If this means that A is 
 the principal and B his agent, A is liable because he is the 
 principal. Edmunds v. Bnshell, L. R., i.O. B. 97. If it 
 means that B, as principal, is to buy the property of C, and
 
 EASTMAN V. CLARK 229 
 
 then sell it to A, A is not liable to C because he is not the 
 principal. The question of A's liability is the question 
 whether, in the contract of purchase from C, A is in fact the 
 principal and B his agent, or whether B is the principal, w^ho, 
 after he has bought the property of C, is to sell it to A ; 
 whether the title passes directly from C to A, or from C 
 to B and from B to A ; whether there are to be two succes- 
 sive purchases of the same property, or only one; whether 
 (in the contract of purchase from C) A or B is the pur- 
 chaser. This depends (so far as A's liability is concerned, 
 and aside from fraud and estoppel) upon the understanding 
 between A and B. If they understand the title passes directly 
 from C to A, and not through B as an intermediate pur- 
 chaser, A is the principal, B is his agent, and A, as the 
 purchaser, is bound to pay C for the property which he buys 
 of C. A's denial of the fact that he is the purchaser, has no 
 more efifect than his denial of any other fact; an agreement 
 between him and B to deny the fact, does not alter the fact ; 
 A, being the purchaser, is responsible as the purchaser for 
 the price; he is liable upon the fact, and is not discharged 
 from his liability by an understanding between him and his 
 agent that the fact should not be disclosed or should be 
 denied. A purchase of goods is a sale; and a sale is some- 
 thing more than the vendor's parting with his property. It 
 includes payment made, promised, or in some way provided 
 for by the other party to the contract. The buyer, /, c, the 
 principal who buys, is necessarily a payer, unless the vendor 
 agrees he shall not be. If the agreement between A and B 
 is made known to C during the negotiation, and he expressly 
 or impliedly agrees not to look to A for payment, he is 
 bound by his agreement ; but he is not bound by a secret 
 agreement between A the purchaser and B the purchaser's 
 agent, that A is not to pay C for property bought by A of C. 
 When C discovers that A is the buyer, he is not deprived of 
 all the benefit of that fact by the undisclosed agreement infer 
 alios that A is not to pay for what he buys. That agreement 
 does not make the agent B the purchaser in fact, nor relieve
 
 230 PARTNER'S POWER TO BIND COPARTNER 
 
 the purchaser A from his part of the contract of purchase 
 made with C. The agent, holding himself out as the pur- 
 chaser, is estopped to deny, as against the vendor C, that 
 he is the purchaser. But the secret agreement between the 
 real purchaser and his agent, that payment is to be made by 
 the latter and not by the former, is no part of the contract of 
 purchase : it is merely an extraneous executory agreement 
 infer alios to which the vendor is not a party. C is a party 
 in the contract of purchase; and if A is the purchaser, he is 
 liable to C because he is the purchaser. The fact that he 
 is the purchaser is the material thing ; the non-disclosure of 
 that fact, so far as his liability is concerned, is immaterial; 
 his intention not to pay is as immaterial as it would be if he 
 had held himself out as purchaser, and had omitted to dis- 
 close the fact that he intended not to pay. 
 
 The question whether A is a principal and B his agent, 
 that is, whether A authorizes B to make the contract in his 
 behalf, is often a difficult question of fact. And if B is a 
 principal, the question whether A is a principal is the same, 
 and may be as difficult, as it would be if B were not a prin- 
 cipal. If B is a principal, the question whether A is a prin- 
 cipal is called a question of partnership: if B is not a prin- 
 cipal, the question whether A is a principal is called a 
 question of principal and agent, or agency. The legal char- 
 acter of the question whether A is a principal, is not altered 
 by the circumstance that B is or is not a principal, nor by 
 the circumstance that it is called in one case a question of 
 partnership, and in the other a question of agency. And as 
 that question is not affected by the name given it by the 
 tribunal called upon to decide it, so it does not depend upon 
 the name given it by A or B, or both of them. Through all 
 forms and words, all arrangements simple or complicated, all 
 pretences true or false, all contrivances honest or fraudulent, 
 the law requires the tribunal to search for the substance, the 
 meaning, the understanding, and the fact; and this duty is 
 the same whether B is a principal or whether he is not. 
 
 Not only is A liable as a principal when, as a matter
 
 EASTMAN V. CLARK 231 
 
 of fact, he is a principal, whether B is or is not a joint 
 principal with him, and whether A is or is not known by the 
 other party to be a principal, — he may also be liable when, 
 as a matter of fact, he is not a principal. The common-law 
 rule, generally called the doctrine of estoppel, is applicable, 
 and is applied to the liability of A as a principal in a contract 
 made by B. If B is held out by A, or by his direction or 
 consent, as his agent, A is liable as a principal : he is estopped 
 to deny the existence of the state of things which he directly 
 or indirectly induces another, or causes another to be in- 
 duced, to believe in and act upon. Though not a principal 
 in fact, he is a principal in contemplation of law, because 
 he is estopped to deny that he is a principal. Being estopped 
 in law to deny that he is in fact a principal, is, so far as 
 liability to creditors is concerned, practically the same as 
 being a principal in fact. Causing another to act upon the 
 belief that he is a principal, and that B is authorized to make 
 a contract in his behalf, that is, is his agent for that purpose, 
 he is estopped to deny the existence of the relation of prin- 
 cipal and agent between himself and B. — in other words, is 
 estopped to deny B's authority, — without regard to the 
 question whether B is or is not a joint principal or copartner. 
 The estoppel operates in the same manner and with the same 
 result, whether B is an agent merely — Hatch v. Taylor, lo 
 N. H. 538; Tozi'le V. Leazntt, 23 N. H. 360, 374 — or an 
 agent and also a joint principal. Smith v. Smith, 27 N. H. 
 244, 252. If A holds B out, or authorizes B to hold himself 
 out. as his agent, the circumstance that B is or is not a 
 principal, is immaterial in the application of the doctrine of 
 estoppel to A. 
 
 Here are two general elementary doctrines of the 
 ancient common law, holding A liable as a principal on a 
 contract made by B: — i. The doctrine of the liability of 
 an actual principal, disclosed or undisclosed ; 2. The doctrine 
 of estoppel, which under certain circumstances makes a man 
 a principal in law when he is not a principal in fact. The 
 latter doctrine, applied to this subject, is merely one of the
 
 232 PARTNER'S POWER TO BIND COPARTNER 
 
 methods of ascertaining whether A is a principal. Both doc- 
 trines constitute the single doctrine of the liability of a prin- 
 cipal. If A is in fact a principal, he is liable because he is a 
 principal : if by the process of estoppel in law he is a prin- 
 cipal, he is liable because he is a principal. And each of 
 these doctrines or parts of a single doctrine has a legal 
 operation and effect irrespective of the question whether B 
 is or is not a joint principal or copartner with A. The appli- 
 cation of these doctrines to the question of A's liability does 
 not render it necessary to determine whether the question is 
 one of agency or partnership, that is, whether B is an agent 
 merely, or an agent and also a principal, because, whether 
 B is or is not a principal, A is equally and for a single reason 
 liable as a principal disclosed or undisclosed, and is equally 
 and for a single reason estopped to deny that he is a prin- 
 cipal. He is liable because he is a principal, or because he 
 holds himself out or suffers himself to be held out as such. 
 He is none the less nor for a different reason liable when, B 
 being a principal, the question of A's liability is called a 
 question of partnership: he is none the more nor for a dif- 
 ferent reason liable when, B not being a principal, the 
 question of A's liability is called a question of agency: and 
 the test of his liability is not more ambiguous nor anywise 
 different when, it being uncertain whether B is or is not a 
 principal, it is consequently uncertain whether the question 
 of A's liability is to be called a question of partnership or 
 a question of agency. If it is never settled whether B is a 
 principal, and it is consequently never known by which of 
 its possible names the question of A's liability is to be called, 
 that question can be settled notwithstanding it is an anony- 
 mous one ; and it must be settled on the same legal grounds 
 as if its name were known. So far as the general legal test 
 of A's liability is concerned, the two names of the question 
 are synonymous. These legal rudiments every one expresses 
 in language most satisfactory to himself. There is a choice 
 of words. For instance, when B is a principal, and the 
 question is whether A is liable as a copartner or joint prin-
 
 EASTMAN V. CLARK 233 
 
 cipal with him, some may use the word "partner," and others 
 may prefer the word "principal:" which ever term is em- 
 ployed, the same thing is meant, and the same idea is accu- 
 rately conveyed. But the use of some words in indefinite, 
 ambiguous, and opposite senses has involved the authorities 
 in some apparent uncertainty and confusion. When A and 
 B are not partners in fact, but are liable to certain creditors 
 as partners in law by estoppel, they are partners as to those 
 creditors, though not partners as between themselves : but 
 the phrase "partners as to third persons though not partners 
 inter scse, as sometimes used, signifies not "partnership by 
 estoppel," but something too vague and visionary to be un- 
 derstood or discussed. "Profit," "profits as profits," "profits 
 as such," "profits not as profits but as something else," "a 
 share of the profits," "a community of interest in the pro- 
 fits," "a specific interest in the profits as a principal trader." 
 "a specific interest in the profits with the right to an ac- 
 count," "a specific lien upon the profits," "taking part of tlie 
 fund on which creditors rely for payment," "jointly con- 
 cerned," and other common expressions relating to partner- 
 ship liability, have, in the absence of clear, precise, and fixed 
 definitions, become a cause of perplexity. We need not dwell 
 upon the many significations of "profit," or on any distinc- 
 tion between the uses of the word in political economy and 
 in law. Story on Part., sec. 21, ii. i. For our practical 
 purpose, a single illustration will suffice. Suppose B, going 
 into the retail flour trade with no capital, hires A as clerk 
 for one-ninth of the profit, buys 1,000 bbls. of flour of C at 
 $10 a bbl., sells it all at $11 a bbl. in one m.onth, in a store 
 hired of D at $100 a month, and the business is then closed. 
 A, C, and D having received nothing:, and B having- the 
 $11,000, $10,000 of that sum is to be paid to C for the flour. 
 The remaining $1,000 is the primary, gross, or sale profit. 
 Deduct from that gross profit the $100 due D for rent, and 
 we have $900, the profit out of which the deferred creditor 
 A is to be paid for his services as clerk. Deduct from that 
 deferred creditor fund one-ninth of it due A, and we have
 
 234 PARTNER'S POWER TO BIND COPARTNER 
 
 $800, the final or net profit of B the principal. Until they 
 are paid, A, C, and D are creditors. C and D stand on an 
 equal footing as ordinary creditors : the fact that, in book- 
 keeping, the debt to D for rent may be recorded in the ex- 
 pense account does not affect its existence as a debt: the 
 debt to A for services may be recorded in the same account. 
 C and D are general, absolute creditors, relying for payment 
 on everything until they are paid : then, ceasing to be credi- 
 tors, they rely for payment on nothing. A is a deferred and 
 contingent creditor, entitled to nothing until C and D are 
 paid, and then entitled to nothing unless some of the gross 
 profit is left. C and D, until they are paid, rely for payment 
 on the whole of B's property, — upon the $1,000 gross profit, 
 as v^^ell as the rest of the proceeds of the flour. They do not 
 rely on what may be left after they are paid. They do not 
 rely on the $900 (deferred creditor fund) left after they 
 are paid, nor on the $800 (net profit) left after payment of 
 all creditors, general and deferred. 
 
 If C is first paid, he takes part of the fund on which 
 D relies for payment : if D is first paid, he takes part of the 
 fund on which C relies for payment : but the one first paid 
 does not, by the act of receiving payment, become liable to 
 the other for taking part of the fund on which they both 
 rely. That is not the fund of which A is to have one-ninth ; 
 and he is not liable to C and D for not taking a share of the 
 fund on which they rely. The fund of which A is to have 
 one-ninth is the $900 left after C and D are paid: on that 
 fund C and D do not rely; and A is not liable to them for 
 taking a part of the fund on which they do not rely. He 
 is a creditor, though a deferred one; and, as creditors, C 
 and D do not become liable to each other or to A by properly 
 receiving payment out of the fund on which they properly 
 rely for payment, so A does not become liable to them by 
 receiving payment out of the fund on which he relies. 
 
 But if A, as a joint principal and copartner, and not as 
 creditor, is entitled to one-ninth of the profit, it is net profit 
 that is meant; and if he is entitled to a part of the net profit,
 
 EASTMAN V. CLARK 235 
 
 he is liable to C and D, not because he is entitled to a part 
 of the fund on which they rely. — for they do not rely on 
 the net profit ; he is liable to them because he is a principal. 
 If he is a principal, "the profit" of which he is to have a part 
 means the balance of gross profit left after paying all credi- 
 tors: if he is a creditor, "the profit" means the balance of 
 gross profit left after paying all creditors but himself. 
 Whether, in a particular case, "the profit" carries the one 
 meaning or the other, depends on the question whether he 
 is a principal or a creditor, which is the first, last, and only 
 question in the case. We cannot know in what sense "the 
 profit" is used by the parties until we discover whether A is 
 a principal or a creditor. How can that be a method of 
 answering a question, which is a deduction from the an- 
 swer, and cannot be known until the answer is obtained? 
 If A is a creditor, he is none the more and 
 none the less a creditor by reason of his being 
 entitled, as a creditor, to one-ninth of "the profit:" if he is a 
 principal, he is none the more and none the less a principal 
 by reason of his being entitled, as a principal, to one-ninth of 
 "the profit." WHien A and B agree that A shall have one- 
 ninth of "the profit," they may mean that he is to have it in 
 the capacity of, and by virtue of his being a creditor : they 
 may mean that he is to have it in the capacity of, and by 
 virtue of his being, a principal. The question is. Which do 
 they mean? The sharing-profit test merely repeats that 
 question without answering it. As A may be entitled to 
 one-ninth of a fund called "profit," either in the capacity 
 of a creditor or in the capacity of a partner, his ambiguous 
 right is not a test of the capacity in which he holds it. Tak- 
 ing part of "the profit" is no more the test of his being a 
 partner than it is the test of his being a creditor. 
 
 In the supposed case, where A is a creditor and not a 
 partner, there are three dififerent profit funds, or one profit 
 fund of three different amounts and with three dififerent 
 names, — i, $i,ooo gross profit, out of which, as well as out 
 of the other $10,000, proceeds of the flour, the general
 
 236 PARTNER'S POWER TO BIND COPARTNER 
 
 creditors are to be paid; 2, $900 deferred creditor fund left 
 after payment of the general creditors C and D; 3, $800 net 
 profit, left after payment of the general creditors C and D, 
 and the deferred creditor A. An agreement of A and B that 
 A is to have one-ninth of the profit, means either that A 
 is to be a deferred creditor entitled to one-ninth of the gross 
 profit left after payment' of the general creditors as com- 
 pensation for his services, or that he is to be a joint prin- 
 cipal and copartner with B. entitled to one-ninth of the net 
 profit. In the former case, "the profit'' means neither the 
 gross profit nor the net profit, but the $900, of which the 
 $800 left after payment of A is the net profit of the business 
 in which B is sole principal : in the latter case, "the profit'' 
 means the $900 net profit of the business in which A and B 
 are joint principals. The difference is, not in the amount 
 which A is to receive, but in the capacity in which he is to 
 receive it. In the one case, as a clerk hired by B, and as a 
 creditor of B, he is to receive from B, in payment of his de- 
 ferred debt, one-ninth of the amount of B's gross profits left 
 after payment of other creditors : his right is a chose in 
 action, not a thing actually or constructively in his posses- 
 sion : the title of the ninth is in B, and not in A, until he is 
 paid ; — in the other case, as a joint principal, before he 
 receives his share, he owns, in common with B, the net 
 profit left after payment of all partnership creditors of A 
 and B : the title is in A and B : A owns one-ninth, and B 
 owns eight-ninths. In the one case, the net profit is $800 : A 
 is a creditor of B, not a principal : B owes him $100 for 
 wages which he can recover in assumpsit at common law : — 
 in the other, the net profit is $900: A is a joint principal and 
 not a creditor : B owes him no wages : their net profit cannot 
 be ascertained and divided in a common-law action: for 
 the debts contracted by B, within the scope of his authority 
 as agent in earning that net profit, A would be liable, did 
 r.ot the existence of net profit show that those debts have 
 been paid. 
 
 If A is clerk and creditor, he receives $100, not as his
 
 EASTMAN V. CLARK 237 
 
 share of the profit of a business in which he is a joint prin- 
 cipal, but as compensation for his services in a business in 
 which B is sole principal : he receives one-ninth of the profit, 
 not as profit, but as payment of a debt. If A is a principal, 
 he owns one-ninth of the profit as profit, and does- not 
 receive it as payment of a debt. The distinction between 
 taking profit as profit, 'and taking it not as profit but as 
 payment of a debt, is a familiar one, firmly established by 
 the authorities, but not always explained as clearly as it 
 might be. It is the distinction between a partner and a 
 creditor obscurely expressed. Taking a share of the profit 
 as profit, is taking it as his profit — as the profit of his flour 
 business — as the profit of a principal — taking it in the 
 capacity of a principal trader — an owner of the profit — a 
 partner: taking a part of the profit as payment of a debt, is 
 taking it in the capacity of a hired man or other creditor. 
 If A is clerk and creditor, we mean by his share of the profit 
 what is his w^hen it is paid to him by his employer, but, until 
 then, is his in a figurative sense only. If he is clerk and 
 creditor, what is called his share of the profit belongs, as a 
 matter of absolute legal title, exclusively to B until he pays 
 it to A, and then belongs exclusively to A : it does not, at 
 any time, belong to A and B in common, or in any manner 
 indicated by the ordinary signification of the terms "share 
 of a partner." But, if A is a joint principal, ''his share" is 
 "the share of a partner" in the net profit. The indiscriminate 
 use of the word "share," signifying the amount of his wages 
 and debt if he is a clerk and creditor of B, and signifying 
 his ownership of a part of the profit in common with B, if 
 he is a principal, is a cause of confusion. The distinction 
 between the two significations of "share," is the distinction 
 between a creditor and a partner. 
 
 "Jointly concerned in a transaction," — Brown v. Cook, 
 3 N. H. 64, — and other explanatory terms often used to 
 describe the relation of copartners, may be useful for that 
 purpose. In this case, the jury might be properly instructed 
 that all the defendants were liable if they were "jointly con-
 
 238 PARTNER'S POWER TO BIND COPARTNER 
 
 cerned" in the contract made by one of them with the plain- 
 tiffs. The judge need not confine himself to the word "co- 
 partners;" he may say "joint principals:" all the defendants 
 were "joint principals" if they were "jointly concerned" in 
 the contract as the parties to it on one side, — as the pur- 
 chasers of the corn, — as the joint owners of the corn to 
 whom the title passed from the plaintiff's. "Jointly con- 
 cerned," if it means all that, means "joint principals:" if it 
 means anything less it is not a useful definition, but some- 
 thing that needs defining, and is of no use until it is defined. 
 And the same is true of " a community of interest" in profits 
 or other property, or in any contract or business. If "joint 
 concern" and "common interest" are used as synonymous 
 with the relation of "joint principals," and if they are so 
 understood, it is immaterial which form of expression is 
 employed: but such terms used (as they often are) in a 
 vague, undefined, and undefinable sense, cannot be accepted 
 as a test of anything. \Miat is wanted is, not a new legal 
 language, but an accurate use of the old ; not a novel doctrine, 
 but a clear understanding of what is settled. 
 
 If A, by agreement with B, is to have "a share of the 
 profit," meaning a part of the profit left after the payment 
 of all debts, he is necessarily a principal, because he is either 
 a principal or a creditor ; and a creditor cannot be entitled, 
 as a creditor, to a part of what is left after he is paid. 
 Whether he is a principal or a creditor depends upon the 
 agreement between him and B. If they agree he shall have 
 a part of "the profit," what do they mean by "the profit"? 
 If they mean the profit left after the payment of all credi- 
 tors, they mean that A is not to be one of those creditors ; 
 and, not being a creditor, he must be a principal. But how 
 are we to know whether they mean "the profit" in that 
 sense, until we ascertain whether, in their meaning, A is 
 to be one of those creditors whose payment is the prere- 
 quisite and test of "the profit" in that sense? Put this in 
 what form we may, it is all a reasoning in a circle, or a
 
 EASTMAN V. CLARK 2^9 
 
 begging of the question, or a substitution of one of two 
 synonymous questions for the other. 
 
 What difference whether A is to receive one-ninth as 
 wages, or horse hire, or store rent, or interest of money 
 loaned ? How can a debt due him for one thing make Itim 
 a creditor, and a debt due him for another thing make him 
 a partner? AMiat he is to receive as compensation for his 
 own work or the work of his horse, for the use of his store 
 or the use of his money, for knowledge and skill sold to B 
 or for goods sold to B, — what he is to receive in the capacity 
 of a creditor he is not to receive in the capacity of a partner. 
 All this is merely saying, if he is a creditor, he is a creditor; 
 if he is a partner, he is a partner. The question all the time 
 is, whether he is a creditor or a partner; and to say the 
 question is, whether he is to receive a part of the profit in 
 the one capacity or the other, is, not to invent a test for 
 ascertaining the answer of the c|uestion, but merely to state 
 the question in a form that involves it in some obscurity. Is 
 he a creditor, or a partner? That is the original question. 
 Amend that question by inserting in it the so-called sharing- 
 profit test, and the remodelled question is, Is he to receive 
 a part of the profit in the capacity of a creditor, or in the 
 capacity of a partner? The experiments of ninety-eight 
 years have failed to show that the verbal alteration is an 
 improvement, or that it has any other effect than to bewilder 
 the inquirer who starts with the supposition that it means 
 something. 
 
 In the supposed case, A is either a creditor or copartner 
 of B. He is to receive a part of what they call "profit." in 
 the capacity either of creditor or partner. The combined 
 authorities establish a sharing-profit test in this sense : if A is 
 to have something in the capacity of a creditor, he is a 
 creditor; if he is to have it in the capacity of a partner, he 
 is a partner. The discussions of the last ninety-eight vears 
 began with that ; and they have ended where they began. 
 The difiiculty now is, not to ascertain the result, but to dis- 
 cover what disputed point was supposed to be involved in
 
 240 PARTNER'S POWER TO BIND COPARTNER 
 
 the debate, — a difficulty not unfrequently found at the close 
 of protracted controversies. 
 
 "Sharing profits," with the qualification "as a principal 
 and not as a creditor," is useless as a legal test, because the 
 qualification is a mere repetition of the question for the 
 solution of which a test is sought : without that qualification 
 it is useless because it is equivocal. In its literal and un- 
 qualified form, as shown by my Brother Smith^ it is not 
 consistent with, and cannot be founded upon, the general 
 rules of law. If in that form it could be and were a test, 
 it would exist as the creation of arbitrary and absolute 
 authority. In examining the authorities, it is an advantage 
 to begin with the supposed test wholly severed and detached 
 from dim and indeterminate generalities, and placed apart 
 by itself in contrast with the primary principles upon which 
 the law of partnership liability is based. If we find an 
 authority urging that an undisclosed principal or secret 
 partner should be liable, we know that is accomplished with- 
 out a sharing-profit test: if we find an authority working 
 out a liability by estoppel, we know a sharing-profit test in 
 that matter is irrelevant. If we find authorities apparently 
 presenting or recognizing a sharing-profit test, the first ques- 
 tion will be. In what sense is the test announced, and what 
 is the meaning and effect of its exceptions and qualifications? 
 If, upon a careful scrutiny, the so-called test of sharing- 
 profits, enveloped in and consolidated with its mass of ex- 
 ceptions and qualifications, when compared with the elemen- 
 tary doctrine of the liability of a principal disclosed or un- 
 disclosed, is found to be nothing more than a badly executed 
 copy or paraphrase of that doctrine, or a fac-siniile in dis- 
 guise, the question in this case will be reduced to one of those 
 contentions about words, which is not a legal controversy. 
 
 * * * 2 
 
 In the supposed case of flour trade, where A is to have 
 one-ninth of the profit, if it is net profit that he is to have a 
 
 ^ Judge Doe's interesting examination of the English and American 
 authorities is necessarily omitted because of its great length.
 
 EASTMAN V. CLARK 241 
 
 share of, he is to have it, not as a creditor, but as an owner.; 
 the net profit, in cash, specifically ascertained, identified and 
 deposited by itself, is the joint property of A and B before 
 it is divided; it is the residue of the proceeds of the sales; 
 all those proceeds, as well as that residue, were the joint 
 property of A and B ; the flour which produced those pro- 
 ceeds was their property; it was bought and sold by them 
 as joint principals ; the title passed from C to A and B, and 
 not to B only ; B, in buying it, acted as agent of A as well as 
 for himself; by the contract of purchase, made by B as a 
 joint principal and agent of A. A is bound as a principal. 
 If we begin with net profit, as the result and test, and cite, 
 in support of it, the cases usually grouped under JVaugh v. 
 Carver, net profit leads us back to the relation of principal 
 and agent (the doctrine of Cox v. Hickman) as the starting- 
 point. If we begin with the relation of principal and agent, 
 it leads us forward, over the same course, to net profit as the 
 result. For legal and practical purposes, it is one route. 
 
 In Cox v. Hickman (and in other cases) there was a 
 difference of opinion as to the construction of an assignment 
 of property to trustees for the benefit of creditors, which 
 provided for the continuance of the debtor's business, and 
 the appropriation of the profits to the payment of creditors. 
 The question, Who were the principals in the continued 
 business? was rendered difficult by the complicated nature 
 of the assignment. Whether the final decision of that ques- 
 tion of construction was right or wrong, is not material 
 in the present case. The same question would have arisen 
 under the sharing-profits test. By the true construction of 
 the assignment, were the profits to be received by the credi- 
 tors as creditors, or as joint principals and partners in the 
 continued business? The insertion of the word "profits" 
 in the question does not cause the difficulty of the question 
 to vanish. 
 
 Lord Cranworth said a right to participate in profits, 
 "no doubt, is in general a sufficiently accurate test; for, a 
 right to participate in profits affords cogent, often conclusive,
 
 242 PARTNER'S POWER TO BIND COPARTNER 
 
 evidence that the trade in which tlie profits have been made 
 was carried on in part for, or on behalf of, the person setting- 
 up such a claim." Cox v. Hickman, 9 C. B. (N. S. ) 92. By 
 a "sufficiently accurate test," he meant satisfactory evidence. 
 His remark suggests how easily a piece of evidence could be 
 transformed into a legal test sub niodo, by tribunals accus- 
 tomed, as English courts are, to declare their judgment on 
 questions of fact. When Lord Cranworth said sharing- 
 profits affords cogent evidence of a partnership, he expressed 
 his opinion on a question of fact ; and the evident soundness 
 of such an opinion tends to obliterate the distinction between 
 the law and the fact of the subject. Sharing-profits, in the 
 absence of all other evidence, would, as a matter of fact, be 
 cogent evidence of a partnership; but every item of cogent 
 evidence is not a legal test : moreover, it is generally impos- 
 sible to have no other evidence in a case than sharing-profits : 
 whether it is cogent or weak, depends upon its character 
 explained by other circumstances: in this jurisdiction, the 
 judge does not give the jur}^ his opinion of the strength of 
 the evidence. 
 
 "A partnership in which the entire profit was to belong 
 to some of them in exclusion of others, would be manifestly 
 unjust; and, as between the parties themselves, it would not 
 be a proper partnership. It would be wdiat the Roman law- 
 yers called societas Iconina, in allusion to the fable of the 
 lion, who, having entered into a partnership with the other 
 animals of the forest, in hunting, appropriated to himself 
 all the prey." 3 Kent Com. 29; Story on Part., sec. 18. 
 This is civil law doctrine : it relates wdiolly to the force, 
 effect, and validity of partnership inter scsc, and has no 
 reference to the rights of third persons. If it were a doc- 
 trine of the common law, it w^ould go to show that the con- 
 tract of a societas Iconina is void inter sese, and not that 
 the parties are liable to third persons. But it is not to be ad- 
 mitted, without deliberation, that there is any such doctruie 
 in the common law. "It may be said," says ]\Ir. Baron 
 Bramwell, mBuIlen v. Sharp, L. R. i C. P. 126, 127, "that
 
 EASTMAN V. CLARK 243 
 
 if this reasoning is right, a man might bargain to receive all 
 the profits of a business, and not be liable. The answer is, 
 the thing is impossible. There never was, and never will be, 
 a bona fide agreement by one man to carry on a business, 
 bear all its losses, and pay over all its -profits. Should such 
 an agreement appear, it would obviously be colourable." 
 Suppose a New Hampshire merchant, having gained a sufH- 
 cient estate in trade, and desiring to continue his business 
 for the industrial and charitable purpose of supporting a 
 missionary in Ceylon, gives him a bond to pay him all the 
 future profits of his business; and suppose the profits are 
 called "net profits" in the bond : was there ever a court that 
 would hold the missionary liable as a partner for the goods 
 bought by the merchant in carrying on his business? It 
 would be evident that they both understood the missionary 
 to be a creditor and not a partner; that, by "net profits," 
 they meant the surplus of gross profits left after paying all 
 other creditors of the business ; and that, in the literal sense, 
 there would be no net profits of the business. Why should 
 the missionary be liable, especially seeing he was not to 
 defraud the other creditors, but only to receive the balance 
 of profits left after they were all paid? 
 
 The result of this examination of the authorities is, that 
 the instructions given to the jury, in the present case, were 
 erroneous. There is a provision in the reserved case, that, 
 if there is error in the instructions as to the effect of a divi- 
 sion of the gross receipts, judgment is to be rendered for 
 Stillings. But the mistrial seems to have been such that the 
 verdict ought to be set aside, and a new trial granted. 
 
 Sargent, C. J. ; Foster, Ladd and Smith, ^ JJ., con- 
 curring, a new trial was granted. 
 
 ' The opinion of Judge Smith is omitted.
 
 244 PARTNER'S POWER TO BIND COPARTNER 
 
 POOLEY v. DRIVER. 
 
 In the Chancery Division of the High Court of 
 Justice, Before Sir George Jessel, M. R., 1876. 
 
 Lazi' Reports, 5 Chancery Division, 458. 
 
 The case involved several complicated questions of fact, 
 but as these would be immaterial if the Court decided in 
 favour of the Plaintiff on the question of law raised by the 
 deeds, his Lordship directed that, by analogy to Rules of 
 Court, 1875, Order xxxiv., rule 2, the question of law should 
 be first disposed of.^ 
 
 Jessel, M. R. : 
 
 The real question I have to decide in this case is, 
 whether certain contracts, which are admitted to have been 
 entered into, made the Defendants partners in the firm of 
 Charles Borrctt & Co. If they did, then the Plaintiff, the 
 holder of certain bills of exchange drawn or indorsed by 
 that firm — whether he gave value for them or not is ad- 
 mittedly immaterial — is entitled to the relief which he asks : 
 if not, the action must be dismissed. 
 
 Now, first of all, I must decide the question as to what 
 sort of evidence I must rely upon to prove the partnership. 
 I am not going to define a partnership. The attempt has 
 been made by very many people, and some of the attempts 
 are collected together in the well-known book by Mr. 
 Lindlcy, now Mr. ]visi\ce. Lindley. At pages 2 and 3 of the 
 3rd Edition he gives fifteen definitions of partnership by 
 different learned lawyers : I think no two of them exactly 
 agree, but there is considerable agreement amongst them; 
 and I suppose anybody reading the fifteen may get a general 
 notion of what partnership means. But I am not left to de- 
 
 ' The Reporter's statement of the facts of the case and his notes of 
 the argument of counsel are omitted.
 
 POOLEY V. DRIVER 245 
 
 cide this case on any notions of my own of what is a partner- 
 ship. Whatever may amount to a partnership is a subject 
 which has been settled by decision according to EngHsh law, 
 and the incidents of the partnership simply follow from the 
 establishment of the fact of the partnership. If the partner- 
 ship is established as a fact, then the liability to creditors is 
 a mere incident flowing from the establishment of the fact. 
 But it is a contract of some kind undoubtedly — a contract, 
 like all contracts, involving the mutual consent of the par- 
 ties : and it is undoubtedly a contract for the purpose of 
 carrying on a commercial business — that is, a business 
 bringing profit, and dividing the profit in some shape or other 
 between the partners. That certainly partnership is. Whether 
 it is anything more or not has been a question between 
 various authorities, but it is that certainly. 
 
 The Civil Code of Ne^cv York, which contains the first 
 definition quoted, gives this as a definition : "Partnership is 
 the association of two or more persons for the purpose of 
 carrying on business together and dividing its profits be- 
 tween them." It undoubtedly is that, ^^'hether it is that 
 and something more is a question of consideration, some 
 writers adding qualifications which are not to be found in 
 that definition, and others excepting out of it even the com- 
 munity of profit ; but it is at least that. There could not be 
 a partnership without there was a commercial business to be 
 carried on with a view to profit and for division of profits; 
 and as a general rule. I take it. if it fulfils that definition, 
 it is a partnership. I say. as a general rule, that simple 
 definition appears, so far as it goes, to be an accurate defini- 
 tion. 
 
 Then whether or not the association requires that one 
 or more of the partners shall contribute labour or skill, or 
 what they shall contribute, is a question which may be con- 
 sidered as subsidiary; but I take it that the ordinary mean- 
 ing of the word "partnership" is that, no doubt as a rule, 
 each partner does contribute something, either in the shape 
 of property or skill. But it is not a universal rule, and
 
 246 PARTNER'S POWER TO BIND COPARTNER 
 
 therefore the definition of Chancellor Kent, which is given 
 in the same page, is not quite correct. He says : "Partner- 
 ship is a contract of two or more competent persons to place 
 their mone}', effects, labour, and skill, or some or all of 
 them, in lawful commerce, or business . . ." 
 
 You can have, undoubtedly, according to English law, 
 a dormant partner who puts nothing in — neither capital, nor 
 skill, nor anything else. In fact, those who are familiar with 
 partnerships know it is by no means uncommon to give a 
 share to the widow or relative of some former partner who 
 contributes nothing at all, neither name, nor skill, nor any- 
 thing else. Therefore it is not quite accurate, as Chancellor 
 Kent puts it, that they must contribute labour, skill, or 
 money, or some or all of them. 
 
 Then Pothier has a definition in which he says it is "a 
 contract by which two or more people put, or contract to put, 
 in common something to make in common an honest profit, 
 which they pledge themselves to render an account of to 
 one another." Pothier has the words "an honest profit (tm 
 profit honneter)." The Nezv York definition, oddly enough, 
 says "carrying on business ;" of course the business might 
 be that of highwayman, and that could hardly have been 
 meant by the framers of the Nczu York Code, and I must 
 assume that they meant some honest calling, which is sup- 
 plied by Pothier's definition. It shews that even in the most 
 accurate definitions inserted in a Code something must be 
 supplied which is not expressed. 
 
 Then Pothier says they must have "something in com- 
 mon {en couimim quelque chose),'' but, as I said before, 
 that is not necessary according to the English notion of part- 
 nership. The dormant partner may put in nothing what- 
 ever, as in the case of the widow or child of a deceased 
 partner; therefore that shews again the enormous difficulty 
 of giving a definition which shall be applicable to all cases. 
 As I have already said, the Nezv York definition, with the 
 words I have put into it, will certainly be sufficient for this 
 purpose, without considering whether it is accurate in ever}^
 
 POOLEY V. DRIVER 247 
 
 respect; and I may again say that, although one of the defi- 
 nitions speaks of a community of loss, as a rule they do not. 
 
 This association which I have to consider certainly 
 comes within about twelve out of the fifteen definitions, 
 therefore prima facie this is a partnership according to those 
 definitions. 
 
 But that is not alone enough : there is authority which 
 tells me how to find out whether a certain contract is a part- 
 nership or not. If we find an association of two or more 
 persons formed for the purpose of carrying on in the first 
 instance, or of continuing to carry on business, and we find 
 that those persons share between them generally the profits 
 of that business, as I understand the law of the case as laid 
 down by the highest authority, those persons are to be treated 
 as partners in that business unless there are surrounding 
 circumstances to shew that they are not really partners. 
 
 That, of course, brings me again to another question, 
 which must always be considered, and that is, whether, look- 
 ing at the contract as a whole, it is intended to secure the 
 benefit of a partnership with or without its liabilities ; or 
 whether it is not intended that the benefits of a partnership 
 shall be secured. * * *2 
 
 It is hardly necessary to refer to any of the other 
 authorities on the point, because those two authorities settle 
 the law, and, as far as I am concerned, put an end to all 
 discussion. 
 
 There is, however, a passage in the case of Kilshaw 
 V. Jtikcs [3 B. & S. 847] which I think is worth referring to. 
 It is in the judgment of Mr. Justice Blackburn, w^ho says 
 [Ibid. 865] : "It is true that the supposed case is one in 
 the usual course of trade, whilst such a transaction as the 
 present is rather out of the ordinary course of business; and 
 that there always is a possibility that a person who is really 
 a partner may endeavour to cloak his interest by an apparent 
 arrangement of this sort. These were fair topics for the 
 
 'His discussion of the cases of Cox v. Hickman and MoUzvo, March 
 & Co. V. The Court of JVards, supra, is omitted.
 
 248 PARTNER'S POWER TO BIND COPARTNER 
 
 consideration of the jury, and were no doubt urged upon 
 them by the counsel for the Plaintiff." So that Mr. Justice 
 Blackburn treats it as a question of evidence, from which the 
 jury were entitled to draw their conclusion as to what was 
 really intended; and that they having found against the 
 partnership, he was not bound to disturb that conclusion. 
 Then [3 B. & S. 868] the learned Judge says this, quoting 
 Lord Cramvorth : " 'The debtor is still the person solely in- 
 terested in the profits . . . He receives the benefit of the 
 profits as they accrue, though he has precluded himself from 
 applying them to any other purpose than the discharge of 
 his debts. The trade is not carried on by or on account of 
 the creditors.' Taking this to be the law, and it was so 
 necessary for the decision in Cox v. Hickman [8 H. L. C. 
 268] that I think it must be considered as the decision of the 
 House of Lords, it certainly seems to me to follow that the 
 arrangement which the jury have found to have really ex- 
 isted between Jukes and Till and JVynn did not make Jukes 
 liable to the Plaintiff on the contract which the other two 
 made for the purchase of the timber. It is not necessary in 
 this case to consider how far the older cases are overruled 
 by the decision in Cox v. Hickman, for it seems to go far 
 enough, at least, to decide this case." 
 
 There is only one more passage which I wish to read 
 from the authorities, and that is from the case of Re English 
 and Irish Church and University Assurance Society [i H. & 
 M. 85, 106], a decision by Vice-Chancellor JVood: "If you 
 employ A. B. to enter into a contract on your behalf, you 
 become liable in respect of that contract, he being your agent ; 
 and it may well be, that, in the absence of any stipulation to 
 the contrary, you make him your agent by taking part of the 
 profits of the adventure ; and it is on that footing that par- 
 ticipation in profits comes to be regarded as a test of partner 
 or no partner ; but the real test is, whether the parties who 
 carry on the business are constituted your agents in con- 
 tracting liabilities in respect of it." Therefore the Vice- 
 Chancellor entirely agrees that participation in profits is a
 
 POOLEY V. DRIVER 249 
 
 proper test and a sufficient test, if there is nothing to over- 
 ride it. 
 
 I may cite further from page 45 of the third edition of 
 Air. Lindleys book, considering that learned gentleman is 
 now a Judge, the conclusion that he comes to as to the effect 
 of the case of Cox v. Hickman [8 H. L. C. 268] — "that 
 prima facie the relation of principal and agent is constituted 
 by an agreement entitling one person to share the profits 
 made by another to an indefinite extent; but that this in- 
 ference is displaced if it appears from the whole agreement 
 that no partnership or agency was really intended." 
 
 I think, therefore, the law is so far settled that I ought 
 to have no great difficulty in applying it to the case before 
 me. Before going into the deeds at length, I will consider 
 the effect of them. 
 
 In October, 1868, Borrctt and Hagen agree to become 
 partners in carrying on the business together of grease. 
 pitch, and manure manufacturers. Borrctt had carried it 
 on before alone, but he and Hagen now made an arrange- 
 ment of partnership. The arrangement in substance was 
 this : that they should contribute certain shares of the capital, 
 and should give their services in order to carry on the 
 business; that the rest of the capital should be contributed 
 by other persons who were disposed to come forward under 
 the provisions of the Act to which I shall call attention 
 presently — the Act which is commonly called Lord Chief 
 Justice BoviU's Act — and then that the capital should be 
 divided in certain proportions, giving everybody who put in 
 £500, amongst those other contributors, a share in the capital 
 in proportion, and a share in the profits indefinitely. When 
 the partnership is wound up this capital is to be paid back 
 preferentially. The contributors were to take their share of 
 the profits, but if it turned out that, on taking a final account, 
 the profits of any years which had been paid, being added 
 together, exceeded the total profits made from the business, 
 the contributors were to pay back the excess, not exceeding 
 in any event the amount they had contributed, and of course
 
 250 PARTNER'S POWER TO BIND COPARTNER 
 
 not exceeding in any event the amount they had received in 
 profits. 
 
 That is the substance of the deeds; but besides that, 
 there were a great many of the provisions usually inserted 
 in partnership deeds, and every one of those provisions was 
 extended to the contributors; that is to say, if they had been 
 ordinary dormant partners, those provisions would have been 
 inserted in their favour, and would have given them every 
 right which, as far as I can understand, an ordinary dormant 
 partner would have. I put it to the learned counsel, in the 
 course of the argument, whether they could suggest any 
 right which would be given to an ordinary dormant partner, 
 not possessed by these contributors, and after consideration 
 and discussion they were unable to do so. That is the gen- 
 eral effect of the deeds. 
 
 That, then, is the position of the parties. The partner- 
 ship was for the term of fourteen years; the loan also was 
 for the same term. If the partnership comes to an end 
 sooner, the loan must come to an end sooner; so that, in 
 fact, if you were to describe the contributors as dormant 
 partners in the concern, liable to a limited extent to loss, and 
 with a guarantee of their capital from the active partners, 
 you would exactly describe their position; and I do not 
 know of any other shorter mode of describing the position 
 of these contributors. 
 
 Well, if that is so, is not that exactly the thing which 
 it was intended should not take place — that a man should 
 not put forward another to carry on the business ostensibly 
 and himself take the profits? It is the very object and 
 meaning of the transaction, as I understand it, to give these 
 contril)utors that very position which dormant partners 
 usually occupy, wnth certain collateral advantages — excep- 
 tional, perhaps, but not altogether unusual ; unusual, no 
 doubt, in the sense that I have seldom seen — I was going to 
 sav so barefaced, but when you come to see the reason of it, 
 I will say so palpable — an intention exhibited on the face of 
 the documents to give the contributors all the benefits of
 
 POOLEY v. DRIVER 251 
 
 the partnership, and if possible to secure them from suffering 
 from the habihties. The reason of it was this : The f ramers 
 of the instrument thought that BoviU's Act would protect 
 them, and that comes again to a question of law, as to 
 whether the Defendants who executed the deeds are, in a 
 better position than the Defendants who did not. 
 
 First of all, as to the Defendants who did not. I 
 decided yesterday, and I merely repeat it, that Messrs. 
 Drk'cr, not being parties to any instrument in writing signed 
 by them, were not parties to a "contract in writing" within 
 BoviU's Act, and therefore could not have the benefit or 
 protection afforded by that Act. But, with regard to the 
 Defendants who did execute the deeds, of course they would 
 be entitled to the benefit of the Act, and then the mere 
 question I have to try is whether they have rightly construed 
 the Act. 
 
 It was said, and said with considerable force, by Mr. 
 Chitty and Mr. Mathciv, that they never intended to be 
 partners. What they did not intend to do was to incur the 
 liabilities of partners. If intending to be a partner is intend- 
 ing to take the profits, then they did intend to be partners. 
 If intending to take the profits and have the business carried 
 on for their benefit was intending to be partners, they did 
 intend to be partners. If intending to see that the money was 
 applied for that purpose, and for no other, and to exercise 
 an efficient control over it, so that they might have brought 
 an action to restrain it from being otherwise applied, and 
 so forth, was intending to be partners, then they did intend 
 to be partners. But if it is tried by the other test, whether 
 they intended to be protected under BoviU's Act from 
 liability to third persons, then I think they did intend to be 
 protected from liability. 
 
 But it comes back again to the same point, namely, what 
 is the true construction of the Act? Is what they did within 
 the provisions of the Act, or without? 
 
 I must say the Act is not so easy to construe as some 
 Acts are, and not so difficult as some Acts are ; but it seems
 
 252 PARTNER'S POWER TO BIND COPARTNER 
 
 to have been framed on an impression that the law of part- 
 nership was in a different state from what it actually was. 
 I should be sorry to say that on my own authority, but I find 
 it stated in pretty plain terms by the Privy Council in the 
 case of MoUwo, March & Co. v. Court of Wards, and some- 
 thing of the same kind was stated by other Judges, but being 
 Judges of Courts of first instance, I do not refer to them. 
 The Privy Council said [Law Rep. 4 P. C. 437] : "Some 
 reliance was placed on the statute 28 & 29 Vict. c. 86, s. i, 
 which enacts that the advance of money to a firm upon a 
 contract that the lender shall receive a rate of interest vary- 
 ing with the profits, or a share of the profits, shall not, of 
 itself, constitute the lender a partner, or render him re- 
 sponsible as such. It was argued that this raised an impli- 
 cation that the lender was so responsible by the law existing 
 before the passing of the Act. The enactment is no doubt 
 entitled to great weight as evidence of the law, but it is by no 
 means conclusive ; and when the existing law is shewn to be 
 different from that which the Legislature supposed it to be, 
 the implication arising from the statute cannot operate as a 
 negation of its existence." 
 
 Now, I am afraid that that criticism is by no means ill- 
 founded. The first section of the Act is this : 'The advance 
 of money by way of loan to a person engaged, or about to 
 engage, in any trade or undertaking upon a contract in writ- 
 ing with such person, that the lender shall receive a rate of 
 interest varying with the profits, or shall receive a share of 
 the profits arising from carrying on such trade or under- 
 taking, shall not, of itself, constitute the lender a partner 
 with the person or the persons carrying on such trade or 
 undertaking, or render him responsible as such." 
 
 The law was decided before the Act, by a long train of 
 decisions before the time of Lord Eldon, who found it estab- 
 lished. He says in Ex parte Hamper [17 Ves. 403] that 
 the lending of a sum of money on a bona fide contract to 
 receive a rate of interest varj-ing with the profits, did not 
 make a man a partner ; although, I suppose, I may take it to
 
 POOLEY V. DRIVER 253 
 
 be the equally well-established rule, though perhaps not so 
 conclusively established, that the receiving of a share of the 
 profits did : the two were lumped together by the statute, and 
 therefore it was said, and rightly said, that there being, so 
 to say, a misapprehension of the law which was supposed to 
 be affected by the Act, you cannot look upon the Act ftself 
 as declaratory one way or the other. 
 
 That being so, what is the effect of the Act? The Act 
 is this, that the advance of money must be "by way of loan." 
 Now what does that mean? It is not the ''advance of 
 money," but ''the advance of money by way of loan." I 
 take it to mean this, that the person advancing must be a real 
 lender ; that the advance must not only profess to be by way 
 of loan, but must be a real loan; and consequently you come 
 back to the question whether the persons who enter into the 
 contract of association are really in the position of creditor 
 and debtor, or in the position of partners, or in the only 
 third position which I think could be suggested, that of 
 master and servant. But the Act does not decide that for 
 you. You must decide that without the Act ; and when you 
 have decided that the relation is that of creditor and debtor, 
 then all the Act does is this : it says that the creditor may 
 take a share of the profits, but as I understand the law as laid 
 down by the higher authorities to which I have referred, if 
 you have once decided that the parties are in the position of 
 creditor and debtor you do not want the Act at all, because 
 the inference of partnership derived from the mere taking a 
 share of profits, not being irrebuttable, is rebutted by your 
 having come to the conclusion that they are in the position 
 of debtor and creditor. That, in fact, was the decision in the 
 case of Mollwo, March & Co. v. Court of JVards [Law Rep. 
 4 P. C. 419], and in the case of Cox v. Hickman [8 H. L. C. 
 268]. Therefore you have already decided that for your- 
 self, and the Act does not seem to me, as far as regards the 
 first section, to do you any good at all. 
 
 Then the only other point is as to the meaning of "shall 
 not, of itself, constitute," &c. Xow there is a possible
 
 254 PARTNER'S POWER TO BIND COPARTNER 
 
 meaning to be given to the word "itself." It may mean this 
 — though I am not sure that it does — that in construing a 
 contract which, before the Act, by the mere circumstance of 
 there being a share in the profits, would have raised a cogent, 
 though not an irrebuttable, inference that the so-called lender 
 was a partner, though he professed to be a lender, the mere 
 fact of his taking profits shall not alone raise that inference. 
 Well, if that is the meaning — and I think Mr. Lindley attrib- 
 utes that meaning to it — it does not assist me very much in 
 coming to a decision, for of course in this case there are 
 many other circumstances besides participation in profits, 
 as I suppose there are always, or nearly always, in these 
 cases; and in the next place, as I said before, I must decide 
 for myself whether the parties are really in the position of 
 creditor and debtor before I can apply the Act at all. 
 
 The words are, "advance of money by way of loan," 
 and Mr. Lindley's note [3rd Ed. p. 46] is this: "Observe 
 these very important words. Agreements are constantly 
 framed with all sorts of clauses, which together probably 
 expose the lender to the risks he is desirous of avoiding" — 
 that is, to the risk of being a partner. I do not know why 
 those words, "of itself," were put into the Act, unless it was 
 supposed by the framer — which is another guess of my own, 
 and one which, perhaps, I ought not to make, because it is 
 imputing to the Legislature a further ignorance of law 
 besides that already imputed to them in the Privy Council 
 case — that sharing profits would otherwise have created a 
 partnership of itself. If you take that meaning, then it is 
 an alteration of the law ; but Cox v. Hickman [8 H. L. C. 
 268] decided that that was not so, and never had been so, for 
 of course Cox v. Hickman did not lay down any new law — 
 the Lords say so in their speeches — and, consequently, it 
 was not true that at any time sharing profits constituted a 
 lender a partner, though it was a cogent test for trying the 
 question, and would have been irrebuttable unless you could 
 have found some circumstances altering the nature of the 
 contract.
 
 POOLEY V. DRIVER 255 
 
 That disposes of the law of the case as far as I am 
 concerned. I now come to the consideration of the details of 
 the documents, which are certainly framed in a very singular 
 way. They seem to me to have been purposely framed with 
 a view of giving the whole benefit which partnership could 
 give to the contributors, and, if possible, something more 
 than they could have obtained as partners. 
 
 The original deed of partnership is dated the loth of 
 October, 1868; it is made between Borrctt of the one part, 
 and Hagcn of the other. It states that they agreed to be- 
 come partners "on the terms hereinafter mentioned ;" then 
 it states what the trade should be, namely, the business of a 
 grease, pitch, and manure manufacturer; then the partner- 
 ship is to commence on the ist of July, 1868, and is to con- 
 tinue for the term of fourteen years next ensuing, and to be 
 carried on in the name of Borrett & Co. 
 
 The capital of the partnership consists of £30,000, and 
 is made up as follows : the goodwill — that is, the business 
 already carried on — is to be taken at the value of £15,000; 
 Borrctt is to bring in a further sum of £1000, Hagcn a 
 further sum of £4000, and the remaining £10,000 is to be 
 raised "by way of loan" under the provisions of the Act 
 (giving its full title), "in sums of £500 each from persons 
 w^illing to advance the same for the purpose of the said 
 partnership; and the said capital shall be considered as 
 divided into sixty equal parts of £500 each ; and the said 
 Charles Borrett shall be considered as the owner of seven- 
 teen of such parts, and the said Edward Hagcn as the 
 owner of twenty-three of such parts, making together forty 
 equal parts or shares of £500 each held by them in the said 
 business; and the remaining twenty equal parts or shares 
 shall be considered as appropriated to or for the benefit of 
 the person or persons so advancing money by way of loan as 
 aforesaid on the proportion on which tlie same shall be ad- 
 vanced by them res]:)ectively." 
 
 So that the moment the contributors became parties to 
 this deed, as I shall shew thev were or did become after-
 
 256 PARTNER'S POWER TO BIND COPARTNER 
 
 wards, they became entitled to shares in the capital abso- 
 lutely. Then it goes on, "The capital of the said business 
 shall be used and employed in the regular course of trade 
 for the benefit of the partnership, and shall not be drawn 
 out during the continuance of such partnership." 
 
 This is a very important clause, when you consider 
 that the contributors get the benefit — as I shall shew pres- 
 ently they do — of every covenant in the deed of partnership. 
 The result, therefore, is this, that they became not only 
 entitled to the shares of the capital, but entitled to compel 
 the ostensible partners to employ that capital in the regular 
 course of trade, and might have obtained an injunction to 
 prevent their diverting it to any other purpose. They had 
 therefore, to that extent, a control over the capital, namely, 
 a control over its employment ; thus they were not at all 
 in the ordinary position of lenders. 
 
 The lender does not become entitled to any part of the 
 assets of his debtor in specie. He has only a contract which 
 entitles him to claim payment from the debtor as a personal 
 demand, but this supposed creditor becomes entitled to a 
 portion of the capital in specie, and gets the right besides to 
 prevent the legal owners of the property from applying it to 
 any other than a particular purpose, whether they desire to 
 do so or not. He acquires two rights, the right to an aliquot 
 portion of the capital itself, and a right to control the dis- 
 posal of the rest of the capital. 
 
 Then there is a covenant that the partners shall conduct 
 the business during the partnership to the best of their 
 ability. Let us test the case by that covenant. The lender 
 can compel these people against their will to carry on the 
 business — I do not mean to say he can actually make them 
 carry on the business, because that is a covenant which a 
 Court of Equity always declines to enforce, but he could 
 have an action for damages against them for breach of the 
 covenant, and at all events he gets the benefit of that contract. 
 They must carry on the business, as I shall shew presently, 
 for his benefit, because they have contracted to do so.
 
 POOLEY V. DRIVER 257 
 
 Then the 7th clause is that proper books of account and 
 other books shall be kept in the usual way. Then there is a 
 provision that the partners shall not sell, lend, or borrow 
 without mutual consent; then that they shall not allow the 
 assets to be taken in execution ; and then that neither part-ner 
 shall take any servants without the consent of the other. 
 Then there is a provision as to outgoings; then a provision 
 for one of the ostensible partners drawing out certain sums 
 for maintenance. Then, that on the ist of July in every 
 year a general account shall be taken, and a general valuation 
 made in the usual way, and put into a book. Then the 14th 
 clause is this, which is very important : 
 
 "The net profits arising from the business of the 
 said partnership shall be divided into sixty equal parts or 
 shares, and the said C. Borrett shall be entitled to seventeen 
 of such parts or shares, and the said E. Hagen to twenty- 
 three of such parts or shares ; and the remaining twenty o£ 
 such parts or shares shall be divided amongst the persons ad- 
 vancing the sum of £10.000 so to be raised by way of loan as 
 aforesaid in proportion to the amounts advanced by them 
 respectively: Provided always, that if the whole of the said 
 sum of £10,000 shall not be raised by way of loan, and until 
 the sum shall be so raised, the net profits arising from the 
 business of the said partnership shall be divided into as many 
 parts or shares as there shall be sums of £500 in the capital 
 of the said partnership, such capital being estimated in 
 manner hereinbefore provided, and be paid on the ist day 
 of October in every year to them respectively, on account of 
 their respective shares in the clear gains and profits of the 
 said partnership." 
 
 The moment the contributors got the benefit of this 
 they were clearly entitled to a share of the profits as profits. 
 Nothing can be plainer than the terms of the provision, and 
 it shews the intention of the parties. 
 
 Then the 15th clause is this: 
 
 "Within six calendar months after the expiration or 
 sooner determination of the partnership, otherwise than by
 
 25S PARTNER'S POWER TO BIND COPARTNER 
 
 the death of one of the partners, a final statement of ac- 
 counts in writing shall be forthwith made by and between 
 the said parties hereto, of and concerning all the goodwill, 
 stock in trade, plant, moneys, credits and effects then due 
 or belonging to the said partnership, and also of all debts 
 and sums of money due and owing from and of all liabilities 
 of the same, and a just valuation shall be made of all the 
 particulars included in such account which shall require and 
 are capable of valuation, and, immediately after such last 
 mentioned account shall have been so taken and settled, the 
 partners shall forthwith pay to the persons advancing money 
 by way of loan for the capital of the partnership, as herein- 
 before provided, the moneys advanced by them respectively, 
 less any sums overpaid to them on account of the profits 
 of the said partnership, and shall make due provision for 
 the payment of all other moneys and debts then due by the 
 partnership, and for meeting all the liabilities thereof, and 
 shall divide all the profits arising and which shall have 
 arisen from the business of the said partnership in the pro- 
 portions specified in the 14th clause of these presents, and 
 shall then appropriate the sum of £1000 for the benefit of 
 the said C. Borrctt, in satisfaction of two of his shares in 
 the partnership assets, and the sum of £4000 for the benefit 
 of the said E. Hagen in satisfaction of eight of his shares 
 therein, such two last mentioned sums to be paid pro rata 
 and pari passu; and, subject thereto, the goodwill and other 
 assets, if any, then belonging to the partnership, shall be 
 divided between the partners in equal shares . . ." 
 
 Then there is a provision to this effect, that if either of 
 the partners becomes bankrupt the other shall have liberty 
 to dissolve, and then the property shall become the property 
 of the non-bankrupt partner upon his paying the value of 
 the bankrupt partner's share to his assignees. 
 
 Then there is a provision for the widow or children of 
 the partners; then a provision in the event of the death of 
 either partner, which I do not think it necessary to read, 
 and some other provisions as regards death, which pre-
 
 I 
 
 POOLEY V. DRIVER • 259 
 
 cede the last clause, which is the usual arbitration clause. 
 That is the partnership deed. 
 
 Now we come to the other deeds, which for this pur- 
 pose I treat as deeds of even date. They are not exactly 
 of even date, but they are nearly contemporaneous. The 
 partnership dates from the loth of October, 1868. The ar- 
 rangement made with Messrs. Driver was made somewhere 
 about the same time, and was made by a document which 
 was never executed. It was a draft of an indenture dated 
 the day of October, 1868. I may say, in passing, that 
 
 the other deeds, those executed by Bannatyne & Pye, are 
 about the same date — one being dated the 28th of October, 
 1868, and the other the 7th of November, 1868 — and are 
 in the same terms, and I will take them as having been exe- 
 cuted shortly after the partnership. 
 
 Messrs. Driver's document recites the partnership deed; 
 it recites some of the provisions that I have read ; and then 
 it goes on : "Whereas the said Rolles Driver and Samuel 
 Neale Driver have agreed to advance by way of loan to the 
 said C. Borrett and E. Hagen, under the provisions of an 
 Act of Parliament passed in the 28th and 29th years of Her 
 present ]\Iajesty, c. 86, entitled, 'An Act to amend the Law 
 of Partnership' the sum of £2500, to enable them the said 
 C. Borrett and E. Hagen to carry on the said trade or 
 business for the term and under and subject to the stipula- 
 tions and conditions hereinafter mentioned, expressed, and 
 declared concerning the same." Then it is witnessed, "That 
 in consideration of the sum of £2500," (Sec, the said Borrett 
 and Hagen first of all covenant that they, Borrett and 
 Hagen, "will within six calendar months after the ist of 
 July, 1882, or within six calendar months after the sooner 
 determination of the said partnership, pay unto the said 
 Rolles Driver and Samuel Neale Driver, their executors, 
 administrators, or assigns, the sum of £2500." 
 
 That is a very remarkable thing for a loan. It is a 
 loan during the continuance of the partnership. It is to be 
 paid within six calendar months after its natural expiration,
 
 260 -PARTNER'S POWER TO BIND COPARTNER 
 
 or within six months after any other expiration of the 
 partnership. Therefore, although they call it a ''loan," 
 and although I agree that, standing alone, the fact of the 
 duration of the loan being the duration of the partnership 
 might not of itself be conclusive, it all tends in the same 
 way to shew that this was really intended as an advance 
 of capital to the partnership business, made for the purpose 
 of carrying it on, and not as an ordinary loan. 
 
 The next clause — and this is very important — is : 
 "That the said C. Borrctt and E. Hagcn, their respective 
 executors, and administrators, shall in all things conform 
 to, fulfil, and observe the covenants, clauses, and agreements 
 contained in the said recited deed of partnership of the loth 
 day of October, 1868, and such deed of partnership shall 
 at all times be open to the inspection of the said Rollcs 
 Driver and Samuel Nealc Driver, their executors or admin- 
 istrators, at the office where the said business shall be carried 
 on." That imports the whole of the provisions of the prior 
 deed into this deed, and makes Borrctt and Hagen covenant 
 to observe them, thus giving to the Drivers those rights both 
 with respect to capital and profits which I have already ad- 
 verted to. 
 
 Then the next clause provides i\\2.\.'Borrett and Hagcn 
 will, during the continuance of the loan — that is, during 
 the maintenance of the partnership — make out accounts, and 
 once a year, on the ist of October, pay Messrs. Driver, on 
 account of profits, a sum equivalent to five-sixtieth parts 
 of the profits for the year preceding the ist of July then 
 last past. Some argument was rested upon that, but noth- 
 ing turns upon it, for this covenant never actually came 
 into existence. If it had, I should have held that it did 
 not vary the case in the least; that the prior clause gave 
 them a share of proceeds as profits under the partnership, 
 and this only makes Borrctt and Hagcn pay on account of 
 the profits a sum equivalent to five-sixtieth parts, shewing 
 that what they had to pay really was still profits. But that 
 clause never came into force, because there was a proviso
 
 POOLEY V. DRIVER 261 
 
 at the end of it to this effect, that if the sum of £10,000 was 
 not advanced — and it was not — then Borvctt and Hagcn 
 or one of them, would "on the ist day of October in every 
 year during the continuance of the said loan pay to the said 
 Rolles Driver and Samuel Neale Driver, their executors, ad- 
 ministrators, or assigns, in lieu of the said five equal sixtieth 
 parts of the said clear gains and profits as last aforesaid, 
 such a proportion of the said clear gains and profits as last 
 aforesaid as the said sum of £2500 bears to the whole cap- 
 ital for the time being employed in the same business, such 
 capital being estimated in the manner provided by the said 
 indenture partnership." 
 
 So that we have the interest of the loan not varying 
 merely with the profits of the business, but varying in the 
 proportion which the loan, which was part of the capital, 
 bore to the whole capital, a circumstance which I think by 
 no means immaterial in shewing that it was not a gen- 
 uine loan in the sense of creating the relation of debtor and 
 creditor, but that it was indeed an advance of part of the 
 capital. 
 
 Then the deed goes on with a very remarkable provi- 
 sion, "That if either the said Rolles Driver or Samuel Neale 
 Driver shall become bankrupt or shall compound with his 
 creditors, or in case any difference or dispute shall at any 
 time during the said term of fourteen years arise between 
 the said parties hereto, or their representatives, and which 
 differences or disputes shall be considered by arbitration, as 
 hereinafter mentioned, to justify the determination of the 
 arrangement hereby agreed upon, it shall be lawful for the 
 said C. Barrett and E. Hagen, or the survivor of them, or 
 their or his executors and administrators at any time here- 
 after to pay the said sum of £2500, less any sum they shall 
 have been overpaid on account of the said business, to the 
 said Rolles Driver and Samuel Neale Driver, their execu- 
 tors, administrators, or assigns, together with the share of 
 the said profits (if any) to which the said Rolles Driver and 
 Samuel Neale Driver, their executors, administrators, or
 
 262 PARTNER'S POWER TO BIND COPARTNER 
 
 assigns, shall then have become entitled;" and thereupon the 
 agreement is to be at an end. 
 
 Now that certainly is a very astonishing provision in 
 an ordinary contract of loan. What has the bankruptcy of 
 the creditor got to do with it? You pay the assignee, or 
 trustee, as he is now called. It is a very remarkable thing 
 that the bankruptcy of the creditor should put an end to 
 the agreement, but you find it by no means remarkable if 
 it was intended that they should really be partners. You 
 find a similar provision in the actual partnership deed. 
 Without attaching too much weight to this, I think it is 
 very material. 
 
 Then there is another remarkable clause : "Within six 
 calendar months after the expiration or sooner determina- 
 tion of the partnership, a final settlement of the accounts 
 of the partnership shall be forthwith made in writing by 
 the said C. Borrctt and E. Hagcn, their executors or admin- 
 istrators, concerning all the stock-in-trade, plant, moneys, 
 credits, and effects then due or belonging to the said part- 
 nership estate, and also of all debts and sums of money (if 
 any) due or owing from, and of all liabilities of the same, 
 and a just valuation shall be made of all the particulars in- 
 cluded in such account which shall require and are capable 
 of valuation, and immediately after such last-mentioned ac- 
 count shall have been so taken and settled, the said C. Bar- 
 rett and E. Hagcn shall forthwith pay thereout to the said 
 Rollcs Driver and Samuel Neale Driver, their executors, 
 administrators, or assigns, the sum of £2500." So that the 
 covenant is in accordance with the partnership deed to pay 
 the £2500 out of the assets and debts due to the partnership. 
 I know there is another covenant to pay Messrs. Driver 
 which is personal, but there stands a covenant to pay out 
 of the assets. 
 
 Then there is a provision for payment to the Drivers 
 of "five equal sixtieth parts or shares of all the net profits 
 of the said business." That gives them all the surplus
 
 POOLEY V. DRIVER 263 
 
 profits that they have not yet received, including the pro- 
 23ortion of the capital they are entitled to. 
 
 Then there is the proviso that they shall refund. It 
 is very oddly worded, but it is agreed on all hands that it 
 means this, that if, at the end of the partnership period, the 
 amount already paid to the Drivers for profits shall exceed 
 the total profits made in the business, they shall refund the 
 excess not exceeding the £2500. I have rather given the 
 effect than the words, because the words are somewhat am- 
 biguous; but it is admitted that that must be the meaning, 
 or, in other words, that the lender, having received profit for 
 interest, if the business afterwards makes a loss, would 
 have to pay back, subject to the limit that he is never to 
 be called upon to pay more than he has received, and, sub- 
 ject also to this, that he is never to be called upon to pay 
 more than the total amount of his so-called loan. It is 
 certainly a wonderful provision, if it is a bond fide loan, 
 and not a mere colourable transaction to get a share of the 
 profits without being liable to losses. Did ever any one hear 
 of anybody lending his money on such terms, or of the 
 notion that, after having received the profits in lieu of inter- 
 est, he is to pay back the whole of them, it may be, because 
 subsequently the business, conducted not for him, but for 
 other people, who are really his debtors, shall have given 
 rise to losses? It appears to me that if you want to prove 
 that the business was conducted for him, this is cogent 
 evidence of it. It was not conducted entirely for the benefit 
 of the persons who were merely debtors and who stood in 
 that relation to the supposed creditor. 
 
 Then there is an arbitration clause, which is very usual 
 in partnership articles, but not a very usual one in a mere 
 loan deed. 
 
 These are the documents on which I am called upon to 
 decide, and I must say that I have come to a clear conclu- 
 sion that this is not a transaction of loan within the mean- 
 ing of the Act of Parliament ; that the true relation of the 
 parties towards one another was that of dormant and active
 
 264 PARTNER'S POWER TO BIXD COPARTNER 
 
 partners, and not of mere creditors and debtors ; that in 
 this case I need not rely on one provision or on two provi- 
 sions, but on the whole character of the transaction from be- 
 ginning to end. It is an elaborate device, an ingenious con- 
 trivance, for giving these contributors the whole of the ad- 
 vantages of the partnership, without subjecting them, as 
 they thought, to any of the liabilities. I think the device 
 fails ; and that, looking at the law as it stands, I must hold 
 that they are partners, and liable to the consequences of 
 being partners, and to the whole of the engagements of the 
 partnership, and consequently liable for the whole of its 
 debts. 
 
 The Plaintiff is, therefore, entitled to a judgment on 
 these bills.
 
 HART V. KELLEY 265 
 
 HART z'. KELLEY. 
 In the Supreme Court of Pennsylvania, 1877. 
 
 83 Pennsylvania Reports, 287. 
 
 Assumpsit by H. H. Kelley against A. Hart, Pincus, 
 Faucett, Sauter and Clarence A. Hart, for work and labor 
 alleged to have been done about the defendants' property, 
 as shown by the copy of book entries filed. 
 
 The defendant, C. A. Hart, filed an affidavit of defence 
 in which he set forth that his only connection with Pincus 
 and Faucett was this : that after the work to recover for 
 which the suit was brought, was in a great part performed, 
 he signed an agreement with Pincus and Faucett to advance 
 them money in their business, and to receive, in lieu of in- 
 terest, a share in the net profits of the firm ; that he never 
 did advance any money under this agreement, but, on the 
 contrar}', the agreement was rescinded immediately after it 
 was made. 
 
 The Court below entered judgment for want of a suffi- 
 cient affidavit of defence; whereupon C. A. Hart, one of 
 the defendants, brought this writ of error, assigning this 
 judgment for error. ^ 
 
 PaxsoNj J. : 
 
 The rule of the law formerly prevailing, that partici- 
 pation in the net profits of a business made a participant 
 liable to third parties as a partner, has been greatly modified 
 in England and this country. Thus, in Dean ■:■. Harris, 
 and Harris z'. Butterfield, Law Times Reports, N. S., vol. 
 33, p. 639, Butterfield, who was a person of small means, 
 applied to Harris to advance him money for the purpose of 
 developing certain mines. Harris consented to lend But- 
 terfield 2000/., upon certain terms, viz. : That B. having 
 
 ^ The facts as given by th.e Reporter are restated.
 
 266 PARTNER'S POWER TO BIND COPARTNER 
 
 entered into an agreement to take a lease of the Leycett 
 mines, that the said mines be worked under the style or 
 firm of the Leycett Mining Co. ; that said H. find capital to 
 work the mines to an extent not exceeding 2000/.; that the 
 money so advanced shall be repaid with 20 per cent, interest ; 
 the said H. to be paid 2)d. per ton on all coal and iron stone, 
 by way of commission. The said B. to be paid 200/. per 
 annum by way of salary, but not to take date until the sum 
 or sums advanced by said H. be repaid; said B. to promote 
 the interest of the concern and continue in receipt of salary 
 so long as he should conduct the business to the satisfaction 
 of H. After payment of the above, and costs of raising and 
 preparing and delivering to market the product of said 
 mines, said H. shall be entitled to three-fourths of the 
 profits, and all the net proceeds of the concern to be dis- 
 posed of in the like proportion ; said H. to be free from all 
 liability except in respect of the money advanced by him. 
 The vice-chancellor held, that there was no partnership, 
 saying: "All that H. did was consistent with his character 
 as capitalist, assisting B. in carrying on business. All that 
 is said to constitute a partnership. If it could, it would 
 be most unsafe for any man to lend a tradesman any sum 
 of money, and to look after the best means he could get for 
 its fepaym.ent." Mollwo, March & Co. v. The Court of 
 Wards, Law Rep. 4 P. C. 419, is perhaps a stronger case 
 than Dean v. Harris. To the same point is Cox v. Hick- 
 man, House of Lords Cases, vol. 8, p. 268. In this state 
 the Act of 6th April 1870. Purdon 1121, pi. 15 (Pamph. 
 L. 56), expressly provides that, "it shall be lawful for any 
 person or persons to loan money to any individual, firm, 
 association or corporation, doing business in this Common- 
 wealth, upon agreement to receive a share of the profits 
 of such business as compensation for the use of the money 
 so loaned, in lieu of interest, and such agreement, or the 
 reception of profits under such agreement, shall not render 
 the person or persons liable as a co-partner in such business 
 to other creditors of such individual, firm, association, ex-
 
 HART V. KELLEY 267 
 
 cept as to the money loaned," &c., &c. It is by the Hght 
 of the law thus modified by judicial decision and legislative 
 enactment that we must examine and construe the agree- 
 ment of December 13th 1875, which was attached to the 
 supplemental affidavit of defence, and forms a part there- 
 of. We assume that the court below held, that this agree- 
 ment, as to the parties thereto, created a partnership inter sc. 
 In any other view of the case the supplemental affidavit of 
 defence was ample to prevent judgment. The agreement 
 was evidently drawn by a layman and was probably intended 
 to come within the provisions of the Act of 1870. So far 
 as the defendant below is concerned, it provides for two 
 things, viz.: ist. A loan or advance by him to Faucett and 
 Pincus of such an amount of money as may be necessary 
 to enable the latter to carry on the restaurant at No. 1220 
 Chestnut street for one year; and 2d. A division of the 
 profits after such loan or advances are repaid. If the de- 
 fendant can be held liable at all to creditors under said 
 agreement it must be by reason of his right to a participa- 
 tion in the profits. It is not alleged that he held himself out 
 to the world as a partner, and that any one was induced 
 to give credit to Faucett and Pincus by reason of his con- 
 nection with them. The advance of the money would not 
 of itself constitute the defendant a partner. The partici- 
 pation in the profits might make him one, but not neces- 
 sarily so. It would depend upon the intention of the par- 
 ties as expressed by the terms of their agreement. There 
 were to be no profits divided until the advances were re- 
 paid. 
 
 If, as was alleged upon the argument, no profits were 
 ever made, and of course none divided, and the advances 
 were not even repaid, the time never arrived when the de- 
 fendant became a partner by reason of his participation in 
 the profits. This was precisely the case in Dean v. Harris, 
 supra, in which the vice-chancellor held that a participa- 
 tion in the profits might have made Harris liable as a 
 partner, but inasmuch as the business was unprofitable and
 
 268 PARTNER'S POWER TO BIND COPARTNER 
 
 no profits were ever made, he could not be held for such 
 reason. Here the defendant pointedly denies any partici- 
 pation in the profits. Such denial ought to have carried 
 the case to a jury. Again, he swears distinctly, that he 
 never acted under said agreement, being unable to comply 
 and advance the money, and that as to him said agreement 
 was rescinded iuuiicdiafcly after its execution. If this be 
 so, and we are bound to assume it, he would not be liable 
 in any view we may take of the agreement, for any debt 
 incurred after his withdrawal, at least not to a creditor who 
 never had knowledge of said agreement, and never trusted 
 I'^aucett and Pincus on that account. Aside from all this, 
 however, this suit is for a claim against Faucett and Pin- 
 cus, upon a contract made with them prior to the agree- 
 ment of December 13th. For the purposes of this case 
 we must treat said agreement as of the date of January 
 7th, the defendant having sworn that the date of December 
 13th was erroneous. A large proportion of the work was 
 done prior to January 7th. Assuming the defendant to 
 have become a partner, he did not assume the debts of 
 Faucett and Pincus. There is not a word in the agreement 
 which binds him to pay any of their old debts. A partner 
 who enters a firm already established, does not tliereby be- 
 come liable for the debts of the old firm. Nothing but an 
 express agreement will render him so liable. If it be said 
 that as to so much of the work as was done after January 
 7th, it enured to the benefit of the defendant, the answer 
 is that the fact is not so. He acquired no title to the lease- 
 hold and fixtures by reason of the agreement. They were, 
 and continued to be the property of Faucett and Pincus. 
 The clause in the agreement that "the cost of fitting up 
 the said premises, as well as all outlay for furnishing, &c., 
 shall be considered as expenses to be first deducted before 
 dividing any profits," does not render the defendant liable 
 for a debt which he never contracted. In the most favor- 
 able^ light for the plaintiff, it is but an assumption of his 
 claim so far as there may be profits out of which to pay it.
 
 HART V. KELLEY 269 
 
 He merely agrees that it may be paid out of profits before 
 his own claim for advances. This imposes no personal re- 
 sponsibility upon him. 
 
 We think this case ought to have gone to a jury. We 
 therefore reverse the judgment and award a procedendo^ 
 
 ' Compare: Poundstonc v. Hamburger, 139 Pa. 319, 1891. (B, a 
 distiller, was indebted to A. It was agreed that A should loan B a 
 further sum and that B should sell all the product of the distillery to A 
 at certain prices, and pay A one-half the profits until the loan and the 
 original indebtedness was repaid. B then sold his distillery to A, part 
 of the consideration being the cancellation of the indebtedness of B to A. 
 Held, that under the Act of April 6th, 1870, recited in the principal case, 
 A was liable to the creditors of the business to the amount of B"s indebt- 
 edness to him, which the Court held he had drawn out of the business 
 by the arrangement in regard to the purchase of the distillery; and the 
 Court, per Sterrett, J., expressed the opinion that under the agreement 
 existing prior to the sale A and B were partners.)
 
 270 PARTNER'S POWER TO BIND COPARTNER 
 
 ASH V. GQIE. 
 In the Supreme Court of Pennsylvania, i88i. 
 
 97 Pennsylvania Reports, 493. 
 
 Assumpsit, by William H. Guie to the use of J. Alfred 
 McCaughey, against Phineas A. Ash, Horace A. Beale, 
 James Mullen, executor of James C. Roberts, deceased, and 
 over one hundred others, "lately trading as Williamson 
 Lodge, No. 309, A. Y. M." 
 
 The plaintiff's demand was founded on a claim for 
 money loaned to the defendants, which was received by 
 them, and used by them in the business in which they were 
 then engaged, for which the defendants issued to the plain- 
 tiff a certificate of indebtedness. 
 
 The evidence showed the following facts : The Wil- 
 liamson Lodge of Ancient York Masons, No. 309, was an 
 unincorporated association for charitable, benevolent and 
 social purposes, the officers of which were a Worshipful 
 Master, Senior Warden, Junior Warden, Treasurer, Sec- 
 retary and a Board of three Trustees. The trustees had 
 charge of the property of the lodge, took the title to land, 
 collected the income and extra funds of the lodge, &c. The 
 lodge had a seal, which was used for authenticating certi- 
 ficates of membership, communications by the secretary 
 with other lodges, and for similar purposes. About the 
 year 1867 the lodge desired to erect a building for lodge 
 purposes. The master, at a meeting of the lodge on Sep- 
 tember 13th 1867 (without any prior resolution authoriz- 
 ing him so to do, so far as appeared in evidence), appointed 
 a committee of five, consisting of the three trustees and 
 two other members, to select a lot, procure plans for a new 
 building, &c. The temple or building was erected under 
 the direction of this committee of five. They appointed 
 their own treasurer, collected funds and issued certificates
 
 ASH V. GUIE 271 
 
 therefor, of which that in suit is one, signed by the wor- 
 shipful master, the senior and junior wardens, attested by 
 the secretary and authenticated by the seal of the lodge. 
 The committee was not specially authorized to give said 
 certificates, but it was the custom of the lodge to issue like 
 instruments whenever it borrowed moneys. Prior to the 
 use of the seal on these certificates, it had never been at- 
 tached to any pecuniary obligation. The committee re- 
 ported to the lodge from time to time, and its action was 
 approved by the lodge. 
 
 The defendants presented several points among which 
 was the following: 
 
 The defendants' a'ssociation was not such a partnership 
 as is chargeable for the acts of any members of the asso- 
 ciation, and no person who was not present at the time 
 that any of the actions bearing upon this matter were pre- 
 sented to the lodge can be held responsible in this suit.^ 
 
 The court charged the jury as follows : "The questions 
 involved in this case are questions of law. The points will 
 be reserved by the court for future consideration. We 
 direct you to render a verdict for the plaintiff for the 
 amount of his claim, and the questions raised during the 
 trial will be more fully considered hereafter." 
 
 Verdict accordingly for the plaintiff for $i6o. The 
 court subsequently entered judgment for the plaintiff on 
 the reserved points. 
 
 The defendant took this writ of error.- 
 
 Mr. Justice Trunkey:^ 
 
 One of the defendants, called by plaintiffs, testified : 
 "The full title of our lodge is Williamson Lodge, No. 309, 
 F. and A. ]M. ; F. and A. ]\I. means Free and Accepted ^Ma- 
 sons : the purposes of our lodge are charitable, benevolent 
 
 ' Only so much of the Reporters statement of the facts of the case 
 as is necessary to understand this point is reprinted. 
 
 The Reporter's notes of the arguments of counsel are omitted. 
 
 Only so much of the opinion is given as relates to the question 
 raised by the defendant's point recited in the statement of facts.
 
 272 PARTNER'S POWER TO BIND COPARTNER 
 
 and social." This is the evidence as to the objects for 
 which the association was formed, and without proof of 
 its constitution or rules respecting admission of members 
 and the management of its affairs it was held to be a com- 
 mon partnership. A partnership has been defined to be a 
 "combination by two or more persons of capital, or labor, 
 or skill, for the purpose of business for their common bene- 
 fit." It may be formed, not only for every kind of com- 
 mercial business, but for manufacturing, hunting, and the 
 like, as well as for carrying on the business of professional 
 men, mechanics, laborers, and almost all other employ- 
 ments. It would seem that there must be a community of 
 interest for business purposes. Hence, voluntary associa- 
 tions or clubs, for social and charitable purposes, and the 
 like, are not proper partnerships, nor have their members 
 the powers and responsibilities of partners: Parsons on 
 Part., 6, 36, 42. 
 
 A benevolent and social society has rarely, if ever, 
 been considered a partnership. In Lloyd v. Loaring, 6 
 Vesey, 773, the point was not made, but Lord Eldon thought 
 the bill would lie on the ground of joint ownership of the 
 personal property in the members of a Masonic lodge; there 
 was no intimation that they were partners. Where a soci- 
 ety of Odd Fellows, an association of persons for purposes 
 of mutual benevolence, erected a building, wdiich was after- 
 w^ards sold at sheriff's sale in satisfaction of mechanics' 
 liens, in distribution of the proceeds, it was said that, as 
 respects third persons, the members were partners, and that 
 lien-creditors, who were not members, were entitled to pref- 
 erence as against the liens of members : Babb v. Reed, 5 
 Rawle, 151. Had the members been called joint-tenants of 
 the real estate, the same principle in the distribution would 
 have applied. In Flemyng v. Hector, 2 M. & W. 172, Lord 
 Abinger stated the difference between a body of gentle- 
 men forming a club and meeting together for one common 
 object, and a partnership where persons engage in a com- 
 munity of profit and loss, and each partner has the right
 
 ASH V. GUIE 273 
 
 of property for the whole, and in any ordinary transac- 
 tions may bind the partnership by a credit. He held that 
 a club and its committee must stand on the ground of prin- 
 cipal and agent, and that the authority of the committee 
 depends on the constitution of the club, which is to be found 
 in its own rules. After noting the rules of the club, in the 
 case before him, he says : "It therefore appears that the 
 members in general intended to provide a fund for the 
 committee to call upon. I cannot infer that they intended 
 the committee to deal upon credit, and unless you infer 
 that that was the intention, how are the defendants bound?" 
 A mutual beneficial society partakes more of the character 
 of a club than of a trading association. Every partner is 
 agent for the partnership, and as concerns himself he is a 
 principal, and he may bind the others by contract, though 
 it be against an agreement between himself and his part- 
 ners. A joint tenant has not the same power, by virtue of 
 the relation, to bind his co-tenant. Thus, one of several 
 co-adventurers in a mine, has not, as such, any authority 
 to pledge the credit of the general body for money bor- 
 rowed for the purposes of the concern. And the fact of 
 his having the general management of the mine makes no 
 difference, in the absence of evidence from which an im- 
 plied authority for that purpose can be inferred: Ricketts 
 V. Bennett, 4 M., G. & S. 686, (56 Eng. C. L.). 
 
 Here there is no evidence to warrant an inference that 
 when a person joined the lodge he bound himself as a part- 
 ,ner in the business of purchasing real estate and erecting 
 •buildings, or as a partner, so that other members could 
 ' borrow money on his credit. The proof fails to show that 
 the officers or a committee, or any number of the members, 
 had a right to contract debts for the building of a temple, 
 which would be valid against every member from the mere 
 fact that he was a member of the lodge. But those who 
 engaged in the enterprise are liable for the debts they con- 
 tracted, and all are included in such liability who assented 
 to the undertaking, or subsequently ratified it. Those who
 
 274 PARTNER'S POWER TO BIND COPARTNER 
 
 participated in the erection of the building, by voting for 
 and advising it. are bound the same as the committee who 
 had it in charge. And so with reference to borrowing 
 money. A member who subsequently approved the erec- 
 tion or borrowing could be held on the ground of ratifica- 
 tion of the agent's acts. We are of opinion that it was 
 error to rule that all the members were liable as partners 
 in their relation to third persons in the same manner as 
 individuals associated for the purpose of carrying on a 
 trade. 
 
 This unincorporated association had a seal which the 
 officers were authorized to use for certain purposes. Some 
 of those who engaged in the business of borrowing money 
 directed it to be affixed to the certificate of indebtedness. 
 All who did, adopted it as their seal for the specific pur- 
 pose. It was not the seal of a corporation, nor intended 
 as such. The parties borrowed the money in the name of 
 the lodge, and gave the certificate in same name, and adopted 
 a common seal. They cannot repudiate it in good faith to 
 the lender. He loaned the money on a sealed instrument, 
 in many respects better than a simple contract. Those who 
 advised affixing the seal should be held the same as their 
 officers, who signed the certificate. Were the members 
 partners, without evidence of agreement between them that 
 the seal should be affixed to contracts, those not assenting 
 to its use in that way would not be bound by a sealed in- 
 strument, though given for a debt for which all were lia- 
 ble. Schmertz r. Shreeve. 12 P. F. Smith 457. The learned 
 judge was right in ruling that the certificate was a sealed 
 instrument, but not, under the evidence, in holding that it 
 was authorized by all the members. 
 
 Judgment reversed, and a venire facias de novo 
 awarded. 
 
 f
 
 BEECHER V. BUSH 275 
 
 BEECHER V. BUSH. 
 In the Supreme Court of Michigan, i88i. ,- 
 
 45 Michigan Reports, i88.' 
 
 CooLEY, J. The purpose of the action in the court 
 below was to charge Beecher as partner with WilHams for 
 a bill of supplies purchased for the Biddle House in Detroit. 
 The facts are all found by special verdict, and are few and 
 simple. Beecher was owner of the Biddle House, and Wil- 
 liams proposed in writing to "hire the use" of it from day 
 to day, and open and keep it as a hotel. Beecher accepted 
 his proposals and Williams went into the house and began 
 business, and in the course of the business made this pur- 
 chase. The proposals are set out in full in the specia4 
 verdict. 
 
 The question is whether by accepting the proposals 
 Beecher made himself a partner with Williams in the hotel 
 business ; and this is to be determined on the face of the 
 writing itself. It is conceded that Beecher was never held 
 out to the public as a partner, and that the bill of supplies 
 was purchased on the sole credit of Williams and charged 
 to him on the books of the plaintiffs below. The case, 
 therefore, is in no way embarrassed by any questions of 
 estoppel, for Beecher has done nothing and suffered noth- 
 ing to be done which can preclude him from standing upon 
 his exact legal rights as the contract fixed them. 
 
 Nor do we understand it to be claimed that the parties 
 intended to form a partnership in the hotel business, or 
 that they supposed they had done so, or that either has 
 ever claimed as against the other the rights of a partner. 
 It is perfectly clear that many things which are commonly 
 incident to a partnership, these parties meant should be 
 
 ' The Reporter's note of the argument of counsel is omitted.
 
 276 PARTNER'S POWER TO BIND COPARTNER 
 
 wholly excluded from their arrangement. Some of these 
 were of primary importance. It is plain, for example, that 
 Beecher did not understand that his credit was to be in 
 any way involved in the business, or that he was to have 
 any interest in the supplies that should be bought, or any 
 privilege to decide upon them, or any legal control whatever 
 until proceeds were to be divided, or any liability to losses 
 if losses were suffered. These are among the most com- 
 mon incidents to a partnership; and while some of them, 
 and possibly all of them, may not be necessary incidents, yet 
 the absence of all is very conclusive that the parties had no 
 purpose whatever to form a partnership, or to give to each 
 other the rights and powers, and subject each other to the 
 obligations of partners. In general this should be conclusive. 
 If parties intend no partnership the courts should give effect 
 to their intent, unless somebody has been deceived by their 
 acting or assuming to act as partners; and any such case 
 must stand upon its peculiar facts, and upon special equities. 
 
 It is nevertheless possible for parties to intend no part- 
 nership and yet to form one. If they agree upon an arrange- 
 ment which is a partnership in fact, it is of no importance 
 that they call it something else, or that they even expressly 
 declare tliat they are not to be partners. The law must de- 
 clare what is the legal import of their agreements, and names 
 go for nothing when the substance of the arrangement 
 shows them to be inapplicable. But every doubtful case 
 must be solved in favor of their intent ; otherwise we should 
 "carry the doctrine of constructive partnership so far as to 
 render it a trap to the unwary." Kent, C. J., in Post v. 
 Kimhcrly 9 Johns. 470, 504. 
 
 We have then a case in which the party it is 
 sought to charge has not held himself out, or suffered him- 
 self to be held out as a partner either to the public at large 
 or to the plaintiff, and has not intended to form that rela- 
 tion. He is not therefore a partner by estoppel nor by 
 intent; and if he is one at all, it must be by construction of 
 law.
 
 BEECHER r. BUSH 277 
 
 What then are the indicia of partnership in this case; 
 the marks which force that construction upon the court 
 irrespective of the intent of the parties; that in fact control 
 their intent, and give to the parties bringing suit rights 
 which they were not aware of when they sold the supplies ? 
 
 In the elaborate and able brief which has been pre- 
 sented in behalf of the defendants in error it is conceded 
 that the fact that Beecher was to receive each day a sum 
 "equal to one-third of the gross receipts and gross earn- 
 ings" for the day, would not necessarily make him a partner. 
 \\'hat is claimed is that the fact is "cogent evidence" that 
 Beecher was to participate in the results of the business 
 in a manner that indicated he was a principal in it, and was 
 not receiving compensation for the use of property merely. 
 The view of the law here suggested is undoubtedly correct. 
 There may be a participation in the gross returns that would 
 make the receiver a partner, and there may be one that 
 would not. The question is in what capacity is participation 
 had. Gross returns are not profits and may be large when 
 there are no profits, but it cannot be predicated of either 
 gross returns or profits that the right to participate is con- 
 clusive evidence of partnership. This is settled law both 
 in England and in this country at this tim.e, as is fully shown 
 by the authorities cited for the defendants in error. It 
 was recognized in Hinuian v. LittcU 23 Mich. 484; and in 
 New York, where the doctrine that participation in profits 
 proves partnership has been adhered to most closely, it 
 is admitted there are exceptions. Eager v. Crazvford "6 
 N. Y. 97. 
 
 But we quite agree with counsel for defendants in 
 error that no case ought to turn upon the unimportant and 
 mere verbal distinction between the statement in the papers 
 that Beecher was to have a sum "equal to" one-third of 
 the gross receipts and gross earnings, and a statement that 
 he was to have one-third of these receipts and earnings. 
 It is perfectly manifest it was intended he should have 
 one-third of them ; that they should be apportioned to him
 
 278 PARTNER'S POWER TO BIND COPARTNER 
 
 regularly and daily, and not that Williams was to appro- 
 priate the whole and pay a sum "equal to" Beecher's pro- 
 portion when it should be convenient. We can conceive of 
 cases where the difference in phraseology might be import- 
 ant, because it might give some insight into the real intent 
 and purpose of the parties, and throw light upon the ques- 
 tion whether that which was to be received, was to be re- 
 ceived as partner or only by way of compensation for some- 
 thing supplied to the other, but the intent in this case is too 
 manifest to be put aside by any mere ingenuity in the use of 
 words. Loomis v. Marshall 12 Conn. 69, 79. 
 
 In Cox V. Hickman 8 H. L. Cas. 268, 306, Lord Cran- 
 worth stated very clearly his views of what should be the 
 test of partnership. * * * 
 
 It is said, and we believe justly, in Bullcn v. Sharp 
 L. R. I C. B. 86, that the decision in Cox v. Hickman 
 brought back the law of England to what it should be, and 
 Mr. Baron Bramwell, referring to what was declared to 
 be law in Waugh v. Carver 2 H. Bl. 235, expressed the hope 
 "that this notion is overruled," adding that it is "one which 
 I believe has caused more injustice and mischief than any 
 bad law in our books." p. 128. It is certainly overruled 
 very conclusively in Great Britain. Kilshazv v. Jukes 3 B. 
 & S. 847; Shazv V. Ganlt 16 Irish C. L. R. 357; Holme v. 
 Hammond, L. R. 7 Exch. 218; Ex parte Delhasse 7 Ch. Div. 
 511. And though in New York the courts, hampered some- 
 what by early cases, have not felt themselves at liberty to 
 adopt and follow the decision in Cox v. Hickman to the full 
 extent, it would be easy to show that the American authori- 
 ties in the main are in harmony with it. Indeed that is 
 very well shown in Eastman v. Clark 53 N. H. 276, where 
 the authorities are collated. It must be admitted, however, 
 that the attempts at an application of the test to the com- 
 plicated facts of particular cases have not been productive 
 of harmonious results. A few cases may be mentioned 
 which in their facts have a resemblance, more or less strong, 
 to the one before us. 
 
 I
 
 BEECHER z: BUSH 279 
 
 Champion t'. Bostzvick i8 Wend. 175, was a case 
 where parties who were severally owners of horses and 
 stages on different parts of one stage Hne made an arrange- 
 ment that the fares received by both should be divided be- 
 tween them in proportions agreed upon. This was held 
 to constitute them partners, so that a third person injQred 
 by the carelessness of a driver employed by one might bring 
 suit for the negligence of all. But in the somewhat similar 
 case of Easfnwii z'. Clark 53 N. H. 276, the conclusion of 
 partnership or no partnership, it was said, must be drawn 
 as one of fact. "The real and ultimate question," says 
 Smith, J. (p. 289), "in all cases like the present, is one of 
 agency. Did the person sought to be charged stand in the 
 relation of principal to the person contracting the debt? 
 Participation in the profits is not decisive of that question, 
 'except so far as it is evidence of the relation of principal 
 and agent between the persons taking the profits and those 
 actually carrying on the business.' Whether such relation 
 existed is a question of fact. * * * There is no sound 
 foundation for an arbitrary rule of law requiring courts or 
 juries to regard participation in the profits as a decisive 
 test which will in all instances necessitate the conclusion 
 that the participator is liable for the debts." 
 
 In Fanners' Ins. Co. v. Ross, 29 Ohio St. 429, it ap- 
 peared that by arrangement one party furnished the ground 
 and the material for making brick, and also the fuel, and an- 
 other was at the expense of burning the brick. The brick 
 were then to be divided, the former receiving one-fourth and 
 the latter three-fourths, and the latter was also to pay the 
 former ten dollars on each one hundred thousand bricks. 
 This was held to create a partnership, and Musicr z'. Trump- 
 hour 5 Wend. 274, and Evcritt v. Chapman 6 Conn. 347, 
 were relied upon as authority. 
 
 The New York cases might support this decision, but 
 the case of Loomis v. Marshall 12 Conn. 69, can hardly be 
 considered in accord with it. The facts were these : B. had 
 a cloth factory. A. agreed with him to furnish a full supply
 
 280 PARTNER'S POWER TO BIND COPARTNER 
 
 of wool for two years. B. to devote the factory for two 
 years exclusively to manufacturing, and the net proceeds, 
 after deducting the incidental expenses and costs of sale, 
 were to be divided in the proportion of 55 per centum to 
 A. and 45 per centum to B., and the cost of manufacture 
 was to be shared in like proportion. This was held no part- 
 nership. Says Huntington. J. : "This community of profit 
 is the test to determine whether the contract be one of part- 
 nership ; and to constitute it, a partner must not only share in 
 the profits, but share in them as a principal ; for the rule is 
 now well established that a party who stipulates to receive 
 a sum of money in proportion to a given quantum of the 
 profits, as a reward for his labor, is not chargeable as a 
 partner." And of the share set off to B. he says it "is not 
 expressed in terms to be for such compensation ; but this is 
 its legal meaning." pp. yj, 79. Moore i\ Smith 19 Ala. 774; 
 Bowman v. Bailey 10 Vt. 170, and Price z'. Alexander 2 
 Greene (la.) 427, may be referred to for similar views. 
 
 Not dissimilar to Dunham v. Rogers - is the case of 
 Denny v. Cahot 6 Met. 82. which was also a case in which 
 one party supplied the raw material and another manu- 
 factured it, and was to receive one-third part of the net 
 profits. This proportion, it was found, was to be re- 
 ceived by the manufacturer only as a compensation for 
 his labor and services ; and it was held perfectly com- 
 petent to provide for making compensation by such a 
 standard without constituting a partnership. Perrine v. 
 Hankinson 11 N. J. 181, is relied upon as authority, 
 among other cases. The same doctrine was reiterated in 
 Holmes v. Old Colony R. R. Co. 5 Gray 58; Bradley v. 
 White 10 Met. 303 ; and by Day, J., in a careful opinion in 
 Harvey v. Childs 28 Ohio St. 319, already referred to. 
 
 It is needless to cite other cases. They cannot all be 
 reconciled, 1)ut enough are cited to show that in so far as 
 
 I 
 I 
 
 ^The quotation from the opinion in Dunham v. Rogers, supra, is 
 omitted. 
 
 I
 
 BEECHER V. BUSH 281 
 
 the notion ever took hold of the judicial mind that the 
 question of partnership or no partnership was to be settled 
 by arbitrary tests it was erroneous and mischievous, and 
 tlie proper corrective has been applied. Except when one 
 allows the public or individual dealers to be deceived by 
 the appearances of partnership when none exists, he is ne\=^r 
 to be charged as a partner unless by contract and with in- 
 tent he has formed a relation in which the elements of 
 partnership are to be found. And what are these? At 
 the very least the following: Community of interest in 
 some lawful commerce or business, for the conduct of which 
 the parties are mutually principals of and agents for each 
 other, with general powers within the scope of the busi- 
 ness, which powers however by agreement between the par- 
 ties themselves may be restricted at option, to the extent 
 even of making one the sole agent of the others and of the 
 business. 
 
 In this case we have the lawful commerce or business, 
 namely, the keeping of the hotel. We have also in some 
 sense a community of interest in the proceeds of the busi- 
 ness, though these are so divided that all the profits and 
 all the losses are to be received and borne by one only. But 
 where in the mutual arrangement does it appear that either 
 of the parties clothed the other with an agency to act on his 
 behalf in this business? We speak now of intent merely, 
 and not of any arbitrary implication of intent which the 
 law, according to some authorities, may raise irrespective 
 of and perhaps contrary to the intent. Could Beecher buy 
 for the business a dollar's worth of provisions? Could he 
 hire a porter or a waiter ? Could he discharge one ? Could 
 he say the house shall be kept for fastidious guests ex- 
 clusively and charges made in proportion to what they de- 
 mand, or on the other hand that the tables shall be plain 
 and cheap so as to attract a greater number? Could he 
 persist in lighting with gas if Williams chose something- 
 different, or reject oil if Williams saw fit to use it? Was 
 a servant in the house at his beck or disposal, or could he
 
 282 PARTNER'S POWER TO BIND COPARTNER 
 
 turn off a guest that Williams saw fit to receive, or receive 
 one that Williams rejected as unfit? In short, what one 
 act might he do or authority exercise, which properly per- 
 tains to the business of keeping hotel, except merely the 
 supervision of accounts, and this for the purpose of ac- 
 counting only? And how could he be principal in a busi- 
 ness over which he had absolutely no control? Nor must 
 we forget that this is not a case in which powers which 
 might otherwise be supposed to exist are taken away or 
 excluded by express stipulation; but they are powers which 
 it is plain from their contract the parties did not suppose 
 would exist, and therefore have not deemed it necessary to 
 exclude. 
 
 On the other hand what single act are we warranted 
 in inferring the parties understood Williams was to do for, 
 and as the agent of, Beecher? Not to furnish supplies 
 surely, for these it was expressly agreed should be fur- 
 nished by Williams and paid for daily. Not to contract 
 debts for water and gas bills and other running expenses, 
 for by the agreement there were to be no such debts. Nor 
 was this an agreement merely that expenses incurred for 
 both were to be met without the use of credit, but it was 
 expressly provided that they were to be the expenses of 
 one party only, and to be met by him from his own means. 
 There was to be no employment of credit, but it was the 
 credit of Williams alone that was in the minds of the 
 parties. 
 
 It is difficult to understand how the element of agency 
 could be more perfectly eliminated from their arrange- 
 ments than it actually was. Beecher furnished the use of 
 the hotel and a clerk to supervise the accounts, and received 
 for so doing one-third the gross returns. It was not under- 
 stood that he was to intermeddle in any way with the con- 
 duct of the business so long as Williams adhered to the 
 terms of his contract. If the business was managed badly 
 Beecher might be a loser, but how could he help himself? 
 He had reserved no right to correct the mistakes of Wil- 
 
 I
 
 BEECHER V. BUSH 283 
 
 liams, supply his deficiencies or overrule his judgments. He 
 did indeed agree to take and account for whatever furni- 
 ture should be brought into the house by Williams, but the 
 bringing any in was voluntary, and so far was Beecher from 
 undertaking to pay to the sellers the purchase price, that 
 on the contrary the value was to be ofifset against the de- 
 terioration of that which Beecher supplied; and it was quite 
 possible that, as between himself and Williams, there might 
 be nothing to pay. And while Williams was not compella- 
 ble to put any in, Beecher, on the other hand, had no au- 
 thority to put any in at the cost of Williams. 
 
 It is plain, therefore, that if there is any agency in this 
 case for Beecher to act for Williams, or Williams to act for 
 Beecher, it is an agency implied by law, not only without 
 having expressed a purpose that an agency shall exist, but 
 in spite of their plain intent that none shall exist. If there- 
 fore we shall say that agency of each to act for the other, 
 or agency of one to act for both in the common business, 
 is to be the test of partnership, or to be one of the tests, 
 but that the law may imply the agency irrespective of the 
 intent, and then imply the partnership from the agency, we 
 see at once that the test disappears from all our calcula- 
 tions. To imply something in order that that something 
 may be the foundation whereupon to erect an implication 
 of something else is a mere absurdity. The test of part- 
 nership must be found in the intent of the parties them- 
 selves. They may say they intend none when their con- 
 tract plainly shows the contrary ; and in that case the in- 
 tent shall control the contradictory assertion; but here the 
 intent is plain. 
 
 We have not overlooked any one of the circumstances 
 which on the argument were pointed out as peculiar to this 
 case. None of them is inconsistent with the intent tliat 
 Beecher was to be paid for the use of his building and fur- 
 niture merely. He retained possession; but a reason for 
 this appears in the power he reserved to terminate the ar- 
 rangement whenever the contract was broken by Williams.
 
 284 PARTNER'S POWER TO BIND COPARTNER 
 
 Being in possession he might suppose he could eject Wil- 
 hams without suit. He might also think it important to 
 the reputation of the hotel that no landlord should be in 
 debt for supplies or for servants' wages ; and for that rea- 
 son require cash payments. It is easy to see that as lessor 
 he might have had an interest in all the stipulations to 
 which Williams' assent was required. 
 
 There is another view of this case that seems to us 
 conclusive. It is urged on behalf of defendants in error 
 that Beecher was a dormant partner. Now a dormant part- 
 ner is a secret partner; one who becomes such by a secret 
 arrangement, while his associate is held out to the world as 
 sole proprietor and manager of the business. Was this 
 the case here ? Nothing in the record indicates it. Beecher 
 was in possession of the hotel, and we must suppose had 
 his clerk there. These were facts open and patent to the 
 whole world who had occasion to go there or to deal with 
 Williams. They naturally suggested the inquiry what was 
 the arrangement between the parties ; and there is nothing 
 in the case to indicate that plaintiff in error would not have 
 learned all the details of the arrangement had they made 
 the necessary inquiries. There is no indication anywhere 
 of intended secrecy. If, therefore, there was any partner- 
 ship at all, it existed because the contract and the open and 
 public conduct of business under it created one, and the 
 right of the defendants in error to recover must depend 
 upon whether they had a right, with the contract before 
 them, to understand that they were furnishing supplies on 
 the credit of Beecher? Would they have had this right? 
 If so, no interference of Beecher, and no notice to them 
 not to sell to Williams relying on Beecher's credit, would 
 have been of the least avail. If he had said to them, "Gen- 
 tlemen, by our contract Mr. Williams furnishes all the sup- 
 plies; I do not and cannot control in respect to quality, 
 quantity or cost; he alone, by our understanding, is to pay 
 for them, and I forbid you to sell on my credit;" it would 
 all have been useless. On their view of the case he was 
 
 I
 
 BEECHER V. BUSH 285 
 
 bound by an iron rule of the law, from which it would 
 have been impossible to rescue his credit until the arrange- 
 ment with Williams should in some manner be terminated. 
 And this would have been the case also even if the arrange- 
 ment with Williams had been a secret one, and Beecher 
 had attempted to protect himself by disclosing its terms. 
 This is as much as to say that parties are not at liberty to 
 contract as they please, even when they propose nothing 
 wrong and do nothing unfair to any one. But we cannot 
 bring our minds to this result. 
 
 Our conclusion is that Beecher and Williams, having 
 never intended to constitute a partnership, are not as be- 
 tween themselves partners. There was to be no common 
 property, no agency of either to act for the other or for 
 both, no participation in profits, no sharing of losses. If 
 either had failed to perform his part of the agreement, the 
 remedy of the other would have been a suit at law, and not 
 a bill for an accounting in equity. If either had died, the 
 obligations he had assumed would have continued against 
 his representatives. We also think there can be no such 
 thing as a partnership as to third persons when as between 
 the parties themselves there is no partnership and the third 
 persons have not been misled by concealment of facts or 
 by deceptive appearances. 
 
 The judgment must be reversed wuth costs and a new 
 trial ordered. 
 
 The other Justices concurred.^ 
 
 '^Compare: Smith v. Knight, ~i 111. 148, 1873. (A was a commission 
 merchant, who apparently sold on time, and cashed the sales for his 
 principals. To obtain the money necessary to carry on the business in 
 this way, he made an agreement with B, by which B lent A the money 
 he should need up to a certain sum, and A paid B 10 per cent, interest 
 on the average balance advanced, and one-half his, A's, commissions 
 after B had deducted a certain sum for office expenses. A also assigned 
 his "books, accounts, drafts or claims" which he had or would have for 
 advances on sales or commissions to B, B having authority to collect or 
 compromise the same; out of the proceeds B paid himself the cost of 
 collection and his, B's, share of the commissions and gave the overplus 
 to A. Held, that this agreement did not make B a partner of A as to 
 third persons.) 
 
 Harvey v. Childs, 28 O. St. 319, 1876. (A ordered hogs, but had not
 
 286 PARTNER'S POWER TO BIND COPARTNER 
 
 the money to pay for them. A agreed with B, that B would loan A the 
 money, B to have possession of the hogs, as security, sell and retain half 
 the profits. If there was any loss, A would repay. Held, A and B were 
 not partners ; that A was a mere lender and bailee, and that D, who sold 
 the hogs to B, could not recover the price from B.) Accord: Johnson 
 V. Miller, i6 O. 431, 1847. 
 
 Kellogg Neivspaper Co. v. Farrcll, 88 Mo. 594, 1886. (A, an owner of 
 a newspaper, leased it to B, who was to run the paper "as if owner," 
 pay all expenses and divide half the net profits. A was allowed to sell 
 half the business, and in such case he. A, was to lease the other half to 
 B. A reserved the right to control the "general and political policy of 
 the paper." C, who supplied B with materials used in conducting the 
 paper, sued A as partner. The trial Judge refused to instruct the jury 
 that the agreement made A and B partners as to third persons. Judg- 
 ment for the defendant affirmed, the Appellate Court declaring that the 
 trial Judge "would have been justified in instructing the jury that the 
 plaintiff could not recover.") 
 
 Meehan v. P'alentine, 145 U. S. 611, 1892. (C sued A as B's partner. 
 He proved an agreement between A and B in which A agreed to loan 
 B $10,000. and B agreed to pay A interest and one-tenth of the profits 
 over $10,000; that the agreement was for one year; that A had loaned 
 the money and that the agreement was renewed from year to year. A 
 obtained a non-suit. Judgment affirmed.) 
 
 Thillman v. Benton. 82 Md. 64, 1895. (A agreed to lend, and did 
 lend, $2,000 to B and C for their business ; B to act as manager of the 
 business and draw out $15 per week. At the end of the year B and C 
 were to pay A $2,000 and an amount equal to one-third of the profits. 
 Held, that the agreement did not make A a partner of B and C.) 
 
 Bradley v. Ely, 24 Ind. App. 2, 1900. (A. an owner of a farm, leased 
 it to B, B agreeing to pay for one-third of the personalty on the farm. 
 At the end of the association the personalty was to be sold. B was to 
 manage the farm and to plant such crops and sell at such price as A and 
 B should mutually agree upon- two-thirds of the profits to go to A and 
 one-third to B. B executed a note to C for money to pay off an indebt- 
 edness incurred in running the farm. C sued A and B as partners. 
 Judgment for C. A's motion for a new trial, on the groound that the 
 agreement was not sufficient evidence of partnership to go to the jury, 
 granted on appeal.) 
 
 Estabrook v. Woods, 192 Mass. 499. 1906. (Under an agreement 
 between A and B, A gave B $200 and procured for B a stock of cigars. 
 B was to return the money and price of the goods at all events. B also 
 gave A a chattel mortgage on all the goods in his, B's, cigar store, agreed 
 to devote his time to the store, ?nd from the proceeds to pay, first, the 
 expenses ; second, interest due A ; third, $20 per week for his, B's, own 
 use; fourth, one-half of the balance to A. A was sued as a partner of 
 B. Judgment for plaintiff reversed on appeal.) 
 
 It is suggested that the student discuss in connection with the fore- 
 going cases the following: 
 
 State National Bank of Springfield v. Butler, 149 111. 573, 1894. (A 
 owned and operated a mine. A sold a one- fourth interest in the mine 
 to B for $13,000, A reserving the right to a royalty on all coal mined; 
 the right to control the operation of the mine, and agreed to account to 
 B each month for one-fourth of the profits. Held, that the agreement 
 made A and B partners as to third persons in the operation of the mine.) 
 
 Merrall v. Dobbins. 169 Pa. 480, 1895. (The parties submitted the 
 following "case stated" to the Court: By an agreement in writing, D 
 leased a hotel with all the personal property on the premises for three 
 months to G for $20,000. payable in four equal installments. D was rot 
 to be liable for the business done, or for the debts contracted by G. 
 The a'-Tcement designated by the parties as a lease further provided
 
 BEECHER V. BUSH 287 
 
 (i) that G shall give his undivided attention and devote his best energies 
 to the promotion of the business to be done on the said premises ; (2) 
 that D or his representatives shall have the right of free access to the 
 premises at all times; (3) that in addition to the sum of $20,000 D shall 
 have 80 per cent, of the net profits derived from all of the business 
 done on the premises ; (4) that in addition to the current expenses of 
 the hotel and the business done therein there shall be charged to the 
 expense account the cost of insurance, water and :ewer rents, license 
 fee. interior repairs, and the salary of a person to be designated by D, 
 who shall keep the books and act as cashier, receive all money, deposit 
 it in his own name, and make all payments; (5) that at the termination 
 of the agreement a statement shall be made of the business done, and 
 that G_ shall receive 20 per cent, of the net profits; (6) that at the 
 expiration of the lease D shall pay to G $1,000, and that D shall have 
 the right at any time upon twenty-four hours' notice to annul the agree- 
 ment and assume sole and exclusive possession of the property; (7) 
 that G shall have absolute control and management of the business 
 during the continuance of the agreement, and assent to a transfer of the 
 license if the agreement shall be annulled. Held, that the agreement 
 constituted a partnership between D and G. as to third parties, and that 
 D was liable for debts contracted by G in the conduct of the business.)
 
 288 PARTNER'S POWER TO BIND COPARTNER 
 
 HACKETT V. STANLEY. 
 In the Court of Appeals of New York, 1889. 
 
 115 New York Appeal; Reports, 625. 
 
 Appeal by defendant Stanley from a judgment of the 
 General Term of the Court of Common Pleas of the city 
 and county of New York, entered upon an order made 
 April 4, 1887, which affirmed a judgment of the General 
 Term of the City Court affirming a judgment in favor of 
 plaintiffs, entered upon a decision of the court on trial with- 
 out a jury. 
 
 This action was brought against defendants, as al- 
 leged copartners, for materials and labor in fitting up the 
 premises used in the firm business. 
 
 The facts, so far as material, are stated in the opinion.^ 
 
 Ruger, Ch. J. The determination of this case involves 
 the construction of an agreement between James Stanley 
 and Moulton W. Gorham, and the question whether such 
 agreement constituted the defendant Stanley a partner as 
 to third persons with Gorham. If it did, then the judg- 
 ment must be sustained. 
 
 The liability of the alleged partners is predicated upon 
 a debt for services rendered and materials furnished by 
 the plaintiffs, upon the request of Gorham, in fitting up a 
 place in New York to carry on the business of heating, 
 ventilating, etc. 
 
 The part of the agreement which, it is claimed, cre- 
 ates the partnership, reads as follows : "That for and in 
 consideration of the loan of seven hundred and fifty ($750) 
 dollars from the said party of the second part to the said 
 
 ^ The Reporter's notes of the arguments of counsel are omitted.
 
 HACKETT V. STANLEY 289 
 
 party of the first part, for use in the business of heating, 
 ventilating, etc., for which said party of the first part has 
 given unto said party of the second part his note at two 
 years, with interest, bearing date of January 14, 1885, pay- 
 ment of which is secured by an assignment of said value in 
 a certain $3,000 policy in the Massachusetts Mutual Life 
 Insurance Company, and also by a certain chattel mort- 
 gage, bearing date January 27,, 1885, and in further con^ 
 sidcration of services of said party of second part in secur- 
 ing sales in said husiness and for any further moneys he 
 max, at his ozvn option, advance for use in said husiness, 
 the said party of the first part agrees to divide equally the 
 yearly net profits of said business. It is understood and 
 agreed that said loan of seven hundred and fifty dollars is 
 expressly for use in said business and for no other use 
 whatever." It was further provided that advances made 
 by either party in the business were at all times subject to 
 be withdrawn at the option of the party making them, and 
 were to bear interest while used in the business. Gorham 
 was to be allowed $1,000 per annum for his services in 
 managing the business, and quarterly statements of its con- 
 dition were to be made by him to Stanley. 
 
 It is fairly to be implied from the contract that Gor- 
 ham was to be the active man in the business, and it was 
 to be carried on in his name; but whether he was to fur- 
 nish any capital, and if so, how much, is not disclosed. 
 For aught that appears the money furnished by Stanley 
 was all that was supposed to be necessary, to start and 
 carry on the business until returns were realized from its 
 prosecution. 
 
 This agreement does not, in express terms, purport to 
 form a partnership ; neither is the intention to do so dis- 
 claimed, and the question is, therefore, whether, in a busi- 
 ness carried on under the conditions provided for in the 
 contract, the parties thereto became partners as to third 
 persons. It clearly provides for something more than a
 
 290 PARTNER'S POWER TO BIND COPARTNER 
 
 loan of money, as it is fairly to be implied from it, tliat 
 Stanley would render active services as a principal in the 
 prosecution of the business, and furnish further financial 
 vAd therefor if it became necessary, and he deemed it advis- 
 able to do so. The loan was not one made to Gorham 
 generally, but was for the benefit of the particular busi- 
 ness in whose prosecution Stanley had an equal interest, 
 and any diversion of the funds from such use was strictly 
 X^rohibited. Each party was authorized to charge the busi- 
 ness with interest on the funds advanced by him for its 
 prosecution, and they would each be entitled to pro rata re- 
 imbursement of such funds from the assets of the business 
 in case of a deficiency of funds to pay the advances in full. 
 In that respect it was evidently contemplated that each 
 party should bear any loss incurred in proportion to the 
 advances made by them respectively. For all this Stanley 
 was to receive one-half the net profits of the business. His 
 right to profits would not cease upon the repayment of the 
 original loan, or depend upon the value of the services ren- 
 dered or moneys advanced, or either of them alone, but 
 was to continue as long as the business was carried on. 
 The letter of the contract is that, in consideration of the 
 loatn of $750, payable in two years, and the further con- 
 sideration of services in securing sales in said business, 
 and further moneys furnished, the net profits are to be di- 
 vided. The services promised, and the moneys advanced 
 and to be advanced, each and all constituted the considera- 
 tion for the division of the profits. 
 
 We think such an agreement, within all authorities, 
 constitutes a partnership as to third parties. By it Stan- 
 ley had an interest in the general business of the concern; 
 a right to require a quarterly account of its transactions; 
 authority to make contracts in its behalf, and an irrevoca- 
 ble right to demand one-half of the profits of the business. 
 That the original loan of $750 was secured to be repaid 
 by Gorham to Stanley does not preclude the conclusion
 
 HACKETT V. STANLEY 291 
 
 that they were partners, for it is entirely competent for 
 one partner to guarantee another against loss, in whole or 
 in part, in a partnership business, if the parties so agree. 
 
 The application of the rule that "participation in 
 profits" renders their recipient a partner in the business 
 from which profits are derived, as to third persons, has 
 been somewhat restricted by modern decisions, but we think 
 that the division of profits must still be considered the 
 most important element in all contracts by which the true 
 relation of parties to a business is to be determined. We 
 think this rule is founded in strict justice and sound policy. 
 There can be no injustice in imposing upon those who con- 
 tract to receive the fruits of an adventure, a liability for 
 credits contracted in its aid, and which are essential to its 
 successful conduct and prosecution. This liability does 
 not, and ought not, to depend upon the intention of the 
 parties in making their contract to shield themselves from 
 liability; but upon the ground that it is against public pol- 
 icy to permit persons to prosecute an enterprise which, 
 however successful it may for a time appear to be, is sure 
 in the end to result in advantage to its secret promoters 
 alone, and the ruin and disaster of its creditors and others 
 connected with it. (AtJicrton v. Tilton, 44 X. H. 452; 
 Chase v. Barrett, 4 Paige, 159.) Expected profits being 
 the motive which induces the prosecution of all commer- 
 cial and business enterprises, their accumulation and re- 
 tention in business is essential to their success; and if per- 
 sons are permitted, by secret agreement, to appropriate 
 them to their own use and throw the liabilities incurred 
 in producing them upon those who receive only a portion 
 of the benefits, not only is a door opened to the perpetra- 
 tion of frauds, but such frauds are rendered inevitable. 
 
 Exceptions to the rule are, however, found in cases 
 where a share in profits is contracted to be paid, as a meas- 
 ure of compensation to employes for services rendered 
 in the business, or for the use of monevs loaned in aid of
 
 292 PARTNER'S POWER TO BIND COPARTNER 
 
 the enterprise ; but when the agreement extends beyond 
 this and provides for a proprietary interest in the profits 
 as a compensation for money advanced and time and serv- 
 ices bestowed, as a principal in its prosecution, we think 
 that the rule still requires such party to be held as a partner. 
 
 The rule laid down in Kent's Commentaries (vol. 3, 
 25), that "the test of partnership is a community of profit; 
 a specific interest in the profits, as profits, in contradistinc- 
 tion to a stipulated portion of the profits as a compensa- 
 tion for services," was approved by this court in Lcggctt v. 
 Hyde (58 N. Y. 2^2), in which case Judge Folger says: 
 "The courts of this state have always adhered to this doc- 
 trine and applied or recognized it in the cases coming be- 
 fore them." After citing numerous cases in support of 
 the statement, he proceeds : "There have been from time 
 to time certain exceptions established to this rule in a broad 
 statement of it, but the decisions by which these exceptions 
 have been set up still recognize the rule that, where one is 
 interested in profits, as such, he is a partner as to third 
 persons. These exceptions deal with the case of an agent, 
 servant, factor, broker or employe, who, with no interest 
 in the capital or business, is to be remunerated for his serv- 
 ices by a compensation from the profits, or by a compen- 
 sation measured by the profits." The learned judge, after 
 referring to the English cases claimed to have qualified, 
 if not overruled, the cases of Grace v. Smith (2 W. Black, 
 998), and IVaugh v. Carver (2 H. Bl. 235), which were 
 the foundation of the doctrine that a participation in profits 
 renders those receiving them partners, says that "without 
 discussing those decisions and determining just how far 
 they reach, it is sufficient to say that they are not controlling 
 here, that the rule remains in this state as it has long been, 
 and that we should be governed by it until here, as in Eng- 
 land, the legislature shall see fit to abrogate it." 
 
 The same remark may also be applied to the cases of 
 Harvey v. Childs (28 Ohio St. 319); Hart v. Kellcy (83
 
 HACKETT V. STANLEY 293 
 
 Penn. 286) ; Beechcr v. Bitsh (45 Mich. 188) ; Eastman 
 V. Clark (53 N. H. 276) ; Emmons v. West field (97 Mass. 
 230), decided in the courts of our sister states, in which 
 the distinction between contracts of partnership inter scse 
 and those making the parties partners as to third persons, 
 although not so as between themselves, is sought to be 
 practically abolished. 
 
 The doctrine that persons may be partners as to third 
 persons, although not so as between themselves, and al- 
 though the contract of partnership contains express provi- 
 sions repudiating such a relation, has been too firmly estab- 
 lished in this state, by repeated decisions, to be now dis- 
 regarded by its courts. (See cases cited in Leggett v. 
 Hyde.) 
 
 It is claimed that this doctrine has been practically 
 overruled in this state by the decisions, in this court, of 
 Richardson v. Hughitt (76 N. Y. 55); Burnett v. Snyder 
 (Id. 344) ; Eager v. Crazvford (Id. 97) ; Curry v. Fozvler 
 (87 id. 33) and Cassidy v. Hall (97 id. 159). 
 
 We do not think these cases had the effect claimed. 
 They were all cases distinguished by peculiar circumstances 
 taking them out of the operation of the general rule. It 
 cannot be disputed but that a loan may be made to a part- 
 nership firm on conditions by which the lenders may secure 
 a limited or qualified interest in certain profits of the firm 
 without making them partners in its general business, but 
 that is not this case. 
 
 In Richardson v. Hughitt (supra), Bench Bros. & Co. 
 were a manufacturing firm, carrying on the business of 
 making wagons, and Hughitt contracted to advance to them 
 $50 on each wagon manufactured by them and delivered 
 to him, to the extent of two hundred wagons, under an 
 agreement that upon the sale of the wagons he was to re- 
 ceive back the moneys advanced, with interest, and one- 
 fourth of the net profits on such wagons. It was held tl:at 
 this was a mere loan of money i)roviding for an interest 
 in the profits as a compensation for the money loaned.
 
 294 PARTNER'S POWER TO BIND COPARTNER 
 
 The lender secured no interest in the general business 
 of the firm or interest in the profits made therein, and did 
 not become liable for its debts. It is quite clear that if 
 such a contract had been made after the wagons were fin- 
 ished, it would have created simply a pledge of property 
 for the payment of a debt, competent for the parties to 
 make and which would not have made the pledgee a part- 
 ner. The fact that the contract was executory would not 
 alter the real nature of the transaction, or affect the rela- 
 tions of the parties to third persons. 
 
 The case of Eager v. Craivford (supra) was a pure 
 loan of money with an agreement that the borrower should 
 pay to the lender on the first day of each month one-half 
 of the gross receipts of the business carried on by him until 
 the whole sum, with interest, was repaid. The dispute in 
 the case was upon the question whether the stipulation for 
 one-half the gross receipts was intended to refer to profits. 
 The question submitted to the jury, the evidence being 
 conflicting, was whether it was "the real understanding be- 
 tween the parties that Crawford should participate in the 
 profits, as such; if it was, it would constitute a partner- 
 ship," otherwise not. This court approved the charge. 
 
 In Burnett v. Snyder (supra), two of the members of 
 an existing firm, composed of five persons, agreed with 
 Snyder, for a good consideration, that if he would become 
 liable to them for one-third of the losses sustained by 
 them in the business of their firm, they would pay to him 
 one-third of the profits received by them in such business. 
 For obvious reasons it was held that Snyder, under this 
 agreement, took no interest in the general business of the 
 firm, and did not become a member thereof. 
 
 In Curry v. Fozvler (supra) W. G. and J. E. McCor- 
 mick were an existing firm owning certain vacant real es- 
 tate in New York, which the}^ desired to improve. To 
 enable them to do so Fowler loaned $50,000 to them, tak- 
 ing as security therefor a mortgage upon the land, with an 
 agreement that he should be repaid his loan and interest,
 
 HACKETT V. STANLEY 295 
 
 with one-half of the profits of the adventure, which the 
 McCormicks guaranteed should amount to $12,500. This 
 case was decided upon the authority of RicJiardson v. 
 Hiighitt and was said to resemble it in all essential particu- 
 lars. 
 
 In Cassidy et al. v. Hall (supra), it was held that the 
 defendants were mere lenders of money to an existing cor- 
 poration. The opinion states that "under the agreement 
 the advances were to be made only upon such orders as the 
 defendants approved, and the most that can be claimed 
 from it is that the defendants were the financial agents of 
 the company to make advances and discount their paper 
 for the purpose of relieving the company from the finan- 
 cial embarrassment under which it was evidently labor- 
 ing, for which they, the defendants, were to receive a pro- 
 portion of the face of the orders, upon which the advances 
 were made, as a compensation for the risks they incurred 
 and for the use of the money advanced by them. They 
 were not generally interested in the affairs of the com- 
 pany; but only for a special and specific purpose, and in 
 no sense were they partners." 
 
 It cannot reasonably be claimed that either of these 
 cases is an authority for the reversal of this judgment. 
 Whatever might have been their bearing if they related 
 to the loan of money alone, we will not say; but when con- 
 nected with the circumstance that the defendant was ex- 
 pected to render future services as a principal and furnish 
 further financial aid, with a certain supervision over the 
 conduct of the business, we think this case is clearly dis- 
 tinguishable from those cited. 
 
 In the view taken of this case, it is quite immaterial 
 whether the plaintifif extended the credit to Gorham alone 
 or not, as the defendant was held liable upon the ground 
 that as to third persons he was a partner, and it did not 
 afifect that liability, whether the plaintiff knew the fact or 
 not.
 
 296 
 
 PARTNER'S POWER TO BIND COPARTNER 
 
 The exception to the ruhng of the court sustaining the 
 objection to the question put to plaintiff on cross-examina- 
 tion, as to whom the credit was furnished, was not well 
 taken, as the fact sought to be proved was immaterial. 
 
 The judgment should, therefore, be affirmed. 
 
 All concur. 
 
 Judgment affirmed. 
 
 i
 
 MUIR V. CITY OF GLASGOW BANK 297 
 
 MUIR V. CITY OF GLASGOW BANK. 
 In the House of Lords, 1879. 
 
 Law Reports, 4 Appeal Cases, 22i7- 
 
 William Muir, William Thompson, et al., trustees for 
 Mrs. Syme and Mrs. Boyd, accepted as part of the trust 
 estate, stock in a Scotch banking company. By the deed of 
 co-partnership, there was to be no limit whatever to the 
 shareholders' liability. They signed the deed of transfer 
 "as trust disponees," and accepted the stock "as trust dis- 
 ponees aforesaid, subject to the articles and regulations of 
 the said company in the same manner as if they had sub- 
 scribed the contract of co-partnership." Their names and 
 addresses were entered in the stock ledger (the register of 
 shareholders), followed by the words "as trust disponees" 
 for Mrs. Syme and ]\Irs. Boyd. The individual names of 
 William Muir, William Thompson, ct al. did not appean* 
 in any list of shareholders issued to the public. 
 
 The bank suspended payment with immense liability. 
 The liquidators placed William Muir, William Thomp- 
 son, et al. on the first part of their list of contributories as 
 liable to calls "in their own right." A petition was filed by 
 William Muir, William Thompson, et al. to rectify 
 the list of contributories, by transferring the names of the 
 petitioners from the first part to that part entitled "second 
 part — contributories as being representatives of others." 
 
 The Court of Sessions unanimously held that the trus- 
 tees were personally liable to pay all calls made in respect 
 to the shares they held. [Court Sess. Cas., 4th Series, vol. 
 vi, p. 392; Scot. Law Rep., vol. xvi, p. 147.] 
 
 From this decision the trustees appealed.^ 
 
 ' The facts are restated, and the Reporter's notes of th^ arguments 
 of counsel are omitted.
 
 298 PARTNER'S POWER TO BIND COPARTNER 
 
 Lord Penzance : The question involved in this appeal, 
 though one of the deepest interest to the parties concerned, 
 does not depend for its solution upon any very numerous 
 or intricate considerations. 
 
 It is not to be denied that the appellants, on the face of 
 the transfer deed into which they entered with the bank- 
 ing company and whereby they became shareholders in it, 
 announced in express terms that they did so "as trust dis- 
 ponees" for other people. 
 
 The question is, whether the statement of this fact has 
 in any degree exonerated them from the obligations which 
 attached to the character and position of shareholders which 
 it was the object of that deed to confer upon them. 
 
 Speaking generally, there might no doubt arise an in- 
 ference (if not rebutted by other circumstances) that a 
 person who derived no benefit himself, and who acted 
 only for the benefit of others, in contracts or en- 
 gagements of any kind into which he might enter, 
 would not intend thereby to expose himself to per- 
 =pnal liability if it could be avoided. A general considera- 
 tion of this character has, I think, largely pervaded the 
 reasoning upon which the exemption of the appellants from 
 personal liability has been based and enforced in argument. 
 
 But meanwhile it will not be doubted that a person 
 who, in his capacity of trustee or executor, might choose 
 to carry on a trade for the benefit of those beneficially in- 
 terested in the estate, in the course of which trade debts to 
 third persons arose, could not avoid liability on those debts 
 by merely shewing that they arose out of matters in which 
 he acted in the capacity of trustee or executor only, even 
 tliough he should be able to shew, in addition, that the 
 creditors of the concern knew all along the capacity in 
 which he acted. 
 
 The case of an agent who acts for others is, of course, 
 entirely different. His contracts are the contracts of his 
 principal; and the liabilities from which, as a general rule,
 
 MUIR z: CITY OF GLASGOW BANK 299 
 
 he is personally exempt, fall upon his principal who acted 
 through him. 
 
 But to exonerate a trustee something more is necessary 
 beyond the knowledge of those who deal with him that he is 
 acting in that capacity, and it would not be sufficient in all 
 cases to state that fact on the face of any contracts he may 
 make. To exonerate him it would be necessary to shew 
 that upon a proper interpretation of any contract he had 
 made, viewed as a whole — in its language, its incidents, and 
 its subject-matter — the intention of the parties to that con- 
 tract was apparent that his personal liability should be 
 excluded; and that although he was a contracting party to 
 the obligation the creditors should look to the trust estate 
 alone. 
 
 These propositions are, I conceive, conformable to the 
 law of Scotland, equally with that of this country. 
 
 It is not enough, then, in the present case, to shew that 
 the appellants on the face of the transfer deed accepted 
 the "stock" in question "as trustee disponees;" but they must 
 go on to shew that the proper construction of that instru- 
 ment shewed the intention of the parties to be that, being 
 trustees, they should not be personally liable. 
 
 It becomes, then, material to inquire what was the 
 nature of the partnership whose "stock" they agreed to 
 accept, and in whose business they agreed to become part- 
 ners — and how far the nature of that "stock," and the con- 
 stitution of that partnership, is consistent with the exemp- 
 tion which they now claim. 
 
 Having thus become shareholders in a partnership the 
 members of which have by their deed of partnership agreed 
 to stand upon an equal footing, one with the other entitled 
 equally to the profits, and bound equally to the losses, — the 
 question is raised whether, by stating in their deed of trans- 
 fer that they so became shareholders as trust disponees for 
 other persons, the appellants have altered or limited the
 
 300 PARTNER'S POWER TO BIND COPARTNER 
 
 obligations that otherwise would attach to them. In my 
 opinion they have not. 
 
 There are many contracts in respect of which if a man 
 were to state, in contracting", that he only did so as trustee, 
 it is quite conceivable that his contract might be construed 
 as not being intended to bind himself personally. The case 
 of Gordon v. Campbell [i Bell's App., 428] offers an 
 example of such a construction. 
 
 Other cases may be easily imagined in which on the 
 one hand the intention to restrict the liability of the person 
 contracting may be clearly inferred from the character in 
 which he declared that he contracted, taken in connection 
 with the other circumstances of the case, and in which, on 
 the other hand, nothing is to be found inconsistent with that 
 restriction in the subject-matter of the contract. 
 
 But in this case the subject-matter of the contract was 
 the "stock" of an association whose shares were, by the 
 very terms of its constitution, to be held only by persons 
 who were all to be personally, and equally, liable to its obli- 
 gations — and it cannot be held that the liabilities in respect 
 of this "stock" were intended to be restricted by the words 
 "as trust disponees" without ignoring the very nature and 
 inseparable incidents of the thing which formed the sub- 
 ject-matter of the contract. 
 
 In a word, it comes to this: — Such a thing as a share 
 in this association, with a limited liability in the holder of 
 it, did not exist — no such share or "stock" had ever been 
 created — no provision is made for it in the partnership deed, 
 and every provision to be there found which speaks of the 
 liability of those who hold the shares is diametrically and in 
 the most express language opposed to it. If, then, the ap- 
 pellants did not become bound to the liabilities attaching 
 to ordinary shares, and ordinary shareholders, they did 
 not become bound at all, and the contract of transfer would 
 be void. 
 
 But before your Lordships can arrive at such a con- 
 
 I
 
 MUIR V. CITY OF GLASGOW BANK 301 
 
 elusion you must, I think, be at least satisfied that the words 
 "as trust disponees," in this particular deed, so clearly im- 
 ported an intention not to undertake the obligations of 
 shareholders (though the entire contract might thereby be 
 rendered contradictory and absurd) that they could have 
 been introduced for no other purpose. For if a reasonable 
 interpretation can be assigned to these words, which would 
 permit the deed to stand as a consistent one competent to 
 effect that transfer of stock which it was the obvious inten- 
 tion of the parties to bring about, your Lordships would be 
 bound to accept that interpretation. 
 
 Such a reasonable interpretation was suggested in the 
 case of Lumsdcn v. Buchanan [Court Sess. Cas. 3rd Series, 
 vol. ii, p. 695, and vol. iii, (H. L.) p. 89; 4 Macq. 950], 
 and is referred to by the Lord President in his judgment 
 in the present case. His Lordship says : "Hence arose the 
 practice referred to in Lumsdcn v. Buchanan of taking- 
 notice of trusts in the transference and registration of such 
 stocks, not for the purpose of altering the liability of the 
 liolders of such stock as compared with the other holders of 
 stock in the same company, but only for the purpose of 
 marking the stock as the property of the particular trust 
 named in the transference and in the register." [Scottish 
 Law Reporter, vol. xvi, p. 147; Court Sess. Cas., 4th Series, 
 vol. vi, p. 400.] 
 
 The whole question then is, as it seems to me, one of 
 construction as to the proper interpretation to be put upon 
 this transfer deed and the acts of the appellants under it, 
 and for the solution of that question your Lordships have 
 before you these two alternatives — on the one hand a con- 
 struction which gives a reasonable and efficient meaning to 
 the words "as trust disponees" and is not inconsistent with 
 that transference and acceptance of "stock" which was the 
 sole object of the instrument — and on the other hand a 
 construction which defeats the intended transfer of stock 
 altogether, and reduces the deed of transfer to a nullity.
 
 302 PARTNER'S POWER TO BIND COPARTNER 
 
 According to all known principles of construction, your 
 Lordships are, I apprehend, bound to accept the construc- 
 tion which gives effect to the instrument. 
 
 I have offered these remarks to the House upon the 
 footing of the matter being "res Integra," but in truth the 
 present case is, in my opinion, governed in principle by the 
 case of Lnvisdcn v. Buchanan. 
 
 What the principle involved in that decision was, is, I 
 think, rightly appreciated and declared by the learned Judges 
 in the Court of Sessions. 
 
 The Lord President said the rule of liability then estab- 
 lished might be stated in a single sentence, as follows : "Per- 
 sons becoming partners of a joint stock company such as the 
 Western Bank, and being registered as such, cannot es- 
 cape from the full liabilities of partners, either in a ques- 
 tion with creditors of the company, or in the way of relief 
 to their co-partners, by reason of the fact that they hold 
 their stock in trust for others, and are described as trustees 
 in the register of partners, and the other books and papers 
 of the company." And Lord Deas said that the grounds 
 of decision in Liunsden v. Buchanan "resolved themselves 
 into this, that where trustees join in a contract of partner- 
 ship for trading purposes, such as a contract for carrying 
 on the business of banking, the mere designation of them as 
 being trustees will not exempt them from the same personal 
 liability as is undertaken by the other partners, or limit 
 their liability to the value of the trust estate." 
 
 [Earl Cairns, L. C, and Lords Platherley, O'Hagan, 
 Selborne and Blackburn being of the same opinion, on 
 motion of the Lord Chancellor the appeal was dismissed with 
 costs. ] ^ 
 
 ' The opinions of the other learned Lords are omitted.
 
 WILD V. DAVENPORT 303 
 
 WILD V. DAVENPORT. 
 
 In the Court of Errors and Appeals of New 
 Jersey,, 1886. 
 
 48 New Jersey Laiv Reports, 129. 
 
 On a writ of error to Somerset Circuit. 
 
 James S. Davenport, Edward L. Vorhees, William 
 S. Johnson and James B. Davenport entered into part- 
 nership under the firm name of Davenport, Johnson & Co., 
 by articles of copartnership dated November ist. 1880. The 
 articles provided that the copartnership should commence 
 November ist, 1880, and continue for the term of three 
 years. The copartnership articles contained a provision 
 that in case any of the said parties should die before the 
 expiration of the copartnership, the sum standing to his 
 credit at that time in the assets of the firm should remain 
 as a part of the capital of the firm until the expiration of 
 the copartnership, and at the expiration of the copartner- 
 ship all moneys contributed to the capital of the firm by 
 any of the members of the firm should first be repaid to 
 such contributor out of the assets of the firm before any 
 division of the profits should be made. 
 
 Johnson died in July, 1881, leaving a will appointing 
 the defendants in error executors. He had contributed 
 $15,000 of capital, and at his death, $17,000 were stand- 
 ing to his credit. This sum continued in the business until 
 the expiration of the partnership on October 31st, 1883. 
 The business was carried on by the surviving partners. The 
 executors examined the books and accounts of the firm 
 from time to time, but did not otherwise interfere with or 
 participate in the business. It did not appear that any 
 ])rofits were ever received by them from the business, or 
 that the capital standing in the deceased partner's nnnc 
 was ever withdrawn by them.
 
 304 PARTNER'S POWER TO BIND COPARTNER 
 
 In October, 1883, plaintiff sold the firm of Davenport, 
 Johnson & Co., a bill of merchandise, and this suit was 
 brought against the surviving partners and the executors 
 of the deceased partner, to charge them personally jointly 
 as partners. 
 
 The judge at the Circuit decided that the executors 
 of the deceased partner could not be held personally liable 
 as partners. 
 
 Depue, J. The bill of exceptions in this case pre- 
 sents the single question whether, upon the facts stated, the 
 defendants in error, executors of the deceased partner, 
 l^ecame personally liable as partners for debts contracted 
 by the firm after the death of the testator. 
 
 Partnership is a relation arising from contract. It is 
 usually defined to be a voluntary contract between compe- 
 tent persons to place their money, effects, labor and skill, 
 or some or all of them, in lawful commerce or business, 
 upon the understanding that there shall be a communion 
 of the profits thereof between them. Story on Part., § 2 ; 3 
 Kent 23. Mr. Justice Lindley quotes from "Words of 
 Celebrity" a number of definitions of partnership, in all of 
 which the elements of contract or agreement is funda- 
 mental. I Lind. on Part. 2 Inter sese the fact of partner- 
 ship, as well as the rights, duties and obligations of partners, 
 arises wholly from the terms of the contract, and as to 
 third persons and creditors the same rule prevails, except 
 where the persons concerned have held themselves out as 
 partners — have acted ostensibly as interested in the busi- 
 ness as if they were partners in it, and have so conducted 
 themselves as to lead people to suppose that they were 
 willing to be regarded by them as if they were partners in 
 fact. I Lind. on Part. 47 ; Central Saz'ings Bank v. Walker, 
 66 N. Y. 424 ; Mershon v. Hohensack, 2 Zab. 372 ; 3 Id. 
 580.1 
 
 * His discussion of the cases reprinted in this section is omitted.
 
 WILD z: DAVENPORT 305 
 
 The decisions gennane to the particular case now be- 
 fore the court have gone upon the same principle. As a 
 general rule, the death of one partner works a dissolution 
 of the partnership. If an executor engages in business, 
 either as a sole trader or in a partnership, with the tes- 
 tator's assets, though he does it as executor, and not for 
 his individual benefit, he will be personally liable for the 
 debts incurred in the business, and this although he does 
 so in compliance with directions in the testator's will, or 
 in conformity with articles of partnership to which the 
 testator was a party which provide, as articles of partner- 
 ship sometimes provide, that on the death of a partner 
 his executor or personal representatives shall be admitted 
 into the firm. JVightman v. Tozcnroc, i 'M. & S. 412; La- 
 houckcre v. Tuppcr, 11 Moore P. C. 198, 221; Laiblc v. 
 Ferry, 5 Stew. Eq. 791 ; 2 Liud. on Part. 1060, 1061 ; Story 
 on Part., § 70. 
 
 A provision in articles of partnership that on the death 
 of a partner his executor or personal representative, or 
 some other person, shall be entitled to the place of a de- 
 ceased partner in the firm, with the capital of the deceased 
 in the firm business, or some part of it, is binding upon the 
 surviving partner to admit the executor, personal repre- 
 sentative or nominee of the deceased partner, but does not 
 bind the latter to come in. They have an option to come 
 in or not, and a reasonable time within which to elect. 
 Pigott V. Baglcy, i INIcC. & Y. 569; Madgwick v. Wimhle, 
 ,6 Beav. 495; Downs v. Collins, 6 Hare, 418; 2 Lind. on 
 'Part. 852. An executor or nominee of a deceased partner 
 coming in under such a provision in partnership articles 
 comes in as a partner, with all the rights and liabilities of 
 a partner, and consequently becomes personally liable for 
 debts contracted in the business. He is made personally 
 liable for debts for the reason that he has of his own voli- 
 tion engaged in the business as a principal, and is a con- 
 tracting party. As was said by Lord Eldon, in Ex parte
 
 306 PARTNER'S POWER TO BIND COPARTNER 
 
 Garland, lo Ves. 119, "he places himself in that situation 
 by his own choice, judging for himself whether it is fit 
 and safe to enter into that situation and contract that sort 
 of liability;" and if he has acted in compliance with the 
 testator's directions, he will be entitled to indemnity out 
 of the testator's estate to the extent of the fund which the 
 testator has embarked in the business, and no further. Ex 
 parte Garland, 10 Ves. 109; In re Johnson, 15 Ch. Div. 548; 
 Laible v. Ferry, 5 Stew. Eq. 791 ; Burwell v. Mandcville's 
 Ex'rs, 2 How. (U. S.) 560. 
 
 On the other hand, a stipulation in partnership articles, 
 that upon the death of a partner his capital shall remain in 
 the business until the expiration of the prescribed term of the 
 partnership, is binding as well upon the estate of the de- 
 ceased as upon the surviving partner. Scholeficld v. Eichcl- 
 berger, 7 Pet. 586 ; Burwell v. Mandeville's Ex'rs, 2 Hoiv. 
 (U. S.) 560; Dozvns V. Collins, 6 Hare 418, 437; Story on 
 Part., § 261 a. Where the provision in the partnership 
 article is simply that the deceased partner's capital shall 
 remain in the business, the executor is not admitted into the 
 management of the business. The control of the business 
 is with the surviving partner. The executor cannot with- 
 draw the capital of the deceased partner without subjecting 
 the estate to liability to suit, nor can he exercise the control 
 of a partner in the conduct of the business. In this situa- 
 tion none of the reasons for the liability of a partner exist 
 as against him. Hence it is that when by the articles of 
 partnership a new member is brought into the firm on the 
 death of a partner, as an executor or trustee, firm credi- 
 tors becoming such after the partner's death have the per- 
 sonal liability of the admitted member of the firm; but 
 where by the articles the capital only of the deceased part- 
 ner is continued in the firm without any person being added, 
 such creditors have only the liability of the surviving part- 
 ner, by whom the business is carried on, and the security 
 of that part of the estate of the deceased partner which is 
 left in the business. Parsons on Part. 454.
 
 WILD z: DAVENPORT 307 
 
 Holme V. Hammond, L. R., y Exch. 218, is a case 
 exactly in point. In that case three persons agreed, by- 
 articles of partnership, to conduct business for a term of 
 seven years, with a provision that if either died during the 
 partnership term, the surviving members were to continue 
 the business upon the terms expressed in the articles of 
 partnership, and, for the residue of the term, to pay the 
 representatives of such deceased partner the share of the 
 profits he would have been entitled to if living. One of 
 the partners died during the partnership term, and the sur- 
 viving members continued the business. The executors of 
 the deceased partner never interfered in the business, but 
 they claimed the share of profits the deceased would have 
 been entitled to. No settlement of accounts respecting tlie 
 interest of the deceased partner in the partnership business 
 had been made, but a sum had been paid his executors gen- 
 erally, part of which would be applicable to profits realized 
 after his death. In an action for a debt contracted after his 
 death, against the executors of the deceased partner and 
 the surviving partner, the Court of Exchequer held that 
 the executors could not be held as partners. Kelly, Chief 
 Baron, speaking of judicial dicta to the effect that the mere 
 participation in profits made the participator a partner, said 
 that looking to the decisions themselves in which the ques- 
 tion had arisen, it would be seen that in no case had the 
 party sought to be charged been held liable, except where a 
 contract of copartnership had been entered into: that when- 
 ever the plaintiff had failed to establish a contract of copart- 
 nership the action had failed ; that upon the death of on;^ 
 partner the partnership was dissolved by operation of law. 
 and the surviving partners from that time carried on the 
 business; but that this was, in contemplation of law, a new 
 partnership, and the executors of the deceased partner could 
 not become partners with the survivors without some agree- 
 ment, express or implied, to which they were parties. Mar- 
 tin, Baron, said that the defendants did nothing more than 
 claim and receive profits under the articles of partnership,
 
 308 PARTNER'S POWER TO BIND COPARTNER 
 
 and that in his opinion that act did not make them liable to 
 the plaintiff's demand; that they did nothing in their own 
 behalf at all; they merely did that which a court of equity 
 would have compelled them to do as executors under the 
 will, and that it would be contrary to reason to hold them 
 liable by that act to a responsibility which must of neces- 
 sity be borne by them in their own personal capacity, and 
 paid out of their private funds. Bramwell, Baron, assigned, 
 as the ground of his judgment, that the representatives of 
 the deceased partner were not to be partners with the sur- 
 vivors ; that they could not interfere ■\^'ith the business or 
 its management in any way — could not say that any par- 
 ticular business should be done by the firm, or that it should 
 not be done, or how it should be done ; that they could 
 neither make, nor order a contract, nor forbid, nor perform, 
 nor enforce, nor release one. 
 
 In Holme v. Hainnwnd there was not, in fact, any 
 capital belonging to the firm at the death of the deceased 
 partner, except office furniture of the value of £ioo, and 
 the articles of partnership did not provide for the continu- 
 ance of a deceased partner's capital in the firm, though it 
 contained a provision that each partner should contribute 
 capital and share profits and losses equally. Kelly, Chief 
 Baron, and jMartin and Cleasby, Barons, intimated an opin- 
 ion that the result would have been different if the execu- 
 tors had voluntarily left capital belonging to the deceased in 
 the firm. That question does not arise in this case. Here 
 the articles of partnership provided for the retention of 
 the testator's capital in the firm until the expiration of the 
 term of the partnership, and the executors did nothing of 
 their own volition, but simply conformed to the obligation 
 entered into by the testator. 
 
 The cases in which the precise question has been raised 
 which this bill of exceptions raises are few. The cases cited 
 by the plaintiff in error from the English and American 
 courts are those in which the personal liability of an execu- 
 tor voluntarily engaging in business with his testator's as-
 
 WILD z: DAVENPORT 309 
 
 sets has been adjudged, or the extent of the right of part- 
 nership creditors to charge the estate of a deceased partner 
 for debts contracted after his death has been involved. 
 Wightman v. Townroc; Laboiichere v. Tapper; Ex parte 
 Garland; Edgar v. Cooke, 4 Ala. {N. S.) 588; Thompson 
 V. Brozvn, 4 Johns. Ch. 619; Sfanwood v. Owen, 14 Gray, 
 195, are cases of this class. The only cases in American 
 courts presenting directly the question raised in this case 
 that have come under my observation are Oivens v. Mack- 
 all, 2,2) ^^d- 382, and Richter v. Poppenhiiysen, 39 How. Pr. 
 83. and both of these decisions are with the defendants in 
 error. 
 
 Nor did the defendants become partners in the busi- 
 ness by reason of their examination into the affairs of the 
 firm. This was a duty they performed in the execution of 
 the trust arising out of their executorship. Nor are the 
 rights of the creditors of the deceased partner to have the 
 estate of the testator settled up. and their debts paid at all 
 involved in this controversy. When the contingency arises 
 upon which the payment of the testator's debts is involved, 
 a court of equity will be competent to afford them adequate 
 relief against tying up the estate of the testator to the preju- 
 dice of his creditors. 
 
 Upon the case presented we think that the decision of 
 the learned judge that the defendants in error were not 
 liable was correct, and the judgment should be affirmed.
 
 310 PARTNER'S POWER TO BIND COPARTNER 
 
 SECTION 2.— LIABILITY ON CONTRACT CON- 
 TINUED—CONTRACT WITHIN THE SCOPE, 
 BUT NOT FOR THE BENEFIT OF THE 
 BUSINESS. 
 
 LANE V. WILLIAMS. 
 In the High Court of Chancery, 1692. 
 
 2 Vernon's Reports, 2y~, 292/ 
 
 /. S. and defendant Williams testator were partners as 
 woollen-drapers, /. vS'. gives a note to the plaintiff for 
 150I. received and borrowed of him, which he promises to 
 repay, and subscribed it for himself and partner. The bill 
 was for a discovery and satisfaction out of the assets against 
 JVilliaiiis the executor of the surviving partner, to oblige 
 him to pay, it being insisted for the defendant at the Rolls, 
 that this money was never brought into trade, nor was 
 contracted upon the account of the partnership; and there- 
 fore, although one partner signed it, as for himself and 
 partner, fJiaf could not bind the partner that was not privy 
 nor consenting thereunto ; and the master of the Rolls dis- 
 missed the bill. 
 
 Per Cur. The money being paid at the shop, the note 
 of one partner binds both : and tho' at law the note stands 
 good only against the executor of the surviving partner, 
 who was Ncivherry, who received the money, and signed 
 the note, yet proper in equity to follow the estate of Wil- 
 liams for satisfaction; and decreed it accordingly.- 
 
 ^ There are two reports of this case in Vernon. The statement 
 of facts here printed is taken from the first report, the final action 
 of the Court is from the second report. 
 
 '^Accord: Sutton v. Gregory, 2 Peake, iSO, i"97; Sanderson v. 
 Brooksbank, 4 C. & P., 286, 1830; Ex parte Bushell, 3 M. D. & De G., 
 615, 1844. 
 
 Compare: Wintle v. Combes, i C. & J. 316, 183 1. (A and B were 
 partners, B being a secret partner, trading under the name of, "A & 
 Co." A raised money for his own purposes from C by accepting a
 
 LANE V. WILLIAMS 311 
 
 bill of exchange as "A & Co." Held, that the undisclosed or secret 
 partner was liable on tlie acceptance.) 
 
 Potter v. Price, 3 Pitts. (Pa. Sup. Ct.) 136, 1869. (A anc| B were in 
 partnership. Action against firm on note signed in firm name. Judg- 
 ment for want of a sufficient affidavit of defense. Appeal. Williams, 
 J.: "The affidavit of defence, filed by Potter in this case, alleges that 
 the due bill upon which suit is brought was not given for goods pr 
 money on account of the said firm, and was never used in the busi- 
 ness of the said Potter & Jones, but was given by James N. Jones for 
 money borrowed of the plaintiff for his own sole and individual use 
 and benefit, and without the knowledge of the deponent. But there 
 is no averment that the plaintiff knew that the money was borrowed 
 by Jones for his individual use and benefit, or that he had notice of 
 any facts that ought to have put him on inquiry, and in this respect 
 the affidavit is fatally defective." Judgment affirmed.) 
 
 Benninger v. Hess, 41 Ohio St. 64, 1884. (A and B et al. were 
 in partnership. A often borrowed money for firm purposes from C. 
 A requested C to lend the firm 1500. C complied with this request, 
 A receiving the money. Subsequently, A gave to C a note for the 
 amount of the loan signed by himself. A, as promisor, A endorsing 
 the note in the firm name. C sued the firm on the note. B et al. 
 contended that the note and its endorsement was without their knowl- 
 edge, and that the money borrowed was not applied to the use of 
 the firm. Held, affirming a judgment for the plaintiff, that the obli- 
 gation of the firm to repay the loan became fixed at the moment 
 the money was lent in good faith on the credit of the firm. Dickman, 
 J. "And, as in the case at bar, if a partner borrows money for the 
 use of the partnership, his declarations made at the time of the 
 transaction, will be competent to show that the act was done in 
 behalf of the partnership, and if the credit was obtained on the 
 faith of such declaration, the falsity of the representation will not 
 be material." p. 67.) 
 
 A fortiori, if a partner borrows money on the firm credit, in order 
 to recover from the firm, it is not necessary to shoiv that he after- 
 wards applied the money loaned to the use of the firm. 
 
 Church V. Goodsell, 5 Wend. (N. Y.) 223, 1830. "Where a gen- 
 eral partnership exists, and money is borrowed by one of the firm 
 in the name of the firm, all the partners are liable, although the 
 money when obtained be appropriated by the partner borrowing it 
 to his own use." Marcy, J., p. 224 ; Whitaker v. Brown, 16 Wend. 
 (N. Y.) 505, 1836. "It would not be necessary for the lender * * * 
 to show that the partner who borrowed the money or received it 
 for the firm, actually applied it to partnership purposes." Chancellor 
 Walworth, p. 508; Stark 1: Corey, 45 111. 431, 1867; Kleinhaus z: 
 Generous, 25 Ohio St. 667, 1874. 
 
 Compare the following cases zchere a partner for his own pur- 
 poses sells commercial paper belonging to the firm, and endorses the 
 same in the name of the firm. 
 
 Swan V. Steele, 7 East, 210, 1806. (A, B and C traded as part- 
 ners in the cotton business under the name of "A & B," C not being 
 known as a partner. The firm received in the course of business a 
 bill of exchange. A and B were in business as grocers. In this 
 business they likewise traded as "A & B." C was not interested in 
 the grocery business. A and B owed D for a supply of groceries. 
 Not being able to meet the bill, A and B gave the bill of exchange 
 which they had received in the cotton business to D endorsing the 
 same "A & B." D was ignorant of the existence of C. and C never 
 authorized the use of notes received in the cotton business to dis- 
 charge the debts of the grocery business. Held, that D could re- 
 cover in an action of assumpsit on the endorsement against C. Ac- 
 cord: Lewis V. Reilly. i Q. B. [i Ad. & E. n. s.], 349, 1841.)
 
 312 PARTNER'S POWER TO BIND COPARTNER 
 
 BOND V. GIBSON. 
 In the Court of King's Bench, at Nisi Prius, 1800. 
 
 I CampbcU's Reports, 185. 
 
 Assumpsit for goods sold and delivered. It appeared 
 that while the defendants were carrying on the trade of 
 harness-makers together, Jephson bought of the plaintiff 
 a great number of bits to be made up into bridles, which 
 he carried away himself; but that instead of bringing them 
 to the shop of himself and his copartner, he immediately 
 pawned them to raise money for his own use. 
 
 Gazelee, for the defendant Gibson, contended, that 
 this could not be considered a partnership debt as the goods 
 had not been bought on the partnership account, and the 
 credit appeared to have been given to Jephson only. He 
 allowed the case would have been different, had the goods 
 once been mixed with the partnership stock, or if proof 
 had been given of former dealings upon credit between the 
 plaintiff and the defendants. 
 
 Lord Ellenborough. Unless the seller is guilty of 
 collusion, a sale to one partner is a sale to the partnership, 
 with whatever view the goods may be bought, and to what- 
 ever purposes they may be applied. I will take it that 
 Jephson here meant to cheat his copartner; still the seller 
 is not on that account to suffer. He is innocent; and he 
 had a right to suppose that this individual acted for the 
 partnership.
 
 MORETON V. HARDERN 313 
 
 SECTION 3.— LIABILITY IN TORT. 
 
 MORETON v. HARDERN. 
 In the Court of King's Bench, 1825. 
 
 4 Barnezvall and Crcsszccll's Reports, 223. 
 
 Case. The first count alleged that the plaintiff on, 
 &c., was passing along a public highway, at, &c., and that 
 defendants were then and there possessed of a coach and 
 certain horses drawing the same, which were under the 
 care and management "of a certain then servant of the de- 
 fendants," who was driving the same. Nevertheless, the 
 said defendants, by their said servant, so carelessly and neg- 
 ligently drove the coach and horses, that the wheels ran 
 with great force against the plaintiff, whereby one of his 
 legs was broken, &c. The second count stated that the 
 coach was under the "care and management of the de- 
 fendants." Plea, general issue. At the trial before JVar- 
 ren C. J., of Chester, at the last Summer assizes for that 
 place, it appeared that the defendants were proprietors of 
 a stage-coach travelling from Congleton to Manchester. 
 The plaintiff, at the time when the accident happened, was 
 driving a cart along the high road. The coach was driven 
 by the defendant, Hardern, and the coachman employed by 
 the proprietors to drive was sitting by his side. The coach 
 ran against the defendant, and thereby caused the injury 
 stated in the declaration. It did not appear that Hardern 
 saw the plaintiff at that time. For the defendants it was 
 objected, that the first count was not proved, inasmuch as 
 the coach was driven by one of the defendants, and not 
 by their servant; and that the second count could not be 
 sustained, for that the injury being immediate, and occa- 
 sioned directly by the act of one of the defendants, the ac-
 
 314 PARTNER'S POWER TO BIND COPARTNER 
 
 tion should have been trespass and not case. The learned 
 Judge reserved these points, and left the case to the jury, 
 who found a verdict for the plaintiff, damages 200/.^ and 
 that the accident Vi^as occasioned by the negligence of the 
 defendant, Hardern. A nonsuit was thereupon entered, 
 and the plaintiff had leave to move to enter a verdict in his 
 favor for 200/. A rule nisi for that purpose was obtained 
 in Michachnas term.^ 
 
 HoLROYD, J. : I think that the non-suit in this case cannot 
 be supported. * * * Xhe real ground of action is the 
 negligence of Hardern. It is brought against all the proprie- 
 tors. They are all responsible for the person appointed to 
 drive, whether the person be or be not one of themselves. 
 They are answerable as the owners of the coach and horses. 
 Trespass might lie against the driver by reason of his doing 
 the particular act; but still there would be a ground of action 
 against his co-proprietors, and that could only be an action 
 on the case, for they are not by his act made co-trespassers. 
 If case lies against them, it lies against him also as a joint 
 proprietor, if a ground of action remains after the trespass 
 has been waived.^ 
 
 Rule absolute.^ 
 
 ^ The arguments of counsel are omitted. 
 
 *The opinions of Bailey, J. and Littledale, J. are omitted. All three 
 judges agreed. 
 
 ^Accord: Champion v. Bostwick, 18 Wend. 175, 1837; Steel v. 
 Lester, L. R. 3, C. P. D. 121, 1877, especially language of Lindley, J., 
 p. 128; McCarragher v. Gaskell, 42 Hun (N. Y.), 451, 1886, p. 453-
 
 NISBET r. PATTON 315 
 
 NISBET v. PATTON. 
 In the Supreme Court of Pennsylvania, 1833. 
 
 4 Razi'le's Pennsylvania Reports, 120. 
 
 On the return of a writ of error to the District Court, 
 for the City and County of Philadelphia, it appeared that 
 this was an action of trover, brought by James Patton and 
 others, assignees of Henry Simpson, against Michael Nis- 
 hct and Dai'id C. Wood, trading under the firm of Michael 
 Nishct & Company, for the conversion of six promissory 
 notes, drawn by different persons, in favour of Henry Simp- 
 son. 
 
 Simpson, who was a dealer in dry goods, had been in 
 the habit of depositing goods with the defendants below, 
 who advanced their notes upon them. The notes for the 
 conversion of which this suit was brought, had been placed 
 in the hands of the defendants below, with an understand- 
 ing, that when goods were deposited with them, the notes 
 were to be returned. On the day of Simpson's failure, 
 which took place on the 12th January, 1826, he deposited a 
 quantity of goods with the defendants, and on the follow- 
 ing day he executed to the plaintiffs below an assignment 
 for the benefit of his creditors. On the same day his as- 
 signees sent to demand the notes. Nisbet, on whom the 
 demand was made, said he would deliver the notes, but 
 could not get them then, as they were locked up in his fire 
 proof, and his book-keeper was gone home with the key, 
 but promised on the honour of a gentleman, to give them 
 up in the morning. On being called on again on the fol- 
 lowing morning, he said that he would not give them up, 
 or that he had not them. The demand was made on Nisbet 
 alone, Wood not being present. 
 
 On the part of the defendants below, it appeared, that 
 Michael Nisbet, a short time previous to the formation of
 
 316 PARTNER'S POWER TO BIND COPARTNER 
 
 the partnership of Michael Nisbet & Co., of which David 
 C. Wood was a partner, had been a partner in another firm, 
 trading under the firm of Cohen and Nisbet; that by the 
 terms agreed upon at the dissolution of the latter firm, he 
 was authorised to settle its affairs, and that Simpson was 
 indebted to the firm of Cohen and Nisbet, to a larger amount 
 than that which was claimed by the plaintiffs in this cause. 
 Nisbet, therefore, claimed a right to retain the notes in 
 controversy, alleging that he had a lien upon them for the 
 debt due by Simpson to the firm of Cohen & Nisbet. 
 
 The defendant then produced and gave in evidence a 
 promissory note, dated the 2nd of August, 1825, at six 
 months, for five hundred and twenty-five dollars and seven- 
 teen cents, drawn by Henry Sinipsoji in favour of Cohen 
 & Nisbet; another note dated the nth of August, 1825, 
 at six months, for four hundred and three dollars and 
 twenty cents, also drawn by Henry Simpson in favour of 
 Cohen & Nisbet, and a third note dated August 13th, 1825, 
 at six months, for four hundred and forty-five dollars and 
 twenty cents, drawn by Henry Simpson in favour of Cohen 
 & Nisbet. They also gave in evidence a copy of an ac- 
 count current, dated 13th March, 1826, rendered by Mich- 
 ael Nisbet & Co. to the assignees of Henry Simpson, show- 
 ing a balance of two hundred and fifty-three dollars and 
 fifty-eight cents, due to the assignees, and a receipt for 
 that sum dated the 14th of March, 1826. 
 
 The counsel of David C. Wood, requested the judge 
 who tried the cause in the court below, to charge the jury, 
 "That if they believed from the evidence that Nisbet de- 
 tained the notes in controversy on behalf of Cohen & Nis- 
 bet, and not on behalf of Michael Nisbet & Co., then 
 David C. Wood is not liable, and the jury ought not to 
 find a verdict against him." 
 
 The counsel for the plaintiffs below, requested the 
 judge to charge the jury as follows : 
 
 "i. That if the promissory notes for which this ac-
 
 NISBET V. PATTON 317 
 
 tion is brought, were placed in the hands of the defend- 
 ants as a temporary security for moneys advanced to Henry 
 Simpson, until a security in goods should be delivered, and 
 that security was afterwards deposited, the defendants had 
 no lien upon the notes against Simpson or his assignees as 
 a security for any claim of another firm of which the de- 
 fendants, or one of them, were or was a member. 
 
 "2. That if the notes in question were so delivered to 
 the defendants for a specific purpose, after that purpose 
 was complied with, the defendants are answerable in this 
 action after demand and refusal by the plaintiffs, and it is 
 of no consequence to the validity of the plaintiffs' claim 
 against the defendants, that one of them alone retained the 
 notes for a purpose in which he alone was interested." 
 
 The judge instructed the jury as he was requested by 
 the counsel for the plaintiffs, and added, that the action 
 being trover, the doctrine of set-off did not apply; but had 
 the action been one of contract, as the notes were not due 
 when the suit was brought, set-off could not be permitted : 
 That there being no defence either by way of lien or set- 
 off, and the defendants being copartners in business, and 
 having as such received the notes for a particular purpose, 
 whenever that purpose was complied with, they were bound 
 to surrender the notes ; and the circumstance of JVood's not 
 taking an active part in the business, and not having been 
 present when the demand was made on Nisbcf, and Nisbct's 
 retaining the notes for the debt of Cohen & Nisbet, did not 
 absolve Wood from liability in this action. 
 
 With respect to the point propounded by the counsel 
 of Wood, his Honour said, that he was unable to instruct 
 the jury as he was requested. The law was not so, but 
 just the contrary. The defendants being partners, and the 
 notes in question having been delivered to Michael Nisbet 
 for purposes connected with the business of the partner- 
 ship, the conversion of one, was, in point of law, the con- 
 version of both.
 
 318 PARTNER'S POWER TO BIND COPARTNER 
 
 The jury found a verdict for the plaintiffs, and the 
 defendants sued out a writ of error. 
 
 Stroud, for the plaintiffs in error, cited J^assc v. Smith, 
 6 Cranch, 226. 2 Phill. Ev. 125. IVhite v. Demary, 2 New 
 Hamp. Rep. 546. Bull. N. P. 44. 2 Samid. on PI. and 
 Ev. 478. Collier on Part. 253. 
 
 Rawle, Jttnr. contra, referred to Gozv on Partnership, 
 52, 79, 174, 175. Durrell v. Mosher, 8 Johns. Rep. 347. i 
 Maide & Selw. 388. 
 
 The opinion of the court was delivered by 
 
 Gibson, C. J. — The case of JJliite v. Demary, 2 N. H. 
 Rep. 546, though apparently in point, depended on a prin- 
 ciple entirely distinct from that which governs the trans- 
 actions of partners. There the defendants were but joint 
 baillees; and the law is settled that the act of a tenant in 
 common shall not prejudice the title of his co-tenant, or 
 charge him with a tort. It is otherwise with partners, each 
 of whom constitutes the other a general agent of the firm 
 with power to bind it, not only by his contracts, but by his 
 acts in the scope of the business. His authority to contract 
 has never been disputed; and the responsibility of the firm 
 for the legal consequences of his acts, stands on a princi- 
 ple equally settled. Thus, in Willett v. Chambers, Cow p. 
 814, an attorney whose partner had received money to be 
 laid out on a mortgage, was held liable for it though the 
 mortgage was forged by the receiving partner without the 
 knowledge of the other. The same principle was held in 
 the Manufacturers and Mechanics Bank v. Gore, 15 Mass. 
 Rep. 75, and Boardman v. Gore, Id. 331 ; and it has been 
 decided in Biggs v. Lawrence, 3 T. R. 454, that a trading 
 on joint account in contraband goods, will implicate an 
 innocent partner. So in Had field v. Jameson, 2 Munf. 65, 
 it was determined that the fraud and misconduct of one 
 part owner which produced the loss of a ship and cargo, 
 affected the claim of both to freight under a charter party. 
 It is, however, conceded that both would have been an-
 
 NISBET V. PATTOX 319 
 
 swerable here for the act of Nisbet in an action on the con- 
 tract to redehver the notes after the purposes of the de- 
 posit were satisfied; and this concession includes the deci- 
 sive fact, that the refusal of Nisbet was the refusal of his 
 co-partner. Being so for any purpose, it must be so for 
 every purpose ; for it is not easy to see why it should be 
 his act to charge him on a contract, and not his act to charge 
 him with a tort. It is not doubted that partners may be 
 sued in trover where they join in the conversion; and do 
 they not join wdiere the act of one is the act of all? 
 
 It can be but of little account to them whether they 
 are made to respond in the one sort of action or the other; 
 for though it be true that there is no contribution between 
 tort feasors, it is equally true that a partner may be made 
 answerable to the firm for misconduct in involving it in 
 responsibility. It is said indeed that trover to recover dam- 
 ages for a destruction of the joint property, is the only 
 action founded in tort that can be maintained between part- 
 ners. That would seem, however, to have been asserted 
 without sufficient consideration; for it is not easy to see 
 why a partner should not be answerable to the firm, as in 
 any other case of principal and agent, for gross and wil- 
 ful misfeasance. In Had field v. Jameson, it was taken for 
 granted, that the delinquent partner was liable to the other 
 for the loss of the ship; but certainly not in trover, for his 
 acts were evidence of anything but conversion. The act 
 then of Nisbet, being prima facie the act of his partner, 
 was evidence of a joint conversion, subject however to be 
 rebutted by proof, if such there were, that the latter had 
 openly disclaimed the act at the time; and the direction 
 was in all respects essentially right. 
 
 Judgment affirmed.^ 
 
 ^Sce: Kuhn v. Weil, 72, Mo. 213, 1880. (A and B were partners. 
 A without the knowledge or consent of B began a suit in the name 
 of the firm against C for a partnership debt, and attached the goods 
 •of D. Held, that B was liable to D for the wrongful seizure, as a
 
 320 PARTNER'S POWER TO BIND COPARTNER 
 
 result of the partnership relation between A and B. Accord: Vander- 
 burgh V. Bassett, 4 Minn. 242, 860 ; Cunningham v. Woodbridge, 76 
 Ga., 302, 1886; Lockwood v. Bartlett, 7 N. Y. Supp. 481, 1889; Hobbs v. 
 Chicago Packing Company, 98 Ga. 576, 1896. But see: Chambers 
 V. Clearwater, i Keyes (N. Y.) 310, 1864. (A statute provided 
 that "no Judge of any court can sit as such in any case in which 
 he * * * would be excluded from being a juror by reason of 
 consanguinity or affinity to either of the parties." B was a justice of 
 the peace and a cousin of C. C and D were partners. E mortgaged 
 his horses and wagon to A to secure a debt, A having the right to 
 take possession. He did not exercise this right. C and D recovered 
 a judgment against E before B, and the horses and wagon were 
 seized on the execution. C and D were active in bringing the suit, 
 but C alone directed the execution. A brought an action in the 
 nature of trover against C and D.) Held, that the above recited stat- 
 ute made the execution void, and the judgment for the plaintiff 
 should be affirmed. Note, however, the reasons for holding D liable 
 given by Denio, Ch. J. 
 
 "The defendants were both active in obtaining the judgment 
 against Roosa, and although Clearwater alone gave the directions for 
 seizing the horses and wagon, he should be presumed, in the absence 
 of evidence to the contrary, to have been acting in conjunction with 
 the other defendant in a common enterprise of collecting their joint 
 debt by a seizure of the property in question. Although the com- 
 mission of a trespass was not within the scope of the partnership 
 enterprise, the collection of the joint debt was a part of that busi- 
 ness. The direction to levy the execution upon a particular subject 
 was an incident to the obtaining payment of the debt by legal pro- 
 cess, and when one of the partners was found acting in that under- 
 taking, the presumption is that he had the countenance and assent 
 of the other partner."
 
 HAWKINS r. APPLEBY 321 
 
 HAWKINS V. APPLEBY. 
 In the Superior Court of New York, 1849. 
 
 2 Sandford's New York Superior Court Reports, 421. 
 
 This was an action of trespass on the case. The dec- 
 laration set forth that, in the month of March, 1847, the 
 defendants apphed to the plaintiffs to purchase from them 
 a quantity of tobacco, and offered in payment a promis- 
 sory note of Barstow Emanuel & Co., dated New York, 
 Januar}^ 15, 1847, ^o^* ^^e sum of $274.80, payable in six 
 months; that the defendants represented the note to be good, 
 and the makers in good credit, and that the plaintiffs re- 
 lying upon the representations so made, sold and delivered 
 to the defendants a quantity of tobacco, and took the note 
 in payment. In the second count of their declaration, the 
 plaintiffs averred that the defendants represented the note 
 to be a good note, and that "it zvoiild pass in Soiithstreet." 
 The declaration further alleged that, Barstow Emanuel & 
 Co., at the time of the transfer of the note to the plain- 
 tiffs, were wholly insolvent, and that the defendants, know- 
 ing such to be the fact, fraudulently made the purchase as 
 set forth. The defendants pleaded the general issue. 
 
 A verdict was taken in favor of the plaintiffs for 
 $289.94, subject to the opinion of the court, on a case to 
 be made, and subject to such modification or adjustment 
 of the verdict as the court might deem proper, with leave 
 to the defendants to move for a nonsuit.^ 
 
 E. IV. Stoughton, for the defendants. 
 
 III. There is no proof that Moore knew of, or sanc- 
 tioned, the representation alleged to have been made by 
 Appleby ; nor was he really interested in the note : this was 
 
 ' The statement of facts as given by the Reporter is abbreviated.
 
 322 PARTNER'S POWER TO BIND COPARTNER 
 
 known to Hawkins. A fraudulent representation by one 
 l^artner, will not bind or affect the other, in this action. 
 {Pierce v. Jackson, 6 Miss. R. 242 ; Sherzvood v. Marivick, 
 
 5 Greenleaf R. 295.) 
 
 If the suit was directly upon the contract of warranty 
 made by one of the partners, the rule would be otherwise. 
 So also, the plaintiffs could have brought trover or re- 
 plevin for the tobacco, at least after demand made there- 
 for; as, in such case, retaining possession would be deemed 
 the fraud of both defendants.- 
 
 Sandford, J. : The other alleged variance depends 
 upon the principal question in the cause, the liability of 
 Moore in respect of the fraud of his partner Appleby. 
 
 It has long been established, that a partner is liable in 
 assumpsit for the consequences of frauds practised by his 
 copartner, in the transaction of their business, of which 
 he was entirely ignorant, and although he derived no bene- 
 fit from the fraud. (Collyer on Part. 240; Story on Part. 
 § 108.) This is upon the ground, that by forming the 
 connexion, partners publish to the world their confidence 
 in each other's integrity and good faith, and impliedly 
 agree to be responsible for what they shall respectively do 
 within the scope of their partnership business; and if by 
 the wrongful act of one, a loss must fall upon a stranger, 
 or upon the other partner who is equally innocent, the lat- 
 ter having been the cause or occasion of the confidence 
 reposed in his delinquent associate, must suffer the loss. 
 
 Several striking applications of this principle, are to 
 be found among the adjudged cases; of which we will re- 
 fer to Rapp V. Latham, i Barn. & Aid. 795 ; Stone v. Marsh, 
 
 6 B. & Cr. 551; Hume v. Bolland, Ryan & M. 371; and 
 Boardman v. Gore, 15 Mass. 331.) 
 
 It is perfectly clear, that if the plaintiffs had wholly 
 
 " Only so much of the Reporter's notes of the arguments of 
 counsel, and the opinion of the Court as relates to this question is 
 reprinted.
 
 HAWKIXS z: APPLEBY 323 
 
 disaffirmed the sale, and sued Appleby and Moore in as- 
 sumpsit for the price of the tobacco, they would have been 
 entitled to recover. Is the rule different in an action to 
 recover damages for the deceit practiced upon them? The 
 difference in theory is, that in assumpsit the innocent parrt- 
 ner is charged with the purchase of goods; while in the 
 action of tort, he is accused of a fraud of which he per- 
 sonally is innocent. In practical effect, the only difference 
 is, that in the one case the plaintiff alleges a sale and proves 
 a fraud ; in the other, he both alleges and proves the fraud- 
 ulent transaction. In both forms of action, the innocent 
 partner is subjected to liability, on the principle that he has 
 held out his associate to be worthy of confidence, in their 
 copartnership dealings. The difference in the ulterior rem- 
 edy, after judgment, cannot have any effect upon the pro- 
 priety of the form of action.^ 
 
 ^Compare: Townsend v. Bogart, ii Abb. Pr. (N. Y.) 355, i860. 
 (Under the Code, where debts are sued on civilly, the plaintiff could 
 begin by an arrest "when the defendant has been guilty of fraud." 
 A and B were partners. A, without the knowledge of B, by fraud 
 induced C to sell goods to the partnership. C brought an action on 
 the case for the deceit against A and B. Held, that before the code 
 B was liable for the deceit, and that after the code B could be pro- 
 ceeded against by arrest.) 
 
 Stewart v. Levy, 36 Cal. 159, 1868. (A and B were partners. A by 
 fraudulent representations induced C to sell certain goods to the 
 partnership. C sued A and B for damages on account of the fraud, 
 obtained a judgment, and the Court ordered execution to issue against 
 the bodies of the defendants. In the course of the trial B asked 
 the Court to charge that, "If the jury shall find from the evidence 
 that the fraud, if any, was committed by the defendant [A] and not 
 by the defendant [B] they must acquit the defendant [B] of the 
 charge of fraud," p. 165. The Court refused to so charge. Held 
 error, on the ground that, because though, "All the partners will be 
 bound by the fraud of one of the partners in contracts relating to the 
 partnership," and, "all are responsible for the injury occasioned by the 
 fraud, and arc liable to an action brought on the contract, or for the 
 recovery of property fraudulently obtained," they are not liable in this 
 case because "the fraud upon which the judgment proceeds is actual, 
 intentional fraud, and implies moral turpitude." pp. 165, 166). 
 
 Cooper T'. Prichard, 48 Law Times 848, 1883. (A and B were 
 partners in the business of solicitors, and it was part of the business 
 of the firm to receive money for investment. A. acting for the 
 firm, received money from C to invest and misappropriated it. B 
 was not a party to the fraud. A and B became bankrupts and re- 
 ceived their discharge. C sued B for the money lost through .A.'s act. 
 B pleaded his discharge. Judgment for C. Appeal. The English Bank-
 
 324 PARTxNER'S POWER TO BIND COPARTNER 
 
 It is laid down in a respectable treatise on the subject • 
 of parties to actions at law, that where one takes property 
 for the use of another, the latter may adopt the act; and 
 he is thereby placed in the situation of one who had pre- 
 viously commanded the taking, and becomes a trespasser 
 if the act were unlawful. (Hammond on Part. 84.) Now 
 in this case, Appleby obtained the tobacco for the use of 
 himself and Moore. Moore adopted the act by receiving 
 and participating in the use of the property. He was thus 
 placed in the same situation, in reference to the rights of 
 the plaintiffs, as if he had directed Appleby to procure the 
 property, or had concurred with him in the transaction; 
 and on the authority cited, he became a wrong doer. There 
 is the additional circumstances in this case, that the plain- 
 tiffs immediately on discovering the fraud, and within a 
 fortnight after the exchange, notified the defendants in 
 writing, that they had ascertained the note to be bad, and 
 that they should hold the defendants liable for the tobacco. 
 
 The omission of Moore to repudiate or disaffirm, on 
 this occasion, what his partner had done, must be regarded 
 as a distinct adoption and ratification of the act; and we 
 think he ought to be deemed from thenceforth a joint 
 wrong doer with Appleby.^ 
 
 ruptcy Act, of 1869, provided that "an order of discharge shall not 
 release the bankrupt from any debt or liability incurred by means 
 of any fraud or breach of trust." Brett, M. R., with whom con- 
 curred Lindley. and Fry, L. JJ., believed that had the Act read 
 "incurred by means of his fraud" B could have pleaded his discharge. 
 Our Bankruptcy Act of 1898 provides, Section 17, that a discharge 
 shall release a bankrupt from all his proveable debts except such as 
 (2) "are liabilitcs for obtaining property by false pretences or false 
 representations ;" or, (4) "were created by his fraud, embezzlement, 
 misappropriation, or defalcation while acting as an officer or in any 
 fiduciary capacity.") 
 
 * On the question of the ratification of torts by copartners see: 
 United States v. Baxter, 46 Fed. 350, 1891. (A and B were part- 
 ners in the lumber business. They trespassed on lands of the United 
 States, cutting timber. The United States brought an action for 
 damages. If the trespass was wilful, punitive damages could be 
 recovered. B pleaded that he was ignorant of the fact that he was 
 committing a trespass, though in the case of A the trespass was wil- 
 ful. Held, that though B might have been ignorant at the time, 
 by retaining the fruits of the wrongful act after being notified of 
 its character he made himself liable as if the act of cutting had been 
 a wilful tort.)
 
 GILBERT V. EMMONS 325 
 
 GILBERT V. EMMONS. 
 In the Supreme Court of Illinois, 1866. 
 
 42 Illinois Reports, 143. 
 
 This was an action of trespass on the case, brought 
 in the court below by Strew M. Emmons against Frank S. 
 Palmer and William Gilbert, for malicious prosecution of 
 the plaintiff, upon a charge of larceny. 
 
 A trial resulted in a verdict for the plaintiff for $5,000 
 damages; Palmer having died after the verdict was ren- 
 dered, a judgment was entered against Gilbert, from which 
 he took this appeal. So much of the pleadings and facts 
 in the case as are necessary for an understanding of the 
 questions decided, will be found in the opinion of the court. 
 
 Lawrence, J. : Judgment must be reversed on account 
 of the error in giving the sixth instruction for the plaintiff, 
 which was as follows : 
 
 "If the jury believe, from the evidence, that the de- 
 fendants, or either of them, with the knowledge and con- 
 sent of the other, caused a warrant to be sued out for lar- 
 ceny against the plaintiff, and thereby occasioned the arrest 
 and imprisonment of the plaintiff; and if the jury further 
 believe, from the evidence, that said warrant was mali- 
 ciously obtained by the said defendants, or either of them. 
 with the knowledge and consent of the other, and without 
 probable cause, then the plaintiff is entitled to recover dam- 
 ages, and the jury may allow the plaintiff such damages 
 as, from the evidence, they believe to be just and right 
 under all the circumstances of the case, not exceeding the 
 damages laid in the declaration." 
 
 The defendants in this case were partners, and the 
 money said to have been stolen seems to have been the 
 money of the firm. But Gilbert, the plaintiff in error, had
 
 326 PARTNER'S POWER TO BIND COPARTNER 
 
 no personal knowledge of the circumstances under which 
 the money was taken, nor does it appear that he had any 
 direct personal agency in causing the arrest. The affidavit 
 upon which the warrant was issued was made by Palmer, 
 and he directed the officer in its execution. The declara- 
 tion avers that he acted "with the advice and consent and 
 at the instigation of the defendant, Gilbert." Although 
 Gilbert may not have directly caused the arrest, yet, if he 
 advised it, as averred in the declaration, he would be 
 equally responsible with Palmer. And that he did so advise 
 need not be directly proven. The jury would have the 
 right to infer it, if circumstances were proven justifying 
 such an inference. Whether such facts were proven, 
 is a question upon which we express no opinion, as 
 the case must go before another jury. But that 
 Gilbert is not liable unless he either directly partici- 
 pated in causing the arrest, or advised it to be made, is 
 clear. The mere "knowledge and consent," on his part, that 
 Palmer should have the arrest made, would not, as stated 
 in the instruction, make him liable. Such an act, even if 
 done with' his knowledge and consent, was not within the 
 scope of their partnership. A mere passive assent on his 
 part, that Palmer might take such steps as he thought proper 
 for the recovery of the money, or for the punishment of the 
 person supposed to have taken it, would not render him 
 liable. This would be merely a consent that Palmer might 
 incur such personal liabilities as, from his knowledge of the 
 facts, he should think just and expedient. 
 
 But one person cannot be made liable in damages be- 
 cause he knows that another person is about to commit an 
 unlawful act, even though he fails to protest against it, 
 and, therefore, in the ordinary use of language, may be 
 said to have consented to it. In this sense a jury would 
 probably understand this instruction. But something fur- 
 ther would be necessary in order to make Gilbert liable. 
 It would be necessary that his "consent" should be of so 
 active and positive a character as to amount to advice and
 
 GILBERT V. EMMONS 3_V 
 
 co-operation. In many cases the use of one of these words 
 in place of the other, might not mislead a jury, but, in the 
 record before us, the merits of the controversy turn to a 
 large extent upon the difiference between these terms. Did 
 he merely leave Palmer free to follow the dictates of his 
 own judgment, without interference on his part, which 
 would be a species of consent, but not such as to make 
 Gilbert liable ? or did he advise and encourage the arrest, as 
 averred in the declaration, and thus jointly with Palmer 
 assume its liabilities? On another trial, this instruction 
 should be modified. The judgment is reversed and the 
 cause remanded.^ 
 
 Judgment reversed.^ 
 
 * The parts of the opinion which relate to matters not raised by 
 the sixth instruction are omitted. 
 
 Accord: Marks v. Hastings, loi Ala. 165, 1892; Kirk v. Garrett, 
 84 Md. 383, 1896; Martin v. Simkins, 116 Ga. 254, 1902. See also the 
 earlier case in the House of Lords, on appeal from the Scottish 
 Courts, Arbuckle v. Taylor, 3 Dow, 160, 1815.
 
 328 PARTNER'S POWER TO BIND COPARTNER 
 
 BREWING z'. BERRYMAN. 
 In the Supreme Court of New Brunswick, 1875. 
 
 15 Nezv Bnoiszi^ick (2 Piigslcy's) Reports, 515. 
 
 Trespass on the case. In Nov. 1868, Elisha Broad 
 having the equity of redemption in the building in which 
 plaintiff's rooms were, and being in possession ver- 
 bally agreed with the plaintiff to let him have two 
 rooms and also the use of steam power to drive 
 certain machineiy, of the plaintiff, who was engaged 
 in the business of sash and blind maker, for a term of 
 three years from the ist of May following, at a rent of 
 f6o per annum. Under this agreement the plaintiff", who 
 was then in the premises, continued in possession after the 
 1st of May. Subsequent to the agreement, on the iSth 
 January, 1869, Broad being indebted to one Wm. Peters, 
 who at the time of the agreement was mortgagee of the 
 premises, made to him an absolute conveyance of all his 
 right, title and interest in the property. On the 9th Aug- 
 ust, 1 87 1, Peters conveyed to the defendants, who also took 
 a quit-claim deed from Broad. The defendants, all of 
 whom had separate businesses of their own, were engaged, 
 along with one Levi H. Young, as co-partners in the manu- 
 facture of bolts and screws, which they carried on in the 
 factory in which were the rooms leased to plaintiff*, under 
 the name of "The New Brunswick Bolt Works Company.'' 
 In August 1871, after the defendants had become the own- 
 ers of the factory. Young, and the foreman of the com- 
 pany, entered upon the portion of the premises occupied 
 by the plaintiff, and without his permission, tore down a 
 chimney, in consequence of which, injury was done to lum- 
 ber, blinds and other property of the plaintiff. * * * 
 
 It was shewn that the chimney was torn down by
 
 BREWING V. BERRYMAN 329 
 
 Young for the purpose of effecting improvements on the 
 defendants' property for the purposes of the Boh Works, 
 and also that the bricks were appropriated and used by 
 the company, though the defendant, John Berryman, liad 
 no personal knowledge of this fact. It was also shewn 
 that he had never personally interfered in the manage- 
 ment of the company's business. Campbell G. Berryman 
 also said he gave no authority to Young to tear down the 
 chimney, particularly in the manner he did, which was 
 admitted to have been quite unjustifiable. His Honor di- 
 rected the jury that they might take into consideration the 
 circumstances under which the act was done, and could, if 
 they thought proper to do so, give exemplary damages. 
 
 The Jury gave the plaintiff $750 damages, which was 
 very much beyond the actual injury done. 
 
 Rule Nisi for a new trial granted.^ 
 
 Ritchie, C. J. One question raised in this case is, 
 whether the defendant, John Berryman, can be liable for 
 the amount of damages found — he not having personally 
 taken any part in the wrongful act committed by the other 
 defendant. But does any such question really arise here 
 as to the proper measure of damages, where one co-tres- 
 passer has acted from improper motives, in which the 
 other has not participated, or as to how the damages ought 
 to be assessed in reference to the acts and motives of the 
 most guilty, or the most innocent party ? It being assumed, 
 as it must now be, that the defendants were both liable for 
 the act complained of, viz., the pulling down the plaintiff's 
 chimney, and the injury to his property, they must bolh 
 necessarily be liable for the manner in which it was done. 
 There were no distinct or unconnected acts of one or other 
 of the defendants, to make one or other more culpable, so 
 far as the plaintiff was concerned. What he complains of 
 is, that being in the lawful and quiet occupation of his 
 
 ' The Reporter's statement of the facts is abbreviated and his 
 notes of the arguments of counsel are omitted.
 
 330 PARTNER'S POWER TO BIND COPARTNER 
 
 tenement, and in the peaceable prosecution of his business, 
 his property was invaded, and his business interfered with, 
 and, as he alleges, destroyed. The wrong thus complained 
 of was found to be the joint and several tort of both the 
 defendants, done by one for their joint benefit, and in 
 which benefit both clearly participated. Is there anything 
 in the case that would justify the jury in discriminating 
 (if they had the right to do so,) between the liability of 
 the defendants? If the plaintiff is entitled to recover for 
 the wrong, why should not the full amount he is entitled 
 to be borne equally by both defendants? 
 
 This case is widely dififerent from that of two co- 
 trespassers, each making himself liable by his own acts 
 and conduct. Here the defendant, John Beri-yman, is lia- 
 ble, not because he individually and personally did any 
 tortious acts, but because the law holds him responsible 
 for the wrongful acts of his co-partner, the other defend- 
 ant, in a matter connected with the partnership business : 
 in other words, he committed the tort by his servant, agent 
 and partner, and therefore is equally liable with the person 
 for whose acts the law thus holds him responsible; and 
 therefore, in this case, the plaintiff is entitled to recover 
 from both defendants the damages for the whole injury he 
 has sustained from the joint act of trespass.^ 
 Rule discharged. 
 
 ^ The Court's discussion of the alleged excessive nature of the 
 damages given, admitting that exemplary damages could be recovered 
 against Berryman, is omitted. 
 
 'Compare: Grund v. Van Vleck, 69 111. 478, 1873. (B and C 
 were apparently real estate agents. They rented the property in 
 Chicago, of D, a resident of New York, to A. While C was in the 
 East, B, without the knowledge of either C or D, claiming that A 
 was in default in payment of rent, caused E to make a distress, and 
 afterwards evicted A. A brought an action of trespass against B, 
 C, and D. Held, that there was no evidence to justify a verdict 
 against C or D. As to C the Court said : "One partner has no right 
 to involve another, unless in the ordinary course of their business; 
 nor, for instance, in a trespass, except in a case where the trespass 
 is in the nature of a taking which is available to the partnership, 
 and in such case, to render one partner liable who did not join in 
 the commission of the trespass he must afterwards have concurred 
 
 i
 
 BREWING V. BERRYMAN 331 
 
 in and received the benefit of it." Citing Petrie v. Lament, I Car. & 
 M. 93, 1841. In that case Tindall, C. J., said, p. 96, that the other 
 partners would be liable if the trespass "is in the nature of a taking, 
 which is available to the partnership, more especially [Italics oursj 
 if the other partners afterwards agree and consent to it.") 
 
 Titcomb v. Lydia, 57 111. App. 296, 1894. (B and C were part- 
 ners. They had a chattel mortgage on certain property of A. A, 
 being in default, B and C had a right to take possession of the goods 
 provided they could do so peacefully. B, without the knowledge 'of 
 C, took the goods by violence, assaulting A. A sued B and C in 
 trespass. Held, that C was not liable.)
 
 332 PARTNER'S POWER TO BIND COPARTNER 
 
 McILROY V. ADAMS. 
 In the Supreme Court of Arkansas, 1877. 
 
 2,2 Arkansas Reports, 315. 
 
 Harrison, J. : This was an action by Adams & Bro., 
 against Denton D. Stark and William Mcllroy, for the 
 malicious prosecution, without probable cause, of an action 
 against them. 
 
 The averments of the complaint were: That the 
 plaintiffs, on the 8th of September, 1873, executed to J. C. 
 Pendleton, a note for $1032, payable ninety days there- 
 after, and that Pendleton, indorsed the note in blank, and 
 the same was before maturity delivered to the defendants, 
 who were partners and bankers under the firm name of 
 D. D. Stark & Co., in Fayetteville, for collection. Pendle- 
 ton not parting with his interest, and remaining the owner 
 thereof. 
 
 That the defendants after the note fell due, falsely 
 and fraudulently represented, that they were the owners 
 of the note, and had purchased the same for a valuable 
 consideration before maturity, and brought suit thereon in 
 their own names against the plaintiffs in the Washington 
 Circuit Court, and recovered judgment by default; that 
 the plaintiffs had a good and valid defense against the 
 note, which the defendants knew when they brought their 
 suit, but the plaintiffs were deceived by the representations 
 of the defendants, and supposed that they were the owners 
 of the note and had acquired it by purchase before its ma- 
 turity, and did not know any better until after the judg- 
 ment had been obtained : That the defendants sued out 
 execution on the judgment, and the same was by their di- 
 rection levied in the plaintiffs' stock of drugs and medi- 
 cines, they being druggists, which w^ere seized and taken
 
 McILROY V. ADA^IS 333 
 
 and their store closed; and that their stock of drugs and 
 medicines were detained from them five months, and they 
 were dispossessed of their store thirty days : 
 
 That after the levy of the execution the plaintiffs filed 
 their complaint in equity in said court against the defend- 
 ants, for an injunction against the judgment, and upon 
 the hearing of the cause, it was by the decree of the court 
 perpetually enjoined. 
 
 And that whilst the said goods were in the custody 
 of the sheriff they were damaged and reduced in value 
 $1000, and by the seizure of their stock, and the closing 
 of their store, their credit was ruined and their business 
 destroyed, and they thereby sustained damage to the 
 amount of $4000. 
 
 A trial was had as to Mcllroy. 
 
 The appellant read to the jury the articles of partner- 
 ship between himself and Stark, by which it was agreed, 
 that they should form a partnership by the firm name of 
 Denton D. Stark & Co.. "in the buying and selling of ex- 
 change, gold, silver, bonds and whatsoever to the said 
 business belongs," to which Stark was to give his entire 
 attention ; and he testified that the partnership was strictly 
 confined to the business of banking, and it had no author- 
 ity from him to engage in anything which did not apper- 
 tain to that ; that he had nothing whatever to do with the 
 management or control of the business, and the same was 
 attended to and conducted solely by Stark. That the pur- 
 chase of notes was no part of the business of the firm, and 
 if Stark claimed the note as the property of the firm, it 
 was without authority from him; that he had no knowl- 
 edge of the note, nor of the suit and the proceedings to 
 collect the note during their pendency, and they were un- 
 authorized by him. 
 
 He asked, with others, the following instructions 
 which the court refused to give, viz. :
 
 334 PARTNER'S POWER TO BIND COPARTNER 
 
 Fourth — The obtaining of money, or the attempt to 
 obtain money by fraud for the use of a firm, does not 
 render the partners liable as such, without their participa- 
 tion in or consent to the fraud. 
 
 Tzvelfth — Unless Mcllroy individually participated in 
 falsely and fraudulently procuring the judgment against 
 the plaintiffs, and causing the alleged wrongs to be com- 
 mitted, the verdict should be for him. 
 
 Fifteenth — The plaintiff cannot recover against Mc- 
 llroy, unless it be proven that the defendants fraudulently 
 prosecuted the action to judgment, knov/ing that they had 
 no right to recover, and that Mcllroy personally had such 
 knowledge. [The instructions were refused, and a verdict 
 was returned for the plaintiff for $650.] 
 
 The instructions were properly refused.^ "Partners 
 are liable in solido for the tort of one, if that tort were 
 committed by him as a partner, and in the course of the 
 partnership." Par. Part., 150. And Judge Story says : "It 
 has been well remarked by a learned writer that 'although 
 the general rule of law is that no one is liable upon any con- 
 tract, except such as are privy to it yet this is not contra- 
 vened, by the liability of partners, as they may be imagined 
 virtually present at, and sanctioning the proceedings they 
 singly enter into in the course of trade; or as each vested 
 with a power enabling them to act at once as principals and 
 as the authorized agent of their copartners.' " "The princi- 
 ple," he says, "extends further, so as to bind the firm for 
 the frauds committed by one partner in the course of the 
 transaction and business of the partnership, even when the 
 other partners have not the slightest connection with, or 
 knowledge of, or participation in the fraud ; for, as has been 
 justly observed, by forming the connection of partnership 
 the partners declare themselves to the world satisfied with 
 the good faith and integrity of each other, and implicitly 
 
 * Only so much of the opinion as relates to this question is re- 
 printed.
 
 McILROY V. ADAMS 333 
 
 undertake to be responsible for what they shall respectively 
 do within the scope of the partnership concerns." Sto. Part., 
 sec. 104, 108. 
 
 The Judgment is affirmed.^ 
 
 'Accord: Swenson v. Erickson, 90 111. App. 358, 1899. (C owed the 
 firm of A and B. B, without the knowledge or approval of A, went 
 before a justice of the peace and accused C of fraudulently concealing 
 her property. On B's affidavit, under the statute relating to the bringing 
 of civil actions by attachment in the case of fraudulent debtorts, C's 
 goods were attached and taken away. There was no foundation for the 
 fraud charged, and the prosecution of the case was dropped. C sued A 
 and B for malicious prosecution. Held, that she could not recover 
 against A. Adams, J. : "In the present case it was incumbent on defend- 
 ant in error to prove both want of probable cause for suing out the writ 
 of attachment and malice. Now, while it is true that malice may be 
 inferred from want of probable cause, as against the person who acted 
 in the premises without probable cause, it would be extremely unreason- 
 able and unjust to indulge in such inference against one who neither 
 advised nor co-operated in, nor ratified, nor derived benefit from the 
 act done without probable cause.")
 
 336 PARTNER'S POWER TO BIND COPARTNER 
 
 ROSENKRANS v. BARKER. 
 In the Supreme Court of Illinois, 1885. 
 
 115 Illinois Reports, 331. 
 
 Mr. Justice Craig delivered the opinion of the Court:* 
 This was an action brought by A. E. Barker, in the 
 Superior Court of Cook county, against O. L. Rosenkrans 
 and J. H. Weber, to recover damages for an alleged mali- 
 cious prosecution and false imprisonment. A trial of the 
 cause before a jury resulted in a verdict and judgment in 
 favor of the plaintiff for $2000. The defendants appealed 
 to the Appellate Court, where the judgment was affirmed. 
 
 The facts out of which this litigation grew, so far as 
 is necessary to state them, are substantially as follows : In 
 18S2 Barker resided in Iowa, and was engaged, in a small 
 way, in the jewelry business. In the latter part of the 
 year he bought a bill of goods of Rosenkrans & Weber, 
 of Chicago, amounting to $350. The goods were sold by 
 a traveling man named Johnson, \\nien the bill became 
 due, $100 was paid, but no part of the balance has ever 
 been paid. Rosenkrans resided in Wisconsin, and did busi- 
 ness in Milwaukee, but at the same time he was a part- 
 ner in the jewelry business of Rosenkrans & Weber, in 
 Chicago, the firm being composed of Rosenkrans and Lucy 
 B. Weber, who was the wife of J. H. ^^'eber. J. H. Weber 
 had the general management of the business of this Chicago 
 firm. On or about the first of February, 1883, the bill of 
 goods remaining unpaid, Johnson, who had sold the goods, 
 induced Barker to visit Chicago, under the pretence that 
 he would enter into partnership with him in the jewelr}^ 
 business, in Chicago. Upon the arrival of Barker, Weber 
 
 ^ The Reporter's statement of the facts of the case, and his 
 note of the argument of the counsel for the appellee are omitted.
 
 ROSEXKRAXS :■. BARKER IZ7 
 
 was notified, by Johnson, of the arrival, and on the 5th 
 day of February, 1883, Weber filed a petition and obtained 
 an order for a writ of nc exeat. The writ was issued, 
 and placed in the hands of the sherifif, who arrested Barker, 
 and held him in custody ten or twelve hours, when he 
 was released on bail. Subsequently, and on the 17th day 
 of March, 1883, on demurrer, the petition was dismissed. 
 It does not appear that Rosenkrans had any knowledge 
 that the proceedings had been instituted against Barker, 
 until about the first day of April. 1883, and at this time 
 the petition for a ne exeat had been held bad on demurrer, 
 and dismissed, and Weber had then, or few days there- 
 after, appealed to the Appellate Court. \\'hen Rosenkrans 
 learned what had been done, he notified ^^'eber that it was 
 wrong, and advised the dismissal of the appeal from the 
 Appellate Court, and under his advice no further steps 
 were taken to prosecute the appeal. « * * 
 
 It is, however, claimed by appellee, that Rosenkrans 
 is liable upon either one of two grounds : First, because 
 those who caused the arrest were servants or agents of 
 Rosenkrans, acting within the scope of their agency. * * 
 *-. Weber, who caused the arrest of Barker, was not, in 
 fact, a partner of Rosenkrans, but he acted for his wife, 
 who was the partner, and so far as the acts are concerned, 
 they may be regarded as the acts of Rosenkrans' partner. 
 In many respects one partner is the agent of the other. 
 In the purchase and sale of goods within the scope of the 
 partnership business, the acts of one may be regarded as 
 the acts of both. In such cases the one that transacts the 
 business, acts for himself and in the capacity as agent of 
 the other, and in that capacity he binds himself and also 
 binds his partner. By entering into partnership, each 
 party reposes confidence in the other, and constitutes him 
 his general agent as to all partnership concerns. (Gow on 
 
 'Only that part of the opinion which relates to the "first ground" 
 is reprinted.
 
 338 PARTNER'S POWER TO BIXD COPARTNER 
 
 Partnership, 52.) But the question involved here is not 
 as to the habihty of one partner for the contracts of the 
 other, but it is whether one partner may be Hable in dam- 
 ages for the w^rongs of the other. Mr. Collyer, in his 
 work on Partnership, section 457, says : "A learned writer 
 observes, that though partners are, in general, bound by 
 the contracts, they are not answerable for the wrongs of 
 each other. In general, acts or omissions in the course of 
 the partnership trade or business, in violation of law, will 
 only implicate those who are guilty of them." And in 
 I Lindley on Partnership, bk. 2, chap, i, sec. 4, the author 
 says : "As a rule, however, the willful tort of one partner 
 is not imputable to the firm. For example, if one partner 
 maliciously prosecutes a person for stealing partnership 
 property, the firm is not answerable unless all the members 
 are, in fact, privy to the malicious prosecution." In Gilbert 
 V. Emmons, 42 111. 143, where a question arose as to the 
 liability of one partner for the act of the other in causing 
 the arrest of a person charged with larceny of money be- 
 longing to the firm, it was held that the mere knowledge 
 and consent of one partner that the other should have the 
 person accused arrested, would not render the partner so 
 knowing and consenting, liable to an action for malicious 
 prosecution. It was necessary that the consent should be 
 of such a character as to amount to advice and coopera- 
 tion. In Grund v. Van Vleck, 69 111. 478, a question arose 
 as to the liability of one partner for the tort of the other, 
 and it was held that one partner can not involve another 
 in a trespass unless in the ordinary course of their busi- 
 ness, and in a case where the trespass is in the nature of a 
 taking which is available to the partnership; and in such 
 case, to render the partner liable who did not join in the 
 commission of the trespass, he must afterwards have con- 
 curred, and received the benefit of it. Here no part of 
 the debt was collected by the commencement or prosecu- 
 tion of the proceedings against Barker, and it is not claimed
 
 ROSEXKRAXS v. BARKER 339 
 
 that a liability exists on account of receiving any benefit 
 from the arrest, and if Rosenkrans is to be held liable, it 
 is upon the ground that he was a member of the firm which 
 instituted the suit and caused the arrest. This, under the 
 authorities cited, can not be done. 
 Judgment reversed.
 
 340 PARTNER'S POWER TO BIND COPARTNER 
 
 LOTHROP V. ADAMS. 
 
 In the Supreme Judicial Court of Massachusetts, 
 
 1882. 
 
 133 Massachusetts Reports, 471. 
 
 Tort, in seven counts, against the proprietors of a 
 newspaper, called the Springfield Republican, for publish- 
 ing in said paper, at different times, false and malicious 
 libels of and concerning the plaintiff, a minister, in respect 
 to his treatment of his family. 
 
 The defendants asked the judge to rule, that express 
 malice of one of the defendants could not affect the other 
 defendants, unless it appeared that they participated in such 
 malice ; and if the jury should find a verdict on the ground 
 of express malice, they could find it as to those only who 
 were shown to be actuated by such malice. The judge re- 
 fused so to rule.^ 
 
 Field, J. : 
 
 In a civil action for a libel, before the passing of any 
 statute on the subject, the truth of the words published was 
 a defence, whether they were published with or without 
 malice; but if the words published were false, it was no 
 defence that the person who published them believed them 
 to be true, unless the communication was privileged. Ex- 
 cept, then, in cases of privileged communications, it was 
 generally true that evidence of actual malice or of the 
 want of actual malice was immaterial to the right of ac- 
 tion, and was admissible, if admissible at all, only for the 
 purpose of enhancing or diminishing the damages. 
 
 The Gen. Sts. c. 129, § yy, provide that, "In every 
 prosecution and in every civil action for writing or for 
 publishing a libel, the defendant may upon the trial give 
 
 ' Only so much of the Reporter's statement of facts and of the 
 opinion of Judge Field as relates to this refusal of the trial judge 
 are reprinted.
 
 LOTHROP z: ADAMS 341 
 
 in evidence the truth of the matter contained in the pubh- 
 cation charged as Hbellous; and such evidence shall be 
 deemed a sufficient justification, unless malicious intention 
 shall be proved." This is a reenactment of the St. of 1855, 
 c. 396. For previous statutes, see Rev. Sts. c. 100, § 19, c. 
 133, § 6; St. 1826, c. 107, §1. Since the passage of the'St. 
 of 1855, c. 396, the truth of the words published is no 
 longer an absolute defence ; the plaintiff may, notwithstand- 
 ing the words are true, maintain his action if he can show 
 that they were published with malicious intention. 
 
 The defendants in this case were copartners, engaged in 
 the publication of a newspaper. The court was requested 
 by the defendants to rule "that express malice of one of the 
 defendants could not affect the other defendants, unless 
 it appeared that they participated in such malice; and if the 
 jury should find a verdict on the ground of express malice, 
 they could find it as to those only who were shown to be 
 actuated by such malice." The court refused to give this 
 ruling. The statute undoubtedly, by using the words "ma- 
 licious intention," means an actual malicious intention, 
 which the defendants in their request properly enough de- 
 nominate "express malice." The malice which it has been 
 said the law ordinarily implies, in actions of slander or libel, 
 from the uttering or publishing of false defamatory words, 
 is in one sense a fiction, invented to satisfy the forms of 
 pleading. The words "express malice" have been used, in 
 contra-distinction to the malice which it was said the law 
 implies, to mean actual malice, or malice in fact, which is 
 the same thing as malicious intention. The correctness of 
 the ruling asked for must be determined by the rules of 
 law applicable to civil actions, in which a specific actual 
 intention or purpose must be shown to exist in order to 
 maintain the action. But it has been established, on much 
 consideration, as one of the general principles of the law 
 of agency, that the principal is liable civilly in damages for 
 the torts of his agent done for his benefit in the prosecution 
 of his business, and within the scope of the agent's employ- 
 ment, and this rule has been extended to wilful trespasses,
 
 342 PARTNER'S POWER TO BIND COPARTNER 
 
 fraudulent misrepresentations, malicious prosecutions and 
 libels. The greatest difficulty has been felt in extending this 
 liability to corporations aggregate. Rccd v. Home Savings 
 Bank, 130 Mass. 443, was an action of tort against a savings 
 bank for malicious prosecution. In the opinion Mr. Justice 
 Lord says, "By the great weight of modern authority, a 
 corporation may be liable even when a fraudulent or mali- 
 cious intent in fact is necessary to be proved, the fraud or 
 malice of its authorized agents being imputable to the cor- 
 poration;" and many authorities are cited. For additional 
 authorities when the action is for a libel, see Aldrich v. Press 
 Printing Co., 9 Minn. 133; Maynard v. Fireman's Fund 
 Ins. Co., 47 Cal. 207; Johnson v. St. Louis Dispatch Co., 
 2 Mo. App. 565. 
 
 The logical difficulty of imputing the actual malice 
 or fraud of an agent to his principal is perhaps- less when 
 the principal is a person than when it is a corporation; still 
 the foundation of the imputation is not that it is inferred 
 that the principal actually participated in the malice or 
 fraud, but, the act having been done for his benefit by his 
 agent acting within the scope of his employment in his 
 business, it is just that he should be held responsible for 
 it in damages. 
 
 As partners are the general agents of each other and 
 of the firm, within the scope of the business of the partner- 
 ship, we think a test of the question we are considering is 
 the liability of the proprietor of a newspaper in damages 
 for a libel maliciously published without his knowledge by 
 his agent, whom he has entrusted with the management of 
 the newspaper, and this we regard as well settled. Shcp- 
 heard v. Whitaker, L. R. 10 C. P. 502. Dunn v. Hall, i 
 Ind. 344. Andres v. Wells, 7 Johns. 260. Perret v. New 
 Orleans Times Newspaper, 25 La. An. 170. Storey v. Wal- 
 lace, 60 111. 51. 
 
 Smith V. Ashley, 11 Met. 367, rests on its own facts, 
 and decides nothing in reference to the liability of a prin- 
 cipal for the malicious acts of his agent, done for his bene- 
 
 I
 
 LOTHROP z: ADAMS 343 
 
 fit, in the prosecution of his business within the scope of his 
 employment. 
 
 Upon this ground of agency, partners have been held 
 liable in civil actions for the fraudulent or malicious con- 
 duct of one of them, done without the knowledge of the 
 others, for the benefit of the partnership and within the 
 scope of its business. Locke v. Stearns, i Met. 560. Gray 
 V. Cropper, i Allen, 337. White v. Sawyer, 16 Gray, 586. 
 Durant v. Rogers, 87 111. 508. Wolf v. Mills, 56 111. 360. 
 Chester v. Dickerson, 54 N. Y. i. Guilloti v. Peterson, 89 
 Penn. St. 163. Rex v. Marsh, 2 B. & C. 717, 723. 
 
 If the liability of the principal for the fraudulent acts 
 of the agent, done within the scope of his employment, be 
 limited to those cases in which the principal derives a bene- 
 fit from the act of the agent, and a corresponding limita- 
 tion be put upon the liability of one partner for the fraudu- 
 lent acts of another, done within the scope of the partner- 
 ship business, yet when a partnership publishes a newspaper, 
 whatever benefit, if any, is derived from the publication of 
 a libel is necessarily received by the partnership. 
 
 The statute requires that an actual malicious intention 
 in making the publication shall be found, if the matter pub- 
 lished be true; but we are of the opinion that the Legisla- 
 ture, in enacting this statute, did not intend to change the 
 rules of law whereby one person is made responsible in 
 damages for the wrongs done by another, but left them to 
 be applied according to the principles which govern the ad- 
 ministration of the law; and that the court rightly refused 
 to give the ruling requested. 
 
 Exceptions overruled.^ 
 
 ^Compare: Woodling v. Knickerbocker, 31 Minn. 268, 1883. (A 
 and B were in tlie furniture and drapery business. A, without the 
 knowledge or consent of B, placed, or allowed to be placed, on a 
 table in the street window of the store a placard reading as fol- 
 lows : "This was taken back from Dr. Woodling as he would not 
 pay for it;" and also placed about two feet from this placard an- 
 other, on which was written "Moral : Beware of deadbeats." The 
 person libelled sued A and B as partners. Held, he could not re- 
 cover from B as there was nothing in the nature of the business of 
 the firm "from which authority to one partner or to a servant to 
 gratuitously publish a libel can be implied.")
 
 344 PARTNER'S POWER TO BIND COPARTNER 
 
 WILLIAMS V. HENDRICKS. 
 In the Supreme Court of Alabama, 1896. 
 
 115 Alabama Reports, 277.^ 
 
 Coleman, J. — Section 3296 of the Code of 1886, 
 provides that "any person who cuts down any oak * * ''•' 
 on land not his own, willfully and knowingly, without 
 the consent of the owner of the land, must pay to the 
 owner ten dollars for every such tree," &c. The plain- 
 tiff, the appellee, sued to recover the statutory penalty for 
 cutting down thirty-four oak trees. The evidence shows 
 that the defendant and one Hinton were partners in get- 
 ting staves, and according to their agreement, the defend- 
 ant furnished the money for the partnership and Hinton 
 attended to the business of getting out the staves. He 
 furnished to defendant at regular stated periods the 
 amounts due parties from whom trees were purchased, and 
 also what was due for labor, and the defendant settled the 
 claims as thus reported. There was evidence tending to 
 show, that Hinton had no authority from defendant to cut 
 trees on any land except by agreement and purchase from 
 the owner, and that the trees in controversy were cut by 
 Hinton for staves without the knowledge and consent 01 
 the defendant. One of the questions involved in the case 
 was, whether the fact that defendant and Hinton were 
 partners in the stave business subjected the defendant to 
 the statutory penalty. * * * 
 
 If in the case at bar the plaintiff had sued to recover 
 the consequential damages sustained by the tortious cut- 
 ting of the trees by Hinton, the partner, we would with- 
 out hesitation, under the well settled principles (declared 
 in the foregoing cases), hold that defendant was responsi- 
 
 * The Reporter's statement of the facts is omitted.
 
 WILLIAMS V. HENDRICKS 345 
 
 ble for such damages, resulting naturally and proximately 
 from the tortious acts of his partner, done in the range of 
 the partnership business. The penalty is not imposed for 
 a mere mistake or negligence in cutting the trees. The 
 cutting must be done knowingly and willfully. Different 
 principles arise when it is sought to hold a principal re- 
 sponsible for the criminal acts of his agent or servant. 
 The act is highly penal, and must be strictly construed ; 
 and before a party can be subjected to its penalties, it must 
 clearly appear that he has violated it knowingly and will- 
 fully. It is not enough in such a case, that a partner or 
 servant, without his knowledge and contrary to instruc- 
 tions and against his assent, has committed the unlawful 
 act. To so hold would be to extend the statute by judicial 
 interpretation beyond its meaning and its positive terms. 
 
 [The Attorneys for the plaintiff had argued : 
 "Williams is liable by the relation of partner. — Allen 
 V. Lelghton, 87 j\Ie. 206. The requirement to enter sat- 
 isfaction of a mortgage is as penal as this case. Yet no- 
 tice to one member renders the other liable for the pen- 
 alty. — Williams v. Bowdin, 68 Ala. 126; Renfro v. Adams, 
 62 Ala. 305. The statute against cutting trees is no less 
 penal than that satisfying mortgages. — Postal Tel. Co. v. 
 Brantley, 107 Ala. 687."] 
 
 What was said in the case of Postal Telegraph Co. z\ 
 Brantley, 107 Ala. 683. and Ih. v. Lenoir, lb. 640, is wholly 
 correct when applied to the common law action for the 
 recovery of damages. A decision of the question now 
 considered was not before the court in either of those cases, 
 and what was said with reference to the liability of a prin- 
 cipal for the statutory penalty was merely dictum. Wc 
 have been referred to the case of Renfro & Andrezvs v. 
 Adams, 62 Ala. 302. where the action was for the recov- 
 ery of the penalty imposed for a failure to enter satisfac- 
 tion of a mortgage under section 2223 of the Code of
 
 346 PARTNER'S POWER TO BIND COPARTNER 
 
 1876. We approve of all that was said and decided in 
 that case. The mortgage was executed to the partnership 
 as a unit, and the action was against the partnership as a 
 unit. The statute imposed the penalty upon "any mort- 
 gagee who failed to enter satisfaction after notice by the 
 mortgagor." The duty was imposed upon the partnership 
 as mortgagee. The question was, whether notice to one 
 partner was notice to the partnership. We do not doubt 
 that it was correctly held to be sufficient. Under the one 
 act, mere negligence or failure to act incurs the penalty. 
 In the other, an affirmative act knowingly and willfully 
 done is necessary. 
 
 Reversed and remanded.^ 
 
 ^ Where the state imposes a penalty for "knowingly" violating 
 an Act, as the receipt of goods on which the duty has not been paid, 
 the innocent partner would apparently not be liable in an action for 
 the penalty, even though his co-partner took the goods in the course 
 of the business knowing them to be smuggled. The early English 
 cases against partners to collect the penalty for the violation of the 
 Revenue Laws are cases in which all the partners "knowingly" vio- 
 lated the Act. See Attorney General v. Burges, Bunb. 223, 1726; 
 King V. Manning, Com. Rep. 616, 1739. These cases are mistakenly 
 cited by Story for the proposition that the innocent partner in such 
 a case would be liable. See Story on Partnership, Sec. 166. 
 
 Where the state imposes a penalty for the violation of an Act, 
 without inserting the word "knowingly." it has been held that a 
 principal is liable to conviction on information where the Act was 
 violated by his servant acting in his business. Mullins v. Collins, L. R. 
 9, Q. B. 292, 1874. Compare: Newman v. Jones, L. R. 17, Q. B. D. 
 132, 1886. Apparently the same should hold true if the person vio- 
 lating the Act was the partner of the person against whom the in- 
 formation was brought. 
 
 All partners are, of course, liable in an action by the govern- 
 ment brought to recover the actual amount of the duties on goods 
 imported by the partnership, which, by mistake or fraud, have not 
 been paid. Attorney General v. Stranyforth, Bunb., 97, 1721. 
 
 1
 
 WHITTAKER v. COLLINS 347 
 
 WHITTAKER v. COLLINS. 
 In the Supreme Court of Minnesota, 1885. 
 
 34 Minnesota Reports, 399. 
 
 Mitchell, J. This is an action for damages caused 
 by the negligence and nnskilfuhiess of defendant as a phys- 
 ician and surgeon. It appears from the complaint, in sub- 
 stance, that defendant and one Graff were copartners as 
 practising physicians and surgeons ; that, plaintiff's leg 
 having been broken, he employed the firm to set it, and 
 to care for and treat him professionally; that part of the 
 time Graff attended him, and did his work skilfully; that 
 the remainder of the time his partner, the defendant, at- 
 tended the plaintiif, and performed his duties negligently 
 and unskilfully, causing the injuries complained of. Both 
 were acting in the line of their partnership business, and 
 imder and in pursuance of the employment of the firm pro- 
 fessionally by the plaintiff. 
 
 The court below having sustained a demurrer to the 
 complaint on the ground of a defect of parties defendant, 
 the sole question raised by this appeal is whether Graff, 
 defendant's partner, should have been made a party de- 
 fendant. The admitted rule is that in actions on contract 
 all persons jointly liable must be sued, but that in actions 
 for tort, disconnected from any contract, the tort-feasors 
 need not be joined. The question is, what rule applies in 
 what are sometimes called actions for torts founded on 
 contracts, or actions ex quasi contractu f 
 
 The principle running through all the cases seems to 
 be that where the action is maintainable for the tort simply, 
 without reference to any contract between the parties, the 
 action is one of tort purely, although the existence of a 
 contract may have been the occasion or furnished the op-
 
 348 PARTNER'S POWER TO BIXD COPARTNER 
 
 portunity for committing the tort. But where the action 
 is not maintainable without pleading and proving the con- 
 tract, — where the gist of the action is the breach of the 
 contract, either by malfeasance or nonfeasance, — it is, in 
 substance, whatever may be the form of the pleading, an 
 action on the contract, and hence all persons jointly liable 
 must be sued, i Chit. PI. 87 ; Pomeroy on Remedies, § 282 ; 
 Dicey, Parties, 437 ; i Lindley on Partnership, 482 ; 2 Coll- 
 yer, Partnership, § 732; Pozvell v. Layton, 2 Bos. & Pul. 
 365; Max V. Roberts, Id. 454; Cabell v. Vaiighan, i Wms. 
 Saund. 288/i^ ^9^^, 291/; Weall v. King, 12 East, 452; 
 Bretherton v. Wood, 3 Brod. & B. 54; Walcott v. Canfield, 
 3 Conn. 194. 
 
 According to this test it seems to us clear that this is 
 an action on the contract. The gist and gravamen is the 
 breach of its terms, which, whether express or implied, 
 were that these physicians and surgeons would treat the 
 plaintiff with ordinary professional skill and care. It 
 would have been impossible for plaintiff to state his cause 
 of action without alleging the contract, for the liability of 
 the defendant arose solely out of it, and not out of some 
 general common-law duty independent of contract. 
 
 The only cases which appellant cites in support of 
 his contention are Govett v. Radnidge, 3 East, 62, and White 
 v. Smith, 12 Rich. 595. The first of these cases has been 
 overruled, and is no longer considered law. The latter 
 was an action for damages for the loss of a slave killed 
 through the negligence of a partnership, while in their 
 charge under a contract of hire. The court placed its de- 
 cision wholly upon the ground that the gravamen of the 
 suit was not the contract, but the negligence of the de- 
 fendant, and that the contract was mere matter of recital 
 to explain that the slave was in charge of the defendant, 
 and adds: "Proof of any other process by which the 
 charge resulted would have been admissible." At least 
 this is the ground upon which the court decided the case,
 
 WHITTAKER v. COLLINS 349 
 
 and is the only one upon which the decision can be sus- 
 tained, if at all. But in the case at bar the foundation of 
 the action is the contract, and the gravamen of it its breach. 
 There is no force in the suggestion that Graff was not a 
 necessary party because personally innocent. This same 
 suggestion was made by counsel in Powell v. Layton, supra. 
 The act of one partner in the line of the copartnership busi- 
 ness is the act of all. 
 Order affirmed.
 
 350 PARTNER'S POWER TO BIND COPARTNER 
 
 PAGE V. CITIZENS' BANKING CO. 
 In the Supreme Court of Georgia, 1900. 
 
 Ill Georgia Reports, 1Z- 
 
 Cobb, J. Page brought suit against Ashburn, Pea- 
 cock, Edwards, Lietch, Williams, Rogers, and the Citizens' 
 Banking Company of Eatonton, which was alleged to be 
 a partnership composed of the five persons first above 
 named. The petition contained three counts, one for mali- 
 cious prosecution, one for malicious arrest, and one for 
 false imprisonment.^ 
 
 The facts alleged in each of the counts were, in sub- 
 stance, as follows : Rogers was the sheriff of the county, 
 and as such had levied a mortgage execution in favor of 
 the Citizens' Banking Company against petitioner upon a 
 certain stock of goods, which was in the possession of 
 the sheriff under the levy at the former place of business 
 of petitioner. Lietch and Rogers united in making an affi- 
 davit that "thirty-one suits of men's clothing have recently 
 been taken from the storehouse occupied by J. D. Page and 
 held in custody of J. C. Rogers, sheriff of Dodge county, 
 Georgia, under levy of a mortgage fi. fa., and now occu- 
 pied by W. H. Clements, and the same has been taken by 
 criminal means and carried away, and that they believe 
 and have probable cause to believe that the said property 
 is now concealed in the dwelling and premises occupied by 
 J. D. Page, located on College street, in the town of East- 
 man." On this affidavit a warrant was issued, directing 
 that the house and premises of Page be searched, and, if 
 the property described in the affidavit be found therein, that 
 he be arrested and, together with the property so found, 
 
 ' Only so much of the opinion as relates to the demurrer to the 
 count for malicious prosecution is reprinted.
 
 PAGE V. CITIZENS' BAXKING CO. 351 
 
 brought before some judicial officer, to be dealt with as 
 the law directs. It was distinctly alleged in the petition 
 that when Lietch and Rogers made this affidavit they were 
 acting for themselves as well as for the Citizens' Banking 
 Company, and with the approval and by the direction oi 
 each member of that partnership. The warrant issued on 
 this affidavit was placed in the hands of the town marshal 
 and county bailiff, and the house and premises of petitioner 
 were thoroughly searched. None of the property described 
 in the affidavit was found therein, but the officer seized 
 three pieces of dress flannel and two suits of children's 
 clothes, and arrested petitioner. Subsequently to i\\z ar- 
 rest, the bailiff, with other persons, returned and made 
 another search of the premises, but found none of the prop- 
 erty described in the affidavit. Petitioner was taken before 
 a justice of the peace, when Lietch, Edwards, and Wil- 
 liams, acting for themselves and for the other members of 
 the firm, appeared to prosecute plaintiff, with an attorney 
 who was employed by the Citizens' Banking Company as 
 a partnership and each and all of the members of the same. 
 In pursuance of that employment such attorney did repre- 
 sent the prosecution against the plaintiff from its incep- 
 tion to its termination. Petitioner asked that he be re- 
 leased from custody, on the ground that the affidavit upon 
 which the warrant was issued was defective and void and 
 failed to charge any offense against him, and that for that 
 reason his arrest and detention were unlawful. Lietcii, 
 Edwards, and Williams objected to the release of peti- 
 tioner, and the magistrate refused to order his discharge. 
 He then asked for an immediate investigation or prelim- 
 inary trial, but the parties just referred to objected to this, 
 and upon their application the hearing was continued to 
 the next day. To avoid being placed in jail, petitioner 
 offered to give a bond for his appearance, but the magis- 
 trate held that a bond must be given to appear and answer 
 for the offense of larceny, and petitioner gave the bond
 
 352 PARTNER'S POWER TO BIXD COPARTNER 
 
 to appear for a preliminary hearing on the next day for 
 the offense of larceny. 
 
 At the time fixed for the preliminary trial, Rogers, 
 Lietch, Edwards, and Williams, acting for themselves and 
 with the approval of Ashburn and Peacock, the other mem- 
 bers of the partnership, again appeared with their attorney 
 before the magistrate for the purpose of prosecuting peti- 
 tioner, and on their motion the case was again continued 
 until the following day, over the objection of petitioner, 
 who was present and demanding a hearing. At the time 
 fixed in this last order of postponement, petitioner appeared 
 with his counsel before the magistrate, and thereupon the 
 prosecution, by their attorney, asked leave of the court to 
 withdraw the warrant and to restore to petitioner the arti- 
 cles which had been seized by the officer who searched his 
 house ; the attorney representing the prosecution stating 
 that it was impossible to make out a case. An order was 
 then granted, discharging petitioner from custody, and re- 
 storing to him the articles which had been seized. It was 
 distinctly alleged that while Rogers and Lietch, the per- 
 sons upon whose affidavit the warrant was issued, were the 
 nominal prosecutors of petitioner, Ashburn, Edwards, Wil- 
 liams, and Peacock, and the Citizens' Banking Company 
 as a partnership, were all jointly and severally the prose- 
 cutors in the case. Petitioner alleges that he was inno- 
 cent of any offense, and that he did not take and carry 
 away any of the articles named in the affidavit, nor were 
 any of them concealed in his dwelling or about his prem- 
 ises, and that the prosecutors had no probable cause what- 
 ever to believe that the same were so concealed ; that the 
 articles seized by the officer constituted no part of the prop- 
 erty mentioned in the affidavit, but were the property of 
 petitioner, his wife and children, and had never been in 
 the possession or custody of Rogers. Petitioner was in 
 actual custody of the arresting officers for several hours, 
 and was in their constructive custody for forty-three hours
 
 PAGE z: CITIZENS' BANKING CO. 353 
 
 before lie was released. It is alleged that the prosecu- 
 tion was maliciously instituted and carried on without 
 probable cause, the prosecutors having no ground what- 
 ever for the proceeding, other than their desire to injure 
 petitioner. As matter of aggravation and as evidence of 
 malice, it is alleged that the defendants circulated dispar- 
 aging and damaging reports about petitioner, charging that 
 large quantities of goods stolen from the custody of the 
 sheriff had been found by the officers in the house of peti- 
 tioner, that he had a secret key to the store in which such 
 goods were located, and that he had taken such goods. 
 
 To this petition the defendants filed demurrers, both 
 general and special. The court sustained the demurrers 
 and dismissed the petition, and this ruling is assigned as 
 error. * * * 
 
 I. Is a partnership ever liable as such in an action 
 for a malicious prosecution? If so, under what circum- 
 stances can such an action be maintained ? One partner 
 may be rendered liable for the acts of his copartner. 
 Whetlier or not he is so liable is to be determined by the 
 application of the rules governing the relation of principal 
 and agent ; and generally the partnership is liable for the act 
 of one of the partners if it would have been liable had the 
 same act been committed by an agent intrusted by the firm 
 with the management of its business. 17 Am. & Eng. Enc. 
 L. (ist ed.) 1066. If a tort be committed by one partner 
 while engaged in a transaction within the scope of the part- 
 nership business, and such tort be committed in furtherance 
 of the interests of the partnership, it will be liable. But it 
 will not be liable for a tort committed by one partner in a 
 transaction outside of the partnership business, where he 
 acts from his own private malice or ill will, unless the act 
 which constituted the tort was authorized by the members 
 of the partnership or subsequently ratified by them, the act 
 itself having been done in their behalf and interest. Mechem, 
 El. Part. §§ 204, 201;: Parsons, Part. (4th ed.) §§ 100, 102;
 
 354 PARTNER'S POWER TO BIND COPARTNER 
 
 I Bates, Part. § 461; i Lindley, Part. §§ 149, 150; i Jag. 
 Torts, § 99; Barbour, Part, to Ac. (2d ed. ) ch. 2, § 13, top 
 p. 350. The authorities just cited estabhsh simply that as a 
 partnership is an aggregation of individuals, where each one 
 is the authorized agent of the others to perform any act 
 within the scope of the partnership enterprise, if one of 
 them in the prosecution of the business of the partnership 
 be guilty of a wilful wrong toward another, the other part- 
 ners will be liable; and that if one partner is guilty of an act 
 outside of the partnership business, which causes an injury, 
 the other partners will not be liable unless it appear that 
 such act was expressly authorized by them, or after the same 
 had been performed in their behalf and interest they had 
 either expressly ratified the same or knowingly received the 
 fruits of the wrongful act. Applying these principles to the 
 present case, the petition set forth a cause of action as 
 against the individuals who compose the partnership known 
 as the Citizens' Banking Company, and the plaintiff has a 
 right to maintain the action, so far as the count for mali- 
 cious prosecution is concerned, against the individuals com- 
 posing that partnership. But the suit is not only against the 
 individuals; it is against the partnership itself, and a judg- 
 ment is sought against the partnership itself as well as 
 against the individual members who compose it. It is well 
 settled that a corporation is liable for torts committed by its 
 agents, such as assault and battery, libel, malicious prosecu- 
 tion, and the like. Bchrc v. National Cash Register Com- 
 pany, 100 Ga. 213; I Lawson's Rights & Rem. § 367; 
 Newell, Mai. Pros. § 102; Cohimbiis & Rome Ry. Co. v. 
 Christian, 97 Ga. 56; Ga. R. R. & Bank. Co. v. Richmond, 
 98 Ga. 495. Whether a partnership can be sued as such and 
 held liable for a tort in the commission of which all of the 
 members united for the purpose of furthering the interests 
 of the partnership, or whether in such a case the indixiduals 
 only are liable to be sued, either jointly or severally, is a 
 cjuestion which is for the first time presented to this court
 
 PAGE Z-. CITIZENS' BANKING CO. 355 
 
 for decision. Can a partnership itself be regarded as being 
 so separate and distinct from the individual members of the 
 same that it may be treated as the wrong-doer, and a judg- 
 ment be rendered against it which would bind partnership 
 assets in the same manner that a judgment rendered against 
 it on a contract would bind such assets? 
 
 A corporation is a person, and therefore it is clear that the 
 decisions uniformly holding that it may be rendered liable 
 for a tort committed by its agent are undoubtedly sound. 
 ''Though a firm or partnership is not a person, it is a legal 
 entity, and, for some purposes, is recognized as a quasi 
 person having powers and functions exercisable by one of 
 the partners severally or all of them jointly." Drticker v. 
 JVcUhonsc, 82 Ga. 129. In the opinion in the case just cited 
 'Mr. Chief Justice Bleckley says : "A firm adds nothing to 
 population, and in this respect is unlike a corporation, which 
 augments population in the legal, though not in the natural 
 world. Still, the law does take note, on a wide scale, of 
 partnership as a legal entity, and regards it as a unit both 
 of rights and obligations. Judgment may be entered and 
 execution issue for or against it. Code, §§ 1899, 3576. 
 [Civil Code, §§ 2638, 5346.] Attachment may issue 
 against it as non-resident, Chambers z's. Sloan, 19 Ga. 84; 
 DcLcon V. Heller, yj Ga. 740; or as absconding, Hines v. 
 Kimball & Co., 47 Ga. 587. It may be served with process, 
 Peel z's. Bryson, J2 Ga. 332. It may be taxed. The Mayor 
 vs. Hines, 53 Ga. 616; and see many provisions in the 
 session laws imposing taxes. It may be insolvent. Code, 
 § 1918 [Civil Code, § 2660] ; Bennett vs. Woolfolk, 15 Ga. 
 213 ; Daniel vs. Townsend, 21 Ga. 155 ; Piillen vs. Whitfield, 
 55 Ga. iy4; Anderson vs. Pollard, 62 Ga. 51. It may assign 
 its property to pay its creditors, but whether b}- general law 
 a single partner can make for it a general assignment seems 
 open to question. Bur. on Ass. § 67 et seq.; Story Par. 
 §§ loi, 310; Parsons Par. 165, 166, 400. As to restrictions 
 on limited partnerships in the matter of assignments, see
 
 356 PARTNER'S POWER TO BIND COPARTNER 
 
 Code, §§ 1939, 1940 [Civil Code, §§ 2681, 2682], Accord- 
 ing to Parsons (Partnership, 449), there is a 'general tend- 
 ency of the law at this day to complete its recognition of a 
 parnership as a body of itself, with its own means appointed 
 to its own debts. In view of this tendency, which is ever^-- 
 where traceable, and no less in our own local system than 
 elsewhere, we may safely hold that though a firm or part- 
 nership is impersonal or non-personal, it is, for some pur- 
 poses, in contemplation of law a quasi person, having 
 powers and functions exercisable by one of the partners 
 severally or all of them jointly. That it may be a debtor or 
 a creditor within the meaning of modern statutory enact- 
 ments, we have no question." In that case it was held that 
 an insolvent firm might make an assignment as an insolvent 
 debtor, though the partners themselves as individuals might 
 be solvent. See also Green v. WiUingham, 100 Ga. 224. If 
 a partnership may be considered as an entity so as to be 
 subjected to suit as such in the cases referred to in the 
 decision from which the above quotation is made, we do not 
 see why upon principle a partnership might not be treated as 
 an entity and suable as such by one who had been the subject 
 of a wrong committed by the concurrent action of all the 
 members of the partnership, in the prosecution of a transac- 
 tion instituted and carried on for the purpose of punishing 
 one who was charged with despoiling the partnership of its 
 property as well as for the purpose of recovering property 
 which was owned by the partnership. Such is the case 
 made by that count in the petition which seeks damages for 
 the malicious prosecution which it is distinctly alleged was 
 instituted and carried on by the direct authority of each and 
 every member of the partnership acting both in their indi- 
 vidual capacities and as members of the firm. 
 
 It has been held that if one partner maliciously prose- 
 cutes a person for stealing partnership property, the firm is 
 not answerable, unless all the members are in fact privy to 
 the malicious prosecution. Arbuckle v. Taylor, 3 Dowl. 
 
 A
 
 PAGE z'. CITIZENS' BANKING CO. 357 
 
 1 60, cited in Newell on Malicious Prosecution, § 103. It 
 would seem to follow from this ruling, that if all of the 
 members united in instituting and carrying on the prosecu- 
 tion, the firm would be answerable ; and such are the allega- 
 tions in the present case. In nearly all of the cases where it 
 is sought to hold the partnership liable for a tort, upon 
 examination of the fates it will be found that the suit was 
 not against the partnership as such, but was against one or 
 more members thereof sued severally or jointly, as the case 
 may be. See Durant z'. Rogers, 87 111. 508 ; Rosenkrans z'. 
 Barker, 3 N. E. (111.) 93; Farrell v. Friedlander, 18 N. Y. 
 Supp. 215; United States v. Thomason, 4 Bissell, 99. In 
 some of the cases just cited it was ruled that under the facts 
 of the case the partnership was liable, and in others that it 
 was not. Attention is called to them for the purpose, as 
 above indicated, of showing that they are not authority 
 either way on the proposition as to whether a partner- 
 ship can be sued as such for a tort. In Schwabacker v. 
 Riddle, 84 111. 517, it was held: "Partners are liable in 
 solido for the torts of one, if committed by him as a partner 
 and in the course of the business of the partnership." A 
 ruling in almost identical language was made in Mcllroy r. 
 Adams, 32 Ark. 315. Upon examination of these cases it 
 will be found that the suit in each instance was against the 
 individuals and not against the partnership. In the matter 
 of Ketchum and others. Bankrupts, i Fed. Rep. 815, it was 
 held that a firm was liable if one of its members converted 
 to the use of the firm the property of another, and that it 
 was immaterial whether the other members of the firm 
 were ignorant of the wrong or innocent of any wrongful 
 intent. There was in that case, however, no ruling as to 
 how a suit for such wrongful conversion should be brought, 
 whether against the partnership as such or against the indi- 
 viduals composing the same. The only cases to which our 
 attention has been called in which the partnership as sujh 
 was sued for a tort are the cases of Mark v. Hastings. 13
 
 358 PARTNER'S POWER TO BIND COPARTNER 
 
 So. Rep. (Ala.) 297, and Kirk v. Garrett, 84 Md. 383. In 
 the former it was held : "A partner is not liable for a mali- 
 cious prosecution instituted by his copartner on a charge of 
 larceny of partnership property, unless he advises or directs 
 it, or participates therein, and then only in his individual 
 capacity." In the latter case it was held that under the facts 
 of that case the firm was not liable, but the judge who wrote 
 the opinion recognized that there were cases in which it 
 might be held liable for the torts of its members. See page 
 410. While the prosecution of a person for a criminal 
 offense might not be within the scope of a mercantile part- 
 nership, even though such offense consisted of a larceny of 
 the partnership property, as was held in the Alabama case, 
 supra, still it would seem that any proceeding authorized by 
 law for the purpose of reclaiming property of the partner- 
 ship which had been stolen would be within the scope of the 
 partnership business, and each partner would be authorized 
 to use such remedies as the law gave for that purpose ; and 
 if these remedies were pursued maliciously and without 
 probable cause and a prosecution for a public offense re- 
 sulted therefrom, the partnership as such would be liable in 
 an action of malicious prosecution. But be this as it may, it 
 is not necessary for us to decide this question in the present 
 case, for the allegations of the petition are clear and distinct 
 that every act that was done by the partner who sued out 
 the search warrant was authorized and directed by each and 
 every other member of the firm acting in behalf of the part- 
 nership. Treating the partnership as a legal entity and as a 
 quasi person, as we are not only authorized but bound to do, 
 following the decision in Druckcr V. Wcllhoiise, supra, we 
 have no hesitancy in holding that under the allegations of 
 the petition an action for malicious prosecution was main- 
 tainable against the Citizens' Banking Company as a part- 
 nership, and that the plaintiff is entitled under his allega- 
 tions to recover a judgment which will bind partnership 
 assets. 
 
 Judgment reversed.
 
 MANUFACTURERS' & MECHANICS' BANK v. GORE 359 
 
 SECTION 4.— LIABILITY IN QUASI CONTRACT 
 AND IN EQUITY. 
 
 MANUFACTURERS' AND MECHANICS' BANK v. 
 
 GORE. 
 
 In the Supreme Judicial Court of Massachu- 
 setts, 1818. 
 
 15 Massachusetts Reports, 75.' 
 
 Parker, C. J., delivered the opinion of the Court. — 
 We think the principle, that when, by means of a felony, 
 one has been deprived of his property, the civil remedy is 
 merged in the felony, if existing in full force in this coun- 
 try, in the manner laid down in some of the English author- 
 ities, does not apply to this action ; which is not founded 
 upon a felony, but upon a common contract for the loan 
 of money, in which the lender has been deceived by the 
 borrower, and deprived of the security upon which the loan 
 was assented to. How far the principle may be applicable 
 to a different class of these unfortunate cases, which have 
 been argued at the present term, we do not determine; as 
 those actions are too important in their consequences to be 
 decided while a particle of doubt remains in the minds of 
 any of the Court. 
 
 The facts in this case show that the defendant Grafton 
 proposed to the bank to present a note, in which he and 
 his partner should be promisors, and Mr. dishing and Mr. 
 Scuddcr endorsers, for discount; that, the proposal being 
 agreed to, a note was made by Grafton, in the name of 
 the house of Gore & Grafton, purporting to be payable to 
 Thomas Gushing; that Grafton, having forged the names 
 of the supposed endorsers, presented it to the bank for 
 
 'The Reporter's statement of the facts is omitted.
 
 360 PARTNER'S POWER TO BIXD COPARTNER 
 
 discount; and that the amount, deducting the discount, 
 was passed, in the bank books, to the credit of Gore & 
 Grafton, they being indebted to the bank on other notes 
 previously given in the same manner, on which similar 
 forgeries had been committed by Grafton. [Gore did not 
 have any knowledge of Grafton's crimes.] 
 
 The bank, findiiig the security upon which they had 
 agreed to make the loan had failed, by reason of the for- 
 gery of the names of the endorsers, and that they had thus 
 been defrauded of a large sum of money, commenced this 
 action, declaring for money had and received, and for 
 money lent and accommodated, although the term of credit 
 agreed upon the loan had not expired. They do not claim 
 tlirough the crime of Grafton; and it is immaterial to them, 
 for the purposes of this suit, whether the security failed 
 because of the forgery, or because the ability of the en- 
 dorsers was not such as may have been represented, to in- 
 duce them to make the loan. 
 
 It is a case, as respects the plaintiffs, of money ob- 
 tained from them by misrepresentation and fraud; and we 
 think the only question is, whether, upon a loan thus ob- 
 tained, although upon credit, the bargain may not be dis- 
 affirmed by the lender, and an action presently commenced 
 for money so obtained, as had and received, in a legal 
 view, to his use. And upon this point we have no doubt; 
 and we believe the doctrine has been generally received 
 and practised upon in this commonwealth, that, when goods 
 are purchased upon credit, or money borrowed, and the 
 security agreed upon by the parties turns out to be of no 
 value, and different from what it was represented to be by 
 the debtor, it may be treated as a nullity, and an action 
 will lie immediately for the sum it was intended to secure. 
 
 T~ 'p -T^ 't* 
 
 The case, then, is too clear to be doubted, as it re- 
 spects Grafton, in the enormous frauds committed upon 
 those with whom he dealt. How does it stand with re-
 
 MANUFACTURERS' & MECHANICS' BANK v. GORE 361 
 
 spect to Gore, the innocent victim? — We regret to say, 
 equally clear. The partnership was general. Grafton was 
 the business man out of the store; all the business at the 
 banks, and in obtaining credits of individuals, was managed 
 by him. He had full right to bind the firm to any extent, 
 in contracts for the use of the partnership. The proceeds 
 of these very notes were placed to the credit of the house 
 in the books of the bank, and actually went to their use, 
 to pay preexisting debts in the bank. So the jury must 
 have found; and the facts warrant the finding. We con- 
 sider the direction of the judge on both points correct in 
 point of law, and that the verdict was a necessary result 
 from the facts proved in the case. 
 Judgment on the verdict.^ 
 
 * Compare: Strang v. Bradncr, 114 U. S. 555, 1884. (The Bankrupt 
 Act of 1867 excepted from the operation of a discharge any "debt 
 created by the fraud * * * Qf ^]^^ bankrupt." D and E were part- 
 ners in the wool commission business. A, B and C were partners m 
 the business of purchasing wool, which they sent to D and E to sell 
 for their account. D and E, for the accommodation of A, B and C, 
 sent to them from time to time notes on which A, B and C 
 raised money for their own use. D and E met the notes at maturity out 
 of the proceeds of the sale of the wool and out of their own funds, cred- 
 iting A. B and C with the notes, and the price received for the wool, 
 and debiting them with the amounts paid on the notes. A, B and C 
 asked D and E for four notes of about $4000 each. The notes were 
 sent and also a consignment of wool. A, without the knowledge of B 
 and C, wrote in the name of the firm to D and E, saying that the notes 
 could not be used and asking for others in their place. D and E com- 
 plied with this request. A placed both sets of notes in circulation, and 
 the proceeds of both sets of notes went into the business of A. B and 
 C. A, B and C were declared bankrupts. D and E had to meet all the 
 notes at maturity. A, B and C were discharged. D and E brought a 
 suit against A, B and C for the amount lost as a result of their sending 
 the second series of notes. The defendants pleaded their discharge. On 
 appeal, held, that the discharge could not be pleaded by any of the 
 defendants. Harlan, J.: "Whether this action be regarded as one to 
 recover damages for the deceit practised upon the plaintiffs, or as one 
 to recover the amount of a debt created by fraud upon the part of [.\], 
 we are of opinion that his fraud is to be imputed, for the purposes of 
 this action, to all the members of the firm." P. 561. yoic. that the 
 Bankrupt Act of i8g8 provides that a discharge ^hall release the 
 bankrupt from all debts except such as "(.2) are liabilities for obtaining 
 property by false pretenses or false representations * * * ; or (4) 
 were created by his fraud, embezzlement, misappropriation, or defalca- 
 tion while acting * * * in any fiduciary capacity.")
 
 362 PARTNER^S POWER TO BIND COPARTNER 
 
 Ex Parte HEATON. 
 In the High Court of Chancery, 1819. 
 
 I Buck's Cases in Bankruptcy, 386. 
 
 Moxon and his two sons carried on business together 
 in partnership. The sons were trustees named in a will 
 for the sale of certain real estates. They sold the estates, 
 and instead of applying the monies arising from the sales 
 according to the trusts of the will, they appropriated them 
 to partnership purposes. A commission of bankrupt is- 
 sued against Moxon and his two sons, and it was admitted 
 that there was not any separate estate. This was a peti- 
 tion on behalf of the cestui que trusts, who were infants, 
 by their father, to prove against the joint estate, the amount 
 of the monies so appropriated by the sons.^ 
 The Vice Chancellor [Sir John Leach] : 
 Those who receive trust property from a trustee, in 
 breach of his trust, become themselves trustees, if they 
 have notice of the trust. If the monies arising from the 
 sale of these trust estates were applied to the partnership 
 purposes with the knowledge of Moxon, the father, the 
 firm would become implied trustees, and then the cestui que 
 trusts might proceed either against the sons, as actual trus- 
 tees, or against the firm, as implied trustees; but there is 
 no evidence that the funds were so appropriated with the 
 knowledge of the father. I shall therefore direct an in- 
 quiry as to that fact.^ 
 
 * The Reporter's notes of the argument of counsel for the petition are 
 omitted, as is that portion of the opinion of the Court which deals with 
 a question arising out of the infancy of one of the trustees. 
 
 ' In accordance with the intimation in our principal case, where one 
 partner, with the knowledge of his co-partners, brings into the firm as 
 his contribution to the capital monies which he holds as trustee, the 
 cestui que trust may obtain in a bill brought against all the partners an 
 accounting for all the profits made by the improper employment of the 
 funds of the trust in trade. Flockton v. Bunning, L. R. 8 Ch. App. Cas.
 
 EX PARTE HEATON 363 
 
 2,22,, note, 1864. Where money belonging to a trust estate is improperly 
 loaned by the trustee to a firm, though the members of the firm are cog- 
 nizant of the breach of trust, they cannot be made to account in equity 
 for the profits made in the business as a result of the use of the money; 
 they are merely liable for the return of the loan with interest: Stioud 
 V. Gwyer, 28 Beav., 130, i860, per Romilly, M. R., p. 141 ; Rau v. Small, 
 144 Pa. 304, 1891. In the Pennsylvania case cited the trustee loaning tjie 
 money was a member of the firm. Where this is the case the trustee is 
 himself liable for the profits he has received as a member of the firm as 
 a result of the use of the money; but he is not liable for the profits 
 received by the firm or his co-partners. Vyse v. Foster, L. R. 8 Ch. App. 
 Cas, 309, 1870; Seguin's App., 103 Pa. 139, 1883. As a man who borrows 
 for the purposes of trade money from a trustee is not according to these 
 cases regarded as a constructive trustee of the profits which he makes 
 as a result of the use of money, a fortiori it would be impossible, 
 where one or more of the partners were ignorant of the impropriety of 
 the loan, to make the firm or the innocent partners account for the 
 profits made in the use of the money.
 
 364 PARTNER'S POWER TO BIND COPARTNER 
 
 MARSH z'. KEATING. 
 In the House of Lords, 1834. 
 
 2 Clark and Finnelly's Reports, 250. 
 
 An action of assumpsit for money had and received 
 brought by Ann Keating against WilHam Marsh, J. H. 
 Stracey, and George Graham. By the special verdict, 
 taken by consent, the following facts were found : 
 
 The defendants, with one Henry Fauntleroy, were 
 partners in the banking business, trading as Marsh & Co. 
 Ann Keating owmed 12, cool, interest or share in the joint 
 stock called Reduced Three per Cent. Annuities of the 
 Bank of England. She gave to Marsh & Co. a power of 
 attorney to collect the interest on the stock. The business 
 of Marsh & Co. was transacted by Fauntleroy. He or- 
 dered T. B. Simpson, a stock broker, to sell 9000I. of the 
 Annuities standing in the name of Ann Keating; the Annui- 
 ties were transferred into the name of the purchaser, W. 
 B. Tarbutt, by the Bank at the direction of Fauntleroy, 
 the latter presenting to the Bank a power of attorney, which 
 purported to be signed by Ann Keating, authorizing the 
 defendants and Fauntleroy jointly and each of them sev- 
 erally to transfer 9000I. of her Annuities to Tarbutt. The 
 signature to the power of attorney was a forgery. Faunt- 
 leroy received from Simpson a check to the order of Marsh 
 & Co. for 6,0131. 2s. 6d., being the amount paid by Tar- 
 butt less one-half the usual broker's commissions. The 
 firm of Marsh & Co. kept an account with IMartin, Stone 
 & Co., bankers. Fauntleroy deposited the check received 
 for the sale of the Annuities with Martin, Stone & Co., 
 the latter crediting the amount to Marsh & Co. as "cash 
 per Fauntleroy" on the pass book of the firm. The trans- 
 action, however, was never noted on any other book of
 
 MARSH V. KEATING 365 
 
 account kept by the firm. The defendants were ignorant 
 of the forgery of Faiintleroy. Fauntleroy paid in and 
 drew out of Martin, Stone & Co. in the name of Marsh 
 & Co. considerable sums for his own individual use. These 
 transactions, like the deposit of the money received from 
 Simpson, appeared on the pass book of the firm of Marsh 
 & Co., but did not appear in any other account book of 
 the firm. Fauntleroy was indicted for other forgeries, 
 found guilty and executed. 
 
 The defendants were bankrupts. The present action 
 was brought as a result of a direction of the Lord Chancel- 
 lor, in order to determine whether Ann Keating, who had 
 proved her debt under the commission, should have her 
 proof expunged. 
 
 Judgment was entered in the Court of King's Bench, 
 without argument, for the plaintiff. This judgment, also 
 without argument, was affirmed by the Exchequer Cham- 
 ber. 
 
 The Defendants below accordingly brought their Writ 
 of Error in Parliament. The Lords having considered the 
 case proper for the assistance of the Common Law Judges, 
 the following learned Judges attended the House during 
 the arguments : Chief Justice Tindal, Mr. Justice Park, 
 Mr. Baron Bayley, Justices Bosanquet, Gaselee, Littledale, 
 Taunton, Vaughan. J. Parke, and Patteson, and Barons 
 Bolland and Gurney.^ 
 
 The Lord Chancellor moved the postponement of the 
 case for further consideration. 
 
 His Lordship then suggested the points which he rec- 
 ommended to be comprised in the questions, which are 
 stated in the subjoined opinion. 
 
 Mr. Justice Park now delivered the opinion of the 
 Judges : — The question which your Lordships have been 
 pleased to propose for the opinion of His Majesty's Judges, 
 amounts in substance to this, — whether the produce of 
 
 ^ The facts are restated, and the arguments of counsel omitted.
 
 366 PARTNER'S POWER TO BIND COPARTNER 
 
 Stock formerly standing in the name of Mrs. Ann Keating, 
 the Plaintiff below, but transferred out of her name on 
 the 29th of December 1819, without her authority, and 
 under a power of attorney which had been forged by one 
 of the partners of the Defendants below, the bankers of 
 Mrs. Keating, which partner has been since convicted and 
 executed for another forgery, can, under the circumstances 
 stated in the special verdict, be considered as money had 
 and received by the surviving partners to the use of the 
 Plaintiff below, and be recovered by her in that form of 
 action. And after hearing the argument at your Lord- 
 ships' bar, and consideration of the facts stated in the 
 special verdict, all the Judges who were present at the 
 argument, including the Lord Chief Justice of the Com- 
 mon Pleas, who is absent at Nisi Prius, and Mr. Baron 
 Bayley, who has resigned his office since the argument, 
 agree in opinion that such question is to be answered in 
 the affirmative. * * *" 
 
 The general proposition, that where a party who has 
 been injured has different remedies against different per- 
 sons, he may elect which of them he will pursue, is not 
 called in question. If the goods of A are wrongfully taken 
 and sold, it is not disputed that the owner may bring 
 trover against the wrong-doer, or may elect to consider 
 him as his agent, may adopt the sale, and maintain an ac- 
 tion for the price; but it is objected that such general rule 
 will not apply to the present case, on various grounds 
 of objection which have been advanced on the parts of the 
 Defendants in the action. 
 
 Those objections appear to resolve themselves sub- 
 stantially into four: first, it has been urged that the trans- 
 fer in this case being an act not voidable only, but abso- 
 lutely void, it is incapable of being confirmed by any vol- 
 
 ' His discussion of the contention that Mrs. Keating had not suffered 
 any loss, as the transfer under the forged power was a nullity, is 
 omitted. The opinion of the judges on this point was against the 
 plaintiffs in error.
 
 MARSH V. KEATING 367 
 
 untary election of the party who has made it ; secondly, 
 that at all events, in this case such election is taken away, 
 upon grounds of public policy; for that the sale of the 
 stock having been made through the medium of a felony, 
 to allow the maintenance of this action would, in effect,- 
 be to affirm a sale completed through a felony, and would 
 give the Plaintiff a right of action arising immediately out 
 of the felony itself; thirdly, that it does not appear from 
 the facts found in the special verdict, that the money pro- 
 duced by the sale of stock came into the hands of the 
 Defendants below under such circumstances as would •con- 
 stitute it money had and received by the Defendants below 
 to the use of the Plaintiff; and lastly, that by the subse- 
 quent transactions between the Plaintiff and the Bank of 
 England, she has lost any right of action against the De- 
 fendants, if she ever possessed it. * * *3 
 
 But it is objected, thirdly, that the proceeds of tlie 
 sale of the stock never came into the hands of the Defend- 
 ants below, so as to be money received by them to the use 
 of the Plaintiff; and the consideration of this objection 
 involves two questions : First, did the money actually come 
 into the possession of the Defendants? Secondly, if it 
 ever was in their possession, had the Defendants the means 
 of knowledge, whilst it remained in their hands, that it 
 was the money of the Plaintiff and not the money of Faunt- 
 leroy? As to the first point, the special verdict finds ex- 
 pressly, that Simpson, the broker, paid the sum of 6,013/. 
 2s. 6d., being the amount of the sum received from Tar- 
 butt (deducting one-half of the usual commission), by a 
 cheque payable to Marsh & Co., into the hands of ]\Iartin 
 & Co., to the account of Marsh & Co., at the precise time 
 of such payment; therefore, there can be no doubt but that 
 it was as much money under their control as any other 
 money paid in at Martin & Co.'s, by any customer under 
 
 'Only so much of the remainder of (he opinion of the judges as 
 relates to the third objection is reprinted. The judges were of the 
 opinion that the other objections were not well founded.
 
 368 . PARTNER'S POWER TO BIND COPARTNER 
 
 ordinary circumstances. The house of Marsh & Co. might 
 have drawn the whole of the balance into their own hands : 
 if the same money had been paid into Martin & Co.'s, as 
 the produce of the Plaintiff's stock, sold under a genuine 
 power of attorney, it would unquestionably have been re- 
 ceived by all the Defendants to the use of the Plaintiff. 
 It would not the less be money received by the partners 
 of the firm, because (as found in the special verdict) it 
 was entered in the account as "Cash per Fauntleroy ;'' or 
 because it never appeared in the house-book or any other 
 book of Marsh & Co., but only in the pass-book of that 
 firm with Martin & Co. ; or because it never came into 
 the yearly balancing of the house of Marsh & Co., or iji 
 any other manner into their books. Those several circum- 
 stances prove no more than that Fauntleroy, one of the 
 partners, deceived the others, by preventing the money 
 from being ultimately brought to the account of the house; 
 but as between them and the person by the sale of whose 
 stock it was produced, we think the fraud of their part- 
 ner Fauntleroy, in the subsequent appropriation of the 
 money, affords no answer after it had once been in their 
 power; and that it was so, appears to be distinctly stated 
 in the special verdict. 
 
 But it is urged, that the present Defendants had no 
 knowledge that the money was the property of the Plain- 
 tiff, being perfectly ignorant, as the special verdict finds, 
 of the commission of the forgery, of the sale of the stock, 
 or the payment of the produce of such sale into their ac- 
 count at Martin & Co.'s. It must be admitted, that they 
 were so far imposed upon by the acts of their partner, as 
 to be ignorant that the sum above mentioned was the pro- 
 duce of the Plaintiff's stock; but it is equally clear that 
 the Defendants might have discovered the payment of the 
 money, and the source from which it was derived, if they 
 had used the ordinary diligence of men of business. If 
 they had not the actual knowledge, they had all the means
 
 MARSH V. KEATING 369 
 
 of knowledge; and there is no principle of law upon which 
 they can succeed in protecting themselves from responsi- 
 bility, in a case wherein, if actual knowledge was neces- 
 sary, they might have acquired it by using the- ordinary 
 diligence which their calling requires. 
 
 ^ Hf jjc ' 
 
 Upon the whole, therefore, we beg to state our opin- 
 ion to be, that upon the question which has been proposed 
 to us by your Lordships, ]Mrs. Keating has the right to 
 recover the produce of her stock against the surviving 
 partners of the firm who received it, under the circum- 
 stances stated in the special verdict in an action for money 
 had and received to her use. 
 
 The Lord Chief Justice of the Common Pleas desires 
 it to be expressly understood, that he fully concurs in the 
 opinion now delivered. 
 
 The Lord Chancellor coming into the House said: 
 * * * 
 
 The learned Judges have all agreed in opinion, in 
 
 support of the judgment below. I therefore move your 
 
 Lordships that that Judgment be affirmed; but at the same 
 
 time without costs, in consideration of the importance of 
 
 the question, and the opinion of the Court below having 
 
 been in favour of taking the sense of your Lordships' 
 
 House. 
 
 Judgment affirmed without costs.
 
 370 PARTNER'S POWER TO BIXD COPARTNER 
 
 BLAIR V. BROMLEY. 
 In the High Court of Chancery, 1847. 
 
 2 Phillip's Chancery Reports, 354. 
 
 In the year 1820, JVilliain Bromley, who had for many- 
 years previously carried on business as an attorney and 
 soHcitor at Gray's Inn, took his brother, the defendant 
 Joseph Walter Bromley, into partnership with him, the 
 terms of the partnership being that the latter should ad- 
 vance 1000/., which was to be repaid to him at the expira- 
 tion of five years, during which he was to be paid a salary 
 as clerk in lieu of a share of profits ; and that from and 
 after that time he should be interested in one-third of the 
 ])rofits and losses of the concern as a partner. That ar- 
 rangement was acted upon in all respects, and an account 
 which William Bromley then kept with Messrs. Rogers, 
 Twogood and Co. bankers in London, and in which there 
 was a considerable balance standing to his credit, was 
 transferred into the joint names of the two brothers. In 
 the apportionment of the business between the partners, the 
 agency business was undertaken by Joseph Walter Bromley, 
 while his brother reserved to himself the exclusive man- 
 agement of the concerns of those individual clients whom 
 he then had or might afterwards procure by means of his 
 personal connection. 
 
 Among other clients of that description was one 
 Thomas Blair, who died in 1828; after which, the plain- 
 tiffs, who were his executors, continued in that character 
 to employ the Messrs. Bromley as their solicitors in all 
 matters connected with the trust, and, amongst others, in 
 the investment of moneys belonging to the estate, the in- 
 come of which was given by the testator to his widow for 
 her life. In the year 1829. having been informed by Wil-
 
 BLAIR '.■. BROMLEY 371 
 
 Ham Bromley that he had an opportunity of investing a 
 sum of 4500/. as mortgage of an estate of a Mr. Scabrook, 
 the plaintiffs, who resided at Bath, drew a cheque for that 
 amount on the executors' account at the Bank of England, 
 crossed with the names of Messrs. Rogers, Twogood and 
 Co., and made payable to Seahrook or bearer, and enclosed 
 the same in a letter to William Bromley, with instructions 
 to invest the amount on the proposed mortgage. The 
 cheque was duly presented by Messrs. Rogers and Co., and 
 the amount was received and placed by them to the credit 
 of the account, at their bank, of the Messrs. Bromley. 
 The mortgage transaction went on between JVilliam Brom- 
 ley and Mr. Scabrook, and was on the point of being com- 
 pleted, when it was broken off by the latter, and the money 
 was never invested. JJ^illiam Bromley, however, not only 
 concealed that fact from the Plaintiffs and INIrs. Blair, but 
 in several accounts, which he rendered to them from time 
 to time at their request, of the investments he had made 
 for them, he included this sum of 4500/. as invested on 
 Seabrook's mortgage ; and in the sums which he from time 
 to time transmitted to Mrs. Blair as interest on the invest- 
 ments which he had been employed to make, he regularly 
 included the amount of interest at 5 per cent, upon the 
 4500/. as if it had been actually invested. 
 
 In the year 1834 the partnership between the Messrs. 
 Bromley was dissolved by mutual consent ; the accounts 
 between them were settled ; and the balance then stand- 
 ing to the joint account with Messrs. Rogers and Co. was 
 transferred to the separate account of JVilliam Bromley, 
 who continued to carry on his business upon the same 
 premises, and to act as solicitor for the Plaintiffs and the 
 Blair family in the same manner as before, except that in 
 the subsequent communications with him the name of the 
 partnership firm was dropped. Mrs. Blair died in the year 
 1841, after which the payments of interest on the aggre- 
 gate amount of the supposed investments fell into arrear;
 
 372 PARTNER'S POWER TO BIND COPARTNER 
 
 and in 1844 IVilliam Bromley became bankrupt, the non- 
 investment of the 4500/. was discovered, and this bill was 
 filed against /. W. Bromley to make him liable for that 
 sum, with the arrears of interest at 5 per cent. 
 
 The defence set up by the answer, and the truth of 
 which, in point of fact, was satisfactorily established by 
 the evidence, was, that no part of the sum in question 
 had ever actually come to the hands of the defendant, and 
 that he had never had any personal knowledge of the 
 transaction, or any personal communication with the De- 
 fendants, or any of the Blair family in reference to it, the 
 whole of the business having been under the sole and ex- 
 clusive management of William Bromley.^ 
 
 Lord Chancellor Cottenham : 
 
 In this case the payment of the 4500/. into the funds 
 of Williaui Bromley and his partner, for the purpose of 
 investment, is proved, and their liability admitted. After- 
 wards Mr. Bromley, one of the partners, representing that 
 it had been invested, paid sums equal to the interest, and 
 made a charge in a bill of costs for some of the expenses 
 incident to such investment. 
 
 Whether the Defendant knew of the transaction or 
 not, he certainly had the means of knowing it. But neither 
 is necessary ; for the duty of laying out the money was 
 in the ordinary course of the business of the firm ; and 
 they had undertaken it ; and in that case I agree with what 
 is laid down by the Master of the Rolls in Sadler v. Lee 
 [6 Beav. 330], that all the partners became liable for the 
 several acts of each. In Sadler v. Lee the act consisted of 
 abusing the power which the owner of the fund had con- 
 ferred upon the several members of the firm by his power 
 of attorney. In this case the act consists in representing 
 that the 4500/. had been invested on the security; but in 
 Bate V. Scales [12 Ves. 402], where a similar representa- 
 
 ^ The further elaboration of J. W. Bromley's defense by the Reporter, 
 and his note of the argument of counsel for the plaintiff are omitted.
 
 BLAIR V. BROMLEY 373 
 
 tion had been made by a trustee, who ought to have in- 
 vested money in stock, Sir IVilliam Grant "considered the 
 case of a representation that the stock did exist, as pre- 
 cisely a parallel case to the actual existence of the fund 
 in stock upon that day, which stock was sold out.'-' In 
 the present case, the misrepresentation continued until the 
 fraud was discovered : the case therefore, according to 
 Sir JV. Grant, is the same as if on that day the fund, hav- 
 ing been previously invested, had been called in and re- 
 ceived by Messrs. Bromley, in which case there could not 
 have been any question as to the Statute of Limitations. 
 
 Those who, having a duty to perform, represent to 
 those who are interested in the performance of it that it 
 has been performed, make themselves responsible for all 
 the consequences of the non-performance; Brown v. 
 Southouse [3 Bro. C. C. 107], which was the case of an 
 agent; Evans v. BickncU [6 Ves. 182], where Lord Eldon 
 lays down the rule generally. Li Banvell v. Parker, Lord 
 Hardwicke applied the rule to the case of a scrivener who 
 had undertaken to lay out money. The principle, indeed, 
 is deeply rooted in our equitable jurisdiction, as in Middle- 
 ton V. Middleton [i Jac. & JV. 96], and Lnttrell v. Olmius, 
 referred to by Lord Eldon in Mestaer v. Gillespie [11 Ves. 
 638]. 
 
 What, then, is the nature of the liability which so 
 arises from the misrepresentation? Merely a guarantee 
 that the parties whose interest might be affected by the 
 misrepresentation shall be placed in the same situation as 
 if the fact represented were true. The misrepresentation 
 was probably made for a fraudulent purpose; but the con- 
 sequence is a merely civil liability ; and as one partner 
 may certainly bind another as to any matter within the 
 limits of their joint business, so he may by an act which, 
 though not constituting a contract by itself, is in equity 
 considered as having all the consequences of one. 
 
 I am, therefore, of opinion that William Bromley's
 
 374 PARTNER'S POWER TO BIND COPARTNER 
 
 partner, though he had no knowledge, or means of knowl- 
 edge, of his misrepresentation, would have been affected 
 by this equity arising from it, and that time did not begin 
 to run against the Plaintiff's right until the discovery of 
 the fraud. 
 
 What I have already said, and the cases to which I 
 have referred, make it unnecessary to say much upon the 
 objection that the Plaintiff's remedy, if any, is at law. 
 In all these cases the effect of the misrepresentation raises 
 an equity to restore the parties deceived as nearly as possi- 
 ble to the situation, in which, but for the misrepresenta- 
 tion, they would have stood, and for which damages in 
 an action might be a very inadequate remedy : and it is no 
 objection to this equity that the facts may also support an 
 action. It is more than 120 years since a similar objec- 
 tion was made in Colt v. WooUaston [2 P. Wins. 156] and 
 overruled. 
 
 I am, therefore, of opinion that the decree of the 
 Vice Chancellor IVigrain must be affirmed with costs. 
 
 1
 
 GUILLOU V. PETERSON 375 
 
 GUILLOU V. PETERSON. 
 
 In the Supreme Court of Pennsylvania, 1879. 
 
 89 P ennsylvania Reports, 163. 
 
 Assumpsit by Rene Guillou, administrator c. t. a. of 
 the estate of Samuel L. Haven, deceased, against Edward 
 W. Gould, Theodore R. Strong, Jesse White, Jr., and 
 Pearson S. Peterson, late copartners as Gould, Strong & 
 Co} 
 
 Mr. Justice Paxson delivered the opinion of the court. 
 May 7th 1879. 
 
 The court below having entered a judgment of non- 
 suit against the plaintiffs upon the trial, we have but to 
 consider the single question whether there was suificient 
 evidence to entitle the case to go to the jury. 
 
 The case of the plaintiffs as presented was this : On 
 the seventh day of November 1866, the defendants, Ed- 
 ward W. Gould, Theodore R. Strong and Jesse White, Jr., 
 of the city of New York, and Pearson S. Peterson, of the 
 city of Philadelphia, entered into articles of copartnership, 
 under the name of Gould, Strong & Co., for the purpose 
 of "buying and selling stocks on commission, making loans, 
 collecting promissory notes, drafts and bills of exchange."' 
 The partnership was in the form of and was intended to 
 be a limited partnership, the three gentlemen first named 
 being the general partners, residing in New York, where 
 the business was to be conducted, and the said Peterson 
 being the special partner and contributing the sum of $20,- 
 000 as cash capital. The partnership was renewed annu- 
 ally to 1877 inclusive, but by an admitted informality in 
 the renewals Peterson became a general partner at the end 
 
 ^ The Reporter's statement of the facts, and his notes of the argu- 
 ments of counsel are omitted.
 
 376 PARTNER'S POWER TO BIND COPARTNER 
 
 of the first year so far as the pubHc are concerned, and 
 continued so until its termination. As between the part- 
 ners, it remained a special partnership. The agreement 
 further specified that the general partners should not en- 
 gage in speculations of any kind; that Peterson, the special 
 partner, should not in any event be liable for the debts 
 or obligations of the firm beyond the amount of capital 
 ($20,000) contributed by him, and that he should transact 
 no business for the firm, nor be employed for that purpose 
 as agent, attorney or otherwise. Mr. Peterson seldom vis- 
 ited New York, and appears to have taken little if any part 
 in the business. 
 
 Theodore R. Strong, one of the partners, was one of 
 the executors of Samuel L. Haven's will. Mr. Haven re- 
 sided in New York and died in the autumn of 1865. The 
 other executor, Thomas S. Shepherd, took but little charge 
 of the estate; Mr. Strong was practically the acting ex- 
 ecutor. In the month of February 1867, Gould, Strong 
 & Co. borrowed from Mr. Strong $28,000 of the United 
 States treasury notes, known as seven-thirties, which he 
 held as executor and which belonged to Samuel L. Haven's 
 estate. These notes remained in the possession of the firm 
 and were used by them for the purpose of raising money 
 until June 1868, when, having been called in by the gov- 
 ernment, they were on the 19th of that month converted 
 into other bonds known as five-twenties. Whether the 
 conversion was by Strong or the firm is not clear. In 
 Strong's account as executor with the firm he is credited 
 on July 6th, 1868, with $28,000 seven-thirties at 109, less 
 commission, $31,453.80. and on the same day he is debited 
 with $28,000 five-twenties, new at 108^, $30,485. Within 
 a few days thereafter $25,000 of these five-twenties were 
 entered on the blotters and ledger of the firm as loans from 
 Strong. They were used for the business of the firm, as 
 stated by Mr. Strong, "to pay for stocks that we were 
 carrying — stocks for our customers;" and again, "these
 
 GUILLOU V. PETERSON 2,77 
 
 Stocks and bonds were used, during the years they were 
 lield by Gould, Strong & Co., as collaterals to raise money. 
 This money was used in our business." The five-twenties 
 thus loaned to the firm and thus used by them, were iiever 
 returned to Strong, but were sold to Jay Cooke & Co. by 
 ]\Ir. Gould, on Dec. 14th, 1871, for $28,437.50, and the 
 proceeds used to pay a loan for which they had been pledged 
 by Gould, Strong & Co. For the like purpose of raising 
 money the firm borrowed from Strong, in 1869, S^S shares 
 of the stock of the Pittsburgh, Fort Wayne and Chicago 
 Railway Company, belonging to the said estate, which said 
 stock was continuously used as collateral to raise money 
 until January 8th, 1872, when the firm borrowed the sum 
 of $45,000 from the City Bank upon these 513 shares of 
 stock. The bank was repaid about January 22d of the 
 same year $45,314.09 by the sale of 471 shares of said 
 stock, and the balance thereof, forty-two shares were de- 
 livered to Mr. Shepherd, the other executor, who appears 
 to have then learned for the first time of ]\Ir. Strong's uiis- 
 application of the securities belonging to j\Ir. Haven's es- 
 tate. 
 
 Gould and White were cognizant of all these trans- 
 actions, and were active participants therein. There was 
 evidence, and for the purposes of this case it must be 
 taken as true, that ]\Ir. Peterson knew of the transaction 
 of the seven-thirties. Strong says: "He (Peterson) knew 
 of the loan of the treasury notes. He knew they belonged 
 to me as executor. He got that information from either 
 Air. Gould or myself; we were both present. I don't know 
 which of us told him. That was in April, 1868." 
 
 No question has been made, indeed none could be 
 made, as to the liability of Strong, Gould and White to 
 Mr. Haven's estate upon this state of facts. Strong, the 
 executor, was guilty of a fraud upon said estate, and Gould 
 and White were participants therein. It was a misapplica- 
 tion of the assets of the estate, to use the polite and con-
 
 378 PARTNER'S POWER TO BIND COPARTNER 
 
 siderate term in general use to express a breach of trust. 
 In the language of the law and of common honesty, it was 
 an c]iibca::lcmc)it. It was not the case of a loan of unem- 
 ployed funds by an executor to his firm, for the purpose 
 of gaining interest for his cestnis que trustcnt, but of the 
 loan of interest-bearing securities to enable the firm to 
 carry on its operations. Such breaches of trust have be- 
 come so frequent and so startling within the last few years, 
 that we would fail in our duty were we to omit to mark 
 them, when they come before us, with the seal of our stern 
 condemnation. 
 
 It remains to consider the question of Mr. Peterson's 
 liability. The right of the plaintiff to waive the tort and 
 sue in assumpsit for money had and received is too well 
 settled to need either argument or the citation of author- 
 ity. It is alleged, however, that Mr. Peterson is not liable, 
 for the reason, among others, that "by the terms of the 
 partnership articles he was to be liable only to the extent 
 of the capital he had contributed, and the terms of those 
 articles were known to the executor of Haven's will when 
 the securities were delivered for use." This position con- 
 cedes Peterson's liability to the extent of $20,000. It as- 
 sumes, however, that the estate of Mr. Haven is in no 
 better position than Strong, the executor, would be. Is 
 this position sound? I concede that if Strong had advanced 
 his own money or his own securities to the firm, he would 
 be bound by the limitation in the agreement between the 
 partners. But this suit is not by Strong or for his benefit. 
 The securities he loaned the firm were not his property. 
 They belonged to Mr. Haven's estate. In the ordinary 
 legitimate dealings of an executor with the assets of an 
 estate, the parties in interest are bound by his acts and per- 
 haps affected with notice. In such case he may, in a quali- 
 fied sense, be regarded as their agent. But surely this 
 principle cannot apply where an executor is acting in fraud 
 of the rights of the estate. It is opposed to every well- 
 
 I
 
 GUILLOU V. PETERSON 379 
 
 settled principle applicable to trust funds. Trust property- 
 squandered by a faithless trustee can be followed wherever 
 found, and if earmarked equity will lay its strong hand 
 upon it" and restore it to its rightful owner. Such owner 
 is not bound by what his trustee has done or omitted to 
 do; and may repudiate or rescind his contracts, saving of 
 course the rights of innocent third parties. Mr. Strong 
 was not acting for his ccstuis que trust cut when he loaned 
 these securities to his firm; he was acting in direct antago- 
 nism to them ; he was embezzling their securities ; he was 
 doing that which was a sufficient cause for his removal 
 by the court having jurisdiction of his accounts. We think 
 that the owners of the securities loaned by the executor 
 to his firm occupy a very different position from the ex- 
 ecutor himself, and that they are not to be affected with 
 his knowledge of the private understanding or agreement 
 between the partners. That the acts of a trustee in excess 
 of his powers are not binding upon his cestui que trust was 
 decided in Bohlen's Estate, 25 P. F. Smith, 304. Much 
 more so where the act is not a mere excess of power but a 
 clear and fraudulent abuse of it. 
 
 It is said, however, that Mr. Peterson is not liable for 
 the further reason that the power of one partner to bind 
 the others is at most an implied power; that each partner 
 is the agent of his copartners only when acting in the scope 
 of his power, and in the usual course of the business of the 
 firm, and that when his agency is denied or forbidden by 
 his copartner, with notice to the party assuming to deal 
 with him, as the agent of the firm, his act is not that of 
 the firm, but his individual act only. As an abstract prop- 
 osition this is correct: Story on Partnership, sections 123 
 and 138, and note i, p. 218; Parsons on Partnership, 95; 
 Gallway v. Matthew, 10 East, 264; Spooner v. Thompson, 
 48 Vt. 259 ; Feigley v. Sponeberger, 5 W. & S. 564 ; Yeager 
 V. Wallace, 7 P. F. Smith, 365. It does not apply to this 
 case as it stood before the jury when the judgment of non-
 
 380 PARTNER'S POWER TO BIND COPARTNER 
 
 suit was entered. The cause has been argued upon the 
 theory that the securities were borrowed for the purpose 
 of using the money in wild speculations prohibited by the 
 agreement of partnership. The evidence is not so. The 
 money was used in the business of the firm, carrying stocks 
 for their customers, &c. It was true the failure of the 
 firm was caused by speculations in stocks in 1872, but there 
 is no evidence that they were engaged in such speculations 
 at the time the securities were borrowed, or that the securi- 
 ties were used for any such purpose. The borrowing of 
 securities may be regarded as the equivalent of borrowing 
 money so far as the responsibility of the firm is concerned. 
 This has always been considered as among the implied 
 powers of a partnership, and when exercised by a partner 
 in the name of the firm, for the business of the firm, and 
 the proceeds so applied, it has always been held to bind the 
 firm unless actual notice can be traced to the person loan- 
 ing the money that the partner had no authority for such 
 purpose. 
 
 Our own books are meagre in authority upon the ques- 
 tion of the responsibility of a firm under such circumstances. 
 It has been largely discussed in England, however, in a 
 series of cases growing out of the forgeries of one Faunt- 
 leroy, who was convicted and executed for his offence.- 
 
 * * * 
 
 The wrong done here on the part of the firm was in 
 converting the securities. It is manifest they had the cus- 
 tody of them for Strong, and collected the interest and divi- 
 dends for him. The account shows this. Afterwards they 
 borrowed the securities from Strong. This did not au- 
 thorize their conversion. It imposed an obligation to re- 
 turn them in specie. If sold it was the duty of the firm to 
 have carried the proceeds to Strong's credit as executor. 
 Instead of doing so Gould sold the five-twenties and with 
 
 ' His statement of the facts and decision in Marsh v. Keating, supra, 
 is omitted.
 
 GUILLOU z'. PETERSON 381 
 
 the proceeds paid a debt of the firm, while the raihvay stock- 
 went to pay the $45,000 due to the bank. For both these 
 debts ^Ir. Peterson as a general partner was individually 
 liable. It is entirely in the course of the regular business 
 of the firm to pay its own debts. I regard the case in hand 
 as stronger than those cited, for the reason that the firm 
 got the benefit of every dollar realized from the securities, 
 while in ]\Iarsh z'. Keating and Stone ■:•. ]\Iarsh, Fauntleroy 
 cheated his firm as w^ell as the owner of the stock, by ap- 
 propriating to his own use the money received from the 
 sale of said stock. 
 
 It is not meant to advance the broad proposition, that 
 where one abuses his trust, and thereby obtains the means 
 to advance money to a partnership, he thereby raises a 
 contract between the partnership and the person whose 
 money has been so used. The rule is thus laid down in 
 Lindley on Partnership, at page 327: "If a partner, being 
 a trustee, improperly employs the money of his cestui que 
 trust in the partnership business, or in payment of the part- 
 nership debts, this alone is not sufficient to entitle the cestui 
 que trust to obtain repayment of his money from the firm." 
 To the same point are Ex parte Heaton, Buck, 386 ; Ex parte 
 Apsey, 3 Bro. Ch. C. 265 ; Jacques v. ]Marquand, 6 Cowen, 
 497. If Mr. Strong had sold the securities belonging to 
 Haven's estate, and placed the proceeds in the firm as his 
 share of the capital, or had loaned it to the firm as his own 
 money, and without knowledge on their part that it was 
 trust money, they would not have been liable to an action by 
 the representatives of Haven's estate. Here the securities 
 belonging to the estate were sold by the firm, with knowledge 
 of the true ownership, and the proceeds used to pay its debts. 
 This, under the authorities, treating Mr. Peterson as a gen- 
 eral partner, which we think he is, would make him liable 
 without notice or knowledge on his part of the borrowing 
 of the securities or their conversion by his partners. 
 
 But even if we treat Mr. Peterson as a special partner,
 
 382 PARTNER'S POWER TO BIND COPARTNER 
 
 so far as Haven's estate is concerned, this judgment must be 
 reversed. As before observed, the right to recover against 
 the general partners is undoubted. It is equally clear as to 
 Mr. Peterson, if he had notice of these transactions, or 
 might or aught to have known them. There was evidence 
 that he did not know ; not as to all, perhaps, or to the full 
 extent of their operations. But he knew in April, 1868, 
 that his firm had borrowed $28,000 of the securities of the 
 Haven estate from the executor. Then was the time for Mr. 
 Peterson to speak. Had he spoken then, as he should have 
 done, Mr. Haven's estate might have been saved from ruin, 
 his firm from its subsequent insolvency, and his own estate 
 from the peril of this litigation. A man who is brought face 
 to face with such an irregularity as this on the part of his 
 firm, cannot shut his eyes and refuse to see it. Whether we 
 regard the transaction as a wrong to the estate, or a violation 
 of the partnership agreement in regard to speculation, it was 
 ample to put Mr. Peterson upon inquiry as to the nature of 
 the transactions of his firm, and if he chose to sleep upon 
 such a disclosure, he has no one to blame but himself. It is 
 no answer to this to say that the seven-thirties were re- 
 turned, and that he had no subsequent notice. It was for the 
 jury to say whether the alleged return was anything more 
 than a matter of book-keeping, and for any other purpose 
 than that of exchanging the form of the securities. In any 
 event he had a right to examine the books, and after the 
 irregularity referred to it was his duty to have done so. 
 Such examination would have disclosed the conversion of 
 the securities belonging to the Haven estate, and the applica- 
 tion of the proceeds to the payment of the debts of his firm. 
 He must now be charged with the knowledge he might and 
 ought to have acquired. 
 
 We are of opinion that the case should have gone to 
 the jury, and that it was error to enter a judgment of non- 
 suit. 
 
 The judgment is reversed and a procedendo awarded. 
 
 I
 
 CHAPTER VI. 
 
 LIABILITY FOR INDUCING MISTAKEN 
 BELIEF IN THE EXISTENCE OF A 
 PARTNERSHIP. 
 
 SECTION I.— WHEN A PERSON IS ESTOPPED 
 FROM DENYING THAT HE IS A PARTNER. 
 
 De berkom v. smith. 
 
 In The Court of King's Bench, at Nisi Prius, 1794. 
 
 I Espiiiasse's Reports, 29. 
 
 Assumpsit to recover the value of a quantity of foreign 
 lace against the defendants charging them as partners. 
 
 It was admitted that Smith one of the defendants was 
 liable, but the other defendant Lezvis denies that he was 
 a partner. This was the only question in the case. 
 
 The evidence on the part of the Plaintiff was, That he 
 was a foreigner living at Lisle in Flanders; that having been 
 applied to by the defendants for a quantity of lace on credit, 
 that before he would furnish it, he wrote over to his cor- 
 respondent in London to enquire concerning their circum- 
 stances and situation; that his correspondent had enquired 
 from a Mr. Bothani a merchant in London, who informed 
 him that they were in partnership in trade, whicli informa- 
 tion the correspondent communicated to the Plaintiff, who 
 in consequence thereof gave them the goods on the terms 
 they asked. 
 
 Mr. Botham's clerk was called, and proved, That the 
 only connection in trade between ]\Ir. Bothani and the de- 
 fendants was in discounting bills, which Mr. Bothani had 
 
 (383)
 
 384 PARTNERSHIP BY ESTOPPEL 
 
 been in the habit of doing for Smith one of the Defendants, 
 but that on discounting a bill at one time for Smith, that 
 he had introduced Lewis to him as his partner. 
 
 Lord Kenyon upon this evidence ruled that it was not 
 sufficient to charge Lczvis as a partner. His Lordship said, 
 that persons might be partners in a particular concern or 
 business, but that notwithstanding if they did not appear 
 to the world as partners, that it should not be sufficient to 
 constitute a general partnership and make them liable in 
 other cases not connected with such particular business. 
 That the circumstance in evidence of the introduction of 
 Lczi'is to Mr. Botham should be taken secundum subjectani 
 viateriam, that is, as applying to the transaction in which 
 Smith was concerned with Mr. Botham, the discounting of 
 bills, to which transaction only it should be confined, and 
 that he was therefore of opinion, that without further evi- 
 dence a general partnership could not be established, in 
 order to charge Lewis the other Defendant in this action. 
 
 It afterwards, however, appearing in evidence, that in 
 fact Lewis had represented himself to the Plaintiff, as part- 
 ner in trade with Smith; his Lordship in his charge to the 
 Jury added, that though in point of fact parties are not 
 partners in trade, yet if one so represents himself, and by 
 that means gets credit for goods for the other, that both 
 shall be liable. 
 
 The Plaintiff recovered.^ 
 
 ^ Compare the report of the earlier case of Young v. Axtell, in 
 note I, to Grace v. Stnith, Chapter V. supra, in which Lord Mansfield 
 said, that as the defendant had suffered herself to be held out as a 
 partner "she was certainly liable, though the plaintiff did not, at the 
 time of dealing, know that she was a partner, or that her name was 
 used." See contra Thompson v. First Nat. Bk. infra, and notes.
 
 GORHAN i: THOMPSON 385 
 
 GORHAN V. THOMPSON. 
 
 In the Court of King's Bench, at Xisi Prius, 1791. 
 
 I Peake's Reports, 42. 
 
 Assumpsit. One of the defendants had suffered judg- 
 ment by default. 
 
 The defendants had been partners about seven years 
 since, and had dissoh-ed the partnership, but no notice of 
 the dissolution had been inserted in the Gazette, nor did the 
 plaintiffs know of it, but thought they were dealing with 
 both defendants. But it appeared that the dissolution was 
 generally known in the neighborhood. 
 
 Lord Kenyon said, to discharge the partner retiring 
 from the partnership there must be a public advertisement 
 in the Ga::cttc, or at least the dissolution must be notorious 
 to the public, and actual knowledge of it brought home to 
 the creditor. It would be the hardest measure imaginable 
 upon the creditor were the law otherwise, for while he 
 supposed he was giving credit to a man having sufficient 
 to satisfy the whole of his demand, he might be trusting a 
 beggar. 
 
 Verdict for the plaintiff.^ 
 
 ^Compare: Parkin v. Carnithcrs. 3 Esp. 248. 180T. (A, B ct 
 al., were members of a firm, trading as "A, B & Co." B retired, but 
 no notice of this fact was published and. no change was made in the 
 firm name. C. who had had no prior dealings with the firm, advanced 
 mone}' to the firm on a promissory note. C brought suit on this note, 
 making A one of the defendants. Le Blanc, J., charged the jury that 
 if C did not know of B's retirement, B was liable). 
 
 Goodc V. Harrison. 5 C. & Aid., 147, 1821. ( B, an infant, was in 
 partnership with C. Before becoming 21 he ceased to take any part 
 in the business. He did not, on reaching his majority, give any notice 
 of the dissolution of the firm. Held, that on becoming of age B should 
 have given notice of the dissolution of the firm, and that .A,, who be- 
 lieved B to be a partner, could recover against him as a partner on an 
 obligation arising after B became 21.") 
 
 Benjamin v. Cmrrt. 47 Wis. 375, T879. (A and B were partners, 
 trading under the name of A. Thev dissolved. No notice of the dis-
 
 386 PARTNERSHIP BY ESTOPPEL 
 
 solution was ever published. C, who had had no previous knowledge 
 of the firm or its business, sold goods to A who had continued tne 
 business. C sued B as a partner and offered to prove that at the 
 time he sold the goods A and B had the general reputation of being 
 partners; that he, C, had on inquiry heard of this reputation, and 
 relied on it. Held on appeal, that the trial court should have admitted 
 this evidence, not to prove a partnership in fact, but to prove a partner- 
 ship by holding out.) 
 
 The Death of a Partner dissolves the partnership; but no notice 
 of the death is necessary in order to protect the estate of the deceased 
 partner : 
 
 Webster v. Webster. 3 Swan. 491, note, 1791. (A, the executor of 
 B, brought a bill in chancery against C and D, his co-executors, to 
 restrain them from using the name of B in their business, alleging 
 that the defendants were trving to subject B's estate to the conse- 
 quences of the trade. Bill dismissed on the ground that there was 
 no danger that B's estate would be subject to liability in this way, and 
 the fraud on the public "is no ground for the plaintiff's coming into this 
 court"). 
 
 Marlett v. Jackman. 3 Allen TMass.^. 287, 1861. (A, B. C and D 
 were in partnersHip. C died, and the remaining members ceased to do 
 business. D signed a note in the name of the old firm; E was an en- 
 dorsee. Held, that though E might be ignorant of the death of C, and 
 the fact that A, B and D had not continued the business, he could not 
 recover from A and B ; that as death operates as a dissolution of itself, 
 "being a public fact all men are bound to know it.")
 
 GRAHAAI V. HOPE 387 
 
 GRAHAM V. HOPE 
 In the Court of King's Bench, at Nisi Prius, 1792. 
 
 • I Peake's Reports, 154. 
 
 The defendants had been in partnership together, 
 and the plaintiff had sold them goods as partners. After- 
 wards the partnership was dissolved, and notice of the 
 disolution given in the London Gazette; and after this notice, 
 the plaintiff had sold and delivered the goods for which the 
 present action was brought. 
 
 The defendants called witnesses, who swore that a 
 notice had been given to the agent of the plaintiff, that 
 the partnership was dissolved. The agent on the contrary 
 positively swore that he had received no such notice. 
 
 Lord Kenyon told the jury, that the cause depended 
 entirely on the credit they gave to the witnesses on the one 
 side and the other. The Gazette, he thought was not of 
 itself sufficient notice to the plaintiff of the dissolution of 
 the partnership. His lordship said he did not say this for 
 the purpose of this cause merely, but meant to lay it down 
 as a general rule to govern the conduct of all men. Many 
 people there were in this kingdom who never saw a Gazette 
 to the day of their deaths, and very mischievous would be 
 the consequences if they were bound by a notice inserted 
 in it. It was incumbent on persons dissolving a partner- 
 ship, to send notice of such dissolution to all the persons 
 with whom they had had dealings in partnership. 
 
 The jury, believing the defendants witness, gave a ver- 
 dict for the defendants.
 
 388 PARTNERSHIP BY ESTOPPEL 
 
 GODFREY V. TURNBULL. 
 In the Court of King's Bench, at Nisi Prius, 1794. 
 
 I Espinassc's Reports, 371. 
 
 This was an action by the plaintiff as indorsee of a 
 promissory note, against the Defendant, as the makers of it. 
 
 The Defendants had been partners in trade, but the 
 partnership had been dissolved prior to the date of the note. 
 Macaidcy, one of the Defendants, suffered judgment to go 
 by default. The other Defendant relied, that the note 
 was made by the Defendant Macauley only, after the dis- 
 solution of the partnership, who had put their joint names 
 on it without any authority from him. The note was dated 
 the 6th of April 1793. On the 19th of the March preceding, 
 notice of the dissolution of the partnership, dated the 15th, 
 had appeared in the Gazette. The question was, whether the 
 notice given in the Gazette was sufficient, so as to exonerate 
 the Defendant TttrnbulL 
 
 Per Lord Kenyon. In general, if a partner gives 
 a note in the partnership name, all the partners are bound 
 by it; and that is the case, even if given after the actual 
 dissolution of the partnership, if that was not sufficiently 
 notified, and the party who took the note, took it on the 
 faith of the partnership name. 
 
 A secret dissolution of a partnership cannot discharge 
 the partners; but if the dissolution is notified in the ordinary 
 and usual way, as it is the only mode by which the fact of 
 the dissolution can be promulgated to the world, at least 
 to those who have had no previous dealing with the partners, 
 it seems sufficient, at least to be left to the Jury, from thence 
 to infer notice. 
 
 In many cases, notice in the Gazette is suf^cient to 
 subject a party to penalties, as in the cases of smuggling 
 
 4
 
 GODFREY V. TURXBULL 389 
 
 and outlawries. So in the cases of bankrupts, notice in the 
 Gazette is sufficient for every purpose. In the present in- 
 stance, there is no proof of any actual notice to ]\Ir. Godfrey 
 the Plaintiff, but the publication in the Gazette is proved, 
 antecedent to his taking the note. 
 
 The Jury are to judge from the practice in the usual 
 course and ordinary mode of business. Notices are to be 
 found in every Gazette of the dissolution of partnerships, 
 which seems to point out that as the mode adopted by the 
 world for notifications of this sort, and therefore every 
 prudent man in business ought to consult them. 
 
 The Jury found a verdict for the Defendant, Tiirnbidl} 
 
 ^Compare: Lansing v. Gaine. 2 Johns. 300. 1807. (A and B were 
 partners. They dissolved partnership, and notice was published in the 
 newspapers. A signed a note in the name of B and himself. C ob- 
 tained a note for value. Held, C could not recover from B. Kent, 
 C. J. : "Notice in the newspapers of the dissolution of a partnership is 
 sufficient notice to all persons who have had no previous dealings with 
 the firm." p. 304. Accord: Mozvatt v. Hyland, 3 Day. 353, 1809).
 
 390 PARTNERSHIP BY ESTOPPEL 
 
 NEWSOME V. COLES. 
 In the Court of King's Bench, at Nisi Prius, i8ii. 
 
 2 Campbell's Reports, 617. 
 
 This was an action against the three defendants as 
 acceptors of a bill of exchange. 
 
 Thomas Coles and his three sons, the present defend- 
 ants formerly carried on business in partnership together, 
 under the firm of "Thomas Coles and Sons." The father 
 died in 1805, and the three sons continued to carry on bus- 
 iness under the same firm, till the year 1808. George and 
 Charles then withdrew, and established a new business under 
 a new firm. Notice of the dissolution of partnership 
 was published in the London Gazette, and was sent round 
 to the correspondents of the house. William Coles contin- 
 ued the old business, by himself, under the old firm; and ac- 
 cepted the bill in question, drawn upon Messrs. Thomas Cole 
 and Sons. The plaintiff had not had any dealings with the 
 partnership of "Thomas Coles and Sons" when composed 
 of the three brothers; and when he took the bill in question, 
 he did not know that that partnership had been dissolved.* 
 
 Lord Ellenborough. — It is not pretended that the 
 defendants, George and Charles Cole, ever interfered with 
 the business carried on by William after the dissolution of 
 the partnership, or by any act whatsoever authorized him 
 to use the firm under which they had traded together. I 
 am therefore of opinion that they are not liable for that 
 firm being used by him without their authority. Ample 
 notice had been given of the dissolution of the partnership; 
 and after that, it was the duty of persons taking securities 
 
 4 
 
 ^ The statement of facts as given in the report is abbreviated, and 
 the Reporter's note of the argument of counsel for the plaintif? is 
 omitted.
 
 NEWSO.ME i: COLES 391 
 
 in the name of Thomas Coles and Sons, to enquire who 
 were designated by that firm. The plaintiff might not know 
 of the dissokition; but he had the means of knowing, and 
 the partners who retired could not remain liable for his ig- 
 norance. I think they were not bound to apply to the 
 Lord Chancellor for an injunction, or to take any notice 
 of the firm which their brother might happen to use. They 
 were discharged from all liability for his acts by the dis- 
 solution of the partnership, and the notice which was 
 communicated of that event. The plaintiff must be called." 
 
 -Compare: In re Frazcr (1892) Q. B. 6.^3. (W. and J. Eraser 
 were in partnership under the name of "W. & J. Eraser." They 
 (hssolved and published proper notices of dissolution. J. F. per- 
 mitted W. F. to carry on the business under the name of the dissolved 
 firm. A bank, which had had no dealings with the old firm, discounted 
 a bill drawn by W. F. in the name of the old firm. Held, that J. F. was 
 not liable on this bill).
 
 392 PARTNERSHIP BY ESTOPPEL 
 
 WILLI AIMS V. KEATS. 
 In the King's Bench, at Nisi Prius, 1817. 
 
 2 Starkie's Reports. 290. 
 
 This was an action by the indorsees, against the ac- 
 ceptors of a bill of exchange dated December 23d, 18 16, 
 drawn by Ambrose on the defendants, for the sum of 
 220/. 10s. poyabk to the order of the drawer six months 
 after the date. 
 
 The defendant Keats had suffered judgment to go by 
 default, and the defence on the part of Archer was, that he 
 had ceased to be a partner when the bill was drawn. 
 
 It appeared, that the bill although bearing the date of 
 December 23d, 1816, had in fact been drawn in the latter 
 end of February, 1817, and had been accepted by Keats, 
 for the accommodation of Ambrose, who knew that the 
 partnership between the defendants had been previously dis- 
 solved. Ambrose kept it in his possession till March, 
 and then negotiated it with the plaintiffs for value. Neither 
 of the defendants had received any value for it. On the 
 13th of January, 1817, it was agreed, that the copartner- 
 ship between the defendants should be dissolved ; and no- 
 tice was given in the Ga::ette of the 17th of January, 1817, 
 announcing that the dissolution had taken place on the 
 31st December preceding. No particular notice of the dis- 
 solution of partnership was brought home to the plaintiffs, 
 and it appeared, that the names of Keats, Archer and Co. 
 remained over the door of the defendants' shop in the PoiiU 
 fry, where they had previously carried on business as 
 hatters till April when Cobnans name was substituted for 
 Archer s. 
 
 Topping for the defendant Archer contended, that he 
 could not be bound by an acceptance of his partner sub-
 
 WILLIAMS r. KEATS 393 
 
 sequent to the dissolution of the partnership ; and he at- 
 tempted to distinguish this case from those, where former 
 deahngs have taken place between the parties; for there 
 he admitted, that it was necessary to shew, that it was 
 necessary to prove notice to the party. 
 
 Marryatt contended, that it was incumbent on the 
 defendant Archer to prove notice of the dissolution, since 
 whatever might be their private arrangements between them- 
 selves, to the world they remained partners, till the name of 
 Colinan was substituted for that of Archer. 
 
 Lord Ellenborough was of opinion, that it was nec- 
 essary that the defendant should bring home some notice 
 to the plaintiffs. He had imprudently suffered notice to be 
 given of the continuance of the partnership, by permitting 
 his name to remain over the door till April. Notice in tlie 
 Gazette was not to be considered as notice of the dissolu- 
 tion of partnership to all the world, it was a medium of 
 knowledge, but not equivalent to actual notice. 
 
 Verdict for the plaintiffs.^ 
 
 ^Compare: Dolman v. Orchard. 2 Car. & P., 104, 1825. (A, B and 
 C were partners in the business of attorneys. D, an endorsee of a bill 
 of exchange, sued them as acceptors, the bill having been drawn on 
 "A, B & Co." and accepted by A. At the trial C gave evidence to sl-.ow 
 that he was not a partner at the date of the acceptance. The court 
 left it to the jury to determine whether, if C was not at the date of 
 the acceptance a partner in fact, he had held himself out as suc'.i by 
 allowing his name to remain on the office door. Verdict for C.) 
 
 Boyd V. McCann, 10 Md. 118, 1856. (A and B were partners, 
 trading as "A & B." They dissolved partnership, but B, who continued 
 the business, kept the old firm name over the door. C sued .\ and B 
 as partners, and asked the court to charge that the existence of the 
 name over the door, "after the publication of the notice of dissolution," 
 would of itself entitle the plaintiff to recover. Held, that the court 
 property refused to charge as requested.) 
 
 Walte V. Brczvster. 31 Vt. 516, 1859. W. Brewster and C. Brew^t^^r 
 virere partners trading under the name of W. & C. Brewster. They 
 dissolved partnership, and notice of the dissolution was published, and 
 the fact became generally known in the place where they did business, 
 but C. B. continued to work in the business as an employee of W. B. 
 and permitted W. B. to carry on the business under the old name. A. 
 a resident of another city who bad had no dealings with the firm entered 
 into a contract with \V. B. in the old firm name. A had no notice of 
 the dissolution, and during the nef^otiat^ion"; saw C. B. working in the 
 store. There was some evidence that- C. B. took nart in the neeotia- 
 tions with A, acting as if he was a principal. A sued W. B. and C. B.
 
 394 
 
 PARTNERSHIP BY ESTOPPEL 
 
 as partners. The Court charged the jury that if W. B. and C. B. were 
 not partners in fact, that if C. B. was present when the contract was 
 executed without giving A knowledge that he was not a partner, A 
 would have a right to treat him as a partner. The Appellate Court, 
 affirming the judgment in favor of A, said: "The defendant, by con- 
 tinuing to be engaged in the business of the firm after its dissolution, 
 and by allowing his name to be kept upon the sign and used in the 
 transactions of the apparent firm, held himself out to the world as a 
 partner. * * * Hg thereby took upon himself the consequences of 
 holding out such appearances ; and one consequence was, that if a 
 person, ignorant of the fact that he was not a partner, should be misled 
 by the appearances to believe that he was, and to deal with him as such, 
 he would as to such person be a partner.")
 
 DEFORD & CO. V. REYNOLDS 395 
 
 DEFORD & CO. V. REYNOLDS. 
 In the Supreme Court of Pennsylvania, i860. 
 
 ^6 Pennsylvania Reports, 325. 
 
 Error to the Common Pleas of Franklin County.^ 
 Strong, J. — Some time in the year 185 1, Reynolds, 
 the defendant below, entered into partnership with Robert 
 McCulloh, since deceased, under the firm name of R. 
 McCulloh & Co. In the same year, the new firm opened 
 an account with the plaintiffs below, who were leather 
 merchants, doing business in the city of Baltimore, and 
 became indebted to them in a considerable sum. On the 
 7th of April, 1853, the firm of R. AlcCulloh & Co. was 
 dissolved by the mutual consent of the partners, and notice 
 of the dissolution was published in the newspapers of Cham- 
 bersburg, where the firm had principally transacted its bus- 
 iness. There is, however, no direct evidence that actual no- 
 tice of the dissolution was given to the Messrs. Deford, 
 with whom the firm had been dealing. Robert ]\IcCulloh 
 continued the business after the retirement of ]\Ir. Reynolds, 
 made payments to the plaintiffs, and purchased from them 
 hides, oil, &c., until December 31st. 1853. He died in 
 April, 1854, and this is a suit against Air. Reynolds as sur- 
 viving partner to recover the balance due to the plaintiffs 
 on the 31st of December, 1853. 
 
 The first contested question is. whether Reynolds 
 is liable for any portion of the debt contracted after April 
 /th, 1853, when the firm of R. McCulloh & Co. was dis- 
 solved? The solution of this depends upon the answers 
 to be given to two other inquiries ; first, whether, in this case, 
 the law required notice to be given to the Messrs. Deford, 
 
 * The Reporter's statement of the facts and his notes of the argu- 
 ment of counsel are omitted.
 
 396 PARTNERSHIP BY ESTOPPEL 
 
 in order to secure the retiring partner against liability for 
 debts contracted after his retirement; and secondly, wheth- 
 er, if such notice was necessary, it was in fact given, or, 
 what is equivalent, whether the creditors had knowledge of 
 the dissolution before the debt was contracted ?- 
 
 It is to the first of these minor questions that the earlier 
 part of the argument of the plaintiff in error is addressed, 
 and to this was directed the first point propounded by him to 
 the court below. That point was that, if the jury believed 
 from the evidence that the defendant was not known to the 
 plaintiffs as a member of the firm of R. ]\IcCulloh & Co., he 
 might withdraw at any time, without being required to give 
 notice of the dissolution of the partnership, and is only 
 chargeable for debts contracted during the time he was a 
 partner. To this the court replied, that if the jury believed 
 the defendant was an open partner in the firm of R. McCul- 
 loh & Co., and that the plaintiffs sold the goods and fur- 
 nished the stock on the credit of the company, then the liabil- 
 ity of the defendant did not cease with the dissoluion, al- 
 though the plaintiffs may not have known who were the 
 members of the firm. 
 
 The rule doubtless is, that an unknown dormant 
 partner may retire from the firm without giving notice of 
 his retirement, and thenceforth be no longer liable for debts 
 which the firm may incur. Having ceased to be a partner 
 in fact, he is not a party to the contract which creates the 
 debt ; and, being unknown, he has not encouraged the cred- 
 itor to rely upon his responsibility. But was Reynolds 3 
 dormant partner? And could the court, as matter of 
 law, instruct the jury that he was, if they believed he was 
 not known by the plaintiffs to be a partner? Does the 
 mere fact that one selling goods to a firm is unacquainted 
 with the names of all the persons who compose it, establish 
 tliat those are dormant partners as to him whose names 
 
 - Only as much of the opinion of the Court as relates to the first 
 inquiry is reprinted.
 
 DEFORD & CO. V. REYNOLDS 397 
 
 are unknown? It is perhaps not easy to define what con- 
 stitutes a dormant partner in all cases. The word is some- 
 times used in opposition to active, and, at other times, as 
 contradistinguished from ostensible or knozvn. This i:ase 
 does not require us to attempt a precise definition. McCul- 
 loh and Reynolds were in partnership, it is admitted, 
 until April 7th, 1853. They were the only partners. They 
 transacted business under a firm name that represented to 
 those dealing with them that some other than R. ^NIcCul- 
 loh was responsible. The vendor of goods, of course, 
 gave credit, not to ]McCulloh alone, but to him and whatever 
 other persons were embraced within the company. He may 
 not have known the name of the person included under the 
 description "& Co." and yet have known that the partner 
 not named was the most responsible. Indeed, he might 
 have been the active partner, and yet unknown by name 
 to. the creditor. Now suppose that the Messrs. Deford 
 had known that there was a partner of Robert JMcCulloh, 
 an open partner, known as such to the community at Cham- 
 bersburg. Suppose they had known that he was the active 
 agent in transacting most of the business of the firm, and 
 that he alone was a man of property, but had not been 
 made acquainted w^ith the fact that his partner was Hugh 
 ,W. Reynolds, can it be said that in selling to the firm, 
 they trusted IMcCulloh alone, and gave no credit to Rey- 
 nolds? If not, then the reason given why a dormant part- 
 ner is not liable after his retirement without notice, is 
 not applicable to this case. Then credit w^as given to 
 Reynolds under the name "& Co.," and the same reason 
 exists for his continued liability as there is for the liability 
 of any partner who has retired W'ithout notice. 
 
 In Mitchell v. Dale 2 Harr & Gill i'/2, it was said by 
 Martin, J., that every partner is dormant, unless his name 
 appear in the firm "or is embraced under general terms, 
 as the name of one of the firm and company." Without 
 assenting to this as universally true, it may be said, that
 
 398 PARTNERSHIP BY ESTOPPEL 
 
 its obvious implication is, that if one is embraced in the 
 general description, the name of one partner and company, 
 his is not a case of dormant or secret partnership. Collyer, 
 in his treatise, sect. 4, defines a dormant partner to be one 
 "whose name and transactions as a partner are professedly 
 concealed from the world." The only object which such an 
 one can have in remaining dormant or secret, is, that credit 
 may be given to the ostensible partners alone, and not to 
 him. \\'ith such a purpose or object, doing business under 
 the name of one partner aiid company, is inconsistent. It 
 can be nothing less than an invitation to the public to give 
 credit to more than the single partner named. Entertaining 
 such views, we are of opinion that there was no error in the 
 answer of the court below to the defendant's first point. 
 Whether he was a dormant partner or not was a question 
 for the jury, and, trading as he did under the firm name 
 of R. McCulloh & Co., the solitary fact that he was not 
 known by the plaintiffs to be the company, was not sufficient 
 to enable the court to say that his liability ceased at the 
 dissolution of the firm, without notice to those who had dealt 
 with it. If he was an open partner, and the credit was 
 given to the company, he was still bound. 
 Judgment for the plaintiff affirmed.^ 
 
 ^Compare: Poillon v. Secor. 61 N. Y. 456. 1875. (A, B and C were 
 in partnership, trading as "A, B & Co." A retired from the firm, but 
 allowed B and C to continue the business under the old name and use 
 his name as a member of the firm. The new firm purchased goods 
 from D, and D sued A, B and C as partners. Held, that in order to 
 hold A as a partner it was not necessary for him to show that he 
 knew who A was, or that he gave credit because of his apparent con- 
 nection with the firm. Query, whether if D had known that A for a 
 consideration had allowed himself to be held out as partner, D would 
 have recovered?) 
 
 Shaiuhurg v. Ruggles. S^, Pa. 148, 1876. (A. B. C ef al. were in 
 partnership, trading as "The Citizens' Bank." B's name appeared as 
 one of the directors of the bank. S was a depositor. B retired from 
 the firm, but he gave no notice of this retirement to S., and his name 
 was continued as one of the directors, though he requested that it be 
 withdrawn. Held, that B was liable to S for money deposited after 
 his withdrawal, though S admitted that he did not inquire and did 
 not know who the partners were. Accord : Hozvell v. Adams, 68 N. Y. 
 314. 1877.) ^ . „ 
 
 McGoTvan v. American Tan Bark Co.. 121 U. S. 575- 1887. (A, B,
 
 DEFORD & CO. z: REYNOLDS 399 
 
 ef at. were partners. D had business with them. They made a contract 
 with D. D sued on the contract. The defendants claimed that before 
 the contract they had formed a corporation and assigned all the prop- 
 erty of the firm to the corporation, and that the contract was made by 
 the corporation. The Court charged that D could recover against the 
 defendants as partners unless he had notice of the creation of^the 
 corporation at the time he entered into the contract.) 
 
 The Elmira Iron and Steel Rolling Mill Co. v. Harris, 124 N. Y. 
 280, 1891. (A, C and B entered into an apreement by which they were 
 to form a partnership under the name of "A & Co." A and C were the 
 active members. B to act as a consulting member. There was no 
 agreement that B's connection with the firm was to be kept secret, and 
 A mentioned it to others, but not to D who dealt with the firm. B re- 
 tired, and notice of his retirement was published. D, still ignorant 
 of the existence of B, made a contract with the firm. Held, that D 
 could hold B on this contract as a partner. Haight, C. J., dissented 
 on the ground that B was a dormant partner, and as such notice of his 
 retirement was not necessary.) 
 
 See further the discussion in Strecker v. Conn, 90 Ind. 469, 1883, 
 pp. 470, 471.
 
 400 PARTNERSHIP BY ESTOPPEL 
 
 S^IITH V. HILL. 
 
 In the Supreme Court of Vermont, 1872. 
 
 45 Vermont Reports, go. 
 
 Assumpsit upon a promissory note, signed "L. D. Hill 
 & Co. by F. C. Harrington," and also by Francis Ricli- 
 ardson. Plea, the general issue, and trial by the court, 
 June term, 1S72, Ross J., presiding. 
 
 There never existed any such firm as L. D. Hill & Co. 
 None of the defendants were ever in company with each 
 other in any kind of business. Two or three years before 
 said note was given, a man in Island Pond notified the de- 
 fendant Hill, that Harrington was using the name of L. D. 
 Hill & Co. in his staging business. Hill afterwards saw 
 Harrington, and told him he must not use that name to 
 injure him, and Harrington said he would not. Hill knew 
 nothing of the giving of said note till about the time this 
 suit was commenced. It did not appear that the plaintiff 
 knew of the previous use of Hill's name by Harrington in 
 his staging business ; nor did it appear whether Harring- 
 ton made any representations to the plaintiff at the time 
 he signed the note. At that time he gave the plaintiff's 
 notes to the amount of $1600 for the purchase of some 
 staging property, and paid them himself, except the balance 
 due on the note in question. Hill was never called upon 
 to pa}^ anything on paper thus signed, until this suit was 
 brought. There was no service on Richardson, and Har- 
 rington made no defense. Judgment for the defendant 
 Hill, and against the defendant Harrington. To the rendi- 
 tion of judgment for Hill, the plaintiff excepted.^ 
 
 Peck, J. If one suffers another to hold him out as 
 a partner, or to use his name in business as such, he is liable 
 as a partner on a contract thus made, although in fact 
 
 ^ The Reporter's notes of the cases cited by counsel are omitted. 
 
 i
 
 S^IITH V. HILL 4G1 
 
 he has no interest in the business of such partnership. 
 When the defendant Hill was informed that Harrington, 
 in his staging business, was using his name, under the name 
 of L. D. Hill & Co., it does not appear that he forbid it, 
 but that he afterwards saw Harrington and told him he 
 must not use that name to hurt him. and that Harrington 
 replied that he would not. ' The fair import of this is, 
 that Hill acquiesced in such use of his name, on Harring- 
 ton's assurance that he would not thereby injure him or, in 
 other words that he would not thus use his name beyond 
 his ability to indemnify him, and that he would save him 
 harmless. The risk of Harrington's neglect to redeem this 
 pledge was upon Hill, and not upon those to whom Harring- 
 ton should, in his staging business, thus pledge the credit 
 of Hill. It makes no difference that Hill knew nothing of 
 the giving of the note in question till about the time of the 
 commencement of the suit. It is urged by the defendant's 
 counsel, apparently with great confidence, that as it did 
 not appear that the plaintiff ever knew of the previous use 
 of the defendant Hill's name by Harrington in his staging 
 business, nor what representations, if any, Harrington made 
 to Smith, the plaintiff, at the time he executed the note by 
 the name of L. D. Hill & Co., the defendant Hill cannot 
 be held liable. This would be material, if the signature 
 did not disclose the name of Hill ; as it might then be urged 
 that the plaintiff did not take the note relying on the credit 
 of Hill. But as the name of the defendant Hill appears 
 specifically upon the face of the note as one of the makers, 
 the case is quite different, since the legal intendment is, that 
 the payee takes a note upon the faith of the persons whose 
 names appear upon it as makers. The common practice 
 of this court is, in cases tried by the court when the facts 
 are found by the county court, if the judgment of the county 
 court is reversed, to proceed and render final judgment, such 
 as the facts warrant ; but in this case we conclude to reverse 
 the judgment, and grant a new trial. 
 
 Judgment reversed and new trial granted.
 
 402 
 
 PARTNERSHIP BY ESTOPPEL 
 
 THOMPSON z'. FIRST NATIONAL BANK OF TO- 
 LEDO. 
 
 In the Supreme Court of the United States, 1884. 
 
 Ill United States Reports, 529. 
 
 Action by the First National Bank of Toledo, against 
 certain persons, including one Edward R. Thompson, as 
 partners upon a draft for $5000, drawn and accepted by the 
 partnership. Thompson jfiled a separate answer denying 
 that he was a member of the partnership or liable to the 
 plaintiff on the draft sued on. There was a general verdict 
 for the plaintiff. The defendants, after duly excepting to 
 the refusal of the Court to give, as requested, the instruc- 
 tions set forth in the following opinion, sued out this writ 
 of error.^ 
 
 Mr. Justice Gray delivered the opinion of the Court. 
 
 The plaintiff at the trial sought to charge Thompson 
 with liability as a partner upon two grounds : First, that he 
 was actually a partner. Second, that if not actually a partner 
 he had held himself out to the world as such. And the case 
 was submitted to the jury upon both grounds. 
 
 The first and second assignments of error relate to the 
 exclusion of evidence offered by the defendants bearing upon 
 the first ground of action. The third and fourth assign- 
 ments of error relate to the instructions given and refused 
 as to the second ground of action. - 
 
 The remaining and the principal question in the case is, 
 whether the liability of Thompson, by reason of having held 
 
 ' Tlie facts are partially restated. The essential facts are given in 
 the opinion. 
 
 ' Only so much of the opinion as relates to the third and fourth 
 assignments of error is reprinted.
 
 THOMPSON z'. FIRST NATIONAL BANK OF TOLEDO 403 
 
 himself out as a partner, was submitted to the jury under 
 proper instructions. 
 
 Tlie court was requested to instruct the jury that if 
 Thompson was not in fact a member of the partnership, the 
 plaintiff could not recover against him, unless it appeared 
 from the testimony that he had knowingly permitted himself 
 to be held out as a partner, and that the plaintiff* had knowl- 
 edge thereof during its transactions with the partnership. 
 The court declined to give this instruction; and instead 
 thereof instructed the jury, in substance, that if Thompson 
 permitted himself to be held out to the world as a partner, 
 by advertisements and otherwise, as shown by the evidence,, 
 and to be introduced to other persons as a partner, the 
 plaintiff was entitled to the benefit of the fact that he 
 was so held out, and he was estopped to deny his liability 
 as a partner, although the plaintiff did not know that he was 
 so held out, and did not rely on him , for the payment 
 of the plaintiff's debt, or give credit to him, in whole or in 
 part. 
 
 This court is of opinion that the Circuit Court erred 
 in the instructions to the jury, and in the refusal to give the 
 instruction requested. 
 
 A person who is not in fact a partner, who has no in- 
 terest in the business of the partnership and does not share 
 in its profits, and is sought to be charged for its debts because 
 of having held himself out, or permitted himself to be held 
 out, as a partner, cannot be made liable upon contracts of 
 the partnership except with those who have contracted with 
 the partnership upon the faith of such holding out. In 
 such a case, the only ground of charging him as a partner 
 is, that by his conduct in holding himself out as a partner he 
 has induced persons dealing with the partnership to believe 
 him to be a partner, and, by reason of such belief, to give 
 credit to the partnership. As his liability rests solely upon 
 the ground that he cannot be permitted to deny a participa-, 
 tion which, though not existing in fact, he has asserted, or
 
 404 PARTNERSHIP BY ESTOPPEL 
 
 permitted to appear to exist, there is no reason why a credit- 
 or of the partnership, who has neither known of nor acted 
 upon the assertion or permission, should hold as a partner 
 one who never was in fact, and whom he never understood 
 or supposed to be, a partner, at the time of dealing with 
 and giving credit to the partnership. 
 
 There may be cases in which the holding out has been so 
 public and so long continued that the jury may infer that one 
 dealing with the partnership knew it and relied upon it, with- 
 out direct testimony to that effect. But the question whether 
 the plaintiff was induced to change his position by acts done 
 by the defendant or by his authority is, as in other cases 
 of estoppel in pais, a question of fact for the jury, and 
 not of law for the court. The nature and amount of evi- 
 dence requisite to satisfy the jury may vary according to cir- 
 cumstances. But the rule of law is always the same, that 
 one who had no knowledge or belief that the defendant was 
 held out as a partner and did nothing on the faith of such a 
 knowledge or belief, cannot charge him with liability as a 
 partner if he was not a partner in fact. 
 
 The whole foundation of the theory that a person who, 
 not being in fact a partner, has held himself out as a partner, 
 may be held liable as such to a creditor of the partnership 
 who had no knowledge of the holding out, and who never 
 gave credit to him or to the partnership by reason of sup- 
 posing him to be a member of it, is a statement attributed to 
 Lord Alansfield in a note of trial before him at nisi prius 
 in 1784 as cited by counsel in a case in which it was sought 
 to charge as a partner one who had shared in the profits of 
 a partnership. By so much of that note as was thus cited, 
 which is the only report of the case that has come down to 
 us, it would appear that in an action by Young, a coal mer- 
 chant, against Mrs. Axtell and another person, to recover 
 for coals sold and delivered, the plaintiff introduced evidence 
 that Mrs. Axtell had lately carried on the coal trade, and 
 that the other defendant did the same under an agreement
 
 ! 
 
 THOMPSON V. FIRST NATIONAL BANK OF TOLEDO 403 
 
 between them, by which she was to bring what customers she 
 could into the business, and the other defendant was to pay 
 her an annuity, and also two shillings for every chaldron that 
 should be sold to those persons who had been her custQjn- 
 ers or were of her recommending: and that bills were made 
 out in their joint names for goods sold to her customers ; and 
 that the jury found a verdict against Mrs. Axtell, after being 
 instructed by Lord Mansfield that "he should have rather 
 thought, on the agreement only, that Mrs. Axtell would be 
 liable, not on account of the annuity, but the other pay- 
 ment, as that would be increased in proportion as she in- 
 creased the business. However, as she suffered her name 
 to be used in the business, and held herself out as a partner, 
 she was certainly liable, though the plaintiff did not, at the 
 time of dealing know that she was a partner, or that her 
 name was used." Young v. Axtell, at Guildhall Sittings af- 
 ter Hilary Term, 24 Geo. HI., cited in JJ'aiigJi v. Carver, 2 
 H. Bl. 235, 242. But as the case was not there cited upon the 
 question of liability by being held out as a partner, it is by 
 no means certain that we have a full and accurate report of 
 what was said by Lord Mansfield upon that question ; still less 
 that he intended to lay down a general rule, including cases 
 in which one, who in fact had never taken any part in or 
 received any profits from the business, held himself out as a 
 partner. 
 
 In delivering the judgment of the Common Bench in 
 Waugh V. Carz'er, Chief Justice Eyre said : "Xow a case may 
 be stated, in which it is the clear sense of the parties to the 
 contract that they shall not be partners ; that A is to contrib- 
 ute neither labor nor money, and, to go still farther, not to re- 
 ceive any profits. But if he will lend his name as a partner, 
 he becomes, as against all the rest of the world, a partner, 
 not upon the ground of the real transaction between them, 
 but upon principles of general policy, to prevent the frauds to 
 which creditors would be liable, if they were to suppose that 
 they lent their money upon the apparent credit of three or
 
 406 PARTNERSHIP BY ESTOPPEL 
 
 four persons, when in fact they lent it only to two of them, 
 to whom, without the others, they would have lent nothing." 
 2 H. Bl. 246. 
 
 This statement clearly shows that the reason and object 
 of the rule by \vhich one who, having no interest in the part- 
 nership, holds himself out as a partner, is held liable as such, 
 are to prevent frauds upon those who lend their money upon 
 the apparent credit of all who are held out as partners ; and 
 the later English authorities uniformly restrict accordingly 
 the effect of such holding out. 
 
 In Mclvcr v. Humble, in the King's Bench in 1812, 
 Lord Ellenborough said : "A person may make himself liable 
 as a partner with others in two ways : either by a participa- 
 tion in the loss or profits ; or in respect of his holding him- 
 self out to the world as such, so as to induce others to give 
 a credit on that assurance." And Mr. Justice Bayley said: 
 "To make Humble liable, he must either have been a part- 
 ner in fact in the loss and profit of the ship, or he must have 
 held himself out to be such. Now here he was not in fact a 
 partner, and the goods were not furnished upon his credit, 
 but upon the credit of Holland and Williams." 16 East, 169, 
 174, 176. 
 
 In Dickinson v. Valpy, in the same court in 1829, Mr. 
 Justice Parke (afterwards Baron Parke and Lord Wensley- 
 dale) said : "If it could have been proved that the defendant 
 had held himself out to be a partner, not 'to the world,' for 
 that is a loose expression, but to the plaintiff himself, or 
 under such circumstances of publicity as to satisfy a jury 
 that the plaintiff knew of it and believed him to be a partner, 
 he would be liable to the plaintiff in all transactions in which 
 he engaged and gave credit to the defendant upon the faith 
 of his being such partner. The defendant would be bound 
 by an indirect representation to the plaintiff, arising from his 
 conduct, as much as if he had stated to him directly and in 
 express terms that he was a partner, and the plaintiff had 
 acted upon that statement." 10 B. & C. 128, 140. And see 
 Carter v. Whalley, i B. & A. 11.
 
 THO.MPSOX V. FIRST NATIONAL BANK OF TOLEDO 407 
 
 In Ford v. JJliifniarsh, in the Court of Exchequer in 
 1840. a direction given by Baron Parke to the jury in sub- 
 stantially the same terms was held by Lord Abinger, Baron 
 Parke, Baron Gurney and Baron Rolfe (afterward Lord 
 Cranworth) to be a sound and proper direction; and Baron 
 Parke, in explaining his ruling at the trial, said : "I told the 
 jury that the defendant would be liable if the debt was con- 
 tracted whilst he was actually a partner, or upon a represen- 
 tation of himself as a partner to the plaintiff, or upon such a 
 public representation of himself in that character as to lead 
 the jury to conclude that the plaintiff, knowing of that repre- 
 sentation, and believing the defendant to be a partner, gave 
 him credit under that belief." Hurlstone & Walmsley, 53, 55. 
 
 In Pott V. Eyton, in the Common Bench in 1846, which 
 was an action by bankers to recover a balance of account 
 against Eyton and Jones, on the ground that either they were 
 actual partners in the business carried on by Jones, or Eyton 
 had by his own permission been held out as a partner. Chief 
 Justice Tindal, delivering the judgment of the court, said : 
 "There was no evidence to show that credit was in fact given 
 to Eyton, or that the bankers knew that his name was 
 over the door of the shop at Mostyn Quay, or that they sup- 
 posed him to be a partner. One person who had been mana- 
 ger, and another who had been a clerk in the bank, were in 
 court; and if they could have given such evidence, they 
 would no doubt have been called as witnesses. We must 
 assume, therefore, that credit was given to Jones alone ; and, 
 if Eyton is to be made liable, that must be on the ground of 
 an actual partnership between himself and Jones." 3 C. B. 
 32, 39. In Martyn v. Gray, in the same court in 1863, Chief 
 Justice Earle and IVIr. Justice Willes expressed similar opin- 
 ions. 14 C. B. (N. S.) 824, 839, 843. The decision of the 
 Court of Exchequer in Edmundson v. Thompson, in 1861, 
 is to the like effect. 31 Law Journal (N. S.) Ex. 207; 5". C. 
 8 Jurist. (N. S.) 235. 
 
 Mr. Justice Lindley, in his Treatise on the Law of
 
 408 
 
 PARTNERSHIP BY ESTOPPEL 
 
 Partnership, sums up the law on this point as follows : "The 
 doctrine that a person holding himself out as a partner and 
 thereby inducing others to act on the faith of his represen- 
 tations, is liable to them as if he were in fact a partner, is 
 nothing more than an illustration of the general principle of 
 estoppel by conduct." "The expression in Waugh v. Car- 
 ver, 'if he will lend his name as a partner he becomes as 
 against all the rest of the world a partner,' requires qualifica- 
 tion; for the real ground on which liability is incurred by 
 holding oneself out as a partner is, that credit has been there- 
 by obtained. This was put with great clearness by Mr. Jus- 
 tice Parke in Dickinson v. l^alpy." "No person can be fixed 
 with liability on the ground that he has been held out as a 
 partner, unless two things concur, viz. : first, the alleged act 
 of holding out must have been done either by him or by his 
 consent, and, secondly, it must have been known to the per- 
 son seeking to avail himself of it. In the absence of the first 
 of these requisites, whatever may have been done cannot be 
 imputed to the person sought to be made liable ; and in the 
 absence of the second, the person seeking to make him liable 
 has not in any way been misled." Lindley on Partnership 
 (ist ed.) 45-47; (4th ed.) 48-50. 
 
 The current of authority in this country is in the same 
 dii'ection. Benedict v. Davis, 2 McLean, 347; Hicks v. 
 Cram, 17 Vermont, 449; Fitch v. Harrington, 13 Gray, 469; 
 Wood V. Pennell, 51 Maine, 52; Sherrod v. Langdon, 21 
 Iowa, 518; Kirk v. Hartman, 6^^ Penn. St. 97; Hefner v. 
 Palmer, 6y. Illinois, 161; Cook v. Penrhyn Slate Co., 36 
 Ohio St. 135; Uhl V. Harvey, 78 Indiana, 26. The only 
 American case, cited at the bar, which tends to support the 
 ruling below, is the decision of the Commission of Appeals 
 in Poillon v. Sccor, 61 N. Y. 456. And the judgment of 
 the Court of Appeals in the later case of Central City Sav- 
 ings Bank v. Walker, 66 N. Y. 424. clearly implies that in 
 the opinion of that court a person not in fact a partner can- 
 not be made liable to third persons on the ground of having
 
 THOMPSON' z: FIRST NATIONAL BANK OF TOLEDO 409 
 
 been held out as a partner, except upon the principle of equit- 
 able estoppel, that he authorized himself to be so held out, 
 and that the plaintiffs gave credit to him. 
 
 The result is that, both upon principle and upon authority, 
 the third and fourth assignments of error, as well as the 
 first, must be sustained, the judgment of the Circuit Court 
 reversed, and the case remanded to that court with directions 
 to order a N'ew trial} 
 
 ^ Compare: Vice v. Anson, 7 B. & C, 409, 1827. (A, having paid cer- 
 tain moneys, received notice that she was a partner in a mine. She 
 believed herself a partner, and spoke of herself to others as such. B 
 gave credit to the partnership, but without any knowledge of the 
 existence of A. Held, that A was not liable to B.) 
 
 Denithorne v. Hook, 112 Pa. 240, 1886. (A and B were in partner- 
 ship. They desired to enter into a contract to construct a reservoir for 
 C. D agreed to go on the contractor's bond. E, who drew the con- 
 tract, thought that the firm consisted of A and D ; and the agreement 
 was worded as a contract between A and D, and C. D signed the 
 contract, it having been explained to him that his doing so would in 
 effect make him a surety, as he had agreed. F furnished supplies to 
 A and B in the course of their prosecution of the work. Not being 
 paid, he brought suit against A and D as partners, and offered the 
 above recited contract as evidence of the partnership. Held, that the 
 evidence was improperly admitted, because it was not sufficient evidence 
 of a partnership in fact, and not being accompanied by an offer to show 
 that the plaintiff knew of it at the time the debt was created, it could 
 not be used to fasten any liability on the defendants.") 
 
 Hahlo V. Mayer, 102 IMo. 93, 1890. CA carried on business under 
 his own name. He changed the name under which he carried on busi- 
 ness to "A & Son." The son was not in the business. The son signed 
 "A & Son" to accommodation paper which came into the hands of B, 
 a bona fide holder for value. A had never represented to B that his, 
 B's, son was a partner. The Court below instructed the jury that, 
 though B was ignorant of the fact that A held out his son as a partner, 
 nevertheless B could recover from A. Held, that the instruction was 
 erroneous, and a new trial was granted. Barclay, J., dissented.)
 
 410 
 
 PARTNERSHIP BY ESTOPPEL 
 
 SMITH V. BAILEY. 
 In the Court of Appeals, England, 1891. 
 
 Laii' Reports [1891], 2 Queen's Bench, 403. 
 
 Action in respect of personal injuries occasioned to the 
 female plaintiff by the negligent management of a traction 
 engine upon a highway. 
 
 The defendant, who was the owner of a traction engine, 
 to which his name and address were affixed, as required by 
 the Locomotives Act, 1865, s. 7, let the same for three 
 months. Through the negligent management of the engine 
 whilst it was being used upon a highway by the hirer, per- 
 •sonal injuries were occasioned to the plaintifif, who was 
 being driven in a carriage upon the highway. 
 
 Verdict for the defendant. The plaintiffs applied for a 
 new trial. -^ 
 
 Lord Esher, M. R. (after dealing with the question 
 whether the verdict of the jury on the question of fact was 
 against evidence, and holding that it was not, his Lordship 
 proceeded as follows: — ) The case of Stables v. Eley (i C. 
 & P. 614) was then cited on behalf of the plaintiffs as au- 
 thority for the proposition that, if a man allows a carriage to 
 go out with his name upon it, he holds himself out as liable 
 for injury occasioned by the negligence of any person driving 
 it ; and, according to the language used in the report, the de- 
 cision does seem to go to the length of holding that in such 
 a case there would be conclusive evidence of liability. But, 
 if so, I think the decision was wrong, and I cannot agree with 
 it. The case is mentioned in ^•arious text-books ; but the 
 comment upon it always appears to be that, if it is to be taken 
 to go that length, it must be wrong, and it has been sug- 
 gested that the utmost effect that could be given to the deci- 
 
 ' The facts are restated.
 
 SMITH V. BAILEY 411 
 
 sion is that under such circumstances there would be prima 
 facie evidence of Habihty, which might be met, however, by 
 shewing the truth of the matter. If the decision is to be 
 taken as going any further than that, as I have said, I think 
 it is wrong. If it really only went that length, it is not nec- 
 essary upon the present occasion to say whether it is wrong 
 or not.- 
 
 BowEx, L. J. I am of the same opinion. I only wish 
 to say that in my judgment the decision in Stables v. Eley 
 (i. C. & P. 614) can only be justified on the supposition that 
 the case had been misreported. The only possible explana- 
 tion of the decision seems to be that suggested by the Master 
 of the Rolls. It appears to me that the sooner the case disap- 
 pears from the text-books the better. 
 
 Application refused. 
 
 * That part of the opinion which deals with the Locomotive Act of 
 1865 is omitted.
 
 412 PARTNERSHIP BY ESTOPPEL 
 
 SECTION 2. — WHEN A CREDITOR LOSES HIS 
 RIGHT TO PROCEED AGAINST THE PERSON 
 HELD OUT AS PARTNER. 
 
 SCARF V. JARDINE. 
 In the House of Lords, 1882. 
 
 Lazu Reports, 7 Appeal Cases, 345. 
 
 Appeal from a judgment of the Court of Appeal, re- 
 versing a judgment in favor of the defendant given by Den- 
 man J. ^ 
 
 Lord Selborne, L.C. : — My Lords, the facts in this 
 case are few and simple, but they raise a question which 
 may be of some general importance and which seems from 
 what has been stated at the Bar, to be as yet undetermined 
 by authority. 
 
 There was a firm carrying on business, under the name 
 of W. H. Rogers & Co., in Manchester, with which the 
 plaintiff, Mr. Jardine, had dealings. It consisted at first 
 of two partners, the defendant, Mr. Scarf, and Mr. W. H. 
 Rogers. On the 27th of July. 1877 those two persons dis- 
 solved the partnership between them, and another person, 
 named Beech, joined Mr. Rogers, and they carried on the 
 same business, under the same name and at the same place, 
 from that time forward. Of this the Plaintiff, Mr. Jardine, 
 knew nothing until the 25th of February, 1878. In the 
 meantime, in January, 1878, goods were ordered from him 
 on behalf of the firm carrying on business under the name of 
 W. H. Rogers & Co., according to the ordinary course of 
 business — which I presume was the same as had prevailed 
 before the dissolution of partnership in the previous month 
 
 *The statement of facts and notes of the arguments of counsel 
 printed in the Report are omitted.
 
 SCARF f. JARDIXE 413 
 
 of July — goods were ordered of the plaintiff, and were de- 
 livered by him in February, 1878, at the place of business of 
 the firm. At the time when they were ordered, and at the 
 time when they were delivered, he was ignorant of the dis- 
 solution of partnership which had in fact taken place, and 
 of the fact that the business was then being carried on not 
 by Mr. Scarf and ]\Ir. Rogers but by Mr. Rogers and Mr. 
 Beech. He became aw^are of those facts upon the 25th of 
 February, 1878, on receiving a circular dated on the 21st of 
 the same month of February, by which notice was given to 
 him, and by which the date of the dissolution of partnership 
 was mentioned as having taken place on the 27th of July, 
 1877 ; and it was at the same time stated that all debts owing 
 to or by the old firm would be received and paid by INIr. 
 Rogers alone, who would continue to carry on the business 
 as theretofore, in partnership with ^Ir. Beech, under the 
 same style and firm. 
 
 The plaintiff afterwards supplied other goods to the 
 new firm. He made no break in the account in his books. 
 He rendered an account consisting of the old and new debts 
 — by "the old" I mean the debt which had been incurred be- 
 fore he became aware of the dissolution of partnership : by 
 "the new" I mean that which had been incurred afterwards 
 — he rendered that account to the new^ firm. He had some 
 correspondence with them, looking to them as the persons 
 from whom he might expect payment of the whole of that 
 demand ; and they on the other hand replied in the corre- 
 spondence as being prepared to liquidate the debt ; they made 
 some payment on account, and they gave a cheque for the 
 balance on the 22nd of July, 1878. which was post-dated a 
 week. That cheque when presented w^as dishonoured ; and on 
 the 7th of August, 1878, the plaintiff commenced an action 
 against Rogers and Beech for the balance, which included 
 the present demand, that is to say included the demand for 
 the goods which had been ordered in January and supplied 
 in February before notice of the dissolution of partnership.
 
 414 PARTNERSHIP BY ESTOPPEL 
 
 That action was stopped, not by any discontinuance on the 
 plaintiff's part, but by the faikire of the new firm, which 
 went into liquidation on the i6th of August, 1878. Under 
 this liquidation the plaintiff proved as a creditor of the new 
 firm, by an affidavit in which he swore that Rogers and 
 Beech were justly and truly indebted to him in the sum of 
 £ 125, 19^-. id. for goods sold and delivered by him to Rog- 
 ers and Beech, that sum including the goods in question. 
 
 Your Lordships, I think, must take it upon the facts 
 as they appear that no objection was made to that proof ; that 
 it was never retracted ; that it was admitted ; and although it 
 does not appear upon the proceedings that a dividend has 
 been paid under it, yet at all events, for anything that your 
 Lordships know to the contrary, that may be the case, or 
 may be the case hereafter. 
 
 Now after the liquidation and after the proof the pres- 
 ent action was brought by the plaintiff against Mr. Scarf, 
 who in point of fact had ceased to be a partner in July, 1877, 
 who in point of fact had given no authority to order the 
 goods in question upon his credit, and who as between 
 himself and the persons who did order the goods was at the 
 time when they were supplied a stranger to the business. On 
 the other hand, the persons who actually ordered those 
 goods and to whom they were supplied were Rogers and 
 Beech. They were the persons alone interested in the busi- 
 ness, and they were undoubtedly, upon ordinary principles, 
 liable for what they so ordered. The defendant also might 
 be held liable — about that there can be no doubt; because 
 the principle of law, which is stated in Lindley on Partner- 
 ship (Vol. i. p. 429, 3rd Ed.) is incontrovertible, namely 
 that "when an ostensible partner retires, or when a partner- 
 ship between several known partners is dissolved, those who 
 dealt with the firm before a change took place are entitled 
 to assume, until they have notice to the contrary, that no 
 change has occurred;" and the principle on which they are 
 entitled to assume it is that of the estoppel of a person who
 
 SCARF z: JARDINE 415 
 
 has accredited another as his known agent from denying that 
 agency at a subsequent time as against the persons to whom 
 he has accredited him, by reason of any secret revocation. 
 Of course in partnership there is agency — one partner is 
 agent for another; and in the case of those who under' the 
 direction of the partners for the time being carry on the 
 business according to the ordinary course, where a man has 
 estabhshed such an agency and has held it out to others, they 
 have a right to assume that it continues until they have notice 
 to the contrary. 
 
 There was therefore in this case undoubtedly a state of 
 circumstances which would have entitled the plaintiff, if he 
 had thought fit, to hold Mr. Scarf liable, the credit being 
 given to him and to Rogers, there being no knowledge on 
 the part of the plaintiff of the dissolution of partnership ; 
 no knowledge of any revocation of the agency at the time 
 when these goods were delivered. On the other hand, if you 
 look not to the estoppel but to the fact, the plaintiff was en- 
 titled to hold the persons who actually gave the order and 
 received the goods, and were interested in the profit and 
 loss of the firm which ordered them, liable to him; those 
 persons being not Scarf, Rogers, and Beech, or Scarf and 
 Rogers, but Rogers and Beech alone. 
 
 Now it appears to me that the real question which your 
 Lordships have to determine is not as it was treated in the 
 Court below — in I think both the Courts below — namely, the 
 question of what is called "novation;" but it is this, whether 
 in that state of circumstances there was a concurrent joint 
 liability of the three persons. Scarf, Rogers and Beech, upon 
 the principles which I have stated ; or whether the plaintiff 
 had a right to make his choice whether he would sue those 
 who were liable by estoppel, or sue those who were 
 liable upon the facts. Put it as I can I am unable to 
 understand how there could have been a joint liability of 
 the three. The two principles are not capable of being 
 brought into plav together ; you cannot at once rely upon
 
 416 PARTNERSHIP BY ESTOPPEL 
 
 estoppel and set up the facts, and if the estoppel makes A 
 and B liable, and the facts make B and C liable, neither the 
 estoppel nor the facts, nor any combination of the two can 
 possibly make A, B and C all liable jointly. 
 
 Therefore it appears to me that if the plaintiff chose 
 to go upon the facts and to make the persons who actually 
 ordered and got the benefit of the goods his debtors (which 
 he had a plain and certain right to do), he entirely dis- 
 avowed the estoppel and could no longer set it up. If on the 
 other hand he choose to go upon the estoppel, then Beech 
 being a stranger to the liability upon that footing, he could 
 only sue Scarf and Rogers. One way of testing it would be 
 by inquiring what was the rule under the old system of plead- 
 ing. If at that time Scarf and Rogers had been sued, could 
 they have pleaded in abatement that Beech ought also to be 
 joined as being also liable ? I think most clearly they could 
 not. And upon the other hand if Rogers and Beech had 
 been sued, still more impossible would it have been for them 
 to plead in abatement that Scarf ought also to be joined, for 
 he was neither a partner when the goods were ordered, nor 
 as between him and themselves could any liability possibly 
 have attached to him. 
 
 It seems to me therefore that the plaintifif was necessar- 
 ily put to his election. He might hold either Rogers and 
 Scarf, or Rogers and Beech liable ; he could not hold Rogers, 
 Scarf, and Beech all liable together. 
 
 [The Lord Chancellor, coming to the conclusion that the 
 plaintiff had elected to hold Rogers and Beech, moved that 
 the order under appeal be reversed, and that the appellant 
 "have his costs in the Court of Appeal and in this House."] 
 
 Lord Blackburn : 
 
 And then comes the question which ought to have been 
 decided, not whether there was a novation (upon which if 
 probably if I had thought that that was the question I should 
 have agreed with the majority of the Court of Appeal) but
 
 SCARF z'. JARDIXE 417 
 
 whether the Plaintiff had before the 30th of September, the 
 date at which he for the first time made a claim against 
 Scarf, made a final determination of the election by which 
 he had to choose which of the two sets of parties he wauld 
 hold liable. - 
 
 Now on that question there are a great many cases ; they 
 are collected in the notes to Ditinpor's Case (i Sm. L. C. 8th 
 ed. 47, 54.) and they are uniform in this respect, that where 
 a man has an option to choose one or other of two inconsist- 
 ent things, when once he has made his election it cannot be 
 retracted, it is final and cannot be altered. "Quod semel 
 placuit in electionibus, amplius displicere non potest." That 
 is Coke upon Littleton (146 a), and I do not doubt that 
 there are many older authorities to the same effect ; but that 
 rule has been uniformly acted upon from that time at least 
 down to the present. When once there has been an election 
 to do one of the two things you cannot retract it and do the 
 other thing; the election once made is finally made. 
 
 But upon that comes the question which is the one that 
 now arises, whether there was evidence here on which your 
 Lordships should find as a fact that there was an election. 
 In Clcugh V. London and North Western Raikvay Co., 
 (Law Rep. 7 Ex. 34.) the Exchequer Chamber had to con- 
 sider that question a good deal in a case of some importance 
 in which the subject was carefully considered. I wrote it 
 myself and I say nothing further about it than this, that it 
 liad the full assent of all the other Judges. The result of 
 what is there said is that where there is a right to elect the 
 party is not bound to elect at once ; he may wait and think 
 which way he will exercise his election, so long as he can do 
 so without injuring other persons, and accordingly in that 
 particular case it was held that he had not lost his right to 
 
 "Only so much of his opinion as relates to whether tlie plaintiff, 
 before attempting to hold Rogers and Scarf, had elected to hold Rogers 
 and Beech, is reprinted. The learned Lord agreed with the Lord 
 Chancellor, that the plaintiff was put to his election, and rould not sue 
 all three as partners.
 
 418 PARTNERSHIP BY ESTOPPEL 
 
 elect by a reasonable waiting under rather peculiar circum- 
 stances ; but when he has once fully elected it is final. 
 
 I may also refer to the case of Jones v. Carter (15 M. 
 & W. 718) as most neatly stating the point. The principle, 
 I take it, running through all the cases as to what is an elec- 
 tion is this, that where a party in his own mind has thought 
 that he would choose one of two remedies, even though he 
 has written it down on a memorandum or has indicated it in 
 some other way, that alone will not bind him ; but so soon as 
 he has not only determined to follow one of his remedies but 
 has communicated it to the other side in such a way as to 
 lead the opposite party to believe that he has made that 
 choice, he has completed his election and can go no further ; 
 and whether he intended it or not, if he has done an un- 
 equivocal act — I mean an act which would be justifiable if 
 he had elected one way and would not be justifiable if he had 
 elected the other way — the fact of his having done that un- 
 equivocal act to the knowledge of the persons concerned is 
 an election. In Jones v. Carter (15 M. & W. 718) (the 
 principle is general though the particular application is pecu- 
 liar) the question was whether a man who had a right to 
 avoid a lease had avoided it or not. He had at first brought 
 a writ of ejectment for the purpose of avoiding it, by which 
 in modern times you do not actually enter; but it had pro- 
 ceeded so far that the defendant had entered into a consent 
 rule ; and the defendant having entered into a consent rule 
 by which he had admitted the entry, the Court held that it 
 must be taken as if the plaintiff had entered, and that inas- 
 much as the entry to avoid a lease was unequivocal in its 
 nature he could not afterwards say "The lease was not void." 
 
 Now that is the question which I think the Court below 
 ought to have decided and which I think your Lordships 
 now, having power to find all the facts, have to decide upon 
 the evidence. Was there, before the 30th of September, 
 which was the date when the plaintiff first came upon Scarf, 
 an unequivocal election to take Beech as his debtor? I do
 
 SCARF v. JARDIXE 419 
 
 not think that at first there was. I do not think that the 
 mere fact of his having continued to enter in his books these 
 goods along with others which he had undoubtedly con- 
 tracted to supply after the 25th of February, when he had full 
 notice (entering them in one account), would preclude him; 
 because I think as I said before, that it was merely an ex- 
 pression of his own private intention and opinion, w'hich did 
 not bind the matter until it was communicated to the other 
 side, which it never was. I do not think that his having 
 demanded money from Rogers after he knew that Rogers 
 was carrying on the new firm of Rogers & Beech will do, for 
 the reasons given by Brett L.J., that the notice of dissolu- 
 tion distinctly said "Whatever Rogers & Scarf ow^e, go to 
 Rogers, and Rogers will pay it." But then the evidence goes 
 further. I am not sure that taking a cheque from Rogers 
 & Beech as payment was enough to make an election, be- 
 cause I think that in acting on the authority given by Scarf 
 to Rogers to pay the debts for him and Scarf, Rogers might 
 pay money by the new firm's cheque or otherwise as he 
 pleased. But then the plaintiff goes on and issues a writ 
 against Rogers & Beech — he sues Beech. I am unable to 
 conceive a more unequivocal act; he has thereby adopted 
 Beech as his debtor at that time. I do not think its going 
 to judgment or not going to judgment is material. How 
 he could possibly do a more unequivocal act than issuing a 
 writ against Rogers & Beech I cannot imagine. The result 
 of his issuing the writ was that Rogers & Beech not being 
 able to get time to obtain terms went into liquidation, and 
 then the plaintiff sent in his affidavit claiming to prove against 
 Rogers & Beech for this sum which is now- in dispute, and 
 also for the subsequent debts treating them all as one. I 
 think that also is an unequivocal act. And taking the whole 
 together I can bring myself in no way to doubt, that upon 
 the facts we ought to find that Mr. J^rdine having the right 
 of election between holding Beech lial)le anrl holding Scarf 
 liable, had, before he ever came upon Scarf, finally deter-
 
 420 PARTNERSHIP BY ESTOPPEL 
 
 mined his election and taken Beech as liable, and that he 
 could not hold both Scarf and Beech liable. 
 
 I am consecjuently of opinion that the judgment 
 should be for the defendant, though not upon the ground on 
 which it was originally put, namely that there was a nova- 
 tion, but upon the ground that Scarf never was liable, for 
 this reason, that before any step was taken to make him 
 liable, a final and conclusive election had been made to hold 
 Beech liable, which involved impliedly that Scarf was not.^ 
 
 Order appealed from reversed. 
 
 ' The opinions of Lords Watson and Bramwell in agreement with 
 those reprinted are omitted.
 
 CHAPTER VII. 
 
 LIMITED PARTNERSHIP. 
 
 AMES V. DOWNING. 
 In the Surrogate's Court of New York, 1850. 
 
 I Bradford's New York Surrogate's Reports, 321. 
 
 The Surrogate [Alexander W. Bradford] : The tes- 
 tator, at the time of his decease, was a special partner of 
 Mr. Hicks, the executor, in business in this city; and the 
 position has been taken by the counsel for the executors, 
 that the firm was not dissolved, but notwithstanding the 
 testator's decease, continued till the expiration of the term 
 limited for its duration.^ 
 
 The idea at first impression is apt to win attention if 
 not favor, but on closer scrutiny cannot, I think, be upheld. 
 The legislation which brought into existence among us this 
 form of partnership, had for its main object the encour- 
 agement of commerce by permitting the investment of capi- 
 tal in trade, without danger to the public, or risk to the spe- 
 cial partner beyond the extent of the amount invested ; and 
 in determining the legal consequences incidental to the intro- 
 duction of such an institution, there seems to me no reason 
 for departing from the rules of the Common Law, any fur- 
 ther than is fairly and naturally requisite to give full effect to 
 the intent of the statute ; resting upon the presumption that 
 the Legislature having expressed the points in which the 
 Common Law was intended to be abrogated, that line should 
 not by judicial construction be extended, except by way of 
 reasonable and necessary inference to effectuate the general 
 objects of the statute. The special partnership is by no 
 means a complete anomaly. By the statute it is termed 
 
 'Only so much of the opinion as relates to this question is reprinted. 
 
 (421)
 
 422 LIMITED PARTNERSHIP 
 
 a partnership, and both as to the rights of the parties to the 
 contract, and as to the world, it is in itself a proper partner- 
 ship, except as it limits the liability of the special partner, 
 and restricts his control over the business of the firm. 
 The members are partners^ and by slight irregularities 
 may easily be turned into general partners. The statute 
 terms them partners; except for the statute they would be 
 general partners, and from participating in the profits, it 
 would seem to be a just consequence that they are partners 
 in every sense, subject to liabilities and enjoying privileges 
 as partners in every particular, except as otherwise specially 
 provided. The Common Law regulates the mutual rights, 
 and duties, and liabilities of partners, and governs these 
 limited partnerships, in every respect not excepted out of 
 the general rule by this statute. The 12th Section pro- 
 vides that every alteration which shall be made in the names 
 of the partners shall be deemed a dissolution of the part- 
 nership, and the necessary effect of an assignment by a spe- 
 cial partner, of his interest in the firm, would be to alter 
 the name of the special partner, and thus to work a disso- 
 lution. Such would likewise seem to be the consequence 
 of the death of the special partner, which effects an altera- 
 tion in the name, by operation of law, through the medium 
 of an administrator. The i8th Section declares also, 
 that the general partners shall be liable to account to each 
 other and to the special partners in law and equity as 
 other partners now are by law ; and the 24th Section pro- 
 vides, that no dissolution by the acts of the parties shall take 
 place previous to the time specified for the duration of the 
 partnership, without public notice. There appears to be 
 nothing in the act incongruous with the idea, that the part- 
 nership is governed by the rules applicable to general part- 
 nerships, except in the particular cases enumerated. There 
 is nothing irreconcilable with the dissolution of the part- 
 nership by operation of law in the usual cases. I have 
 looked into the statutes of several of the States, where 
 similar laws have been enacted, and while they all imply
 
 A^IES V. DOWXIXG 423 
 
 that a dissolution may occur by operation of law, those 
 of Massachusetts, Michigan, Rhode Island and Virginia, 
 expressly admit of that mode of dissolution. The Code of 
 Louisiana declares, that all partnerships shall terminate with 
 the death of one of the partners, and quite a number of these 
 acts prescribe, that in cases not provided for, the law relating 
 to general partnerships shall govern. [Rez'. St. Mass., 306; 
 Louisiana Code, 2799, 2810, 2851; Rl-z'. St. Maine, 264; 
 Laws Mississippi, 839; Rez'. St. Michig., 156; R. S. N. J., 
 872; Lozi's Penn., 620; Lazvs R. L, 2S2; Virginia Code, 
 583 ; Lazi's Connecticut, 528 ; Lazj^'s Indiana, 429 ; Code of 
 Georgia, Tty^.) Now if any other principle is admitted, 
 what is the result? If the death of the special partner does 
 not cause a dissolution, shall that of the general partner 
 have that effect? If the death of the special partner does 
 not dissolve the firm, shall his executor or administrator be 
 the partner? If so, does not that introduce a new name into 
 the firm? And if it does, then the executor or administrator 
 becomes a general partner, and if a general partner, then he 
 can dissolve the firm (2 R. S., 3^/ ed., § 12, p. 50), or on 
 the other hand, the estate he represents may be thrown into 
 the hazards of a general partnership, and the executor or 
 administrator have to attend personally to the transaction 
 of a regular partnership business. The above statement of 
 some of the embarrassing results which would flow from 
 this novel proposition, should induce hesitation and caution 
 in admitting it. 
 
 Xo doctrine is more universally established, than that 
 by the death of any one of the partners the partnership is 
 ipso facto dissolved ; and this not only as to the deceased 
 partner, but also as between all the survivors, and, how- 
 ever numerous the association may be. The reasoning 
 upon which this result is attained, as well as the rule itself, 
 is amply illustrated by the Civilians, the doctrine having 
 its foundation in the Civil Law, though it has been recog- 
 nized and adopted, to its fullest extent, by the Common 
 Law. The personal qualities, skill, cliaracter, and credit
 
 424 LIMITED PARTNERSHIP 
 
 of each partner enter so thoroughly into every contract of 
 this kind, that the law very wisely considers it a personal 
 contract, expiring with death. Though these reasons are 
 not so apposite to a special as to a general copartnership, 
 yet they are measurably applicable. It is true that a spe- 
 cial partner has no control over the business of the firm, 
 and contributes as a matter of duty, no portion of his 
 time, labor, or abilities, towards the management of its 
 affairs, but he may from time to time examine into the 
 state and progress of the partnership concerns, and advise 
 as to their management. This brings him into the most 
 intimate relations with the general partner; and, in view 
 of his right to give advice, it is evident the general part- 
 ner may perhaps have built up well-founded hopes of a 
 successful and thriving trade, upon the experience, wis- 
 dom, and abilities of his associate, expectations sure to be 
 destroyed by death. How often is it the case that a suc- 
 cessful merchant, retiring from the cares of active business, 
 enters into a partnership of this kind, where his knowledge 
 and sagacity, and his influence, are important inducements 
 with the general partner to enter into the contract. Does 
 a limited partnership survive the death of the special part- 
 ner? Then it is compulsory on the survivor to receive into 
 the partnership, at all hazards, the executor or administra- 
 tor of the deceased, his next of kin, a creditor or stranger 
 taking administration, or the assignee of such personal 
 representatives ; and whatever may be the inconvenience 
 and hardship of being thus thrown, against his will, into 
 connection with a stranger, or perchance with some one 
 personally disagreeable, or hostile, the general partner 
 must submit to the examination of the books, the visits, 
 and the advice of the incomer. (Gozv on Part., § 3, /'. 
 220; Collycr, 2>d Am. cd., p. 99.) The joint stock com- 
 panies, many of which exist in England, often comprise a 
 large number of persons, and though generally managed 
 by officers chosen at elections held by the stockholders, 
 they are liable to the application of the same rules of law
 
 AMES V. DOWNING 425 
 
 in regard to death and dissolution, as general partnerships, 
 unless provision be made to meet the case, in the deed of 
 settlement, or articles of agreement. (Collyer, §§ 1112, 
 
 The system of limited partnerships, which wa's intro- 
 duced by statute into this State, and subsequently very 
 generally adopted in many other States of the Union, was 
 borrowed from the French Code. (3 Kent, 36; Code de 
 Commerce, 19, 23, 24.) Under the name of la Societe en 
 commandite, it has existed in France from the time of the 
 middle ages ; mention being made of it in the most an- 
 cient commercial records, and in the early mercantile regu- 
 lations of Marseilles and Montpelier. In the vulgar La- 
 tinity of the middle ages it was styled couimenda, and in 
 Italy accom.enda. In the statutes of Pisa and Florence, it 
 is recognized so far back as the year 11 60; also in the or- 
 dinance of Louis-le-Hutin, of 131 5; the statutes of Mar- 
 seilles, 1253; of Geneva, of 1588. In the middle ages it 
 was one of the most frequent combinations of trade, and 
 was the basis of the active and widely-extended commerce 
 of the opulent maritime cities of Italy. It contributed 
 largely to the support of the great and prosperous trade 
 carried on along the shores of the IMediterranean, was 
 known in Languedoc, Provence, and Lombardy, entered 
 into most of the industrial occupations and pursuits of the 
 age, and even travelled under the protection of the arms 
 of the Crusaders to the city of Jerusalem. At a period 
 when capital was in the hands of nobles and clergy, who, 
 from pride of caste, or canonical regulations, could not en- 
 gage directly in trade, it afforded the means of secretly 
 embarking in commercial enterprises, and reaping the pro- 
 fits of such lucrative pursuits, without personal risk; and 
 thus the vast wealth, which otherwise would have lain dor- 
 mant in the coffers of the rich, became the foundation, by 
 means of this ingenious idea, of that great commerce 
 which made princes of the merchants, elevated the trading 
 classes, and brought the Commons into position as an influ-
 
 426 LIMITED PARTXERSHIP 
 
 ential estate of the commonwealth. Independent of the 
 interest naturally attaching to the history of a mercantile 
 contract, of such ancient origin, but so recently introduced 
 where the general partnership, known to the Common 
 Law, has hitherto existed alone, I have been led to refer to 
 the facts just stated, for the purpose of showing that the 
 special partnership is, in fact, no novelty, but an institution 
 of considerable antiquity, well known, understood, and 
 regulated. Ducange defines it to be, "Societas mercato- 
 RUM qua iini socioruiii tota negotiat'wnis ciira coinmenda- 
 tur, certis conditionibus." It was always considered a 
 proper partnership, societas, with certain reserves and re- 
 strictions; and in the ordinance of Louis XIV., of 1673, 
 it is ranked as a regular partnership. In the Code of Com- 
 merce it is classed in the same manner. I may add, as an 
 important fact, for the explanation of a distinction to which 
 I shall shortly advert, that the French Code permits a spe- 
 cial partnership, of which the capital may be divided into 
 shares, or stock, transmissible from hand to hand. In such 
 a case, the death of a special partner does not dissolve 
 the firm, the creation of transmissible shares being a proof 
 that the association is formed rcspcctn ncgotii, and not rc- 
 spectii pcrsonanun; but even in such a partnership the 
 death of the general partner effects a dissolution, unless it 
 is expressly stipulated otherwise. But, says M. Trop- 
 long, it would be wrong to extend the rule that a partner- 
 ship, of which the capital is divided into transmissible 
 shares, is not dissolved by the death of a shareholder, to a 
 special partnership, the capital of which is not so divided. 
 The statute of New York recognizes only the latter kind of 
 partnership, the names of the parties being required to be 
 registered, and any change in the name working a dissolu- 
 tion, and turning the firm into a general partnership. Such 
 a partnership has always been held to be dissolved by the 
 death of the special partner. The Society, says the au- 
 thor just cited, "restc alors sous 1' empire du droit com- 
 mun. Elle a forme entre le comuianditaire et le comman-
 
 AMES z: DOWXIXG 427 
 
 dife, iin lien qui n'a pas etc siihordoniic an caprice de muta- 
 tions imprevucs; ellc a cngendrc dcs rapports miitiiels dc 
 confiance, que le connnandifc ne pent ctrc force d'etendrc 
 dcs personncs etrangeres." This partnership remains 
 under the dominion of the Common Law. It has created 
 between the special and the general partner a tie, which is 
 not subjected to the caprice of unforeseen changes; it has 
 produced mutual relations of confidence, which the general 
 partner cannot be forced to extend to strangers. {M. Trop- 
 long Com.; dit contrat de Socicte civile, &c., T. i. Preface, 
 57' § Z77^ &-<:■; T. 2, § 888, p. 368.) The French jurists 
 generally take the same position, defining the special part- 
 nership as a proper partnership, and applying the law of 
 dissolution by death to all. (Pothicr Traite du contrat 
 de Socicte, ch. 2, § 2 ; ch. 8, § 3 ; Merlin Repertoire, de Ju- 
 risprudence, Art Societe, § 7; Duranton, Droit Francais, 
 torn. I/. 1. 3, Tit. 9, § 470.) Pardessus discusses the ques- 
 tion somewhat at length. (Droit Commercial, torn. 4, Pt. 
 5, Tit. 3, ch. I, § 4.) It might be thought, he says, with 
 some appearance of plausibility, that the rule of a dissolu- 
 tion by death should be limited to general partnerships, in 
 forming which, the probity and intelligence of each mem- 
 ber have been reciprocally taken into consideration. In- 
 deed, the special partnership does not suppose on the part 
 of the general partners any personal confidence in the spe- 
 cial partners ; and as the interest and the rights of the 
 latter are exclusively limited to their shares, it would seem 
 they were not modified by their decease, and their heirs 
 called to take their place could have no right to insist that 
 death has dissolved the firm, nor the general partners insist 
 upon that result. These reasons, to question the general 
 rule, appear, nevertheless, to yield to others more decisive. 
 The persons and the character of the special partners have 
 been regarded by the general partners when they formed 
 this kind of association. The special partners, are, in 
 effect, to a greater or less extent, called to the annual ac- 
 countings, to meetings for the settlement of the profits and
 
 428 LIMITED PARTNERSHIP 
 
 losses, and to an examination of the state of the affairs 
 This scrutiny, and a right to insist upon a dissohition in 
 consequence of a breach of the contract, or to urge their 
 claims when the affairs are liquidated, are more or less 
 vigorously exercised. The difficulty of acting harmoniously 
 with different persons, substituted in the place of those 
 with whom the original contract was made; the distrust 
 of heirs, who have not the grounds of esteem and confi- 
 dence which influenced the deceased, and the impossibility 
 of treating easily with minors, are some of the reasons 
 which will not permit special partnerships to be excepted 
 from the general rule. It may be objected that these rea- 
 sons apply only in favor of the general partners, and that 
 it is for them to judge as to the continuation of the busi- 
 ness with the heirs. But the heirs of the deceased ought to 
 enjoy the same privilege. Reciprocal rights ought to re- 
 sult from a mutual agreement. There is no solid reason 
 why the special partnership should not be dissolved by the 
 death of one of the partners, except when the capital is 
 divided into transmissible shares, in which case the asso- 
 ciates having consented that each may substitute another 
 in his place, as he may desire, without the authority of the 
 others, it is natural to conclude that the heirs of a deceased 
 member fill his place in the same manner as if he had as- 
 signed his share. I have given the substance of the reason- 
 ing of Pardessus, and the result he attains has not only 
 the authority of M. Troplong in its favor, but also that of 
 other commentators (M. M. Malpeyre, ct Jourdain, No. 
 474; M. Persil, fils., p. 344), while it does not appear to 
 have been questioned or doubted. 
 
 It thus appears, that in the jurisprudence of that na- 
 tion whence the peculiar contract of a special partnership 
 has been adopted by us and grafted into our law, — where 
 the system has long existed, is familiarly known, and its 
 nature, qualities, and practical relations to various events 
 and circumstances, have been well considered under the 
 light of no brief experience — the eft'ect of the death of the
 
 AMES f. DOWNING 429 
 
 Special partner is to dissolve the firm. This agrees with 
 the conclusion I had attained upon independent reasoning, 
 before consulting these authorities, and I am consequently 
 led to pronounce the firm in which the testator was a spe- 
 cial partner, dissolved at his death; and to hold the ex- 
 ecutor, who was his general partner, responsible for the 
 testator's interest in the firm at that time, upon a liquida- 
 tion of the affairs as if made then.- 
 
 ' Compare: The interesting discussion of the origin of limited 
 partnerships by Justice Hoffman in Jacquin v. Buisson, ii How. N. Y. 
 Pr. 385, 1855. See also Coope v. Eyre, i H. Bk. 2>7' 1/88, at p. 48; 
 McArthur v. Chase, 13 Gattan (Va.) 683, 1857. Moorhead v. Seymour, 
 •j-j N. Y. Supp. 1050, 1901. at p. 1054. 
 
 The position of the learned Surrogate that on the Continent of 
 Europe the death of a special partner [The cominanditaire of the 
 Societe en commandite simple, i. c., formed intuitu personal, dis- 
 solves the firm, is combatted by Isidore Alauzet, in his Commcntaire 
 du Code de Commerce, 1856, to»i i, p. 301 : 
 
 "The death of a partner carries with it the dissolution of the part- 
 nership. This event changes the conditions of the contract; it was 
 not a simple community of things that the deceased partner had 
 founded, but an association of persons; and it is very natural that the 
 association cannot continue, at least ipso facto, either between the 
 surviving members of the partnership or between the survivors and 
 heirs of the deceased partner. This rule does not cause any difficulty 
 in ordinary partnerships. One may doubt if it is applicable to limited 
 partnerships, when a special partner dies, and may ask if this event 
 draws with it also, ipso facto, the dissolution of the partnership? or 
 if such dissolution is denied, whether it gives to the heirs of the 
 special partner or to the surviving general partners, or to both, the 
 right of insisting on a dissolution? or, finally, one may ask if the 
 rules established for limited partnerships apply to limited partner- 
 ships in which the capital is divided into shares of stock? If the 
 capital of the limited partnership is divided into shares the general 
 opinion is that the decease of a special partner cannot be a cause of 
 dissolution. 'The partners.' says M. Pardessus. 'having joined the part- 
 nership on the assurance that each of them can substitute for him- 
 self whomsoever he will without the authorization of the others, it 
 is natural to conclude that the heirs of the partner should replace 
 hirn ipso facto in the same manner as if he had made the heirs 
 assignees of his stock.' 
 
 "Legal opinion, let us say at once, undertakes to establish differ- 
 ent rules depending on whether the capital of the limited partnership 
 is or is not divided into shares of stock. 
 
 _ "Article 58 of the Code of Commerce, in permitting the capital of 
 a limited partnership to be divided into shares, says in express terms 
 that this circumstance does not carry with it any other modification of 
 the rules established for this kind of partnership. The Code Napoleon 
 cannot be cited as specifically regulating matters concerning limited 
 partnerships, with which it docs not concern itself. M. Pardessus 
 solely supports his argument by the presumed consent of the man- 
 aging partners that each special partner [where the capital is divided 
 into shares] can substitute for himself an assignee. If in the case of 
 the decease [of a special partner where the capital is not divided into
 
 430 LIMITED PARTNERSHIP 
 
 shares] the partners make a formal declaration to the effect that they 
 accept the heirs in place of the deceased, is not the reason for permit- 
 ting them to do so the same, and better established? Why, then, decide 
 otherwise in this case? It is possible that the partnership articles may 
 contain a stipulation to this efifect, and give to the special partner the 
 right of substituting for himself whom he will, as M. Pardessus 
 says : How admit in that case the dissolution ipso facto by the de- 
 cease of the special partner? M. Pardessus agrees that the better 
 reasons, which he has set forth with his habitual logic, militate in favor 
 of the theory contrary to his own (namely, that the death of a special 
 partner, where the capital is not divided into shares, dissolves the 
 partnership) ; but he contends that the same rights should belong to 
 the special partners as to the general partners, on the ground that 
 'there cannot be rights, resulting from the nature of a reciprocal act 
 which are not mutual.' 
 
 "To admit this reason as peremptory it is necessary at least that 
 the obligation imposed on the two parties shall be equal. Under such 
 conditions their rights cannot be different. In the limited partnership 
 contract what obligations does the special partner leave to his heirs? He 
 is only a partner as to the fund which he has invested in the business, 
 not for his person. If the law reserves rights for him it is solely in 
 his interest, but it does not impose any duty upon him. However, we 
 do not demand anything better than to submit ourselves to the rule of 
 'mutuality in contracts' invoked by M. Pardessus. The limited part- 
 nership being completely outside the scope of the Code Napoleon, we 
 cannot apply its provisions to them, but the death of a special partner 
 can, like other causes left to the decisions of the Court, authorize either 
 the general partners or the heirs of the special partner to demand the 
 dissolution of the partnership, supposing it to be possible that the 
 general partners could act for their own interest rather than for the 
 interest of the partnership. This makes the rights of all parties equal. 
 
 "We should add, that M. Pardessus in the case, not of the decease, 
 but of the insolvency of the special partner, goes even further than 
 ourselves. He accords to the general partners alone the right to choose 
 between the continuation or the dissolution of the partnership. 
 
 "The death of the general partner, even in the case where the capital 
 of the partnership is divided into shares, should draw with it, ipso facto, 
 the dissolution of the partnership. 
 
 "We should not ignore the fact that most authors, when the capital 
 of the limited partnership is not divided into shares, teach that the 
 decease of the special partner is the cause of dissolution. It will, 
 therefore, be prudent for the general partners to stipulate in the articles, 
 if they consider it proper, that the partnership shall continue with the 
 heirs, there being nothing to place the least obstacle to such an 
 agreement." 
 
 The part of the Code Napoleon referred to in the foregoing extract 
 is Title ix, ch. lo. This chapter deals with the dissolution of Societes. 
 The question in dispute is whether Societes includes Societes en coiii- 
 inandite simple, i. c.. limited partnerships not having their capital divided 
 into shares of stock. Section 1865 of the code provides that the death of 
 a partner dissolves the firm, and section t868 provides, "If the partner- 
 ship articles contain provisions stipulating that the partners shall, in the 
 case of the death of one of the partners, continue the partnership with 
 his heir, or that the partnership shall only continue with the surviving 
 partners, such provisions shall be adhered to. In the later case the heir 
 of the deceased partner is only entitled to require a partition of the 
 partnership property as it stood at the time of such death, and the 
 heir has no share in any rights which the partnership may acquire after 
 the death of such partner, unless they were a necessary consequence of
 
 AMES z: DOWNING 431 
 
 what had been done before the death of the partner to whose rights he 
 has stacceeded." [Trans, by Wright, London, 1908.] 
 
 Modern French opinion seems to be in favor of Pardessus. See 
 Droit Commercial par, Lyon-Caen ct Renault, 5th ed., 1899, p. 210, par. 
 352; French Commercial Law by Goirand, 2nd ed., 1898, p. 93. 
 
 The present German Commercial Code, Art. 177, provides : "The 
 death of a partner of Hmited liability does not necessitate the dissolution 
 of the partnership." [Trans, by Piatt, London, 1900.]
 
 432 LIMITED PARTNERSHIP 
 
 SINGER V. KELLY. 
 In the Supreme Court of Pennsylvania, 1863. 
 
 44 Pennsylvania Reports, 145. 
 
 Thompson, J.^ On the 15th of June, 1856, a copartner- 
 ship was formed for the transaction of a general commission 
 business, in the city of Philadelphia, between William J. 
 Martin, William McAllister, and Charles Kelly, under the 
 firm name of Martin & McAllister. It was to be a partner- 
 ship under the Act of Assembly of the 2d of March, 1836. 
 Martin and McAllister were to be the general partners, and 
 Kelly the special partner. The firm was duly organized, and 
 Kelly paid in $20,000 in cash, his agreed contribution to the 
 firm. The firm commenced business, but in about six months 
 failed, sinking the entire sum contributed by the special 
 partner, and had an unliquidated indebtedness of some 
 $78,000, which the assets were totally inadequate to satisfy. 
 
 Under these circumstances, the plaintiff has brought 
 this action against all the partners, seeking to make the spe- 
 cial partner liable on the ground that the business of the 
 firm was changed, and that such change, without first having 
 a new certificate, rendered him liable. 
 
 The evidence of a change, consisted of two distinct pur- 
 chases by ]\Iartin & McAllister: one on the 26th of June, 
 1857, of fifty bales of cotton, amounting to $4,200, for 
 which they gave notes; and the other four days after, of 
 sixty tierces of rice, at $2100, also on a credit of four 
 months. 
 
 The learned judge of the District Court, who tried the 
 case, was of the opinion that there was no proof of knowl- 
 edge or assent by the special partner to these purchases, out- 
 side the legitimate scope of the business of the firm. He 
 
 The Reporter's statement of the facts of the case is omitted.
 
 SINGER V. KELLY 433 
 
 therefore reserved the point whether a special partner could 
 be made hable for a change in the business without a knowl- 
 edge that it had taken place, and directed a verdict for the 
 plaintiff, subject to the entry of judgment for the defendant 
 non obstante veredicto. Subsequently, and after argument 
 in bone in the District Court, judgment was entered for the 
 defendant on the point reserved. 
 
 We have before us, therefore, the case, "pure and sim- 
 ple," of an effort to charge a special, as a general partner, 
 on account of a change in the business of the firm, without 
 any knowledge whatever of a change in the business of the 
 firm, either in point of fact, or as a presumption arising 
 from his connection Vv^ith the transaction. Can this be done ? 
 
 The section of the act under which this result is claim.ed, 
 is the 1 2th Section, and reads as follows: "Every alteration 
 which shall be made in the names of the partners, in the 
 nature of the business, or in the capital or shares thereof, or 
 in other matter specified in the original certificate, shall be 
 deemed a dissolution of the partnership, and any such part- 
 nership which shall in any manner be carried on after such 
 alteration shall have been made, shall be deemed a general 
 partnership, unless renewed as a special partnership accord- 
 ing to the last (preceding) article."' 
 
 The contest was therefore really between intelligent 
 action as the ground of liability, on the one hand, and a 
 claimed liability by force merely of the words of the statute, 
 regardless of the element of knowledge or assent, on the 
 other. Did the legislature mean this last position to be the 
 true interpretation of the clause? 
 
 Unless it plainly appears that liability, without any ref- 
 erence to knowledge or intentional violation of the provision ' 
 in question, was meant, we should not give it a construction 
 tending to such penal consequences as is contended for. It 
 would be contrary to natural justice, and such results should 
 not be arrived at by interpretation, unless it be inevitable. 
 
 It is a maxim, further, which declares that no one shall 
 suffer for another's fault: "Xcuw pioiitur pro alicno de-
 
 434 LOIITED PARTNERSHIP 
 
 licto." I admit there are exceptions to the rule, however; 
 things mala prohibita may induce liabihty sometimes without 
 the knowledge, really of the party ultimately liable. In cases 
 of suretyship, liability always arises out of the acts or omis- 
 sions of the principal. But in these cases the consequence 
 results from positive legislative regulations on the one hand, 
 and the nature of the engagement on the other. But neither 
 of these relations exist here. I cannot find any warrant, 
 under a fair interpretation of the clause of the statute, for 
 holding that the special partner is a guarantor for the gen- 
 eral partners, further than his deposit according to the con- 
 tract; nor that it is to be construed as a penal statute. T 
 think that an analysis of the statute itself will show that 
 its consistency can only be preserved, by holding the special 
 partner to be involved alone by his own acts or omissions of 
 violation, or by assenting to those of his copartners, when he 
 knows or is presumed to know them. 
 
 We have no decisions on the precise point under consid- 
 eration in our own state, nor have any been referred to as 
 adjudged in other states where a similar law exists. We must 
 therefore explore the meaning of this clause by the light of 
 other provisions in the statute, involving the same respon- 
 sibility. 
 
 Dissolution of the partnership is what, in contemplation 
 of the law, was the first consequence to flow from any of the 
 changes or alterations spoken of in the section. But the 
 law also contemplates the carrying on of the business in an 
 associated and general form of partnership, with.out the 
 limitation provisions, and holding all liable as general part- 
 ners. It is the carrying on of the business, after a violation 
 In any of the particulars specified, which turns the concern 
 into a general partnership. None of the general partners, 
 without the knowledge or assent of the special partner, could 
 change "the nature of the business," so as to render the 
 special partner liable; it would be to apply a more severe 
 rule than could obtain if the violation consisted in a change 
 of the firm name, or of the capital or shares in it, which
 
 SINGER V. KELLY 435 
 
 manifestly could not be done without the assent of all ; and 
 3et the consequences would be the same. Thus, there would 
 be no distinction between intended relations, and those 
 neither intended nor known. 
 
 In many other provisions of the statute, the conse- 
 quences of violations, are fixed to the extent of general liabil- 
 ity of the special partner; but without exception, I think, 
 they all imply the knowledge or assent of the party to be 
 charged by the acts done, to which the consequence is at- 
 tached. A false statement in the original certificate has this 
 effect, and this must be made by all. So after organization, 
 transacting the business of the firm, or acting as agent or 
 attorney for it, interfering in its business, and perhaps, for 
 reducing capital, will each render the special partner liable ; 
 but they all imply volition with knowledge of the act. 
 
 The twentieth and twenty-first sections of the act, espe- 
 cially, exhibit the rule of practice evidently intended by the 
 legislature. Assignments for certain purposes, and with 
 certain intent, after insolvency or contemplated insolvency 
 by the firm, or by a partner under the same circumstances, 
 is forbidden; and the twenty-second section, provides that 
 if any special partner shall violate any of these provisions, or 
 assent to any such violations, he shall be liable as a general 
 partner. The ground of liability is here plainly expressed as 
 only to ensue in consequence of a personal violation of the 
 inhibited act, or assenting to its violation by copartners. 
 I argue, therefore, that if the statute throughout, as I think 
 it does, fixes the consequences of violation of its provisions 
 to be general liability, and they necessarily imply knowledge 
 and assent, we may fairly presume that the same cause 
 was supposed to be necessary to produce the same result in 
 the clause in question. If the change in the nature of the 
 business, therefore, by his copartners, was not known by 
 the defendant Kelly, and the business was carried on after- 
 wards without his knowledge that it had been so changed, 
 he would not be liable in consequence thereof. 
 
 It is not intended to deny that the requisites of the
 
 436 LIMITED PARTNERSHIP 
 
 Statute must be strictly pursued, in organizing and conduct- 
 ing limited partnerships, but this should not change the rule 
 of interpretation, which requires, in public beneficial statutes, 
 that construction which will promote their objects rather 
 than destroy them. One of the great objects of the system 
 of limited partnerships was to encourage the employment of 
 capital, without personal activity on the part of its owners, 
 by associating it with industry and enterprise, which might 
 not be possessed of capital. But should we hold that a 
 change in the business, which might be made by the active 
 partners, without the knowledge or assent, either actual, or to 
 be presumed from circumstances, of the special partner, the 
 capitalist, and he be liable notwithstanding, it would deter 
 all prudent men from investing or embarking their capital 
 in any such way ; for by the very terms of the act he is not 
 allowed to interfere with the operations of the concern. Such 
 a construction would put him completely within the power 
 and at the mercy of his copartners. But when we hold him 
 only for his own acts or assent, we place responsibility on 
 its true footing, the choice of the party. 
 
 These views are supported by the case of The Madison 
 County Bank z'. Gould, 5 Hill, 309. That case arose on the 
 New York statute regulating limited partnerships, from 
 which ours was copied. I believe, verbatim. It was attempted 
 in that case, as in this, to hold the special partner liable as a 
 general partner. One ground was a mistake of a month in 
 the advertisement : in setting forth the commencement of the 
 firm to be in November instead of October, The court there 
 held, that as there was no evidence of an intentional violation 
 of the statute in the mispublication, the special partner was 
 not liable by reason of it. Another ground claimed for lia- 
 bility was the investment of a large portion of the capital in 
 the purchase of real estate, not within the scope of the busi- 
 ness of the firm. The special partner's liability was made to 
 turn on the question of knoivlcdge and assent to the pur- 
 chases, although the conveyance was taken in his name, as 
 well as that of his copartners. Bronson, J., said: "I cannot
 
 SINGER V. KELLY 437 
 
 think him Hable for the wrong done by his copartners, with- 
 out showing that he participated in the act." In the same 
 spirit is Bowen v. Argall, 24 Wend. 497. We are of opinion, 
 therefore, that there was no error in the riiHng of this point 
 in the court below. 
 
 We see nothing in the other specifications of error re- 
 quiring special notice. W& agree with the court below, that 
 we see no reason for holding that the special partner had 
 anything to do with the care and collection of the debts of tl:e 
 firm, after it failed. If he was not involved as a general 
 partner, he had no concern in it. His money was in it, and 
 applicable to the debts, and that was the only extent of his 
 connection with it. 
 
 There was no offer to show that Kelly assented to any 
 assignment of assets, so as to render him liable on that score, 
 and the court properly rejected the naked offer to prove that 
 the general partners made some such assignments. 
 
 Judgment affirmed. - 
 
 '^Compare: Taylor v. Rasch. Fed. Cas. 13, 800, 1874. (A, B and C 
 formed a limited partnership, C being the special partner. The articles set 
 forth that the nature of the business to be transacted was the purchase, 
 sale and manufacture of furniture. A and B, without the knowledge 
 of C. contracted a debt in the firm name for the purchase of clothing 
 for themselves. Held, that the debt was not an obligation of the part- 
 nership. Longyear. J. : "Therefore, conceding that the arrangement in 
 question was made with the general partners, as claimed in the answer, 
 if it was not within the scope and purposes of the partnership, it was 
 wholly unauthorized, and therefore void.")
 
 438 LIMITED PARTNERSHIP 
 
 SHERWOOD V. HIS CREDITORS. 
 In the Supreme Court of Louisiana, 1890. 
 
 42 Louisiana Annual Reports, 103. 
 
 Poche, J. This appeal involves the discussion of the 
 validity of a pledge granted by the insolvent to Francis Mar- 
 tin, his partner Ui comincndam, on all of the insolvent's share 
 in the partnership property, to secure an indebtedness of 
 $5,000. 
 
 The contest between the partner in conimendam, as a 
 creditor of the insolvent individually and the creditors of 
 the partnership. 
 
 The partner in commendam prosecutes this appeal from 
 a judgment which refused to recognize and enforce his rights 
 of pledge. 
 
 The pertinent facts are as follows : A pre-existing part- 
 nership, carrying on the business of manufacturing doors, 
 blinds, sash, etc., under the style and name of the "Enterprise 
 Sash, Door and Blind Factory," and composed of Alexander 
 Smith, Francis Martin and Philip W. Sherwood, was dis- 
 solved in the early part of November, 1887, and Sherwood 
 bought out Smith's interest in the concern for $5,000 cash, 
 which he paid with money loaned him by Martin. 
 
 Immediately thereafter, Sherwood executed an act of 
 pledge of his two-third interest in the factory in favor of 
 Martin to secure his indebtedness of $5,000 to the latter. 
 
 On the same day the two entered into a copartnership 
 under an authentic act, with Martin as a partner in commen- 
 dam, to continue the same kind of business under the same 
 style and name as heretofore. In the new business Sher- 
 wood contributed his undivided two-third interest in, and 
 Martin his third of, the factor}', with a stipulation of equal 
 shares in profits and losses, limiting Martin's losses to his 
 contrilnition. 
 
 I
 
 SHERWOOD z: HIS CREDITORS 439 
 
 On the 19th of April, 1888, Sherwood made a surrender 
 of the partnership assets, and a syndic was appointed on 
 June 5, 1888. 
 
 ]\Iartin's claim, under its terms and in accordance with 
 the act of pledge, having matured, he obtained an ex parte 
 order on June 12, 1888, for the sale of Sherwood's interest 
 in the concern, which had been pledged to him. 
 
 Before a sale could be effected his proceeding was en- 
 joined by the syndic on numerous grounds, one of which 
 was that, as ]\Iartin was a partner, his pledge was of no effect 
 toward the creditors of the partnership. 
 
 The syndic having thereafter proceeded to a sale of all 
 the assets of the concern, he presented an account on which 
 he placed Martin as an ordinary creditor only. 
 
 By way of opposition Martin urged his rights of pledge 
 on the proceeds of two-thirds of the partnership assets. 
 Whereupon Shakspeare, Smith & Co., creditors of the part- 
 nership, opposed ^Martin's right of being considered as a 
 creditor of the partnership at all, on the ground that he 
 was only a creditor of Sherwood individually. 
 
 The various oppositions and the injunction proceedings 
 were consolidated and tried together, resulting in judgment 
 by which the syndic's injunction was perpetuated, IMartin's 
 pledge was denied and rejected, in so far as it could affect 
 the rights of the creditors of the partnership, his opposition 
 dismissed, and the opposition of Shakspeare, Smith & Co. 
 maintained. 
 
 From the foregoing statement of facts, tested under 
 wxll settled principles of law and of jurisprudence, it is ap- 
 parent that the judgment thus rendered is correct in every 
 particular. 
 
 The fallacy of appellant's contention consists in his 
 assuming the attitude of a third party or of a stranger, in 
 dealing with the insolvency proceedings of Philip W. Sher- 
 wood, for the purpose of winding up the business of the 
 concern known as the "Enterprise Sash, Door and Blind 
 Factorv."
 
 440 LIMITED PARTNERSHIP 
 
 It is elementary in commercial law, as well as under 
 the provisions of the Civil Code, that "the partnership 
 property is liable to the creditors of the partnership in prefer- 
 ence to those of the individual partner." * * * j^^^ 
 2823. 
 
 And for such purposes, the partner m coniuicndam is 
 in no better position than an active partner. As a member 
 of an insolvent partnership his only immunity consists in 
 the restriction of his liability for the debts of the concern, 
 to the amount which he had agreed to furnish by his con- 
 tract. C. C. 2842. 
 
 A partnership with a partner in commcndain may exist 
 in every association known as partnerships, and it can not 
 be treated as a separate division of partnerships. C. C. 
 2840. 
 
 Ulman & Co. v. Briggs ct al., 32 An. 660; Marshall v. 
 Lambette, 7 Rob. 471. 
 
 Hence it follows that in determining the rights of Alar- 
 tin in and to the partnership assets as a creditor of Sher- 
 wood, he must be treated with the same measure which 
 would be meted out to a simple commercial partner whose 
 share in the concern is liable for partnership debts, and 
 whose claims as a creditor of his partner must be subordi- 
 nated to the claims of creditors of the partnership. Guer- 
 inger v. Creditors, 33 An. 1279. 
 
 As soon as the partnership between Sherwood and Mar- 
 tin was formed, their respective previous and individual in- 
 terests or shares in the factory were vested in the ideal being 
 known as the partnership, and no portion thereof could again 
 become the property of the partners, but the residuum, after 
 the payment of the partnership debts. 39 An. 362, Succes- 
 sion of Pilcher. 
 
 Hence the District Judge was correct, not only in hold- 
 ing that the pledge set up by Alartin on the previous interest 
 or share of Sherwood in the concern could not be enforced 
 to the detriment of the creditors of the partnership, but that, 
 as he was only a creditor of Sherwood, he had as such no
 
 SHER\^'OOD z: HIS CREDITORS 441 
 
 right to participate in the distribution of the proceeds of the 
 partnership assets. His only recourse is on the rcsiduiiifi 
 which might accrue to his debtor after the full liquidation of 
 the partnership. 
 
 As he had no pledge which he could enforce adversely 
 to the creditors of the concern, it follows that he had no 
 legal right to wrench the property from the possession of 
 the syndic for the purpose of effecting a sale of the same 
 independently of the insolvency proceedings. Hence the 
 injunction sued out to stay his proceeding, was properly 
 perpetuated. 
 
 Judgment affirmed.^ 
 
 ' White V. Hackctt, 20 X. Y. 178, 1859. (The statute provided that 
 in case of the insolvency or bankruptcy of the partnership, no special 
 partner "shall under any circumstances" be allowed to claim as a 
 creditor until the claims of all other creditors of the partnership shall 
 be satisfied. A was a special partner. Besides his contribution he had 
 made loans to the firm. Held, that as to these loans A. was a postponed 
 creditor. Accord: Dunning's App., 44 Pa. 150, 1863). 
 
 Clapp V. Lacey, 35 Conn. 463. 1863. (The statute provided that "All 
 advancements to the capital stock by the special partners shall be made 
 in cash * * * ^^d no part of the capital furnished by such partner 
 shall be withdrawn * * * nor shall any special partner under any 
 circumstances be considered a creditor or allowed to claim as creditor 
 in case of the insolvency or bankruptcy of the partnership." Held, a 
 special partner making a loan to his firm above his contribution was. as 
 to that loan, a creditor. The Court, in its opinion, lays emphasis on the 
 fact that the sentence in which the prohibition occurs starts out to deal 
 with "advances to the capital stock.") 
 
 Jaffe V. Krum, 88 ]Mo. 669, 1886. (Held, as dicta, that in the absence 
 of a statutory provision that a special partner, loaning money to his 
 firm above his contribution, was a postponed creditor as to such loan.)
 
 442 LIMITED PARTNERSHIP 
 
 HAGGERTY v. FOSTER. 
 
 In the Supreme Judicial Court of ]\Iassachusetts, 
 
 1869. 
 
 103 Massachiiseifs Reports, 17. 
 
 Colt_, J.^ Upon the agreed statement of facts, the de- 
 fendant Foster must be held hable as a general partner in the 
 firm of Barnes & Carpenter. In the formation of the special 
 partnership under the statute, there was a failure to comply 
 with one requisition which is made necessary in order to 
 secure exemption from such liability. 
 
 By the Gen. Sts. c. 55, §§ 2-4, the special partner is re- 
 quired to contribute to the common stock a specific sum in 
 actual cash payment as capital ; all the partners must make 
 and severally sign a certificate, which shall contain, among 
 other things, the amount of the capital stock which each 
 special partner has contributed ; and if a false statement is 
 made, all the persons interested in the partnership shall be 
 liable as general partners for all the engagements thereof. 
 
 It is unnecessary to consider all the modes in which 
 Foster attempted to complete his contribution as special part- 
 ner. His liability as general partner is fixed, if within the 
 true construction of the statute any one of the methods 
 adopted is not to be regarded as an actual cash payment of 
 any part of the amount. It is wholly immaterial that the 
 transaction at the time was honestly intended and under- 
 stood by the parties to be sufficient; that the securities 
 actually transferred afforded the means by which their cash 
 value was in fact subsequently realized ; or that creditors 
 were not actually defrauded. The statute is plain and ex- 
 plicit. It requires payment to be made when a certificate is 
 signed, acknowledged and recorded as the foundation of the 
 
 ^ The Reporter's statement of the facts is omitted.
 
 HAGGERTY z: FOSTER 443 
 
 partnership; and this certificate must recite what has been 
 done, not that which is executory. Its object is to provide a 
 fund, on the day the company is formed, to be thereafter 
 subject to no contingencies or losses, except those which 
 come from the proper business of the partnership. The use 
 of the phrase "actual cash payment," is emphatic and signifi- 
 cant. It is wisely intended to exclude a construction, by 
 which commercial securities, of any description short of 
 cash, may be regarded, by the aid of mercantile usage or 
 otherwise, as substantially equivalent to cash ; and to remove 
 from all parties the temptation to evade its requirements in 
 this respect. 
 
 In the cases at bar, it appears that, on the day when the 
 articles of copartnership were entered into, the Attleborough 
 Bank had in its custody two obligations of the United 
 States for one thousand dollars each, payable to bearer, 
 which belonged to the defendant Foster and were deliverable 
 to him or his order on demand, and which he authorized 
 Carpenter, dealing with him as a member of the proposed 
 firm, to take, sell and apply, as a part of his contribution, 
 to the capital. These obligations were worth, at the time, 
 somewhat more than their par value, and were in fact taken 
 and sold by Carpenter some time in the month of Septem- 
 ber following, and applied to the use of the firm as it had 
 occasion for the money. Assuming that the authority given 
 to Carpenter to make this appropriation was sufficient, yet it 
 does not appear that any action was taken under it by Car- 
 penter, or any notice of the transaction given to the bailee of 
 these securities, before they were finally taken and sold by 
 him. 
 
 A majority of the court are unable to regard this as a 
 compliance with a provision, which demands an actual cash 
 payment, and requires it to be certified, acknowledged and 
 recorded, before the partnership is formed. These securi- 
 ties were at best but the agreement of a third party to pay 
 money at a future day ; they cannot be treated as cash ; they 
 were not so treated by the bank, in whose safekeeping they
 
 444 LIMITED PARTXERSHIP 
 
 were placed, and which held them as a special deposit; nor 
 were they so regarded by the parties themselves, who ex- 
 pressly provided for their future sale and conversion into 
 money. If considered as equivalent to cash, yet there was 
 no delivery of them valid as against the individual creditors 
 of Foster, who for some considerable time afterwards held 
 the legal title to them. Pierce v. Bryant, 5 Allen. 91. 
 Foqiict V. Hoadlcy, 3 Conn. 534. 
 
 It is not necessary to consider the manner in which the 
 remaining part of Foster's contribution was made. It is 
 sufficient that the certificate, to the extent indicated, con- 
 tained a statement, which, though made in good faith by 
 him, was a false statement within the meaning of the law. 
 The statute cannot be construed so as to meet the hardships 
 of individual cases. And judgment must be rendered against 
 Foster, according to the agreement of the parties in both 
 cases. 
 
 Judgment for the plaintiffs.- 
 
 - Compare: HoUiday v. Union Bag & Paper Co.. 3 Colo. 342. 1877. 
 (The statute permitted the contribution of the special partner to be 
 paid in propertj-, but required that when paid in property it should be so 
 stated and its cash value given. The certificate stated that cash had been 
 contributed by A, when as a matter of fact the contribution was in 
 groceries and promissory notes. Held, that A was liable as a general 
 partner.) 
 
 Wilson V. Bean. Z2> HI- App. 529. 18S9. (The statute permitted the 
 contribution of a special partner to be made in goods. A firm was 
 indebted to B. He cancelled the indebtedness on an agreement which 
 was carried out that he should become a special partner to the amount 
 of his debt. In the certificate he stated that he had contributed mer- 
 chandise to the amount of the cancelled debt. Held, that the certificate 
 was misleading and that B was liable as a general partner. 
 
 Chick V. Robinson. 95 Fed. 619, 1899. (A contribution of a certified 
 check is a cash contribution.)
 
 FOURTH STREET NATIONAL BANK :■. WHITAKER 445 
 
 FOURTH STREET NATIONAL BANK v. 
 WHITAKER. 
 
 In the Supreme Court of Pennsylvania, 1895. 
 
 170 Pennsylvania Reports, 297. 
 
 Assumpsit on a promisson^ note given by a limited 
 partnership, formed under the Act of !March 21, 1836.-^ 
 Mr. Justice Dean. On the 31st of December, 
 
 1 89 1, Granville B. Haines, Richard Wood, Samuel B. 
 Brown, Richard W. Bacon and William Whitaker, of 
 Philadelphia, by the name of Haines & Company, formed 
 a limited partnership, under the act of 1836, for car- 
 rying on a wholesale and retail dry goods business ; 
 the term of the partnership was one year; Richard 
 W. Bacon and W^illiam Whitaker were special partners, the 
 others general ; the special contribution of capital by each 
 of tlie special partners. Bacon and Whitaker, was $100,000; 
 $50,000 each in cash, and a like sum in merchandise, their 
 entire contribution as special i)artners being $200,000. The 
 articles of association were subscribed by all the partners, 
 duly acknowledged and recorded in the office of the re- 
 corder of deeds for Philadelphia. At the end of the year 
 
 1892. under the provisions of the nth section of the act of 
 1836, the partnership was renewed for another year. That 
 section reads thus : "Every renewal or continuance of such 
 partnership, beyond the time originally fixed for its duration, 
 shall be certified, acknowledged and recorded, and an affi- 
 davit of a general partner be made and filed and notice be 
 given in the manner herein required for its original forma- 
 tion, and every such partnership which shall be otherwise 
 renewed or continued shall be deemed a general partnership." 
 
 In the articles of renewal in this averment, referring to 
 their articles of the year previous : "The amount of capital 
 
 ' The Reporter's statement of the facts of the case and his notes of 
 the arguments of counsel are omitted.
 
 446 LIMITED TARTXERSHIP 
 
 contributed by each of the said special partners in the com- 
 mon stock was $100,000, one half thereof being in cash, 
 and the other half thereof being in goods and merchandise, 
 making the aggregate amount of capital contributed by them 
 $200,000, as designated in the said original certificate, and 
 the same remains unimpaired and undiminished, as their 
 contribution to the present renewal and continuance of the 
 said limited partnership, being in merchandise, an inventory 
 and appraisement whereof have been filed in the court of 
 common pleas No. 3 of Philadelphia county." 
 
 On the expiration of this renewed partnership at the 
 end of the year 1893, there was another renewal for a year 
 with like averments and certificate in the renewed articles, 
 which were also made of record, as required by the act. The 
 business was carried on, under this last renewal, until the 
 26th of March, 1894, when a general assignment for the 
 benefit of creditors was made by the partnership. Before 
 the assignment, the Fourth Street National Bank, the 
 plaintiff, became the holder, for value, of six notes drawn 
 by the partnership, each in the sum of $5,000, payable to 
 the bank's order on demand, and dated respectively Febru- 
 ary 24, March i, 5, 8, 14, and 21, 1894. These not being 
 paid on demand, the bank brought suit against all the 
 members of the firm, as general partners. The sworn 
 statement of claim avers: i. That plaintift* accepted the 
 notes on the faith of the writing signed by all the members 
 of the partnership, and recorded in the office for the re- 
 cording of deeds, the 30th of December, 1893. 2. That 
 said writing set forth that the original contribution of $200,- 
 000 in cash and merchandise, by the special partners, "re- 
 mains unimpaired and undiminished as their contribution 
 to the present renewal." 3. That at the time said writing 
 was made and put on record, the entire original capital con- 
 tributed by the special partners had been consumed and lost 
 in the business, and the partnership of Haines & Company 
 was insolvent. 4. That the statement, that the same re- 
 mained unimpaired and undiminished, was false in fact.
 
 FOURTH STREET NATIONAL BANK r. WHITAKER 447 
 
 The plaintiff therefore averred liabiHty of each and all 
 of the members of the firm as general partners. 
 
 To this the defendant, William Whitaker, made affi- 
 davit of defense, setting out, that on the last renewal of the 
 partnership, on the 30th of December, 1893, ^^' the' mem- 
 bers joined in a petition to the court of common pleas for 
 the appointment of an appraiser of the assets of the pro- 
 posed renewed partnership, and the appointment was made; 
 that the appraiser under oath reported he had examined 
 carefully and appraised the goods and merchandise of the 
 proposed partnership, and that these included the original 
 contributions of Whitaker and Bacon, the special partners, 
 and the value of the same, as merchandise, was $200,000; 
 that the partnership had other merchandise, accounts and 
 cash, more than sufficient to pay its debts ; further, that tlie 
 $200,000 of merchandise appraised as the original contribu- 
 tion of capital by the special partners was set apart as such, 
 and transferred to the new partnership. The defendant 
 then avers on this preliminary statement of facts: i. That 
 he, at the time of the renewal, believed the statement and 
 affidavit of the appraiser to be true, and that he, defendant, 
 had done all that was required of him as a special partner. 
 2. That he is informed and believes the notes were not 
 accepted by plaintiff on the faith of the statement ; that the 
 notes in suit are renewals of notes given for partnership 
 debts of 1893, and are but a continuation of the evidence of 
 indebtedness of the older partnership, before the articles 
 of December, 1893, for renewal were entered into. 3. That 
 the notes sued on were given without his knowledge or 
 consent, and plaintiff knew when it accepted them the gen- 
 eral partners had no authority to impose liability on him 
 except as special partner. 4. That he has no personal 
 knowledge as to any misstatements of fact in the articles of 
 1893; that he believed the statements of the general part- 
 ners and of the appraiser, whose duty it was to know, to be 
 true. On the record thus made up. plaintiff took a rule for 
 judgment for want of a sufficient affidavit of defense ; after
 
 448 LIMITED PARTXERSHIP 
 
 argument, the court below, in a carefully considered opinion, 
 made the rule absolute, and defendant appeals. 
 
 The averment in plaintift's statement that when the last 
 renewal was signed the entire capital stock of the special 
 partners had been lost in the business of Haines & Com- 
 pany, and the partnership was largely insolvent, is not 
 denied in the affidavit of defense; it is denied by defendant 
 there was any intentional misstatement on his part. It must, 
 therefore, be here taken as true, that when all the members 
 joined in the representation on the public records that the 
 $200,000 capital remained unimpaired and undiminished, 
 that statement was untrue in fact. 
 
 The question then is, what effect, if any, does an un- 
 intentional misrepresentation of this character have on the 
 liability of defendant as a member of the partnership? As 
 already quoted, the nth section of the act provides for the 
 attesting and recording of articles of renewal, and public 
 notice of the same, under the same formalities as are re- 
 quired in the original formation of the partnership. The 
 penalty of a failure to comply wnth the directions of the act 
 as to the first organization is found in the 8th section, as 
 follows: "And if any false statement be made in such cer- 
 tificate or affidavit, all the persons interested in such part- 
 nership shall be liable for all engagements thereof, as gen- 
 eral partners."' 
 
 This court held, in Haddock z'. Grinnell Co., 109 Pa. 
 2i'y2. that : "This evidently means that the affidavit shall 
 give as full information upon the renewal as upon the origi- 
 nal formation of the limited partnership. A mere formal 
 affidavit setting forth the renewal only, would not give 
 creditors any valuable information as to the condition of the 
 firm, and the object of the act was to provide this notice." 
 
 Andrews z\ Schott, 10 Pa. 47, is to the same efifect, 
 although in this last case there had been the introduction of 
 a new partner, and the decision was rested on the ground 
 that there was the formation of a new partnership instead 
 of the renewal of the old one. But the point is settled by
 
 FOURTH STREET NATIONAL BANK z: WHITAKER 449, 
 
 a deliberately considered judgment in Haddock z'. Grinnell 
 Co.. supra, that the requirements of the act, as to state- 
 ment and affidavit for renewal, are as rigid as ^n those for 
 the original formation of the partnership. 
 
 The object of the act was to open a venture to capital, 
 with the protection or advantage of restricted liability ; but 
 upon a condition, that the public should have full means of 
 knowledge as to the amount and character of the venture, 
 and thereby be enabled to form a judgment as to how far 
 the partnership was worthy of credit. 
 
 Here the record contained the joint representation to 
 the public, of all the partners, in December, 1893, that the 
 original $200,000 remained unimpaired and undiminished, 
 when, through business losses before that date, it had in 
 large part disappeared. 
 
 We do not consider it material that, as concerns, this 
 defendant, the misrepresentation was not intentional ; that 
 concerns his ease of conscience, but it neither restricts his 
 liability nor affects the rights of creditors. The act seems 
 to be carefully silent as to any modification of the language 
 which operates to inflict the penalty. It does not say, will- 
 fully, knowingly, intentionally false statement, but simply, 
 "if any false statement be made," then all persons interested 
 shall be liable as general partners. As to the nature of such 
 a misstatement as this, it is only necessary to recur to Had- 
 dock z'. Grinnell Co., supra : — "When a special partnership is 
 continued or renewed it must be in the same condition, so 
 far as the special capital is concerned, as when it was origi- 
 nally formed. Such capital must be unimpaired ; it must be 
 in such condition as to be available for creditors, and it is 
 the duty of the general partner to furnish this information 
 in his affidavit. If this duty is neglected, the partnership be- 
 comes general, and the special partner has no immunity." 
 
 Clearly, there was a false statement here of a most 
 material fact, and although not known to defendant when 
 he joined in the subscription to the articles, he cannot, for 
 that reason, claim immunity as a special partner: it was
 
 ^iO LIMITED PARTNERSHIP 
 
 his legal duty to know the truth or falsity of statements sub- 
 scribed to by him, and placed on the public records, and 
 although ignorance of its falsity may exempt from the 
 imputation of moral turpitude, the statute does not exempt 
 him from legal responsibility. 
 
 The distinction drawn by the learned counsel for appel- 
 lant between impaired and unimpaired capital of business 
 partnerships is without weight in the interpretation of this 
 statute; the object is to give information to the creditor of 
 the financial standing of the partnership, when it invites 
 business; its credit depends on its ability to pay; its ability 
 to pay depends on the value of assets it can lawfully appro- 
 priate in payment; this partnership did have, in December, 
 1 89 1, $200,000 capital in money and merchandise, to which 
 the creditor of that term could look for payment of his 
 debts; but, in December, 1893, the partnership was wholly 
 insolvent; all its assets were insufficient to discharge its 
 indebtedness; it had $200,000 worth of merchandise on 
 hand, which was set aside, and called unimpaired and un- 
 diminished capital of the special partner. But to whom 
 did this merchandise in equity belong? Certainly to those 
 who had given credit on the strength of it, and it was under 
 a pledge, both legal and moral, to them for their debts; all 
 that was needed to enforce forfeiture of the pledge was a 
 judgment ripe for execution. True, the mere physical pos- 
 session of the merchandise was in the partnership, but the 
 special partners could not have withdrawn from the insol- 
 vent firm $200,000 in cash, and have held it against the 
 creditors; how could the partners, all consenting, lawfully 
 put aside for the same partners $200,000 worth of mer- 
 chandise? Yet it was represented by the statement, this 
 $200,000 was subject to the claims of future creditors, as 
 if the partnership had been then formed, and the capital first 
 contributed, when the fact was, after having undergone the 
 perils of two years' business, it was impaired to the amount 
 that the debts of the insolvent firm exceeded the assets. 
 Of this important fact the statement contained no hint. As
 
 FOURTH STREET NATIONAL BANK v. WHITAKER 451 
 
 is said in Vanhorn z'. Corcoran, 127 Pa. 255, where the 
 assets of a partnership largely indebted were turned over as 
 a contribution of capital to a limited partnership : "The 
 whole of it in equity, was liable to creditors, and could not 
 be withdrawn from them without fraud, until the last dollar 
 of the debts of the jfirm was paid. So that instead of prop- 
 erty, the defendants contributed a mere equity, to wit, what- 
 ever was left of the assets of the firm after payment of its 
 debts." 
 
 As to the notes sued on being given for notes issued 
 before the filing of the renewal certificate, the evidence of 
 the old debt was extinguished, and a new security given; 
 the general partners had an implied right to negotiate for 
 extension of time on matured notes, and give those of the 
 new partnership, which last was in possession of all the 
 assets of the old. 
 
 It is argued by appellant, the effect of sustaining the 
 judgment of the court below, here, will be to discourage the 
 formation and renewal of limited partnerships, because capi- 
 talists could not longer invest their money prudently in such 
 business enterprises. We have no fears of such conse- 
 quence ; for almost sixty years, limited partnerships have 
 multiplied and prospered in this commonwealth, under an 
 unbroken line of decisions, which have uniformly exacted 
 strict adherence to all the material requirements of the law ; 
 the credit of such associations stands deservedly high in 
 public estimation, because those who trust them feel they 
 can rely on the truthfulness of their public statements; this 
 confidence can only be maintained by a rigid judicial en- 
 forcement of those requirements which the legislature 
 plainly deemed important; no prudent capitalist will re- 
 frain from investment in such enterprises, because com- 
 pelled to a strict observance of the truth with regard to 
 material facts; no prudent creditor will trust them, if this 
 measure of business honestly be not exacted.
 
 452 LIMITED PARTNERSHIP 
 
 We see no error in the judgment, and it is therefore 
 affirmed. - 
 
 -Compare: Tilgc v. Brooks, 124 Pa. 178, 1889. (The act relating to 
 limited partnerships provided that if any false statement be made in the 
 certificate or affidavit all the persons interested in such partnership 
 should be liable as general partners. A, B and C tried to form a limited 
 partnership, C being the special partner. There were irregularities in 
 the formation which were sufficient to make C liable as a general partner 
 for debts contracted during the term of the partnership. At the end of 
 the term stipulated in the articles C withdrew without notifying D, a 
 customer of the firm. A and B continued the business, buying goods 
 from D. Held, that as there never had been a general partnership in 
 fact, D was not liable for goods bought after the expiration of the 
 term for which the limited partnership had been created. Paxson, J. : 
 "Under our statute no general partnership was formed ; it does not say 
 that an omission to comply with its requirements shall have the effect 
 of creating a partnership not intended by the parties," p. 182. See 
 contra. Haviland v. Chace, 39 Barb. N. Y. Sup. Ct. 283, i860.) 
 
 Fifth Ave. Bank v. Colgate. 120 N. Y. 381, 1890. (The statute 
 relating to limited partnerships did not require the renewal certificate 
 to state that the capital was unimpaired. A, B and C were partners, C 
 being a special partner. The renewal certificate stated that the capital 
 was unimpaired. This was false. Held, that this false statement did 
 not make C liable as a general partner.) 
 
 Hogan v. Hadssits, 113 Mich. 568, 1897. (A, B and C formed a 
 special partnership, C being the special partner and contributing $10,000. 
 At the expiration of the term, the partnership was renewed and the 
 renewal certificate stated that C had contributed $10,000 in cash. At the 
 time of the renewal the $10,000 contributed by C was not in the form of 
 cash. Held, that the renewal certificate complied with the act, which 
 did not require that the character of the capital at the time of the 
 renewal be set forth. Hoddack v. Grumell Manuf. Co., 109 Pa. 382, 1885, 
 cited in our principal case, referred to and adversely commented on. 
 See p. 574.)
 
 CHAPTER VIII 
 
 ELEMENTS OF DIFFERENT FORMS OF 
 ASSOCIATION. 
 
 THOMAS V. DAKIN. 
 
 WARNER V. BEERS. 
 
 In the Supreme Court of Judicature, and the Court 
 FOR the Correction of Errors, New York, 1839, 1840. 
 
 22 Wendell's Reports, 2, and 23 Wendell's Reports, 103.' 
 
 Chief Justice Nelson : This is an action brought by 
 the plaintiff, as president of the Bank of Central New 
 York, an association formed under what is familiarly known 
 as the General Banking Law, passed April 18, 1838, to re- 
 cover several demands due the institution. 
 
 The defendant has demurred to the declaration, and 
 urges the unconstitutionality of the law by way of defence; 
 and it is insisted, in his behalf: i. That the associations 
 formed under this law are corporations; and 2. That a gen- 
 eral law authorizing the creation of these bodies, is incon- 
 sistent with the ninth section of the seventh article of the 
 constitution [which prohibited the creation of bodies politic 
 
 ^ The case of Thomas v. Dakin was decided in the Supreme Co«i^ 
 in the Octo])er Term, 1839. During the session of the Legislature in the 
 winter of 1840, the Court for the Correction of Errors heard two cases 
 argued which had been brought up by writ of error from the Supreme 
 Court, presenting the same questions which arose in Thomas v. Dakin, 
 and the decision of which was 1)ascd upon the opinions dehvercd in that 
 cause. These cases are reported under the name of Warner v. Beers. 
 The editors have selected for reprinting those portions of the opinions of 
 Chief Justice Nelson in the Supreme Court and Senator Verplanck in 
 the Court for the Correction of Errors, which relate to the question 
 whether an association organized under the Act of April i8th, 1838, was 
 a "body corporate." The other opinions, and the Reporter's statements 
 of the pleadings in tlie cases arc omitted l)ecause of their great length. 
 
 (453)
 
 454 ELEMENTS OF FORMS OF ASSOCIATION 
 
 and cori)orate, unless with the assent of two-thirds of the 
 members elected to each branch of the legislature]. On 
 the part of the plaintiffs, it is urged in reply: i. That 
 the associations are not corporations; 2. That if they 
 be, the act authorizing them may be passed by a majority 
 bill; and 3. If within the ninth section, still the law may be 
 passed by two-thirds of the members elected. 
 
 Are these associations corporations? In order to de- 
 termine this question, we must first ascertain the properties 
 essential to constitute a corporate body, and compare them 
 with those conferred upon the associations; for if they ex- 
 ist in common, or substantially correspond, the answer will 
 be in the affirmative. A corporate body is known to the 
 law by the powers and faculties bestowed upon it, expressly 
 or impliedly, by the charter; the use of the term corpora- 
 tion in its creation is of itself unimportant, except as it will 
 imply tlie possession of these. They may be expressly con- 
 ferred, and then they denote this legal being as unerringly 
 as if created in general terms. It has been well said by 
 learned expounders, that a corporation aggregate is an arti- 
 ficial body of men. composed of divers individuals, the liga- 
 iiicnts of which body arc the franchises and liberties be- 
 stowed upon it, which bind and unite all into one, and in 
 which consists the whole frame and essence of the corpora- 
 tion. The "franchises and liberties," or, in more modern 
 language, and as more strictly applicable to private corpora- 
 tions, the powers and faculties, which are usually specified 
 as creating corporate existence, are: i. The capacity of 
 perpetual succession; 2. The power to sue and be sued, 
 and to grant and receive in its corporate name; 3. To pur- 
 chase and hold real and personal estate ; 4. To have a com- 
 mon seal; and 5. To make by-laws. These indicia were 
 given by judges and elementary writers at a very early 
 day: since which time the institutions have greatly multi- 
 plied, their practical operation and use have been thor- 
 oughly tested, and their peculiar and essential properties 
 mucli better understood. Any one comprehending the scope
 
 THOMAS V. DAKIN— WARNER z: BEERS 455 
 
 and purpose of them, at this day, will not fail to perceive 
 that some of the powers above specified are of trifling im- 
 portance, while others are wholly unessential. For instance, 
 the power to purchase and hold real estate is no otherwise 
 essential than to afford a place of business ; and the right to 
 use a common seal, or to make by-lazvs, may be dispensed 
 with altogether. For as to the one, it is now well settled 
 that corporations may contract by resolution, or through 
 agents, without seal ; and as to the other, the power is un- 
 necessary, in all cases where the charter sufficiently pro- 
 vides for the government of the body. The distinguishing 
 feature, far above all others, is the capacity conferred, by 
 which a perpetual succession of different persons shall be 
 regarded in the lazv as one and the same body, and may at 
 all times act in fulfilment of the objects of the association 
 as a single individual. In this way, a legal existence, a body 
 corporate, an artificial being, is constituted; the creation of 
 which enables any number of persons to be concerned in 
 accomplishing a particular object, as one man. While the 
 aggregate means and influence of all are wielded in effect- 
 ing it, the operation is conducted with the simplicity and in- 
 dividuality of a natural person. In this consists the essence 
 and great value of these institutions. Hence it is apparent 
 that the only properties that can be regarded strictly as es- 
 sential, are those which are indispensible to mould the dif- 
 ferent persons into this artificial being, and thereby enable 
 it to act in the way above stated. When once constituted, 
 this legal being created, the powers and faculties that may 
 be conferred are various — limited or enlarged, at the dis- 
 cretion of the legislature, and will depend upon the nature 
 and object of the institution, whfch is as competent as a na- 
 tural person to receive and enjoy them. We may, in short, 
 conclude by saying, with the most approved authorities at 
 this day, that the essence of a corporation consists in a ca- 
 pacity: I. To have perpetual succession under a special 
 name, and in an artificial form ; 2. To take and grant prop- 
 erty, contract obligations, sue and be sued by its corporate
 
 456 ELEMENTS OF FORMS OF ASSOCIATION 
 
 name as an individual; and 3. To receive and enjoy in com- 
 mon, grants of privileges and immunities. 
 
 We will now endeavor to ascertain with exactness the 
 powers and attributes conferred upon these associations by 
 virtue of the statute. The first fourteen sections (i to 14) 
 prescribe the duties of the comptroller in furnishing notes 
 for circulation, taking the required securities, &c. The 
 15th provides, that any number of persons may associate to 
 establish offices of discount, deposit and circulation. The 
 i6th, that they shall make and file a certificate, specifying: 
 I. The name to be used in the business; 2. The place where 
 the business shall be carried on; 3. The amount of capital 
 stock, and number of shares into which divided ; 4. The 
 names of the shareJwlders; 5. The duration of the associa- 
 tion. The 1 8th confers upon the persons thus associating, 
 the most ample powers for cariwing on banking operations, 
 together with the right "to exercise such incidental powers 
 as shall be necessary to carry on such business ; also to 
 choose a president, vice president, cashier, and such other 
 officers and agents as may be necessary. By the 21st and 
 22d sections, contracts, notes, bills. &c.. shall be signed by 
 the president and cashier; and all suits, actions, &c.. are to 
 be brought in the name of, and also against the president 
 for the time being; and not to abate by his death, resigna- 
 tion or removal, but to be continued in the name of the suc- 
 cessor. 24th section : The association may purchase and 
 hold real estate, &c., the conveyance to be made to the pres- 
 ident, or such other officer as shall be designated, who may 
 sell and convey the same free from any claim against share- 
 holders. 19th section: The shares of capital stock to be 
 deemed personal property, transferrable on the books of the 
 association; and every person becoming a shareholder by 
 such transfer, shall succeed to all the rights and liabilities 
 of the prior holder. 23d section: No shareholder to be 
 personally liable; and the association is not to be dissolved 
 bv the death or insanity of any shareholder. 
 
 I. Upon a perusal of these provisions, it will appear
 
 THOMAS V. DAKIN— WARNER v. BEERS 457 
 
 that the association acquires the power to raise and hold for 
 common use any given amount of capital stock for banking 
 purposes, which, when subscribed, is made personal prop- 
 erty, and the several shares transferrable the same and with 
 like effect as in case of corporate stock ; to assume a com- 
 mon name under which to manage all the affairs of the as- 
 sociation ; to choose all officers and agents that may be nec- 
 essary for the purpose, and remove and appoint them at 
 pleasure. It will hence be seen, that although the associa- 
 tion may be composed of a number of different persons, 
 holding an interest in the capital stock, its operations are 
 so arranged that they do not appear in conducting its af- 
 fairs; all are so bound together, so moulded into one, as to 
 constitute but a single body, represented by a common name, 
 or names (the knot of the combination), and in which all 
 the business of the institution is conducted by common 
 agents. In this way it purchases and holds -real and per- 
 sonal property, contracts obligations, discounts bills, notes 
 and other evidences of debt, receives deposits, buys gold 
 and silver bullion, bills of exchange, &c., loans money, sues 
 and is sued, &c. It is true, some portion of the business is 
 conducted in the assumed name, and some in the name of 
 the president for the time being; but this in no manner 
 changes the character of the body. A corporation may 
 have more than one name; it may have one in which to 
 contract, grant, &c., and another in which to sue and be 
 sued ; so it may be known by two different names, and may 
 sue and be sued in either; and the name of the president, 
 his official name, or any other, will answer every purpose. 
 2 Bacon's Abr. 5. 2 Salk. 451. 2 id. 237. Ld. Raym. 153, 
 680. The only material circumstance is, a name, or names, 
 of some kind, in which all the affairs of the company may 
 be conducted. So much, and no more, is essential to give 
 simplicity and effect to the operation. An artificial being is 
 thus plainly created, capable of receiving all the ample pow- 
 ers and privileges conferred upon the associations, and of 
 managing their diversified concerns in an individual capac-
 
 458 ELEMENTS OF FORMS OF ASSOCIATION 
 
 ity. All business is to be conducted in a common or proper 
 name. 
 
 2. This artificial being possesses the powers of per- 
 petual succession. Neither sole of shares, or death of share- 
 holders affect it ; if one should sell his interest, or die, the 
 purchaser or representative, by operation of law, immedi- 
 ately takes his place. Sec. 19. Nor can the insanity of a 
 member work a dissolution. /(/. Officers and agents for 
 conducting the business of the association are secured. In 
 case of vacancy, by death or otherwise, the place may at 
 once be filled. Sec. 18. For the entire duration, therefore, 
 of the association, and which may be without limit, Sec. 
 16, siib. 5, the whole body of shareholders, though perpet- 
 ually shifting, constitute the same uniform, artificial being 
 which is to be engaged through the instrumentality of offi- 
 cers and agents in conducting the business of the concern, 
 and no member is personally liable. Sec. 23. Then, as to 
 the powers conferred, without again specially recurring to 
 them, it will be seen at once that the associations possess 
 all that are deemed essential, according to the most ap- 
 proved authorities, to constitute a corporate body. They 
 have a capacity : i . To have perpetual succession under a 
 common name, and in an artificial form ; 2. To take and 
 grant property, contract obligations, to sue and be sued by 
 its corporate name, in the same manner as an individual ; 
 3. To receive grants of privileges and immunities, and to 
 enjoy them in common. All these are expressly granted, 
 and many more, besides the general sweeping clause, "to 
 exercise such incidental powers as shall be necessary to 
 carry on such business" (meaning the business of banking), 
 under which even the seal and right to make by-laws are 
 clearly embraced, if essential in conducting the affairs of 
 the institution. 
 
 The judgment was for the plaintiff, the majority of the 
 Court holding, that, although the association was a corpora- 
 tion the act was constitutional on the assumption that it was 
 passed by a two-thirds vote of the members elected to each
 
 THOMAS V. DAKIN— WARNER v. BEERS 459 
 
 branch of the legislature, and the demurrer not reaching 
 the objection that the act had not received the required 
 two-thirds, though such an objection might be reached by 
 plea. 
 
 Senator Verplanck : The decision of these causes 
 seems to me to depend wholly upon that of the c[uestion. 
 whether or no associations with constitutions, powders and 
 incidents, similar to those authorized under the General 
 Banking Law, are bodies corporate and politic ; or, in other 
 words, whether the General Banking Law of 1838 is void, 
 because it was not passed with the expressed assent of two- 
 thirds of all the members of the legislature. * * * 
 
 What, then, is the strict definition of the phrase bodies 
 politic and corporate? * * * 
 
 Strict and essential definitions can generally be given 
 of the terms of positive jurisprudence, and particularly so 
 in the extremely technical and artificial system of the ancient 
 English law. This is remarkably the case, for instance, in 
 regard to our common law terms of real estate, as fee, lease, 
 warranty, grant, covenant, reversion, remainder, &c. ; all 
 of which are defined precisely and essentially, not explained 
 by mere attributes. Bodies corporate belong to that system, 
 and thence do w'e immediately derive them. What, then, is 
 a body corporate ? What is its necessary and essential mean- 
 ing? "It is called a body corporate," says Lord Coke, "be- 
 cause the persons composing it are made into one body." "It 
 is only in abstracto, and rests only in contemplation of law." 
 10 R. 50. So again, he says, i Inst. 202. 250, "Persons 
 capable of purchasing are of two sorts — persons natural cre- 
 ated of God. and persons created by the policy of man, as 
 persons incorporated into a body politic." If, leaving the 
 quaint scholastic teaching of the father of English law, we 
 come to the clearer and directer sense of our own Marshall, 
 we find the same prevailing idea. "A body corporate is an 
 artificial being, invisible, intangible, existing only in con- 
 templation of law. Being the creature of law, it possesses 
 ,only the properties conferred upon it by its charter. Among
 
 460 ELEMENTS OF FORMS OF ASSOCIATION 
 
 the most important of these are immortahty, and, if the ex- 
 pression may be allowed, individuality/' 4 Wh. R. 636; i 
 Peters, R. 46. Again : "It is precisely what the act of incor- 
 poration makes it ; derives all its powers from that act, and 
 is capable of exerting its facnlties only in the manner which 
 that act authorizes." "Within the limits of the properties 
 conferred by its charter, it can," says Blackstone, "do all acts 
 as natural persons may." "In corporations," says Professor 
 Woodeson, "individuals are invested by the law with a polit- 
 ical character and personality, wholly distinct from their 
 natural capacity." "A corporation," says Kyd on Corpora- 
 tions, 13, "is not a mere capacity, but a political person in 
 which many capacities reside." Thus, then, the essential legal 
 definition that covers the whole ground, and expresses the 
 very essence of the being of a body corporate, is this : "It 
 is an artificial legal person, a succession of individuals, or 
 an aggregate body considered by the law as a single con- 
 tinuous person, limited to one peculiar mode of action, and 
 having power only of the kind and degree prescribed by the 
 law which confers them." Such is the established notion of 
 our common law. Such, too, as far as I can trace it, is the 
 doctrine of the modern civil law, as modified by the jurispru- 
 dence of the European continent. "Communities that are 
 lawfully established (i. e. corporations)," says Domat, one 
 of the great teachers of the ante-revolutionary French civil 
 law, "are in the place of persons, and their union, which 
 renders common all their interest, make them to be consid- 
 ered as otic single person. Douiat, Civil Law, Lib. i, tit. 15. 
 To the same effect a somewhat older Italian civilian speaks, 
 Oldradus De Ponte, as cjuoted by Sir Robert Sawyer, in 
 his very able and learned argument in the case of the city of 
 London. 8 St. Tr. 1 175. ''Licet noii habent verain personam, 
 habent personam fictione juris/' So the older German juris- 
 prudence, as founded on the Roman law, also held the idea 
 of personality as essential to corporations. Heineccius, one 
 of the most distinguished civilians of that school in the last 
 century, in his instructive essay on the legal history of the
 
 THOMAS V. DAKIN— WARNER v. BEERS 461 
 
 corporate (juilds or societies of trade so common in Germany, 
 speaks of this personality as an attril^ute of all corporations. 
 "Uniz'crsitatcs cf coutrahcrc possitiit ct dclinqucrc, quippc qiicc 
 luoralifcr iiiiain rcprrsciitaiif pcrsoiiain:" Dc Collegiis Ofnfi- 
 ciini, in Gcnnaiiia, cap. yy, Sec. 19. This doctrine of the 
 modern civilians of France, Italy and Germany, may be 
 traced np even to the jnrists of the Code and Pandects. Per- 
 soNAE z'icc fuiiyitur iiinnicipiiuii ct dccuria." Pan. i, 22, dc 
 fide jiiss. I do not cite these civilians as direct authorities, 
 but mainly to show how deeply and generally this pervading 
 idea of legal personality and artificial individuality entered 
 into and formed the characteristic of all corporate bodies, in 
 those systems of law which might indirectly affect or govern 
 our own, or tend to influence even the popular use of our 
 legal terms. 
 
 So far was this principle of corporate personality car- 
 ried in our old common law, that reasons were expressly 
 assigned why a corporation could not be excommunicated 
 or punished for crime. "Because it has no soul," said Lord 
 Coke, which, however ludicrously it may now sound, was 
 but saying quaintly, and in the style of that day, what in 
 modern times would be expressed by saying that a corpora- 
 tion, being an artificial and not a moral person, must be in- 
 capable of guilt. The very able argument in the celebrated 
 historical case of the charter of London in 1682, went a 
 good deal into these refinements, and it was held on one side 
 that a political person, had a mind and reason, according to 
 Lord Chief Justice Hobart, and that its reason was expressed 
 by its by-laws; whilst the attorney-general (whom Bishop 
 Burnet has egregiously wronged in calling him "a hot, dull 
 man)," argued most acutely, as well as very learnedly, in 
 support of the capacity of a corporation to incur political, if 
 not moral, guilt and punishment. 
 
 All these, it is true, are refinements of technical reason- 
 ing, in a taste and fashion of thought which have passed 
 away ; but they prove conclusively how strong and undoubted
 
 462 ELEMENTS OF FORMS OF ASSOCIATION 
 
 was that legal principle of personality upon which these mere 
 inferences and nice distinctions were founded. 
 
 In order to continue the existence of such an artificial 
 person, perpetual succession is ordinarily necessary, though 
 it is not strictly essential, for it may he confined to any given 
 number of lives in being, holding in a sort of corporate joint 
 tenancy, of which I think examples may be found. x\s a 
 legal person, it has only the powers and properties specifically 
 conferred upon it ; and can possess and exercise no others, 
 except such as are absolutely necessary to the exercise of 
 the powers expressly given. This is the enactment of our 
 revised statutes, which, as our revisers rightly said in their 
 report on that title of the law, is "declaratory of a principle 
 of law frequently recognized by our courts, and which it was 
 deemed useful to confirm jjy legislative authority." To these 
 are added certain legal incidents by the common law, also 
 declared in our statute, and common to all corporations, as to 
 sue and be sued, hold and convey real and personal property, 
 to appoint officers for its services, and to make by-laws for 
 the management of its affairs. To these more important 
 rights, the law adds the external evidence of a name and a 
 common seal. This last, though apparently a matter of 
 form, is not without eft'ect, any more than the legal conse- 
 cjuences of seals to instruments in England and this state, 
 so widely different from those of other legal systems, where 
 the distinction between sealed and unsealed instruments is 
 unknown. It is only through a common seal and name that 
 any grant of lands or covenant touching them, can be made 
 by a corporation. 
 
 There are several very useful and beneficial accessary 
 powers or attributes, very often accompanying corporate 
 privileges, especially in moneyed corporations, which, in 
 the existing state of our law, as modified by statutes, are 
 more prominent in the public eye, and perhaps sometimes 
 in the view of our courts and legislatures, than those which 
 are essential to the being of a corporation. Such added pow- 
 ers, however valuable, are merely accessary. They do not 
 
 II
 
 THOMAS V. DAKIN— WARNER v. BEERS 463 
 
 in themselves alone confer a corporate character, and may 
 be enjoyed by unincorporated individuals. Such a power is 
 the transferability of shares, whereby investments may be 
 made, without the owner losing the future control ol his 
 funds under changes of circumstances. Such, too, is the 
 limited responsibility by which the stockholder, having once 
 fairly paid up his share of the capital, is exempted from fur- 
 ther personal liability. So, too, the convenience of holding 
 real estate for the common purposes, exempt from the legal 
 inconveniences of joint tenancy or tenancy in common. 
 Again : there is the continuance of the joint property for the 
 benefit and preservation of the common fund, indissoluble by 
 the death or legal disability of any partner. Every one of 
 these attributes or powers, though commonly falling within 
 our notions of a moneyed corporation, is quite unessential 
 to the legality of a corporation, may be found wdiere there is 
 no pretence of a body corporate, nor will they make one if 
 all were combined, without the presence of the essential qual- 
 ity of legal individuality. This distinction has been observed 
 and marked by Mr. Kyd, Kyd on Corporations, 13, with log- 
 ical acuteness and precision: "A corporation is a political 
 person, capable, like a natural person of enjoying a variety 
 of franchises. It is to a franchise as the substance to its 
 attribute. It is something to which many attributes belong, 
 but it is itself something distinct from those attributes." 
 
 Thus, the transferability of shares is not essential to a 
 corporation. For instance, it does not enter into the con- 
 stitution of our chartered colleges, academies, hospitals, and 
 other corporate institutions founded by public endowment, 
 or private beneficence. It does not enter into the charters 
 of incorporated scientific and literary societies for mutual 
 benefit or charity, in the funds of which the members have 
 a beneficial interest. On the other hand, such a right of 
 transfer may be incorporated into partnership articles, and 
 become a fundamental condition of them. The general rule 
 in absence of any express stipulation, is indeed the reverse 
 of this, and in practice it is comparatively rare amongst us.
 
 464 ELEMENTS OF FORMS OF ASSOCIATION 
 
 Hence it has become common to consider such transfera- 
 bihty as a clear indication of a corporate character. "We 
 have seen," says Collycr on Partnership, 647, "that in com- 
 mon cases, a partner is precUided from assigning his interest 
 to a stranger, so as to make that stranger a partner. To pre- 
 vent this rnle from affecting the stockholder of a trading- 
 company, there mnst be provision in the deed of settlement 
 enabling each stockholder to assign or transfer his share." 
 He then adds the limitations rendered necessary in England 
 by the Bubble act, which has no corresponding statute here, 
 and the conclusion of the English decisions is, that by the 
 common law, shares may be made transferable absolutely. 
 King v. Webb, 14 East, 406. Pratt v. Hutchinson, 15 id. 
 515. Nichols V. Crosby, 2 Barn. & Cres. 814. Sec also otJicr 
 cases collected by IVordswortJi on Joint Stock Companies. 
 Again, the joint stock companies authorized by statutes in 
 England, are avowedly and confessedly not corporations ; 
 and there, says IVordsivorth on Joint Stock Companies, 183, 
 "It is the object of all companies to render their shares as 
 negotiable as possible, so that in fact the restrictions imposed 
 by the deed of settlement upon the transfer of shares are 
 generally very few, and seldom extend beyond recjuiring the 
 transferrer's name, &c. being registered in the books of the 
 company." The language of two or three of the later acts 
 of parliament is specially worthy of attention on this subject. 
 They declare, as strongly as words can declare legislative 
 intention, that transferability of shares, and the consequent 
 succession, can be authorized in common law copartnerships 
 without giving to such companies any corporate existence, 
 or rendering them the less copartnerships in the strict legal 
 sense of the term. In the statute of 6 Geo. IV, ch. 42, it is 
 enacted, "that it shall iDe lawful for any member of any such 
 society or copartnership, their respective executors, adminis- 
 trators or assigns, to sell and transfer any share or shares, 
 or portion or portions of, or the entire stock or interest which 
 any such member may possess in such society or copartner- 
 ship, and the property or funds thereof, subject to such reg-
 
 THOMAS V. DAKIN— WARNER v. BEERS 465 
 
 ulations and restrictions as may be required by the constitu- 
 tion of such society or copartnership." This statute is en- 
 titled "an act for the better regulation of copartnerships of 
 certain bankers in Ireland." The preamble and recitals, and 
 all the sections speak of these banking firms as mere copart- 
 nerships. This strongly marked and repeated recognition of 
 them as such, in the very sections authorizing that transfer- 
 ability and its consequent succession, which have been in- 
 sisted on as infallible marks of corporate character leave no 
 doubt in my mind as to the intention and understanding of 
 the British parliament, that in authorizing associations with 
 these and other powers similar to those granted by our bank- 
 ing law, they were not creating bodies politic or corporate. 
 
 But this is not all : parliament has not left its meaning 
 and intention to be a matter of inference. In 1838, another 
 act was passed amendatory of the one just cited, and of an- 
 other in relation to bankers in England, which gave similar 
 powers. That amendatory statute, after reciting and re- 
 ferring to the titles of these prior acts,- adds in the preamble, 
 "and whereas it is expedient that the said act should be 
 amended, so far as relates to the powers enabling any such 
 copartnership, not being a body corporate, to sue any of its 
 own members, and the powers enabling any member of any 
 such copartnership, not being a body corporate, to sue the 
 said copartnership. Be it therefore enacted, &c. that any per- 
 son now being, or who hereafter may be, a member of any 
 copartnership carrying on the business of banking under 
 the provisions of the said recited acts may commence and 
 prosecute any action, &c." 
 
 There can then be no reasonable doubt, that in these 
 most deliberately considered and very technically drawn acts 
 of parliament, recognizing copartnerships as having transfer- 
 able stock, and giving them the authority of suing in the 
 name of their officers and other persons, sinular to those of 
 the associations formed under our act, no bodies corporate 
 were intended or supposed to l)e created.
 
 466 ELEMENTS OF FORMS OF ASSOCIATION 
 
 But, on this head of transfera])ihty, we need not rely 
 upon English authority in our own usages and decisions. 
 
 In the articles of the Merchants Bank Association, be- 
 fore our restraining act, a similar transferability of shares 
 was provided, and these articles have the authority of Alex- 
 ander Hamilton for their validity. I shall have occasion to 
 refer to them more fully hereafter. 
 
 So again, in the case of the Albany Exchange, before 
 it received its present charter, the validity of the partner- 
 ship or joint stock company for a public enterprise, with 
 transferable shares, was expressly recognized. By the Court 
 — CowEN, J. — "The objection taken on the argument, that 
 this association was illegal, as being in the nature of a cor- 
 poration, issuing scrip and providing for a transfer of stock, 
 is not well founded. The act of associating in this way is, 
 we think, properly characterized by the exception taken at 
 the trial. It constitutes a partnership valid, as being formed 
 for the purposes of a lawful, honest enterprise." Toivnscnd 
 V. Goeivey, 19 Wendell R. 427. The learned judge then 
 refers to, and adopts the authority of Collyer on Partner- 
 ships, p. 624, and the cases he cites. 
 
 Again, this transferability may be found in many sorts 
 of trusts. A well-known instance of this may be seen in the 
 Tontine of New York, originally built for the purposes of 
 a Merchants' Exchange. It is a trust of real estate, with 
 transferable shares as personal property; it was originally 
 settled by the most eminent counsel of this state, and its 
 validity has been attested by nearly fifty years experience, 
 during which, above two hundred shares have passed through 
 courts, assignments, insolvencies, I^ankrupt commissions, dis- 
 tributions of estates, &c., without their legal transferability 
 having ever been impeached. See printed articles of the Ton- 
 tine, N. v., 1793. 
 
 In both of these last examples, as in other instances of 
 trusts and partnershi])s, lands were held exem])t by operation 
 of law from the legal incidents of joint tenancy, or tenancy in 
 common, and the estate continued for the common purposes.
 
 THOMAS V. DAKIX— WARXER v. BEERS 467 
 
 This has been noted as a mark of corporate character; yet 
 most corporations are Hmited in the extent of its exercise, 
 some are expressly excluded from the privilege, and very 
 many exist legally without its actual exercise or enjoynient. 
 
 The non dissolution by death or by legal disability, is 
 also noted in the opinion of the supreme court in these cases 
 as a mark of a corporate body. But that also may be found 
 in the trusts just mentioned, and others of a similar nature, 
 and it may be adopted as an article of ordinary partnership. 
 It is the settled law of England, that it may be stipulated that 
 death shall not dissolve the partnership, and further, that the 
 executors of the deceased shall become partners. Collycr on 
 Part. p. 5, 648. Pease v. Chamberlain, 2 Vesey R. t^t,. Hag- 
 genuaii v. Spears, 7. Pick. R. 235. JJ^re.vJiain v. Huddleton, 
 I Swanst. 514. 
 
 Again : a common name has been regarded as a cor- 
 porate criteri(^n. To this Lord Ellenl)orough gives a full 
 answer in Rex v. JVehb. "As to the fourth point, that the 
 subscribers have presumed to act as if they were a body 
 corporate — how is this made out? It was urged that they 
 assumed a common name, that they have a committee, &c. 
 But are these the unequivocal evidence and characteristics 
 of a corporation? How many unincorporated assurance 
 companies and other descriptions of persons are there that 
 use a common name, and have their committees, general 
 meetings and by-laws? Are these all illegal? or which of 
 these particulars can be stated as being of itself the distinc- 
 tive and peculiar criterion of a corporation?" Thence he 
 infers, that "these suljscribers have not acted peculiarlv as a 
 body corporate." Rex v. Webb, 14 East's R. 406. 
 
 But, perhaps, in a general and popular understanding, 
 the most familiar distinction between corporate bodies and 
 common partnerships, or other joint undertakings, is the 
 exemption of the associates from personal liability beyond 
 the actual amount of their respective proportions of the cap- 
 ital. The regarding this very frequent and important inci- 
 dent of a corporation as an essential characteristic, seems
 
 468 ELEMENTS OF FORMS OF ASSOCIATION 
 
 not to be confined to popular opinion. Judge Cowen says, 
 in the decision of the cases now before us : "Among other 
 peculiar privileges conferred on these associations, and not 
 enjoyed by natural persons, I allude to that of the exemption 
 of members from personal liability for debt. This is men- 
 tioned by Angell & Ames, in their treatise, as peculiar to 
 a private corporation ; they notice it as a striking character- 
 istic between a corporation and a partnership." Yet our 
 own statute of limited partnerships affords sufficient evidence 
 that an alteration of the existing law may be made by statute, 
 so as to exempt from personal liability beyond the stipulated 
 share in the joint funds, for the debts, of a firm, without the 
 remotest thought of converting such firms into bodies cor- 
 porate. Besides, the right of making a contract, whereby 
 those who tender it stipulate not to be bound beyond the 
 amount of some specific pledged fund, must be a natural 
 right growing out of the very nature of contracts. If 
 a company or association, or an individual, offers to 
 contract to make certain payments only to the amount of 
 certain specific funds, and others choose to accept that 
 contract on those conditions, there can be nothing to 
 prevent the validity of such a contract, except some positive 
 rule of law founded on policy or an arbitrary enactment. In 
 the absence of such a restriction, it is and must be good. 
 Such a limitation, then, must be binding on all who accept 
 the conditions. The policy of our law and the usages of bus- 
 iness have, indeed, rightly fixed the presumption the other 
 way, so that the stipulation and the burden of proof of the 
 limited indebtedness are thrown upon those who expect to 
 be benefitted by them. This right has been substantially ad- 
 mitted by the highest triljunal in Great Britain, in the case of 
 Minnct v. Whinncry, 3 Brown's Pari. Cas. 323, and it was 
 held to be good by Lord Ellenborough, in Aldcrson v. Clay, 
 I Camp. 404. The doctrine has been received as settled law 
 bv one of the best elementary writers of the day, often cited 
 by our own supreme court. "When a creditor," says CoUycr 
 on Partnership, 214, "has notice, that by an arrangement
 
 THOMAS 7: DAKIN— WARNER 7: BEERS 469 
 
 between partners, one of them, though appearing to the world 
 as a partner, shall not participate in the loss, and shall not be 
 liable for it, the creditor will be bound by the arrangement." 
 
 The original articles of the Merchants' Bank, in the 
 city of New York, as an unincorporated association, with 
 limited liability, as well as transferable shares, which were 
 read in argument by Mr. Kent, have the great professional 
 authority of Alexander Hamilton, who prepared them, and 
 of the many eminent men who joined in them, and whose 
 professional distinction gives to their approbation the char- 
 acter of a sort of judicial sanction ; whilst the restraining act 
 passed soon after, proves, as was unanswerably argued, that 
 the legislature and its legal advisers considered such a volun- 
 tary association, thus restraining its own liability, not as a 
 violation of common law, but merely as contradicting the 
 financial policy of the state. 
 
 A similar analysis of such of the customary accessary 
 powers of specially chartered moneyed corporations, as from 
 being most conducive to ends of profit or convenience are 
 ordinarily considered as the essential qualities constituting 
 corporations, will show, that all such powers or incidents 
 are merely convenient and desirable authorities or modes of 
 action, added to and engrafted upon the creation of a body 
 politic; not the legal attributes absolutely essential to a cor- 
 poration, and denoting its existence as such. 
 
 Amongst us, as in England, bodies politic or corporate 
 may exist where the ultimate personal liability is still re- 
 tained. The personal liability is indeed suspended in such 
 cases, and for a time merged in that of the artificial corporate 
 person ; but there may l)e an ulterior recourse to the corpo- 
 rators when the former fails. Many corporate banks in other 
 states are so constituted, and with us some chartered com- 
 panies for insurance, &c., some for an indefinite, others to 
 a limited extent beyond the capital. Corporate bodies may 
 exist also without transferability of the rights of the corpora- 
 tors; for a large majority of our literary and charitable, as 
 well as all our municipal corporations, are so. On the other
 
 470 ELEMENTS OF FORMS OF ASSOCIATION 
 
 liand, l)y oiir own common law as it would exist now, inde- 
 pendently of statutory restrictions, associations might be 
 formed and trusts created, having every one of the above 
 enumerated characteristics, which have been insisted upon 
 as essential to a corporation, except that personality which 
 I before stated as forming its strict and necessary essential 
 legal definition. The present joint stock companies of Eng- 
 land afford pregnant examples, showing how many of these 
 attributes may be embodied in voluntary associations which 
 are confessedly not corporations. 
 
 In fact the line may be very faint, and depending wholly 
 upon the purely legal and technical character conferred, 
 whether a joint stock association or a trust, freed by law 
 from certain positive restraints imposed by our modern 
 statutes, be a corporation or not. The Tontine trust, before 
 mentioned, is managed by directors annually elected by 
 stockholders ; its real estate is held by trustees, continuing 
 their trust from hand to hand during the lives of the orig- 
 inal nominees and the survivors of them, with transferable 
 shares, and wholly without personal liability. For the rea- 
 sons already stated, the eminence of the counsel (the late 
 R. Harrison) who prepared the trust, and the frequency 
 with which its legal character must have passed in review 
 before lawyers and courts, and always without objection, it 
 may well be regarded as sanctioned judicially. It is a valid 
 trust. Add to it a legislative charter, making the associates 
 a body corporate and no more, what then is the effect ? Sim- 
 ply to give a different technical character, an artificial ijidi- 
 vidiiality, in Chief Justice Marshall's phrase, a different 
 mode of standing in courts. 
 
 Such was the actual history of the Albany Exchange. 
 It was a joint stock company, formally decided to be valid. 
 19 Wendell's R. 427. A year or two after (1837), it ap- 
 pears by our statute book to have been incorporated. But 
 there is probably but little difference, besides the greater 
 convenience of the corporate body, between the former or- 
 ganization and the present.
 
 THOMAS 7'. DAKIX— WARNER r. BEERS 471 
 
 The trusts specially permitted 1)y an act of last year, 
 Statutes of 1839, chap. 174, for the benefit of that singular 
 people called SJiakcrs, were nothing more than exemptions 
 from the recent restrictions of trusts. They were authorized 
 to continue, enlarge and manage their property, by trusts, 
 as they had done before the change in that title of our law 
 effected by the revised statutes. Had the law, in addition 
 to this, made every Shakers" United Society a body cor- 
 porate, without otherwise varying the original trust, the 
 only change would have been the conversion of a trust into 
 an artificial legal person, with the same effect substantially 
 as to the interests of those beneficially interested. 
 
 Our act for general religious corporations regulates 
 the incorporation of churches of all religious denominations 
 (other than those provided for in the first and second sec- 
 tions) by trustees, who are to be a body corporate. 
 
 Those who have had occasion to look into the mode 
 in which dissenting religious trusts are held in England, as 
 I presume they were, in the same manner, in New York 
 when a colony, will, I think, perceive that our statute adds 
 little more than a convenient corporate character to powers 
 elsewhere, and formerly here, exercised under trusts. 
 
 All these considerations lead me to the conviction, that 
 for the purpose of constitutional interpretation, we must 
 look to the strict legal meaning of the phrase body politic or 
 corporate, and not to those circumstances or adjuncts, which 
 amount only to descriptions of the manner in which such 
 bodies are very frec|uently constituted when used for pur- 
 poses of profit. If this be regarded as a very strict rule 
 of interpretation, let it also be remembered, that it is applied 
 where such strictness is most appropriate, in the interpreta- 
 tion of a provision, restraining the general sovereign power 
 of the state expressing the pul)lic will through a majority 
 of the people's representatives. 
 
 There is yet another rule of interpretation, which it is 
 proper to state bef(n-e proceeding to examine whether the
 
 472 ELEMENTS OF FORMS OF ASSOCIATION 
 
 associations organized under the banking laws are or are 
 not corporations. 
 
 Corporate rights are well defined by Chancellor Kent 
 and others to be "franchises or peculiar privileged grants," 
 of the nature of incorporeal property. Such franchises, 
 when they are granted for pecuniary or other purposes val- 
 uable to private interest, are of the nature of monopolies, 
 and are always granted exclusively by the sovereign power, 
 directly or indirectly. It is a well known fact admitted on 
 all sides, that it was part of the policy and intent of our 
 amended constitution, to prevent, by a constitutional and 
 fixed limitation of the legislative authority, the influence 
 of corruption or interest upon the legislature, as well as the 
 abuse of political favoritism, and the dangerous union of 
 political with pecuniary power. The clause so designed, 
 though so general in its terms as to include even academies 
 and village corporations, it is not doubted, referred in its- 
 policy wholly to the monopoly privileges of chartered cap- 
 ital, and especially to banks. 
 
 ■ Here then, in my view, arises another branch of in- 
 quiry; and the two distinct objects of examination are these : 
 I St. Do these banking associations fall within the right legal 
 definition of the words "bodies politic or corporate," as 
 before explained and established? 2d. Do they come within 
 the policy and intent of the framers of the constitution or 
 of the people who ratified it? 
 
 The most peculiar, and the strictly essential character- 
 istic of a corporate body, which makes it to be such, and not 
 some other thing in legal contemplation, is the merging of 
 the individuals composing the aggregate body into one dis- 
 tinct, artificial individual existence. Now this is not found 
 in the associations under the act. A corporation can sue and 
 be sued only by its corporate name. It can act only accord- 
 ing to the letter of the law creating it. "It derives all its 
 powers from that act," says Chief Justice Marshall, "and is 
 capable of exercising its faculties only in the manner which 
 that act authorizes." It has no natural powers which, in
 
 THOMAS V. DAKIN— WARNER v. BEERS 473 
 
 its discretion, it may exercise or not. It can exercise none 
 of those other powers, and possesses none of those other 
 rights which the individuals composing it could possess and 
 exercise, were it a mere society or partnership. Not so as 
 to these associations. By this act, suits on behalf of such 
 associations may be brought in the name of the president. 
 Persons having claims against the company, may maintain 
 their actions against the president. But there is no reason, 
 except that of mere convenience, why the association may 
 not also sue and be sued under their several real names, as 
 other partners may. This reason of convenience, it is ob- 
 vious, would not apply where the company was composed 
 of a few persons, as if, for example, one of our great bank- 
 ing firms were to come under the law. 
 
 It was indeed argued, that the technical construction 
 which gives to may the meaning of must or shall, applies 
 here. Biit that construction holds only when there is a pre- 
 vious duty, to which the statute adds some new power or 
 authority, as in the case of a public officer; or where from 
 other reasons it is manifest that (to use Judge Story's 
 words) "the legislature meant to impose an absolute duty, 
 not to give a discretionary power;" otherwise, as he says, 
 "the ordinary use of language must be presumed to be in- 
 tended, unless it would defeat the provisions of the act." i 
 Peters' R. 64. The ordinary popular discretionary sense of 
 the" word may, is also the ordinary legal one. The other 
 is the exception. In our revised statutes, the words may and 
 shall are so used and distinguished. So they are in our 
 annual legislation, as when it is said of a company, that it 
 may hold real estate, may take a certain rate of tolls, may 
 borrow money. 
 
 Moreover, here the right to sue and be sued as other 
 partners, is a common law right, and cannot be taken away 
 by mere implication. "A statute made in the affirmative, 
 without negative words," say the highest authorities, "does 
 not take away the common law." 2 Inst. 200. Sec also
 
 474 ELEMENTS OF FORMS OF ASSOCIATION 
 
 Dzvarris on Sfatiifcs, 637. and the authorities tJicrc referred 
 to. 
 
 To return : if the associations issue notes for circulation, 
 they must first comply with the express conditions of the 
 act as to the requisite security. So far as they deal with 
 the public as bankers, they must, for the common security, 
 comply with the requisition of the statute. But if such an 
 association were a body corporate, it could do nothing more 
 tlian the act permits, and that only in the manner the act 
 prescribes. In the words of our revised statutes (declara- 
 tory, as the revisers state, of the common law), "No cor- 
 poration shall possess or exercise any corporate powers (in 
 addition to those expressly given in the act under which it 
 is incorporated), except such as shall be necessary to the 
 exercise of the powers enumerated and given." In the per 
 curiam opinion of the supreme court of the United States, 
 4 Peters' R. 179, it is said that "a corporation is strictly lim- 
 ited to the exercise of powers specifically conferred, cannot 
 be denied." But here, the associates by their articles estab- 
 lish and form their own constitution, as any other voluntary 
 joint stock company may do. Nor can I discover any objec- 
 tion, other than such as the articles might present, or pru- 
 dence dictate, why the association, whilst as bankers com- 
 plying with the requisitions of the act, could not also 
 exercise their common legal rights as partners, in other com- 
 merce, waiving so far the advantages of exemption from 
 personal liability. So, too, it seems that waiving the trans- 
 ferability of shares, the same associates might also trade as 
 a limited partnership, with its president as the general part- 
 ner, and the others, special partners, in any business coming 
 within the statute on that subject. Some such union of 
 banking with other collateral business might well take place, 
 whenever such an association shall consist of a small but 
 wealthy firm. An association under this act might then 
 do what no corporation can do. The same association under 
 the same articles, might have one fund for its special bank-
 
 THOMAS V. DAKIN— WARNER v. BEERS 475 
 
 ing" purposes with a liimted liability of its owners, and an- 
 other for trade as general, or even as limited partners. 
 
 Again : these associations do not act by a corporate 
 name and seal, but by another mode familiar to our^law. 
 They can contract through their president, as a limited part- 
 nership must through its general partner. They are author- 
 ized to sue and be sued through him ; as Judge Cowen ob- 
 serves, "the power of the legislature to give a right of action 
 to one man in his own name for a debt due to another, has 
 always been exercised from our earliest legal history, and 
 it is now too late to call it in question." I refer to the 
 several legislative and judicial authorities which he has col- 
 lected in his opinion on these cases. They cannot hold real 
 estate as a corporation does, or contract concerning it by 
 their own name and common seal ; but, like partnerships, 
 they can have an equitable and beneficial interest in land. 
 Collyer, 70, 76. Their president takes as a trustee, and the 
 associates are but beneficiaries. 
 
 Similar interests in land are held in trust, as in the 
 New York Tontine and other old unincorporated associa- 
 tions ; and by the Shakers, on trusts established before the 
 statute restraining trusts, and since by means of a private 
 act, merely restoring the common law as respects them, by 
 taking them out of the operation of the statute. Much such 
 an interest in lands was also held by the Albany Exchange 
 Company before its incorporation, in 1837, and the decision 
 of our supreme court, in 19 Wendell, 424, admits its validity. 
 
 How then are these associations to be regarded in legal 
 contemplation ? 
 
 I assent fully to the conclusive reasoning of the counsel, 
 who chiefiy pressed this part of the argument (Mr. Kent), 
 that they are copartnerships relieved from the inhibitions of 
 the restraining act, and thus allowed to carry on banking 
 business under certain conditions. The policy of the state 
 has prohibitecT fts citizens from issuing paper for circulation 
 as money, or from associating together for certain banking 
 purposes, i R. S. 711. It reserved those privileges for
 
 476 ELEMENTS OF FORMS OF ASSOCIATION 
 
 corporate banks. The act to authorize the business of bank- 
 ing repealed that prohibition pro tanto, as to all individuals 
 or companies who would comply with its conditions. The 
 associations in question are partnerships complying with 
 those conditions, and thus exempted, as any other citizens 
 may be on the same terms, from the operation of a statutory 
 restraint of general right, which is still binding on all who 
 will not comply with the conditions. This is so far in close 
 analogy to the law of special partnership, where exemption 
 from the general liability imposed by the law is tendered 
 to all who comply strictly with the provisions of the statute. 
 The articles and certificate in this act correspond to the cer- 
 tificate setting forth the names of partners, amount of cap- 
 ital, time of termination and nature of business, required 
 by the title of "Limited Partnerships," i R. S. 764, and with 
 the articles which every such copartnership must have. The 
 general partner there is authorized to transact business and 
 contract for the rest ; so, though with less authority, is the 
 president here. The mode of sueing and being sued is pre- 
 cisely the same in both cases. 
 
 These partnerships are permitted to do what it has been 
 shown other partners may also do by voluntary act, in pro- 
 viding for the transferability of the shares of the stock, and 
 also against dissolution by death or insolvency. If they 
 choose to trade with a limited liability, always desirable when 
 the shares are numerous, they may do so in a somewhat 
 more commodious manner than in an ordinary limited part- 
 nership, though on the very same principles. This, too, has 
 been shown might also be done on common law principles 
 by means of due notice (as in the instance of the old Mer- 
 chants' Bank), without special legislation. If the associates 
 think fit to waive this exemption, they may do so, and they 
 are then a banking company, carrying on business precisely 
 as any firm might do upon a simple repeal of the restraining 
 act. Certain conditions are imposed to entitle them to the 
 benefit of this conditional repeal. They can issue no paper, 
 unless it be secured in a certain way and duly attested by
 
 THOMAS V. DAKIN— WARNER v. BEERS 477 
 
 the comptroller. The very same conditions are imposed on 
 every individual who thinks fit to engage in this business. 
 They are allowed to purchase real estate and hold it for cer- 
 tain partnership uses. So may ordinary partners. Cojcs v. 
 Coles, 15 Johns. R. 159. 2 Edw. Ch. R. 28. But the convey- 
 ance is to be made to the president, who has power to sell 
 or assign the same free from any claim against any of the 
 shareholders, or persons claiming under them. This is 
 rather a limitation than a grant of power. The associates 
 are limited to their president, or some other officer named 
 in their articles, instead of choosing such a trustee as they 
 might please at the time ; otherwise, it is with this slight 
 restriction a mode of holding real estate familiar to the for- 
 mer law of trusts here, still used in England, and for many 
 purposes yet allowed in this state. The president or other 
 officer may receive a conveyance, and may sell or assign the 
 lands so conveyed. Thus he holds the land in a trust, 
 coupled with a power of disposition, as it would be called in 
 England, or formerly here. This authority over the lands 
 is, in the language of our Revised Statutes, "a power in 
 trust," and the beneficial enjoyment of such a power is no 
 peculiar privilege. The association may sue and be sued, 
 just as other partners may; but as this would frequently be 
 of great public inconvenience, it is enacted for the mutual 
 benefit of the associates and of those with whom they may 
 litigate, that they may also sue and be sued in the name of 
 their president. A mere innovation in the mode of plead- 
 ing, as to certain classes of citizens, can hardly work any 
 change in the permanent legal character of those to whom 
 it applies. There are various English acts, within the last 
 twenty years, expressly giving the same powers to officers 
 or agents of partnerships in England and Ireland; a course 
 (^f legislation ai)proved by Lord Eldon, and still, in his view, 
 leaving such companies mere partnerships, i Russ. R. 460. 
 It is in effect doing in this act what had already been done 
 in the law of limited partnership, where it is enacted, that 
 "suits in relation to the business of the partnership may be
 
 478 ELEMENTS OF FORMS OF ASSOCIATION 
 
 brought by or against the general partner, in the same man- 
 ner as if there were no special partner." i R. S. 766, 
 Sec. 14. 
 
 Had there been a simple repeal of the restraining act, 
 so that limited partnershi])s could carry on this business, 
 there would have hardly been any necessity for the new pro- 
 vision. It is to be observed, that in both cases the statutes 
 say, may ( not shall ) sue and be sued, which is wholly diverse 
 from the case of corporate l)odies, which can only sue and 
 be sued in their single corporate legal personality. These, 
 then, are partnerships, or joint stock companies, limited as 
 to personal responsibility, if they so elect, as they might be 
 by the common law in one way, and by our limited partner- 
 ship act in another. They may, if they deem it expedient, 
 make their shares assignable and transferable to new part- 
 ners, and their company indissoluble by death or legal disa- 
 bility, of individuals, as other companies may also do. They 
 may have a beneficial interest in lands, managed by a power, 
 with the legal estate in a trustee. They may sue and be sued 
 in the name of the head of the firm, as limited partners also 
 may, and like them, are capable of suing and being sued in 
 the same manner as ordinary partners. Finally, they are 
 released from the restriction of the restraining act on certain 
 conditions being performed, and may then use their capital in 
 banking, as all other firms might, were that law wholly 
 repealed ; but it does not appear that they are absolutely re- 
 stricted to that one business and no other, as incorporated 
 banks are and must be, unless specially authorized to transact 
 other business. 
 
 If this view of their nature and character be correct, 
 they <liffer entirely in contemplation of law from the legal 
 corporate person, in which all individualities of its members 
 are merged, so far as they act together in this body, which 
 can perform only certain specific acts, sue or be sued but in 
 one way, grant, convey and covenant only in its own name 
 and by its common seal. 
 
 There is again yet another wide difference, which to
 
 THOMAS r. DAKIX— WARNER v. BEERS 479 
 
 my mind strongly marks the broatl distinction between these 
 associations, in which partnership rights and HabiHties are 
 still retained, and corporate bodies, where such prior joint 
 rights of the corporators are absorbed in the individuality 
 of the body which takes the place of the individuals who com- 
 pose it. Corporations formed under an act illegally passed, 
 or unconstitutional in itself, may be proceeded against by 
 quo warranto, and on judgment the body is ousted and alto- 
 gether excluded from its corporate rights, privileges and 
 franchises. 2 R. S. 583. The effect of this, where an act 
 is pronounced void, would be, that the corporation becomes 
 extinct, is abrogated, has no longer an existence in law. Now 
 let us suppose that this act may grant some corporate powers, 
 as the chancellor has intimated. I do not myself find them. 
 But we may suppose the transferability of shares, as insisted, 
 upon by our judges, to be a corporate power. An informa- 
 tion in the nature of a quo ivarrauto may be exhibited against 
 any association formed under the banking law, and on judg- 
 ment it is ousted of this or any other privilege, and excluded 
 from it as a franchise. Be it so. What is the result? The 
 association, debarred from this power, still remains a valid 
 company. The exemptions from the restraining law must 
 still be valid, for such a conditional exemption has nothing 
 in common with any question of corporate right. It would 
 still remain a voluntary joint stock company, carrying on 
 a legitimate business under articles of partnership, and with 
 limited liability (if the associates elect), very similar to 
 other limited partnerships in trade. It would still have its 
 common law and statute partnership rights and powers, 
 though inhibited from some one or two powers enumer- 
 ated in this act. It would still be what its name 
 purports, a valid association. This criterion affords 
 to my mind conclusive evidence of the wide difference be- 
 tween incorporated banks and banking associations, and I 
 cannot but add that it also seems to me conclusive as to the 
 validity of the act. If the legislature have in any provision 
 inad\-ertcntly stepped beyond their constitutional bounds,
 
 480 ELEMENTS OF FORMS OF ASSOCIATION 
 
 tliat pro\-ision may be \'oi(l. The main provisions of the law 
 are within the orchnary bounds and purposes of general leg- 
 islation, and the associations formed under them are legal 
 and valid, e\en should there be some power mentioned in 
 the act from which the judgment of a court may rightfully 
 exclude them. It therefore appears to me clear, that the 
 legislature of 1838 have succeeded in their obvious and in- 
 deed avowed intention to authorize voluntary associations, 
 not within the two-thirds restriction of the constitution, or 
 of the legal doubts that might arise, if they were permitted 
 to incorporate themselves under some general law. * * * 
 On the question being put. Shall these judgiiicnis be re- 
 versed? all the members of the court, with but a single ex- 
 ception (tzventy-three being present), voted in the negative. 
 Whereupon the judgments of the supreme court were af- 
 firmed. The court thereupon adopted the following resolu- 
 tions : 
 
 1. "Resolved, That the law entitled 'An act to authorize 
 "the business of banking,' passed i8th April, 1838, is valid, 
 "and was constitutionally enacted, although it may not have 
 "received the assent of two-thirds of the members elected 
 "to each branch of the legislature." This resolution was 
 adopted by a vote of 23 to i. 
 
 2. "Resolved, That the associations organized in con- 
 "formity with the provisions of the act entitled 'An act to 
 "authorize the business of banking,' passed April ist, 1838, 
 "are not bodies politic or corporate, within the spirit and 
 "meaning of the constitution." This resolution was adopted 
 by a vote of 22 to 3. 
 
 -In Tlic People V. Assessors of IVafertozcii, i Hill 616 (1841). the 
 question arose in the Supreme Court whether an assoeiation formed 
 under the act was lia1)le to taxation on its capital stock. Such an asso- 
 ciation, the Bank of Watertown, denied its liability on the ground that 
 it was not a corporation. 
 
 The Court held it was a corporation. Bronson, J. : "That they are 
 corporations, was adjudged by this court in the case of Tliomas v. Dalcin 
 (22 Wend. 9), and the like judgment between other parties has since 
 been affirmed in the Court for the Correction of Errors (JVarner v. 
 Beers, 23 Wendell, 103). I am aware that one or two members of the 
 court entertained some doubt upon this question, but they seem finally 
 to have settled down upon the conclusion, that although these banking
 
 THOMAS V. DAKIN— WARNER v. BEERS 481 
 
 companies may be corporations for all other purposes, yet they were not 
 so within the spirit and meaning of that clause of the Constitution 
 which requires a two-thirds vote for the creation of a body politic or 
 corporate. Mr. Senator Verplanck, who went further than any one else 
 towards denying their corporate capacity, concluded his opinion _with 
 the very cautious and guarded remark, that 'these associations under 
 the banking law do not rightly fall zcithin tlic true legal interpretation 
 of the restraining elaitse of the Constitution, and still less within its 
 spirit and design.' This is far enough from saying that the free banks, 
 as they are sometimes called, are not corporations to every intent and 
 purpose save that which relates to the mode of creating them." * * * 
 
 "A brief reference to some facts which do not appear in the case as 
 reported, will serve the double purpose of vindicating the court against 
 misconstructions of the resolution, and showing that the members who 
 voted for it were far enough from intending to affirm that these banks 
 are not corporations. On the day, or the day following the decision of 
 the Court for the Correction of Errors in the case of Warner v. Beers, 
 a resolution was offered by Mr. Senator Verplanck, affirming in direct 
 and unqualified terms that these associations, 'are not bodies politic or 
 corporafc.' Whether the mover was himself prepared to vote for such 
 a resolution, or whether it was only offered for the purpose of collecting 
 the sense of the members on the abstract proposition which it con- 
 tained, I am unable_ to say. But that such a resolution could not have 
 Ijcen passed, is, I think, quite clear. It was laid on the table by common 
 consent, and was not again taken up until thirteen or fourteen days 
 afterward. When the consideration of the resolution was again resumed, 
 it was innnediatcly amended by unanimous consent — the ipover himself, 
 as I believe, not objecting to that course — by adding the very significant 
 words, "within the spirit and meaning of the Constitution;' and in that 
 form it was adopted. Now, whatever may be inferred from simply 
 reading the resolution as it finally passed, the history which I have given 
 of its original form and subsequent progress, renders it impossible to 
 say, that any member who voted for the resolution intended to deny 
 that these associations are corporate bodies. In confirmation of this 
 remark, I may add the further fact, which does not appear by the report, 
 tliat tile Ciianccllor, who -fully agreed with this court in the opinion that 
 these l)anks were corporations, voted for the resolution as amended — 
 indeed, I lielicve the amendment was proposed by him, and for the 
 avowed purpose of meeting the views of those who agreed with him in 
 the opinion that the free banks, though corporations, were not such 
 within the intent and meaning of the Constitution." 
 
 On the question- whether associations formed under the act were 
 corporations he says : 
 
 "A corporation aggregate, is a collection of individuals united in 
 one body, under such a grant of privileges as secures a succession of 
 members without changing the identity of the body, and constitutes the 
 members for the time lieing one artificial person, or legal being, capable 
 of transacting some kind of business like a natural person. It does not 
 occur to my mind that anything else can be essential to the definition. 
 Such a union as I have mentioned, can only be effected under a grant of 
 privileges from the sovereign power of the State. A corporation is 
 therefore said to be a legal being, or the mere creature of law. It is 
 convenient, though not absolutely necessary, that this artificial person, 
 like a natural one, should have a name by which it may be known and 
 designated in the transaction of business. And when tlie doctrine was, 
 that a corporation could only contract Iiy its seal, a seal was said to be 
 an indispensable requisite. So, immortality was once thought to be an 
 attribute of all corporations; but that now means no more than a con- 
 tinued succession of members for such period, wliether long or short, 
 as may be allotted to this legal entity by its creator.
 
 482 ELEMENTS OF FORMS OF ASSOCIATIOX 
 
 "Xow, a banking association formed under the law of 1838. not only 
 may, but it must have a name : and a seal, though far from being essen- 
 tial to the existence of a corporation, is nevertheless an incident to the 
 grant of corporate privileges, though not mentioned in the grant. This 
 is not only so at the common law, but by the statute also (i R. S. 599, 
 Sec. i). The right to sue and be sued is expressly conferred on these 
 associations; and whether the suit is brought in the name by which the 
 company transacts its other business, or with the addition of the name of 
 its president, cannot be material. A corporation may have one name for 
 one purpose, and another name for another purpose. And besides, the 
 general banking law only provides, that action may — not that they sliall — 
 be brought in the name of, or against the president ; and the right to sue 
 and be sued, like that of having a common seal, is not only a common 
 law incident to the grant of corporate powers, but the Legislature has 
 expressly provided that this power shall vest in every corporation, 
 although not specified in the act under which it shall be incorporated 
 (i R. S. 599, Sees. I. 2). We have already held, more than once, that 
 these associations may sue or be sued in the same corporate name by 
 which their other business is transacted." 
 
 The question of the nature of associations organized under the 
 Act of 1838 came again before the Court for the Correction of Errors 
 in the case of Gilford v. Livingston, 2 Denio, 380 (1845). The following 
 resolution was adopted : "Resolved, That the judgment of the Supreme 
 Court is reversed on the ground that the decision of this court in the 
 case of Warner v. Beers, decided that the law entitled 'an act to author- 
 ize the business of banking,' passed April 18, 1838, is valid and was 
 constitutionally enacted, although it may not have received the assent of 
 two-thirds of the members elected to each branch of the Legislature ; 
 and that the decision in that case is conclusive." 
 
 Seven of the twenty-two judges voted in effect against this resolution. 
 There are two opinions reported, one by Chancellor Walworth in favor 
 of reversal on the ground that Warner v. Beers decided what Bronson, 
 J., said, in The People v. Assessors of Watertozcn, supra, that it did 
 decide, and one by Senator Hand, to the effect that the act was uncon- 
 stitutional because it had not been passed by a two-thirds vote, and the 
 associations formed under it were corporations.
 
 PEOPLE ex rei, WINXHESTER v. COLEMAN, et al. 483 
 
 THE PEOPLE, ex rcl, WINCHESTER v. COLEMAN, 
 a al., COALAHSSIONERS OF TAXES. 
 
 In the Court of Appeals, New York, 1892. 
 
 133 A'rti' ]'ork Apl^cals Reports, 279. 
 
 Appeal from order of the general term of the Su- 
 preme Court, in the first judicial department, made Feb- 
 ruary 13, 1891, which affirmed a judgment in favor of 
 plaintifif, entered upon a decision of the Court on trial at 
 Special Term, vacating an assessment.^ 
 
 Finch, J. : "fhe relator was taxed upon its capital on 
 the ground that it liad become a corporation within the 
 meaning of the provision of the Revised Statutes which 
 enacts that "all monied or stock corporations deriving an 
 income or i)r()fit from their capital or otherwise, shall be 
 liable to taxation on their capital in the manner herein- 
 after prescribed." ( 1 R. vS. title 4, chap. 13, part i.) The 
 company was formed as a joiwit stock company or associa- 
 tion in 1853 by a written agreement of eight indi\-iduals 
 with each other, the whole force and effect of which, in 
 constituting and creating the organization, rested upon the 
 common law rights of the individuals and their power to 
 contract with each other. l"he relation they assumed was 
 wholly the product of their mutual agreement and depend- 
 ent in no respect uixmi the grant or authority of the state. 
 It was entered into under no statutory license or permis- 
 sion, neither acce])ting nor designed to accept any franchise 
 from the sovereign, but founded wholly upon the individ- 
 ual rights of the associates to join their capital and enter- 
 prise in a relation similar to tliat of a partnership. A few 
 years earlier the legislature had explicitly recognized the 
 existence and validity of such organizations, founded upon 
 
 'The facts as stated by tlic Reporter are ablireviated. and his notes 
 of the arguments of counsel omitted.
 
 484 ELEMENTS OF FORMS OF ASSOCIATION 
 
 contract and evolved from the common law rights of the 
 citizens. (Laws of 1849, chap. 258.) That act provided 
 that any joint stock company or association, which con- 
 sisted of seven or more members, might sue or be sued in 
 the name of its president or treasurer, and with the same 
 force and effect, so far as the joint property and rights 
 were concerned, as if the suit should be prosecuted in the 
 names of the associates. But the act explicitly disclaimed 
 any purpose of converting the joint stock associations rec- 
 ognized as existing, into corporations by a section prohib- 
 iting any such construction. (Sec. 5.) In 1851 the 
 act was amended in its form and application, but in no re- 
 spect material to the present inquiry. There is no doubt, 
 therefore, that when the company was formed and went 
 into operation the law recognized a distinction and sub- 
 stantial difference between joint stock companies and cor- 
 porations and never confused one with the other, and that 
 the existing statute which taxed the capital of corpora- 
 tions had no reference to or operation upon joint stock 
 companies or associations. 
 
 But two things have since occurred. The legislature, 
 while steadily preserving the distinction of names, has with 
 equal persistence confused the things by obliterating sub- 
 stantial and characteristic marks of difference, until it is 
 now claimed that the joint stock associations have grown 
 into and become corporations by force of the continued be- 
 stowal upon them of corporate attributes. It is said, and 
 very probably correctly said, that the legislature may create 
 a corporation, without explicitly declaring it to be such, 
 by the bestowal of a corporate franchise or corporate attri- 
 butes, and the cases of banking associations are referred to 
 as instances of actual occurrence. {Thomas v. Dakin, 22 
 IVcnd. 9; Bank of Watcrtoivn v. IVatcrtown, 25 Id. 686; 
 People V. Niagara, 4 Hill, 20.) It is added that such re- 
 sult may happen even without the legislative intent, and 
 because the gift of corporate powers and attributes is tan- 
 tamount to a corporate creation. It is then asserted that
 
 PEOPLE ex rcl.. WIXXH ESTER i'. COLEMAX. ef a!. 485 
 
 a series of statutes, beginning with the act of 1849, ^^^s 
 ended in the gift to joint stock associations of every essen- 
 tial attribute possessed by and characteristic of corpora- 
 tions (Laws of 1853, chap. 153; Laws of 1854, chap. 245; 
 Laws of 1867, chap. 289) ; that the hues of distinction be- 
 tween the two, however far apart in the beginning, have 
 steadily converged until they have melted into each other 
 and become identical ; that every distinguishing mark and 
 characteristic has been obliterated, and no reason remains 
 why joint stock associations should not be in all respects 
 treated and regarded as corporations. 
 
 Some of this contention is true. The case of People 
 ex rel. Piatt v. IVemple (117 N. Y. 136), shows very 
 forcibly how almost the full measure of corporate attri- 
 butes has, by legislative enactment, been bestowed upon 
 joint stock associations, until the difference, if there be one. 
 is obscure, elusive and difficult to see and describe. And 
 yet the truth remains that all along the line of legislation 
 the distinctive names have been retained as indicative and 
 representative of a difference in the organizations them- 
 selves. As recently as the acts of 1880 and 1881, which 
 formed the subject of consideration in the Weinple case, 
 the legislature, dealing with the subject of taxation and 
 desiring to tax business and franchises, imposed the liabil- 
 ity upon "every corporation, joint stock company or asso- 
 ciation whatever now or hereafter incorporated or organ- 
 ized under any law of this state." It is significant that 
 the words "or organized" were inserted by amendment, 
 and evidently for the understood reason that joint stock 
 companies could not properly be said to be "incorporated," 
 but might be correctly described as "organized" under the 
 laws of the state. This persistent distinction in the lan- 
 guage of the statutes I should not be inclined to disregard 
 or treat as of no practical consequence, when seeking to 
 arrive at the true intent and proper construction of the 
 statute, even if I were unable to discover any practical or 
 substantial difference between the two classes of organiza-
 
 486 ELEMENTS OF FORMS OF ASSOCIATION 
 
 tions upon which it could rest, or out of which it grew, for 
 the distinction so seduonsly and persistently observed 
 would strongly indicate the legislative intent, and so the 
 correct construction. 
 
 But I think there was an original and inherent differ- 
 ence between the corporate and joint stock companies 
 known to our law which legislation has somewhat obscured, 
 but has not destroyed, and that difference is the one pointed 
 out by the learned counsel for the respondent, and which 
 impresses me as logical and well supported by authority. 
 It is that the creation of the corporation merges in the 
 artificial body and drowns in it the individual rights and 
 liabilities of the members, while the organization of a joint 
 stock company leaves the individual rights and liabilities 
 unimpaired and in full force. The idea was expressed in 
 Supervisors of Niagara v. People (7 Hill, 512), and in 
 Gifford V. Livingston (2 Den. 380), by the statement that 
 the corporators lost their individuality and merged their 
 individual characters into one artificial existence; and upon 
 these authorities a corporation is defined on behalf of the 
 respondents to l)e "an artificial person created by ,the sover- 
 eign from natural persons and in which artificial person 
 the natural persons of which it is composed become merged 
 and non-existent." I am conscious that legal definitions 
 invite and provoke criticism, because the instances are rare 
 in which they prove to be perfectly accurate ; and yet this 
 one offered to us may be accepted if it successfully bears 
 some sufficient test. In putting it on trial we may take the 
 nature of the individual liability of the corporators on the 
 one hand and of the associates on the other, for the debts 
 contracted ]jy their respective organizations, as a sufficient 
 test of the difference between them, and contrast their na- 
 ture and character. 
 
 It is an essential and inherent characteristic of a cor- 
 poration that it alone is primarily lial)le for its debts, be- 
 cause it alone contracts them, except as that natural and 
 necessary consecjuence of its creation is modified in the act
 
 PEOPLE ex rel.. WINCHESTER 7'. COLEMAN, ef al. 487 
 
 of its creation by some explicit command of the statute 
 which either imposes an express Habihty upon the corpora- 
 tors in the nature of a penahy, or affirmatively retains and 
 preserves what would have been the common law liability 
 of the members from the destruction involved in the cor- 
 porate creation. In other words, the individual liability of 
 the members, as it would have existed at common law, is 
 lost by their creation into a corporation, and exists there- 
 after only by force of the statute, upon some new and mod- 
 ifying conditions, to some partial or changed extent, and 
 so far preventing, by the intervention of an express com- 
 mand, the total destruction of individual liabilities which 
 otherwise would flow from the inherent effect of the cor- 
 porate creation. The penalties sometimes imposed are of 
 course new statutory liabilities which never at common law 
 rested upon the individual members. The retained liabil- 
 ity occasionally established is in the nature and a parcel of 
 such original liability, as we had occasion to show in Rogers 
 v. Decker (131 N. Y. 490), but is retained by force of the 
 express command of the statute and in that manner saved 
 from the destruction which otherwise would follow the 
 simple creation of the corporation. Ordinarily, these indi- 
 vidual liabilities exist upon other than common law condi- 
 tions, and make the corporators rather sureties or guaran- 
 tors of the corporation than original delators, since in gen- 
 eral their liability arises after the usual remedies against 
 the corporation have been exhausted. But where that is 
 not so, the invariable truth is that the creation of the cor- 
 poration necessarily destroys the common law liability of 
 the individual members for its debts, and requires at the 
 hands of the creating power an affirmative imposition of 
 new personal liabilities or a specific retention of old ones 
 from the destruction which would otherwise follow. Ex- 
 actly the opposite is true of joint stock companies. Their 
 formation destroys no part or portion oi their common 
 law liability for the debts contracted. Those debts are 
 their debts for which they must answer. Permission to
 
 488 ELEMENTS OF FORMS OF ASSOCIATION 
 
 sue their president or treasurer is only a convenient mode 
 of enforcing that habihty, but in no manner creates or 
 saves it. The statute of 1853 did interfere with it. That 
 act required in the first instance a suit against the presi- 
 dent or treasurer, and so a prehminary exhaustion of the 
 joint property. But tliat act was modal, and determined 
 the procedure. It suspended the common law right, but 
 recognized its existence. We so held in WifJicrhcad v. AHcji 
 (4 Abb. Ct. App. Dec. 628), and at the said time said that 
 the associations were not corporations but mere partner- 
 ship concerns. Even that mode of procedure has been mod- 
 ified by the Code (Sees. 1922, 1923), so that the creditor 
 at his option may sue the associates without bringing his 
 action against the president or treasurer. These last and 
 quite recent enactments show that the legislative intent is 
 still to preserve and not destroy the original difference be- 
 tween the two classes of organizations; to maintain in full 
 force the common law liability of associates and not to sub- 
 stitute for it that of corporators ; and preserving in contin- 
 ued operation that normal and distinctive difference, to 
 evince a plain purpose not to merge the two organizations 
 in one or destroy the boundaries which separate them. 
 That intent, once clearly ascertained, determines the con- 
 struction to be adopted, and may be the only reliable test 
 in view of the power of the state to clothe one organiza- 
 tion with all the attributes of the other. The drift of leg- 
 islation has been to lessen and obscure the original and 
 characteristic difference. On the one hand corporations 
 have been created with positive provisions retaining more 
 or less the individual liability of the members, and on the 
 other the joint stock companies have been clothed with 
 most of the corporate attributes. l)ut enough of the orig- 
 inal difference remains to show that our legislation, not 
 only carefully preserves the distinction of names, but suffi- 
 cient, also, of the original difference of character and qual- 
 ity to disclose a clear intent not to merge the two. 
 
 We may thus see upon what the legislative intent to
 
 PEOPLE ex rel., WINCHESTER v. COLEMAN, et al. 489 
 
 preserve them as separate and distinct is founded and what 
 distinguishing characteristics remain. The formation of 
 the one involves the merging and destruction of the com- 
 mon law Habihty of the members for the debts, and requires 
 the substitution of a new or retention of the old liability 
 by an affirmative enactment which avoids the inherent ef- 
 fect of the corporate creation ; in the other, the common 
 law liabihty remains unchanged and unimjiaired and need- 
 ing no statutory intervention to preserve or restore it; the 
 debt of the corporation is its debt and not that of its mem- 
 bers, the debt of the joint stock company is the debt of the 
 associates however enforced ; the creation of the corpora- 
 tion merges and drowns the liability of its corporators, the 
 creation of the stock company leaves unharmed and un- 
 changed the liability of the associates ; the one derives its 
 existence from the contract of individuals, the other from 
 the sovereignty of the state. The two are alike but not the 
 same. More or less, they crowd upon and overlap each 
 other, but without losing their identity, and so, while we 
 cannot say that the joint stock company is a corporation, 
 we can say as we did say in Van Aeniam v. Blcistcin (102 
 N. Y. 360), that a joint stock company is a partnership 
 with some of the powers of a corporation. Beyond that 
 we do not think it is our duty to go. 
 
 The order should be affirmed, with costs. All concur. 
 Order affirmed.
 
 490 ELEMENTS OF FORMS OF ASSOCIATION 
 
 LIVERPOOL INSURANCE CO. v. 
 MASSACHUSETTS. 
 
 In the Supreme Court of the United States, 1870. 
 
 yy United States Reports, 566. 
 
 Error to the Supreme Judicial Court of Massachu- 
 setts ; the case being this : 
 
 A statute of the State just named imposes upon "each 
 fire, marine, and fire and marine insurance company, incor- 
 porated or associated under the laws of any government or 
 State other than one of the United States, a tax of 4 per 
 cent, upon all premiums charged or received on contracts 
 made in this commonwealth for insurance of property." 
 Tiie same statute imposes a tax of but 2 per cent, upon such 
 premiums when the company is incorporated under the laws 
 of any one of the United States other than Massachusetts; 
 upon which premiums, where the company is incorporated 
 by itself, it imposes but i per cent. ; while no tax is imposed 
 by the laws of the State upon the business of insurances 
 transacted by any natural persons citizens of the same. 
 
 With the enactment just mentioned on its statute book, 
 the State of Massachusetts, in 1868, filed a bill in its Su- 
 preme Judicial Court against the Liverpool and London 
 Life and Fire Insurance Company (a company doing a large 
 business in that State), to collect a tax of 4 per cent, on its 
 premiums upon contracts made in Massachusetts for insur- 
 ance of property, and to restrain the company from doing 
 further business till the tax was paid. The company set up 
 that it was not "incorporated" at all, but was an association, 
 under the laws of Great Britain, of natural persons, some 
 of whom were citizens and residents of the country just 
 named ; and some citizens and residents of the State of New 
 York ; formed for the purpose of conducting the business of 
 insurance under certain deeds of settlement, and having the
 
 LIVERPOOL INSURANCE CO. v. MASSACHUSETTS 491 
 
 legal character of a partnership ; that accordingly it could 
 not be taxed as a "company incorporated under the laws of 
 any government or State other than one of the United 
 States;" while, in so far as the discriminating tax of 4 per 
 cent, was sought to be laid against it as a company associ- 
 ated simply and not incorporated, it violated, in regard to 
 the members of the company who were subjects of Great 
 Britain, a provision in the treaty of 181 5, between that 
 counti-y and the United States, by which it is agreed that 
 the merchants and traders of each nation respectively shall 
 enjoy the most complete protection and security for their 
 commerce: and — in regard to the citizens of New York, 
 that provision in section 2, article 4, of the Federal Con- 
 stitution which secures to the citizens of each State all the 
 privileges and immunities of citizens in the several States. 
 
 The Supreme Judicial Court of Massachusetts gave a 
 decree against the company, and enjoined it from the fur- 
 ther prosecution of its business till the taxes found to be 
 due were paid. 
 
 The case was now brought to this court on the ground 
 that in its application to the company the statute of Massa- 
 chusetts was in conflict with the provision of the Constitu- 
 tion, which confers on Congress the right to regulate com- 
 merce with foreign nations and among the States, and with 
 that which secures to the citizens of each State all the privi- 
 leges and immunities of citizens in the several States.^ 
 
 Mr. Justice Miller delivered the opinion of the Court. 
 
 The case of Paul v. Jlrginia [8 Wallace, 168], de- 
 cided that the business of insurance, as ordinarily con- 
 ducted, was not commerce, and that a corporation of one 
 State, having an agency by which it conducted that business 
 in another State, was not engaged in commerce between the 
 States. 
 
 It was also held in that case that a corporation was not 
 a citizen within the meaning of that clause of the Consti- 
 
 ^ The facts of the case as stated by the Reporter have been abbrevi- 
 ated, and his notes of the arguments of counsel omitted.
 
 492 ELEMENTS OF FORMS OF ASSOCIATION 
 
 tution, which declares that the citizens of each State shall 
 be entitled to all the privileges and immnnities of citizens 
 in the several States, and that a corporation created by a 
 State could exercise none of the functions or privileges con- 
 ferred by its charter in any other State of the Union, ex- 
 cept by the comity and consent of the latter. 
 
 These propositions dispose of the case before us, if 
 plaintiff is a foreign corporation, and was, as such, con- 
 ducting business in the State of Massachusetts, and we pro- 
 ceed to inquire into its character in this regard. 
 
 The institution now known as the Liverpool and Lon- 
 don Life and Fire Insurance Company, doing an immense 
 business in England and in this country, was first organized 
 at Liverpool by what is there called a deed of settlement, 
 and would here be called articles of association. 
 
 It will be seen by reference to the powers of the asso- 
 ciation, as organized under the deed of settlement, legalized 
 and enlarged by the acts of Parliament, that it possesses 
 many, if not all, the attributes generally found in corpora- 
 tions for pecuniary profit which are deemed essential to 
 their corporate character. 
 
 1. It has a distinctive and artificial name by which it 
 can make contracts. 
 
 2. It has a statutory provision by which it can sue and 
 be sued in the name of one of its oificers as the representa- 
 tive of the whole body, which is bound by the judgment 
 rendered in such suit. 
 
 3. It has provision for perpetual succession by the 
 transfer and transmission of the shares of its capital stock, 
 whereby new members are introduced in place of those who 
 die or sell out. 
 
 4. Its existence as an entity apart from the sharehold- 
 ers is recognized by the act of Parliament which enables it 
 to sue its shareholders and be sued by them. * * * 
 
 To this view [that the association is a corporation] it 
 is objected that the association is nothing but a partnership, 
 because its members are liable individually for the debts of
 
 LIVERPOOL INSURANCE CO. z: MASSACHUSETTS 493 
 
 the company. But however the law on this subject may be 
 held in England, it is quite certain that the principle of per- 
 sonal liability of the shareholders attaches to a very large 
 proportion of the corporations of this country, and it is a 
 principle which has warm advocates for its universal appli- 
 cation when the organization is for pecuniary gain. 
 
 So also it is said that the fact that there is no provi- 
 sion either in the deed of settlement or the act of Parlia- 
 ment for the company suing or being sued in its artificial 
 name forbids the corporate idea. But we see no real dis- 
 tinction in this respect between an act of Parliament, which 
 authorized suits in the name of the Liverpool and London 
 Fire and Life Lisurance Company, and that which author- 
 ized suit against that company in the name of its principal 
 officer. If it can contract in the artificial name and sue and 
 be sued in the name of its officers on those contracts, it is in 
 effect the same, for process would have to be served on 
 some such officer even if the suit were in the artificial 
 name. 
 
 It is also urged that the several acts of Parliament we 
 have mentioned expressly declare that they shall not be held 
 to constitute the body a corporation. 
 
 But whatever may be the effect of such a declaration 
 in the courts of that country, it cannot alter the essential 
 nature of a corporation or prevent the courts of another 
 jurisdiction from inquiring into its true character, when- 
 ever that may come in issue. It appears to have been the 
 policy of the English law to attach certain consequences to 
 incorporated bodies, which rendered it desirable that such 
 associations as these should not become technically corpora- 
 tions. Among these, it would seem from the provisions of 
 these acts, is the exemption from individual liability of the 
 shareholder for the contracts of the corporation. Such lo- 
 cal policy can have no place here in determining whether 
 an association, whose powers are ascertained and its privi- 
 leges conferred by law, is an incorporated body. 
 
 The question before us is whether an association, such
 
 494 ELEMENTS OF FORMS OF ASSOCIATION 
 
 as the one we are considering, in attempting to carry on its 
 business in a manner wliich requires corporate powers un- 
 der legislative sanction, can claim, in a jurisdiction foreign 
 to the one which gave those powers, that it is only a part- 
 nership of individuals. 
 
 We have no hesitation in holding that, as the law of 
 corporations is understood in this country, the association 
 is a corporation, and that the law of Massachusetts, which 
 only permits it to exercise its corporate function in that 
 State on the condition of payment of a specific tax, is no 
 violation of the Federal Constitution or of any treaty pro- 
 tected by said Constitution. 
 
 Mr. Justice Bradley : 
 
 Whilst I agree in the result which the court has 
 reached, I differ from it on the question whether the com- 
 pany is a corporation. I think it is one of those special 
 partnerships which are called joint stock companies, well 
 known in England for nearly a century, and cannot main- 
 tain an action or be sued as a corporation in this country 
 without legislative aid. But as it is a company associated 
 under the laws of a foreign country, it comes within the 
 scope of the Massachusetts statute, and cannot claim ex- 
 emption from its operation for the causes alleged in that 
 behalf. It could not have been the intent of the treaty of 
 1815 to prevent the States from imposing taxes or license 
 laws upon either British corporations or joint stock com- 
 panies desiring to establish banking or insurance business 
 therein. And certainly these companies cannot be ex- 
 empted from such laws on the ground that citizens of other 
 States have chosen to take some of their shares. 
 
 Judgment affirmed. 
 
 I
 
 OAK RIDGE COAL CO. v. ROGERS 495 
 
 OAK RIDGE COAL CO. v. ROGERS. 
 In the Supreme Court of Pennsylvania^ 1884. 
 
 108 Pennsylvania Reports, 147. 
 
 Chief Justice Mercur:^ This action of trespass was 
 brought under Section i of the Act of 8th May, 1876: Pur. 
 Ami. Dig. 2000, pi. 9. The section consists of two parts. 
 The first part declares if any person or corporation shall 
 mine or dig out any coal, iron or other minerals, knowing 
 the same to be upon the lands of another person or corpora- 
 tion without the consent of the owner, the person or cor- 
 poration so offending shall be guilty of a misdemeanor, and 
 on conviction thereof shall be fined or imprisoned, as therein 
 provided. The other part proceeds: "And the person or 
 corporation so offending shall be further liable to pay to 
 such owner double the value of said coal, iron or other ma- 
 terials so mined, dug out or removed, or in case of the con- 
 version of the same to the use of such offender or offenders, 
 treljle the value thereof, to be recovered, with costs of suit, 
 by action of trespass or trover, as the case may be ; and no 
 prosecution by indictment under this Act shall be a bar to 
 such action." 
 
 Theclaim was for both double and treble damages, under 
 the second portion of the section. No question therefore 
 arises as to the character or degree of proof necessary to 
 convict on an indictment. 
 
 The plaintiff in error contends that it is neither a per- 
 son nor a corporation within the meaning of the Act of 1876, 
 and therefore not subject to the penalties and liabilities pre- 
 scribed thereby. The fact relied on to support this view is 
 
 * The Reporter's statement of the facts of the case, and his notes of 
 the argument of counsel are omitted. Only so much of the opinion is 
 reprinted as relates to the nature of a limited partnership under the 
 Act of June 2nd, 1874.
 
 496 ELEMENTS OF FORMS OF ASSOCIATION 
 
 that it is an association formed under the Act of 2d June, 
 1874, which provides for the formation of hmited partner- 
 ships. 
 
 Such an association is not technically a corporation. 
 Yet it has many of the characteristics of one. It can sue and 
 he sued in its association name only. The longest period of its 
 duration is fixed l)y the Act which provides for its existence. 
 Like most corporations its capital (except in certain cases 
 designated by the Act ) is alone liable for its debts. The 
 making of any division of profits which shall at the time 
 diminish or impair the capital of the association is prohib- 
 ited, and a personal liability is imposed on any manager 
 consenting thereto. The omission to use the word "limited" 
 may make each person participating therein personally liable 
 for any indebtedness arising on writings executed and used 
 in the transaction of its business. The Act further provides 
 for a dissolution of the association, for w-inding up its bus- 
 iness, and for the distribution of its property. It may not 
 be improper to call such an association a quasi corporation. 
 If not a corporation, it is a person. It is either a natural or 
 an artificial person. There is no intermediate place for it 
 to occupy, no other n.ame for it to bear. It cannot claim 
 an existence which exempts it from all liabilities imposed on 
 either class of persons. In law the main division of persons 
 is between natural and artificial persons. The latter class 
 are corporations. Hence it is said in Sedgwick on Statutes, 
 372, the word '.'persons" includes artificial persons, corpora- 
 tions and quasi corporations. So it is declared in Potter's 
 Dzvarris, 283, that although parishes are neither bodies pol- 
 itic nor corporate or persons, yet the words every body pol- 
 itic or corporate, and person or persons, extend to and in- 
 cludes parishes. 
 
 The argument of the plaintiff in error, if sound, proves 
 too much. If it is neither a person nor a corporation, for 
 purposes of liability under the Act of 1876, it is not under 
 the Act for the purpose of protecting its ow'n property and 
 for the recovery of damages for injury done thereto. The
 
 OAK RIDGE COAL CO. v. ROGERS 497 
 
 same language applied to the wrongdoer applies to the party 
 injured. It is if "any person or corporation" shall commit 
 the illegal acts named "upon the lands of another person or 
 corporation." 
 
 It cannot be that this statute has no application to such 
 an association. We are clearly of the opinion that the lan- 
 guage is sufficiently broad to subject it to the penalties 
 therein imposed, and to give it the rights thereby secured. 
 
 Judgment affirmed.
 
 498 ELEMENTS OF FORMS OF ASSOCIATION 
 
 EDWARDS z: WARREN LINOLINE AND GASOLINE 
 
 WORKS. 
 
 In the Supreme Judicial Court of Massachusetts, 
 
 1897. 
 
 168 Massachusetts Reports, 564. 
 
 Trustee process. The principal defendant was de- 
 scribed in the writ as "a joint stock company organized un- 
 der the laws of Pennsylvania." The trustee, which was a 
 Massachusetts corporation, filed an answer setting forth 
 reasons why it should not be charged, and to interrogatories 
 propounded by the plaintiff, made answers, the nature of 
 which appears in the opinion. The trustee moved that it be 
 discharged. The Superior Court allowed the motion, dis- 
 charged the trustee with costs, and dismissed the action ; 
 and the plaintiff appealed to this court. 
 
 The case was argued at the bar in November, 1896, 
 and afterwards was submitted on briefs to all the justices. 
 
 Lathrop, J. : It is conceded by the plaintiff, that, as the 
 jurisdiction of the court depends upon charging the Wal- 
 worth Manufacturing Company as trustee, inasnuich as 
 there was no service upon the principal defendant, the action 
 was properly dismissed upon discharging the trustee. 
 
 The question then is whether the trustee was properly 
 discharged, and this depends upon whether the principal de- 
 fendant, an association formed under the laws of the State 
 of Pennsylvania, is a partnership or a corporation. 
 
 The trustee's answers to interrogatories refer to Bright- 
 ly s Piirdons Digest (12th ed. ), 1086-1088, and to the cases 
 of Eliot V. Himrod, 108 Penn. St. 569, and Shcblc v. Strong, 
 128 Penn. St. 315, as containing the law relative to the 
 statement in the answer, that the principal defendant was 
 a partnership, and not a corporation. 
 
 From the Digest it appears that such an associaticMi is
 
 EDWARDS z'. WARREN LINOLINE, &c., WORKS 499 
 
 styled a "partnership association," and not a corporation. 
 By the terms of tiie various acts which have been passed 
 upon the subject, such an association may be formed by 
 three or more persons. The capital is alone to be liable^for 
 the debts. There is no personal liability of the members, 
 except to the extent of any unpaid subscription, if certain 
 provisions of the act are complied with. "Interests in such 
 partnership associations" are declared to be personal estate, 
 and are transferable, under such rules and regulations as 
 shall from time to time be prescribed; but if there are no 
 such rules and regulations, the transferee of any interest in 
 any such association is not entitled to any participation in the 
 subsequent business of the association, unless elected to mem- 
 bership therein by a vote of the majority of the members 
 in number and value of their interests. The business is to 
 be conducted by a board of managers. The duration of the 
 association may be fixed by the articles of association, but 
 is not to exceed twenty years. 
 
 Power to adopt and use a common seal is given in case 
 the association has occasion to execute a deed of conveyance 
 or 1)onds and mortgages. Land sold to the association, or 
 by it, is required to be conveyed in the name of the associa- 
 tion. It is further provided: "Said association shall sue 
 and be sued in their association name ; and when suit is 
 brought against any such association, service thereof shall 
 be macle upon the chairman, secretary, or treasurer thereof ; 
 which service shall be as complete and eifective as if made 
 upon each and every meml)er of such association." 
 
 In Eliot V. Hiuirod, io8 Penn. St. 569, 580, it is said 
 by Mr. Justice Trunkey, in delivering the opinion of the 
 court : "The formation of a limited partnership association 
 is materially different from the creation of a corporation. 
 Such association is treated in the statute as a partnership 
 which, upon the perf(M-mance of certain acts, shall possess 
 specified rights and immunities. In contemplation that the 
 association may consist of man}^ members, for con\^enience 
 it is clothed with many of the features and powers of a cor-
 
 SnO ELEMENTS OF FORMS OF ASSOCIATION 
 
 poration, such as the right to sue and he sued, grant and re- 
 ceive, in the association name. But no man can purchase 
 the interest of a member and participate in the subsequent 
 business, unless by a vote of a majority of the members in 
 number and value of their interests. No charter is granted 
 to the persons who record their statement." Shcblc v. 
 Strong, 128 Penn. St. 315, 318, is to the same effect. 
 
 If the question presented were an open one in this Com- 
 monwealth, it might well be held that such an association 
 could be considered to have so many of the characteristics of 
 a corporation that it might be treated as one. 
 
 At common law, a joint stock company formed for bus- 
 iness purposes is considered in this Commonwealth merely 
 as a partnership. Tappan v. Bailey, 4 Met. 529. Tyrrell v. 
 Washburn', 6 Allen, 466. 
 
 The same rule has been applied to joint stock associa- 
 tions formed under the laws of the State of New York, 
 which do not differ, in any essential respect, from the laws 
 of Pennsylvania. Taft v. Ward, 106 Mass. 518, and 11 1 
 Mass. 518. Boihvell v. Eastman, 106 Mass. 525, 526. Gott 
 V. Dinsnwre, iii Mass. 45, 51. Boston & Albany Railroad 
 V. Pearson, 128 Mass. 445. See also Frost v. Walker, 60 
 Maine, 468; Dinsniorc v Philadelphia & Reading Railroad, 
 32 Leg. Int. 388, 1 1 Phila. 483. 
 
 In Taft V. Ward, 106 Mass. 518, 524, speaking of the 
 New York statutes, it was said by Chief Justice Chapman : 
 
 "These statutes provide, in substance, that any associa- 
 tion, consisting of seven or more shareholders or associates, 
 may sue and be sued in the name of the president or treas- 
 urer; that in such suit a judgment may be rendered against 
 the company ; and until an execution is issued against the 
 company, and returned unsatisfied, no action shall be main- 
 tained against individuals. These statutes seem to apply to 
 all copartnerships consisting of seven or more members. The 
 members of such companies are authorized to hold their in- 
 terests in shares, which are assignable like shares of stock 
 in a corporation, and the action against the members is re-
 
 EDWARDS 7: WARREN LINOLINE, S:c., WORKS 501 
 
 garded as supplementary to the action against the company. 
 VVatcrhury v. Mcrclianfs' Union Express Co. 50 Barb. 157. 
 Robbins v. Wells, 1 Robertson, 666. 
 
 "So far as these statutes relate to the procedure in 
 courts for the recovery of debts, they are limited to the 
 State of New York ; for each State adopts its own forms 
 of remedy. Story, Coiifl. Lazvs, Sees. 556-558. The plain- 
 tiff could not in this Commonwealth bring an action against 
 the president or secretary, and obtain a judgment against 
 the company by its name ; nor could he ])ring an action 
 against the members, or any of them, as a supplement to 
 such an action. In order to do so, we must hold that the 
 statutes of New York prescribing forms of action are in 
 force here. In this Commonwealth, such a company is a 
 mere copartnership." 
 
 There is nothing inconsistent with an association being 
 a partnership that it has shares, or that the shares are trans- 
 ferable, or that the death of a member shall not work a dis- 
 solution of the partnership. Phillips v. Blatchford, 137 
 Mass. 510. See also Hoadlcy v. County Commissioners, 105 
 Mass. 519; Gleason v. McKay, 134 Mass. 419. 
 
 The case mostly relied upon by the plaintiff is Liver- 
 pool Ins. Co. V. Mossachusetts, 10 Wall. 566, which was 
 taken to the Supreme Court of the United States on a writ 
 of error from this court. * * * ^ 
 
 This view of Mr. Justice Bradley is in accord with 
 the view of this court, and we are not aware that the view 
 taken by the Supreme Court of the United States has been 
 followed in this Commonwealth. The decisions which we 
 have already cited show that a foreign joint stock companv 
 is considered as an association or partnership, and not as a 
 corporation. 
 
 An examination of the statutes further shows that the 
 Legislature has clearly recognized the distinction between 
 foreign corporations and associations ; and that where it has 
 
 'Judge Lathrop's recital of the facts of this case is omitted. See 
 supra, page 498.
 
 502 ELEMENTS OF FORMS OF ASSOCIATION 
 
 deemed it Ijest that an act should apply to an association as 
 well as to a corporation, it has said so in plain language. 
 Thus the St. of 1882, c. 106, relating to the taxation of for- 
 eign mining, quarrying, and oil companies, and recjuiring 
 the appointment of an agent here upon whom process may 
 be served, uses the language, "every corporation, company, 
 or association." 
 
 The St. of 1887, c. 214, in Sec. i provides: "When 
 consistent with the context, and not obviously used in a dif- 
 ferent sense, the term 'company' or 'insurance company' as 
 used herein includes all corporations, associations, partner- 
 ships, or individuals engaged as principals in the business of 
 insurance." The language is the same in the St. of 1894, 
 c. 522, Sec. I. 
 
 By the St. of 1888, c. 429, Sec. 11, "fraternal benefic- 
 iary corporations, associations, or societies," organized under 
 the laws of another State and then doing business here, were 
 allowed to continue business without incorporation under 
 the act. But by the St. of 1892, c. 40, Sec. i, this was 
 amended by striking out the words "associations or soci- 
 eties." 
 
 The St. of 1884, c. 330, recjuires "Every corporation 
 established under the laws of any other State or foreign 
 country," and hereafter having a usual place of business 
 here, before doing business, to appoint in writing the com- 
 missioner of corporations, or his successor in office, to be its 
 true and lawful attorney, upon whom process might be 
 served. 
 
 The St. of 1888, c. 321, allows "Manufacturing cor- 
 porations established under the laws of other States," which 
 have complied with the provisions of the St. of 1884, c. 330, 
 to purchase and hold such real estate here as may be neces- 
 sary for conducting their business. 
 
 By the St. of 1895, c. 311, "Foreign corporations en- 
 gaged in the l)usiness of selling or negotiating bonds, mort- 
 gages, notes, or other choses in action," are made subject to 
 the provisions of the St. of 1884, c. 330. 
 
 I
 
 EDWARDS r. WARREN LIXOLINE, &c., WORKS 503 
 
 The St. of 1896, c. 391, Sec. i, contains a provision re- 
 lating to the personal liability, under certain circumstances, 
 of "the officers and members or stockholders in any corpo- 
 ration established under the laws of any other State or for- 
 eign country." See also St. 1895, ^- i57- 
 
 Many other instances of legislation might be given 
 where the distinction between a corporation proper and a 
 mere association or organization is shown to be clearly in 
 mind. 
 
 Unless the principal defendant can be considered a cor- 
 poration, it cannot be sued here under the name which the 
 laws of Pennsylvania authorize it to use. Such laws have no 
 extra-territorial force or effect. The trustee, therefore, was 
 properly discharged. 
 
 In the opinion of a majority of the court, the order dis- 
 charging the trustee and dismissing the action must be 
 affirmed.
 
 CHAPTER IX 
 
 NATURE OF THE INTERESTS OF THE AS- 
 SOCIATES IN THE COMMON PROPERTY. 
 
 SECTION I.— PARTNERSHIP CASES. 
 
 DARBY 7'. DARBY. 
 
 In the High Court of Chancery, 1856, before Vice- 
 Chancellor Kindersley. 
 
 3 Drczvry's Reports, 495. 
 
 Alfred Darby, the father of the three infant Defend- 
 ants, died intestate. A. E. W. Darby, the first Defendant 
 on the record, was his only son and heir-at-law. The De- 
 fendants A. M. Darby and A. L. Darby were his two daugh- 
 ters and only other children. 
 
 This bill was filed by the administratrix of Alfred 
 Darby for the administration of his estate, and the principal 
 cjuestion was, what was the course of devolution of certain 
 real estate belonging to Alfred Darby. 
 
 The state of facts was rather intricate as set out in the 
 bill, but the substance of them, as regards the question to 
 be decided, was this: — Alfred Darby and Abraham Darby, 
 the last Defendant named, who were brothers, had embarked 
 in a joint speculation as partners in the purchase of divers 
 real estates, for which they had jointly paid or rendered 
 themselves liable. The arrangement between tliem was, that 
 these lands were bought for the purpose of converting them 
 into building sites in plots, and reselling them at a profit. 
 Portions of some of them were so built upon, and the ground 
 and buildings sold. As to some of them, the legal estate had 
 l)een l)y arrangement conveyed to Alfred Darby, and a large 
 
 (504)
 
 DARBY V. DARBY 505 
 
 portion at the death of Alfred Darby remained unsold. 
 There was a memorandum between the Darbys and certain 
 other persons who were their agents for the sale of the prop- 
 erty, but it did not amount to a clear declaration of partner- 
 ship, and it did not appear that there was any actual deed or 
 written instrument or partnership between the Messrs. 
 Darby; but it was admitted that, in fact, their arrangement 
 and course of dealing amounted to this, — that it was a joint 
 speculation ; that they purchased the lands with their joint 
 monies ; and that they purchased them for the purpose of 
 laying them out in building plots, to be resold for their joint 
 profit and at their joint loss ; and that they did deal with 
 them to some extent on the footing of that arrangement. 
 The principal cjuestion, and the only one which this report 
 embraces, was, whether, on the death of Alfred Darby, his 
 share of the unrealised real estate descended to his heir-at- 
 law A. E. W. Darby, or whether it passed as personal estate 
 to his personal representative.^ 
 
 Vice-Chancellor : The question has generally arisen 
 where persons, carrying on an ordinary commercial or mer- 
 cantile partnership, had purchased real estate for the pur- 
 pose of their trade. I have carefully considered the author- 
 ities on the subject, and the result of them appears to be 
 this: — in Thornton v. Dixon [3 Br. C. C. 199] Lord Thur- 
 low said, that he had always understood that where partners 
 bought lands for the purpose of a partnership concern it 
 was to be considered part of the partnership fund, and conse- 
 quently must be considered as personalty, and distributable as 
 such ; but afterwards, the case having been further argued, 
 his Lordship said, that if the agreement had been that the 
 land should be valued and sold, it would have converted it 
 into personalty ; but that the agreement in the case before 
 him was not sufficient to vary the nature of the property ; 
 therefore that, after the dissolution, the property would re- 
 sult according to its respective nature, the real as real, the 
 
 ' The Reporter's notes of the argument of counsel are omitted.
 
 506 NATURE OF THE* ASSOCIATES' INTERESTS 
 
 personal as personal estate. In Bell v. Phyn [7. Ves, 453], 
 and Baliiiain v. Shore [9 Ves. 500], Sir W. Grant decided 
 simply on the authority, of Thornton v. Dixon. Lord Eldon 
 had the question suggested to him in several cases. In Rip- 
 Icy V. Waterworth [7 Ves. 425] the precise question did 
 not arise. In Tozvnscnd v. Dcvayncs [i Mont, on Partner- 
 ship, App. 97], Macintosh and three other persons entered 
 into partnership as paper makers, and purchased lands, on 
 which they carried on the business. The purchase-money as 
 to part was paid for out of the partnership capital, and part 
 was left on mortgage of the land. The value of the premises 
 was treated as part of the partnership stock and capital in 
 stating the yearly balances of the partnership. Macintosh 
 having died, his executors sold his interest in the partnership 
 to the surviving partners. His heir claimed so much as 
 was the value of his share of the real estate. The Master 
 reported in favour of the heir's claim, and Lord Eldon al- 
 lowed an exception to the report. This would seem to be 
 an express decision on the point ; but in Mr. Jacob's notes to 
 Roper's Husband and Wife [i Rop. H. & W. 346, n.] it 
 is suggested that the decision turned on an instrument dis- 
 covered after the matter had been referred to the Master, 
 and that probably Lord Eldon's decision went on the 
 effect of that particular instrument. In a subsequent case 
 before Lord Eldon, "Sclkrig v. Davics [2 Dow. 230], the 
 question arose as to a Scotch partnership ; it does not follow 
 of course that the law of Scotland and England are the 
 same on this point; but in the course of the argument Lord 
 Eldon said his own individual opinion was, that all 
 property involved in a partnership concern ought to be con- 
 sidered as personal. In another Scotch case, Kirkpatrick v. 
 Sinic [5 Paterson's Scotch Appeal Cases, 525], the precise 
 point came before Lord Eldon on a Scotch partnership; and 
 he said, "As to all partnerships in England I think the rule 
 is, and the better rule of decision would be, to say that the 
 partners held the property as trustees for the creditors, and 
 that the whole became personal estate. If the course of de- 
 
 I
 
 DARBY V. DARBY 507 
 
 cisions in this country had run uniformly to that effect, I 
 sliould have thought it right to say that the same rule of 
 law should prevail in Scotland. But if there have been cases 
 in England ruled differently, I could not advise that the 
 Courts in Scotland should adopt that which I consider the 
 best principle of law in such a case. Till the case decided 
 by Lord Thurlow the lawyers always considered the real 
 estate belonging to a partnership as personal in point of suc- 
 cession ; and we have always wished to get out of that case 
 of Lord Thurlow's." It is impossible that any thing can be 
 more clear and distinct than Lord Eldon's opinion as to 
 what the law ought to be, and that Lord Thurlow's decision 
 in Thornton v. Dixon could not be supported. 
 
 In Stuart v. Marquis of Bute [ 1 1 Ves., see p. 665] Lord 
 Eldon said, "In cases where persons engaged in partnership 
 have bought freehold houses, the difficulty of distinguishing 
 and arranging property of different natures, partly personal, 
 partly real, has never, except by the effect of the contract or 
 the will, been held sufficient against the heir." This dictum 
 at first sight seems to imply an assertion of the heir's title; 
 but I think Lord Eldon only meant to intimate, that when- 
 ever the heir w'as entitled, his title should not be prejudiced 
 by any difficulty that might arise in distinguishing the realty 
 from the personalty. In Crazvshay v. Maulc [i Swanst. 495] 
 Lord Eldon said, "It has been repeatedly decided that inter- 
 ests in lands, purchased for the purpose of carrying on trade, 
 are no more than stock-in-trade." And, on a subsequent 
 day, he said, "For ordinary purposes a lease is no more than 
 stock-in-trade, and, as part of the stock, may be sold; nor 
 would it be material that the estate purchased by a partner- 
 ship was freehold, if intended only as an article of stock; 
 though a question might in that case arise on the death of 
 a partner whether it would pass as real estate or as stock, 
 personal estate in enjoyment, though freehold in nature and 
 quality." These are the only cases in which the matter came 
 before Lord Eldon; and in three of them he expressed a 
 clear opinion that the law ought to be, that where partners
 
 5(18 XATTRE OF THE ASSOCIATES' INTERESTS 
 
 purchase land for partnershij) purposes, it should be treated 
 as personal property. 
 
 Tlien there are three cases before Sir J. Leach, and in 
 each of these cases he held, without any doubt, that the real 
 property became personalty, and that the personal represent- 
 atives of the deceased partner had the right to his share. The 
 first is Fcrcday v. Wightzvick [i Russ. & Myl. 45], and 
 there he says, "The general principle is, that all property 
 acquired for the purpose of a trading concern, whether it be 
 of a personal or real nature, is to be considered as partner- 
 ship property, and is to be first applied accordingly in satis- 
 faction of the demands of the partnership." Now the decision 
 in that case may be said to go only to the extent of determin- 
 ing that it is partnership property as among the partners. 
 But in Phillips v. Phillips [i Myl. & K. 649] Sir J. Leach 
 said, *T confess I have for some years, notwithstanding 
 older authorities, considered it to be settled that all property, 
 whatever might be its nature, purchased with partner- 
 ship capital for the purposes of the partnership trade, con- 
 tinued to be partnership capital, and to have to every intent 
 the quality of personal estate ; and, in the case of Fcrcday v. 
 Wightzvick, I had no intention to confine the principle to the 
 payment of partnership demands." 
 
 The third case, before Sir J. Leach, is Broiii v. Broui 
 [3 Myl. & K. 443], which was a decision to the same effect, 
 between the trustees and the personal representative of the 
 deceased partner. 
 
 There are also three cases before Sir. L. Shadwell. In 
 Randall v. Randall [7 Sim. 271] — [His Honor referred to 
 the facts of the case] — the Vice-Chancellor held that the 
 share of the deceased partner in real estate was not converted 
 into personalty. In Cookson v. Cookson [8 Sim. 529], the 
 Vice-Chancellor also held that the property in question, 
 which was freehold, remained freehold property ; but in the 
 last case before Sir L. Shadwell, of Houghton v. Houghton 
 [11 Sim. 491], he decided otherwise, and, from the judg- 
 ment in that case, it is evident that Sir L. Shadwell consid- 
 
 I
 
 DARBY V. DARBY 509 
 
 ered that if the facts were such that the real estate had be- 
 come parfncrshif) property, it would assume the nature and 
 character of personal estate. And I conceive that the reason 
 why he decided the two previous cases otherwise was. that 
 in those cases he did not consider that the property had 
 become partnership property. 
 
 The result, then, of the authorities may be thus stated : 
 — Lord Thurlow was of opinion that a special contract 
 was necessary to convert the land into personalty; and Sir 
 W. Grant followed that decision. Lord Eldon on more 
 than one occasion strongly expressed his opinion that Lord 
 Thurlow's decision was wrong. Sir J. Leach clearly de- 
 cided in three cases that there was conversion out and out ; 
 and Sir L. Shadwell, in the last case before him, clearly de- 
 cided in the same w'ay. That is the state of the authorities. 
 
 Now it appears to me that, irrespective of authority, 
 and looking at the matter with reference to principles w'ell 
 established in this Court, if partners purchase land merely 
 for the purpose of their trade, and pay for it out of the part- 
 nership property, that transaction makes the property per- 
 sonalty, and effects a conversion out and out. 
 
 What is the clear principle of this Court as to the law 
 of partnership? It is, that on the dissolution of the partner- 
 ship all the property belonging to the partnership shall be 
 sold, and the proceeds of the sale, after discharging all the part- 
 nership debts and liabilities, shall be divided among the part- 
 ners, according to their respective shares in the capital. That 
 is the general rule ; it requires no special stipulation ; it is 
 inherent in the very contract of partnership. That the rule 
 applies to all ordinary partnership property is beyond all 
 question, and no one partner has a right to insist that any 
 particular part or item of the partnership property shall re- 
 main unsold, and that he shall retain his ow'n share of it in 
 specie. This principle is clearly laid down by Lord Eldon 
 in Crazvsliay v. Collins [15 Ves. 218], and by Sir W. Grant 
 in Fcatherstonhaugh v. Fcnwick [17 Ves. 298], and the 
 right of each partner to insist on a sale of all the partnership
 
 510 NATURE OF THE ASSOCIATES' INTERESTS 
 
 property, which arises from what is implied in the contract 
 of partnership, is just as stringent as a special contract would 
 be. If, then, tiiis rule apphes to ordinary stock-in-trade, why 
 should it not apply to all kinds of partnership property? 
 Suppose that partners, for the purpose of carrying on their 
 business, purchase, out of the funds of the partnership, lease- 
 hold estate, or take a lease of land, paying the rent out of 
 the partnership funds, can it be doubted that the same rule 
 which applies to ordinary chattels would apply to such lease- 
 hold property? I do not think it was ever questioned that, 
 on a dissolution, the right of each partner to have the part- 
 nership effects sold applies to leasehold property belonging" 
 to the partnership as much as to any other stock-in-trade. No 
 one partner can insist on retaining his share unsold. Nor 
 would it make any difference in whom the legal estate was 
 vested, whether in one of the partners or in all ; this Court 
 would regulate the matter according to the ecjuities. And 
 Sir W. Grant so decided in Featherstonhaugh v. Fenzvick. 
 
 If, then, the rule applies not only to ordinary stock-in- 
 trade, but also to a lease for years, — suppose next, that the 
 partnership, instead of purchasing a term of years, were 
 (whether from necessity or choice) to purchase land in fee; 
 if the land is necessary for the partnership business, and 
 bought with the partnership assets, what difference can it 
 make whether the real estate bought is leasehold or in fee? 
 Let it be once established that the property purchased is 
 partnership property, and it then comes under the operation 
 of those principles which arise out of the partnership con- 
 tract ; and there seems to be no reason why the operation of 
 those principles is to be restricted to any particular class or 
 species of partnership property. The observations of Lord 
 Eldon in Craivshay v. Maule, before referred to, show that 
 in his opinion the right to a sale on a dissolution of partner- 
 ship does not in any degree depend on the nature of the 
 property. Nor could it be material in this case, any more 
 than on the purchase of a leasehold interest, in whom the 
 legal estate was vested.
 
 DARBY V. DARBY 511 
 
 I should, therefore, feel no hesitation in coming to this 
 conclusion, that the mere contract of partnership, without 
 any express stipulation, involves in it an implied contract, 
 quite as stringent as if it were expressed, that, at the dissolu- 
 tion of the partnership, all the property then belonging to 
 the partnership, whether it be ordinary stock-in-trade, or a 
 leasehold interest, or a fee simple estate in land, shall be 
 sold, and the net proceeds, after satisfying all the partnership 
 debts and liabilities, be divided among the partners; and that 
 each partner, and the representatives of any deceased part- 
 ner, have a right to insist on this being done. 
 
 Next, what is the doctrine of this Court as to conver- 
 sion? If a testator seised of real estate devises it for sale, 
 and directs that the proceeds of the sale shall be divided 
 among certain persons, so that each of the ccstuis que trust- 
 cut is entitled to say he will have it sold, and will take his 
 share of the proceeds, that real estate is in equity converted 
 into personalty ; and so, if three persons contract that certain 
 real property belonging to them shall be sold, and the pro- 
 ceeds be divided among them, so that each one of them has 
 a right to insist that it shall be sold, and that he shall have 
 his share of the proceeds as uioucy, that real property is in 
 equity converted into personalty, and if any one of them 
 dies while the property remains unsold, his share is person- 
 alty as between his heir and his personal representatives. 
 
 Now if it be established that, by the contract of partner- 
 ship, all the partnership property is to be sold at the 
 dissolution of the partnership, then any real property which 
 has become the property of the partnership becomes, by 
 force of the partnership contract, converted into personalty; 
 and that, not merely as between the partners, to the extent 
 of discharging the partnership debts, but as between the real 
 and personal representatives of any deceased partner. 
 
 That this is so, I should, in the absence of all author- 
 ity, have decided upon principle ; and when I find, notwith- 
 standing the decision of Lord Thurlow, followed by Sir W. 
 Grant, that Lord Eldon was clearly of opinion that real
 
 512 NATURE OF THE ASSOCIATES' INTERESTS 
 
 property purchased by a partnership for partnership pur- 
 poses, and with the partnership funds, becomes personalty ; 
 that Sir J. Leach repeatedly so decided without any doubt; 
 and that Sir L. Shadwell also decided the last case in the 
 same way, — I can have no difficulty in coming to the con- 
 clusion, that whenever a partnership purchase real estate 
 for the partncrsJiip purposes, and with the partnership funds, 
 it is as between the real and personal representatives of the 
 partners personal estate. 
 
 Now this case is not the ordinary case, where persons 
 carrying on the ordinary business of a commercial or manu- 
 facturing partnership have found it necessary to purchase 
 real estate for partnership purposes. That is not the case; 
 here they bought land as the stock-in-trade, by the sale of 
 which they were to make their i)rofits ; — the land was not 
 in the nature of plant, but was the very subject-matter of 
 their trade. Does that make any difference? If it does, 
 I think it is in favour of treating it as converted ; because 
 the real estate is here clearly put in the same position as 
 ordinary stock-in-trade; and it appears to me that if I enter- 
 tained more doubt than I do on the general question, that 
 doubt would, in this case, be very much diminished by the 
 circumstance, that here the real estate is itself bought for 
 the very purpose of selling it again. The very intention of 
 the partnership was to buy land to resell it. That is their 
 very contract, and, without selling the land again, there 
 would be no partnership business, — the partnership was for 
 the purpose of buying land to parcel it out in plots, and to 
 sell them again, and each partner had a right to say he would 
 have that contract carried out. We have here what Lord 
 Thurlow wanted in Thornton v. Dixon, an actual contract 
 that the land shall be sold. 
 
 I must, therefore, decide that the share of A. Darby 
 was personal estate, and passed to his personal representa- 
 tives.
 
 SHEARER f. SHEARER 513 
 
 SHEARER z'. SHEARER. 
 
 In the Supreme Judicial Court of Massachusetts, 
 
 1867. 
 
 98 Massachusetts Reports, 107. 
 
 Bill in Equity by the administratrix of Leonard B. 
 Shearer, to compel the conversion, and division as person- 
 alty, of real estate, bonds for the conveyance of real estate, 
 and proceeds of real estate by way of rent or sales since the 
 death of the complainant's intestate, remaining as the prop- 
 erty of certain partnerships of which he was a member, after 
 the settlement of their affairs.^ 
 
 Wells, J. : A former bill, brought by the same party, 
 substantially for the same purposes as the present, was dis- 
 missed on the ground that the right to adjust the affairs of 
 the subsidiary partnerships of Shearer & Paine, and Shearer 
 & Jones, and to receive the net results thereof due to the 
 original partnership of L. B. & D. L. Shearer, belonged to 
 D. L. Shearer, as the survivor of that firm. 12 Allen, 289. 
 Since then, the affairs of those subsidiary partnerships have 
 been closed, and the respective shares of Paine and Jones 
 assigned, or designated to be assigned to them; the debts of 
 the several partnerships have been fully paid, and all part- 
 nership balances have been adjusted and paid. The personal 
 property sufficed to repay all that remained due of the orig- 
 inal capital of the plaintiff's intestate and of D. L. Shearer: 
 and the balance of personal property has been divided be- 
 tween the plaintiff and D. L. Shearer, according to their 
 respective rights under the i)artnership articles. 1'hat which 
 remains, to which the prayer of this bill applies, consists of 
 real estate, bonds for the conveyance of real estate, and pro- 
 ceeds of real estate, by way of rent and of sales, since the 
 
 ' The Reporter's notes of the arguments of counsel are omitted.
 
 514 NATURE OF THE ASSOCIATES" INTERESTS 
 
 decease of the plaintiff's intestate. Of this l^alance, the estate 
 of L. B. Shearer is entitled to two-thirds, and D. L. Shearer 
 to one-third. The distribntion of this balance has been agreed 
 upon by designating the several parcels and amounts to be 
 assigned for the share of each party. This arrangement has 
 been agreed to by all parties interested, but with the express 
 proviso that it shall not prejudice the plaintiff in any of the 
 rights which she claims by this bill, namely, to have the share 
 of her intestate conveyed to her as administratrix, or sold 
 and the proceeds paid over to her. 
 
 This claim of the administratrix is not founded upon 
 the rights of creditors ; and apparently there are no creditors 
 to require the conversion of the real estate. Some reliance is 
 placed upon a special agreement or declaration between 
 Shearer and Paine, in regard to lands previously acquired 
 by that firm ; but we do not see in that writing any indica- 
 tion of purpose other than that all lands so acquired should 
 be for the benefit of the parties in proportion to their interest 
 in the copartnership, and not according to the state of the 
 legal title. 
 
 The plaintiff's claim must rest, and is mainly placed 
 by the argument of her counsel, upon the general rule that 
 has been aflirmed by some authorities elsewhere, that, as 
 between the heir and the personal representative of a de- 
 ceased partner, the real estate of the partnership is to be 
 regarded in equity as personal estate. Some special facts, 
 as to the location and legal title of the lands in question, are 
 relied upon to strengthen the equitable considerations in 
 favor of the widow in this case. 
 
 In Wilcox V. IVilco.v, 13 Allen, 252, it was held that 
 where, after all debts and l^alances between the partners are 
 satisfied, there remains real estate of the copartnership, in 
 which the legal title of each partner corresponds to his inter- 
 est or share in the partnership, equity will not interfere for 
 the purpose of converting such real estate into personalty. 
 In the present case the legal title does not correspond with 
 the beneficial interests of the several partners. Not only
 
 SHEARER V. SHEARER 515 
 
 are the shares of the partners unequal under the partnership 
 agreements, but much of the real estate is held without re- 
 gard to the beneficial interest, either in the sole name of 
 Paine, or otherwise, as convenience suggested at the time 
 of purchase. 
 
 Assuming that the force of the decision in IVilcox v. 
 Wilcox is to be limited to the precise state of facts there 
 presented, the question now is whether its principle extends 
 to cases where a proper adjustment of the rights of the 
 partners is not secured by descent of the legal title, but re- 
 quires the voluntary recognition or judicial determination of 
 equitable rights more extensive than the legal title. That 
 decision proceeded upon the ground that the application of 
 the principles of implied trusts to the real estate of partner- 
 ships constituted the whole foundation and the origin of the 
 doctrine of equitable conversion ; and that those trusts are to 
 be administered solely f<:>r the purpose of enforcing the obli- 
 gations and securing the rights of the partners, as between 
 themselves. When the legal title is held by one partner in 
 excess of his beneficial interest, it is held in trust for the 
 purposes of the partnership, and is chargeable, in equity, 
 with all obligations growing out of that relation. Against 
 such party, and against his widow and heirs, equity will 
 interpose to secure to his copartners their actual beneficial 
 interest. 
 
 Neither the ground of interposition nor the mode of its 
 exercise is changed by the decease of the party in whose be- 
 half it is required. His representatives are substituted in 
 his place. Their rights are derivative merely. Equities be- 
 tween them, if any there be, are subordinate and posterior 
 to those which spring from the relation of copartnership. 
 The conversion of real estate into personalty is worked, if 
 at all, for the purpose of adjusting the afifairs of the partner- 
 ship. It would seem, therefore, that the conversion should 
 be made only when and so far as required for that purpose ; 
 and that the effect upon the descent or distribution of the 
 share of a deceased partner among his representatives should
 
 516 NATURE OF THE ASSOCIATES' INTERESTS 
 
 be regarded as incidental merely, and not an end for which 
 the interference of a court of equity is to be sought. 
 
 In this view of the grounds and purpose of such equit- 
 able conversion, even regarding all partnership real estate, 
 however the legal title may be held, as held in trust for the 
 partnership, this court are disposed to hold, notwithstanding 
 the great weight of authority to the contrary elsewhere, that 
 such real estate is to be converted into personalty only when 
 such conversion is required for the payment of claims 
 against the partnership which are in the nature of debt. 
 Balances due to individual partners, for advances to the 
 firm, or for payments made in its behalf, come within this 
 definition. So also may capital, furnished by one partner, 
 when by the terms upon which it was furnished, or from 
 the nature and necessity of the case, it is to be repaid in 
 specific amounts, in order to reach the net result, or body of 
 the partnership interests, to which the proportional rights 
 or shares of the several partners attach. In short, whatever 
 is required to be paid or measured in precise sums must be 
 so adjusted ; and real estate, converted for that purpose, 
 undoubtedly becomes personalty, and is to be distributed as 
 such when paid over to the party entitled. But the shares 
 in the body of the partnership property, those interests which 
 are not measured by precise amounts, but consist in a com- 
 mon proprietorship after all special claims are satisfied, stand 
 upon dififerent footing. These interests are determined by 
 the proportions fixed by the articles or organic law of the 
 partnership. When the beneficial interests and the legal title 
 correspond, it has already been decided that the rights of 
 the partners in real estate so held will be left to adjust them- 
 selves by the descent of the legal title, with its incidents, 
 as real estate of the several partners, held in common. JVil- 
 cox V. IVilcox, nbi supra. When the legal title is otherwise 
 held, it is held in trust ; and the equitable title descends in 
 like manner and with like incidents, except as to dower. 
 The office of equity in such case is merely to declare the 
 trusts, and compel the legal title to serve the ecjuitable inter- 
 
 1
 
 SHEARER T'. SHEARER Sl7 
 
 ests. This is accomplished by directing" such conveyances 
 as will make the legal title of the several parties conform 
 to their respective beneficial interests. 
 
 By the rule above indicated, all partnership rights 'and 
 obligations are secured, and all equities growing out of that 
 relation are met and answered. To require equitable inter- 
 ference to go further, and convert all real estate into person- 
 alty, for the mere purpose of a division, seems to us to be an 
 unnecessary invasion of the rights of the copartners, and, 
 when undertaken in the interest of one class of the represent- 
 atives of a deceased partner, against another class of rep- 
 resentatives of the same partner, it seems to be a departure 
 from the legitimate sphere of equitable jurisdiction. It is 
 not the province of equity to seek to counteract or modify 
 the operation of the laws of descent and distribution. 
 
 The widow's right of dower in her husband's interest 
 in partnership real estate, is not held subject to the payment 
 of his private debts. As a general fact, this incident makes 
 dower a more valuable interest than the distributive share 
 of the widow would be if the real estate were to be con- 
 verted. But we do not regard that circumstance as of any 
 weight in determining the general rule against such con- 
 version. On the other hand, in our view, the special facts, 
 which, in the present case, would make it more advantageous 
 for the widow that the partnership realty should be con- 
 verted into personal estate, furnish no ground for such con- 
 version. The equitable powers of the court are not called 
 into exercise for the settlement of the estate of the deceased 
 partner. 
 
 There are no equities between heirs and distributees, 
 under our laws, which can call into exercise or quicken the 
 powers of the court for the conversion of realty into person- 
 alty. We do not understand that, in the English courts, any 
 such supposed equities have ever been made a ground for the 
 doctrine of equitable conversion, as held there. In the case 
 of Cookson V. Cooksou, 8 Sim. 529, such a ground of inter- 
 ference was emphatically discarded. That case, however,
 
 51S NATITRE OF THE ASSOCIATES' INTERESTS 
 
 is not one in which the full extent of the English doctrine 
 was asserted. 
 
 Conversion into personalty is not necessary to enable 
 creditors of the individual partner to secure payment of their 
 debts out of the share of their debtor in real estate held in 
 copartnership. By our laws, all property of a debtor, 
 whether personal or real, is liable for payment of all his 
 debts. Creditors therefore require no equitable interposi- 
 tion, except such as may be necessary for the assertion of 
 the rights of the partner himself. Their rights are secured, 
 in respect to real estate held in copartnership, through the 
 equities which pertain to their debtor. In this particular the 
 laws of England dififer. The inheritance there, being exempt 
 from liability for debts by simple contract, it is only by con- 
 version and payment of the proceeds to the personal repre- 
 sentatives of a deceased partner that his private creditors 
 can receive payment out of such property. How far, if at 
 all, this consideration may have been inlEiential in determin- 
 ing the extent to which the doctrine of equitable conversion 
 should be carried, and in establishing the right of the per- 
 sonal representative to require it to be made in his favor, 
 we are unal)le to judge. The cases in which the personal 
 representative of a deceased partner has been held entitled 
 to enforce this right against the heir, do not indicate, so far 
 as we have been able to examine them, whether it is done in 
 behalf of creditors or of distributees. The doctrine, how- 
 ever, seems now to be fully established, without regard to 
 the consideration whether there are private creditors or not. 
 Darby v. Darby, 3 Drewry, 495. This may perhaps be re- 
 garded as the most natural result of the rule holding such 
 property liable for the payment of all partnership obligations, 
 when it is considered how far that liability deprived partner- 
 ship real estate of the fixedness and permanency of owner- 
 ship which characterize the inheritance in realty there. 
 
 We cannot dismiss the subject without adverting to 
 some of the considerations upon which the rule of conversion
 
 SHEARER 7'. SHEARER 519 
 
 "out and out" is maintained in the case last cited, and which 
 have been pressed in the argument before us. 
 
 One reason for such conversion is said to be, that courts 
 know no mode of estimating the property, and making di\4- 
 sion of the shares between the partners, except by sale and 
 reduction to money ; and, furthermore, that one partner has 
 no right to claim, and cannot be required to accept, his share 
 of the capital or profits in the form of an undivided interest 
 in specific property. But this assumes the whole question. 
 In relation to personal property, there is a practical difficulty 
 in this respect. The law recognizes it, and, upon the death 
 of one partner, vests the whole title in the survivor. Even 
 during the continuance of the copartnership, one partner may 
 transfer the entire title of the firm by sale of any of its 
 personal property in the course of its business. In regard 
 to such property, the rule that it is to be in all cases converted 
 into money is undoubtedly well established and entirely uni- 
 form everywhere. In this, equity follows the analogies of 
 the law. On the other hand, neither partner can convey 
 the interest of his copartner in real estate. The law pro- 
 vides for its transmission in undivided shares ; for its par- 
 tition ; for its descent to the heirs of a deceased partner. It 
 seems to us best to accord with the general principles of 
 equitable interference that equity should recognize the divi- 
 sion of real estate held by copartners as already effected 
 by operation of law, unless and except so far as the terms of 
 the copartnership and the state of the accounts recjuire its 
 interposition in order to make the legal title conform to the 
 equitable or beneficial interest. When this is accomplished, 
 equity has no longer any office to perform towards it. 
 
 Again, it is said "that the mere contract of partnership, 
 without any express stipulation, involves in it an implied 
 contract quite as stringent as if it were expressed, that, at 
 the dissolution of the partnership, all the property then be- 
 longing to the partnership, whether it be ordinary stock in 
 trade, or a leasehold interest, or a fee-simple estate in land, 
 shall be sold, and the net proceeds, after satisfying all the
 
 520 NATURE OF THE ASSOCIATES' INTERESTS 
 
 partnership debts and liabilities, be divided among the part- 
 ners; and that each partner and the representatives of any 
 deceased partner have a right to insist on this being done." 
 
 In our view, there are several objections to such an 
 implication of agreement, as the foundation of a rule of 
 equitable conversion. In the first place, it seems necessary 
 to assume in the outset that such is the established rule, and 
 that parties are to be presumed to become partners in refer- 
 ence to its operation, in order to predicate such an inference 
 from the mere fact of engaging in a joint business. It would 
 be especially difiicult, without such assumption, to find a 
 pretext for the inference, where the parties have entered 
 into written articles and omitted all provision of that charac- 
 ter. If the inference of such an agreement is to be made 
 as part of the transaction of purchasing real estate with 
 partnership funds, for partnership use, it is equally incon- 
 sistent with the failure to express such a term in the deed 
 of conveyance. The inconsistency is even greater than that ; 
 for, by the express terms of the deed and by the well known 
 operation of law, the estate is limited to the heirs of the 
 several copartners, whose estate is, at law, the ordinary one 
 of tenants in common. 
 
 In the second place, conceding the agreement as sup- 
 posed, either express (provided it be not in writing) or 
 implied, it is not such a contract as entitles the parties to a 
 specific performance, and it does not create the trust required 
 for the conversion of real estate. The statute demands a 
 written agreement for that purpose. Gen. Sts. c. loo, Sec. 
 19. The English statute seems equally to require it. 
 
 The implied trust, which is enforced in equity for the 
 adjustment of partnership obligations, results from the in- 
 vestment of the funds of the partnership in the real estate 
 in question, for the use of the partnership. Regarding it in 
 that light, the court have but to inquire to what use the funds, 
 represented in the land, are devoted ; to whom and in what 
 proportions the beneficial interests belong: and the execution 
 of the trust will follow according to the nature of the rights
 
 SHEARER V. SHEARER 521 
 
 to be secured. It is not necessary to resort to inventions to 
 work ont the equities of the case through some imphed con- 
 tract, or supposed intentions of the parties in entering into the 
 relation of partnership, or in applying it to the ownership of 
 land. The ordinary, well known and generally recognized 
 principles of equity, as applied to trusts resulting by 
 implication of law, are sufficient for all the require- 
 ments of that relation. We are satisfied that the principles 
 which we ha\'e indicated apply equally to every condition 
 in which the legal title may be placed, and to every degree 
 and proportion of interest tQ which the se\'eral partners may 
 be entitled. 
 
 It was the right of the surviving partner to apply part- 
 nership funds for the liquidation of any obligations of the 
 firm, and for the discharge of all liens upon the joint prop- 
 erty. The payment of money to release partnership real 
 estate from incumbrances which existed thereon at the time 
 of its purchase, although not a debt wdiich they were other- 
 wise bound to pay, was in accordance with the rights and 
 interests of the copartners, as such, and might properly be 
 done as a part of the adjustment of the partnership affairs, 
 before division. We do not see that the plaintiff, either as 
 widow or as administratrix, can claim to have such real 
 estate interest converted back again into personalty. 
 
 The bonds, or contracts for the purchase of real estate, 
 may properly be fulfilled ; and, if fulfilled by a conveyance 
 according to their terms, or if specifically enforced, the 
 rights of the widow and heirs in the land thereby acquired 
 attach in the same manner as if the land had been conveyed 
 in the lifetime of the deceased partner. Rccd v. Whitney, 
 7 Gray, 533. 
 
 The conclusion to which we have come is in the direc- 
 tion towards which all the decisions upon the subject hitherto, 
 in Massachusetts, have clearly pointed. It is sustained by 
 the able and elaborate opinion of Chancellor Walworth, in 
 Buchan v. Sumner, 2 Barb. Ch. 198; by the case of Tillin-
 
 522 NATURE OF THE ASSOCLVTES' INTERESTS 
 
 gJiast V. Champlin, 4 R. I. 173-207; and by several other 
 American anthorities. See i Am. Lead. Cas. 494. 
 
 Tlie real estate to which Leonard B. Shearer would be 
 entitled as his share of the copartnership property, to wit, 
 that which has been designated to be conveyed or released to 
 his representatives, will therefore be conveyed or released 
 to his heirs, subject to liability for the payment of his pri- 
 vate debts, if any, and subject also to such rights of dower 
 as Corinna A. Shearer may be entitled to have in the several 
 parcels, under the laws which exist where such real estate 
 is situated. But this disposition cannot be ordered in the 
 present suit, which seeks a conveyance to Corinna A. Shearer 
 herself, or a sale for the purpose of placing the proceeds 
 in her hands as administratrix. It is a proceeding against 
 the heirs, and not in their behalf. The bill must therefore 
 be dismissed.
 
 FOSTER'S APPEAL 523 
 
 FOSTER'S APPEAL. 
 In the Supreme Court of Pennsylvania, 1873. 
 
 74 Pennsylvania Reforts, 391. 
 
 Appeal from the Orphans' Court of Allegheny County. 
 
 Sharswood, J. : The question raised upon this record 
 may be thus concisely stated : When real estate has been 
 held as partnership stock — the firm dissolved by the death 
 of one of the members — a settlement and balance ascer- 
 tained to be due by the surviving" partner to the estate of 
 the deceased, is such balance as far as derived from the sale 
 of the realty to be distributed as real or personal estate? 
 The appellant, who is the widow of John Foster, deceased, 
 who was a copartner of Samuel M. Kier in the firm of Kier 
 & Foster, claims that she is entitled to one-third of the in- 
 terest of the said Foster, as ascertained by the settlement, 
 absolutely as personal estate ; the decree of the Court below 
 awards it to her for life only as realty. The firm property 
 at the time of Foster's death was composed both of lands 
 and movables. They were engaged in the mining and sell- 
 ing of coal. The appellant, as administratrix, and William 
 W. Young, as guardian of the minor children of John Fos- 
 ter, presented a petition to the Orphans' Court of Allegheny 
 county, setting forth ''that at the time of his death, the 
 said John Foster was an equal partner with Samuel ]\I. 
 Kier, in the firm of Kier & Foster, engaged in the mining 
 and selling of coal, the property of the said firm being sit- 
 uated in the county of Allegheny; that while in many in- 
 stances the real estate belonging to the said firm was con- 
 veyed to them as tenants in common, yet the same was really 
 held by and purchased with the money of the firm as part- 
 nership property ; that the said firm of Kier & Foster were 
 largely indebted ; that Kier, the surviving partner, had pro- 
 posed to purchase the interest of Foster for the sum of
 
 524 XATURE OF THE ASSOCIATES' INTERESTS 
 
 twenty-five thousand five hundred and eight dollars and 
 thirty cents, he, the said Kier, assuming all the debts and 
 liabilities of the firm ; that it would be greatly to the advan- 
 tage of all interested that the interest of Foster should be 
 sold at private instead of public sale, and the proposition of 
 Kier accepted ; that they unite in the petition for the pur- 
 pose of removing any question which may arise from the 
 fact that several of the said properties have been conveyed 
 to the said John Foster and Samuel M. Kier as tenants in 
 common, and not expressly as partners." Upon this peti- 
 tion the Orphans' Court decreed a private sale to Samuel 
 M. Kier, for the sum named, and that the proceeds of sale 
 be treated and considered as the proceeds of real estate, and 
 accordingly distributing and applying the purchase money 
 between the widow and heirs of decedent. It is from this 
 latter part of the decree that this appeal is taken. 
 
 It has not been and cannot be denied, upon the ap- 
 praisement and settlement of the partnership debts and as- 
 sets which accompanies the petition, that after discharging 
 all the liabilities of the firm, the interest of Foster in the 
 lands and real estate which formed the most considerable 
 portion of the stock was fairly represented by the sum 
 agreed to be paid for his entire interest. It is the well set- 
 tled rule in marshalling the assets of a decedent, that the 
 personal property is to be first applied in the payment of 
 debts. The general principle is that the personal estate is 
 the proper fund for that purpose, and shall be first applied 
 even to the payment of debts with which the real estate is 
 charged: Keysey's Case, 9 S. & R. 71; Walker's Estate, 
 3 Rawle 22^j; Cadbury v. Duval, 10 Barr 273. This is in- 
 deed the unbending rule of our statute law, for no order 
 can be made by the Orphans' Court authorizing an execu- 
 tor or administrator to make sale of real estate for the pay- 
 ment of debts unless it shall appear that the personal assets 
 are insufficient for the purpose: Act of February 4th, 1834, 
 sect. 20, Pamph. L. 80; Act of March 29th, 1832, sect. 31, 
 Pamph. L. 198. It is true that it may often happen that
 
 FOSTER'S APPEAL 525 
 
 where personal property is used in connection with a colH- 
 ery or manufacturing estabHshment, it is very much for the 
 interest of all parties that it should be sold together. That 
 is a difficulty which seems inherent in the subject — equally 
 applicable to the property of any decedent — not peculiar 
 to one whose proi)erty is an interest in partnership stock. 
 It seems to be considered as well settled, that where land is 
 a part of partnership stock, it at no time — not even during 
 the continuance of the partnership — becomes personalty in 
 such an unqualified sense as to give one partner an implied 
 power to dispose of the whole partnership interest in it. 
 As regards the power of disposition, land held as partner- 
 ship stock is not subject to the rule which makes each part- 
 ner the agent of the firm. Neither can sell more than his 
 own undivided interest, unless he have from the other a 
 sufficient special authority for the purpose. This seems to 
 be the inevitable result of the Statute of Frauds, both as to 
 legal and equitable interests or estates : Murphy v. Hubert, 
 7 Barr 423; Andcrsun v. Tompkins, i Brock. 457; Taplcy 
 V. Buttcrficid, I Mete. 515. It follows that the surviving 
 partner could not sell the real estate in conjunction with 
 the personalty. When such a difficulty presents itself, it 
 must be met either by a separate sale of the personalty, or 
 in the mode resorted to in this case. Here we have practi- 
 cally no difficulty growing out of the necessary intermixture 
 of realty and personalty. 
 
 For all the purposes of the question before us, this case 
 must therefore be considered the same as if after dissolu- 
 tion by the death of one partner, and payment of all ])art- 
 nership debts, and any balance due the surviving partner, 
 there had remained in specie, unconverted, land, the interest 
 of the deceased partner in which is ascertained to be worth 
 $25,508.30. Is the land thus remaining unconverted and in 
 specie to be regarded for the purposes of distribution under 
 the intestate laws, as real or ])ersonal ? 
 
 This is an entirely new question in this state. It was 
 supposed to arise in Meily v. JVood, 21 P. F. Smith 488,
 
 526 NATURE OF THE ASSOCIATES' INTERESTS 
 
 but this court thought otliervvise, and distinctly decHned to 
 express any opinion upon it. A careful examination of all 
 our determinations has failed to discover either decision or 
 even dictum bearing upon the point. Even Abbott's Ap- 
 peal, 14- Wright 234, which has been pressed upon us as an 
 authority, is inapplicable. In that case, although the bal- 
 ance of a fund in court arising from the sale of partnership 
 real estate on an execution against the firm, was awarded 
 to the surviving partners as against the claim of one of 
 them in his own right, and as the executor of a deceased 
 partner, to aliquot shares ; yet as stated in the decree, these 
 surviving partners were "settling the business of the firm," 
 and it is said in the opinion by Mr. Justice Read, that "the 
 business of the firm, dissolved by the death of George Ab- 
 bott, has ne^•er been finally settled, and it is alleged by the 
 appellees that the firm is still largely indebted." We ap- 
 proach the determination of the question, therefore, un- 
 trammelled by any authority. Nor will it be necessary to 
 pass in review the fluctuating and discordant opinions in 
 England and our sister states. We are saved this labor by 
 the learned and exhaustive opinion of Chancellor Wal- 
 worth, in Biicliaii v. Sumner, 2 Barb. Ch. 165. We are at 
 entire liberty to resolve this important and interesting prob- 
 lem on principle and reason. 
 
 Conversion is altogether a doctrine of equity. In law 
 it has no being. It is admitted only for the accomplishment 
 of equitable results. It may be termed an equitable fiction, 
 and the legal maxim in fictionc juris semper subsistit equi- 
 tas has redoubled force in application to it. It follows of 
 necessity, that it is limited to its end. Lord Eldon advanced 
 this idea while his mind was evidently laboring and in sus- 
 pense on the general subject. In Ripley v. Watenvorth, 7 
 Ves. 425, he said: "There is an obvious difference from all 
 the cases, which establish this general principle, that where 
 a person dealing upon his own property only, has directed a 
 conversion for a particular special purpose, or out and out, 
 but the produce to be applied to a particular purpose, when
 
 FOSTER'S APPEAL 527 
 
 the purpose fails, the intention fails ; and this court regards 
 him as not having directed the conversion." There must be 
 some purpose recognized as lawful to be accomplished by a 
 conversion, before equity will permit it to have place. 
 Surely it will not be pretended that a man could by a mere 
 declaration of record convert his land into personalty, so as 
 to defeat the lien of mortgages, judgments and other en- 
 cumbrances, elude the provisions of the Statute of Frauds, 
 and change the course of distribution in case of intestacy. 
 If, however, a trust is created, either by deed or will, with 
 an absolute direction to sell and distribute the proceeds 
 either among creditors or others, equity considers that as 
 actually done which has been directed to be done, in order 
 to accomplish the lawful intent of the grantor or testator. 
 If it continued land, subject as such to sale, mortgage and 
 encumbrance by the eventual distributees — the present ccs- 
 tiiis que trust — the result aimed at might be defeated, and 
 the intention frustrated. So where land is, by the agree- 
 ment of the partners, made partnership stock, it is an out- 
 and-out conversion only, because otheTwise the objects of 
 the partnership would be defeated, if the sale, mortgage or 
 encumbrance of his separate interest by one partner could 
 prevent the equity of the other partners to have the partner- 
 ship property applied to the payment of the partnership 
 debts, and the balances- which might be due to them respect- 
 ively. When the purpose of conversion is attained, conver- 
 sion ends, or more accurately, re-conversion takes place. 
 Thus when the sale under the trust is made, the character 
 of personalty does not follow the land into the hands of the 
 purchaser. The proceeds are personalty and are distrib- 
 uted at such among the ccsfnis que trust, because that was 
 the very object of the conversion. So with land in partner- 
 ship when sold by the firm, the land becomes land again in 
 the hands of the purchaser, and the proceeds personalty, 
 but personalty to what extent? Only to the extent of ac- 
 complishing the purposes of the conversion, namely, the 
 equity of the partners to have the joint debts and their own
 
 528 NATURE OF THE ASSOCIATES" INTERESTS 
 
 advances paid before any part goes to the other partners 
 or their separate creditors. In Dyer v. Cornell, 4 Barr 359, 
 where, by order of the Orphans' Conrt, the land of minors 
 was sold for their maintenance and education, it was held 
 that the proceeds, supposing them to retain the character of 
 land, lose that and become personalty on the first transmis- 
 sion, though to an infant. The administrator of the minor 
 was decided to be entitled to the money as money. The 
 Court, indeed, were of opinion that the sale ipso faclo 
 worked a transmutation, but they added, by Coulter, J., 
 "But even admitting that the money in this case bore the 
 impress of real estate, and the inheritable qualities peculiar 
 to lands and houses, in analogy to the case of Lloyd v. Hart, 
 2 Barr 473, for how many generations or descents shall it 
 wear that complexion? It must cease as it mingles with 
 other moneys of the distributee, otherwise uncertainty, con- 
 fusion and litigation will indelibly mark its character. This 
 court is of opinion that it cannot be carried further than the 
 first descent in any case." The same question is pertinent 
 in regard to the land in the present case. If land, remain- 
 ing in specie after the partnership is dissolved and wound 
 up, and all the purposes of its conversion answered, is still 
 personal estate, how long is it to remain so? Certainly all 
 the forms of the law as to realty must be observed in its 
 transmission from hand to hand, and shall it not be subject 
 to the lien of judgments in the lifetime, and debts upon the 
 decease of its owner? If not, uncertainty, confusion and 
 litigation will indelibly mark its character. But it may be 
 asked, when is the precise moment of its reconversion? 
 The answer is, the moment the partnership is wound up, 
 either by decree, judgment or agreement, and it is deter- 
 mined that it no longer forms a part of the partnership 
 stock, and is not required for its purposes. In Burr v. Sim, 
 I Whart. 252, where land was ordered to be converted by 
 will, and the proceeds to be paid to a legatee, it was held 
 that the election by the legatee before any sale, to take the 
 land as land, operated as a new acquisition. It was a pur-
 
 FOSTER'S APPEAL 529 
 
 chase of it as land by a surrender of the right which he un- 
 doubtedly had to consider it as money. Where, then, a 
 partnership is dissolved, wound up, and completely ended, 
 what can it be but an election of the land as land, and the 
 reconversion of it ? 
 
 It must be remarked, also, that without the order of 
 the Orphans' Court in this case, the legal title of John Fos- 
 ter to an undivided moiety of the lands could not have been 
 conveyed to Samuel M. Kier. We have seen that this is a 
 well settled point. If it were not so, the appellant as ad- 
 ministratrix might have assigned it. She joined in the 
 application to the Court with the guardian. The decree 
 for the private sale was under the provision of the Act of 
 April i8th, 1853, sect. 4, Pamph. L. 505 ; and the fifth sec- 
 tion of that act has declared that, in all cases of sale ac- 
 cording to its provisions, "The purchase money * * "^ 
 shall in all respects be substituted for the real estate sold 
 * * * as regards the enjoyment and ownership thereof, 
 after tlie payment of liens, and shall be held for or applied 
 to the use and benefit of the same persons, and for the 
 same estate and interest * * * as the real estate sold 
 had been held." Under the express provision of the sta- 
 tute, the proceeds of the real estate sold under this order 
 must be considered as of the same character as the land 
 remaining /// specie after discharging its liabilities as part- 
 nership stock. On the whole, then, we are of the opinion 
 that the appellant was only entitled to an interest for her 
 life, and that the decree of the Court below was right. 
 
 Decree affirmed, and appeal dismissed at the costs of 
 the appellant.
 
 530 NATURE OF THE ASSOCIATES' INTERESTS 
 
 LEAF'S APPEAL. 
 In the Supreme Court of Pennsylvania, 1884. 
 
 105 Pennsylvania Reports, 505. 
 
 This was an appeal of Richard T. Leaf and others 
 from a decree of the said court, sustaining a bill in equity 
 for an account filed by Emanuel V. Gerhart against the 
 said Richard T. Leaf and others, and decreeing that the 
 said defendants pay the plaintiff the sum of $1,500 with 
 interest. Answers were filed, and the court appointed Dan- 
 iel H. Wingerd, Esq., examiner and master, whose findings 
 of fact and conclusions of law were as follows : 
 
 In 1852, Frederick S. Hunter and others entered into 
 a partnership for the purpose of manufacturing pig iron at 
 Leesport, Pa. Among the articles of copartnership were 
 the following: 
 
 "2. The furnace property in Leesport, real estate in 
 and about Leesport, and all other stocks and properties 
 necessary for the safe and profitable management and 
 enjoyment of tlie business heretofore purchased for the 
 l)artnership, or that may hereafter be purchased or construc- 
 ted for the same, shall l^e taken and held as partnership 
 personal property." 
 
 "6. The firm shall not be dissolved by the death, with- 
 drawal, failure or pleasure of any of its members, nor in 
 any' way but by the consent of all the members thereof. 
 In the case of the death of any member, his legal 
 representatives shall hold his property and interest, in the 
 same manner and subject to the same rights and liabilities 
 as the deceased partner held the same, and may sell out and 
 withdraw from the firm, as provided in the case of with- 
 drawal of a partner. By the term legal representatives, is 
 understood and intended the person or persons who may 
 be made such, touching this property, by the last will of the
 
 LEAF'S APPEAL 531 
 
 member deceased, or wlio may Ijecome such, under the in- 
 testate laws of this Commonwealth." 
 
 When this coj^artnership was first formed, its reaLes- 
 tate consisted of what was then known as the Darrah Fur- 
 nace Stack and several acres of land connected therewith; 
 but other real estate was subsequently purchased from time 
 to time until the entire holdings by the partnership aggre- 
 gated about 270 acres, upon which are erected houses, barns 
 and various other kinds of buildings, suitable for farming 
 and furnace purposes. All the real estate thus acquired 
 was bought for the use of the partnership, and paid for out 
 of their general funds, to further the interests of the firm, 
 and while much real estate was acquired which was not 
 really needed for the manufacture of iron, properly speak- 
 ing, some part of each purchase, in the judgment of the 
 partners, was needed, for the l^etter or more convenient 
 management of the main business of the firm; and what 
 was not absolutely necessary for that purpose, was bought 
 with the necessary portion, in order to get that which was 
 needed. 
 
 On August 20, 1863, Frederick Hunter died intestate, 
 possessed, {)ifc}' alia, of a one-fifth interest in said partner- 
 ship, and leaving surviving him a widow, Mary M. Hunter, 
 and three children, \\z., Nicholas Hunter, Lenora C. Leaf, 
 wife of Richard T. Leaf, and Mary M. Flinn, wife of J. 
 Robinson Flinn. Letters of administration on his estate 
 were duly granted to \Vm. H. Clymer, Esq. 
 
 On August 22, 1865, the widow of Frederick S. 
 Hunter was married to Emanuel V. Gerhart, the plaintift". 
 and on July 18, 1866, she died. By her last will and testa- 
 ment she bequeathed to the said Emanuel V. Gerhart "all 
 the ])ersonal property which I own or am ])ossessed of at 
 the time of my decease, including my share in the 'Leesport 
 Furnace Property' in Berks county, Pennsylvania, being 
 one-third of one-fifth thereof." The said Emanuel V. Ger- 
 hart, her husband, was appointed as executor in the will.
 
 532 NATURE OF THE ASSOCIATES' INTERESTS 
 
 and on the 30th day of Jul}-, 1866, letters testamentary 
 were issued to liim accordingly. 
 
 Thereafter dividends declared by the partnership were 
 paid to him from time to time, upon the said one-third of 
 one-fifth interest until the last dividend declared on the 
 8th day of November, 1879, and payable on the ist day of 
 January, 1880, when the children of Frederick S. Hunter 
 made objection to the payment of the same, as formerly, 
 to the said Emanuel V. Gerhart. This objection was put 
 upon the ground that the widow of Frederick S. Hunter 
 had only a dower interest in the one-third of his share in 
 the Leesport Iron Company, and that therefore the same 
 descended to them as his heirs, at her death, and did not 
 pass by her last will to the said Emanuel V. Gerhart, and 
 that therefore said dividend was payable to them as such 
 heirs. 
 
 Thereupon the firm declined to pay the said dividends 
 to either of the claimants, and this bill was brought by the 
 said plaintiff against Richard T. Leaf, ct al., members of 
 said firm or heirs of the said Frederick S. Hunter, to en- 
 force payment of the same to him as the legatee of the 
 widow of Frederick S. Hunter, deceased. 
 
 On these facts the auditor reported as follows : The 
 English authorities incline strongly to the doctrine, that 
 real estate held by a partnership and used for its purposes, 
 is converted into personalty, and as such goes to the per- 
 sonal representatives and not to the heir at law: CoUycr 
 on Paiiiirrship, Sees. 114-15, and cases cited in notes. In 
 this country the rule, in many of the states is held to be 
 different from the English doctrine, though there is conflict 
 of authority on the subject, and in this state the decisions 
 show a decided tendency toward restricting the application 
 of the equitable doctrine of the conversion of realty held 
 by a partnership into personalty, and to admit it only for 
 the accomplishment of equitable results. It is, however, the 
 well settled rule in Pennsylvania, that when real estate is 
 brought into the partnership business, and forms part of
 
 LEAPS APPEAL 533 
 
 its stock, it is considered personalty, and as converted out 
 and out for all purposes of the partnership, except sale and 
 conveyance under the Statute of Frauds: Meily v. Wood, 
 21 P. F. S., 488; Abbott's Appeal, 14 Wright, 234; Foster 
 V. Barnes, 31 P. F. S., T^yy; Foster's Appeal, 24 P. F. S., 
 
 391- 
 
 "In the case before us there can be no doubt that all 
 
 the real estate acquired by the partnership, both before and 
 after the death of Frederick S. Hunter, formed part of the 
 assets of the partnership, as the recorded agreement so 
 stated ; the conveyances are all made in terms for the use 
 and benefit of the partnership, and the evidence is that all 
 except the first purchase was paid for out of the profits of 
 the partnership. Certainly then, under the authority of 
 Foster's Appeal, 24 P. F. Smith, 391, and the facts above 
 stated, it must be held that in this case there was an out 
 and out conversion from realty to personalty, to the extent 
 that the real estate held by the partnership was not subject 
 to lien by the creditors of Frederick S. Hunter, or any other 
 individual member of the firm, nor to sale, mortgage, or 
 encumbrance either by him, or any one else who succeeded 
 to his interest in the partnership, but remained liable, first, 
 for the payment of all partnership debts, and secondly, for 
 the payment of any balances which might be due to the 
 other members of the firm. Under the same authority it is 
 equally clear, that had the partnership been wound up and 
 dissolved, upon the death of Frederick S. Hunter, all its 
 affairs settled, and a balance ascertained to be due to his 
 estate, such balance, arising from the real estate, would 
 have been re-converted, as no longer forming a part of the 
 partnership stock, nor required for its purposes, and would 
 have descended to his widow and children, as real estate. 
 But in the case before us the partnership could not be dis- 
 solved nor its affairs wound up, by the death of Frederick 
 S. Hunter, and as a matter of fact, it was not wound up nor 
 affected in any way tliereby ; but on the contrary continued 
 its business just as before his death, and his interest re-
 
 534 NATURE OF THE ASSOCIATES' INTERESTS 
 
 mained in the partnership subject to all its purposes, and 
 was represented by his widow and the guardians of his 
 three minor children, who stood in his stead as partners. 
 
 "What then must the interest of Frederick S. Hunter 
 be considered during this continuing partnership with his 
 widow and children, either by their guardian or themselves 
 as members thereof, and with their entire interests subject 
 to the equities of partnership creditors and the other part- 
 ners — whether realty or personalty for the purposes of de- 
 scent? . . . Indeed it does not appear, though the 
 firm paid large dividends, how much would have remained 
 for distribution, either of personalty or realty, if the affairs 
 of the firm had been wound up, and certainly all the part- 
 nership stock, whether realty or personalty in fact, must 
 remain liable, primarily, for all partnership obligations, and 
 be considered personalty until all partnership affairs have 
 been fully wound up and settled. In Abbott's Appeal, 14 
 Wright, 234, the balance of a fund in court arising from a 
 sale of partnership real estate was awarded to the surviv- 
 ing partners as against the claim of an individual partner 
 in his own right, and as the executor of another deceased 
 partner, on the ground that the affairs of the firm had never 
 been finally settled. See also Foster's Appeal, 24 P. F. S., 
 
 391- 
 
 "Now applying these principles, as laid down, to the 
 
 case in hand, we conclude: That as the land formed a 
 part of the partnership stock it was converted out and out, 
 because the objects of the partnership required it, and being 
 converted into personalty in contemplation of law, it could 
 not be reconverted until that partnership was wound up 
 and settled, and until it was finally determined by such set- 
 tlement, that it was no longer required for the purposes of 
 the partnership. But the partnership in question never has 
 been wound up, and under the terms of the agreement its 
 affairs may not be finally settled for an indefinite period; 
 nor does it appear but that the entire interest of which 
 Frederick S. Hunter died seised, may in the future be, or
 
 LEAF'S APPEAL 535 
 
 might at any time heretofore have been, required for the 
 purposes of a final settlement and winding up of the part- 
 nership affairs. How then can re-conversion take place un- 
 til the equities which work the conversion are accomplished 
 and settled? How could this undefined and still undefina- 
 ble interest in the partnership descend as real estate, and as 
 such, be chargeable with a dower interest and subject to all 
 the possibilities of sale, mortgage, or incumbrance by those 
 entitled to the remainder, without interfering with the equi- 
 table rights of partnership creditors and partners, and de- 
 feating the very object of conversion? All the partnership 
 property in this case being clearly impressed with the 
 character of personalty, any attempt to withdraw that char- 
 acter from it, during the existence of the parnership or 
 before accomplishing the equitable objects for whicli the con- 
 version into personalty was effected, would not only defeat 
 those objects, but lead to a state of uncertainty and confu- 
 sion respecting the rights of partners, creditors and heirs, 
 and would, in the opinion of the master, be contrary to 
 sound legal principles. It may be noticed further that as 
 both the widow and children of Frederick S. Hunter al- 
 lowed their several interests to remain in the partnership, 
 and thereby became partners under the 6th clause of the 
 agreement above quoted, it seems impossible to escape the 
 conclusion that if their interest, by any mode of reasoning, 
 could be held to be real estate, at any period since the for- 
 mation of the partnership, re-conversion into personalty 
 must have again taken place, for it will not be pretended 
 that those interests, or any of the others in the partnership 
 now, may be considered other than as personalty for all 
 equitable purposes. 
 
 "As, therefore, the widow took her portion of the 
 interest of Frederick S. Hunter in the partnership as person- 
 alty, she took it absolutely, and . had the legal right to 
 bequeath it to Emanuel V. Gerhart, the plaintiff, as she did. 
 He, by virtue of the provisions of the 6th clause of the 
 partnership agreement, elected to remain in the partnership
 
 5.36 NATURE OF THE ASSOCIATES' INTERESTS 
 
 and become a partner, and is consequently entitled to be 
 paid his proper share, according to his interest, of all divi- 
 dends declared by the partnership since the death of the 
 widow, and not yet paid to him." 
 
 The master accordingly recommended that the bill be 
 sustained in accordance with the prayer of the plaintiff, 
 -t. -\: -\: Exceptions filed by the defendants to the master's 
 findings of fact and law were dismissed by the court and the 
 report was confirmed. * ''• * The defendants thereupon 
 took this appeal.^ 
 
 Mr. Justice Green delivered the opinion of the court, 
 April 28, 1884. 
 
 The decree made by the learned court below in this 
 case merely ordered the payment of the sum of fifteen hun- 
 dred dollars by the defendant to the plaintiff, as his full 
 share of a dividend of profits declared in 1879. There was 
 no decree of dissolution of the partnership asked for in the 
 bill or made by the court ; there was no final account nor 
 any winding up of the affairs of the partnership. Of course 
 there was no adjudication either of the status of the parties 
 or of their respective rights to the property of the partner- 
 ship, as upon a final settlement and distribution of the prop- 
 erty and assets of the partnership. The money ordered to 
 ])e paid was a share of a dividend of the current profits of 
 the firm. The profits realized from the business were of 
 course personal property in any aspect of the case. They 
 represent, not the mere product of real estate distinctively 
 as such, but of a business, to wit, the manufacture and sale 
 of pig iron. Such a business is perhaps quite as largely the 
 result of a dealing with money and personal chattels as 
 with real estate. In this case the furnace and lands occupied 
 in conducting .the business were owned by the members of 
 the firm, and to the extent of their use they contrilmted to 
 the general result of profits earned. 
 
 The partnership in which the parties plaintiff and de- 
 
 ' The facts as slated by the Reporter are slightly abbreviated, and 
 his notes of the arguments of counsel omitted.
 
 LEAF'S APPEAL 537 
 
 fendants were interested, was a continuing one which com- 
 menced in 1852, and which has never yet been dissolved. 
 No question as to the uUimate ownership of the real estate 
 of the firm, after a dissolution has taken place, arises upon 
 the present record. The articles of copartnership contained 
 an express provision that the firm should not be dissolved 
 by the death, withdrawal, failure or pleasure of any of its 
 members, nor in any way but by the consent of all the mem- 
 bers thereof. A method of continuing the partnership 
 after the death of a member is also provided. That such 
 stipulations are perfectly valid and binding cannot be 
 doubted: Story on part.. Sees. 196 to 201 ; Grot:: v. Bayard, 
 II S. & R., 46; Laughlin v. Loren::, 12 Wr., 282, and au- 
 thorities cited by Agnew, J., on p. 283. 
 
 In the present case, in addition to the provision for a 
 continuance of the partnership after the death of a mem- 
 ber, there is also a stipulation that the furnace and lands of 
 the firm shall be held as personal property. In point of 
 fact the real estate of the firm was accjuired with partner- 
 ship funds and used for partnership purposes. In every 
 view of the case so far as any question which now arises is 
 concerned, during the continuance of the partnership agree- 
 ment, all the property of the firm must be regarded as per- 
 sonal estate. Certainly this must be so as to mere dividends 
 of profits earned in carrying on the business. We cannot 
 declare the partnership contract at an end, nor can we dis- 
 solve the firm, or deal Avith its assets as though it were 
 dissolved, by any order which it would be possible for us 
 to make in this proceeding. We have considered the very 
 able argument of the learned counsel for the appellants 
 with great care, but we are not convinced that it is applica- 
 ble to the present situation in its leading points. The de- 
 cision in Foster's Appeal, 24 P. F. Smith, 391, much relied 
 upon for the a])pellants, is predicated of a dissolved firm, 
 with all its debts paid, and a residuum of unconverted land 
 remaining in specie for mere purposes of distribution. But 
 there are no such facts here. It cannot now be known that
 
 538 NATURE OF THE ASSOCIATES' INTERESTS 
 
 the real estate will not be required for the payment of debts. 
 The firm still continues its business under a lawful agree- 
 ment to that effect. Whenever a dissolution shall be estab- 
 lished, and a final settlement of accounts shall take place, 
 the positions contended for, and the reasoning by which 
 they are enforced, will become entirely applicable, and will 
 exercise a very potent, and possibly a controlling influence, 
 upon the questions which will then arise between the pres- 
 ent litigants or those who may succeed them. But upon 
 the present state of the record we think the appellee is 
 clearly entitled to the dividend in question as the successor 
 to his deceased wife's title. 
 
 Decree affirmed at the cost of the appellants.
 
 RUSSELL V. TEMPLE 539 
 
 SECTION 2.— CORPORATION CASES. 
 
 RUSSELL V. TEMPLE. 
 
 In the Supreme Judicial Court of Massachusetts, 
 
 1798. 
 
 3 Dane's Abridgment, 108. 
 
 In this case the heirs of Thomas Russell contended that 
 his shares in Maiden, Charles River, Haverhill, Andover, 
 and Merrimack bridges, in Middlesex canal &c., ought to 
 be considered as real estate, and his widow, afterwards mar- 
 ried to Temple, ought to have only her dower for life in 
 them. On the other hand. Temple and wife contended they 
 were personal estate, and ought to be distributed as such, and 
 she have one-third part forever. The strongest case among 
 these, in favor of real estate, was the Middlesex canal, in 
 which the corporation had a fee simple estate, or an estate 
 forever, and a perpetual toll. By the statutes passed respect- 
 ing this canal and real estate, the property therein was di- 
 vided into 800 shares, and the shares in the canal, including 
 the towing paths and wharves thereon, were made trans- 
 ferable and taxable as personal estate. This corporation 
 also had power to hold real estate to the amount of £30,000, 
 over and above the canal itself, and this appendant real estate 
 was made taxable as real estate of the corporation in the 
 several towns in which it lay. It was argued (for the 
 widow) that these shares were personal estate for two rea- 
 sons: I St. Because these estates can only exist in the cor- 
 poration, which alone can ac(|uire it, alone be seized or pos- 
 sessed of it, alone pass it away, manage or repair it, and 
 so must hold it entire ; and that the corporation is a moral 
 person to all the purposes of property. Its tenure is to their 
 successors, or to their successors and assigns; these estates 
 never can vest in or be divided among the individual mem-
 
 5-^0 XATURE OF THE ASSOCIATES' INTERESTS 
 
 bers, to liokl as tenants in common &c., in their private ca- 
 pacities. Only the corporation can forfeit the estate, and 
 that only by forfeiting their charter; and only the corpora- 
 tion can be taxed for it on common law principles; and on 
 these can it alone be taken in execution for the debts of the 
 corporation; and on a dissolution of the corporation, "its 
 lands revert to the grantor, or his heirs, and the debts due to 
 or from it are totally extinguished ; so that the members of 
 it cannot recover or be charged with them in their natural 
 capacities." And a grant to a corporation can only be for 
 its life or continuance. 2 Bl. Com. 484; i Lev. 239; i Bac. 
 Al)r. 510. Second. Because the share is personal estate, 
 though the corporation hold real estate ; for the individual 
 member has no estate, but only a right to such dividends 
 as the corporation, from time to time, assign to him. He is 
 unknown on the grants made to it, and he cannot grant any 
 part of the estate ; nor can he be taxed for it but by statute 
 law ; nor can any private member of a corporation be dis- 
 trained for a public concern of it ; his only remedy for his 
 dividend is case in assumpsit, or an action on the case for 
 a wrongful refusal or neglect to pay or allow him his part 
 of the profits. 4 Wood's Con. 489, &c. ; Cowp. 85 ; Impey's 
 Modern Pleader 83; i Vent. 351 ; Dutch v. Warren; i Stra. 
 406; same case 2 Burr. loii. 
 
 So lands may be real estate in one, 'yet the trees 
 or corn growing on them may be personal estate in another. 
 Lifford's Case, 6 Co. 46 to 50; Imp. M. P. 167. 
 
 For the heirs, it was urged that these shares were 
 real estate; because it was said the estates were real in the 
 corporations; annexed to the soil; and that if these Estates 
 in the corporations were real, the estates of the individual 
 members in them followed their nature, and were real ; and 
 that the frequent declarations of the legislature declaring 
 such shares personal estate, at least shew a doubt : that when 
 one has a right to receive rent, he has only a right to receive 
 a sum of money; yet it does not follow that his estate is 
 not real estate, out of which his rent issues. The judgment
 
 RUSSELL V. TEMPLE 541 
 
 of the court was, that these shares were personal estate, 
 and distribution was ordered accordingly. The principal 
 reason of the decision appears to be, because the court con- 
 sidered that the individual member, or share-holder, had only 
 a right of action for a sum of money, his part of the net 
 profits, or dividends. And so the law has been held to be 
 since this decision was made.
 
 542 NATURE OF THE ASSOCIATES' INTERESTS 
 
 TISDALE V. HARRIS. 
 
 In the Supreme Judicial Court of Massachusetts, 
 
 1838. 
 
 20 Pickering's Reports, 9. 
 
 Assumpsit by the plaintiff, an inhabitant of New York, 
 against the defendant, a merchant of Boston, on a contract 
 alleged to have been made in October, 1835, by which the 
 defendant agreed to sell to the plaintiff two hundred shares, 
 with all the earnings thereon, in the capital stock of the Col- 
 lins Manufacturing Company, a corporation established in 
 Connecticut, at $10.80 per share, the par value being $10 
 per share. The object of the suit was to recover $300, being 
 the amount of a dividend of 15 per cent on the two hundred 
 shares, declared on the 7th of October, 1835, ^^^ payable 
 on the 15th. 
 
 At the trial the plaintiff introduced parole evidence to 
 prove the contract. A verdict was returned for the plaintiff, 
 which the defendant moved to set aside, one two grounds, 
 one of which being that the contract set up was within the 
 Statute of Frauds.^ 
 
 Shaw, C. J. : But by far the most important question in 
 the case, arises on the objection, that the case is within the 
 statute of frauds. This statute, which is copied precisely 
 from the English statute, is as follows. "No contract for the 
 sale of goods, wares or merchandise for the price of ten 
 pounds (33.33) or more, shall be allowed to be good, except 
 the purchaser shall accept part of the goods so sold, and 
 actually receive the same or give something in earnest to 
 bind the bargain, or in part payment, or that some note or 
 memorandum in writing of the said bargain, be made and 
 
 ' Only so much of the facts of the case as stated by the Reporter, 
 and the opinion of the Court as relate to the fact of the case are 
 reprinted.
 
 TISDALE V. HARRIS 543 
 
 signed by the parties to be charged by such contract, or 
 their agent, thereunto lawfully authorized." 
 
 This being a contract for the sale of shares in an in- 
 corporated company in a neighboring State, for the price 
 of more than ten pounds, and no part having been delivered, 
 and no purchase money or earnest paid, the question is, 
 whether it can be allowed to be good, without a note or 
 memorandum in writing, signed by the party to be charged 
 with it. This depends upon the Cjuestion, whether such 
 shares are goods, wares or merchandise within the true 
 meaning of the statute. 
 
 It is somewhat remarkable that this question, arising 
 on the St. 29 Car. 2, in the same terms, which ours has cop- 
 ied, has not been definitely settled in England. In the case 
 of Pickering v. Appleby, Com. Rep. 354, the case was 
 directly and fully argued, before the twelve judges, who were 
 equally divided upon it. But in several other cases after- 
 wards determined in Chancery, the better opinion seemed 
 to be, that shares in incorporated companies, were within 
 the statute, as goods or merchandise. Mussell v. Cooke, 
 Prec. in Ch. 533 ; Crull v. Dodson, Sel. Cas. in Ch. 41. 
 
 We are inclined to the opinion, that the weight of au- 
 thorities, in modern times, is, that contracts for the sale of 
 stocks and shares in incorporated companies, for more than 
 ten pounds, are not valid, unless there has been a note or 
 memorandum in writing, or earnest or part payment. 4 
 Wheaton, 89, note ; 3 Starkie on Evid. 4th Amer. Edit. 608. 
 
 Supposing this a new question now for the first time 
 calling for a construction of the statute, the Court are of 
 opinion, that as well by its terms, as its general policy, stocks 
 are fairly within its operation. The words "goods" and 
 "merchandise," are both of very large signification. Bona, 
 as used in the civil law, is almost as extensive as personal 
 property itself, and in many respects it has nearly as large 
 a signification in the common law. The word "merchan- 
 dise" also, including in general, objects of traffic and com-
 
 544 NATURE OF THE ASSOCIATES' INTERESTS 
 
 merce, is broad enough to include stocks or shares in incor- 
 porated companies. 
 
 There are many cases indeed in which it has been held 
 in England, that buying and selling stocks did not subject 
 a person to the operation of the bankrupt laws, and thence 
 it has been argued that they cannot be considered as merchan- 
 dise, because bankruptcy extends to persons using .the trade 
 of merchandise. But it must be recollected that the bank- 
 rupt acts were deemed to be highly penal, and coercive, and 
 tended to deprive a man in trade of all his property. But 
 most joint stock companies, were founded on the hypothesis 
 at least, that most of the shareholders took shares as an in- 
 vestment and not as an object of traffic; and the construction 
 in question only decided, that by taking and holding such 
 shares merely as an investment, a man could not be deemed 
 a merchant so as to subject himself to the highly coercive 
 process of the bankrupt laws. These cases, therefore, do 
 not bear much on the general question. 
 
 The main argument relied upon, by those who contend 
 that shares are not within the statute, is this. That statute 
 provides that such contract shall not be good &c., among 
 other things, except the purchaser shall accept part of the 
 goods. From this it is argued, that by necessary implication, 
 the statute applies only to goods, of which part may be de- 
 livered. This seems however to be rather a narrow and 
 forced construction. The provision is general, that no con- 
 tract for the sale of goods &c. shall be allowed to be good. 
 The exception is, when part are delivered; but if part can- 
 not be delivered, then the exception cannot exist to take the 
 case out of the general prohibition. The provision extended 
 to a great variety of objects, and the exception may well be 
 construed to apply only to such of those objects to which 
 it is applicable, without affecting others, to which from their 
 nature it cannot apply. 
 
 There is nothing in the nature of stocks, or shares in 
 companies, which in reason or sound policy should exempt 
 contracts in respect to them from those reasonable restric-
 
 TISDALE V. HARRIS 545 
 
 tions, designed by the statute to prevent frauds in the sale 
 of other commodities. On the contrary, these companies 
 have become so numerous, so large an amount of the" prop- 
 erty of the community is now invested in them, and as the 
 ordinary indicia of property, arising from delivery and pos- 
 session, cannot take place, there seems to be peculiar reason 
 for extending the provisions of this statute to them. As 
 they may properly be included under the terms goods, as 
 they are within the reason and policy of the act, the Court 
 are of opinion, that a contract for the sale of shares, in the 
 absence of the other requisites, must be proved by some 
 note or memorandum in writing; and as there was no such 
 memorandum in writing, in the present case, the plaintiff is 
 not entitled to maintain this action. As to the argument, 
 that here was a part performance, by a payment of the money 
 on one side, and the delivery of the certificate on the other, 
 these acts took place after this action was brought, and can- 
 not therefore be relied upon to show^ a cause of action when 
 the action was commenced. 
 
 Verdict set aside and plaintiff nonsuit.- 
 
 "Couiparc the following discussion in Humble V. Mitchell, ii Adol- 
 phus and Ellis, 205, 1839. The question was whether a contract for the 
 sale of shares in an English joint stock hanking property was a contract 
 falling under the 17th Section of the Statute of Frauds. The company 
 was a partnership with transferahle shares. Cresswell and Crompton 
 for the plaintiff: "There is an essential difference between the language 
 of Sec. 72 of the Bankrupt Act, 6 G. 4, c. 16, and of Sec. 17 of the 
 Statute of Frauds. The words of the former are 'goods and chattels;' 
 those of the latter are 'goods, wares, and merchandizes.' The word 
 'chattel' is more comprehensive than any word used in the Statue of 
 Frauds, and has been construed to include debts, bills, bonds, policies of 
 insurance, and shares in a joint stock company, all of which pass to the 
 assignees when in the possession, order, or disposition of the bankrupt ; 
 HornhloK'cr v. Proud [2 B. & Aid. 2)^7]. Here no stock, goods, or 
 tangible property passed to the plaintiff, but only a right to participate 
 in the partnership profits, from whatever source those profits might be 
 derived. A mere right of action is a chattel within the Bankrupt Act; 
 but the merchandizes within the meaning of the Statute of Frauds must 
 be such as are capable of part delivery. The owner of a share is not 
 necessarily entitled to any of the real or personal estate or property of 
 the company; or, if he is, the defendant has not proved it." 
 
 Lord Denman, C. J. : "The other point is whether the shares in this 
 company are goods, wares, or merchandizes, within the meaning of Sec. 
 17 of the Statute of Frauds. It appears that no case has been found 
 directly in point : but it is contended that the decisions upon reputed 
 ownership are applicable, and that there is no material distinction
 
 546 NATURE OF THE ASSOCIATES' INTERESTS 
 
 between the words used in the Statute of Frauds and in the Bankrupt 
 Act. I think tliat both the language and the intention of the two acts 
 are cbstingiiishalilc, and that the decisions upon the latter act cannot be 
 reasonably extended to the Statute of Frauds. Shares in a joint stock 
 company like this are mere choses in action, incapable of delivery, and 
 not within the scope of the 17th Section. A contract in writing was 
 therefore unnecessary." 
 
 In this opinion Patterson, Williams and Coleridge, JJ., concurred.
 
 CHAPTER X 
 
 VOLUNTARY AND INVOLUNTARY ALIEN- 
 ATION OF INTERESTS IN THE 
 COMMON PROPERTY. 
 
 SECTION I.— PARTNERSHIP CASES. 
 
 HEYDON V. HEYDON. 
 In the Court of King's Bench, 1693. 
 
 I Salkeld's Reports, 392. 
 
 Coleman and Heydon were co-partners, and a judg- 
 ment was against Coleman, and all the goods both of Cole- 
 man and Heydon were taken in execution : And it was 
 held by Holt, C. J., and the Court, that the sheriff must 
 seize all, because the moieties are undivided, for if he seize 
 but a moiety, and sell that, the other will have a right to a 
 moiety of that moiety ; but he must seize the whole, and 
 sell a moiety thereof undivided, and the vendee will be ten- 
 ant in common with the other partner. 
 
 (547)
 
 548 ALIENATION OF INTERESTS IN PROPERTY 
 
 EDDIE v. DAVIDSON. 
 In the Court of King's Bench, 1781. 
 
 Douglas's Reports, 627. 
 
 The defendant was partner with one Birnie, against 
 whom a commission of bankrupt had issued, but before the 
 bankruptcy, the plaintiff had sued out execution on a bond 
 of the defendant's, for 700/. and the sheriff had levied on 
 the partnership effects. Birnie's assignees obtained this 
 rule, to show cause why the sheriff should not pay them 
 a moiety of the money arising from the sale of the goods so 
 taken in execution, upon an affidavit of Birnie's, that he was 
 entitled to an equal share of the partnership effects, as part- 
 ner with Davidson. The plaintiff's affidavit, on showing 
 cause, denied that Birnie had an equal share in the partner- 
 ship effects, and stated that he had embezzled the joint stock 
 to a considerable amount. 
 
 The court directed that it should be referred to the Mas- 
 ter to take an account of the share of the partnership effects 
 to which Birnie was entitled ; and that the sheriff should pay 
 a part of the money levied, equal to the amount of such 
 share, to the assignees.
 
 TAYLOR V. FIELDS 549 
 
 TAYLOR V. FIELDS. 
 In the Court of Exchequer, 1799. 
 
 4 I'cscy. Junior's Reports, 395. 
 
 The point in this cause depended upon the general ques- 
 tion, whether a separate creditor of one partner can hold the 
 partnership effects, taken under an execution for his sepa- 
 rate debt, against the joint creditors of the partnership. 
 
 At the time the execution took place the partnership was 
 insolvent ; but a commission of bankruptcy had not then is- 
 sued. 
 
 Sir Archibald MacDonald, Chief Baron, delivered the 
 opinion of the Court. 
 
 The right of the separate creditor under the execution 
 depends upon the interest, each partner has in the joint prop- 
 erty. With respect to that we are of opinion, that the Corpus 
 of the partnership effects is joint property ; and neither part- 
 ner separately has any thing in that Corpus; but the interest 
 of each is only his share of what remains, after the partner- 
 ship accounts are taken. 
 
 In Skipp V. Hanvood, [i Ves. 239, by the name of 
 IVcsf V. Skip: 2 Swanst. 586], we see, that whatever the 
 right of the partnership may be, it is not affected by what 
 may happen between the individual partners. There is a dis- 
 tinction between the rights of the partners and the rights of 
 the partnership. As between one partner and the separate 
 creditors of the other they cannot affect the joint stock any 
 farther than that partner, whose creditors they are, could 
 have affected it. In Po.v v. Hauhury, Cowp. 445. Lord 
 Mansfield was led to the consideration of a point, that bears 
 much upon this case ; and adverting to the case of Skipp 
 V. Hanvood he states a passage of Lord Hardwicke's judg- 
 ment from his own note rather stronger than it appears in 
 the Report: "If a creditor of one partner takes out execu-
 
 550 ALIENATION OF INTERESTS IN PROPERTY 
 
 tion against the partnership effects, he can only have the 
 nndivided share of his debtor; and must take it in the same 
 . manner the debtor himself had it, and subject to the rights 
 of the other partner." 
 
 What is the manner, in which the debtor himself had 
 it? He had that, which was undivided, and could only be 
 divided by first delivering the effects from the partnership 
 debts. He who comes in as his companion, as joint tenant 
 with him, according to this doctrine of Lord Hardwicke 
 must take it in the same manner the debtor himself had it, 
 subject to the rights of the other partners. 
 
 Lord Mansfield having stated what according to the 
 course of the Common Law, as far as it respects trade be- 
 tween partners, is the rule, that a creditor taking out execu- 
 tion against a partner is directly in the place of the partner 
 debtor, proceeds to show, that by the same rule, where a 
 partner becomes bankrupt, the assignees are put in the place 
 of the partner, in whose right they come in, and by no 
 means, as was argued by Mr. Plumer, by any rule arising 
 out of the bankrupt laws; for nothing is said in any one of 
 those Acts as to the creditors of a partnership and the sep- 
 arate creditors of one partner. But the same Common 
 Law applied in the case, where one partner becomes a bank- 
 rupt, provides, that the assignee of the bankrupt shall be 
 in the same situation as that, in which a creditor taking out 
 execution stood before those Acts. This introduces all the 
 cases of bankruptcy ; which Mr. Plumer wished to exclude, 
 as not applicable to a case, in which there was no bank- 
 ruptcy ; and this case is to be considered, as if no bank- 
 ruptcy had taken place ; as the execution was before the 
 bankruptcy. In law there are three relations: first, if a 
 person chooses for valuable consideration to sell his inter- 
 est in the partnership trade; for it comes to that; or if his 
 next of kin or executors take it upon his death ; or if a 
 creditor takes it in execution, or the assignees under a com- 
 mission of bankruptcy. The mode makes no difference: 
 but in all those cases the application takes place of the rule,
 
 TAYLOR V. FIELDS 551 
 
 that the party coming in the right of the partner comes 
 into nothing more than an interest in the partnership, wlijch 
 cannot be tangible, cannot be made available, or be deliv- 
 ered, but under an account between the partnership and the 
 partner ; and it is an item in the account, that enough must 
 be left for the partnership debts. 
 
 A great deal has been said of the inconvenience. What 
 is the inconvenience? It is true, the individual trusted to 
 the partnership fund in his idea at the time he was lending 
 the money : not that I believe, that is very common. But 
 it may be dangerous in a thousand instances to have any 
 thing to do with a trader ; as, for instance, to purchase an 
 estate; for an act of bankruptcy may have been committed 
 five years before, which will reach the estate. But look to 
 the danger on the other side : one partner giving a bond ; 
 and the creditors of the partnership looking to the stock 
 itself. It is said, that in this case the joint creditors had 
 done nothing; and this meritorious creditor has a right to 
 be preferred on account of his early diligence. But what 
 is that, to which he is entitled? The estate of a partner is 
 debtor to him. The question therefore recurs to the con- 
 sideration, what it was that partner had ; for the creditor 
 cannot be entitled to any more. It therefore argues nothing 
 to say, he has the merit of diligence, till we see, upon what 
 that merit can attach. If the partner himself therefore had 
 nothing more than an interest in the surplus beyond the 
 debts of the partnership upon a division, if it turns out, 
 that at Common Law that is the whole, that can be deliv- 
 ered to, or taken by, the assignee of a partner, the execu- 
 tor, the sheriff, or the assignee under a commission of bank- 
 ruptcy, all, that is delivered to the creditor, taking out the 
 execution, is the interest of the partner in the condition and 
 state he had it ; and nothing was due to this partner sepa- 
 rately, the partnership being insolvent. The whole prop- 
 erty was due to the partnership creditors, and not to either 
 partner.
 
 552 ALIENATION OF INTERESTS IN PROPERTY 
 
 LORD V. BALDWIN. 
 
 In the Supreme Judicial Court of Massachusetts, 
 
 1828. 
 
 23 Massachusetts Reports, 348. 
 
 This was an action of the case against the defendant, 
 a deputy sheriff for neglecting to levy an execution in favor 
 of the plaintiff against John Brown, upon certain goods 
 which had been attached by the defendant, upon the origi- 
 nal writ, as the property of Brown. Brown carried on busi- 
 ness in his own name alone, and the goods were in his shop 
 as stock in trade. Before the plaintiff attached, there had 
 been three attachments of the same goods in favour of W. 
 Lawrence, the Dorchester Iron Company and Aaron Brown, 
 in suits against John Brown alone ; in which suits judg- 
 ments were obtained and executions were duly issued and 
 delivered to the defendant. Soon after these attachments, 
 by the consent of all parties, the goods were sold by the de- 
 fendant pursuant to law. The defendant paid to Lawrence 
 and the Dorchester Iron Company the amount of their re- 
 spective executions, and to Aaron Brown a certain sum in 
 part satisfaction of his execution; retaining in his hands 
 enough of the proceeds to satisfy that execution in full, and 
 the plaintiff's execution in part. 
 
 After the foregoing attachments, Bogart & Co. sued 
 out their writ of attachment against John Brown and Aaron 
 Brown, charging them as copartners, and on this writ the 
 defendant attached the same goods as copartnership prop- 
 erty. On the trial of the action, upon the question of co- 
 partnership, Bogart & Co. obtained a verdict, and judgment 
 was rendered in their favour against John and Aaron 
 Brown ; and the defendant was notified to hold the proceeds 
 of the stock to satisfy the judgment. 
 
 The debt upon which the judgment in favour of Bogart
 
 TAYLOR V. FIELDS 553 
 
 & Co. was rendered, arose from the sale of goods to John 
 Brown, and the goods made part of the stock in the store; 
 and the other debts, except the one due to Aaron Brown, 
 arose in the same way ; it being unknown that a copartner- 
 ship existed between John and Aaron Brown. 
 
 If the court should be of the opinion that the existence 
 of a dormant partnership, unknown to all the parties who 
 dealt with John Brown, did not give Bogart & Co. priority 
 of security upon the goods as partnership property, the de- 
 fendant was to be defaulted.^ 
 
 Parker C. J. delivered the opinion of the Court. The 
 question presented in this case is entirely new ; no authori- 
 ties have been cited, nor have we been able to find any 
 whicli bear very strongly upon it. 
 
 The plaintiff made the third attachment upon the 
 goods apparently belonging to John Brown, to secure his 
 debt. 
 
 The defendant had sufficient funds in his hands, the 
 proceeds of the goods attached, to satisfy the judgment in 
 this suit, in whole or in part, if he is not obliged in law to 
 appropriate them to the satisfaction of another judgment 
 obtained by Bogart & Co. against John and Aaron Brown, 
 who made their attachment on the same goods, after the 
 attachment made by the plaintiff ; and the right of priority 
 is supposed to be in Bogart & Co.. because John and Aaron 
 Brown are found to be partners, having a joint interest in 
 the stock of goods which were attached, upon the principle 
 that the partnership fund is to be applied to the payment 
 of partnership debts, before a separate creditor of one of 
 the firm can be allowed to resort to it for satisfaction of his 
 debt. The principle is well settled, having been first ap- 
 plied to cases of distribution under commission of bank- 
 ruptcy. But it is a reasonable principle, and has been 
 adopted and enforced by this Court in the case of Pierce v. 
 Jackson, 6 Mass. Rep. 242, and is there said to be a prin- 
 ciple of the common law. 
 
 ' The Reporter's notes of the arguments of counsel are omitted.
 
 554 ALIENATION OF INTERESTS IN PROPERTY 
 
 It is only the application of this principle to cases as 
 they arise, which can afford any room for argument or 
 doubt ; and in order to determine such question, the reason 
 of the rule must be sought for, and the particular case must 
 be brought within the reason, as well as within the terms 
 of the law. 
 
 The basis upon which the rule rests is, that those 
 funds shall be liable upon which the credit was given. Those 
 who sell goods or make contracts with a company or firm, 
 are supposed to trust to the ability or property of the 
 firm. Those who trust the individual member, rely upon 
 his sufficiency alone. The former are equitably entitled to 
 be first paid out of the joint stock, and if after paying all 
 the debts there is still a surplus, that is the property of the 
 individuals in proportion to their interest in the common 
 fund, and to that extent only is it liable to the creditor of 
 the individual. In the case of common public partnerships 
 there is no difficulty in applying the principle, and in case 
 of bankruptcy or insolvency it is the fair mode of distri- 
 bution of the effects. 
 
 But the case before us is that of a dormant partner- 
 ship, which is necessarily, from its very character, unknown 
 at the time the liability is incurred. All the creditors sold 
 their goods or made their contract with the ostensible, visi- 
 ble partner : they trusted to him personally, and to the 
 goods upon which he was trading as his. The dormant 
 partner is brought to light by ex post facto investigation, 
 and he is made responsible, not because he was trusted, 
 but because he secretly enjoyed the profits of the business. 
 Now in such case, the reason for giving preference to such 
 creditors as may first discover his liability, so that stock 
 ostensibly belonging to the visible partner shall first be 
 applied to the satisfaction of their debts, does not exist. 
 Even if he owned the whole of the stock, as between him 
 and the known man of business still it is in law the prop- 
 erty of the latter, for he is allowed to claim and use it a.s
 
 TAYLOR V. FIELDS 555 
 
 his alone, and thus lead persons to trust him upon the faith 
 of the goods in his possession. 
 
 Whether a private creditor of his could seize property 
 so situated and hold it against the creditors of the ostensi- 
 ble owner, is a question of a different nature. 
 
 The question now is whether, when all the creditors 
 have trusted the man of business and apparent owner of 
 the goods, any one of them who is behind the rest in his 
 attachment, shall supplant them and gain priority because 
 he has discovered this concealed liability. At the time the 
 debt was created, he stood upon the same footing with the 
 rest ; he trusted John Brown and the goods in his pos- 
 session ; so did they. They have taken possession first of 
 the fund which was held out to the public as the means of 
 credit, and it might be, and probably was in this very case, 
 that the goods attached are the identical goods which they 
 sold to the party sued. There would be then no pretence 
 of equity and we think not of law, in allowing a preference 
 founded upon no meritorious distinction of circumstances. 
 
 That this question has not arisen before, is owing per- 
 haps principally to the fact, that most of the dormant part- 
 nerships have been such as have resulted from a loan of 
 money to be employed in the partnership concerns, where 
 the receipt of a part of the profits of the business has been 
 the compensation for the loan. The silence of the books 
 themselves seems evidence of the unsoundness of the doc- 
 trine now sought to be applied. It is considered that the 
 mere fact of liability as a partner does not give an in- 
 terest or ownership in the stock in trade; the whole may 
 ha\e been purchased for and in the name of the visible 
 partner, and it usually is so in cases of dormant partner- 
 ships. The property then is not the dormant partner's to 
 the prejudice of those who trust him who carries on the 
 business and obtains the credit. Ex parte Eiidcrbv, 2 Barn. 
 
 6 Cres. 389; Smith v. Watson, ibid. 401 ; George v. Clagett, 
 
 7 T. R. 359. 361, note. 
 
 So far as the cases of dormant partnership have been
 
 556 ALIENATION OF INTERESTS IN PROPERTY 
 
 discussed, the opinions advanced have been of a contrary 
 tendency. Thus an action may be maintained by the ostensi- 
 ble partners, without joining a dormant partner, against a 
 person who dealt only with the ostensible partners. Mon- 
 tagu, 182; Lcvcck V. Shaftoc, i Esp. Rep. 468. This 
 shows that whether the action is to be affected or not, de- 
 pends upon the parties with whom the contract is made. 
 
 So in an action brought by ostensible and dormant 
 partners, the defendant may set off a debt due from the 
 ostensible partner only. Montagu, 182 ; 7 T. R. 359; Lloyd 
 V. Archboivlc, 2 Taunt. 324. 
 
 In the case of Curtis v. Perry, 6 Ves. 747, the follow- 
 ing case is stated by the Lord Chancellor as having oc- 
 curred, though there seems to be no report of it. Three 
 persons, partners in a manufactory in Lancashire, sold their 
 goods in London in the names of two of them only. A 
 credit therefore was acquired by them all in Lancashire, 
 and by two in London, which affected the distribution of 
 their property. And in 2 Barnw. & Cres. 401, it is said, if 
 a secret partnership could be set up as an answer to as- 
 signees claiming property which had been left in the order 
 and disposition of the bankrupt, as apparent owner, enor- 
 mous debts, unconnected with the partnership business, 
 might be contracted upon the credit gained by the possession 
 of property, which a person wholly unknown to the creditors 
 might claim, to the exclusion of their just demands. 
 
 Finding therefore that this is a first attempt to main- 
 tain the preference which is sought for in this action, that 
 the meritorious ground of preference in other cases does 
 not here exist, and that the analogical reasoning upon case^ 
 which have been decided is against the defendant, we are 
 of opinion that the plaintiff is entitled to recover of the 
 deputy sheriff so much as remains in his hands of the pro- 
 ceeds of the property attached, after satisfying the exe- 
 cution of Aaron Brown.- 
 
 Cammack v. Johnson, 2 N. J. Eq. 163. 1839. (C ct al. secured judg- 
 ments against B, levied on property in B's possession and the Sheriff
 
 TAYLOR V. FIELDS 557 
 
 was about to sell the same, when A brought a bill in equity setting fortli 
 that he, A, was a dormant partner of B ; that the partnership was 
 indebted to A ; that he. A, believed that the debts due by B to C et al. 
 were in whole or part the individual debts of B. The prayer of the bill 
 was for an injunction to restrain the sale of partnership property, on 
 account of the partnership, and the appointment of a receiver. The 
 arswer of C ct al. denied all knowled;-;e of the partnership. On appeal, 
 injunction dissolved. See contra: Witter v. Richards, infra, Doner v. 
 ^tanffer, note 2.
 
 558 ALIENATION OF INTERESTS IN PROPERTY 
 
 DONER V. STAUFFER. 
 In the Supreme Court of Pennsylvania^ 1829. 
 
 I Penrose mid Watts' Reports, 198. 
 
 Writ of error to the Court of Common Pleas of Lan- 
 caster county. 
 
 This was a feigned issue, directed by that court, and 
 joined between the defendants in error, who w'ere the 
 plaintiffs below, and for whom the verdict passed, and the 
 plaintiffs in error, who were the defendants below. 
 
 It appeared from the evidence in the cause that Daniel 
 Howry and Benjamin B. Eshelman entered into partner- 
 ship in a manufacturing establishment, under the firm of 
 Howry and Eshelman. They became considerably indebted. 
 Judg'ments were entered and executions were issued against 
 each of them. Abraham Doner, Samuel Herr, John Howry 
 and Samuel Howry had severally judgments against Daniel 
 Howry, on each of which an execution issued against him, 
 and was levied on the 9th of August, 1825, on the per- 
 sonal property of Daniel Howry and Benjamin B. Eshel- 
 man as partners in trade. 
 
 John Staufifer, Christian Breckbill and Jacob Eshelman 
 had severally obtained judgments against B. B. Eshelman, 
 on each of which judgments an execution was issued against 
 him and levied on the iith day of August 1825, on Benja- 
 min B. Eshelman's share of the personal property of Ben- 
 jamin B. Eshelman and Daniel Howry, as partners in trade. 
 By virtue of these and other executions, the personal prop- 
 erty of the firm was sold for the sum of $5070.39, which, 
 after payment of the costs, left a balance of $4779. This 
 balance was paid into court for distribution. 
 
 On a rule obtained by the counsel of Stauffer, Breckbill 
 and Eshelman, to show cause why the one-half of the pro- 
 ceeds of the sale of the firm property should not be applied
 
 DONER V. STAUFFER 559 
 
 to the satisfaction of their executions against B. B. Eshel- 
 man, the court decided that the execution-creditors of Ben- 
 jamin B. Eshehnan had a legal right to his share of, and 
 interest in the partnership effects of the firm of Howry & 
 Eshelman, as it stood on the nth August 1825, when the 
 executions were levied ; and directed this issue, to try what 
 that share or interest was. 
 
 The plaintiffs claimed a moiety or half part of the 
 $4779 as their share. 
 
 The plaintiffs having closed their evidence, the defend- 
 ants, in support of the issue taken in the cause, offered to 
 prove that the firm of Howry & Eshelman was entirely 
 insolvent on the i ith August 1825 ; that the debts and claims 
 against the said firm existing on the said nth August 
 1825, which were then unpaid, greatly exceeded the whole 
 property of the said firm ; that Benjamin B. Eshelman, on 
 the said day, had no interest whatever in the said firm, and 
 that Daniel Howry, the other partner, is greatly interested 
 in the application of the funds of the said firm to the pay- 
 ment of the debts of the said firm, as he is answerable, in- 
 dividually and as a partner, for the whole of the said debts. 
 Which offer being objected to, the court overruled the 
 same, and delivered the following opinion, to wit : "I am 
 satisfied that the authorities cited settle the law as it applies 
 to the cases decided, that is to say, to cases where there are 
 separate executions against one partner levied on the part- 
 nership effects. But this is a case where the whole part- 
 nership effects are swept away by separate executions 
 against each partner, where the creditors at large have no 
 lien. I must say that the principal object in directing this 
 issue was, as it was a case of great importance, to give an 
 opportunity of completely considering and reviewing the 
 law on the subject. But I am very clear that Benjamin B. 
 Eshelman's interest, or want of interest, cannot be shown 
 by evidence of debts due from the firm, and that the testi- 
 mony offered relative to the insolvency of the firm, and 
 the interest of Daniel Howry in the application of the
 
 560 ALIENATION OF INTERESTS IN PROPERTY 
 
 funds of the firm to the payment of its debts, cannot be 
 admitted." 
 
 To this opinion, overrnhng the evidence offered, the 
 defendants excepted. 
 
 Although the issue joined was between the separate 
 execution-creditors of the respective partners, the counsel 
 for the defence appeared for the joint-creditors of the firm, 
 to controvert the right of the separate creditors of Eshel- 
 man, to be paid out of the fund in court, before the joint- 
 creditors were satisfied ; and they alleged that after the 
 executions of the separate creditors were levied, Howry & 
 Eshelman had made an assignment to trustees, for the bene- 
 fit of the creditors of the firm. 
 
 The only question now raised in this court, upon the 
 charge of the court below, and the bill of exception, was, 
 whether the separate execution-creditors of Eshelman had 
 a right to be paid out of the proceeds of the sales of the 
 goods of the firm, before the joint-creditors were satisfied 
 out of that fund.^ 
 
 Gibson, C. J. : It is settled by a train of decisions in 
 the American, as well as the British courts, that the joint 
 efTects belong to the firm, and not to the partners, each of 
 whom is entitled only to a share of what may remain after 
 payment of the partnership debts; and consequently, that no 
 greater interest can be derived from a voluntary assign- 
 ment of his share, or a sale of it on execution. That a con- 
 tract which enables the parties to keep a class of their 
 creditors at bay, and yet retain the indicia of ownership, 
 should not have been deemed within the Statutes of Eliza- 
 beth, is attributable exclusively to the disposition universally 
 manifested by courts of justice to encourage trade. But 
 such as it is, has the contract of partnership been estab- 
 lished ; and the principle which enables the partners to 
 pledge to each other, the joint effects as a fund for payment 
 of the joint debts, has introduced a preference in favor of 
 the joint creditors, founded on no merits of their own, but 
 
 ^ The Reporter's notes of the arguments of counsel are omitted.
 
 DONER z'. STAUFFER 561. 
 
 on the equity which springs from the nature of the con- 
 tract between the partners themselves. The author of the 
 Commentaries on American Law, vol. 3, p. 38, attribj.ites 
 this preference to an inherent equity in the joint creditors 
 themselves, arising from a supposed acquisition of the part- 
 nership effects from their means. The opinions of Chan- 
 cellor Kent are so justly entitled to deference that no pru- 
 dent judge will differ from him without hesitation; yet I 
 cannot but adhere to the opinion I expressed in Bell v. Ncw- 
 iiiaii, 5 S. & R. 92, that in cases of insolvency or bank- 
 ruptcy, in which alone the question of priority can be 
 material, the joint effects consist of the wreck of the capital 
 originally embarked. Under a joint commission, by which 
 the effects pass to the assignees, while the partners are per- 
 sonally ^Jischarged, I admit, that the preference of the joint 
 creditors has no other foundation, if it has any at all, than 
 this supposed inherent equity ; and the best elementar}^ 
 writer on the subject so disposes of the difficulty : Gow on 
 Partnership 341-2. But in the case of a separate commis- 
 sion. Lord Eldon expressly jxits it on the particular equity 
 of the partners themselves. Ex parte Ruffin, 6 Vesey 126, 
 and in the case of an execution. Chief Baron McDonald 
 does the same : Taylor v. Fields, 4 Vesey 396. To secure 
 the firm from the extra^•agance of its members, by pre- 
 venting the capital from being withdrawn from the pur- 
 poses of the partnership, the stock is pledged for the burden 
 which, from the nature of the connection, is to be borne by 
 all ; but in moulding the law of partnership to its present 
 form, the credit gained by giving the joint creditors a 
 preference, was, if an object at all. a very remote one. 
 Accordingly, with the single exception of a joint commis- 
 sion, we find that wherever the partners are not individuallv 
 involved, the joint creditors have no preference whatever; 
 as in the instance of a bona fide assignment of the effects, 
 to one of the partners, after the partnership has been dis- 
 solved. 
 
 In consequence of the rule as I have stated it, a sep-
 
 562 ALIENATION OF INTERESTS IN PROPERTY 
 
 arate execution-creditor sells, not the chattels of the part- 
 nership, but the interest of the partner, ""encumbered with 
 the joint debts ; and the joint creditors therefore have no 
 claim to the proceeds. To allow them the proceeds, and 
 recourse to the property in the hands of the purchaser, 
 would subject it to a double satisfaction. Neither can they 
 take the proceeds or the property at their election. They 
 can interfere at all, only on the ground of a preference 
 which has regard only to the partnership effects, and these 
 have not been sold, but only the subordinate interest of the 
 partner, which was, strictly speaking, his separate estate. 
 Their recourse, therefore, is necessarily to the property in 
 the hands of the purchaser. Now, had the sheriff sold the 
 interest of but one of the partners, the execution-creditor 
 would have clearly been entitled to the proceeds. But al- 
 though he sold the whole stock at one operation, on sep- 
 arate executions against both, there was, in contemplation 
 of law, a separate sale of the interest of each. What then 
 would have been the effect, had these sales been made con- 
 secutively? The first, in the order of time, would have 
 l)assed the interest of the partner, subject to the equity of 
 his co-partner, and the execution-creditor would have been 
 entitled to the price. But this equity, together with the 
 remaining interest of the other partner, would have passed 
 by the succeeding sale to the same purchase! ; the execution- 
 creditor, in that instance, also taking the proceeds. Can it 
 make a difference, then, that instead of being consecutive, 
 these two sales were simultaneous? A curious question 
 might arise, whether separate purchasers of the shares re- 
 spectively, would .stand in the relation of partners, so as to 
 enable the joint-creditors to follow the goods. It seems to 
 me they would not, because not personally involved in pay- 
 ment of the debts. 
 
 Here, however, where the shares of the partners are 
 united in the same purchaser, every semblance of partner- 
 ship-equities is at an end. As regards the goods in the 
 hands of the purchasers, this is conceded ; but the joint-
 
 DOXER r. STAUFFER 563 
 
 creditors insist that the proceeds are to be substituted for 
 the goods, and subjected to the same equities. That might 
 be done if the proceeds belonged to the partners; but it- is 
 not easy to imagine how they are to be treated as the 
 owners of mone}^ raised by a sale on executions against 
 them. For what purpose should the ownership of it be 
 vested in them, even for an instant? Not to give the joint- 
 creditors a preference, for that would make the rights of 
 the partners depend on the claims of the joint-creditors, 
 who, on the contrary, can claim nothing but by virtue of 
 the lien, where there is one, of the partners. 
 
 To say that the partners have such a lien because the 
 joint-creditors have an ecjuity, and that the joint-creditors 
 have an equity because the partners have a lien, would be to 
 argue in a circle. Here the partners cannot be prejudiced 
 in respect of their claims on each other, the advantage to 
 be gained from an application of the joint effects to their 
 .separate debts, being mutual and equal. The consecjuences 
 are precisely the same, as if the effects had been sold on 
 execution against both. We are, therefore, of opinion that 
 the joint-creditors can not interpose ; and consequently, that 
 the rejection of the evidence, as well as the direction to the 
 jury, was substantially right. 
 
 I liave considered the question on principles applicable 
 to it, in analogy to well settled parts of the law of part- 
 nership, rather than on authority bearing directly on the 
 point. But, since this opinion was drawn, my brother 
 Huston has directed my attention to the case of Briiikcr- 
 hoff V. Marvin, 5 Johns. Ch. 300, which is direct to the 
 point; so that independent of analogies, we have an author- 
 ity on which we might safely rule the cause. But both 
 principle and authority are adverse to the preference 
 claimed; and the issue, therefore, was correctly found for 
 the plaintiff. 
 
 Judgment affirmed.- 
 
 ' Compare: McXutt v. Stmylwni, 39 Pa. 269, 1861. (A and B were 
 partners. A assigned all his interest in the firm assets to C for the
 
 564 ALIENATION OF INTERESTS IN PROPERTY 
 
 1)eiicfit of liis creditors. B also assigned all his interest in the firm 
 assets to C for a similar purpose. D, a firm creditor, issued execution 
 and the Sheriff levied on the property which had helonged to the firm. 
 C brought suit against the Sheriff. Judgment for the plaintiff on the 
 ground tliat the successive assignments vested the entire property of the 
 firm in C. See Case v. Beauregard, infra, p. 603.) 
 
 Coint^arc: Witter v. Richards, 10 Conn. T,y, 1833. (A and B were 
 partners, B being a dormant partner. C, a separate creditor of A, 
 attached firm property. D, a firm creditor, though ignorant of the 
 existence of the firm, subsequently- attached firm assets, and then 
 brought a bill in equity to enjoin sale under first attachment and to 
 establish his right to priority. The prayer of the bill was granted. 
 Williams, J.: "But it is claimed, that as this partnership was a dormant 
 one, and as the creditors did not know of its existence, they ought to 
 stand upon the same ground as the separate creditors of Hutchinson, 
 whom they all trusted. Now, if the partnership creditors had done any 
 act to hold out Hutchinson as the sole owner of the goods, or if there 
 was any fraud in the case, or even if they could be made responsible for 
 the declarations of Kinne, there certainly would be some foundation 
 for this argument. But no fraud is found; and they cannot be respon- 
 sible for Kinne's declarations ; nor have they done any act intending to 
 give this man a false credit. The partners, therefore, must stand upon 
 their rights, as recognized in a court of equity. And the right of the 
 separate creditor depends upon the interest which each partner had in 
 the partnership property; and such creditor can have nothing but what 
 his debtor had therein." 
 
 Linford v. Lin ford, 28 N. J. L. 113, 1859. (A and B were partners. 
 A advanced money to the firm and took I3's individual bond. C ad- 
 vanced money to the firm and took the bond of A and B. A and C 
 agreed that if judgments were entered on their bonds the amounts raised 
 thereby should be paid to A and B ratably. Judgments were entered on 
 both bonds, and the partnership property sold on executions issued. 
 Held, that A and C should be paid ratably out of the proceeds of the 
 sale ; that the law would have given C priority, but he had chosen to 
 barter away his rights, and it was not necessary to decide the question 
 of how far the court would interfere on the application of B to have 
 the partnership property applied first to the payment of partnership 
 debts. 
 
 Fandike's Appeal, 57 Pa. 9, 1868. (A and B were partners. Under 
 executions issued by the separate creditors of each, the Sheriff levied 
 and sold property belonging to the partnership. Held, that the Sheriff 
 only sold the interest of A and B in the property, not the title of the 
 partnership to the property, and that therefore a firm creditor as such 
 had no interest in the proceeds of the sale.)
 
 TAPPAX V. BLAFSDELL 565 
 
 TAPPAN r. BLAISDELL. 
 
 In the Superior Court of Judicature, New Hamp- 
 shire, 1830. 
 
 5 New Hampshire Reports. 190. 
 
 Case against the defendant, a deputy sheriff, for not 
 levying an execution in favor of the plaintiffs against Hub- 
 bard Harris and Jacob Blaisdell, upon certain goods which 
 had been attached upon mesne process, as the partnership 
 property of said Harris and Blaisdell. 
 
 The cause was tried here upon the general issue, at 
 May term, 1829, when it appeared in evidence that on the 
 30th of October, 1826, by virtue of a writ in favor of the 
 Grafton bank against Jacob Blaisdell, his interest in the 
 goods belonging to the firm of Harris and Blaisdell was 
 attached ; and on the same day, by virtue of a writ in favor 
 of the Pemigewasset bank, against Harris, his interest in 
 the goods belonging to the same firm was attached. 
 
 On the /th November, 1826, the goods attached as 
 aforesaid were again attached by virtue of a writ in favor 
 of the plaintiff, against said firm of Harris and Blaisdell, 
 for a partnership debt. 
 
 The plaintiffs in said suits obtained judgments and 
 executions, and all the executions were delivered to the de- 
 fendant within thirty days after judgment. 
 
 On the 1 6th Novcmljer, 1826, notice was given to the 
 defendant as follows: 
 
 "To A. A. Brewster, Esq., sheriff, and Joshua Blais- 
 dell, deputy : 
 
 Gentlemen : You are hereby notified not to sell the 
 property of Hubbard Harris and Jacob Blaisdell, belonging 
 to them jointly as copartners in trade, and attached bv you 
 in the action, the Grafton bank against said Blaisdell, and 
 the Pemigewasset bank against said Harris, as those suits
 
 566 ALIENATION OF INTERESTS IN PROPERTY 
 
 are founded upon the individual debts of said Harris and 
 Blaisdell, and not on their joint debts, as partners in trade; 
 but reserve said property to be sold and appropriated in the 
 suits, Tappan and Mansfield against said Harris and Blais- 
 dell, &c., as those suits are founded on debts due from 
 Harris and Blaisdell, jointly, as partners in trade. 
 
 J. QuiNCY, Attorney, &c. 
 
 But the defendant, after receiving notice as aforesaid, 
 sold the property and applied the whole proceeds to the 
 satisfaction of the said executions in favor of said banks, 
 and returned the execution of the plaintiffs in no part satis- 
 fied. 
 
 A verdict was taken for the plaintiffs, subject to the 
 opinion of the court upon the forgoing case.^ 
 
 Richardson, C. J. : It seems to have been understood 
 as settled law for a long time, that the share which a part- 
 ner has in the partnership property may be taken and sold 
 by virtue of an execution issued for his separate debt. 
 
 According to the old cases in the courts of law, the 
 separate creditor took the goods of the partners, and sold 
 the share of his debtor, without inquiring what were the 
 rights of the other partners, or what was the real share of 
 each. I Shower 169, Blackhurst v. Clinkard; i Salkeld 
 392 ; Comyn's Rep. 277. 
 
 But the true nature of a partnership seems to have 
 been better understood in more modern times, and it is 
 now settled that each partner has a lien on the partnership 
 property, in respect to the balance due to him and the 
 liabilities he may have incurred on account of the partner- 
 ship. 4 Johns. C. Rep. 525 ; Cowper 445, Fox v. Hanbury; 
 4 Vesey 396, Taylor v. Fields; 17 Vesey 193, Dutton v. 
 Morrison; 16 Johns. 102, Smith's Case. 
 
 It is also well settled that partnership property cannot 
 be holden to pay the separate debt of an individual partner 
 until all the partnership debts are paid. From the very 
 
 * The Reporter's notes of the arguments of counsel are omitted.
 
 TAPPAN V. BLAISDELL 567 
 
 nature of a partnership it is clear that the whole property 
 is pledged to the payment of the partnership debts, in 
 preference to any other purpose. 4 Vesey, 396, Taylor-v. 
 Fields; 17 Mass. Rep. 206, 207; 6 Pick. 350. 
 
 The necessary consequence of all this is, that goods 
 belonging to a firm cannot be holden by attachment upon a 
 writ, or by a seizure upon execution, against an individual 
 partner for his separate debt, so long as any debt remains 
 due from the company. All that can be taken is the in- 
 terest of the debtor in the firm ; not the partnership effects 
 themselves, but the right of the partner to a share of the 
 surplus that may remain after all the debts are paid. 16 
 Johns. 106; 3 B. & P. 288, Parker v. Pistor; ibid 289, Chap- 
 man V. Koops; 2 Johns. Ch. Rep. 548, Moody v. Payne; 4 
 Vesey, 396; 2 V. & B. 301; 6 Mass. Rep. 271, Fisk v. 
 Herrick. 
 
 It is therefore clear that the plaintifl^s in this case were 
 entitled to have the partnership property of Harris and 
 Blaisdell api)lied to the payment of their execution against 
 the firm, in preference to the executions which has issued 
 against the individual partners, and there must be judgment 
 on the verdict.
 
 568 ALIENATION OF INTERESTS IN PROPERTY 
 
 PHILLIPS 7'. COOK. 
 
 In the Supreme Court of Judicature of New 
 York, 1840. 
 
 24 WendcH's Reports, 389. 
 
 This was an action of trespass dc bonis aspovtatis, 
 tried at the Onondaga circuit in September, 1837, before 
 the Hon. Daniel Moseley, one of the circuit judges. 
 
 The plaintiffs made title to the property in question 
 under an assignment for the benefit of creditors, executed 
 to tliem by Mrs. A. Ruoul, a meml)er of the firm of A. 
 Damaus & Co. composed of herself and A. Damans. The 
 assignment was executed in the evening of the eighth day 
 of December, 1836. The business of the firm was that of 
 druggists and booksellers, and by the assignment executed 
 by Mrs. Ruoul, in the name of the firm, all the goods, books, 
 stationery, drugs, medicines, and all other property in the 
 store occupied by the firm in the village of Syracuse, was 
 transferred to the plaintiffs. The firm at the time was in- 
 solvent. The property assigned amounted to nearly $5000. 
 On the 9th December the plaintiffs took possession of the 
 property and commenced the disposition thereof at private 
 sale and at auction, and continued to do so until 30th Jan- 
 uai-y, 1837, when the defendant, as a deputy of the sheriff 
 of the county of Onondaga, took and sold goods of the 
 value of $536.56, and delivered the same to the purchasers. 
 The defendant sold the goods by virtue of an execution 
 arainst A. Damaus, one of the members of the firm of A. 
 Damaus & Co. who absconded abmit the first day of No- 
 vember, 1836. The defendant, as deputy sheriff, received 
 the execution on the seventh day of December, 1836, and 
 on the next day /// the morning levied upon the goods in 
 the store then occupied l)y the finn of A. Damaus & Co. 
 All, however, that he did as to the levy was to go into the
 
 PHILLIPS V. COOK 569 
 
 store and see the goods. The execution was for $410. 
 The counsel for the defendant insisted that the assignment 
 was void as against a creditor who had caused a levy to be 
 made upon the individual interest of one of the partners by 
 virtue of an execution, and at all events that trespass would 
 not lie. The judge charged the jury that the assignment 
 was valid, and that the defendant was not in a situation to 
 question it ; that trespass was the proper action, and that the 
 plaintiffs were entitled to recover. The defendant excepted 
 to the charge, and the jury found a verdict for the plain- 
 tiffs for $536.56. The defendant asks for a new trial. ^ 
 
 By the Court, Cowen, J. : A point is now made 
 on the validity of the levy ; but it was not raised at 
 the trial ; and the only question is whether trespass 
 will lie against the sheriff for seizing and selling 
 under a fi. fa. the property of an insolvent firm, to 
 satisfy the individual debt of one of the members. The 
 action here is the same as if it had been brought by the 
 partners, it being by trustees, claiming under an assign- 
 ment made subsequent to the levy. The question has been 
 a good deal discussed before us in consequence of some 
 apparent conflict in the cases, and a difficulty upon them, 
 felt more by the other members of the court than by my- 
 self. For one I never could bring myself to doubt a priori; 
 nor have I been able to see any serious discrepancy in the 
 adjudications. Not a single direct authority has been shown 
 for maintaining this action: nor any intimation to that 
 effect, although the question stood over in Thurber v. 
 Lewis, for several terms, under directions to re-argue. The 
 whole doctrine is gone into a distinct section of Collyer on 
 Partnership, 473, to 478, Am. ed. of 1839, where several of 
 the most material cases, English and American, are cited. 
 The result is, that at law, the sheriff may scice and sell the 
 interest of a partner in all choses in possession, the same as 
 
 ' The Reporter's notes of the arguments of counsel are omitted, 
 and, because of its great length, only a portion of the opinion is 
 reprinted.
 
 570 ALIENATION OF INTERESTS IN PROPERTY 
 
 he may that of any joint tenant, or tenant in common. 
 Partners are joint tenants in the stock and all the effects; 
 they are seized per mi ct per tout. Collyer, 64. And the 
 rule of proceeding expressly laid down in the books is, that, 
 under a fi. fa. against one, the sheriff must seize the entire 
 partnership effects, so far as may be necessary to satisfy 
 the execution ; he must sell that partner's share against 
 whom the execution is ; and then the vendee becomes tenant 
 in common with the other partner. Backhurst v. Clinkard, 
 I Shower, 169. Holt, 643, S. C. Heyden v. Haydon, i 
 Salk. 392. The doctrine of these cases has never been 
 doubted; but has been as often reaffirmed as the question 
 has been mentioned by courts or in any of the Treaties on 
 Partnership. It was adjudged in Jacky v. Butler, 2 Ld. 
 Raym. 871, and in Marriott v. SJiaiv, Com. Rep. 275, 277. 
 The true rule was laid down by Holt, Ch. J., in Pope v. 
 Haman, Comb. 217: "Upon a judgment against one part- 
 ner, the sheriff may take the goods of both in execution; 
 and the other co-partner hath no remedy at law, otherwise 
 than by retaking the goods, if he can; for the vendee of the 
 sheriff becomes tenant in common with the other co-part- 
 ner." This is but saying what every one would, who has 
 studied the text of Littleton, Co. Litt. Sec. 323, 199, b. So 
 far as this section and Coke's Commentary pertain to the 
 question, they are both adopted in St. John v. Standring, 2 
 Johns. R. 468. 
 
 It does not appear to have been doubted in any age of 
 the law, that the sheriff might take and sell the separate 
 partner's interest. The questions have been whether he 
 might not sell the whole interest of both, on a fi. fa. against 
 one ; or whether he could seize the whole. The answers in 
 all the cases have been, you must seize the whole, and sell 
 only the moiety belonging to the debtor. These were 
 called old cases on the argument ; the antiquity of those 
 cases only adds to their strength. They are all, however, 
 since the revolution of 1688, ranging from Wm. and Mary 
 down to the Georges. They were cited and approved by
 
 PHILLIPS V. COOK 571 
 
 Lord Kenyon, in Smith v. Stokes, i East, 363, 367. More 
 than that, they were expressly affirmed by a decision of this 
 court, Schrugham v. Carter, 12 Wendell, 131. The entire 
 partnership property was there taken under an execution 
 against one, and this court held that replevin would not lie 
 by the assignees of the firm. Savage, Ch. J., laid down the 
 law^ as it was understood by Holt, Ch. J., in the reign of 
 William and Mary. 
 
 It was admitted in argument that the sheriff may seize, 
 but it was said that neither he nor the purchaser can remove 
 the property. Whereas the cases at law are all express that 
 he may sell, from Holt down to the 12 IVeudell. The dis- 
 tinction sounds singular on its face. For what purpose 
 does a sheriff seize property on a /z. fa. if not to remove and 
 sell it? But his power was assailed a priori, and it was 
 said he can exercise no greater powder over the property 
 than the copartner against whom the execution goes ; that 
 by the levy, the sheriff is but a tenant in common, who 
 must wait his chance, and take the goods when he can ; but 
 he cannot remove them if his co-tenant be unwilling and 
 hold on to the possession, without committing a breach of 
 the peace. If this were so, the reason would be a perfect 
 non seqiiitur as to the right of suing in trespass de bonis, 
 trover or replevin, however it might entitle the co-tenant 
 to sue for an assault in wresting the property from him. 
 Hyatt V. Wood, 4 Johns. R. 150, 159, 160. But is the law 
 so absurd as to command a sheriff by its writ to seize and 
 sell an article, yet forbid him to remove it, or declare him 
 a breaker of the peace for selling it, because he resisted, and 
 put to the exercise of force? This is a sort of imbecility 
 which the common law has been careful to avoid in all 
 cases. When it directly commands an officer to do any act, 
 it impliedly gives him the power and means of performing 
 it, and in nothing is this rule more conspicuous than in the 
 execution of a sheriff's power. But it cannot be necessary 
 to pursue the question through a course of reasoning, for 
 the sheriff's right at law is settled by the authority of this
 
 572 ALIEN'ATION OF INTERESTS TN TROPERTY 
 
 coiirl. inisoii & Gibbs v. Conine, 2 Johns. R. 280, is not 
 opposed to it. There both the partners sued in trover for a 
 seizure upon execution against one ; but they recovered 
 merely because the defendant failed in his formal proof of 
 the decree on which the execution issued. On motion for 
 a new trial, the preference of partnership creditors was 
 recognized, on the ground, as expressly stated, that the 
 motion appealed to the equity of the court. They did not 
 pretend to deny the sheriff's legal right, though he had 
 seized and sold a consumable article, after being forbidden 
 by the plaintiff, and the purchaser had actually taken it 
 away. No one even hinted that the sheriff wanted the le- 
 gal power, provided his authority had been shown. Vide 
 per Kent, Ch. J. at p. 282. There are, I concede, some re- 
 spectable dicta which favor an action at law by the partner 
 who has been thus dispossessed : the action being in his 
 name alone. Such is that of Putnam, J., in Rice v. Austin, 
 17 Mass. R. 206, 7, and Parker, J. in Gibson v. Stevens, 
 7 N. H. Rep. 357, 8. Putnam, J., cited no authority, and 
 professedly spoke hypothetically. The point was not raised 
 and finally decided in either of the cases; and Parker, J., 
 admitted himself to be speaking on a difficult branch of 
 the law. I have looked into the three cases cited by him. 
 Two of them avowedly go on the ground of equity — im- 
 pliedly therefore admitted the law to be different from what 
 the learned judge understood it to be. The third was a 
 case of tenants in common, the sheriff having expressly 
 sold the whole under an execution against one. Melville 
 V. Brozvn. 15 Mass. Rep. 82. Vide White v. Osborn, 21 
 Wendell, y2 S. P. as to a sale of the whole by one of two 
 tenants in common. It would be different, even in such a 
 case, should the sheriff sell only the proper .share, though 
 he seized the whole, as he must. Clearly it cannot be de- 
 nied that a copartner has as great an interest at law, and 
 even a greater than a simple tenant in common, nor that if 
 the sheriff can on a /z. fa. against one of several tenants in 
 common, take the whole chattel and sell the moiety in de- 
 
 J
 
 PHILLIPS V. COOK 573 
 
 spite of opposition ivoiu the co-tenant, he may do so as 
 against the co-partner. That he may do it in the former 
 case was (hrectly held in Mcsscrcau v. Norton, 15 Johns. 
 R. 179. He had, nnder an attachment against one tenant 
 in common, seized and taken a yoke of oxen from the ac- 
 tual possession of the other, and proceeded to sell them ; 
 and they were taken away by the purchaser, though the co- 
 tenant forbade the sale. He brought trespass; but this 
 court held it would not lie, citing as authority the very case 
 of Hcydoii V. Hcydoii, respecting the sheriff's authority 
 against one of several partners. In Shaver v. White, 6 
 Munf. no, the attachment was sued out against one of 
 two partners, and 300 head of cattle taken by the sheriff 
 out of the possession of both ; and they both brought tres- 
 pass for the taking. The action was against the plaintiff 
 in the attachment who directed the sheriff to levy. The 
 court held that the action would not lie, and pronounced 
 their opinion, also, that it could not be maintained against 
 the sheriff, citing Heydon v- Heydoii. The argument for 
 such an action goes the length of saying that when a man 
 puts his property into partnership, it is absolutely pro- 
 tected against a levy at the suit of his individual creditors; 
 that it is exempt from execution like his ten sheep or his 
 cow under the statute. A debtor has but to form a part- 
 nership, and he may set executions at defiance so far as his 
 own debts are concerned, still possessing and trading upon 
 that very capital contriljutcd by his individual creditors. 
 It was thought singular by a learned judge in Pennsylvania, 
 that e\en the qualified exemption allowed in such a case 
 by a court of chancery should not have been repudiated 
 as contrary to the statute against transfers to defraud 
 creditors. He said, *^that a contract which enables the par- 
 ties to keep a class of their creditors at bay, and yet re- 
 tain the indicia of ownership, should not have been deemed 
 witln'n the statute of Elizabeth, is attributable exclusively 
 to the disposition universally manifested by the courts of 
 justice to encourage trade." Gibson, Ch. J. in Doner v.
 
 574 ALIENATION OF INTERESTS IN PROPERTY 
 
 Staujfcr, 2 Penn. R. 204. To give an action of trespass 
 by the partners, would make the contract equivalent to the 
 protection afforded by the owner's dwelling house. It 
 would be putting it under perpetual lock and key as to all 
 his private debts. 
 
 It is supposed that Dob v. Halscy, 16 Johns. R. 34, 
 gives countenance to this action. That was assumpsit by 
 two out of three partners, to recover the price of goods 
 sold by a third, because he had turned them out in pay- 
 ment of his private debt. The plaintiffs were non-suited, 
 on the ground that all the partners had not joined. The 
 action was a singular one. The decision seems to suppose 
 that after a partner has sold the goods of the firm in pay- 
 ment of his honest debt, without any fraud as against him- 
 self, he may join his co-partners in an action to recover 
 the price of the goods — a price which, when recovered, he 
 may release, or still use the avails for his individual bene- 
 fit. Admitting his co-partners to have been defrauded by 
 the sale, a bill in equity against him and the vendee, would 
 seem to be the more obvious remedy. In Rodcriqucs v. 
 Hcjfcnian, 5 Johns. Ch. R. 417, a bill was filed and relief 
 obtained in that form, for such an injury. The state of 
 accounts between the partners should be inquired into, and 
 if the firm be not injured, the vendee should not be dis- 
 turbed. He has obtained no more than the law would give 
 him, on execution against the man from whom he re- 
 ceived the goods. Independently of an account, and es- 
 pecially where the action at law is in the name of all the 
 partners, I cannot but think the decision of the supreme 
 court of appeals of Kentucky in Owings & Co. v. Trotter, 
 
 1 Bibb, 157, denying an action to the firm, more in ac- 
 cordance with the law and justice of the case. 
 
 In the State of Vermont, all preference of partners or 
 their creditors by way Of lien over an attachment or exe- 
 cution for the debt of a sole partner has been entirely re- 
 pudiated, both at law and in equity. Rccd v. Shcpardson, 
 
 2 Verm. R. 120.
 
 PHILLIPS V. COOK 575 
 
 On the other hand, there is no doubt of the equitable 
 
 rule in England, New York and most of the states, that, 
 
 though the sheriff may at law levy on and sell the right of 
 
 tRe individual partner, which shall pass absolutely to the 
 
 purchaser, yet he takes subject to an account between the 
 
 partners, which if it eventuate ' against him, his purchase 
 
 may go for nothing. That, however, is his own look out. 
 
 It is no reason why the creditor should be deprived of his 
 
 legal right to sell, or the purchaser of his right to buy. 
 * * * 
 
 I admit that courts of law have sometimes felt able to 
 apply this equitable doctrine. One instance is, where an 
 action for a false return was brought against the sheriff, 
 on the ground that he had omitted to levy on partnership 
 property under process of domestic attachment or fi. fa. 
 against an individual partner. Dunham v. Murdock, 2 
 Wendell 553. Pierce v. Jaekson, 6 Mass. R. 242. Phil- 
 lips V. Bridge, 11 Mass. R. 242, 249. Couunercial Bank v. 
 W'ilkins, 9 Greenl. 28. Tappan v. Blairsdell, 5 N. Hamp. 
 R. 189. This is on the obvious ground that the plaintiff 
 has lost nothing but that of which a court of chancery 
 would have deprived him ; and the sheriff ought not to be 
 held accountable for doing what the court of law sees that 
 a court of equity would have compelled him to do. So the 
 equitable right was tried at law where a partner sold out 
 his share, covenanting against liens ; the balance on an ac- 
 count, inter se, was decidedly against him, for which it was 
 held his co-partner had a lien, and so the covenant violated. 
 Hodges v. Holeuian, i Dana, 50, 53. Other like instances 
 exist, some of which I shall hereafter have occasion to 
 notice. 
 
 It is said this court is in the habit of arresting the 
 sheriff's proceedings, on the application of the debtor's 
 partner, that it will order an account to be taken by the 
 clerk, and then direct the sheriff to pay such share of the 
 proceeds to the co-partner or shall appear to be his due. 
 Something like this was indeed done in Eddie v. Davidson,
 
 576 ALIENATION OF INTERESTS IN PROPERTY 
 
 Donghl. 650. The case, however/ recognized the sheriff's 
 right to sell, and the order was in terms to pay a part of 
 the money levied, to the assignees of the co-partner. The 
 assignees obtained the order. A like order was made A. 
 D. 1 81 6, in The King v. Rock, 2 Price, 198, on motion by 
 partners ; and the court said there had been many instances 
 of such a reference, but they denied an aniovcas inanus, 
 thus recognizing the right to sell. Vide note, id. 198. Lord 
 Eldon said, A. D. 181 3, in Jl'afers v. Taylor, 2 Vesey & 
 Beames, 301, "According to the old law, I mean before 
 Lord Mansfield's time, the sheriff, under an execution 
 against partnership effects, took the undivided share of the 
 debtor without reference to partnership accounts: but a 
 court of equity would have set that right by taking an ac- 
 count, and ascertaining what the sheriff ought to have sold. 
 The courts of law, however, have now repeatedly laid down 
 that they will sell the actual interest of the partner, pro- 
 fessing to execute the equities between the parties, but for- 
 getting that a court of equity ascertained previously what 
 was to be sold. How could a court of law ascertain what 
 was the interest to be sold, and what the equities; depend- 
 ing on an account of all the partners for years?" The 
 action of the courts of law, however, seems not to have 
 been l\v any means so uniform as Lord Eldon supposed. 
 The rule alluded to by him had been applied for to the 
 chief baron in Chapman v. Brooks, 3 Bos. & Pull. 289, but 
 the application was unanimously refused ; the court all say- 
 ing the question belonged to a court of equity ; that they 
 had no power to take an account : and that the sheriff had 
 a perfect right to go on and sell. Lord Alvanley said he 
 hoped that would be the last application of a similar kind. 
 [See two like cases before that in the same book, pp. 254 
 and 288.] Chambre. J. mentioned that in Eddie v. David- 
 son, no objection was made to the sale; but there was 
 merelv an application for a share of the proceeds after 
 sale : and no objection t(^ the motion by the party levying. 
 In Parker v. Pistor, 3 Bos. & Pul. 288, 289, the court said
 
 PHILLIPS 7'. COOK 577 
 
 all the difficulties were to be encountered in equity, the case 
 being plain at law. "That the safest line of conduct for 
 the sheriff to pursue, was to put some person in possession 
 of the defendant's share as vendee, leaving him and the 
 parties interested, to contest the matter in equity, where a 
 bill might be filed stating that he had taken possession of 
 the property, and praying that it might not be disposed of 
 until all the claims were arranged." This appears to be 
 the approved practice in Connecticut. Witter v. Richards, 
 lo Conn. R. 37, 43, per Williams, J., who cites and ap- 
 proves the direction in Parker v. Pistor. * * * 
 
 It seems to me the English common pleas were right 
 when they said the conflict between suitors for joint and 
 separate debts can be settled by chancery alone. Creditors 
 and partners not before the court must be made parties, 
 complicated accounts for years must be settled, a large con- 
 cern to be W(^und uj) ])erha])s. This court has neither the 
 abstract power, the process, the officers, nor any of the 
 proper machinery for prosecuting such a business. How 
 is this court to decide on motion, even whether there be a 
 partnership or not ? Be this as it may, however, and 
 whether we ought ever to interfere summarily or not, the 
 argument can have no bearing in favor of this novel rem- 
 edy by trespass or trover. 
 
 My ojMuion is that a new trial should 1)e granted; the 
 costs to abide the event.- 
 
 ' Compare: Fcnton v. Folgcr, 21 Wend. 676, 1840. (A and B were 
 partners. C, a separate creditor of A, issued execution on partnership 
 property. D, a tirni creditor, tlien issued execution on the same prop- 
 erty. There was not time for the Sheriff to advertise the sale under D's 
 execution hefore he sold the property under C's execution. Held by 
 the court, Nelson, C. J., that D had no interest in the proceeds ; but 
 that had the Sheriff sold the property upon both executions at the same 
 time, D. as a firm creditor, would have had a preference on the 
 proceeds.) 
 
 Cooper's Appeal, 26 Pa. 262, 1856. (A and F> were partners, A 
 having invested $19,082.61 and B $1,714.26. C, a separate creditor of A; 
 D, a separate creditor of B, and E, a creditor of the firm, all issued 
 executions and levied on firm property in the order named. The prop- 
 erty was sold by the Sheriff jointly under all executions. The court on 
 appeal directed that the joint creditor be paid first, and that the balance 
 be divided between C and D according to the interest of A and B in 
 the I'lrm property; and that as B in a settlement of partnership accounts
 
 578 ALIENATION OF INTERESTS IN PROPERTY 
 
 would not have been entitled to anything, his execution creditor had no 
 interest in the proceeds of the sale, and the entire balance should be 
 awarded to C.) 
 
 Stcrrett v. Third National Bank of Buffalo, 46 Hun. 22, 1887. (A 
 and B were partners. In the course of the business they gave firm notes 
 to C and as collateral certain pipe line certificates belonging to the firm. 
 A was indebted to C. C brought an action against A, recovered judg 
 ment and caused a levy to be made on the certificates. A and B paid 
 the notes and demanded the certificates, which demand was refused. 
 A and B sued C for a conversion of the certificates. The only question 
 of fact tried in the case was whether the firm of A and B was insolvent 
 when C caused the certificates to be attached. The firm having been 
 determined to be insolvent, the court held that therefore, A as an 
 individual had no interest in the firm property which was subject to 
 attachment. Judgment for plaintifTs.) 
 
 
 (
 
 WASHBURN V. BANK OF BELLOWS FALLS 579 
 
 WASHBURN V- BANK OF BELLOWS FALLS. 
 In the Supreme Court of Vermont, 1847. 
 
 19 Vermont Reports, 278.' 
 
 Redfield, J. : This is a bill, brought by the creditors 
 of a partnership, on the part of themselves and so many as 
 may join in the suit claiming a preference over the separate 
 creditors of the partners, and that the latter may be restrained 
 from levying upon the partnership effects, until the claims 
 of the plaintiffs are satisfied. The Bellows Falls Bank is the 
 first in the order of the attachments, and that and the other 
 creditors of the separate partners are sufficient to absorb 
 all the funds of the partnership, which have been reduced to 
 cash by the receiver. The other separate creditors have 
 attached subsequqently to the bank ; and the plaintiffs, who 
 are partnership creditors, have also attached, subsequent to 
 the bank and some other of the separate creditors. All these 
 claims have gone into judgments, and the sum of the plain- 
 tiffs' claims, united, is also sufficient to absorb the partner- 
 ship funds. So that the controversy in the present case is to 
 the full extent of all the property attached. 
 
 No question can be reasonably made, I think, in regard 
 to the failure and fitter insolvency of the partnership, at the 
 time of the first attachment by the bank, although there is 
 some testimony in the case, going upon the basis of a very 
 imperfect and unequal estimate of assets and liabilities, 
 which would lead to the contrary result. The only real 
 difficulty in this case is, to determine whether the partner- 
 ship creditors are entitled to a preference over the separate 
 creditors of the partners, in the distribution of the partner- 
 ship funds. And this, I apprehend, could not now be 
 
 ' The Reporter's statement of the facts of the case and his notes 
 of the arguments of counsel are omitted. A part only of the opinion of 
 the court is reprinted.
 
 580 ALTKNATTON OF INTERESTS IN rROPERTV 
 
 esteemed a question of any difficnlty, upon the principles of 
 tlie English common law. * * * 
 
 We think, therefore, that, in this case, the partnershij) 
 creditors are entitled to a preference over the separate 
 creditors, who first attached. The decree of the chancellor 
 is therefore reversed, and the cause remanded to him, witlr 
 directions to enter up a decree for the orators to be paid 
 their debts out of the partnership funds, to the full extent, 
 if the money in the hands of the receiver is sufficient for 
 that purpose, and the residue, if any, to be paid to the 
 creditors of the separate partners, until expended, in the 
 order of their attachments; and if the funds in the hands of 
 the receiver are not sufficient to pay all the orators' claims, 
 then to be paid to them, in proportion to the amount of their 
 demands, as far as it will go.^ 
 
 'Compare: Cammack v. Johnson, 2 N. J. Eq. 163, 1839. (Chan- 
 cellor Pennington : "A question has indeed been made, whether an 
 injunction ought to issue to stay an execution at law against one of the 
 partners from selling the partnership property, for the reason, that such 
 sale could only reach the interest of such partner, which must of course 
 be in the residue, after discharging all the partnership debts : in other 
 words, because the sale could only place the purchaser, as to the prop- 
 erty, in the same situation that the defendant in the execution was prior 
 to such sale. Chancellor Kent, in the case of Moody v. A and H. Payne. 
 2 Johns. Ch. Rep. 548, refused to interfere in such case; but in i Story's 
 Equity, 628, it will be seen, that learned author reviews this decision, 
 and takes the opposite side of the question, insisting that it is a proper 
 case for injunction. His reasoning is very strong, especially as applcable 
 to personal property. He says, 'It may be extremely difficult to follow 
 the property into the hands of various vendees ; and their lien may 
 perhaps be displaced, or other equities arise by intermediate bona fide 
 sales of the property by the vendees, or purchasers without notice ; and 
 the partners may have to sustain all the chances of any supervening 
 insolvencies of the immediate vendees.' For these reasons, to prevent 
 multiplicity of suits and irreparable mischiefs, he is in favor of 
 restraining the sale altogether. When such men differ, it is indeed 
 difficult to decide; though I confess the reasoning of Justice Story, as 
 applied to the case of chattels, appears to me extremely forcible and 
 just." 
 
 Greemvood v. B rod head. 8 Barb. 593. 1850. (A et al., alleging that 
 they were partnership creditors of B and C, brought a bill in equity to 
 compel the application of the proceeds of the partnership property to the 
 payment of partnership debts. The defeiklants were the partners, tlie 
 assignee of an individual partner, and his vendee. Demurrer sustained. 
 Parker, J.: "I think the true rule is this. To authorize any person to 
 demand the aid of this court in directing the application of partnership 
 property, he must have a lien, either legal or equitable upon it, or must 
 be in a situation to assert such a lien. One of the partners may file a 
 bill in the first instance, against his copartners to compel an account and 
 
 I
 
 WASHBURN V. BANK OF BELLOWS FALLS 581 
 
 the marshalling of assets. He does so by virtue of his lien upon the 
 whole funds of the partnership, for the balance finally due him, after 
 payment of the partnership debts. (Story's Eq. Jur., Sec. 675.) So the 
 creditor must proceed to obtain a lien on the property before he j:an 
 interfere to control it. If it be real estate, he obtains the lien by 
 judgment; if personal property liable to execution, by levy under such 
 process : and if choses in action, by the return of an execution unsatis- 
 fied and filing a complaint. {Corning v. White, 2 Paige, 567; Edmcston 
 V. Lyde, i Id. 637; Wakeinan v. Graver, 4 Id. 23.) Until such lien is 
 obtained the partners have full power to make any bona fide sale of the 
 property they think proper. But when such lien exists the creditor may 
 claim the aid of this court, to restrain the disposition of the property, 
 by injunction, to have it placed in charge of a receiver, and to compel 
 its equitable application. This law has not been changed by the code.") 
 Accord: Crippen v. Hudson, 13 N. Y. 161, 1855. 
 
 Hubbard v. Curtis, 8 Iowa, i, 1859. (A and B were partners. C, a 
 separate creditor of B, levied on partnership goods. A, alleging that the 
 assets of the firm were insufficient to meet its obligations, brought a bill 
 to restrain the SheriiT from interfering with the property of the firm, 
 to dissolve the firm, and appoint a receiver to take charge of all the 
 assets. The Sherifif was allowed to sell the property attached, subject 
 to the liability to pay the partnership debts. Subsequently, on final 
 hearing, it was decreed tliat the firm be dissolved, 'a receiver appointed ;' 
 that the Sheriff deliver to the receiver any goods of the firm not sold 
 by him, and that the purchaser of goods of the firm sold by the Sheriff 
 under the interlocutory order deliver said goods to the receiver, and be 
 enjoined from further intering in relation to the same.) 
 
 Harney v. First Xational Bank. 52 N. J. Eq. 697, 1894. (A and B 
 were partners. Land was conveyed to them as tenants in common, but 
 was treated by them as part of the assets of the firm. C, a separate 
 creditor of B, secured a judgment against B and levied on the land. 
 The executors of A brought a bill in equity against B and C and secured 
 a decree subjecting the land to the payment of partnership debts before 
 the satisfaction of C's judgment, the court holding that the equity of 
 the partner to have the partnership assets applied to the payment of 
 partnership debts was superior to the right of the judgment creditors of 
 his copartner, and that an express trust for the firm was not necessary 
 where the legal title was in the partners as tenants in common. On this 
 last point see Foster v. Barnes, 81 Pa. 377, 1876, contra.)
 
 582 ALIENATION OF, INTERESTS IN PROPERTY 
 
 NIXON V. NASH. 
 In the Supreme Court of Ohio, i86i. 
 
 12 Ohio State Reports, 647.' 
 
 Peck, J. : The petition was filed in this cause, by a 
 judgment creditor of one member of a mercantile firm, to 
 enforce a lien created by the levy of an execution upon his 
 debtor's interest in the firm, prior to any sale upon execution 
 of the interest so levied on. 
 
 The demurrer to the petition raises several questions, 
 the most important of which are : 
 
 1. Whether the separate creditor, by such levy, acquires, 
 at law, any lien upon his debtor's interest in the joint assets, 
 and if so, its nature and extent? 
 
 2. Whether such separate creditor, after the levy and 
 before the sale, can invoke the equity powers of the court, 
 to ascertain the extent of the debtor partner's interest in 
 the goods thus seized ? 
 
 Each partner has a legal interest and right of posses- 
 sion, as to all the joint assets, and it would be strange, 
 indeed, and contrary to public policy, if such an interest 
 could not be seized and subjected to the payment of any 
 judgment against him. To hold otherwise, would place it 
 in the power of an unscrupulous debtor, by entering into 
 such relations, to screen his property, or to so hedge the 
 approaches to it, as to render it almost, if not altogether, 
 inaccessible to his creditor. This, justice and sound policy 
 will not permit, and, accordingly, we find it universally 
 admitted, that the interest of a partner in the tangible prop- 
 erty of a firm, is liable to seizure, upon execution, in favor 
 of his separate creditor. Mayhezv v. Herrick, 62 Eng. C. L. 
 (7 M. & G.) 240; IVhite v. Woochvard & Rand, 8 B. Mon. 
 
 ' The Reporter's statement of the facts of the case is omitted.
 
 NIXON V. NASH 583 
 
 485; Phillips V. Cook, 24 Wend. 389; Scrughan v. Carter, 
 12 Wend. 131; Wash v. Adams, 3 Denio, 125; Church v. 
 Knox, 2 Conn. 514: Ncwhall v. Buckingham, 14 111. 405; 
 Whitney v. Ladd, 10 Verm. 165; Knox et al. v. Sumner, 
 4 Yeates, 477 ; Moore & Co. v. Sample, 3 Ala. 319 ; Burgess 
 V. Atkins, 5 Blackf. 377; Dra/ v. Boguc, 20 Penn. St. 228; 
 Place V. Siveetzer et al. 16 Ohio Rep. 142 ; Collyer on Part, 
 sec. 822, <?? j-cg.; Story on Part. sec. 261, r;^ seq.; i Parson's 
 on Cont. 176, et seq. 
 
 But while the right to levy is thus conceded, the author- 
 ities differ widely, as to the course to be pursued by the 
 creditor and the officer executing the writ. 
 
 In some cases, the right of the officer to take the goods, 
 even temporarily, out of the immediate possession and con- 
 trol of the other partners, is denied, and in others, a tem- 
 porary interruption of their possession, in order to take an 
 inventory, is reluctantly permitted ; still the decided weight 
 of authority seems to be, that the officer may, and, for his 
 own security and that of the execution creditor, should take 
 possession of all the chattels levied on, and after the sale 
 of the debtor's interest therein, re-deliver the same to the 
 other partners and the purchaser, who are said to be tenants 
 in common of the chattels so sold. 
 
 The levy and sale must be of an undivided interest in 
 the chattel, corresponding to the debtors share or nominal 
 interest in the firm ; but it is also well settled, that the sep- 
 arate creditor or the ]5urchaser at such sale, acquires only the 
 beneficial interest of the debtor partner in the articles sold. 
 Each partner holds his interest in the joint property, subject 
 to a trust for the partnership creditors, and the claims of his 
 several co-partners ; so that the beneficial interest of each, 
 is his residuary share after the partnership accounts are set- 
 tled and their rights, inter sese, adjusted. 
 
 The seizure and sale is, pro tanto, at least, a dissolution 
 of the partnership, and calls for an adjustment of the joint 
 business. If the partnership is then entirely solvent, the 
 l)eneficial interest of the debtor in the articles sold, may 
 equal his proportionate share in the joint business; but if
 
 584 ALIENATION OF INTERESTS IN PROPERTY 
 
 not so, a part, if not the whole, of his interest therein, may 
 be required to hquidate the balance due from him on the 
 final adjustment. 
 
 Inasmuch as the levy and sale must be of an undivided 
 part of the chattel, equal to the debtor's original interest in 
 the joint lousiness, while the purchaser acquires oj^ly the 
 present beneficial interest of the debtor, it is manifest, that 
 the uncertainty as to the extent of that interest, niust ser- 
 iously embarrass the sale. It would, doubtless, be much bet- 
 ter for all parties, if the l)eneficial interest of the debtor 
 could be ascertained before the property is ofifered for sale, 
 especially if there is any reason to apprehend, that the bene- 
 ficial interest of the debtor is much disproportioned to his 
 apparent interest. 
 
 Courts of law are not provided with suitable means 
 for adjusting the complicated accounts pf a partnership 
 (Story on Part., sec. 262), though it seems that the court 
 of king's bench has, in some instances, c^irected the taking 
 of such account previous to a sale. Collyer on Part., sec. 
 827. 
 
 The separate creditor acquired, Jjy his levy, a lien 
 upon the legal interest in possession of his debtor, but 
 owing to the conflicting rights and interests of the other 
 partners, that lien can not be precisely ascertained nor ade- 
 quately enforced at law. On general principles, then as 
 well as in analogy to the relief granted in equity, in cases 
 of conflicting liens upon real estate, requiring the adjustment 
 of complicated accounts and a mars|ialing of assets, it would 
 seem that either party, the creditor or the other partner, 
 should have the right, of petition, f:o require a settlement of 
 the partnership account, and an ascertainment of the bene- 
 ficial interest of the debtor partner, before that interest is 
 subjected to a sale. 
 
 Judge Story, in section 263 of his treatise on partner- 
 ships, while treating of the levy of an execution by the 
 creditor of one partner, upon that partner's interest in the 
 joint property, says: "the judgment creditor himself may 
 file a bill against the other partners, for the ascertainment of
 
 NIXON V. NASH 585 
 
 the quantity of that interest, before any sale is actually 
 made under the execution." 
 
 It was held, indeed, in Moody v. Paine, 2 Johns. Ch. 
 548, that one copartner could not file a bill against the sepa- 
 rate creditor of his copartner, who had levied an execution 
 upon that partner's interest in the joint property, for an 
 account of the partnership, and to enjoin a sale until the 
 taking of such account. Judge Story, in commenting upon 
 this decision, in section 264 of his said treatise, arrives at 
 the conclusion, and we think correctly, that the decision in 
 Moody V. Paine is unsound in principle, and not sustained by 
 the authorities. 
 
 In Place v. Sivcctccr ct al., 16 Ohio Rep. 142, it was 
 also held that a bill might, in such case, be filed by a partner 
 against the separate creditor of a copartner, to restrain a 
 sale upon execution, until an account could be taken of the 
 partnership and the beneficial interest of the debtor partner 
 ascertained. 
 
 In Sutcliffe v. Dohnnan, 18 Ohio Rep. 181, the court 
 reviews and fully approves of the decision in Place v. 
 Szveetcer, as correct in principle; and upon page 186 says, 
 that the creditor also had an equal right to appeal to a court 
 of chancery by bill, to have his rights determined in relation 
 to the property, instead of resorting to a sale under the 
 execution. 
 
 It is clear, we think, upon principle and upon author- 
 ity, that the levying creditor, in the case at bar, having 
 acquired a lien by the seizure, in execution, of his debtor's 
 interest in the tangible property of the firm, might properly 
 file his petition against the other partner for an account of 
 the i)artnership and the ascertainment of his debtor's interest 
 in the property seized, before a sale upon execution. 
 
 The rule, in Ohio at least, seems therefore to be, that 
 upon such levy being made, it is the right of the creditor and 
 of the other copartners, should either desire, to invoke the 
 the equity powers of the court to adjust the partnership bus- 
 iness and to stay proceedings under the execution, till the
 
 586 ALIENATION OF INTERESTS IN PROPERTY 
 
 beneficial interest of the debtor partner in the goods seized 
 has been ascertained. But that if the creditor does not so 
 elect, and no such steps are taken by the other partners, the 
 officer executing the writ must sell the apparent interest of 
 the debtor in the chattels levied on, and upon such sale, 
 re-deliver the same to the other partners and the purchaser 
 who will then be owners in common, subject to a lien in 
 favor of the other partners and the joint creditors, upon 
 the interest of the debtor partner in the hands of the pur- 
 chaser, for any balance due upon final adjustment of the 
 partnership account. 
 
 It does not appear, from the averments of the petition, 
 that the officer executing the process took the goods seized 
 into his exclusive possession, and it is perhaps inferable 
 from the petition, that he suffered the same to remain in the 
 custody of the other partners without receipt or security. 
 His doing so, however, was not an abandonment of the 
 levy (Gwynne on Sheriffs, 212) ; and as the petition avers 
 that the other defendant, Atkison, who still holds the goods 
 and by the purchase from Nash, claims the entire property 
 therein, was aware of the levy at the time it was made, 
 the defense of a bona fide purchaser could not be interposed. 
 
 The judgments of the district court and court of com- 
 mon pleas reversed, the demurrer to the petition overruled, 
 and the cause remanded to the common pleas for further 
 proceedings. 
 
 SuTLiFF, C. J., and Gholson, Brinkerhoff and 
 ScoTT^ JJ., concurred. - 
 
 'Coiiif^arc: Clagctt v. Kilbonnic, i Black. 346. ("The purchaser 
 [at Sheriff's sale on attachment and sale of partner's interest in firm's 
 goods at the suit of a separate creditor] takes the same interest in the 
 property which the judgment debtor would have upon a final adjust- 
 ment of all the accounts of the partnership. It is not only an undivided, 
 but an unascertained, interest, and the purchaser is substituted to the 
 rights and interests of the judgment debtor in the property sold. 
 Neither does the sale transfer any part of the joint property to the 
 purchaser, so as to entitle him to take it from the other partners; for 
 that would be to place him in a better situation than the partner (judg- 
 ment debtor) himself. The remedy of the purchaser is to go into equity 
 and call for an account, and thus entitle himself to the interest of the 
 judgment debtor, if any, after the settlement of the partnership 
 liabilities.")
 
 MENAGH V. WHITWELL 587 
 
 MENAGH V. WHITWELL. 
 In the Court of Appeals, New York^ 1873. 
 
 52 Xevj York Reports, 146. 
 
 Appeal from a judgment of the General Term of the 
 Supreme Court in the fourth judicial department, affirm- 
 ing a judgment in favor of the plaintiff entered upon the 
 report of a referee. This action was for taking and con- 
 verting personal property. 
 
 The property consisted of machinery, utensils, lumber 
 and other chattels formerly belonging to the firm of J.'C. 
 Smith & Co., and appertaining to a yeast factory operated 
 by that firm. 
 
 From the 17th of August to the 22nd day of Decem- 
 ber, 1866, the firm consisted of John C. Smith, Hollister 
 E. Goodwin, John Wride, Marietta Huntington and Wil- 
 liam B. Rubert, each being interested to the extent of one- 
 fifth. 
 
 The firm as thus constituted contracted debts to the 
 Geneva National Bank, upon which judgments were after- 
 ward recovered against the above named parties, viz., one 
 judgment for $1,403.83, and one for $237.53, both recov- 
 ered IMay 24, 1867. The larger judgment embraced claims 
 to the amount of $330, which accrued after the withdrawal 
 of John Wride from the firm. 
 
 Executions were issued on these judgments on the 
 25th of May, 1867, ^"<J placed in the hands of the defend- 
 ant. Ringer, who was deputy sheriff of Ontario county, and 
 by virtue of those executions he levied upon the property 
 on the 19th of July, 1867, and sold it on the 29th of July, 
 1867. The defendant, Whitwell, was sheriff", and this 
 action was brought against him and his deputy for that levy 
 and sale. The plaintiff recovered four-fifths of the value 
 of the property.
 
 588 ALIENATION OF INTERESTS IN PROPERTY 
 
 The plaintiff makes title to this four-fifths as follows: 
 
 On the 22ci of December, 1866, John Wride assigned 
 all his interest in the property and business of the firm to 
 John C. Smith, who agreed to pay the firm debts, and on 
 the 4th of February, 1867, Marietta Huntington assigned 
 all her interest in the property of the firm to said John C. 
 Smith, who assumed her place in the firm. After these 
 transfers the same business was carried on by the remaining 
 partners under the same firm name. The referee finds that 
 both of these transfers were made with the consent of all 
 the other members of the firm and in good faith, without 
 intent to defraud the creditors of the firm. 
 
 On the 28th of February, 1867, ^^^ fii'"!' then consist- 
 ing of John C. Smith, William B. Rubert and Hollister E. 
 Goodwin, and Smith's interest being then the three-fifths, 
 he gave to the plaintiff a chattel mortgage upon his 
 undivided three-fifths interest in the yeast factory, property, 
 accounts and other choses in action of the firm, to secure 
 his individual debt to the plaintiff of $2,400, payable in 
 installments in two, five and seven months, with power to 
 take possession and sell in case of default, or whenever she 
 should deem herself unsafe, before default. The referee 
 finds that this amount was justly due to the plaintiff for 
 money loaned by her to Smith, which he had used for the 
 firm and for which it was indebted to him ; and that the 
 mortgage was given in good faith, with the consent of all 
 the persons composing the firm, and without intent to de- 
 fraud creditors. There is no express finding in respect to 
 the solvency of the firm at the time of the giving of this 
 mortgage. 
 
 On the 2d of February, 1867, William B. Rubert had 
 given a like chattel mortgage on his one-fifth interest to 
 Samuel E. Rubert, to secure an individual debt of $500, 
 payable in five days. The referee finds that this was a just 
 debt for money loaned, and that the mortgage was executed 
 in good faith to secure the debt, and without any fraud-
 
 MENAGH r. WHITWELL 589 
 
 iilent intent. It does not appear that any of the other 
 partners consented to this mortgage. 
 
 On the loth of May, 1867, the plaintiff and Samuel- E. 
 Rubert took possession of the property mentioned in their 
 respective mortgages, and, after advertisement, it was sold 
 on the 1 8th of May, 1867, the three-fifths interest of John 
 C. Smith being purchased by the plaintiff for $1,000 and 
 the one-fifth interest of William B. Rubert being bought 
 in by Samuel E. Rubert for an amount less than his mort- 
 gage- 
 On the same day John C. Smith sold and delivered to 
 the plaintiff' all his interest in a quantity of lumber, boxes 
 and other material then on the premises, and belonging to 
 the firm, for $200, which was applied in part payment of 
 the plaintiff's mortgage. The referee finds that this sale was 
 in good faith and without any fraudulent intent. This 
 lumber, etc., was levied upon and sold by the defendants 
 and is embraced in the plaintiff's recovery. 
 
 On the same day on which the plaintiff and Samuel 
 E. Rubert took possession under their mortgages, viz., the 
 loth of Alay, 1867, Hollister E. Goodwin, the only remain- 
 ing member of the firm, transferred his undivided one-fifth 
 interest in the property and business of the firm to Mary 
 B. Goodwin, who still owns the same, but never became 
 a member of the firm. The referee has not found that there 
 was any consideration for this transfer, or what was its 
 object, or that it was made in good faith. 
 
 The only findings in respect to the solvency of the 
 firm at the times of these several transactions are that, on 
 the 22(1 of December, 1866, when John Wride withdrew 
 from the firm, transferring his interest to John C. Smith, 
 the firm was somewhat embarrassed, 1)ut was not known 
 or believed to be insolvent by either Wride or Smith ; and 
 that, on the 4th of February, 1867, when Marietta Hunting- 
 ton transferred her interest, the financial affairs of the firm 
 were about the same as they were on the 22d of December, 
 1866. That the firm was largely indebted and somewhat
 
 590 ALIENATION OF INTERESTS IN PROPERTY 
 
 embarrassed. That the value of its property and assets de- 
 pended in part upon the continuance of its business, and, in 
 case such business were continued and properly managed, 
 the property and assets of the firm were more than suf- 
 ficient to pay its debts. 
 
 The referee further finds that, at the time of the seizure 
 and levy by the defendants, the property was in the possess- 
 sion of the plaintiff and Samuel E. Rubert, and was of the 
 value of $2,150. That the plaintiff was the owner of an 
 undivided three-fifths and Samuel E. Rubert of one undi- 
 vided fifth part thereof, and that Mary B. Goodwin was 
 the ow^ner of the other undivided fifth part thereof ; and 
 that, on the 15th of August, 1867, and before the com- 
 mencement of this action, the said Samuel duly assigned to 
 the plaintiff all his rights to the property and cause of 
 action against the defendants for the taking possession 
 thereof. 
 
 As conclusions of law, he finds that, at the time of the 
 levy, neither of the defendants in the executions had any 
 leviable interest in the property, but that it belonged, four- 
 fifths to the plaintiff, and one-fifth to Mary B. Goodwin. 
 That the bank had no lien thereon, and that the plaintiff 
 was entitled to recover four-fifths of the value, amounting 
 to $1,720, with interest from the time of the conversion.^ 
 
 Rapallo, J. : The mortgages executed by John C. 
 Smith and William B. Rubert appear to have been regarded 
 by the learned referee as transferring an undivided four- 
 fifths of the corpus of the partnership property therein 
 described. He has found, as to the mortgage from Smith, 
 that it was executed and delivered with the assent of the 
 other memljers of the firm. This mortgage, if such be its 
 true construction, having been given to secure the individual 
 debt of the partner, even if effectual as to the firm, by 
 reason of the concurrence of all the partners giving it, 
 would be a fraudulent misapplication of the partnership 
 
 The Reporter's notes of the arguments of counsel are omitted.
 
 MEXAGH r. WHITWELL 591 
 
 property, and void, as to the creditors of the firm, under 
 the principle of the cases of Ransom v. Van Dcventcr (41 
 Barb., 307), and JVilson v. Robertson (21 N. Y., 587), 
 unless the firm were solvent at the time the mortgage was 
 given, and sufficient property would remain, over and above 
 that devoted by that instrument to the payment of the indi- 
 vidual debt, to pay the debts of the firm. The Supreme 
 Court have considered that the findings of the referee fail 
 to disclose any insolvency, but, on the contrary, establish 
 the solvency of the firm at the time the mortgages were 
 given. We cannot concur in this view of the effect of the 
 findings, but think that the facts found show that the firm 
 was insolvent when the mortgages were given, and if there 
 were any doubt upon that point, they clearly establish that 
 the diversion of four-fifths of its properties to the individ- 
 ual debts of two of the partners would make it insolvent. 
 
 According to these findings, the firm was, in February, 
 1867, and had been from December, 1866, largely indebted 
 and embarrassed, and the value of its property, and its 
 consequent ability to pay its debts, depended, in part, upon 
 the continuance and proper management of its business. 
 The mortgages were given on the 2d and 28th of February, 
 1867. If they were intended to be liens upon the corpus of 
 the property, as they have been treated by the referee, and 
 not merely liens upon the surplus which should belong 
 to the partners respectively after payment of the firm debts, 
 it is evident, from the facts stated as existing at the time, 
 as well as from the result, that their enforcement would 
 prevent the firm creditors from collecting their demands 
 out of the firm property, and that, under the principle of 
 the cases cited, they were fraudulent and void as to such 
 creditors. If so, the mortgagees, by purchasing at the sale 
 under the mortgages, acquired no valid title as against 
 such creditors, and the plaintiff was consequently not en- 
 titled to recover. 
 
 Assuming, however, that the mortgages were intended 
 to pass merely the individual interests of the mortgaging
 
 592 ALIENATION OF INTERESTS IN PROPERTY 
 
 partners in the common stock, and for that reason were not 
 fraudulent as to tlie firm crecHtors, then it becomes necessary 
 to consider their legal eifect upon the rights of creditors of 
 the firm. It is clear that the remaining partner was entitled 
 to the control of the firm property so long as he retained 
 his interest, and to apply it to the firm debts ,and that the 
 mortgagees acquired only a right to the surplus, if any, 
 which would be found to belong to the mortgagors on the 
 settlement of the accounts. 
 
 And so long as any of the partners had this dominion 
 over the firm property, it can hardly be questioned that it 
 was subject to levy on execution at the suit of a firm cred- 
 itor. (Lot'cjoy V. Bowers, ii N. H., 404; Coovcr's Appeal, 
 29 Penn. St. R., 9; Pierce v. Jackson, 6 Mass., 243.) 
 
 But the point upon which the judgment was sustained 
 in the Supreme Court, at General Term, was, tliat after 
 the execution of the mortgages H. E. Goodwin, the only 
 remaining partner, made a separate transfer, to a third 
 party, of his individual interest in the partnership proper- 
 ties, and, on this ground, it was held that when the execu- 
 tion was levied none of the defendants in the execution had 
 any leviable interest in the property levied upon ; and it was 
 further held that the plaintiff, who had purchased the inter- 
 est of S. E. Rubert, under his mortgage, was entitled, by 
 virtue of the two mortgages and of the purchase at the 
 sale under them, to recover the value of four-fifths of the 
 corpus of the partnership property levied upon by the 
 defendants, without regard to the partnership debts. 
 
 This position is not without authority in its support. 
 It is founded upon the theory that the separate transfers 
 of the individual interests of all the partners divested the 
 title of the firm, that firm creditors have no lien upon the 
 partnership effects and no direct right to compel their 
 application to firm debts in preference to individual deists. 
 That the right to compel this application is an equity vested 
 in the partners themselves, and exists only as between each 
 other. That so long as this equity exists in any of the 
 
 jd
 
 MENAGH V. WHITWELL 593 
 
 partners, the creditors have an equity to compel its enforce- 
 ment between the partners, and may, by this means, obtain 
 the appHcation of the partnership properties to their xle- 
 mands, in preference to the inchvidual debts or separate dis- 
 positions of any of the partners; in other words, "that the 
 equities of the creditors can be only worked out through 
 the equities of the partners." From these premises, the 
 conclusions have been drawn that if such equities are waived 
 or released by the partners themselves the crecJitors lose 
 them, and that a transfer of the individual interest of a 
 partner in the firm property to a third person extinguishes 
 the equity of the partner, and consequently that of the 
 creditors, which is dependent upon it. This doctrine has 
 been carried to the extent of holding that if the individual 
 interests of each of the members of a firm are successively 
 sold under executions against such members respectively 
 for their individual debts, the j)urchasers acquire the corpus 
 of the property, free from the copartnership debts, and the 
 equities of the partners and partnership creditors are ex- 
 tinguished. {Coovcr's Appeal, 29 Penn. St. R., p. 9.) 
 
 The injustice and it may be said, the absurdities, which 
 result from such a view, lead to an inquiry into its cor- 
 rectness. A firm may be perfectly solvent though the mem- 
 bers are individually insolvent, yet in such a case the doc- 
 trine that the property of the firm is divested, and the 
 equities of the partners and partnership creditors are ex- 
 tinguished, by separate transfers of the individual interests 
 of all partners, might result not only in an appropriation 
 of all properties of the firm to the payment of the individual 
 debts, to the entire exclusion of the firm creditors, but to a 
 most unjustifiable sacrifice and waste of such properties. 
 For instance, suppose a firm to consist of three members, 
 each having an equal interest, and to be possessed of assets 
 to the amount of $300,000. and to owe debts to half of 
 that amount, the interest of each partner, supposing their 
 accounts between themselves to be even, is $50,000. The 
 members of the firm are individuallv indebted. One of them
 
 594 ALIENATION OF INTERESTS IN PROPERTY 
 
 sells his share, and receives for it $50,000, which is its 
 actual value ; the share of another of the partners is sold 
 out under execution, and hrings its full value, $50,000. Thus 
 far one partner remains, and he has an equity to have the 
 firm debts paid, and those who have sold out are protected 
 against those debts. The purchasers of the separate inter- 
 ests are entitled to the surplus only ; the joint creditors still 
 have their recourse against the partnership property and 
 the right to levy on such of it as is subject to sale on execu- 
 tion ; but before any levy, the remaining partner sells out his 
 individual interest, or it is sold out on execution. Accord- 
 ing to the doctrine applied in the present case, and main- 
 tained in the case of Coovcrs Appeal (supra), the firm 
 property is, by this last sale, relieved from the partnership 
 debts, the two shares first sold are at once changed from 
 interests in the surplus to shares in the corpus of the proi)- 
 erty free from the debts, their value is doubled, and the 
 fund wdiich should have gone to pay the joint debts is, with- 
 out any consideration, appropriated by the transferrees of 
 the individual interests of the partners. 
 
 Such is, in substance, the operation performed in the 
 present case. Assuming that the mortgages are intended to 
 convey only the separate interests of the mortgagors (which, 
 as has been shown, is the only theory upon which the}' 
 can escape being regarded as fraudulent), the mortgaged 
 property was, at the time the mortgages were given, liable 
 to be taken for the partnership debts. The mortgages were 
 but a slender security, and their value dependent upon the 
 firm debts being paid. This state of afifairs continued so 
 long as Hollister E. Goodwin retained his one-fifth interest 
 in the firm. The firm property was legally under his 
 dominion for the payment of firm debts, and the firm cred- 
 itors, if they then had their execution, could have rightfully 
 levied upon it, or availed themselves of Goodwin's equity as 
 to any property which must be reached in that form. But 
 on the tenth of May, 1867, Hollister E. Goodwin made a 
 transfer of his interest in the property of the firm to one
 
 MENAGH V. WHITVVELL 595 
 
 Mary B. Goodwin, and on the same day the plaintiff and 
 Samuel E. Rubert took possession under their mortgages. 
 The referee has not found what was the consideration x»r 
 purpose of this assignment from Hollister E. to Mary B. 
 Goodwin, nor has he expressly found that it was made in 
 good faith. But the eft'ect claimed for it is that Hollister 
 E. Goodwin being the only remaining partner, the transfer 
 of his interest divested him of his dominion over the part- 
 nership property, and of his equity to require the application 
 of the partnership property to the payment of its debts, and 
 that as the partnership creditors could only reach the prop- 
 erty through him, he, by this transfer or surrender of his 
 rights, had cut oft' their access to it, and thrown it into the 
 hands of the transferrees of the individual partners, unin- 
 cumbered by firm debts. 
 
 Waiving any question as to the bona fides of this trans- 
 action, the referee not having found it fraudulent, and 
 treating the sale of Goodwin's interest as if it had been 
 made under an execution against him, we come back to the 
 question whether the consequences claimed do legally follow 
 from separate sales of the individual interests of the several 
 partners. 
 
 It would be a sui)erfluous labor to trace the history of 
 the changes which have, from time to time, taken place in 
 the views of the courts respecting the nature of the inter- 
 ests of individual partners in the common stock of a firm, 
 and the respective rights of separate and joint creditors; 
 but it is sufiicient to observe that they have resulted in a 
 general recognition of the doctrine, that as between a firm 
 and its creditors the property is vested in the firm, and that 
 no individual partner has an exclusive right to any part 
 of the joint stock until the firm debts are paid and a bal- 
 ance of account is struck between him and his copartners, 
 and the amount of his interest accurately ascertained. 
 
 The corpus of the effects is joint property, and neither 
 partner separately has anything in that corpus; but the inter- 
 est of each is onlv his share of what remains after the
 
 596 ALIENATION OF INTERESTS IN PROPERTY 
 
 partnershi]) del)ts are paid and accounts are taken {West 
 V. Skip, I Ves. 239; Fox v. Hanbury, Cowp., 445; Taylor 
 V. Fields, 4 Ves., 396; 15 Ves. 559, note; Pierce v. Jackson, 
 6 Mass., 243; Doner v. Staujfer, i Penn. R. [Penrose & 
 Watts, see p. 164], 198; 2 K Com., nth ed., p. 78, note; 
 Collyer on Part., 3d Am. ed. [Perkins], notes to Sec. 822, 
 pp. 704 to 710; Story on Part., notes to Sees. 261, 262, 263; 
 Crane v. French, I Wend., 311; Witter v. Richards, 10 
 Conn., 37). 
 
 Partnership effects cannot be taken by attachment or 
 sold on execution to satisfy a creditor of one of the part- 
 ners, except to the extent of the interest of such separate 
 partner in the effects, subject to the payment of the firm 
 debts and settlement of all accounts. (3 Kent Com., 76, nth 
 ed.) 
 
 Purchasers of the share of an individual partner can 
 only take his interest. That interest, and not a share of the 
 partnership effects, is sold, and it consists merely of the 
 share of the surplus which shall remain after the payment 
 of the debts and settlement of the accounts of the firm. (3 
 K. C, 78, note b, nth ed. ) 
 
 No more property can be carried out of the firm by 
 the assignee of one partner than the partner himself could 
 extract after all the accounts are taken, (i Ves., 241., Am. 
 ed., note; 15 Ves., 557.) 
 
 No person deriving under a partner can be in a better 
 condition than the partner himself. {Fox v. Hanbury, 
 
 Cowp., 445.) 
 
 A partner has no right, by an assignment of his inter- 
 est, to take from the creditors or other partners the right 
 to have their claims against the partnership satisfied out of 
 its property. A mortgage made by one partner, of his 
 undivided interest, cannot avail against the creditors of 
 the partnership who attach the partnership property. {Love- 
 joy V. Bowers, 11 New Hamp., 404.) 
 
 These principles have been enunciated in a great num- 
 ber of cases where some one at least of the partners re-
 
 MEXAGH r. WHITWELL 597 
 
 tained his equity to have the firm debts paid, and the rights 
 of the creditors to assets or proceeds, which have come 
 under the control of a court of equity, have been wortced 
 out through the equity of that partner. But I find no case 
 in which the consequences of transfers of the separate in- 
 terests of all the partners to outside parties has been con- 
 sidered, except the case of Doner v. Staiijfcr ( i Penn. 
 [Penrose & Watts], 198), and Coovcr's Appeal (29 Penn. 
 St. R., 9), before referred to. In neither of these cases 
 is the point adjudicated, for in both cases the joint creditors 
 intervened before the sale of the interest of the last remain- 
 ing partner, and their right to priority was sustained ; 
 though the opinion of the court was expressed as to what 
 the result would have been if all the individual interests 
 had been first sold. 
 
 There is another class of cases in which the partner- 
 ship efifects have been held to be liberated from liability 
 to be applied to partnership debts in preference to the sep- 
 arate debts of one partner ; that is where a bona fide sale 
 has been made by a retiring partner, in a solvent firm of 
 two members, to his copartner, the latter assuming the 
 debts. In such a case it is settled that the property form- 
 erly of the partnership becomes the separate property of 
 the purchasing partner, and that the partnership creditors 
 are not entitled to any preference as against his individual 
 creditors, in case of his subsequent insolvency. {Ex parte 
 Riiffin, 6 Ves., 119: Dimon v. Hazard, 32 N. Y., 65. ) But 
 in those cases the joint property was converted into sep- 
 arate property by the joint act of all the members of the 
 firm. 'They had power to dispose of the corpus of the 
 joint property, and the exercise of that power, when free 
 from fraud, divested the title of the firm as effectually as 
 if they had united in a sale to a stranger. It remained 
 subject to execution for firm debts so long as it continued 
 in the hands of the purchasing partner. It is conceded 
 that the creditors have no lien which would afifect the title 
 of a purchaser from the firm. But the question now is,
 
 598 ALIENATION OF INTERESTS IN PROPERTY 
 
 what is the effect upon the title of the firm, as between 
 it and its creditors, of transfers by the partners severally 
 of their respective interests to third persons? Where the 
 property remains in specie, and no act has been done by 
 the firm to divest its title, but the partners have made 
 separate transfers of their respective individual interests 
 to different persons, is it still to be . regarded, as to firm 
 creditors, as firm property, or has it become the absolute 
 property of the several transferrees of the interests of the 
 individual partners? 
 
 It has been shown that no share in the corpus of the 
 property passed by either of these transfers separately, but 
 merely an interest in the surplus, and which should be 
 ascertained on an accounting" after payment of the firm 
 debts. But it is claimed that, when all the partners have 
 assigned, their interest in the property is divested, and 
 their equity is destroyed, and, therefore, the property is 
 released from the debts, and what was, at the time of 
 the assignment, a share of a contingent surplus, has been 
 converted into a share of the corpus of the property. Is this 
 position sound? When a partner sells his interests in a 
 firm to a person other than his copartner, or it is sold on 
 execution against him, docs he thereby lose all c(|uity to 
 have the firm debts paid out of the assets? 
 
 When he sells to his copartner he relies upon his 
 assumption of the partnership debts, and unless, he stipu- 
 lates for an application of the assets to that purpose, he 
 parts with all lien upon them. But when he sells to a 
 stranrer not liable for the debts, or his interest is sold on 
 execution, is not the right to have the debts paid oUt of the 
 property a right of indemnity personal to himself, and 
 which does not pass by the sale? Could it be tolerated 
 that the interest of a partner should be sold imder execu- 
 tion against him, on which sale only the value of his inter- 
 est in the surplus could be realized, and that the purchaser 
 should be allowed to take the corpus of the property and 
 leave him liable for the debts? If the legal effect of the
 
 MENAGH V. WHITWELL 599 
 
 transfer were set forth in the instrument, it would be seen 
 that all the purchaser acquired was a right to an account, 
 and to the partner's share in the surplus, after paymefit 
 of the debts when ascertained, and that he had no right 
 to that part of the property which was required for the 
 payment of debts ; that the sale was subject to the debts. 
 (3 K. Com., 76-78.) The partner whose share was sold 
 would manifestly have an interest in the protection and 
 appropriation of that part of the property in discharge of 
 his own liability to the firm creditors. 
 
 I do not see how this right can be affected by the ques- 
 tion whether the separate interests of all or only one of 
 the partners is thus sold. Each of the purchasers would 
 acquire an interest merely in the surplus, and each partner 
 whose interest was sold would have the right to indemnity 
 against the firm debts by the application to such debts of 
 so much of the property as might be necessaiy for the 
 purpose. These debts must have been taken into consider- 
 ation in fixing the price of the interest sold, and conse- 
 quently allowed to the purchaser, and the partnership assets 
 are the primary fund for their payment. The case differs 
 materially from a sale by a retiring copartner to his co- 
 partner, who is personally liable for the debts directly 
 to the creditors ; but even such a sale is valid only when 
 there is no insolvency at the time. To sell to an insolvent 
 partner would be a clear fraud. How much more clearly 
 apparent would be the injury to creditors by a sale to a 
 person not liable for the debts, if such sale had the effect 
 to relieve the property from them. 
 
 It can hardly be necessary, where the firm property 
 remains in specie and is tangible and capable of being lev- 
 ied upon, to resort to the equities of the partners in case 
 there has been no transfer by the firm, and the only ad- 
 verse claimants are assignees of the individual interests of 
 the several partners for their separate debts. The right of 
 the firm creditor to levy on property thus situated can be 
 sustained on two grounds. If the effect of any of these
 
 600 ALIENATION OF INTERESTS IN PROPERTY 
 
 transfers is to divest the title of the firm, then, if effected 
 by the acts of the partner, they are clearly fraudulent and 
 void as to firm creditors, as is shown in the cases of Ran- 
 som V. Van Dcvcnter (41 Barb., 307) and Wilson v. Rob- 
 ertson (21 N. Y., 587). An appropriation to the individ- 
 ual debt of one partner of any part of the firm property, 
 even witli the assent of his copartners, is illegal and void, 
 provided the firm is not left with sufficient to pay its debts. 
 How absurd it would be to hold that all of the partners, 
 by making separate assignments of their respective shares 
 in the firm property to their individual creditors, could ef- 
 fectually divest the firm of all its property and apply it to 
 their individual debts, leaving nothing for the partnership 
 creditors. But the simple solution of the question is to 
 hold that the title of the firm, as between it and its credi- 
 tors, to the corpus of the property, or at least to so much of 
 it as is necessary for the debts, is not divested by these 
 separate transfers to strangers. 
 
 As is stated by Prof. Parsons, in his work on Partner- 
 ship (chap. 10, sec. i, pages 356 to 362, 2d ed. ), a 
 partnership, though neither a tenancy in common nor a 
 corporation, has some of the attributes of both. The well 
 established rule which excludes creditors of the several part- 
 ners from the partnership property until that has paid the 
 debts of the partnership, is derived from the acknowledg- 
 ment that a partnership is a body by itself. In its relation 
 to its creditors it is placed upon the basis of having its own 
 creditors and possessing its own property, which it applies 
 to the payment of its debts, and after this work is done, 
 there is a resolutiou of the body into its elements. 
 
 Until some act is done by the firm to transfer the joint 
 interest, no separate act of either or all of the partners, or 
 proceedings against them individually with reference to 
 their individual interests, should be held to affect the title 
 of the firm so as to preclude a creditor of the firm, having 
 a judgment and execution, from levying upon the joint 
 property. To hold that separate transfers of their individ-
 
 MENAGH V. WHITWELL 601 
 
 iial shares by the several partners can convey a good title 
 to the whole property free from the joint debts, would be 
 to return to the doctrine, long since exploded, that partners 
 hold by moieties as tenants in common. In the present ad- 
 vanced stage of the law upon this subject, no established 
 rule is violated by iiolding that the title of the firm, as be- 
 tween it and its creditors, cannot be divested by the acts of 
 the partners severally, not in the business of the firm, nor 
 by the separate creditors of members of the firm (further 
 than such temporary interruption of the possession as may 
 be necessary to enable the officers of the law to make an 
 effectual sale of the interest of the debtor partner). This 
 view does not recognize any lien of partnership creditors 
 upon the firm property. The firm have power to dispose 
 of it without regard to the creditors, provided the disposi- 
 tion be not fraudulent. But the individual members or 
 their creditors ought not to have any such power, and all 
 transfers made by them for individual purposes should be 
 held inoperative upon the corpus of the property, so long as 
 there are firm debts unpaid for which the property is re- 
 quired. As against firm creditors, no greater effect should 
 be given to such transfers when made by all the partners 
 separately, than when made by a portion of them, but the 
 property should be deemed to continue in the firm until its 
 title has been divested by some act of the firm. 
 
 My conclusion is that, as between the firm of J. C. 
 Smith & Co. and its creditors, the property levied upon by 
 the defendants remained the property of the firm, and sub- 
 ject to levy on execution against it, notwithstanding the 
 transfers by the several partners of their respective individ- 
 ual interests. 
 
 I have not adverted to the changes which took place 
 in the firm bv the retirement of John Wride and M. Hunt- 
 ington, and the transfer by them of their interests to J. C. 
 Smith, intermediate the contracting of the debt to the Bank 
 of Geneva and the levy, the effect of these changes being
 
 602 ALIENATION OF INTERESTS IN PROPERTY 
 
 fully considered in the opinion of my learned associate, 
 Allen, J. 
 
 The judgment should be reversed, and a new trial or- 
 dered, with costs to abide the event. ^ 
 
 Judgment reversed. 
 
 ^ The concurring opinion of Allen, J., is omitted. All the other 
 members of the court, except Folger and Andrews, JJ., not sitting, 
 concurred in both opinions.
 
 CASE z'. BEAUREGARD 603 
 
 CASE v. BEAUREGARD. 
 In the Supreme Court of the United States, 1878. 
 
 99 United States Rc[>orts, 119. 
 
 Appeal from the Circuit Court of the United States 
 for the District of Louisiana. 
 
 This suit was brought July 10, 1869, '^Y Frank F. 
 Case, receiver of the First National Bank of New Orleans, 
 against Gustave T. Beauregard, Thomas P. May, Augus- 
 tus C. Graham, George Binder, Alexander Bonneval, Jo- 
 seph Hernaudez, the New Orleans and Carrollton Railroad 
 Company, and the Fourth National Bank of New York, to 
 recover a debt of $237,000.89, which he claimed was due 
 from, and had been contracted by, Beauregard, May, and 
 Graham, while they were partners, and carrying on busi- 
 ness as such ; and to have certain transfers of partnership 
 property set aside and subjected to the payment of the debt. 
 
 On the 8th of May, 1867, Graham, one of the part- 
 ners, assigned all his right and interest in any property and 
 effects of the partnership, and whatever he might be en- 
 titled to under the articles thereof, together with all debts 
 due to him from the partnership or any member thereof, 
 to the Fourth National Bank of the City of New York. 
 By subsequent assignments, made on the 14th and 16th of 
 May, 1869, May, the second partner, transferred all his 
 interest in the partnership i)r()perty to the United States, 
 and by the same instruments transferred to the United 
 States, by virtue of a power of attorney which he held, 
 the interest of Graham. On the 21st of August, 1867, the 
 United States sold and transferred their interest obtained 
 from May and Graham in all the partnership property, in- 
 cluding real estate, to Alexander Bonneval, Joseph Her- 
 nandez, and George Binder. On the 15th of October next 
 following, an act of fusion was executed between the New 
 Orleans and Carrollton Railroad Company, Beauregard,
 
 604 ALIENATION OF INTERESTS IN TROPERTY 
 
 Bonneval, Hernandez, and Binder, by which the rights of 
 all the parties became vested in the railroad company, sub- 
 ject to the debts and liabilities of the company, whether 
 due or claimed from the lessee or the stockholders. 
 
 The complainant charges that the First National Bank, 
 being the creditor of the partnership, had a lien or privilege 
 on its effects, and was entitled to be paid therefrom to the 
 exclusion of the creditors of any member of the partner- 
 ship; that the partnership was insolvent; that none of its 
 members was able to pay his individual debts, or author- 
 ized to dispose of the partnership property for the pay- 
 ment of such debts; that the deed to the United States, its 
 deed to Binder, Bonneval, and Hernandez, and the deed of 
 the latter parties and Beauregard to the railroad company, 
 are in fraud of the rights of the bank as a creditor of the 
 partnership, and that the same should be cancelled and the 
 partnership property sold to satisfy the prior and privileged 
 claim of the bank. He prays that Binder, Bonneval, Her- 
 nandez, and Beauregard be enjoined from transferring or 
 incumbering their stock in the company, and that the lat- 
 ter be enjoined from recognizing or permitting such trans- 
 fer, and for general relief. 
 
 The bill was dismissed on a final hearing, and the com- 
 plainant appealed here.^ 
 
 Mr. Justice Strong delivered the opinion of the court.^ 
 
 The object of this bill is to follow and subject to the 
 payment of a partnership debt property which formerly 
 belonged to the partnership, but which, before the bill was 
 filed, had been transferred to the defendants. There is lit- 
 tle if any controversy respecting the facts, and little in re- 
 gard to the principles of equity invoked by the complainant. 
 The important question is, whether those principles are 
 applicable to the facts of the case. 
 
 ' The Reporter's statement of the facts of the case is ahbreviated, 
 and his notes of the argument of counsel for the appellant omitted. 
 
 "Judge Strong's statement of the facts of the case having been used 
 in the statement just given is omitted from the opinion. 
 
 J
 
 CASE V. BEAUREGARD 605 
 
 No doubt the effects of a partnership belong to it so 
 long as it continues in existence, and not to the individuals 
 who compose it. The rigiit of each partner extends only 
 to a share of what may remain after payment of the debts 
 of the hrm and the settlement of its accounts. Growing 
 out of this right, or rather included in it, is the right to 
 have the partnership property applied to the payment of 
 the partnership debts in preference to those of any individ- 
 ual partner. This is an ^cjuity the partners have as be- 
 tween themselves, and in certain circumstances it inures to 
 the benefit of the creditors of the firm. The latter are said 
 to have a privilege of preference, sometimes loosely de- 
 nominated a lien, to have the debts due to them paid out 
 of the assets of a firm in course of liquidation, to the ex- 
 clusion of the creditors of its several members. Their eq- 
 uity, however, is a derivative one. It is not held or en- 
 forceable in their own right. It is practically a subroga- 
 tion to the equity of the individual partner, to be made ef- 
 fective only through him. Hence, if he is not in a condi- 
 tion to enforce it, the creditors of the firm cannot be. Rice 
 V. Barnard, ct al., 20 Vt. 479; Appeal of the York Comity 
 Bank, 32 Pa. St. 446. But so long as the equity of the 
 partner remains in him, so long as he retains an interest in 
 the firm assets, as a i)artner, a court of equity will allow 
 the creditors of the firm to avail themselves of his equity, 
 and enforce, through it, the application of those assets pri- 
 marily to payment of the debts due them, whenever the 
 property comes under its administration. 
 
 It is indispensable, however, to such relief, when the 
 creditors are, as in the present case, simple contract credi- 
 tors, that the partnership property should be within the 
 control of the court and in the course of administration, 
 brought there by the bankrui)tcy of the firm, or by an as- 
 signment, or by the creation ol a trust in some mode. This 
 is because neither the partners nor the joint creditors have 
 any specific lien, nor is there any trust that can be enforced 
 until the property has passed in ciistodiain legis. Other
 
 606 ALIENATION OF INTERESTS IN PROPERTY 
 
 property can be followed only after a judgment at law has 
 been obtained and an execution has proved fruitless. 
 
 So, if before the interposition of the court is asked the 
 property has ceased to belong to the partnership, if by a 
 bona fide transfer it has become the several property either 
 of one partner or of a third person, the equities of the part- 
 ners are extinguished, and consequently the derivative equi- 
 ties of the creditors are at an end. It is, therefore, always 
 essential to any preferential right of the creditors that there 
 shall be property owned by the partnership when the claim 
 for preference is sought to be enforced. Thus, in Ex 
 partc Ruffiii (6 Ves. 119), where from a partnership of 
 two persons one retired, assigning the partnership property 
 to the other, and taking a bond for the value and a cove- 
 nant of indemnity against debts, it was ruled by Lord El- 
 don that the joint creditors had no equity attaching upon 
 partnership effects, even remaining in specie. And such 
 has been the rule generally accepted ever since, with the 
 single qualification that the assignment of the retiring i)art- 
 ner is not mala fide. Kimball v- Thompson, 13 Mete. 
 (Mass.) 283; Allen v. The Centre ]' alley Company, et al.. 
 21 Conn. 130; Ladil v. Gri.neold, 9 111. 25; Smith v. Ed- 
 wards, 7 Humph. ( Tenn. ) 106; Robb and Others v. Mudge 
 and Another, 14 Gray (Mass.), 534; Baker's Appeal, 21 
 Pa. St. 76; Sigler & Richey v. Knox Comity Bank, 8 Ohio 
 St. 511; JVilcox V. Kellogg, 11 Ohio, 394. 
 
 The joint estate is converted into the separate estate 
 of the assignee by force of the contract of assignment. 
 And it makes no difiference whether the retiring j^artner 
 sells to the other partner or to a third person, or whether 
 the sale is made by him or under a judgment against him. 
 In either case his equity is gone. These ])rinciples are set- 
 tled by very abundant authorities. It remains, therefore, 
 only to consider whether, in view of the rules thus settled 
 and of the facts of this case, the complainant, through 
 any one of the partners, has a right to follow the specific 
 property which formerly belonged to the partnership, and
 
 CASE z'. BEAUREGARD 607 
 
 compel its application to the payment of the debt due from 
 the firm to the bank of which he is the receiver. * * * 
 The effect of these transfers [by the individual-part- 
 ners] and act of fusion was very clearly to convert the 
 partnership property into property held in severalty, or, at 
 least, to terminate the equity of any partner to require the 
 application thereof to the payment of the joint debts. 
 Hence if, as we have seen, the equity of the partnership 
 creditors can be worked out only through the equity of the 
 partners, there was no such equity of the partners, or any 
 one of them, as is now claimed, in 1S69, when this bill was 
 filed. No one of the partners could then insist that the 
 property should be applied first to the satisfaction of the 
 joint debts, for his interest in the partnership and its assets 
 had ceased. Baker's Appeal, 21 Pa. St. 823. That w^as a 
 case where a firm had consisted of five brothers. Two of 
 them withdrew, disposing of their interest in the partner- 
 ship estate and effects to the other three, the latter agreeing 
 to pay the debts of the firm. Some time after, one of the 
 remaining three sold his interest in the partnership prop- 
 erty to one of the remaining two partners. The two re- 
 maining, after contracting debts, made an assignment of 
 their partnership property to pay the debts of the last firm 
 composed of the two; and it was held that the creditors of 
 the first two firms had no right to claim any portion of the 
 fund last assigned, and that it was distributable exclusively 
 among the creditors of the last firm. So in McNiitt v. 
 StrayJioni & Hohson (39 id. 269), it was ruled lliat though 
 the general rule is tliat the equities of the creditors are to 
 be worked out through the equities of the partners, yet 
 where the property is parted with by sale severally made, 
 and neither partner has dominion or possession, there is 
 nothing through wliich tlie e(|uities of the creditors can 
 work, and, therefore, there is no case for the application of 
 the rule. See also Coovcr's Appeal, 29 id. 9. Unless, there- 
 fore, the conveyances of the partners in this case and the 
 act of fusion were fraudulent, the bank of which the com-
 
 608 ALIENATION OF INTERESTS IN PROPERTY 
 
 plainant is receiver has no claim upon the property now 
 held by the New Orleans and Carrollton Railroad Com- 
 pany, arising- out of the facts that it is a creditor of the 
 partnership, and was such a creditor when tlie property 
 belonged to the firm. 
 
 The bill, it is true, charges that the several transfers 
 of the partners were illegal and fraudulent, without speci- 
 fying wherein the fraud consisted. The charge seems to 
 be only a legal conclusion from the fact that some of the 
 transfers were made for the payment of the private debts 
 of the assignors. Conceding such to have been the case, it 
 was a fraud upon the other partners, if a fraud at all. 
 rather than upon the joint creditors, — a fraud which those 
 partners could waive, and which was subsequently waived 
 by the act of fusion. Besides, that act made provision for 
 some of the debts of the partnership. And it has been 
 ruled that where one of the two partners, with the consent 
 of the other, sells and conveys one half of the effects of the 
 firm to a third person, and the other partner afterwards 
 sells and conveys the other half to the same person, such 
 sale and conveyances are not prima facie void, as against 
 creditors of the firm, but are prima facie valid against all 
 the world, and can be set aside by the creditors of the firm 
 only by proof that the transactions w^ere fraudulent as 
 against them. Kimball v. Thompson, 13 ]\Ietc. (Mass.) 
 283; Flach ct al. v. CJiarroii ct al., 29 Md. 311. A similar 
 doctrine is asserted in some of the other cases we have 
 cited; and see 21 Conn. 130. In the present case we find 
 no such proof. We discover nothing to impeach the bona 
 fides of the transaction, by which the property became 
 vested in the railroad company. 
 
 Thus far we have considered the case without refer- 
 ence to the provisions of the Louisiana Code, upon which 
 the appellant relies. Art. 2823 of the Code is as follows: 
 "The partnership property is liable to the creditors of the 
 partnership in preference to those of the individual part- 
 ner." We do not perceive that this provision differs ma-
 
 CASE z: BEAUREGARD 609 
 
 terially from the general rule of equity we have stated. It 
 creates no specific lien upon partnership property, which 
 continues after the property has ceased to belong to the^Dart- 
 nership. It does not forbid bona fide conversion by the 
 partners of the joint property into rights in severalty, held 
 by third persons. It relates to partnership property alone, 
 and gives a rule for marshalling such property between 
 creditors. Concede that it gives to joint creditors a priv- 
 ilege while the property belongs to the partnership, there 
 is no subject upon which it can act when the joint owner- 
 ship of the partners has ceased. Art. 3244 of the Code 
 declares that privileges become extinct "by the extinction 
 of the thing sul^ject to the privilege." 
 
 What we have said is sufficient for a determination of 
 the case. If it be urged, as was barely intimated during 
 the argument, that the property sought to be followed be- 
 longs in equity to the bank, or is clothed with a trust for 
 the bank, because it was purchased with the bank's money, 
 the answer is plain. There is no satisfactory evidence that 
 it was thus purchased. It cannot be identified as the sub- 
 ject to the acquisition of which money belonging to the 
 bank was applied. 
 
 The bank has, therefore, no specific claim upon the 
 property, nor is there any trust which a court of equity can 
 enforce ; and it was well said by the circuit justice, that, 
 without some constituted trust or lien, "a creditor has only 
 the right to prosecute his claim in the ordinary courts of 
 law, and have it adjudicated before he can pursue the prop- 
 erty of his debtor by a direct proceeding" in equity. 
 
 Decree affirmed.
 
 6in ALIENATION OF INTERESTS IN PROPERTY 
 
 THAYER 7'. HUMPHREY. 
 
 DAVIES v. HUMPHREY. 
 
 In the Supreme Court of Wisconsin, 1895. 
 
 91 IVisconsin Reports, 276. 
 
 A. J. Goss and J. D. Putnam were partners, under the 
 firm name of J. D. Putnam & Co. The firm was insolvent. 
 It was dissolved, J. D. Putnam selling out his interest, with 
 the understanding that the business should be continued by 
 a new firm known as J. B. Goss & Co. The consideration 
 for the sale on Putnam's part was that the new firm should 
 assume and pay all the old firm debts. He supposed that 
 J. B. Goss was the real purchaser, though the transfer was 
 made to A. J. Goss, who shortly after transferred to J. B. 
 Goss. The new firm was advertised as J. B. Goss & Co., 
 and no notice was given of any change from the old firm 
 other than what was indicated in the change of the firm 
 name. A. J. Goss in fact dropped out; so that J. B. Goss 
 became sole proprietor, but A. J. Goss was still held out as 
 a partner in such a way as to make him liable for all the 
 debts of J. B. Goss & Co. The ostensible firm actually 
 assumed, by agreement with the creditors, nearly all the 
 debts of the old concern, and among them the debt of the 
 appellant Lottie Thayer, but did not so assume the debt of 
 the a])pellant Davies. Such ostensible firm also incurred 
 other ol)ligations. It was insolvent from the start, and, in 
 the course of events, — in efi^ect, by the act of J. B. Goss, — 
 made an assignment for the benefit of creditors ; and A. J. 
 Goss, being insolvent, made an assignment for the benefit 
 of creditors as well. There was then, in fact, no firm, 
 though there was an ostensible firm; no firm assets, strictly 
 so called, because there was no firm in fact ; yet there were 
 a:i-(-ts t'wil weic (Avned and used in the business of the
 
 THAYER 7'. HUMPHREY— DAVIES 7'. HUMPHREY 611 
 
 ostensible firm of J. B. Goss & Co., and that passed into 
 the possession of the assignee of J. B. Goss, — hence assets 
 of the ostensible firm. There is no Hving solvent partner.^ 
 Marshall, J. : Now, in this situation, can the cred- 
 itors of J. B. Goss, doing business as J. B. Goss & Co., who 
 were so circumstanced as to be entitled to hold J. B. Goss 
 and A. J. Goss liable as members of an ostensible firm, — 
 and all the creditors, at least of the new concern, including 
 those having claims against the old firm that, by arrange- 
 ment with them, have been assumed and made debts of J. 
 B. Goss & Co., are so circumstanced in fact, — prove their 
 claims pcn'i passu with the individual creditors of A. J. Goss 
 in his assignment? Also, can the creditors of the firm of 
 J. D. Putnam & Co. so prove? 
 
 This presents interesting questions of law, some of 
 which have not heretofore been presented to or decided by 
 this court, — questions upon which there is such conflict of 
 authority in this country that the true rule to be adopted has 
 not been arrived at without difiiculty, and then not with 
 the unanimous decision of the court, which is to be re- 
 gretted. Nevertheless, after careful consideration of the 
 state of the law as held by the courts of this countiy and of 
 England as well, we have, as we believe, reached a conclu- 
 sion thoroughly grounded in the well recognized principles 
 of equity jurisprudence, which should 1)e applied in the 
 progressive si)irit that ever has and should ever character- 
 ize the growth and application of such principles. They 
 should not only not be lost sight of, but the}- should not 
 be fenced in and restricted within such narrow limits as to 
 lead to a suspicion of their correctness, but should be ap- 
 plied on such well-defined lines as to leave no doubt in re- 
 spect to their true character and scope. 
 
 There are several propositions of law that apply which 
 are well established, — too well to need to be more than 
 
 ' The facts as stated have been in part taken from the statement of 
 Marshall, J., and in part from the statement of facts made by the 
 Reporter.
 
 612 ALIENATION OF INTERESTS IN PROPERTY 
 
 Stated, — among which are that the assets of an insolvent 
 partnership, in insolvency proceedings, must be applied first 
 to the payment of the partnership del)ts ; that, generally 
 speaking, partnership creditors cannot prove in competition 
 with the individual creditors of a partner; that the fixed 
 rule is that joint estate must go to joint creditors, and sepa- 
 rate estate to separate creditors, though the former may 
 prove pari passu with separate creditors when there is no 
 living solvent partner and no partnership assets. 
 
 Now, in this case there is no solvent jiartner. J. D. 
 Putnam, J. B. Goss, and A. J. Goss are all insolvent. So. 
 keeping in mind the above stated propositions of law, the 
 vital question is, Are there any partnership assets to which 
 appellants can resort? If there are such, then the founda- 
 tion stone, upon which they construct their claim of right 
 to share pari passu with the individual creditors of A. J. 
 Goss, disappears. 
 
 On that subject we shall not attempt to harmonize the 
 large number of cases that can be found in this country. 
 The simple question of whether, when there is an ostensi- 
 ble firm by holding out to creditors generally, the property 
 of such firm is to be considered, in equity, joint property 
 for the administration thereof in insolvency, the same as if 
 such property belonged to a firm in fact, is the key to the 
 situation. That it ought to be so considered is, we assume, 
 too clear for argument; that is to say, if A and B do busi- 
 ness with persons generally as A & Co., and incur liabili- 
 ties to such persons who deal in good faith, believing that 
 there is a firm in fact as well as in name, and under sucli 
 circumstances that they have a right to believe it is com- 
 posed of A and B, and the business becomes insolvent, the 
 property of the ostensible firm should be considered, to all 
 intents and purposes, in regard to the administration of the 
 business in insolvency under the control and direction of a 
 court of equity, the same as if they were partners in fact. 
 The doctrine that estops B from saying that he is not a 
 partner of A at the suit of the creditors of the ostensible
 
 THAYER 7'. HUMPHREY— DAVIES v. HUMPHREY 613 
 
 firm, should estop A from holding that the property is his 
 individual property to the prejudice of those who dealt with 
 the firm as a firm in fact, and should estop the creditors of 
 the ostensible firm, in the case of the bankruptcy of such 
 firm, from resorting primarily to the individual property of 
 the members of such firm ; in short, should work effectu- 
 ally to compel liquidation in all respects the same as if the 
 members of such firm were just what they seem to be. 
 This is what the doctrine of estoppel is for; that is what 
 equity is supposed to accc^mplish, — to prevent fraud and 
 promote justice between man and man in the administra- 
 tion of human affairs. And we are therefore prepared to 
 find that such is the law as substantially declared by the 
 court of appeals in chancer}- of England. 
 
 In /// re Rozvlaiid & Cranksliaw, i Ch. App. 421, the 
 precise question here under consideration was presented. 
 The business was conducted in the name of Rowland & Co. 
 Crankshaw was held to be the ostensible partner, in a con- 
 test to determine whether the property should be adminis- 
 tered in bankruptcy as joint property of Crankshaw and 
 Rowland, partners, or as the individual property of the one 
 who was the actual owner. The opinion of the court, which, 
 being short, can best be stated by quoting it in full so far as 
 relates to the particular question under consideration, is by 
 Lord Cranworth, as follows: 
 
 "In the administration of bankruptcy it has been the 
 object from the earliest times to apportion the assets as 
 fairly as possible between the joint and separate creditors. 
 There is found much difficulty in doing this satisfactorily, 
 but some rules have been clearly laid down, for instance, 
 that the joint property pays the joint creditors, and the 
 separate property pays the separate creditors. Now, what 
 is said here is that this estate, though said to be joint, is in 
 fact separate. These two gentlemen traded under the name 
 of Rowland & Co., and tradesmen supj^lied them with large 
 quantities of goods, and then they became bankrupts, and it 
 is now said that they were not partners, and that the real
 
 614 ALIENATION OF INTERESTS IN PROPERTY 
 
 arrangement between them was that everything belonged tc 
 Crankshaw. That is no reason ; and, as Crankshaw suffered 
 Rowland to trade in the name of the firm, any persons 
 trading with him are entitled to say that Rowland & Crank- 
 shaw are the persons with whom they dealt and that the 
 goods are joint goods." 
 
 This is a most concise statement of the law, as held by 
 the English court of chancery. The meaning is too plain 
 and unmistakable to leave any room for discussion, and we 
 find that the rule so tersely stated has been adhered to and 
 repeatedly approved in subsequent cases in language rather 
 tending to extend than restrict the principle involved. In 
 Ex parte Sheen [In re JVright), 6 Ch. Div. 235, the ques- 
 tion was again before the court, where the circumstances 
 were that there was no general holding out, and the court 
 held that where there is no ostensible partnership by a hold- 
 ing out to creditors generally, but only a holding out to two 
 or three creditors, the facts are not sufficient to make the 
 property of the alleged ostensible firm joint estate. This, 
 though not referring to, inferentially approves /;/ re Ro7U- 
 land & Crankshaiv. In Ex parte Hay man (In re Puls- 
 ford), 8 Ch. Div. 11, the question again came before the 
 court of chancery, on appeal from the chief judge in bank- 
 ruptcy, and In re Roivland & Crankshaw was expressly ap- 
 proved. The case so clearly covers the two cases under 
 consideration that we quote liberally from the opinion, 
 after stating the facts. Such facts are as follows: 
 
 Prior and up to August 31, 1875, Hayman, Catford, 
 and Pulsford carried on business as Hayman, Pulsford & 
 Co. On that date the firm was dissolved and notice was 
 published stating the fact. At the same time a letter was 
 sent to each of the persons with whom the firm had done 
 business, stating the fact of dissolution and that thereafter 
 the business would be carried on by Thomas Pulsford, un- 
 der the style of Pulsford, Son & Co. Thereafter the busi- 
 ness was so conducted. Tom Pulsford, the son of Thomas 
 Pulsford, took an acti\e part in conducting the business up
 
 THAYER f. HUMPHREY— DAVIES 7'. HUMPHREY 615 
 
 to the time the insolvency occurred, when Thomas Pulsford 
 filed a petition in bankruptcy; and on the suggestion that, 
 on account of the way the business had been conducted, it 
 might be held that the father and son were partners, a peti- 
 tion was also filed by them as joint traders. The creditors 
 resolved upon a liquidation by arrangement, and such reso- 
 lution was registered. Hayman, a separate creditor of the 
 father in respect to matters outside the firm of Pulsford, 
 Son & Co., appealed from the order for a liquidation of the 
 business as that of a firm, on the ground that there was no 
 partnership. He prevailed, and the registration was can- 
 celed, and the decree was not appealed from. Thereafter 
 the father and son signed a declaration of insolvency, upon 
 which Ravenscroft, a creditor, presented a petition alleging 
 that they had treated father and son as partners, under the 
 firm name of Pulsford, Son & Co., on which an adjudica- 
 tion was made against them by consent. Hayman then ap- 
 pealed to the court to annul the adjudication. On this ap- 
 plication, following In re Rozclajid & Cvankshaz<\ the ap- 
 plication was ciisniissed on the ground that, though no ac- 
 tual partnership Jiad subsisted betzveen father and son, yet 
 the son had been held out as a partner to the petitioning 
 creditor to such an extent as to enable him to maintain the 
 adjudication. This decision was not appealed from. Hay- 
 man then applied to the court for an order declaring that 
 all, or such portion as the court should think proper, of 
 the estate whicli appeared in the acts of the bankrupt or 
 either of them as joint estate, formed part of the separate 
 estate of the father, and for a direction that the trustee 
 should treat the same accordingly as separate estate of the 
 father. Hayman was the only separate creditor, that is, 
 creditor outside those of the business of Pulsford, Son & 
 Co. On the hearing the evidence showed that substantially 
 all the creditors did business with Pulsford, Son & Co. as 
 a firm consisting of the father and son, though it appeared 
 that the father was the actual owner of the business and 
 that there was no firm in fact. Hayman's application was
 
 616 ALIENATION OF INTERESTS IN PROPERTY 
 
 refused, and he appealed. On the hearing of this appeal in 
 the chancery division of the high court of justice, James, 
 L. J., propounded to appellant's counsel the following in- 
 terrogatory : "// / go to a shop, and find flic names Thomp- 
 son & Jones on the door, and I go in and find Thompson 
 and Jones selling goods, am I not zvarranted in believing 
 that they are partners?" to which answer was made in ef- 
 fect : "That zvonld not change the nature of the assets, 
 and make property zvliich belonged to the father in fact the 
 joint property of father and son," — just as it is claimed in 
 this case, it will be observed. Appellants contend that the 
 fact of holding ont sufficient to constitute an ostensible firm 
 of J . B. Goss & Co. zvill not change the nature of the assets 
 so as to make the individual property of J . B. Goss joint 
 property, in equity, of J. B. Goss & Co. The positions are 
 identical. In the opinion of the court this is answered by 
 James, L. J. After reciting the facts in In re Rozvland & 
 Crankslunv, as in Lord Cranworth's opinion in that case, 
 he says : 
 
 "Every point of that judgment applies to this case, 
 with this single exception, which fact is in favor of the de- 
 cision of the registrar, that, instead of the words used being 
 '& Co.,' which is an ambiguous term and might mean any- 
 body in the world, the words are 'Pulsford, Son & Co.' 
 But it is said that this conclusion will work hardship to the 
 appellant, who is a creditor of the father alone. I think 
 that is only one of those misfortunes which occur to per- 
 sons who deal with others who afterwards become insol- 
 vent and become bankrupt, having partners. The hardship 
 ivould have been exactly the same upon Hayman if there 
 had been a real partnership created by a formal instrument. 
 The same consequences zvoiild then haz'c happened as hap- 
 pen where there is only an ostensible partnership." It will 
 be distinctly noted at this point tliat the court makes no dis- 
 tinction in the administration of estates of an ostensible and 
 an actual firm in bankruptcy. The lord justice proceeds 
 "The rule has been established that joint creditors take th 
 
 J
 
 THAYER z'. HUMPHREY— DAVIES r. HUMPHREY 617 
 
 joint estate and separate creditors take the separate estate, 
 and you only have to consider what is joint and what is 
 separate estate, and you must apply the rule independejitly 
 of the hardship. The supposed hardships are those which 
 it may inflict in any particular case. We can only apply 
 the fixed rule that that which is joint estate shall go to the 
 joint creditors, and that which is separate estate shall go 
 to the separate creditors." 
 
 The reasoning of these cases is, in our opinion, un- 
 answerable, and we deduce therefrom the principle of law 
 that, if a person allows another to carry on business in 
 such a way as to amount to a holding out to persons gen- 
 erally that he and such other are partners, and credit is 
 given to both on the supposition that they are partners in 
 fact the property with which such business is carried on, 
 though in law that of such person, in equity will be treated 
 as the joint property of such person and such other ; and 
 neither of them, nor the creditors of either, can prove up in 
 insolvency in competition with the creditors who have trusted 
 the two as partners and the business as that of the two. 
 To the same effect is Van Klceck v. McCabe, 87 Mich. 599. 
 Applying the law thus stated to the Cjuestion under consid- 
 eration, the conclusion is easily reached that, while there 
 are no firm assets at law of the ostensible firm of J. B. 
 Goss & Co., all the property used by J. B. Goss in conduct- 
 ing the business, in equity, is the joint property of such 
 ostensible firm, and to it all the creditors of such ostensible 
 firm can resort, the same in all respects as if there had been 
 a firm in fact. 
 
 This effectually disposes of the appeal of appellant. 
 Lottie Thayer, though it is as effectually ruled by the law 
 applicable to the Davies appeal, as will appear by what fol- 
 lows. Appellant Davies never became a creditor of J. B. 
 Goss or of J. B. Goss & Co., by any agreement to which he 
 was a party ; and, while his appeal presents the question of 
 whether there is any joint property to which he can resort.
 
 618 ALIEXATION OF INTERESTS IN PROPERTY 
 
 such question involves a different (juestion from the one 
 discussed as i)articularly api)hcable to the Thayer appeal 
 
 We must start the discussion of the Davies appeal with 
 the propositions of law — in respect to which, though there 
 is some conflict, they are too well established by the great 
 weight of authority to be questioned by this court — that 
 partnership creditors have no lien on the partnership assets 
 independent of the equity of the partners, but must work 
 out their preference over the individual creditors of the 
 members of the partnership through the equities of such 
 members; that, so long as the equity of the individual mem- 
 bers of the partnership exists to have the partnership prop- 
 erty applied to the partnership debts, the creditors have the 
 equity to compel its enforcement; that if one member sells 
 his interest, bona fide, to his copartner or a stranger, with- 
 out in any way retaining his equity to have the partnership 
 creditors paid out of it, the joint property is thereby con- 
 verted into the individual property of the purchaser. The 
 question to be determined is, in view of the facts that the 
 sale was made by Putnam in consideration of the debts of 
 the partnership being paid ; that the firm was insolvent at 
 the time ; that the whole transaction was really made by 
 him to relieve himself from the partnership liability ; that 
 the property was put into the possession of J. B. Goss for 
 the purpose of continuing the same business with the same 
 assets and effecting a settlement of the old partnership af- 
 fairs, — all of which clearly appears. Can it be held that the 
 equitable title to the property was changed, so as to affect 
 the equitable right of Putnam to have the creditors of the 
 old firm paid out of it, or were the equitable rights of the 
 outgoing partner and the creditors preserved by reason of 
 the facts, and the assets in the hands of J. B. Goss im- 
 pressed with a trust to carry out the intention of the par- 
 ties? 
 
 In discussing these questions, full effect should be 
 given to the significant controlling words in the rule, cor- 
 rectly stated in IVillis v. Thompson, 85 Tex. 301, "without
 
 THAYER 7'. HUMPHREY— DAVIES v. HUMPHREY 619 
 
 preserving" the lien in any manner." In Coiiroy v. JVoods, 
 13 Cal. 626, it was held that where a sale is made by one 
 partner to his copartner, and the consideration for the sale 
 is the pa}'ment of the partnership debts, the sale is not bona 
 fide and within the meaning of the rnle, so as to cut of? the 
 equity of the vendor to have the property applied to the 
 payment of the partnership debts. Very few cases can be 
 found that go as far as the California court on this sub- 
 ject, except in the New Hampshire court, which does so, 
 holding that the creditor has an equitable interest indepen- 
 dent of the equity of the individual partner. In Ex parte 
 Cooper, I Mont., D. & D. 358, and Ex parte WiUiams, 1 1 
 Ves. 3, it is held that where an outgoing" partner sells hoiia 
 fide to his copartner, and takes for his consideration an 
 agreement that the purchaser shall pay the debts, no equi- 
 table interest in the property is retained. To the same ef- 
 fect are Stafiton v. IVestover, loi N. Y. 265; Fidton v. 
 Hughes, 63 Miss. 61 ; Dimon v. Hazard, 32 N. Y. 65; and 
 many other cases that might be cited. In Darby v. Gilli- 
 gaii, ^^ W. Va. 246, it is held that where a fii*m is insol- 
 vent, if a partner sells out to his copartner, and the pur- 
 chaser agrees to pay the firm debts, the sale cannot be con- 
 sidered bo)ia fide, so as to cut off the equity of the firm 
 creditors to be preferred ; and to the same effect is Olson 
 v. Morrison, 29 Mich. 395. In the latter case Olson and 
 Jones were partners. Olson sold out to Morrison, the con- 
 sideration being" that the vendee should pay the debts of the 
 firm. It sufficiently appears that the firm was insolvent. 
 The vendee neglected to comply with his agreement, and 
 the creditors, joining wnth the vendor, brought suit to com- 
 pel performance of the agreement and to subject the prop- 
 erty to the payment of the partnership debts. Held, that 
 the agreement to pay the debts as consideration for the 
 transfer was a sufticient recognition of the equitable lien of 
 the partnership creditors, tracing the same through the 
 equity of the vendor, to enable them, joining with him, to 
 enforce such equity.
 
 620 ALIENATION OF INTERESTS IN PROPERTY 
 
 In Mcnayli v. Uliit-d'cll, 52 N. Y. 146, it was held that, 
 as between the hrm and its creditors, the title of the former 
 to the joint property is not divested by any separate trans- 
 fers to outside parties for the individual benefit of the re- 
 spective vendors, and that, when there has been no trans- 
 fer by the firm as such, conveying the corpus of the prop- 
 erty, and it remains /;; s/->ccic, though transferred by the 
 separate transfers of the individual members, it may yet be 
 followed and reached in the hands of those claiming under 
 such separate transfers, by creditors of the firm. This is 
 upon the theory that neither partner separately has any in- 
 terest in the corpus of the property ; that his interest is lim- 
 ited to his proportionate share of what remains after a set- 
 tlement of all partnership obligations and an accounting be- 
 tween himself and his copartner. A distinction is drawn in 
 this case between a Invia fide sale by one of a partnership to 
 two of his copartners without reservation, which, under the 
 prevailing rule of E.v parte Ruffin, 6 Ves. 119, operates to 
 liberate the assets from the partnership liability, and a sale 
 made by one member of a firm of more than two, to one of 
 the partners, or to an outside party. In that class of cases 
 the New York courts have uniformly held, since Mcnagh 
 v. UliitwcU, that the partnership effects are not liberated 
 from the partnership liability. In this case, if it is held 
 that the sale was really to J. B. Goss, under the New York 
 rule the corpus of the property never passed by any act of 
 the firm so as to change the equitable title in respect to 
 creditors existing at the time of the sale. 
 
 The trend of the New York cases since Mcnagh v. 
 Jl'hifu'cll has been to extend the rule which preserves the 
 equity of the creditors in case of the sale by one of the 
 members of an insolvent firm, the purchaser assuming the 
 partnership obligations in place of the outgoing partner, 
 whether such sale is to a copartner or otherwise. Tliis 
 clearly appears by the following, from the opinion in Bul- 
 ger V. Rosa, 119 N. Y. 465 : "The equity of the firm cred- 
 itors cannot be defeated by any attempted conversion of
 
 THAYER t'. HUMPHREY— DAVIES v. HUMPHREY 621 
 
 the assets of the insolvent firm into the individual assets of 
 one of- the partners, through a transfer by one partner of 
 his interest therein to the other. In such a case, till the 
 assets come to the hands of a bona fide purchaser, the same 
 can be reached by the partnership creditors." To the same 
 efifect are Nordlingcr v. Anderson, 123 N. Y. 544, and Pey- 
 ser V. Myers, 135 N. Y. 599. In the latter case there had 
 been a change in the firm some time prior to the assign- 
 ment for the benefit of creditors, the new firm not having 
 made any express contract to pay the old firm debts. There 
 were two sets of creditors, and, in discussing the subject of 
 their equitable rights, the court said: "The priority of the 
 lien of firm creditors is not divested by the transfer by an 
 insolvent firm of the assets to one or more of the partners, 
 nor can it be afi^ected by any mere change in the personnel 
 of the firm, as by the withdrawal of one partner from the 
 firm or the introduction of another." See, also, Phelps v. 
 McNeely, 66 Mo. 554, where it was held that if a partner 
 sells out his interest in the firm to his copartner, who agrees 
 to pay the debts, the firm being at the time insolvent, the 
 ecjuities of the creditors are preserved. The evidence in 
 that case tended to show that there was no property, other 
 than that formerly ])elonging" to the partnership, out of 
 which the firm debts could be paid ; but it does not clearly 
 appear whether the court rested its decision on the ground 
 that there was an implied promise under the circumstances 
 to pay the firm debts out of the partnership assets, or on 
 the ground that the insolvency of the firm impeached the 
 bona fides of the transaction. The court went further, and 
 held that, notwithstanding the vendee of the property had 
 turned the same out to secure his individual creditors, who 
 had received it as security in good faith, it could neverthe- 
 less be reached by the partnership creditors ; but this was 
 subsequently overruled in /;/ re Edi\.'ards: Goddard-Peck 
 Grocery Co. v. McCune, 122 Mo. 426. 
 
 We might go on at great length reviewing decisions on 
 this subject, and cite numerous authorities w4iere outgoing
 
 622 ALIENATION OF INTERESTS IN PROPERTY 
 
 partners have been held to retain their e(|uity to have the 
 firm debts paid, and the rights of the creditors to the assets 
 which have come under the control of equity have been 
 worked out through the e(|uity of such partners. Probably 
 there are few questions upon which there is such a conflict 
 of authority as the one under consideration ; but nearly all 
 are in harmony with the principle that if the bona fides of 
 the transaction is impeached, or if the equity is retained by 
 agreement, express or implied, then the creditors can en- 
 force such equity. The conflict chiefly arises in regard to 
 what circumstances or facts are sufficient to impeach the 
 good faith of the transaction, and in respect to what is 
 sufiicient to show a contract that the partnership debts shall 
 be paid out of the partnership assets, and impress a trust 
 upon such assets for that purpose. 
 
 By the mere fact of the dissolution of a partnership by 
 one member selling out to his copartner or to a stranger, 
 the purchaser or purchasers agreeing, as consideration for 
 the purchase, to pay the partnership debts, the firm being 
 insolvent at the time, no presumption of a bona fide agree- 
 ment arises which will operate to change the equitable title 
 of the property ; and such agreement must clearly appear 
 to exist inconsistent with the continuance of the equitable 
 rights of the partner, and, through him, of the partnership 
 creditors; else it is retained. Lindley, Partn. 699. If the 
 circumstances are such as to show that the property was 
 merely transferred for the puri)ose of winding up the af- 
 fairs of the concern, there being no express agreement that 
 the property shall be exclusively that of the vendee, it will 
 in case of bankruptcy, be distributed as joint estate. Lind- 
 ley, Partn. 699, 700. This is upon the presumption that 
 such was the intention of the parties. The presumptions to 
 be indulged in, in such cases, rather go to support an im- 
 plied agreement to do what in equity and good conscience 
 the parties ought to do. In Scdaiii v. JJ'illiaius, 4 McLean, 
 51, and Marsh v. Bennett, 5 McLean, 117, it was held that 
 the equity was retained to have the partnership creditors
 
 THAYER t'. HUMPHREY— DAVIES v. HUMPHREY 623 
 
 paid out of the partnership assets, and that such assets were 
 impressed with a trust for that purpose by virtue of an ex- 
 press agreement. In /// re Dawson, 59 Hun, 239, which 
 does not appear to ha\'e been appealed from or criticised, 
 it was held that where one member of a hrm retires, selling 
 out his interest to a third party, who continues the business 
 with the remaining partner, with whom he enters into part- 
 nership, and the partnership assumes the debts of the previ- 
 ous firm, and such new firm becomes insolvent and makes 
 an assignment for the Ijenefit of creditors, the property 
 transferred to the new firm becomes charged in equity with 
 a trust for the payment of the debts of the old firm, which 
 the outgoing partner may enforce. Such holding is cer- 
 tainly equitable and just when applied to a state of facts, 
 as in this case, which leaves no room for doubt but that it 
 was the intention of all the parties dealing with the prop- 
 erty to preserve and administer the partnership assets in the 
 nature of a trust to liquidate the old debts; and to this ex- 
 tent we expressly approve of and apply it here. 
 
 This does not in the least trench upon the rule that if a 
 partner sells out, bona fide, his interest in the partnership 
 assets and business, without in any manner retaining his 
 equity to have the partnership creditors paid out of such 
 assets, he waives his equity in that regard, but is perfectly 
 consistent with it. If the agreement was express that the 
 debts shall be paid out of the assets, then the equity is re- 
 tained by express contract; if the circumstances of the 
 transaction show that the contemplation of the parties was 
 that the debts should be so paid, then the equity is retained 
 by implied agreement ; and the assets are, in the adminis- 
 tration of the afifairs of the purchaser in insolvency, as ef- 
 fectually impressed with a trust in favor of the vendor and, 
 through him, the creditors of the old partnership, in the one- 
 case as in the other. The circumstances involved in these 
 appeals point luierringly to the conclusion that it was the 
 intention of J. D. Putnam. J. B. Goss, and A. J. Goss that 
 the new concern of J. B. Goss & Co. should continue the
 
 624 ALIENATION OF INTERESTS IN PROPERTY 
 
 old business with the same assets, for the primary purpose 
 of winding up such business and hquidating the debts there- 
 tofore contracted in it out of the old assets, so far as prac- 
 ticable. Hence the court below, sitting as a court of equity 
 in the administration of the affairs of A. J. Goss and J. B. 
 Goss, was warranted in concluding that the property of J. 
 B. Goss is impressed with a trust to carry out the intention 
 of all the parties concerned in the dissolution of the old 
 firm and formation of the new concern of J. B. Goss & Co., 
 that the debts of the old firm should be assumed by the new 
 concern and be paid out of the property turned over to it 
 and the operations of tiie lousiness, so far as this can be 
 done with due regard to the equities of the creditors who 
 trusted such new concern. 
 
 On the subject of whether the two sets of creditors — 
 those of the old firm of J. D. Putnam & Co., and those of 
 the ostensible firm of J. B. Goss & Co. — can all prove in 
 the insolvency proceedings of J. B. Goss, though that sub- 
 ject need not be decided here, w'e cite Ex parte Chuck {In 
 re Starkey & JVIiitcsidc), 8 Bing. 469, an early English 
 case, which covers the subject ; and, so far as we are able 
 to find, it has never been criticised or overruled. The facts 
 were that S. & S. had been doing business for some time 
 as copartners, and were, as such, indebted to various per- 
 sons. They took in W., and thereafter the business was 
 conducted by S., S. & W., as copartners. The new firm 
 became bankrupt, and there were creditors of both the old 
 and the new firm as well. The court held substantially as 
 follows: "We are of the opinion that the creditors of S. 
 & S. and those of S., S. & W. should be admitted to prove 
 pari passu upon the joint assets of the new firm." To the 
 same effect is Froiv, Jacobs & Co.'s Estate, 73 Pa. St. 459. 
 Foresman sold out his interest in an existing firm, having 
 creditors, to the remaining members, who agreed to pay the 
 debts. The vendees continued business as a firm with the 
 same assets for a time, and finally made an assignment for 
 the benefit of creditors. Held that the two said creditors —
 
 THAYER V. HUMPHREY— DAVIES v. HUMPHREY 625 
 
 those of the old firm and those of the new firm — might 
 prove pari passu against the assets of the new firm ; That 
 Frow, Jacobs & Co. were Hable for the debts as partners in 
 the firm of Foresman & Co., which they took npon them- 
 selves when Foresman retired from the firm and they con- 
 tinued the business. When Foresman sold out, the pur- 
 chasers intended to continue the business. They took all 
 the assets and assumed the debts. The assets became the 
 capital of the new firm, and the old debts became its debts. 
 Under these facts, the court readily reached the conclusion 
 that the creditors of the old and of the new firm should 
 stand on an equal footing in the settlement of the new firm 
 in bankruptcy. To the same effect are /// ;v Dazvsoti, 59 
 Hun, 239; Shcdd v. Ba)ik of Brattlchoro, t,2 Vt. 709; Fil- 
 ley V. Phelps, 18 Conn. 294; and JJ'riglif v. Carman, 19 N. 
 Y. Supp. 696. Held, in latter case, and in Frozv, Jacobs & 
 Co.'s Estate, supra, and In re Daivson, supra, that the debts 
 of the old became, by reason of the facts, the debts of the 
 new firm. To the same effect is Peyser v. Myers, 135 N. 
 Y. 599, where it is distinctly held that if there is a change 
 in the personnel of an insolvent firm, and it subsequently 
 makes an assignment for the benefit of the creditors, — there 
 being an agreement, express or implied, at the time of the 
 change, that the new firm shall assume and pay the old 
 debts, — the equity of the old creditors is equal to that of 
 the new. There was no express agreement in that case, but 
 the court held that there was an implied agreement. 
 
 This effectually disposes of all the questions presented, 
 and leads to the conclusion that neither of the appellants 
 can prove pari passu with the individual creditors of A. J. 
 Goss in his assignment, l)ut they can both prove pari passu 
 with all the creditors of the ostensible firm of J. B. Goss & 
 Co., in the assignment of J. B. Goss. 
 
 This opinion has been quite lengthy, but it may be 
 well justified from the importance of the questions involved. 
 In reaching the conclusion arrived at by the majority of 
 the court, we resort to cases merely to determine what well-
 
 626 ALIENATION OF INTERESTS IN PROPERTY 
 
 defined principles have been established applicable to the 
 facts of the appeals before ns. Having come to a satisfac- 
 tory conclusion in that regard, we endeavor to broadly 
 apply them so as to satisfy effectually the ends of justice, 
 which are obviously the legitimate ends for which sucli 
 principles have been worked out in the growth of equity 
 jurisprudence. By so doing the assets of J. B. Goss, held 
 and used by him as those of the ostensible firm of J. B. 
 Goss and A. J. Goss, will be marshaled and administered 
 along definite lines, without confusion or uncertainty as to 
 the rights of the various sets of creditors and parties in- 
 terested. 
 
 In order, now, that the principles of equity jurispru- 
 dence here applied may definitely appear, we recapitulate 
 as follows : 
 
 1. In the administration of the affairs of a partnership 
 and of the individual members thereof, the fixed rule must 
 be applied that joint estate goes first to joint creditors, and 
 separate estate to separate creditors, with the exception that 
 where there are no partnership assets, and there is no living 
 solvent partner, partnership creditors may prove with the 
 separate creditors of a partner in the settlement of his es- 
 tate pari passu. 
 
 2. Partnership creditors have no lien, strictly so called, 
 on partnership assets, but must work out their preference 
 over the creditors of the individual members of the part- 
 nership through the equities of such members. 
 
 3. If one of a partnership sells out, boiia fide, his in- 
 terest to his copartner or to another, without in any way 
 retaining his equity to have the partnership creditors i)aitl 
 out of the assets, the property is converted into the in- 
 dividual property of the purchaser, free from all the equi- 
 ties of the seller, even if the purchaser, as the consideration 
 for such purchase, agrees to pay the firm debts ; otherwise, 
 if the purchaser agrees expressly or impliedly to api)ly the 
 assets to such purpose. 
 
 4. The word "assets", used in No. i, is not confined to
 
 THAYER 7'. HUMPHREY— DAVIES v. HUMPHREY 627 
 
 assets at law, but includes all asssets applicable to the pay- 
 ment of the partnership debts, under the well-defined prin- 
 ciples for the administration of the affairs of insolvent part- 
 nerships under the direction of a court of equity. 
 
 5. Those who deal with persons representing them- 
 selves to creditors generally as partners in a certain busi- 
 ness are entitled to have the property used in such business 
 applied to the payment of the debts incurred in such busi- 
 ness in preference to the individual deljts of the members 
 of the partnership, and the ostensiljle member of such part- 
 nership is likewise entitled to have the assets of the osten- 
 sible firm so applied. 
 
 6. If a member of an insolvent firm sells out with the 
 understanding that the business is to be continued with the 
 same assets, and the purchaser or purchasers, as considera- 
 tion for the sale, are to assume and pay the old debts, and 
 the circumstances are such as to evidence the fact that the 
 purpose of the transaction is to pay the old firm debts and 
 to wind up the old partnership concern by the payment of 
 the debts of such concern out of the partnership assets and 
 a continuation of the business, the court is warranted in 
 concluding that the equity of the outgoing partner to have 
 the assets of the firm applied to the payment of the firm 
 debts is not changed, and that the right of the creditor to 
 enforce it continues. 
 
 7. If one of the meml)ers of an insolvent firm sells out 
 his interest to an outside party or to his associates, and 
 therein' a new firm is formed, which assumes the debts of the 
 old firm, the intention of all the parties being that the new 
 firm shall continue the Ijusiness in substantially the same way 
 with substantially the same assets and that the old debts 
 shall be paid out of such lousiness, and such new firm subse- 
 quently makes an assignment for the benefit of cred- 
 itors, in the administration of the assignment the creditors 
 of the old and the new firm may prove their claims pari 
 passu and be preferred over individual creditors of the 
 members of such new firm.
 
 628 ALIENATION OF INTERESTS IN PROPERTY 
 
 By the Court. — -The orders appealed from are affirmed, 
 and the causes remanded for further proceedings according 
 to law. 
 
 Newman. J. [Dissenting opinion in the case of 
 Thayer v. Humphrey]." The rule is fully settled, in 
 the administration of the estates of insolvents, that 
 the partnership debts are primarily payable out of 
 the partnership assets and are entitled to a prefer- 
 ence over the individual debts of the insolvent ; and 
 so, in the reverse case, the individual debts are pri- 
 marily payable out of the individual assets of the insolvent 
 and possess a like preference. The surplus only, after satis- 
 fying such priorities, can be reached by the other class of 
 debts. For this purpose the joint estate and the separate 
 estate of the insolvent constitute separate funds, to be ad- 
 ministered separately. Story, Partn. (7th ed.). Sec. 376; 17 
 Am. & Eng. Ency. of Law, 1202, and cases cited in note i ; 
 Parsons Partn. (4th ed.). Sec. 382; note to McCulloh v. 
 Dashiell's Adui'r, 18 Am. Dec. 271; Murrill v. Neill, 8 
 How. 414; Curtis v. Jl'oodword, 58 Wis. 499. 
 
 There are certain exceptions to this rule, which go to 
 prove and ascertain it. One such exception, which is as 
 well settled as the rule itself, is the case where there are no 
 partnership assets to be administered and no living solvent 
 partner. Where there are no partnership assets to be ad- 
 ministered and no living solvent partner, then the joint 
 creditor is entitled to share pari passu with the individual 
 creditors of the separate estate. Story, Partn. (7th ed.), 
 Sec. 378; 17 Am. & Eng. Ency. of Law, 1205, and cases 
 cited in note 4; Curtis v. Woodward, 58 Wis. 499; Parsons, 
 Partn. (4th ed. ), Sec. 384, note 1. 
 
 In the instant case there was, in fact, no partnership. 
 There are no partnership assets. There is no living solvent 
 partner. The case seems to come clearly within the excep- 
 tion to the rule as above stated. There was no partner- 
 
 '^^r-'^«l 
 
 "A part only of this opinion is reprinted.
 
 THAYER r. HUMPHREY— DAVIES v. HUMPHREY 629 
 
 ship. The trial court so decided, and that is conchisive here. 
 The fact that there was no partnership is absolute proof 
 that there are no partnership assets. It is undisputed that 
 J. D. Putnam, Alfred J. Goss and James B. Goss, all the 
 debtors involved in the controversy, are all and each in- 
 solvent. 
 
 J. D. Putnam, conveyed all his interest in the partner- 
 ship property of J. D. Putnam & Co., in November, 1891, 
 to Alfred J. Goss. Alfred J. Goss conveyed the entire 
 property to James B. Goss. James B. Goss assigned the 
 •entire property for the benefit of his creditors. Alfred J. 
 Goss has assigned all his property for the benefit of his 
 creditors. There is absolutely no property in existence 
 which any one claims to be partnership assets of James B. 
 Goss and Alfred J. Goss. To require the petitioner to 
 pursue for her remedy any such supposititious partnership 
 assets is to mock her with the delusive promise of a remedy 
 which must inevitably disappoint the expectation which it 
 fosters. 
 
 The circumstance that the property which James B. 
 Goss assigned for the benefit of his creditors is, in part, the 
 same property which was once the firm property of J. D. 
 Putnam & Co., is of no significance. No equity of the cred- 
 itors of J. D. Putnam & Co. followed this property into the 
 hands of James B. Goss. There is no hint of bad faith in 
 the transfer, or that it was made in contemplation of in- 
 solvency. The rights of creditors in the assets of a partner- 
 ship must be worked out through the equities of the part- 
 ners. If the partner has no right, the creditor has none. 
 The right of the partners is, in effect, a right to share in 
 the suq^lus left after discharging all the firm debts. Each 
 partner has the right to require all the firm assets to be 
 applied to the payment of tlie firm debts; for so, only, can 
 his liability in solido for them be diminished. But this right 
 of a partner is property which can be sold and transferred. 
 It is effectually sold and transferred by a sale and transfer, 
 in good faith, of all his interest in the firm property, whether
 
 630 ALIENATION OF INTERESTS IN PROPERTY 
 
 to his partner or to a stranger. Such a sale and transfer 
 dissolves the partnership and extinguishes every right which 
 the retiring partner had in the firm property, including the 
 right to require it to be applied to the payment of firm 
 debts, unless such right is preserved by the terms of the 
 sale. Story, Partn. (7th ed. ), Sees. 307, 358, 360; Bates, 
 Partn. Sees. 528, 540, 550-552; Parsons, Partn. (4th ed. ), 
 Sees. 178, 246, 248, 394. note i on ])age 330, and cases cited; 
 Collyer, Partn. (Perkins' ed. ), Sees. 894, 904, 905 ; Lindley, 
 Partn. (Am. ed., with Audenreid's notes, 1888), 407, 765; 
 35 Cent. Law J. 418. and cases cited in note 3 on page 421 ; 
 17 Am. & Eng. Ency. of Law, 970-975, and cases cited in 
 note 3; Case v. Beauregard, 99 U. S. 119; Fitzpatrick v. 
 Flaiiiiagaii, 106 U. S. 648; Hiiiskainp v. Moline JV. Co. 
 121 U. S. 310, T,2^; Baker's Appeal, 21 Pa. St. 76; Ladd 
 V. Griszvold, 9 111. 25 ; /;^ i-e Lloyd, 22 Fed. Rep. 88 ; Sau}i- 
 ders V. Reilly, 105 N. Y. 12; Davis v. D. & H. C. Co. 109 
 N. Y. 47; Robb V. Miidge, 14 Gray, 534. The effect is the 
 same where the remaining partner or other purchaser as- 
 sumes the debts of the firm. This is a personal contract 
 only, and leaves the retiring partner in the condition of an 
 unsecured creditor. Bates, Partn. Sec. 528 ; Story, Partn. 
 (7th ed. ), 559; 17 Am. & Eng. Ency. of Law, 975; Robb 
 V. Mudge, 14 Gray, 534. Such sales of a partner's in- 
 terest in firm property are presumed to be valid. Kimball 
 V. Thompson, 13 Met. 283. The authorities are nearly 
 uniform. Only a few cases are out of line. 
 
 These considerations seem to show sufficiently that 
 there are no joint assets of Alfred J. Goss and James B. 
 Goss, and so that the petitioner has the right to go against 
 the individual assets of either in the hands of their re- 
 spective assignees. The case properly ends here. 
 
 Newman, J.: [Dissenting opinion in the case of 
 Dovies V. Humphrey]"' This case arises out of the same 
 failures and assignments as Thayer v. Humphrey, but in 
 
 ' A part only of this opinion is reprinted. Pinney. J., also dissented 
 in both cases, concurring in both opinions of Newman, J.
 
 THAYER ^'. HUMPHREY— DAVIES z'. HUMPHREY 631 
 
 some of its circumstances differs from that case. The appel- 
 lant was also a creditor of J. D. Putnam & Co., but he did not 
 accept of J. B. Goss & Co. as a substitute for his original 
 debtor. So he is not a creditor of either James B. Goss or 
 J. B. Goss & Co. ; and neither are in any way liable for his 
 claim. The appellant seeks to prove his claim against the 
 estate of Alfred J. Goss in the hands of the assignee for the 
 benefit of his creditors. It is answered to his application : 
 "Your remedy is against the assets of James B. Goss, wdiich 
 are in the hands of his assignee for the benefit of his cred- 
 itors." And so he is turned away. It is not claimed that 
 there are any firm assets of J. D. Putnam & Co. in existence, 
 nor that either partner is solvent, nor that the transfer to J. 
 B. Goss & Co. did not pass the legal title to all the assets 
 of J. D. Putnam & Co. to J. B. Goss & Co. But it is held 
 that the right of the partners to have these assets applied 
 first to the payment of the debts of the firm was reserved 
 by the terms and conditions of the transfer. This is be- 
 lieved to be without a shadow of foundation in fact. It is 
 put upon the ground that the transaction was for the pur- 
 pose of applying the assets of the firm to the payment of its 
 debts; and this in the teeth of all the evidence. The firm 
 of J. D. Putnam & Co. was composed of J. D. Putnam and 
 Alfred J. Goss. Both partners signed and published a 
 notice of the dissolution of the firm, in which the public 
 was notified that the same lousiness would be continued by 
 J. B. Goss & Co., who assumed all the debts of the firm; 
 and the same business was in fact carried on at the same 
 l)lace by J. B. Goss & Co. for two years and upward. It 
 does not seem necessary to say that the intent to have the 
 business carried on with the same property is incompatible 
 with the purpose to have the property applied to the pay- 
 ment of the debts. The greater part of the property received 
 by J. B. Goss & Co. was the gristmill itself. J. B. Goss & 
 Co. got nothing of value for the promise to pay the debts 
 of the old firm, unless they got the right to carry on the 
 business with the property received from the old firm. The
 
 632 ALIENATION OF INTERESTS IN PROPERTY 
 
 real intention of the transaction is obvious. It was to make 
 a novation of the debts of the old firm, — to substitute a 
 new debtor in place of the old one. This was not alto- 
 gether effected, because some of the old creditors did not 
 consent to the substitution. If the purpose was to apply the 
 firm property to the payment of firm debts, the obvious 
 way to make the purpose effectual was to make an assign- 
 ment of it for the benefit of the firm's creditors. It seems 
 that this, clearly was the ordinary case of a transfer of the 
 firm's assets for the purpose of a novation. In such a case 
 all are agreed that the partners of the old firm lose their 
 .equity to have the assets transferred applied to the payment 
 of the firm debts.^ 
 
 * York County Bank's Appeal, 32 Pa. 446, 1859. (A and B entered 
 into an agreement which declared that they had formed a partnership in 
 the livery business ; that A was to contribute all the capital and have 
 exclusive ownership of the same until B had contributed certain sums, 
 the profits to be shared equally. An execution was issued against A 
 and levied on the stock. Afterwards an execution was issued against 
 the firm and also levied on the stock. B had not made the contributions 
 which under the contract gave him an interest in the stock. Held, that 
 the separate execution creditor was entitled to the proceeds of the sale.) 
 
 Bixlcr v. Kresge, 169 Pa. 405, 1895. (A employed B in his business, 
 B permitting A to hold him, B, out as a partner. Held, that the cred- 
 itors of the business had no priority over the other creditors of A.)
 
 WILLIAMSON V. SMOOT 633 
 
 SECTION 2.— CORPORATION CASES. 
 
 WILLIAMSON V. SMOOT. 
 In the Supreme Court of Louisiana, 1819. 
 
 7 Martin's Reports, 31. 
 
 Appeal from the court of the first district. 
 
 Mathews, J., dehvered'the opinion of the court. The 
 plaintiffs having caused an attachment to be levied on the 
 steam boat Alabama, the St. Stephens steam boat company 
 intervened in their corporate capacity, and claimed her as 
 their property. The interv^ening party are a body politic, 
 created by an act of the legislature of the territory of Ala- 
 bama, the capital stock of which is divided into shares of a 
 certain amount, and Smoot the defendant owns ten of them, 
 subscribed for by him. 
 
 The questions to be decided are i. Is it proper for our 
 courts of justice to recognise, in their judicial proceedings, 
 the company as a corporate body? 2. Can the shares or 
 stock of any individual stockholder be legally attached?^ 
 
 II. The existence of the claimants being recognised as 
 a body corporate, and it being admitted that the boat at- 
 tached belongs to them as a part of their common stock, it 
 is clear that Smoot does not possess such certain and disinct 
 individual property in it, as to make his interest attachable. 
 The estate and rights of a corporation belong so completely 
 to the body, that none of the individuals who compose.it 
 has any right of ownership in them, nor can dispose of any 
 part of them. Civ. Code, 88, art. 11. 
 
 The court is of opinion that the district court erred in 
 disallowing the claim of the company. 
 
 ' Only that part of the opinion which relates to the second question 
 is reprinted.
 
 634 ALIENATION OF INTERESTS IN PROPERTY 
 
 It is therefore ordered, adjudged and decreed that the 
 judgment be annulled, avoided and reversed, and that the 
 attachment of the plaintiff and appellant be quashed, so far 
 as it relates to the said steam boat the Alabama, and that 
 she be released therefrom.- 
 
 " In our principal case the creditor of the shareholder attempted to 
 levy on his debtor's interest in the tangible property of the corporation. 
 In the absence of statute had he attempted to levy on the shares of 
 stock held by his debtor he would not have been any more successful. 
 In explanation it is sometimes said that a share of stock is nothing 
 more than a chose in action against the corporation, and that at the 
 common law a chose in action is not subject to levy and sale. It is 
 perhaps more correct to say that tangible property was the only property 
 subject to legal execution and that whatever the real nature of the 
 stockholders' interest, a share of stock was an "intangible entity," and 
 therefore "incapable of caption by the gross methods of the common 
 law." Cotuparc opinion of Graves, J., in Van Norman v. Jackson Circuit 
 Judge, 45 Mich. 204 (1881), p. 208. 
 
 By statutes passed in the different States a debtor's legal and some- 
 times his equitable interest in stock is made subject to legal execution.
 
 BUNDY V. IRON CO. 635 
 
 BUNDY V. IRON CO. 
 In the Supreme Court of Ohio, 1882. 
 
 38 Ohio State Rcforts, 300. 
 
 Bundy, a stockholder in a manufacturing corporation, 
 indorsed notes of the company in consideration that the pay- 
 ment of the notes should be secured and the indorser pro- 
 tected by mortgage on the property of the company. 
 Through mistake the mortgage was made by the stock- 
 holders in their own names instead of in the name of the 
 corporation. A subsequent mortgage was made in the name 
 of the corporation to its creditors, and recorded, which, by 
 its terms, was subject to the first. 
 
 This was an action by Bundy to foreclose his mortgage.^ 
 
 White, J. : The controversy in this case is between 
 Bundy, claiming as first mortgagee, subsequent judgment 
 creditors, and creditors claiming under the second mortgage. 
 
 Two questions arise for consideration : ( i ) Whether 
 the execution and record of the mortgage of December 5, 
 1874, to Bundy give him priority? and, (2) If not, does 
 the recognition of the first mortgage in the second, of April 
 17, 1875, have that efTect? 
 
 As to the first question : The consideration upon which 
 Bundy indorsed the notes as surety of the corporation, was 
 that the latter should give him a mortgage upon its property, 
 conditioned that it would pay the notes at maturity, and save 
 him harmless on account of his indorsements. The execution 
 by the stockholders of the first mortgage was the attempted 
 fulfillment of the agreement on the part of the cor[)oration. 
 
 The Ophir Iron Company was incorporated under the 
 act of April 12, 1858, providing for the creation and regula- 
 tion of manufacturing companies. S. & C. 301, 304. Under 
 
 ' 'I lie facts are restated and the Reporter's notes of the arguments 
 of counsel omitted.
 
 ()36 ALIENATION OF INTERESTS IN PROPERTY 
 
 that act the (H rectors of the company are required to be stock- 
 holders ; and while it is declared "the directors shall have the 
 general management of the affairs of the company," yet they 
 are made "subject always to the control of the stockholders" 
 in reference to such management. 
 
 The mortgage to Bundy now in question, not being 
 made in the name of the corporation, cannot, as against it, 
 be regarded as a legal mortgage; but it is a good, equitable 
 mortgage against the corporation. And if such direction 
 were necessary, it might be considered as equivalent to a 
 direction by the stockholders to the proper officers to mal<e a 
 mortgage in the name of the corporation to Bundy. But such 
 direction was not necessary from the stockholders. The 
 directors, under the agreement by which they obtained Bun- 
 dy 's indorsements of the notes of the corporation, were 
 bound to secure him by the mortgage of the corporation. 
 This they failed to do, by sheer mistake, in the form of ex- 
 ecuting the mortgage, which it was competent for a court 
 of equity to correct ; and which it was their duty to correct 
 without the action of the court. Clayton v. Freet, lo Ohio 
 St. 544. 
 
 If it were not for oui* statute on the subject of mort- 
 gages, this equitable mortgage would prevail over all lien- 
 holders and other claimants, except bona fide purchasers, 
 for value. But it has been held, in a long series of decisions, 
 that a mortgage has no effect, under the statute, either in 
 law or equity, as against subsequently acquired liens, until 
 its execution according to the statute, and its delivery to the 
 recorder of the proper county for record. Strang v. Beach, 
 II Ohio St. 283; Bercazv v. Cockcrill, 20 Id. 163. 
 
 But such execution and delivery for record are not 
 required as between the original parties or their heirs. Bloom 
 V. Noggle, 4 Ohio St. 45 ; Sidle v. Maxivcll, Id. 236. 
 
 The second question is: Does the recognition of the 
 first mortgage in the second have the effect to give it priority? 
 
 We think this question must be answered in the affirma- 
 tive. The second mortgage was executed in due form by
 
 BUNDY V. IRON CO. 637 
 
 the corporation, and was made expressly subject to the mort- 
 gage to Biindy. Hence, all subsequently acquired liens that 
 are subject to the second mortgage are necessarily also-sub- 
 ject to the first. Coe v. Railroad Co., lo Ohio St. 374; Bcr- 
 cazv y. Cockcrill, 20 Id. 166.- 
 Judgment accordingly.^ 
 
 " The rest of the opinion on the second question is omitted. 
 
 ^Compare: England v. Dearborn, 141 Mass. 590, 1886. (Tort for 
 the conversion of certain property to which A, the plaintiff, claimed title 
 as mortgagee. A proved that B was president, treasurer, general man- 
 ager and owner of all but two shares of the C Company; that he. A, 
 had .endorsed certain notes for the Company, and that to indemnify 
 him, A, B had delivered to him an instrument which purported to be a 
 mortgage by the C Company of all its property except its book accounts. 
 The instrument was signed by B as president. Held, that A's suit should 
 be dismissed, as he failed to prove that the C Company authorized B to 
 make the mortgage ; that the facts did not warrant the inference that 
 B had any implied authority to mortgage the property, and that the 
 Company had received no benefit from the mortgage.)
 
 638 ALIENATION OF INTERESTS IN PROPERTY 
 
 BUTTON V. HOFFMAN. 
 In the Supreme Cour<T of Wisconsin. 1884. 
 
 61 JViscuiisiii Reports, 20. 
 
 Orton, J. : This is an action of replevin in which the 
 title of the plaintiff to the property was put in issue by the 
 answer. 
 
 In his instructions to the jury the learned judge of the 
 circuit court said : "I think the testimony is that the plain- 
 tiff had the title to the property." The evidence of the plain- 
 tiff's title was that the property belonged to a corporation 
 kiiown as "The Hayden & Smith Manufacturing Company," 
 and that he purchased and became the sole owner of all 
 of the capital stock of said corporation. As the plaintiff in 
 his testimony expressed it, "I bought all the stock. I own 
 all the stock now. I became the absolute owner of the mill. 
 It belonged at that time to the company, and I am the com- 
 pany." There was no other evidence of the condition of 
 the corporation at the time. Is this sufficient evidence of 
 the plaintiff's title? We think not. The learned counsel 
 of the respondent in his brief says : "The property had for- 
 merly belonged to the Hayden & Smith Manufacturing Com- 
 pany, but the respondent had purchased and became the 
 owner of all the stock of the company, and thus became its 
 sole owner." 
 
 From the very nature of a private business corporation, 
 or, indeed, of any corporation, the stockholders are not the 
 private and joint owners of its property. The corporation 
 is the real, though artificial, person substituted for the nat- 
 ural persons who procured its creation and have pecuniary 
 interests in it, in which all its property is vested, and by which 
 it is controlled, managed, and disposed of. It must purchase, 
 hold, grant, sell, and convey the corporate property, and do 
 business, sue and be sued, plead and be impleaded, for cor-
 
 BUTTON V. HOFFMAN 639 
 
 porate purposes, by its corporate name. The corporation 
 must do its business in a certain way, and by its regularly 
 appointed officers and agents, whose acts are those of the 
 corporation only as they are within the powers and purposes 
 of the corporation. In an ordinary copartnership the mem- 
 bers of it act as natural persons and as agents for each other, 
 and with unlimited liability. But not so with a corporation ; 
 its members, as natural persons, are merged in the corporate 
 identity. Aug. & A. on Corp. sees. 40, 46, 100, 591, 595. 
 A share of the capital stock of a corporation is defined to be 
 a right to partake, according to the amount subscribed, of 
 the surplus profits obtained from the use and disposal of 
 the capital stock of the company to those purposes for which 
 the company is constituted". Id. sec. 557. The corporation 
 is the trustee for the management of the property, and the 
 stockholders are the mere ccstiii-quc-fntsts. Gray v. Port- 
 land Bank, 3 Mass. 365 ; Eidiuan v. Bozviuan, 4 Am. Corp. 
 Cas. 350. The right of alienation or assignment of the 
 property is in the corporation alone, and this right is not 
 affected by making the stockholders individually liable for 
 the corporate debts. Ang. & A. on Corp. sec. 191 ; Pope v. 
 Brandon, 2 Stewart (Ala.), 401; IVhitivcU v. JJ'arncr, 20 
 Vt. 444. The property of the corporation is the mere instru- 
 ment whereby the stock is made to produce the profits, which 
 are the dividends to be declared from time to time by cor- 
 porate authority for the benefit of the stockholders, while 
 the property itself, which produces them, continues to be- 
 long to the corporation. Bradley v. Holdszvorfh, 3 Mees. & 
 W. 422; J I 'all ham Bank v. J I 'a! /ham, 10 Met. 334; Tippets 
 V. Walker, 4 Mass. 595. The corporation holds its property 
 only for the purposes for which it was permitted to acquire 
 it. and even the corporation cannot divert it from such use, 
 and a shareholder has no legal right to it, or the profits aris- 
 ing therefrom, until a lawful division is made by the direc- 
 tors or other proper officers of the corporation, or by judicial 
 determination. Ang. & A. on Corp. sees. 160, 190. 557; 
 Hyatt V. Allen, 4 x\m. Corp. Cas. 624. A conveyance of all
 
 040 ALIEXATION OF INTERESTS IN PROPERTY 
 
 the capital stock to a purchaser gives to such purchaser only 
 an equitable interest in the property to carry on business 
 under the act of incorporation and in the corporate name, 
 and the corporation is still the legal owner of the same. 
 IVildc V. Jenkins, 4 Paige, 481. A legal distribution of the 
 property after a dissolution of the corporation and settle- 
 ment of its affairs, is the inception of any title of a stock- 
 holder to it, although he be the sole stockholder. Ang. & A. 
 on Corp. sec. 779a. 
 
 These general principles sufficiently establish the doc- 
 trine that the owner of all the capital stock of a corporation 
 does not therefore own its property, or any of it, and does 
 not himself become the corporation, as a natural person, to 
 own its property and do its business in his own name. While 
 the corporation exists he is a mere stockholder of it, and 
 nothing else. The consequences of a violation of these prin- 
 ciples would be that the stockholders would be the private 
 and joint owners of the corporate property, and they could 
 assume the powers of the corporation, and supersede its 
 functions in its use and disposition for their own benefit 
 without personal liability, and thus destroy the corporation, 
 terminate its business, and defraud its creditors. The stock- 
 holders would be the owners of the property, and, at the 
 same time, it would belong to the corporation. One stock- 
 holder owning the whole capital stock could, of course, do 
 what several stockholders could lawfully do. It is said in 
 Utica V. Chtirchill, 33 N. Y. 161, "the interest of a stock- 
 holder is of a collateral nature, and is not the interest of an 
 owner;" and in Hyatt v. Allen, supra, that "a shareholder 
 in a corporation has no legal title to its property or profits 
 until a division is made." In IVinona & St. P. R. R. Co. v. 
 St. P. & S. C. R. R. Co. 23 Minn. 359, it is held that the 
 corporation is still the absolute owner, and vested with the 
 legal title of the property, and the real party in interest, 
 although another party has become the owner of the sole 
 beneficial interest in its rights, property, and immunities. 
 In Baldivm v. Canfield, 26 Minn. 43, it was held that the
 
 BUTTON z'. HOFFMAN 641 
 
 sole owner of the stock did not own the land of the corpora- 
 tion so as to convey the same. In Bartlett v. Brickett, 14 
 Allen, 62, an action of replevin was brought by A., B.,'and 
 C, as the "Trustees of the Ministerial Fund in the North 
 Parish in Haverhill," which was the corporate name. In 
 portions of the writ the plaintiffs were referred to as "the 
 said trustees" and "the said plaintiffs." In the bond, "A., 
 B.. and C, trustees as aforesaid," became bound, and the 
 officer, in his return, certified that he had taken a bond 
 "from the within-named A., B., and C," and the property 
 was receipted by "A., B., & C, plaintiffs." It was held 
 that the action was not by the corporation, as it should have 
 been, and judgment was rendered for the defendant. It is 
 said in J\in Allen v. Assessors, 3 Wall. 584, "the corpora- 
 tion is the legal owner of all the property of the bank, both 
 real and personal." In U^ildc v. Jenkins, supra, where a 
 copartnership bought all the property and effects, together 
 with the franchises, of a corporation, and elected themselves 
 trustees of the corporation, it was held that the corporation 
 was not dissolved, and that the legal title to the real and 
 personal property was still in the corporation for their bene- 
 fit. In Mickles v. R. C. Bank, 11 Paige, 118, it was held 
 that, although a corporation was deemed to have surrendered 
 its charter for non-user, it was not dissolved, and would not 
 be until its dissolution was judicially declared, and that until 
 then its property could be taken and sold by its judgment 
 creditors. In Bennett v. Am. Art Union, 5 Sandf. Super. 
 Ct. 614, it was held that, "as a general rule, the whole title, 
 legal and ecjuitable [to its property], is vested in the cor- 
 poration itself," and that the individual members have no 
 other or greater interest in it than is expressly given to them 
 by the charter, and the prayer of the complainant, as a share- 
 holder in the Art Union, for an injunction against a certain 
 disposition of its property, was denied, because he had no 
 interest in it. See, also, Goodivin v. Hardy, 57 Me. 143. 
 
 It is true that none of the above cases are precisely paral- 
 lel with the present case in facts, but they are sufficiently anal-
 
 642 ALIENATION OF INTERESTS IN PROPERTY 
 
 ogoiis to be authority upon the principle that the plaintiff, 
 as the sole stockholder of the corporation, is not the legal 
 owner of its property. He may have an equitable interest 
 in it, but in this action he must show a legal title to the 
 property in himself in order to recover, and he has shown 
 that such title is in another person. TiDip v. Dockham, 
 32 Wis. 146; Senscnhrcuncr v. Mothczvs, 48 Wis. 250. In 
 analogy to the above principle it was held in Murphy v. 
 HonraJiaii. 50 Wis. 485, that the sole heirs of an estate did 
 not have such a legal title to a promissory note given to 
 their father as would entitle them to sue the maker upon it, 
 because the title to it was in the administrator, and they 
 could obtain -the. title only by administration and distribu- 
 tion according to law. The heirs in that case certainly 
 had as much equitable interest in that note as this plaintiff 
 has in the property in controversy. The want of title to 
 the prpperty being fatal to the plaintiff's recovery in the 
 action. between the present parties, other alleged errors will 
 not be considered. 
 
 By the Court. — The judgment of the circuit court is 
 reversed, and the cause remanded for a new trial.
 
 PARKER V. BETHEL HOTEL CO. 643^ 
 
 PARKER T'. BETHEL HOTEL CO. 
 In the Supreme Court of Tennessee, 1895. 
 
 96 Tennessee Reports, 252. 
 
 Lucius Erierson owned a large number of the shares 
 of the Bethel Hotel Co., a corporation. These in large part 
 he assigned to various persons as collateral security for the 
 payment of his notes. The company sold that part of its 
 property in which it had conducted a hotel. Erierson pur- 
 chased all the remaining stock of the company, and there- 
 after managed the property in his own name. He then 
 assigned by deed in his own name all the property of the 
 company to one Webster, in trust, to sell the same, for the ■ 
 benefit of certain of his creditors, the creditors who held as' 
 collateral, the stock of the company not being included. 
 These secured creditors brought this bill against the Bethel 
 Hotel Company and Webster, praying that the property of 
 the company should be sold for the benefit of the holders of 
 the stock, and that Webster be restrained from proceeding 
 under his deed. A decree in accordance with this prayer 
 being granted, and the decree being affirmed by the Court 
 of Chancery Appeals, an appeal was taken to the Supreme 
 Court. 1 - 
 
 J. C. Bradford, Sp. J. : Admitting it to be true, 
 as claimed, that Erierson was the owner of all the 
 stock of the corporation, it by no means follows 
 that the corporation was thereby dissolved and for- 
 feited its franchises. On this question the latest text writer 
 on corporation law has this to say : "Contrary to early 
 opinion, it is now generally held that the fact that all the 
 shares in a joint stock cnmi)any ha\'e passed into the hands 
 of two members, or even into the hands of a single person, 
 does not, ipso facto, work a dissolution of the corporation, 
 since such sole owner may so dispose of the shares, as,' .by 
 
 ^ The facts are restated and only a portion of the opinion is priiited.
 
 644 ALIENATION OF INTERESTS IN PROPERTY 
 
 the election of the necessary directors and officers, to con- 
 tinue the corporate existence." 5 Thompson's Commenta- 
 ries on the Law of Corporations, Sec. 6653. And, in 2 Mor- 
 awetz on Corporations, Sec. 1009, it is said: "It is well 
 settled that all the shares of a corporation may be held by 
 a single person, and yet the corporation continue to exist, 
 and, if the charter or by-laws should require certain acts to 
 be done by more than one shareholder, the sole owner may 
 transfer a portion of his shares to other persons, so as to 
 conform to the letter of the rule." It has been held that a 
 corporation which has sold all its assets, with the intention 
 of putting an end to its business, whose officers had all re- 
 signed, and whose stockholders had all transferred their 
 shares to a single person, was, nevertheless, not dissolved, 
 and that its existence could be terminated only by judg- 
 ment of forfeiture or by surrender accepted by the State. 
 Russell V. McLcUan, 14 Pick. (Mass.), 69, 70; Nczvton 
 Mfg. Co. V. IVhitc, 42 Ga., 148; Baldzvin v. Canficld, 26 
 Minn., 43. 
 
 The dissolution of a business corporation is effected in 
 one of the following ways: (i) by the expiration of its 
 charter; (2) by Act of the Legislature, where power is re- 
 served for that purpose, or there is no constitutional inhibi- 
 tion; (3) by surrender of charter which is accepted; (4) 
 by forfeiture of the franchises and judgment of dissolution, 
 pronounced by a Court having jurisdiction. 2 Morawetz, 
 Sec. 1004; Taylor on Private Corporations, Sec. 430. It 
 is not pretended that the Bethel Hotel Company was dis- 
 solved in either of the ways indicated. The charter of the 
 corporation has not expired, neither has it been repealed by 
 the Legislature, or been surrendered to the State by its 
 members or stockholders. It may be true that there was a 
 non-user of its franchises by the corporation for a period 
 of seven years or more, occasioned by the sale of the only 
 property it owned which could have l^een used for hotel 
 purposes. Undoubtedly, the non-user of its franchises by 
 a corporation is ground for dissolution and forfeiture of 
 its charter, at the instance of the State ; but until sentence 
 
 Ml
 
 PARKER V. BETHEL HOTEL CO. 645 
 
 of dissolution has been pronounced by a Court of compe- 
 tent jurisdiction, in a proper proceeding instituted for the 
 purpose, the corporation will continue to exist, notwith- 
 standing its failure to use its franchises. And forfeiture 
 can only be decreed in a proceeding directly instituted for 
 the purpose, by the State granting it. Code (M. «& V. ), 
 Sec. 1 712; State v. Butler, 15 Lea, 104, no; Jersey City 
 Gaslight Co. v. Coiisiiiners' Gas Co., 40 N. J. Eq., 427; 
 Broadzuell v. Merritt, 87 Mo., 95. Until dissolution has 
 been thus judicially pronounced, neither the existence of 
 the corporation or its title to its property can be questioned 
 collaterally. 
 
 We are bound to conclude, therefore, that the Bethel 
 Hotel Company was not dissolved, or its franchises extin- 
 guished, for any of the reasons alleged by the defendants, 
 and that it is now a corporation endued with life, with au- 
 thority to own property and exercise all the powers con- 
 ferred on it by its charter. 
 
 Defendants insist that the alleged equitable estate of 
 Lucius Frierson in the property of the Bethel Hotel Com- 
 pany, did not depend alone upon the dissolution of the cor- 
 poration, but resulted also from the fact that he was the 
 sole owner of all its capital stock. The proposition is, that 
 if one person owns all the shares of stock of a corporation 
 which owes no debts, he, in virtue of such ownership, be- 
 comes the equitable owner of all its property, or, at least, 
 may sell and dispose of it by deed, if he choose to do so. 
 This proposition is argued by counsel for defendant with 
 force and ability, and is supported by some authority. It 
 has found favor with the Supreme Court of Maryland 
 [Swift V. Smith, 65 Md., 428, 433); but the decision of 
 that learned Court is opposed by the current of authority, 
 and seems to us to overlook and ignore certain principles 
 that are fundamental. 
 
 A corporation and its shareholders are distinct legal 
 entities. In Keith v. Clark, 4 Lea, 718, this Court held 
 that, notwithstanding the State owned all the stock in the 
 Bank of Tennessee, "the bank and the State are entirely
 
 646 ALIRXATIOX OF [XTERESTS TN PROPERTY 
 
 different legal entities;" and in Lillard v. Porter, 2 Head. 
 176, it was said, "stockholders are totally distinct from the 
 corporation." Important consequences result from this 
 rule. The shareholders are neither responsible for the debts 
 nor for the torts of the corporation. In the absence of 
 special circumstances, the shareholders cannot be parties, 
 either plaintiffs or defendants, in actions respecting cor- 
 porate rights, nor have they any title or direct interest in 
 the property of the corporation. 
 
 "Shareholders," says Thompson, "are not joint tenants 
 or in any other sense co-owners of the corporate property, 
 either before or after its dissolution. Tlie title to it rests 
 exclusively in the legal entity called the corporation. A 
 share of the capital stock merely gives the right to partake, 
 according to the amount put into the fund, of the surplus 
 profits of the corporation, and ultimately, on the dissolu- 
 tion of it, of so much of the fund thus created as remains 
 unimpaired and is not liable for debts of the corporation." 
 Commentaries on the Law of Corporations, Sec. 1071. As 
 the shareholders have no direct interest in the corporate 
 property, they cannot convey the real estate of the corpora- 
 tion, though all join in the deed. 
 
 Ill JVhcdock V. MoiiUon, 15 Vt., 519, Redfield, J., 
 stated the reasons for the rule in his usual clear and accu- 
 rate style. In that case. Moulton and Hutchinson, sole 
 proprietors and owners of all the stock of a corporation, 
 conveyed its real estate, in mortgage, to secure the repay- 
 ment of money borrowed of the plaintiff, Wheelock. He 
 brought suit to enforce his mortgage. Judge Redfield said : 
 "The fact that the signers of this deed owned the whole of 
 the shares will make no difference in regard to the neces- 
 sity of a vote of the corporation, in order to convey the 
 land. The title to the land was in the corporation, not in 
 the individual shareholders. The deed of one, or of any 
 number of the stockholders, will not affect the title to the 
 land. The share owners are not tenants in common of the 
 land. They have no title whatever to any of the property 
 of the corporation. It is true that one who owned all the
 
 PARKER z: BETHEL HOTEL CO. 647 
 
 shares might control the corporation, and so he could if he 
 owned a majority of the shares ; but he could, in either case, 
 do it only by a vote of the corporation, at a meeting held in 
 strict accordance with the statutes of the corporation." ^ 
 
 And in Humphreys v. McKissick, 140 U. S., 304, Air. 
 Justice Field, discussing the same question, said: "The 
 property of a corporation, is not subject to the control of 
 individual members, whether acting separately or jointly. 
 They can neither incumber nor transfer that property, nor 
 authorize others to do so. The corporation — the artificial 
 being created — holds the property, and alone can mortgage 
 or transfer it, and the corporation acts only through its offi- 
 cers, subject to the conditions prescribed by law." 
 
 A very instructive case on this question is Boldzuin v. 
 Caiificld, 26 Minn., 43. The facts of that case were very 
 similar to those of this case, and the direct question now 
 under consideration was passed upon. The opinion of the 
 Court was in accord with the cases above cited. See also 
 Button V. Hojfinau, 61 Wis.-, 20.' 
 
 We are thus led, both by reason and authority, to the 
 conclusion that Lucius Frierson, as sole stockholder of the 
 Bethel Hotel Company, had no title, legal or equitable, to 
 its property. The title to the property was in the Bethel 
 Hotel Company, and could only be conveyed by it. The 
 conveyance of its real estate is one of the most solemn acts 
 of a corporation, and it can only be done in pursuance of a 
 vote of the corporation, and by deed executed in the form 
 and mode prescribed by law. Thompson's Commentaries 
 on the Law of Corporations, Sec. 5096. At common law a 
 corporation could not execute a deed to realty except under 
 seal; and the general corporations Act of 1875, under which 
 the Bethel Hotel Company was organized, provides that, if 
 the corporation have no seal, it shall l3e bound by the signa- 
 ture of its name by a duly authorized officer. 
 
 To have made a valid conveyance of the real estate of 
 the companv, it was necessary, therefore, that the deed 
 shoukl have been executed in the name of the corporation, 
 under seal, if it had one, and, if not, its name should have 
 been signed by an agent duly authorized by its governing
 
 648 ALIKXATION OF INTERESTS IN PROPERTY 
 
 agency, its board of directors. Garret f v. B dm out Land 
 Co., 94 Tenn., 460. As we have seen, nothing of this kind 
 was done. The deed to defendant, Webster, was executed 
 by Lucius Frierson, in his own name, and under his own 
 signature. The Bethel Hotel Company, although it owned 
 the property, was in no sense a party to it. For this and 
 other reasons given, the deed of Lucius Frierson, convey- 
 ing the real estate of the Bethel Hotel Company to defend- 
 ant, W. J. Webster, was void, and conveyed to him no title 
 ^or interest therein. - 
 
 " In the court below, the Chancellor had decreed the dissolution of 
 the company. One of the conclusions reached on this appeal being tliat, 
 "He had no power in this case to decree a dissolution," as that "could 
 be done only by a suit instituted by the State for the purpose," the 
 cause was remanded for further proceedings. 
 
 Compare: Humplircys v. McKlssocti, 140 U. S. 304, 1891. (Several 
 railroads combined to construct an elevator, to. be connected with their 
 respective roads. A corporation was organized to erect the elevator. 
 Each railroad received a certificate of stock corresponding to its sub- 
 scription towards the cost. One of the railroads mortgaged "all its 
 property, rights, franchises, real estate, tracks, depots and appurtenances 
 belonging thereto." Held, that the only interest of the railroad company 
 in the elevator was as a stockholder in the elevator company and that 
 the mortgage did not cover this interest.) 
 
 Sellers V. Greer, 172 111. 549, 1898. (All the shares of the B Company 
 were divided between A and C, except that a son of A owned one share 
 and the son of C another. A and C made a contract in which A agreed 
 to convey to C certain property of the company and C agreed to convey 
 the shares owned by him to A. C brought a bill against A, praying that 
 A might be decreed to convey the property in accordance with the 
 contract. Held, that A had no title to the property of the company and 
 that any decree that could be made would be nugatory.) 
 
 Merchants' Ad-Sign Co. v. Sterling, 124 Cal. 429, 1899. (The Code 
 made every contract by which any one was restrained from carrying on 
 any kind of business void, except that one who sold a business might 
 agree with the buyer to refrain from carrying on a similar business. 
 B was a stockholder and general manager of the C Company, a corpora- 
 tion engaged in the advertising business. B transferred what he asserted 
 was all his stock and also his interest in the. good-will of the business of 
 C to A, and agreed for a valuable consideration that he would not 
 engage in the advertising business in competition with the C Company 
 so long as .A or any one deriving title to the good-will of the business 
 of the C Company from A should carry on a like business. A brought 
 a bill asserting that B was engaging in the advertising business in viola- 
 tion of this contract, and asking for an injunction. Demurrer sustained 
 on the ground that a stockholder had no interest in the good-will of the 
 business carried on by the corporation which he could transfer.) 
 
 Home fire Insurance Co. v. Barber, 93 N. W. 1024, Neb. 1903. 
 ("Cases of this kind must be differentiated sharply from those where 
 the proceeding is at Irtw, or where a question of title to tlie corporate 
 property is involved. There is no question that stockholders, as such, 
 liave no title to the corporate property which they can convey or 
 encumber in their own names. But this, in substance, is only another 
 way of saying that the corporation must act through its proper agents 
 and in the prescribed way." Per Pound, C, p. 1033.)
 
 CHAPTER XL 
 
 ALIENATION OF THE SEPARATE PROP- 
 ERTY OF A PARTNER FOR A 
 PARTNERSHIP DEBT. 
 
 NEWMAN V. BAGLEY. 
 In the Supreme Judicial Court of Massachusetts, 
 
 1835- 
 
 T)2! Massachusetts Reports, 570. 
 
 Assumpsit : The writ was dated January 27, 1834. By 
 the answer of the trustee it appeared, that at the time of 
 the service of the writ, he was indebted to the defendant 
 in the sum of $25 » that on January 10, 1834, the defendant 
 and Levi Vosburgh, of Hillsdale in New York, as members 
 of the late firm of Bagley and Vosburgh, and the defendant, 
 in his individual capacity, and also as member of the late 
 firm of Hinman & Bagley, assigned to Nicholas Hollenbeck 
 and Lewis Haywood, who were likewise inhabitants of 
 Hillsdale, all the books of account, notes, obligations and 
 evidences of debt, belonging to the defendant or either of 
 the two firms, with full power to collect the debts and de- 
 mands, in trust to apply the proceeds thereof, proportionably 
 to the indemnification of the assignees and certain other per- 
 sons named, who had become indorsers or sureties for the 
 defendant and the two firms; and that on June 14, 1834, 
 notice of such assignment was given to the trustee. 
 
 Wilde, J., afterward delivered the opinion of the court. 
 The trustee in his answer admits that he was indebted to the 
 principal, but he discloses an assignment of this, and 
 other debts and property, from Bagley to Nicholas Hollen- 
 
 (649)
 
 650 SEPARATE PROPERTY AND PARTNERSHIP DEBTS 
 
 beck and Lewis Haywood, made before the service of the 
 plaintiff's writ ; and the question is, whether this assignment 
 is vahd, so as to defeat the plaintiff's attachment in this pro- 
 cess. It has been argued, that the assignment is good by the 
 law of New York, however it may be considered here, and 
 that an assignment by a foreign debtor, which is good by 
 the law where he has his domicil, is valid and will be sup- 
 ported here. This seems to be the established rule; but we 
 consider this assignment valid by our laws, as well as by the 
 
 laws of New York; so that this point becomes immaterial. 
 * * * 1 
 
 But it is objected, that a partner cannot assign his 
 separate property to pay partnership debts, so as to avail 
 against the separate creditors of the assignor. This objec- 
 tion, however, does not appear to be well founded. It is 
 true, that the creditors of an individual partner cannot attach 
 partnership property to the prejudice of partnership credi- 
 tors ; because a partner has no distinct and separate property 
 in the funds of the partnership, until the debts of the partners 
 are paid; but this reason fails in regard to an assignment 
 by a partner of his separate property. That is equally liable 
 to attachment by his own creditors, or the creditors of the 
 firm, and an assignment to pay either is good. 
 
 Trustee discharged.^ 
 
 * The Court's discussion of this question is omitted. 
 
 ^Compare: Stezvart v. Slater, 6 Duer, 83, 1856. (A and B were 
 partners. A gave a mortgage on certain of his personal property to 
 C to secure a debt due C by the firm. A, subsequently, gave D a mort- 
 gage on the same property to secure an individual debt due D. D, on 
 a complaint to foreclose his, D's, mortgage, claimed that his mortgage 
 was prior to Cs mortgage. Claim denied. Duer, J. : "As each part- 
 ner in a firm is personally liable for the payment of its debts, there is 
 certainly no law that forbids him from paying, or securing the pay- 
 ment of the whole, or of any portion of them, from his own separate 
 property or funds ; and in many cases to make such payment, or give 
 such security, may not only be his right, but as between him and his 
 partners a positive duty; the debt or fund or money, may, in respect to 
 tlie creditor, be a partnership debt, and yet may be one which, in 
 respect to his partners, he is bound to discharge ; and, assuredly, it has 
 never been supposed that the creditor to whom the payment is made 
 or security given, is bound to inquire into the accounts of the firm, 
 or that his right to accept such payment, or security, is at all affected 
 by the insolvency of the partner from whom he receives it.") 
 
 Holton V. Holton, 40 N. H. y7, i860. (A and B were partners. A
 
 NEWMAN V. BAGLEY 651 
 
 was indebted to E. C was indebted to A. A and B were indebted to 
 D. A directed C to pay the money due him, A, to D, and C agreed to 
 do so. E secured a judgment against A and attached the debt due by 
 C. Held, that C must pay his, C's, debt to E. Fowler, J. : "It 
 may be considered as the well established rule of law in this 
 State, that the separate creditoi of a partner have a preference- over 
 the separate estate of their debtor, for the satisfaction of their debts, 
 until it shall have been actually and legally appropriated and applied 
 in payment of partnership debts ; and that any attempt, by sale or other- 
 wise, with notice, to divert the separate property or funds of the indi- 
 vidual debtor from the payment of his separate debts, to the discharge 
 of a partnership liability of the firm of which he may be a member, is 
 in principle a fraud on the rights of a creditor of the individual debtor, 
 and void as to him,"
 
 652 SEPARATE PROPERTY AND PARTNERSHIP DEBTS 
 
 MEECH V. ALLEN. 
 In the Court of Appeals^ New York,, 1858. 
 
 17 New York Reports, 300. 
 
 Appeal from the Supreme Court. The complaint aver- 
 red these facts: In May, 1847, ^^^^ plaintiffs recovered a 
 judgment against one Taylor, upon his sole and individual 
 indebtedness, for $8,650.65, which was duly docketed and 
 became a lien upon his real estate. In 1848, Taylor died, 
 seized of real estate in his own individual right, upon which 
 said judgment was a lien. Taylor and one Hiram Pratt, who 
 died in May, 1840, were, in their lifetime, partners in the 
 business of common carriers upon the Erie canal and the 
 great lakes. A demand arose against them as such partners 
 which was in litigation when Pratt died, and upon which a 
 judgment was recovered in the Supreme Court, and duly 
 docketed, on the 13th May, 1842, against Taylor, as survivor 
 of himself and Pratt, for $9,990.05 ; which judgment was 
 assigned to and became the property of the defendant Allen 
 after the death of Taylor and the recovery of the plaintiffs' 
 judgment. In April, 1850, executions were issued upon 
 both of the above described judgments to the sheriff of Erie, 
 who, in virtue thereof, on the 4th of June, 1850, sold certain 
 parcels of the real estate in the city of Buffalo whereof Tay- 
 lor died seized in his own right. 
 
 The plaintiffs attended at the sale, and gave notice to 
 the defendant of the facts stated, claiming that their judg- 
 ment was entitled to priority, and that the money raised by 
 the sale should be applied first to its satisfaction. The de- 
 fendant became the purchaser at the sale. There is no other 
 individual property of Taylor out of which the plaintiffs can 
 obtain satisfaction of their judgment except the land thus 
 sold, and there is sufficient estate of Hiram Pratt, deceased, 
 to satisfy the judgment of the defendant.
 
 MEECH V. ALLEN 653 
 
 The complaint prayed that the land might be resold and 
 the proceeds first applied to the payment of the plaintiffs' 
 judgment, or that the defendant pay to them so much of 
 the proceeds of the sale, already had, as would extinguish 
 their judgment, with the costs of this action. The defend- 
 ant demurred, and had judgment in his favor, which was 
 on appeal, affirmed by the Supreme Court, at general term 
 in the eighth district; whereupon the plaintiffs appealed to 
 this court. 
 
 Selden, J. : It is a settled rule of equity that, as between 
 the joint and separate creditors of partners, the partnership 
 property is to be first applied to the payment of the partner- 
 ship debts, and the separate property of the individual part- 
 ners to the payment of their separate debts; and that neither 
 class of creditors can claim anything from the fund which 
 belongs primarily to the opposite class until all the claims of 
 the latter are satisfied. This, however, is a rule which pre- 
 vails in courts of equity in the distribution of equitable assets 
 only. Those courts have never assumed to exercise the 
 power of setting aside or in any way interfering with an 
 absolute right of priority obtained at law. In regard to all 
 such cases, the rule is equitas seqidtiir legem. ( i Story Eq. 
 Jur., section 553). 
 
 In Wilder v. Keeler (3 Paige, 171), Chancellor Wal- 
 worth says : "Equitable rules are adopted by this court in 
 the administration of legal assets, except so far as the law 
 has given an absolute preference to one class of creditors 
 over another." So, in the case of Avcrill v. Loncks (6 Barb. 
 S. C. R., 470), Paige, P. J., says: "Courts of equity, in the 
 administration of assets, follow the rules of law in regard 
 to legal assets, and recognize and enforce all antecedent liens, 
 claims and charges existing upon the property, according to 
 their priorities." This is also conceded in the case of Mc- 
 Cidloh V. Dashicll (i Har. & Gil, 96), where the whole 
 doctrine of the distribution in equity of the joint and sepa- 
 rate property of partners is very elaborately examined.
 
 654 SEPARATE PROPERTY AND PARTNERSHIP DEBTS 
 
 Archer, J., by whom the opinion of the Court was dehvered, 
 there says : "At law, the joint creditors may pursue both the 
 joint and separate estate, to the extent of each, for the satis- 
 faction of their joint demands, which are at law considered 
 joint and several, without the possibility of the interposition 
 of any restraining power of a Court of equity." But es- 
 pecially must it be beyond the power of such courts to inter- 
 fere where an absolute right of legal priority is given by 
 force of a positive statute, as in case of a judgment. Chan- 
 cellor Walworth, in Mower v. Kip (6 Paige 88), says : "The 
 rule of this court is to give effect to the lien of a judgment 
 upon a legal title, so far as it can be enforced by execution 
 at law." 
 
 As there is no doubt that at law the judgment for a 
 partnership debt attaches and becomes a lien upon the real 
 estate of each of the partners, with the same effect as if 
 such judgment were for the separate debt of such partner 
 it is obvious from the preceding authorities, that the theory 
 upon which the complaint in this case was drawn is erro- 
 neous. The principle that the separate property of an indi- 
 vidual partner is to be first applied to the payment of his 
 separate debts, has, as we have seen, never been held to give 
 priority as to such property to a subsequent judgment 
 for an individual over a prior judgment for a partner- 
 ship debt. It is true, that courts of equity will sometimes 
 give to a mere equitable lien, which is prior in point 
 of time, a preference over a subsequent judgment ; but 
 this will be done only where such prior lien is specific in its 
 character, as in the case of White v. Carpenter (2 Paige, 
 219). The mere general equity of the separate creditors to 
 have their debts first paid out of the individual property of 
 the partners does not amount to a lien at all, much less a 
 lien of the kind necessary to give it a preference over a 
 judgment for a partnership debt. 
 
 The plaintiffs cannot under the averments in the com- 
 plaint avail themselves of that principle of equity which en-
 
 MEECH V. ALLEN 655 
 
 ables a creditor having a lien upon one fund only, to compel 
 a creditor who has a lien not merely on the same fund, but 
 also upon another, to resort first to the latter to the end that 
 both may be paid. If the complaint had averred that there 
 v^as sufficient partnership property upon which the defend- 
 ant's judgment was a lien, to satisfy such judgment it is 
 possible that under the principle referred to the plaintiffs 
 might have been entitled to some relief; and in that event 
 it would not have been a valid objection to the complaint 
 that it did not ask for the relief appropriate to the case. 
 But the averment in the complaint is simply that there is 
 i5ufficient estate of the deceased partner, Hiram Pratt, to 
 satisfy the defendant's judgment. 
 
 This averment brings the case directly within the doc- 
 trine laid down by Lord Eldon in Ex Parte Kendall (17 
 Vesey, 520). He says: "If A has a right to go upon two 
 funds, and B upon one, having both the same debtor, A 
 shall take payment from that fund to which he can resort 
 exclusively, that by those means of distribution both may 
 be paid. That takes place where both are creditors of the 
 same person, and have demands against funds the property 
 of the same person. But it was never said that if I have a 
 demand against A & B, a creditor of B shall compel me to 
 go against A without more, as if B himself could insist that 
 A ought to pay in the first instance as in the ordinar\' case 
 of drawer and acceptor, or principal and surety, to the intent 
 that all obligations arising out of these complicated relations 
 may be satisfied. But if I have a demand against both, the 
 creditors of B have no right to compel me to seek payment 
 from A, if not founded in some equfty giving to B the right 
 for his own sake to compel me to seek payment from A." 
 
 The point has also been expressly decided in this State 
 in the case of Dorr v. Shaw (4 John. Ch. R.. 17). The only 
 difference in principle between that case and this is that there 
 it did not appear that the joint debtors were partners. This 
 however is a difference which operates against the claim of 
 the plaintiffs here. Where two individuals not partners are
 
 656 SEPARATE PROPERTY AND PARTNERSHIP DEBTS 
 
 jointly indebted it might seem to be just to presume that 
 each owed one-half the debt, and to that extent therefore 
 there might be an equity in favor of the one owing an indi- 
 vidual debt to have so much of the joint debt paid by his 
 co-debtor. But in regard to partners it is now well settled 
 upon an analogous question, that no such presumption can 
 be indulged. Formerly a judgment creditor of one of two 
 partners might levy his execution upon property belonging 
 to the firm, and, upon the presumption that the interests of 
 the partners were equal, might proceed to sell and appropri- 
 ate one-half the avails to the satisfaction of his debt. This 
 however was long since over-ruled. 
 
 In the case of Diitton v. Morrison (17 Vesey, 193), 
 Lord Eldon, in discussing this question, says : "It may be 
 represented that the world cannot know what is the distinct 
 interest of each [i. c, each partner), and therefore it is bet- 
 ter that the apparent interest of each should be considered 
 as his actual interest. But courts of equity have long held 
 otherwise." He then lays down the rule ever since acted 
 upon, that the creditor in such a case must wait until the 
 partnership accounts are settled before he can claim anything 
 from the partnership property. 
 
 The principle here asserted by Lord Eldon is directly 
 applicable to the present case. It is, that no inference can 
 be safely drawn from the mere external relations of partners 
 to the world as to the situation of their affairs inter se, and 
 that in all judicial proceedings involving the latter an inves- 
 tigation is first to be made ; and such is the variety and fre- 
 quent complexity of partnership dealings that any other 
 rule would obviously lead to gross injustice. It is impossible 
 therefore in this case to assume, without any averments on 
 the subject in the complaint that the estate of the deceased 
 partner Pratt ought, in equity, to pay any portion of the 
 defendant's judgment. Hence, upon the principles laid 
 down by Lord Eldon, and universally acted upon by courts 
 of equity, the complaint is clearly insufficient. 
 
 J
 
 MEECH V. ALLEN 657 
 
 The judgment of the Supreme Court therefore should 
 be affirmed with costs. 
 
 All the judges concurring, 
 Judgment affirmed.^ 
 
 ^Accord: Allen v. Wells, 22 Pick. 450, 1838; Cleghom v. Insurance 
 Bank, 9 Ga. 319, 1851 ; Baker v. IVimpee, 19 Ga. 87, 1855; Cummings's 
 App., 25 Pa. 268, 1855 ; Kuhne v. Law, 14 Rich. 18, 1866 ; Stevens v. 
 Perry, 113 Mass. 380, 1873. (A and B were partners. C was indebted 
 to A. D, a firm creditor, secured a judgment and attached the debt 
 due A. E, a separate judgment creditor of A's, subsequently attached 
 the same debt. In an action at law, Held, that D's lien on C's obliga- 
 tion to pay A was superior to E's lien.) 
 
 Contra: Javis v. Brooks, 23 N. H. 136, 1851. (A and B were 
 partners. As part of their separate property they held an undivided two- 
 thirds interest as tenants in common in certain land. A firm creditor 
 obtained a judgment and attached this interest. Subsequently a separate 
 though joint creditor of A and B secured a judgment and attached the 
 interest of A and B in the land. Held, that, as in New Hampshire 
 under the decision of Person v. Monroe, i Foster's Rep. 462, the right 
 of the firm creditors to priority on firm assets "has not been put on 
 the ground of a lien among the partners, but is asserted as a legal right 
 of the creditor," "principle, consistency and equal justice to the separate 
 creditors" would seem to require that they should have priority on 
 separate assets. Accord: Crockett v. Crain, 33 N. H. 542, 1856. Even 
 in New Hampshire, however, when the partnership creditor has once 
 appropriated the separate property of the partner to the payment of 
 the partnership debt, the property is no longer subject to levy at the 
 suit of the separate creditor. Bower v. Smith, 48 N. H. iii, 1868.)
 
 658 SEPARATE PROPERTY AND PARTNERSHIP DEBTS 
 
 WISHAM 7'. LIPPINCOTT. 
 
 In the Court of Chancery, New Jersey, Before Chan- 
 cellor Williamson^ i853- 
 
 9 New Jersey Equity, 353. 
 
 William Wisham was a member of a partnership. John 
 Winship recovered a judgment against the firm, and caused 
 a levy to be made on the separate real estate of Wisham. 
 Jacob S. Kay, a separate creditor of Wisham, brought a bill 
 in Chancery, alleging that the firm property, also levied on 
 by Winship, was sufficient to satisfy his judgment. The 
 prayer of the bill was that the sheriff be restrained from 
 making a sale of the separate real estate of Wisham. On 
 the filing of the bill, an injunction, in accordance with the 
 prayer, was issued, the case was heard on a motion to dis- 
 solve this injunction.^ 
 
 The Chancellor : As to the rights of the complain- 
 ant, Kay, who is a separate creditor of Wisham. It is in- 
 sisted, that he is entitled to be first paid out of the effects 
 of his debtor, before the joint creditor of the firm can claim 
 anything. This would seem to be in conformity to the prin- 
 ciple stated in i Story, section 675, that "the separate credit- 
 ors of each partner are entitled to be first paid out of the 
 separate effects of their debtor, before the partnership credit- 
 ors can claim any thing." But this principle cannot apply to 
 creditors who have secured their debts by judgment and exe- 
 cution liens, and occupying the relative position of the 
 parties in this suit. If so, it utterly annuls and destroys the 
 principle before stated, that every partnership debt is joint 
 and several. I doubt very much its correctness, as a general 
 rule. A Court of Chancery may, undoubtedly, where the 
 equities between the partners are to be adjusted, and where 
 
 ^ The facts are restated. Others, not separate creditors of Wisham, 
 joined in the bill, but only that part of the opinion which relates to the 
 claim of Kay being repri.. d, any statement of the facts on which the 
 other plaintiffs based their contentions is unnecessary.
 
 WISHAM V. LIPPINCOTT 659 
 
 the assets are before the court, and the court called upon to 
 marshal them, apply such a rule. Story, section 676, note i, 
 says, "If the true doctrine be, that a partnership contract is 
 several, as well as joint, then there seems no ground to make 
 any difference whatsoever in any case between joint and 
 several creditors, as to payment out of joint or separate 
 assets." He adds, "This is now the established doctrine." 
 I have no hesitation in saying, that when a joint creditor of 
 the firm has a judgment, and execution levied upon the sepa- 
 rate effects of one of the partners, this court ought not, in 
 mere compliance with any such rule, as that the separate 
 creditors of each partner are entitled to be first paid out of 
 the separate effects of one of their debtors before the 
 partnership creditors can claim anything, interfere with 
 such execution, either on the application of any one of the 
 partners, or any creditor of the firm, or separate creditor of 
 any of its members. 
 
 As I have remarked already, there is, in this case, some- 
 thing besides the application of such a rule, entitling the 
 complainants to the interference of the court. 
 
 The motion to dissolve is denied.- 
 
 'Compare: Straus v. Kcrngood, 21 Grat. 584, 1871 : ("K recovers 
 a judgment against F & H as partners, and sues out an execution of 
 fi. fa. upon it, which is returned 'no effects.' Afterwards S recovers 
 a judgment against H for an individual debt of H. There are no 
 assets of the partnership of F & H, but G is indebted to H. K sum- 
 mons G as garnishee and obtains a judgment for the amount of his 
 debt against E. S also summons G and obtains a judgment; the sum- 
 mons of S being after that of K, but he obtains his judgment first. S 
 then files his bill to enjoin K from receiving and G from paying to K 
 the debt of E to H. Held, K having first recovered his judgment 
 against F & H and sued out execution thereon, has the prior lien upon 
 the debt due from E to H ; and a court of equity cannot deprive him 
 of it") 
 
 Barrett v. Furnish, 21 Ore. 17, 1891. (A and B were partners. C. 
 a firm creditor, secured a judgment and docketed a lien on the real 
 property of A. The administrator of A brought a bill against C to 
 restrain a sale under C's judgment, on the ground that A had many 
 separate creditors ; that his estate would be insufficient to meet such 
 creditors unless C was restrained, and that B had real estate on which 
 C might levy. C's demurrer sustained.)
 
 C60 SEPARATE PROPERTY AND PARTNERSHIP DEBTS 
 
 In re SANDUSKY. 
 Register's Decision^ 1878. 
 
 17 National Bankruptcy Register, 452. 
 
 Abraham Sandusky was a member of the firm of H. 
 Sandford & Co. On August, 1876, certain firm creditors 
 having secured a judgment levied on the individual property 
 of Sandusky. In February, 1876, the firm became bankrupt. 
 On a petition brought by the assignee in bankruptcy, a sepa- 
 rate creditor of Sandusky, and Sandusky, an injunction was 
 issued restraining the execution creditors from enforcing 
 their lien.^ 
 
 W. N. Branson, Register in Bankruptcy. 
 
 The petitioners seek to maintain their injunction upon 
 the familiar rule obtaining in equity and in bankruptcy, that 
 the separate estate of an individual partner cannot be applied 
 towards payment of the partnership debts until after the pay- 
 ment in full of his separate debts. The respondents, on the 
 other hand, contend that the above rule does not obtain in 
 this case, for the reason that they had obtained a specific lien 
 on the property in question, by virtue of the levy of an execu- 
 tion thereon. 
 
 I have hunted up and examined the authorities on the 
 question thus presented, with such care as my time would 
 permit. The only case in a court of the United States which 
 I have found in point is the case In re Lewis (8 N. B. R., 
 546), decided by Judge Rives, of the U. S. District Court 
 for Western District of Virginia, and affirmed on appeal by 
 Judge Bond, of the Circuit Court. In that case the court 
 holds that although, in the distribution of the general assets 
 of- a bankrupt, the partnership assets are to be first applied 
 to the partnership debts, and the individual assets of any 
 
 * The facts are re-stated and that part of the Register's opinion in 
 which he states the facts omitted. 

 
 IN RE SANDUSKY 661 
 
 separate partner first applied to his individual debts, accord- 
 ing to the terms of the Bankrupt Law, yet, when a judgment 
 has been obtained by a partnership creditor against the mem- 
 bers of a concern, such judgment operates as a several 4ien 
 against the real estate of each partner; and if prior in point 
 of time to a judgment obtained against an individual partner 
 by an individual creditor of such partner, is to be preferred 
 to such subsequent judgment; but the court is further of the 
 opinion that when such partnership creditor can get satis- 
 faction of any part of said judgment out of the partnership 
 assets, the pro ?'ata distribution to which such partnership 
 creditor is entitled out of the partnership fund shall first be 
 applied as a credit on said judgment against the separate 
 partner, in relief of the fund of such separate partner, for the 
 benefit of the separate creditor. 
 
 In the case of Mccch v. Allen (17 N. Y., 300), the New 
 York Court of Appeals say this : It is a settled rule of equity 
 that, as between the joint and separate creditors of partners, 
 the partnership property is to be first applied to the payment 
 of the partnership debts, and the separate property of the in- 
 dividual partners to the payment of their separate debts, and 
 that neither class of creditors can claim anything from the 
 fund which belongs primarily to the opposite class until all 
 the claims of the latter are satisfied. This, however, is a 
 rule which prevails in a court of equity in the distribution 
 of equitable assets only. Those courts have never assumed 
 to exercise the power of setting aside, or in any wav interfer- 
 ing with an absolute right of priority obtained at law. In 
 regard to all such cases, the rule is equitas scqiiitiir legem. 
 (i Story Eq. Jur., Sec. 553.) 
 
 In Wilder v. Keeler (3 Paige, 167), Chancellor Wal- 
 worth says : "Equitable rules are adopted by this court in 
 the administration of legal assets, except so far as the law 
 has given an absolute preference to one class of creditors 
 over another." So in the case of Averill v. Loucks (6 Barb., 
 470), Paige, Justice, says: "Courts of equity, in the admin- 
 istration of assets, follow the rules of law in regard to legal
 
 662 SEPARATE PROPERTY AND PARTNERSHIP DEBTS 
 
 assets, and recognize and enforce all antecedent liens, claims 
 and charges, existing upon the property, according to their 
 priorities." This is also conceded in the case of McCulloiigh 
 V. Dashiell (i Har. & Gil., 96), where the whole doctrine of 
 distribution in equity of the joint and separate property 
 of partners is very elaborately examined. Archer, J., says: 
 "At law the joint creditors may pursue both the joint and 
 separate estate to the extent of each for the satisfaction of 
 their joint demands, which are at law considered joint and 
 several without the possiblity of the interposition of any 
 restraining power of a court of equity." But especially must 
 it be beyond the power of such courts to interfere where 
 an absolute right of legal priority is given by force of a 
 positive statute, as in case of a judgment. Chancellor Wal- 
 worth, in Mower v. Kip (6 Paige, 88), says: "The rule of 
 this court is to give effect to the lien of a judgment upon a 
 legal title so far as it can be enforced by execution at law." 
 
 I have thus quoted at large from the opinion of the 
 N. Y. Court of Appeals, as it is a court of high authority. 
 To the same effect is Straus v. Kerngood (21 Graft., 584). 
 In New Jersey it is held that the equitable principle above re- 
 ferred to cannot apply to creditors who have secured their 
 debts by judgment and execution liens, i Stock, (N. J.), 
 836. The Supreme Court of Georgia hold that in cases of 
 co-partnership, the equity in favor of separate creditors will 
 not be enforced to control or take away a right acquired by 
 legal execution on the part of joint creditors against the 
 separate estate. {Baker v. Wimpce, 19 Ga., 87; Cleghorn v, 
 Ins. Bank, 9 Ga., 319.) 
 
 In the latter case, Lumpkin, J., delivering the opinion 
 of the court, says : "The equity in favor of separate credit' 
 ors will never be enforced to control or take away a right 
 acquired by legal execution on the part of joint creditors 
 against the separate estate." 
 
 In Wisham v. Lippincott (i Stock., 353), Chancellor 
 Williamson says : "A Court of Chancery may undoubtedly, 
 where the equities between the parties are to be adjusted
 
 IN RE SANDUSKY 663 
 
 and when the assets are before the court, and the court is 
 called upon to marshal them, apply such a rule. I have no 
 hesitation in saying that when a joint creditor of a firm 
 has a judgment and execution levied upon the separate 
 effects of one of the partners, this court ought not, in mere 
 compliance with any such rule as that the separate creditors 
 of each partner are entitled to be first paid out of the sepa- 
 rate effects of their debtors, before the partnership creditors 
 can claim anything, to interfere with such execution, either 
 on application of one of the partners or any creditor of the 
 firm, or separate creditor of any of its members." 
 
 Some cases in New Hampshire would seem to announce 
 the contrary principle, as Crockett v. Grain (33 N. H., 542) ; 
 Jarvis v. Brooks {2t^ N. H. (Fest. ), 136), and Holton v. Hol- 
 ton (40 N. H., yy). But these cases must be considered in 
 connection with a late decision of the same court {Bowker 
 V. Smith, 48 N. H., 11 1), which appears to modify the doc- 
 trine announced in the earlier cases. In the latter case, Chief 
 Justice Perley, in giving the opinion of the court, and speak- 
 ing of the equitable doctrine relied on by the petitioner in 
 this case, says : "The grounds on which the doctrine was ad- 
 mitted here afforded no reason for supposing that this right 
 remains to be asserted after the property, once taken for the 
 satisfaction of debts, has been finally appropriated under 
 legal process by levy on the property of the individual part- 
 ner." The Supreme Court of South Carolina holds that the 
 private creditors of a partner are entitled to pay out of his 
 separate estate, in preference to partnership creditors, though 
 the latter have recovered judgment against him as surviving 
 partner. {Woddrup v. Ward, 3 Des., 203.) 
 
 Upon consideration of all the authorities upon this 
 point, which I have been able to find, it appears to me that 
 there is a very decided preponderance to the effect that 
 where an execution lien has been obtained, in good faith, be- 
 fore bankruptcy, on the individual property of a member of 
 a partnership firm, under a judgment against the firm, that 
 that statutory lien will not yield to the equities of the sepa-
 
 664 SEPARATE PROPERTY AND PARTNERSHIP DEBTS 
 
 rate creditors of that partner. And this is entirely in har- 
 mony with the rule which obtains in Courts of Bankruptcy, 
 that liens generally, including execution liens, which have 
 been acquired in good faith before the commencement of 
 proceedings in bankruptcy, are preserved and enforced. 
 
 I am therefore of opinion, upon the papers submitted 
 to me in this matter, that the injunction should be dissolved. 
 All of which is respectfully submitted. 
 
 Treat_, J. — Decision of register affirmed.^ 
 
 "Under section d"], sub-section f, of the Bankruptcy Act of 1898, 
 all liens obtained through legal proceedings within four months prior 
 to the filing of the petition in bankruptcy, where the person was in- 
 solvent at the time tlie lien was obtained, are dissolved. See also sub- 
 section c and the remarks of Collier on these sections in his work on 
 Bankruptcy (Edition of 1907), pages 782-785. The distribution of the 
 proceeds of the partnership property first to the joint creditors, and 
 the separate property of each partner first to the creditors of that 
 partner, is the same under the present Act, see section 5, sub-section f, 
 page , infra, as it was under the Act of 1867, section 36, and under 
 the Act of 1841, section 
 
 In Averill v. Loiicks, 6 Barb. 470, 1849, 478, Paige, P. J., regards 
 a partner who has given a mortgage on his separate property as one 
 who guarantees a firm debt and therefore entitled to the rights of a 
 guarantor. If the firm fails he has a right to insist that the property of 
 the principal debtor of the firm be first used to pay the debt, and if his 
 property is taken to satisfy the debt he has a right to be subrogated 
 to the rights of the firm creditor against the firm. The separate 
 creditors of the partner have the same rights as their debtor. It is 
 suggested that the student compare the assumption on which these con- 
 clusions depend with cases pages 714-726, infra.
 
 CHAPTER XII 
 
 MARSHALLING ASSETS IN PARTNERSHIP 
 
 CASES. 
 
 CRAVEN V. KNIGHT. 
 
 In the High Court of Chancery^ Before Lord Keeper 
 NoRTH^ 1682. 
 
 Gooding's Bankruptcy, 187. 
 
 The bill sets forth that the defendant, George 
 Widdows being indebted to the plaintiffs, became bound 
 to them in several bonds ; and the said Widdows, 
 and the defendant Berman for several years past, 
 were copartners, and Widdows by articles of copartnership 
 was entitled to two-thirds of the whole stock, and the de- 
 fendant Berman to one third part; the said Widdows and 
 Berman, 25 August last, became bankrupts, and a Commis- 
 sion of Bankruptcy was awarded against them; the Com- 
 missioners of Bankrupts assigned all the estate of the said 
 bankrupts to the defendant Knight and others, and refused 
 to let the plaintiff's creditors of the bankrupts to come in, 
 and intend to divide the said estate amongst the joint credit- 
 ors of both the bankrupts, by reason whereof the plaintiff's 
 debts will be utterly lost. 
 
 The defendants insist that it was agreed by indenture of 
 copartnership that all such debts as should be owing on the 
 joint account should be paid out of the joint stock; and at 
 the end of the partnership each copartner take and receive to 
 his own use his share of the joint stock, and that the joint 
 stock or trade should not be charged with the private or 
 particular debts of either of the partners, but that each 
 should pay their private debts out of their particular estates, 
 
 (66s)
 
 666 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 not included in the joint stock : That if both the said parties 
 should be living at the end of the first three years of the six 
 years that the said Berman should come in joint partner ac- 
 cordingly; and during the said joint trade, the copartners be- 
 came jointly indebted to the other defendants, Knight, etc., 
 in 6000/, and that Widdows became indebted to the plain- 
 tiffs, as aforesaid, without the consent of Berman; and the 
 money due upon the said bonds was not brought into the 
 account of the joint stock ; and the said Widdows was only a 
 surety, and received none of the money; and the defendants 
 insisted that the joint creditors ought to be first paid out 
 of the estate of partnership; and that the commissioners 
 have no power to grant the joint estate to pay the plaintiffs, 
 they being separate creditors of Widdows: And if a surplus 
 of the joint estate, after the joint creditors paid, then the 
 plaintiffs can have but a joint moiety of such surplus, to- 
 wards their satisfaction, the said Berman's moiety being not 
 liable to pay the said Widdows his separate debts; and the 
 debts then claimed were the proper debts of the said Wid- 
 dows; and yet after all the joint debts are paid, there will 
 be an over-plus; so that thereby the said Berman will be 
 discharged, and have money paid unto him : But if the 
 plaintiff and other separate creditors of Widdows be ad- 
 mitted to the joint estate, there will not be sufficient to pay 
 the joint creditors ; so that thereby not only Berman's estate 
 will be applied to pay Widdows' debts, but will be liable to 
 the joint creditors. But there can be no division of the 
 joint estate whereby to charge any part thereof with the 
 private debts of either party; and till the joint debts 
 are paid, and till division made of the surplus, both 
 parties are alike interested in every part of the said 
 joint stock; that the commissioners have no power 
 by the commission to administer an oath to the plaintiffs 
 for proof of their debts, they claiming debts from the said 
 Widdows only ; and the commission is against Widdows 
 and Berman jointly, and not severally, and therefore cannot 
 admit the plaintiff's creditors.
 
 CRAVEN z: KNIGHT 667 
 
 The Court declared, that the estate belonging to the 
 joint trade, as also the debts due from the same, ought to 
 be divided into moieties, and that each moiety of the estate 
 ought to be charged in the first place with a moiety of the 
 said joint debts, and if there be enough to pay all the -debts 
 belonging to the, joint trade, with an over-plus, then such 
 over-plus ought to be applied to pay the particular debts of 
 each partner; but if sufficient shall not appear to pay all the 
 
 joint debts; and if either of the said partners shall pay more 
 than a moiety of the said joint debts, then such partner is 
 to come in before the said commissioners, and to be admitted 
 as a creditor, for what he shall so pay over and above the 
 moiety; and was decreed accordingly.^ 
 
 ^Christian in his "Bankruptcy Law," 1814, vol. 2, p. 244, says: "If 
 the joint estate is divided, and the joint debts are divided, one cannot 
 see how the excess can exist more on one side than on the other." 
 
 The report of this case in 2 Chan. Cas. 139, sub. nom., Craven v. 
 Widdoivs, is as follows : 
 
 "Two partners in trade put in each an equal stock, and agreed by 
 covenant that the stock should pay the debts of the stock, and neither 
 of their separate debts should charge the stock, but only his own estate, 
 or to that effect ; they both became bankrupts, and a commission against 
 them both, one of them owed separately more than the other. The 
 question was between separate creditors of each bankrupt, and the 
 creditors on account of the joint stock, for these would exclude the 
 separate creditors to charge the joint stock, but that it should satisfy 
 the stock debts. But the opinion of the Lord North, contra. For the 
 covenant of the partners cannot bind any of their creditors, but only 
 themselves. Quccrc. How the separate creditors could have other title 
 than those under whom they claim." 
 
 Richardson v. Gooding, 2 Vern. 294, 1693 : (A and B were partners. 
 At the instance of the separate creditors of A a commission was taken 
 out against A and the commissioners, for some reason unknown, as- 
 signed to the assignees in bankruptcy the firm property. Bill by a firm 
 creditor against t e assignees for an account, and that the firm creditors 
 should first be paid out of partnership stock. Decreed for the plaintiff. 
 Accord: Dusfrcsnay v. Prevost, 2 Eq. Cas. Abr. no, 1734.) 
 
 "Statutes of bankruptcy are of considerable antiquity in England, 
 the first having been passed in the reign of Henry VIII. The bank- 
 rupt law of the present day descends from statutes passed in the 
 reigns of Elizabeth and of James I., which have been frequently 
 amended from that time to this. Previous to the year 1822 these 
 statutes contained but a single mention of bankrupt partners or part- 
 nerships, viz., that contained in St. 10 Anne, c. 15. § 3, which provided 
 that the discharge of a bankrupt should not discharge a bankrupt part- 
 ner or co-obligor. Before 1822, therefore, the rules regulating the 
 distribution in bankruptcy of the joint and separate estates of partners 
 were established altogether by judicial decision." Per Lowell, J., in re 
 Wilcox, 94 Fed. Rep. 84, 1899, p. 85.
 
 668 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 Ex Parte CROWDER. 
 In the High Court of Chancery^ Before Lord Cowper^ 
 
 1715- 
 2 Vernon's Reports, 706. 
 
 A AND B being joint traders, a commission of bank- 
 ruptcy issued against them; their separate creditors now 
 appHed by petition, that they might be let in for their debts 
 upon the respective separate estates of the bankrupts, under 
 that joint commission; the separate estates being of small 
 value, and would not bear the charge of taking out two 
 new commissions against them separately. 
 
 The Lord Chancellor ordered them to be let in to prove 
 their respective separate debts upon the joint commission, 
 they paying contribution to the charge of it, and directed 
 that as the joint or partnership estate was in the first place 
 to be applied to pay the joint or partnership debts ; so in like 
 manner the separate estate should be in the first place to pay 
 all the separate debts; and as separate creditors are not to 
 be let in upon the joint estate, until all the joint debts are 
 first paid; so likewise the creditors to the partnership shall 
 not come in for any deficiency of the joint estate, upon the 
 separate estate, until the separate debts are first paid.
 
 EX PARTE COOK 669 
 
 Ex Parte COOK. 
 
 In the High Court of Chancery, Before Lord 
 Chancellor King, 1728. 
 
 2 Peere Williams's Chancery Reports, 499. 
 
 Two joint traders became bankrupt, and a joint com- 
 mission of bankruptcy is taken out against them, upon 
 which the commissioners make an assignment of the real 
 and personal estate of the two bankrupts, or either of them; 
 afterwards the separate creditors take out separate com- 
 missions against these two bankrupts, and the commissioners 
 on the separate commission assign over the separate effects 
 and estate to other assignees ; and now the assignees under 
 the separate commissions, applied by petition to the court, 
 that they might be at liberty to sue at law for the separate 
 estate. 
 
 Lord Chancellor: It seems to me, that the assignment 
 made by the commissioners upon the joint commission, 
 passes as well the separate as the joint estate of the two 
 partners the bankrupts, consequently the assignees on the 
 separate commissions can make nothing of their action at 
 law, and I will not suffer them to spend and waste the estate 
 in vexatious suits there; but if they will join in a bill in 
 equity for an account of the separate estate, I will not hinder 
 them. 
 
 It is settled, and is a resolution of convenience, that 
 the joint creditors shall be first paid out of the partner- 
 ship or joint estate, and the separate creditors out of the 
 separate estate of each partner, and if there be a surplus 
 of the joint estate, besides what will pay the joint creditors, 
 the same shall be applied to pay the separate creditors, and 
 if there be on the other hand a surplus of the separate estate, 
 beyond what will satisfy the separate creditors, it shall go to 
 supply any deficiency that may remain as to the joint credit-
 
 670 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 ors. But in this case, for the ease of both parties, let it be 
 referred to a commissioner in each of these commissions, 
 to take an account of the whole partnership effects, and also 
 of the separate effects and estates of each of the partners; 
 and if the commisioners find anything difficult, they are 
 to be at liberty to state it specially; and with regard to the 
 surplus of the partnership effects, beyond what will pay the 
 partnership debts, and also touching the surplus of the 
 separate effects, if there shall remain any, over and above 
 what will pay the separate debts, each side to be at liberty 
 to apply to the court concerning any of the said surpluses.^ 
 
 * Lord Hardwicke in the Matter of the Simpsons, i Atk. 137, 1752, 
 p. 138, said : "Formerly, where there were several partners, they used 
 to take out several commissions against each partner, as well as a joint 
 commission. This practice being of late thought a very unreasonable 
 one, as occasioning great confusion with regard to bankrupt's effects, 
 has been discountenanced." 
 
 I
 
 EX PARTE BAUDIER 671 
 
 Ex Parte BAUDIER. 
 In the High Court of Chancery_, Before Lord 
 Hardwicke_, 1742. 
 
 I Atkyns Reports, 98. 
 A Separate commission taken out against each of 
 two persons who had traded in partnership, which was 
 dissolved before their bankruptcy; the joint creditors pe- 
 tition to be admitted to prove their joint debts under each 
 of their commissions. 
 
 Lord Chancellor : Where there is a joint commission 
 taken out against partners, separate creditors may come in 
 under such a commission and prove their debts, and joint 
 creditors shall be satisfied out of the joint estate, and sepa- 
 rate creditors out of the separate estate, because the assign- 
 ment in that case is of the whole estate. 
 
 But where there are two persons who have been partners 
 and yet the commissions are taken out against them as sepa- 
 rate traders, their creditors upon the joint estate cannot be 
 admitted to prove their joint debts under each commission, 
 for they have an equitable right, in case there should be any 
 surplus of the estates of the two bankrupts after the separate 
 creditors are satisfied. 
 
 Nor do I think it proper to appoint a receiver on behalf 
 of the joint creditors, to get in the joint effects of the bank- 
 rupt, but they must proceed in the common course, by taking 
 out a joint commission.^ 
 
 ' See, hotvever, ex forte Voguel, i Atk. 132, 1843 : (A and B were 
 partners. They dissolved. A separate commission had been taken out 
 against one. The joint creditors petitioned that the joint effects seized 
 under the separate commission might be divided among the joint cred- 
 itors. Lord Hardwicke refused the petition, giving the petitioners 
 Hberty to bring a bill in equity for the same purpose. He gave the joint 
 creditors liberty to come in under the separate commission and prove 
 their debts, without directing whether they had any right to the assets, 
 or any prior claim on the assets due to the sale of the joint property") ; 
 also ex parte Crisp, i Atk. 133, 1744: (A and B were partners. The 
 joint creditors sued out a commission against B. Lord Hardwicke 
 doubted the right of the joint creditors to take out such a commission, 
 and directed a trial before Wtlles, C. J. The proceedings in the Com- 
 mon Pleas are reported in Willes. 467. It was decided that joint cred- 
 itors could take out such a commission, but that the distribution of_ the 
 assets between the joint and several creditors could only be determined 
 by a bill in equity. Lord Hardwicke acquiesced in this opinion.)
 
 672 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 Ex Parte HODGSON. 
 
 In the High Court of Chancery, Before Lord 
 Thurlow, 1785. 
 
 2 W. Brozmt's Chancery Reports, 5. 
 
 BuRNEY the bankrupt was partner with Davidson, who 
 is in the East Indies, and, being indebted separately to , 
 
 to whom he had given a note, she pressed him for a better 
 security ; upon which he gave her a partnership note. Upon 
 a separate commission against Burney, she proved this note ; 
 and the present petition was, that the proof of this joint 
 debt upon the separate commission might be rescinded. 
 
 Lord Chancellor refused the prayer of the petition, 
 there being no distinction as to sole or separate debts, and 
 said he thought proper to declare that debts, whether sole or 
 joint, ought to be paid out of the bankrupt's estate ; which 
 is composed of his separate estate, and of his moiety of 
 the joint estate, and therefore ordered that she should come 
 in pari passu with separate creditors.^ 
 
 ^Accord: Ex parte Page, 2 W. Bro. Ch. Cas. 119, 1786; ex parte 
 Flintum, 2 W. Bro. Ch. Cas. 120, 1786. 
 
 The report of ex parte Hayden, in i W. Bro. Ch. Cas. 454, a case 
 decided about the same time as ex parte Hodgson, where Lord Thurlow 
 permitted the joint creditors to share equally in the separate estate with 
 the separate creditors, no joint commission having been issued, em- 
 phasizes the fact that there were no joint assets. The fuller report of 
 the same case, however, in Cooke's Bankrupt Laws, Dublin Ed.. 1786, 
 p. 7, makes the question of partnership or no partnership the real ques- 
 tion in the case, and the right of the firm creditors to share equally 
 in the separate assets where there was no joint commission, apparently 
 did not depend on the non-existence of a joint estate. Under a joint 
 commission Lord Thurlow distributd the joint effects to the joint 
 creditors and the separate elifects to the separate creditors. Ex parte 
 Market, 2 W. Bro. Ch. Cas. 15, 1785. 
 
 Lord Loughborough on March 8, 1794, issued an order, see 4 W. 
 Bro. Ch. Cas. 548, which permitted the separate creditors to prove their 
 debts and have the separate estates administered, under a joint commis- 
 sion, as per the rule in ex parte Crowder, supra, p. 668, without the 
 necessity of going to the trouble and expense of bringing a petition. 
 
 d
 
 EX PARTE ELTON 673 
 
 Ex Parte ELTON. 
 
 In the High Court of Chancery, Before Lord 
 Loughborough, 1796. 
 
 3 Vesey Junior's Reports, 238. 
 
 William Fry and others carried on business in part- 
 nership as cotton manufacturers under the firm of Wilham 
 Fry and the Rawleigh Company. In July, 1792, in con- 
 sideration of 1000/. paid by the petitioners to Wilham Over- 
 end, one of the Rawleigh Company, a bill of exchange for 
 that sum was duly endorsed to the petitioners. The bill was 
 dated the 9th of July, 1792, and was drawn upon Fry and his 
 partners, and accepted thus in the hand-writing of Fry : 
 "Accepted, W. Fry and Rawleigh Company." In May, 
 1793, a separate commission of bankruptcy issued against 
 Fry as distiller, dealer and chapman. The bill not being 
 paid upon applications to the Rawleigh Company, the draw- 
 ers, and the indorsers, the petitioners attempted to prove 
 the debt for the purpose of receiving a dividend under the 
 commission. The commissioners reserved a dividend upon 
 the claim, in order that the opinion of the Lord Chancellor 
 might be taken. 
 
 The opposite cases upon this point, which are collected 
 I Cooke's B. L. were cited. [7th Edit, by Mr. Roots, 244, 
 &c.; 8th Edit. 259, &c.] 
 
 Lord Chancellor : This petition seems to me to be a mat- 
 ter under very pressing circumstances. I do not mean to 
 decide it now ; for upon considering what has been stated 
 and looking into the cases collected by Mr. Cooke it appears 
 to have been understood for some time, that a joint creditor 
 is entitled to prove and receive a dividend from the separate 
 estate. At the same time I understand from the Attorney 
 General that he does not think that settled as matter of law, 
 but of convenience, and subject to this limitation; that if the
 
 674 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 assignees of the separate estate think fit or will undertake 
 to file a bill, the creditor admitted to prove is to be restrained 
 from receiving a dividend. If it stands so, it is an order, 
 that can only be made here in this Court: it is impossible 
 for the commissioners either in town or country to admit, 
 as this petition supposes, a joint creditor to take a dividend 
 under the separate commission ; for they have no authority ; 
 it is impossible they can decide of themselves; for an option 
 to be given to assignees is a thing that can only be done by 
 an order here; the commissioners have no power to do it. 
 The consequence therefore in every such case, is, that there 
 must be a petition. There is another inconvenience, if the 
 matter remains as it now stands : one set of commissioners 
 acting upon the authority of the first edition of Mr. Cooke's 
 book would certainly refuse the claim; another set acting 
 upon the second edition would certainly admit it. It stands 
 therefore in a situation, in which commissioners would find 
 great difficulty how to act. It has been understood for a 
 considerable time, according to Mr. Cooke, that there is no 
 difficulty in the Court's directing the commissioners to re- 
 ceive the proof of the joint debt. Antecedent to these au- 
 thorities, I should have thought it perfectly clear, it could 
 not be done ; and that the utmost length, they could go, was, 
 that a joint creditor, where there is a separate commission, 
 is to be admitted to prove only for the purpose of assenting 
 to or dissenting from the certificate, and receiving such sur- 
 plus beyond the amount of the separate debts, as joint cred- 
 itors would be entitled to claim, where there are two com- 
 missioners. I doubt, whether it is possible to innovate upon 
 that, which was the law formerly ; for though a commission 
 is an execution, and the joint creditor has such an interest 
 as enables him to take out a separate commission, yet th? 
 consequence does not follow. There are cases antecedent 
 to those cited. In Lord King's time it was determined, that 
 a joint creditor might be a good petitioning creditor, though 
 the commission is only against one partner; that the joint 
 creditor does no more in taking his execution, passing over
 
 EX PARTE ELTON 675 
 
 his action, than bringing the separate effects to be admin- 
 istered in bankruptcy. But it is not treated any longer as 
 an execution at law ; for the effects taken under it are not 
 disposed of as at law, but fall immediately by the direction 
 of the statute under the administration of this Court ; which 
 is to make an equitable distribution among the creditors, to 
 admit all equitable claims upon the effects, and to divide 
 them ratably. It has long been settled, and it is not possible 
 to alter that, that each estate is to pay its own creditors. 
 
 With regard to the creditor suing out the commission, 
 the separate creditors cannot object to his having the effect 
 of the execution he has taken out. He is precluded from 
 suing at law ; and it would be against all Equity, having done 
 it for their benefit, to refuse him the fruit of that for his 
 OWH debt. But any other joint creditor is in exactly the 
 case of a person having two funds; and this Court will ):ot 
 allow him to attach himself upon one fund to the prejudice 
 of those who have no other, and to neglect the other fund. 
 He has the law open to him but if he comes to claim a dis- 
 tribution, the first consideration is, what is that fund, from 
 which he seeks it. It is the separate estate; which is par- 
 ticularly attached to the separate creditors. Upon the sup- 
 position, that there is a joint estate, the answer is "apply 
 yourself to that : you have a right to come upon it ; the 
 separate creditors have not ; therefore do not affect the fund 
 attached to them, till you have obtained what you can get 
 from the joint fund." There would be no great incon- 
 venience, if he could put them in his situation as to the joint 
 fund : but I doubt very much, whether that is possible ; for 
 suppose in the case of A and B, partners, the former re- 
 mains solvent, the latter becomes a bankrupt, and there is a 
 joint debt of looo/. The creditor making his claim first 
 against the separate estate, paying a dividend of icy. in the 
 pound, receives 500/. Can the assignees claim against the 
 solvent partner what they have paid ? His answer would be 
 they could only claim the same right the bankrupt could; 
 and as against the bankrupt he is entitled to retain; he has
 
 616 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 paid his moiety of the partnership debt. If the case is turned 
 the other way, and the creditor first sues the solvent part- 
 ner, he recovers all the debt against him ; and he has a right 
 to come in as a separate creditor of tlie bankrupt to the 
 amount only of a moiety of that debt; for a moiety only of 
 the debt of the partnership he could have recovered against 
 him, if he had been solvent. That makes a very great dif- 
 ference to the separate creditors. I was led to consider an- 
 other thing: is it possible to admit a separate creditor to 
 take a dividend upon the joint estate ratably with the joint 
 creditors? No case has gone to that; and it is impossible; 
 for the separate creditor at law has no right to sue the other 
 partner. He has no right to attach the partnership property. 
 He could not only attach the interest, his debtor had in that 
 property. H it stands as a rule of law, we must consider, 
 what I have always understood to be settled by a vast variety 
 of cases, not only in bankruptcy but upon general Equity, 
 that the joint estate is applicable to partnership debts, the 
 separate estate to the separate debts. Another difficulty 
 is, whether really it is just to put it to the assignees in behalf 
 of the separate creditors to assert the right of the creditor 
 making the claim, to go against the joint estate. The credit- 
 or coming in upon the separate estate is first to answer the 
 question, why he does not go against the joint estate. It 
 may be said, "the law is open to you; it is not open to us. 
 You put us to file a bill against the other partners to discover 
 and apply the partnership fund. You have a much quicker 
 remedy; sue the partnership. You need not wait the 
 account. They will settle it rather than put you to that; at 
 all events you have a legal execution against them." Another 
 consideration is, that the great object of the law in establish- 
 ing this sort of authority, in which I now sit, is to make 
 a speedy distribution and to avoid suits. The necessary con- 
 sequence of admitting a joint creditor to prove against the 
 separate estate is in every such case to make a Chancery 
 suit; and the right of the separate creditors to the adminis- 
 tration of their fund is frustrated.
 
 EX PARTE ELTON 677 
 
 I throw out this, desiring extremely to have the assist- 
 ance of the Bar, and of those who are peculiarly conversant 
 with the subject, to point out the balance of convenience and 
 inconvenience; whether it is right to adhere to what is the 
 rule according to the last determination, or to reconsider 
 and recast the whole. There is nothing so inconvenient as 
 leaving a point, that must so frequently occur, to any am- 
 biguity. It cannot remain, as it now stands. If it is a pe- 
 tition, of course it is under singular circumstances; for there 
 is nothing purely of course to be done by petition to me, 
 that I cannot by a general rule direct the commissioners to 
 do : I doubt, that is impossible here ; for they could not put 
 that guard upon it, that it should not be a general order, but 
 that the assignees might stop him from receiving a dividend, 
 till they had taken out of the joint estate what he should 
 draw from the separate estate. Wherever my order will 
 procure an account of the joint estate, there can be no harm ; 
 for then I should give the usual directions to apply the funds 
 respectively, the joint estate to the joint debts, the separate 
 to* the separate debts; the surplus of each to come in re- 
 ciprocally to the creditors remaining upon the other. But 
 unless I can do that, every order, I can make, to let a joint 
 creditor receive a dividend from the separate estate would 
 carry a Chancery suit in the bosom of it, to- have the joint 
 estate brought into the fund, to prevent the separate estate 
 from being exhausted ; and I should make the order, and in 
 the course of ten days suspend it by preventing him from re- 
 ceiving the dividend. 
 
 Let it stand over; and if it is possible to bring it on in 
 the course of these petitions, I should be extremely glad to 
 have it very fully discussed. 
 
 July 28. Attorney General [Sir John Scott], for the 
 Petition, proceeding to argue upon the cases, that had been 
 cited before, was stopped by the Court. 
 
 Lord Chancellor : I am aware of all those cases ; but the 
 difficulty, that has struck me upon it, is, that what I order 
 here to-day, sitting in bankruptcy, I shall forbid to-morrow
 
 678 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 sitting in Chancery ; for it is quite of course to stop the divi- 
 dend upon a bin filed. The plain rule of distribution is, that 
 each estate shall bear its own debts. The Equity is so plain, 
 that it is of course upon a bill filed. The object of a com- 
 mission is to distribute the effects with the least expense. 
 Every order I make to prove a joint debt upon the separate 
 estate must produce a bill in Equity. It is not fundamentally 
 a just distribution, nor a convenient distribution; because 
 it tends to more litigation and more expense. Every creditor 
 of the partnership would come upon the separate estate. 
 The consequence would be, the assignees of the separate 
 estate must file a bill to restrain the dividend upon all these 
 proofs, and make the partners parties. But there is another 
 circumstance. It is a contrivance to throw this upon the 
 separate estate; for what hinders them from recovering at 
 law this debt against the partnership ; for it is money paid to 
 one of the partners. They have nothing to do but to bring 
 an action against the partners. The affairs of the partner- 
 ship may be very much involved : but if they are arrested, 
 they would pay it. It is not stated as a case, where there 
 are no joint effects. Here it is only, that there are two 
 funds. Their proper fund is the joint estate ; and they must 
 get as much as they can from that first. There is this 
 singularity attending this case ; that the whole transaction 
 between them and Fry is a partnership transaction. The 
 money was paid to one of the partners; most probably for 
 the use of the partnership : the bill was drawn and accepted 
 in the name of the partnership. I have no difficulty in or- 
 dering them to be admitted to prove; but not to receive a 
 dividend. Will the assignees sue the partners in the name 
 of the petitioners? It occurred to me, when this came on 
 before, and no answer was given to it, that if the rule stands 
 as you suppose, there never would be a joint commission; 
 but they would take out a separate commission against each 
 partner. 
 
 The order was, that the petitioners shall be admitted, 
 but not to receive a dividend; and that the dividend upon
 
 EX PARTE ELTON 679 
 
 the proof shall be reserved, till an account is taken of what 
 they have or might have received from the partnership 
 effects.^ 
 
 ^ Ex parte Clay, 6 Ves. 813, 1802. (Lord Eldon : "The rule that 
 prevailed in Lord Hardwicke's time, and down to the time of Lord 
 Thurlow was, that joint creditors should not be admitted to prove under 
 a separate Commission for the purpose of receiving dividends with the 
 separate creditors. Lord Thurlow altered that upon much considera- 
 tion; thinking, the joint creditors ought to be admitted with the 
 separate creditors; and left it so, when he left this Court. Lord Lough- 
 borough thought, that was not right ; and got back again, not quite to 
 the old rule ; but he settled it, that they should prove only for the pur- 
 pose of keeping separate accounts, but not to receive a dividend. I 
 do not presume to say, which is the best rule ; except, that the last is 
 open to this difficulty; that the creditor is not a party to the proceed- 
 ings under the Commission. But I think it better to follow the rule, 
 that I find established, than to let it be continually changing, so that no 
 one can tell, how it is. Therefore unless some more prominent mischief 
 can be pointed out, take the order according to Lord Loughborough's 
 rule.")
 
 680 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 GRAY V. CHISWELL. 
 
 In the High Court of Chancery, Before Lord Eldon, 
 
 1803. 
 
 9 Vesey Jwiior's Reports, 118. 
 
 The bill was filed by annuitants, under the will of John 
 Cock, against the executrix and the heir at law of Mr. Chis- 
 well ; who was the executor under that will, for an account, 
 etc. The usual accounts were directed; and by the report a 
 considerable debt from the estate of Mr. Chiswell to that of 
 Cock was established; including the penalty of a bond of 
 8000/.; for which sum the Master stated the plaintiffs to be 
 specialty creditors ; and the general balance beyond that was 
 2471/. 15^.; a simple-contract debt. The joint creditors of 
 Chiswell and Nantes who had proved their debts under a 
 Commission of Bankruptcy against Nantes, as surviving 
 partner, went in under an order ; and proved their debts be- 
 fore the Master. No appropriation had been made to an- 
 swer the annuities of the plaintiffs. Chiswell died seised of 
 freehold estates. The cause coming on for farther direc- 
 tions, the simple contract creditors of Chiswell claimed to 
 stand upon his real estate to the extent of 8000/.^ the bond 
 debt proved by the plaintiffs, and paid out of his personal 
 estate, and the only debt by specialty, to which he was liable ; 
 and that the said sum may be raised by sale or mortgage of 
 the real estate devised to the executrix. A question arose 
 between the joint creditors and the separate creditors of 
 Chiswell ; the latter contending, that out of Mrs. Chiswell's 
 balance, when paid in, and the 8000/., when raised and paid 
 in, the separate simple contract of Chiswell may be paid 
 their respective debts in preference to the joint creditors of 
 Chiswell and Nantes; and that the balance only, after such 
 payment, may be paid over to the assignees, to be distributed 
 to the joint creditors under the commission.
 
 GRAY V. CHISWELL 681 
 
 The joint creditors insisted upon their right to come 
 in pari passu with the separate creditors of Chiswell against 
 his separate estate. It was admitted, that the joint estate 
 was insolvent, and would pay only an inconsiderable divi- 
 dend; and that, the surviving partner having brought into 
 the firm an inconsiderable sum, upon a final adjustment the 
 joint estate would be greatly indebted to the separate estate.^ 
 
 The Lord Chancellor: This question is new 
 in specie, and has not been determined by any of the 
 cases. These joint creditors ask a great deal more than they 
 could in bankruptcy; for there they could not touch the 
 separate estate, until the separate creditors were fully satis- 
 fied. They have had their demand effectuated against the 
 joint estate surviving ; and now contend, that by the accident 
 of the death they shall be, not only upon an equal, but upon 
 a better, footing, as against the separate creditors, than if 
 the party had lived, and had become a bankrupt. It would 
 be extraordinary to say that.^ 
 
 The decree declared, that the separate creditors of the 
 testator, Chiswell, are entitled in the first place to be paid 
 their respective debts out of his separate estate ; and that 
 the joint creditors are entitled to the residue. 
 
 * The Reporter's notes of the arguments of counsel are omitted, 
 ■ The rest of the opinion is omitted.
 
 682 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 Ex Parte HILL. 
 
 In the High Court of Chancery,, Before Lord Eldon, 
 
 1802. 
 
 2 Bosanquet and Puller's Report, New Series, 191, note a. 
 
 Copland and M'Knight jointly purchased a quantity 
 of rum. This they pledged with the petitioners, who lent 
 their money on it, and in fact to pay for it. They had no 
 other dealings together as partners. Rum fell in value. 
 The rum pledged was sold, and did not produce the amount 
 of the money lent. The petitioners brought a joint action, 
 in which M'Knight let judgment go by default. M'Knight 
 and Copland both became bankrupts under separate com- 
 missions, and the commission against Copland was dated the 
 31st May, but a verdict was recovered against him by the 
 petitioner on the 26th of June last for 2287/. 6.?. 2d, the 
 amount of the moneys due after deducting the produce of 
 the rum. The time of the sale of the rum did not appear. 
 The commissioners under Copland's commission considered 
 this as a joint debt, and refused to admit the proof of it 
 except for the purpose of assenting to, or dissenting from 
 the certificate. 
 
 The petitioners prayed that the commissioners, acting 
 under the said commission against Robert Copland, might 
 receive the proof of the amount of the petitioner's debt and 
 costs, when taxed, and that the petitioner might be paid 
 dividends thereon, rateably with the other creditors of the 
 said Robert Copland. The two points raised were, ist, that 
 there was no joint estate, and therefore that the debt ought 
 to be proved against each separate estate. Ex parte, Hay- 
 don, Cooke, Bank, Laws. 240. 2dly, that the debt was a debt 
 which might have been proved before the verdict, and there- 
 fore that the costs ought to be proved, though the verdict was 
 after the commission. Lezvis v. Peircy, i H. Bl. 29. Watts 
 v. Hart, I Bos. & Pull. 134.
 
 EX PARTE HILL 683 
 
 On the other side it was said that here was a joint es- 
 tate, viz. the goods pledged. 2dly, that the general rule is 
 that where the verdict is after the commission, costs cannot 
 be proved. * * *. 
 
 Lord Chancellor: The case ex parte Elton, 3 Ves. 
 jun. 238, has settled the matter, and therefore I will not un- 
 settle it, but should rather have adhered to Lord Thurlow's 
 rule. But when there are no joint effects, that takes the case 
 out of Ex parte Elton. Joint effects means such as are under 
 the administration of assignees to distribute, not as in this 
 case, where the only joint effects were those pledged to the 
 petitioners, to more than the amount.^ 
 
 ^ The part of the opinion which deals with the question of costs 
 is omitted. Lord Eldon decided that the costs could not be proved. 
 
 Prior to the decision in this case, Lord Loughborough, after his 
 decision in ex parte Elton, had, in ex parte Abell, 4 Ves. 837, 1799, 
 directed that the joint creditors should receive nothing from the separate 
 estate until the separate creditors had been paid in full, although in 
 that case there does not seem to have been any joint estate, and the 
 assertion is made by counsel that all the other partners were insolvent. 
 In ex parte Pinkerton, 6 Ves. 814, note, 1801, Lord Eldon, in the absence 
 of a joint estate, allowed the joint creditor to prove under a separate 
 commission. This was merely the rule of ex parte Elton. Lord Eldon's 
 language, however, as reported, would indicate that he ultimately allowed 
 the joint creditors to come in pari passu with the separate creditors 
 as he did later in our principal case, for he says : "it seemed very 
 singular, that the nature of the debt, should turn upon the fact, whether 
 there is joint property, or not." Besides, the expression "right to prove" 
 is used by reporters as equivalent to "right to prove and take a divi- 
 dend." 
 
 Compare with our principal case the following cases: 
 
 Ex parte Peake, 2 Rose 54, 1814. (The joint estate amounted to 
 only i£ IIS. 6d. The joint creditors were not allowed to come in on 
 the separate estate. Lord Eldon : "If in point of fact there is joint 
 property, whether to the amount of five pounds or five shillings, it is 
 an answer to this application" [of the joint creditors]). 
 
 Ex parte Kennedy, 2 DeG. M. & G., 228, 1852: (The joint estate 
 amounted to £13, which were entirely exhausted in the payment of costs. 
 Held, that the joint creditors could not receive any dividend from the 
 joint estate until the separate creditors were paid in full.) 
 
 In re McEwen. 12 Nat. Bk. Reg. 11. 1874: {Held, that the 36th 
 section of the Act of 1867 regarding the distribution of assets in cases 
 of the bankruptcy of a partnership, which directed that the separate 
 creditors should have priority on separate funds, applied only where 
 there was a net balance of partnership assets after paying costs, and that, 
 where there was no such balance, the partnership and prior creditors 
 shared pari passu in individual assets. Accord: In re Slocum, 1879, 
 cited 5 Fed. 50.) 
 
 Harris v. Peahody, 72, Me. 262, 1881 : (A and B were partners. 
 The firm was insolvent, and its assets, amounting to only $1.19, were 
 absorbed in the expenses of the sale. B was insolvent, A having no
 
 684 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 assets or individual debts. The joint creditors were allowed to come in 
 pari passu with B's individual creditors on B's separate assets.) 
 
 See also: In re Marwick, 2 Ware 229, 1845: (The joint estate 
 consisted of worthless claims. A separate creditor of one partner pur- 
 chased one of these claims for $40 for the purpose of creating a joint 
 estate. Held, he had created it, and, therefore, the separate creditors 
 of the partner should be paid in full out of the separate estate before 
 the firm creditors received anything, a ruling which prevented the joint 
 creditors receiving anything, as the separate estate was exhausted in 
 paying the separate creditors.)
 
 EX PARTE KENSINGTON 685 
 
 Ex Parte KENSINGTON. 
 
 In the High Court of Chancery, Before Lord Eldon, 
 
 1808. 
 
 14 Vesey Junior's Reports, 447. 
 
 In these petitions and three others in the paper of bank- 
 ruptcy the question was, whether a joint debt could be proved 
 under a separate commission for the purpose of receiving 
 dividends with the separate creditors, where there was no 
 joint estate, but there was a solvent partner. 
 
 Mr. Cooke, in support of the petition of the joint cred- 
 itor to prove, mentioned Ex parte Elton, Ex parte Abell, 
 Ex parte Pinkerton ; in which last case there was a solvent 
 partner, abroad, and not likely to return; and there was no 
 joint property; and the proof was ordered. 
 
 Sir Samuel Romilly, for the assignees, opposed the pe- 
 tition; insisting, that the order made according to the ar- 
 rangement in Ex parte Abell, that the creditor should take 
 a dividend upon a sum, not exceeding an eighth part, under 
 a commission against one of eight partners, could not be sup- 
 ported ; the consequence of admitting the proof, in respect of 
 the bankrupt's proportion of the debt upon a contribution, 
 being, that all the dividends must be delayed, until the ac- 
 counts of all the partnership debts were taken; that in Ex 
 parte Pinkerton the order was made on the ground, that, 
 the solvent partner being abroad, the creditor could not with- 
 out great difficulty resort to the other fund; but, in general 
 cases the reason against admitting the proof, where there 
 is joint estate, that there is another fund, to which the cred- 
 itor may resort, applies, where there is a solvent partner. 
 
 The Lord Chancellor : This question respecting joint 
 and separate creditors has been much agitated. Lord Thur- 
 low thought, the joint creditors were entitled to prove; as, 
 though the contract was joint, the execution was separate.
 
 686 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 Lord Rosslyn when he first came to this bench, preferred 
 that rule; which he had often agitated at the bar; but his 
 Lordship afterwards established the rule in Ex parte Elton. 
 When I succeeded Lord Rosslyn, I declared, that, though the 
 principle of that rule appeared to me to be doubtful, the rule 
 was settled ; and ought not to be shaken. In Ex parte Pink- 
 erton I was influenced by the circumstance, that the solvent 
 partner was abroad. I think, in this case a proof cannot be 
 made without resorting to the solvent partner.^ 
 
 ^ In a subsequent petition Ex parte Kendall, April 5, 180S, the case 
 Ex parte Kensington was acted upon without comment. 
 
 Ex parte Morris, Mont. 218, 1831 : (A, B, C, D, E were partners. 
 They granted an annuity to F. A and B were bankrupts, C was abroad, 
 D had applied to take the benefit of the Insolvent Act, admitting ii,6oo 
 liabilities and no assets. There were no joint assets. A Commission 
 was issued againt E. F tried to prove and take a dividend under E's 
 estate. Held, that he could not do so, as D had not been formally 
 declared a bankrupt.) Accord: Ex parte Janson, Buck 227, 1818.
 
 BELL V. NEWMAN 687 
 
 BELL V. NEWMAN. 
 In the Supreme Court of Pennsylvania,, 1819T 
 
 5 Sergeant and Rawle's Reports, 78. 
 
 John Waddington was the surviving partner of 
 Thomas Cookson, a merchant residing in England. Wad- 
 dington Hved in Philadelphia, and at the time of his death 
 was indebted to sundry persons on his partnership account, 
 and to William Bell on his private account. The defendant 
 had in his hands to be administered, some private property 
 of John Waddington, and also some of the partnership prop- 
 erty of Cookson & Waddington, but not enough to pay the 
 partnership debts. The question submitted to the Court was, 
 whether the separate property should be applied in the first 
 instance to the payment of the debt due to William Bell, or 
 whether the partnership creditors should come in pro rata} 
 
 Tilghman, C. J. : [Held, that the Act of April 19, 
 1794, giving to all creditors of an equal nature an equal 
 share of the intestate's estate in case of a deficiency of assets, 
 could only be satisfied by directing that the separate credit- 
 ors should receive as much out of the separate property as 
 the joint creditors received from the portion of such separate 
 partner in the joint property, and then that the balance of 
 the separate property should be divided among the joint and 
 separate creditors pro rata.Y 
 
 Gibson J. : In bankruptcy the rule, that the joint and 
 separate estates shall be marshalled in favour of the re- 
 spective creditors, is undoubted: but I have found no de- 
 cision on the subject of its applicability, in England, and 
 but one in this country, to cases of insolvency. It is in- 
 
 ^The Reporter's notes of the argument of council are omitted. 
 
 ' His opinion is omitted. It has not been followed in Pennsylvania. 
 See Black's App., 44 Pa. 503, 1863. A similar rule, however, would 
 appear to prevail in Kentucky. See Fayette Nat. Bk. v. Kenney, 79 
 Kty. 133, 1880, p. 140.
 
 688 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 deed said by Mr. Watson in his Treatise on the Law of 
 Partnership, p. 370, that there is a different rule as to in- 
 solvency; but Burn v. Burn, (3 Ves. jun. 573), which he 
 cites, most clearly contains no such distinction. That was 
 the case of a bond joint on its face and executed by one 
 partner, in the name of the firm, to secure a partnership 
 debt; and it was held it should be considered joint and 
 several against the separate creditors, and the obligee let 
 in for a separate specialty debt, the evidence that the 
 parties intended to be severally bound, being clear. All 
 the Court did, therefore, in that case, was to correct a 
 mistake, by putting the parties in the situation they would 
 have been in, if no accident had happened : and it is very 
 clear that a partnership creditor, by a joint and several 
 bond, may elect to come in as a separate creditor, although 
 by doing so, he abandons his claim on the joint estate, till 
 the other creditors are paid. Ex parte Banks, i Atk. 106 
 Burn V. Burn, was that case : but the Court did not decide 
 what the obligee's rights would have been in the character 
 of a joint creditor, they merely reformed the instrument 
 according to the original intention of the parties, which 
 is a very familiar proceeding in equity. In England I 
 apprehend it is not decided, whether the rule be peculiar to 
 bankruptcy, or a general principle of equity applicable to 
 all cases of marshalling assets between joint and separate 
 creditors. In no case does its precise foundation appear. 
 Lord Thurlow denied it altogether : Lord Rosslyn puts 
 it on grounds partly of convenience, and partly of abstract 
 equity; and subsequent chancellors have sustained it, 
 doubting its propriety. It certainly does not arise from 
 any provision of the statues concerning bankruptcy; for 
 not one of them mentions partners in relation to this ques- 
 tion. It could not have been originally founded in con- 
 venience, which never can excuse, much less justify a de- 
 parture from justice, and the rights of the partnership 
 creditors ought not to be affected by any consideration of 
 embarrassment to third persons arising from their en-
 
 BELL V. NEWMAN 689 
 
 forcement. The only inconvenience would be the post- 
 ponement of settling the separate estate until the partner- 
 ship accounts were taken and settled, and this might have 
 been surmounted, or at least endured. The rule therefore 
 must be deemed, and I think, justly, an abstract principle 
 of equity, operating in all cases where chancery admin- 
 isters the assets of an insolvent partner. There is nothing 
 in the nature of the commission itself to create a differ- 
 ence ; for though it is sometimes called a statute execution, 
 it is in fact nothing more than the means and instrument 
 of equity, and does not constitute nor can it alter the ab- 
 stract propriety of any rule of distributing among credit- 
 ors the remnant of their own property. At law, or even 
 in equity, where there is no insolvency, a joint creditor 
 may go directly against the separate estate of a deceased 
 partner, and it is by viewing the commission as analogous, 
 and a means of enforcing a right against the partner, 
 without at the same time considering the proceedings un- 
 der it, as a process of distribution among the creditors 
 that doubt with respect to the solidity of the rule in ques- 
 tion is generated. The ground of Lord Thurlow's opinion 
 was, that although the contract was joint, yet execution 
 being several might be had against the separate estate, 
 and by preserving the analogy between an execution and 
 a commission, the joint creditors might come in. If, in 
 despite of this technical notion, the rule still holds in 
 bankruptcy, a fortiori, it ought, where all is distributory 
 without the most remote analogy to an execution. But it 
 appears to me, the rule is founded in the most substantial 
 justice. Why should any class of creditors in preference 
 to the rest, be exclusively entitled to the joint fund, and 
 concurrently entitled to the separate estate? Equality is 
 equity; and the joint creditors have already an immense 
 advantage over the separate creditors in being exclusively 
 entitled to the partnership fund : it is the largest ; for men 
 in trade usually embark their all in it, and seldom have 
 much separate property. And, independent of distributive
 
 690 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 rights, the joint creditors have a degree of security for 
 their debts, and faciHties in recovering them, w^hich the 
 separate creditors have not : they can sell both joint and 
 separate estate on an execution, while the separate creditor 
 can sell only the separate estate, and the interest in the 
 concern that may remain to the partner, after the accounts 
 of the debts and effects of the partnership are taken, as 
 betw^een the partners and their creditors, and as between 
 the partners themselves. This exclusive liability of the 
 partnership estate to the joint creditors is founded on no 
 equity peculiar to themselves, but results from the nature 
 of the contract of partnership which requires the joint 
 debts to be paid before the equity can be settled between 
 the partners, each being individually liable till all is paid. 
 Concede the present question to the joint creditors, and 
 you give them in effect, a monopoly of the insolvent whole 
 estate. What merit do they possess that the separate 
 creditors may not lay claim to? In the usual course of 
 transactions, each class indiscriminately trusts to the whole 
 estate, both joint and separate. Judge Cooper, in his 
 Treatise on the BankPupt Law, page 300, arguing with his 
 usual force and ingenuity against the equity of the rule in 
 bankruptcy, founds himself on the assumption that the 
 joint creditors are the exclusive contributors to the mass 
 of the joint estate, and therefore that the remnant of it is 
 peculiarly their property; and that both joint and separate 
 creditors contribute to the separate estate, although in 
 an unequal degree, the debts due the separate creditor be- 
 ing mostly contracted for articles of consumption; and 
 that while the partnership debts have a tendency to in- 
 crease the whole mass of the estate, the separate debts tend 
 to decrease it. All these assertions, as general proposi- 
 tions, are unfounded. As to the first, an insolvent joint 
 fund consists of the remnant of what was originally taken 
 from the indkndnal estates of all the partners, and, by the 
 very act of turning it into stock, put beyond the immediate 
 reach of those who were their separate creditors at the
 
 BELL V. NEWMAN 691 
 
 time: and as to the second, where the concern has been a 
 losing one, there is no great reason to presume the profits 
 of the business added much to the separate property. The 
 stock can increase the latter, only by being improperly with- 
 drawn from trade for that purpose; and as the other part- 
 ners have a direct interest in preventing such a measure, 
 it is unreasonable to believe that anything like a majority 
 of cases of failure of the joint fund can fairly be attributed 
 to that cause. It is no more universally true, that every 
 partnership debt brings as much property into the joint 
 fund as it takes out, than that each separate debt adds its 
 own amount to the aggregate of the separate estate. In 
 either case, the purchase of articles of consumption excepted, 
 the matter depends entirely upon whether the speculation 
 were a good or a bad one. As to articles of consumption, 
 which is the only class that does not add to the 
 bulk of the separate estate, if they are purchased on credit, 
 nothing is thereby drawn from the joint fund, and if paid 
 for at the time, they form no part of the debts that enter 
 into competition with the joint creditors, although the pay- 
 ment of their price may have lessened the separate estate 
 pro tanto. Indeed the same remark is applicable to all ar- 
 ticles purchased on separate account, whether for con- 
 sumption or not : these, though they may in some instances 
 lessen the separate estate, their own appropriate fund, yet 
 cannot, in the usual course, diminish the fund of the joint 
 creditors, which alone could give them an equitable right 
 to come on a fund thus increased at their expense. The 
 claim of each class is, therefore, equally meritorious, both 
 as to the motives for giving credit, and as to creating or 
 increasing the respective funds, out of which each is to be 
 satisfied: if then the policy of trade requires that the joint 
 fund shall be appropriated, in the first instance, to payment 
 of the joint debts, justice, equity, and conscience, on the 
 other hand, without interfering with that policy, demand 
 that the separate creditors should, at least, have the miser- 
 able advantage of the same priority as regards the separate
 
 692 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 estate. It is unconscionable, that one class should have 
 the exclusive benefit of one fund, and come in concurrently 
 on the other, when both equally trusted to all the in- 
 solvent's estate, whether joint or separate, and when there 
 is no reason peculiarly applicable to either, to presume the 
 credit given by the one, had a tendency to create or in- 
 crease the fund appropriated to the other. In JVoddrop v. 
 Ward executor of Price, 3 Desaus. Cha. Rep. 203, where 
 every thing peculiar to bankruptcy was out of the question, 
 the rule was adopted in a case which cannot be distinguished 
 in principle, from the present. 
 
 The rule just proposed by the Chief Justice, is cer- 
 tanl}- more consonant with equity, than that which would 
 let in the joint creditors without any restriction or limitation 
 whatever, but I object to it, because it wants reciprocity. 
 Suppose the separate creditors to have got twenty-five 
 per cent, from the separate estate : will they be permitted 
 to come on the joint estate pari passu with the joint 
 creditors, after the latter have drawn from it in the same 
 proportion? It is evident therefore the rule would operate 
 unequally, by making the separate creditors share their 
 fund with the joint creditors, where it happens to be the 
 largest, without subjecting the latter to share theirs under 
 the like circumstances. It may be said, it is impossible 
 to put them on a footing in this respect, I grant it cannot 
 be done on any plan of participating in the same fund : but 
 you precisely put them on a footing by making each fund 
 bear the burthen of its own debts; and if that of the sepa- 
 rate creditors should happen to be the most productive, I 
 know not on what principle of equity they can be deprived 
 of the advantage. 
 
 But it is said, the rule is controlled by our statute of 
 distribution, which settles the priority of the different 
 grades of debts, without making any distinction between 
 the different classes of creditors whose debts are of the 
 same grade, and that of course all debts of the same grade 
 must come in on an equality. If that be so, it is an 
 
 I
 
 BELL V. NEWMAN 693 
 
 effect the legislature never intended to produce. They 
 had nothing more in view than the administration of 
 a single fund among its own peculiar creditors. The first 
 was a matter easily subjected to a set of simple rules; but 
 the second could not be touched by a hand so violent, with- 
 out throwing the whole into inextricable confusion, and 
 destroying all justice and equitable distinction. Here are 
 two funds in the hands of the representative of an intestate 
 who held them in distinct characters. As a surviving part- 
 ner he was not, even at law, the owner of the partnership 
 property in possession; and although as to choses in action 
 the remedy survived to him, still to a share of these also, 
 the representative of his deceased partner was entitled, so 
 soon as they were reduced to possession. The rule allowing 
 a set-off by a surviving partner of a partnership demand 
 against a separate debt, and vice versa, which appears 
 in contradiction to this doctrine, arises from technical 
 principles of joinder of different matters in the same 
 declaration; and is an anomaly in the law. If, on the 
 death of a surviving partner, the partnership fund is to 
 be blended with his private estate, it must be so in every 
 instance, and to every purpose, as well in favour of, as 
 against the separate creditors. Then, in case the separate 
 estate were insolvent, the separate creditors would come 
 in to the prejudice, not only of joint creditors, but of the 
 representatives and creditors of the deceased partners, also, 
 who would be burthened with the surviving partner's debts 
 in every case of a deficiency. It is impossible to say the 
 two funds shall be blended, when it is the interest of the 
 joint creditors to have them so, and kept separate when 
 circumstances render it otherwise. The argument is 
 founded on the notion, that the surviving partner becomes 
 the entire owner of the partnership fund and effects, and 
 is only personally responsible to the joint creditors, and 
 representatives of his deceased partners; which is wholly 
 fallacious: for if he be like to waste the stock, chancery 
 will restrain him from disposing of it, or receiving the
 
 694 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 outstanding debts. Harts v. Schreder, 8 Ves. jun. 317. 
 The legislature never could intend to subject the property 
 of a surviving partner, whether owned in his own right, 
 or in a representative capacity, to the same process in a 
 course of administration: nor could it be intended that 
 the death of a partner should effect a total change in the 
 rights of all parties, whether partners or creditors. I am 
 therefore of opinion that each estate is liable to its own 
 debts in the first instance, and to the creditors of the other, 
 for the surplus, if there be any.^ 
 
 lEach of the three members of the Court having a 
 different opinion as to the proper distribution, the assets 
 were distributed in accordance with opinion of Tilgh- 
 man, C. J.]* 
 
 'The opinion of Duncan, J., is omitted. He took the position that 
 the rights at law and under bankruptcy are different, and that the joint 
 creditors should share equally with the separate creditors on the sep- 
 arate assets. Compare: Blair v. Black, infra, p. 
 
 * Compare: M'Culloh v. Dashiell, 1 Md. 96, 1827. _ (Archer, J.: 
 "It is difficult to say upon what the rule in equity and in bankruptcy, 
 with the modification above stated, is founded. [The rule that firm 
 creditors have priority on firm assets, and separate creditors on 
 separate assets, except where there are no firm assets and no solvent 
 partner.] The joint estate is benefited to the extent of every credit 
 which is given to the firm, and so is the separate estate in the same 
 manner enlarged by the debt it may create with any individual, and there 
 would be unquestionably a clear equity in confining the creditors to 
 each estate respectively, which has thus been benefited by their trans- 
 actions. So far the rule is sensible and intelligible ; and although at 
 law the joint creditors may pursue both the joint_ and separate estate, 
 to the extent of each, for the satisfaction of their joint demands, which 
 are at law considered both joint and several, without the possibility of 
 the interposition of any restraining power of a court of equity; yet 
 when, by the death of one of the parties, the legal right survives against 
 the surviving partner, and is extinguished against the deceased partner, 
 a court of equity will give to the separate creditors all the advantages 
 thus by accident thrown upon them, and will not, by adopting the rig- 
 orous rule of the law merchant, thereby injure and prejudice the sep- 
 arate creditor, upon whom, viewed in connexion with the separate fund, 
 it always looks upon as meritorious and entitled in the distribution of 
 assets to the preference. But although a court of equity, as against the 
 separate creditors, will not adopt the law merchant, which considers 
 the contract both joint and several; yet whatever doubts have hereto- 
 fore been entertained on the subject, where the claims of these joint 
 creditors do not come into conflict with the separate creditors, but only 
 with the interests of the representatives of the deceased partner, it is 
 now undeniably settled, that equity will, as against such representatives, 
 decree to joint creditors a satisfaction of their claims, by considering 
 them, as they are considered at law, both joint and several. 
 
 J
 
 BELL V. NEWMAN 695 
 
 "But although these distinctions are built on the solid foundations 
 of reason and justice, it is not altogether so easy to perceive, why, when 
 there is no joint fund, and no solvent partner, (by no solvent partner is 
 meant bankrupt partner,) the joint creditor should thereby acquire 
 the equitable right of coming in with the separate creditors pari passu, 
 upon a fund in no manner benefited by the creation of his debt. Such, 
 however, is the settled and established rule, as we are enabled to collect 
 it both in bankruptcy and in equity ; and according to this rule -the 
 complainant could not, in this case, be permitted to seek indemnity for 
 his claim, from the separate estate pari passu with separate creditors, 
 as it is a conceded fact in the cause, that there are joint funds, although 
 very inconsiderable, and greatly insufficient to pay the debt of the com- 
 plainant. 
 
 "But were not this the fact, this court would have no difficulty in 
 saying, that the complainant should be postponed to the separate cred- 
 itors ; and that whether there was any joint estate or not, he should 
 not be permitted to divide with the separate creditors a fund insufficient 
 to pay them. We are, therefore, disposed to adopt the ancient rule as 
 more consonant to equity and justice, that the joint creditors can only 
 look to the surplus, after the payment of the separate debts; and on 
 the other hand, that the separate creditors can only seek indemnity from 
 the surplus of the joint fund after the satisfaction of the joint cred- 
 itors.")
 
 696 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 BLAIR V. BLACK. 
 In the Supreme Court of South Carolina, 1899. 
 
 31 South Carolina Reports, 346.' 
 
 The opinion of the Court was dehvered by 
 Mr. Justice McGowan : On January 29, 1889, 
 James W. Black and Jacob K. Carpenter, of the old mer- 
 cantile firm of Black & Carpenter, and also of its successor, 
 Black, Carpenter & Davies, made an assignment of both 
 their individual and partnership property, for the payment 
 of their debts, to John G. Black as assignee and trustee. J. 
 L. Davies, one of the latter firm, did not sign the original 
 deed of assignment, being absent at the time it was exe- 
 cuted, but ratified it some days later, and, indeed, executed 
 another deed, conforming substantially to the first. The 
 assignment provided that the property and assets of the 
 individual members of the respective finns should be first 
 applied to the payment of the individual debts of the mem- 
 bers of the firm; and that the property and assets of the firms 
 respectively should be first applied to the debts of the part- 
 nership; and that if a surplus should remain after paying 
 the debts of the one class, then such surplus should be paid 
 to debts of the other class, and so reciprocally of the other 
 class. The assignment also provided, that if there should 
 not be sufficient funds to pay the debts, the assignee should 
 pay them ratably, or such as should, within thirty days 
 from the date of the assignment, agree to accept the terms 
 of it, and to release the parties from all liability on their 
 debts and claims, &c. 
 
 The cases stated above were instituted by creditors of the 
 respective firms for the purpose of setting aside the deed 
 of assignment, and, being identical in object and purpose, 
 
 ^ The opinion of Judge Kershaw in the lower Court is omitted. 
 Judge Kershaw took the position that the separate creditors should 
 have priority on the separate assets.
 
 BLAIR V. BLACK 697 
 
 were consolidated and heard together. Several grounds 
 were urged, sufficient, as alleged, to set aside the assign- 
 ment and subject the property to the claim of creditors 
 according to law, but, from the view which the court takes, 
 it will not be necessary to consider any of the objections, 
 except the one chiefly relied on by the assailing creditors, 
 viz., that, in violation of section 2014 of the General Stat- 
 utes, which denounces assignments giving preferences as 
 "absolutely void," this assignment gives undue and illegal 
 preference to individual over copartnership creditors, in 
 excluding the partnership creditors (after exhausting the 
 partnership assets) from coming in and participating with 
 the individual creditors in the individual property of the 
 members of the different firms ; the proposition relied on 
 being, that, under the law of this State, the individual 
 creditors are not entitled to be paid first out of the individual 
 property, but have only an equity to require that the part- 
 nership creditors should exhaust the assets of the firm, and 
 after that is applied, they are entitled, as to any balance 
 due them, to share equally and ratably with the individual 
 creditors in the individual assets. While, on the other hand, 
 in support of the assignment, it is urged that the rule is, that 
 the joint debts are primarily payable out of the joint effects, 
 r.nd are entitled to a preference over separate debts ; and so, 
 in the converse case, the separate debts are primarily pay- 
 able out of the separate effects, and, as to that, possess a 
 like preference; and the surplus only, after satisfying such 
 priorities, can be reached by the other class of creditors. So 
 that really the only question involved is one purely of lav/. 
 What was the law of this State upon the subject when the 
 assignment was executed?^ 
 
 The question is certainly an important one, which in 
 the affairs of business life may arise daily, and it should be, 
 if it has not already been, clearly and fully settled, so that 
 all mav know what the law is to which their actions should 
 
 'That part of the opinion in which he refers to the decision of 
 Judge Kershaw, sec note 2, supra, is omitted.
 
 698 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 be conformed. It is true that there has been much discus- 
 sion, and some difference of opinion, on the subject involved, 
 not, as is seems to us, arising so much from the inherent 
 difficulty of the subject, as from an artificial rule originally 
 adopted in the English Bankrupt Courts mainly, as it would 
 seem, on account of its simplicity and convenience of appli- 
 cation, viz., that partnership creditors are entitled to part- 
 nership property, and, e convcrso, individual creditors are 
 entitled to individual property, a rule of which Judge Story 
 says : "It is not too much to say that it rests on a foundation 
 as questionable and unsatisfactory as any rule in the 
 whole system of our jurisprudence." Story Part, 577. 
 
 As we understand it, no rule upon the subject has ever 
 been declared by positive statute, either in England or 
 America ; but whatever rule there may be has grown up en- 
 tirely from the dicta of elementary writers and adjudica- 
 tions of the courts, supposed to be founded on some prin- 
 ciple. But so far as concerns this "rule of reciprocity," 
 as it is sometimes called, it does not seem to us to have been 
 based upon any principle or general equities of the parties. 
 All agree that the partnership creditors have an equity to 
 exhaust the partnership assets, for the double reason that 
 they have two funds, and the individual members have no 
 interest until the partnership is settled. But the same can- 
 not be said of the individual creditors. They are not credi- 
 tors of the firm at all, but only of their individual debtor, 
 whose individual property, including his clear share of the 
 firm, is liable for all his debts alike, both partnership and 
 individual. It strikes us that there is nothing in the relations 
 or the equities of the respective classes to authorize or justify 
 the application of the convenient Procrustean rule of 
 "reciprocity." 
 
 But it is argued that the Circuit decree is in conformity 
 with the English rule, and we should follow it without re- 
 gard to its reason or equity, and disregard our own cases 
 which have made a departure from it, for the sole reason 
 that it was error to make that departure, and it should be
 
 BLAIR V. BLACK 699 
 
 corrected by returning to the rule. Without going back to 
 ascertain what is the precise rule adopted in the English 
 Courts of Bankruptcy and Chancery, it is quite clear that 
 as far back as the case of Wardlaw v. Gray (1837), cited 
 the Circuit decree, the doctrine was announced in tliis 
 State "that a partnership creditor has the right to resort 
 either to the partnership property or to the separate property 
 of the parties; but as a party having two funds, he may be 
 compelled by the separate creditors of one of the partners 
 to exhaust the partnership property before he proceeds 
 against that of an individual partner," &c. Whether this 
 decision did or did not run counter to what is said to be the 
 English rule upon the subject, it is quite as clear that it has 
 never been expressly overruled; but, on the contrary, has 
 been recognized and followed, and at the time of the execu- 
 tion of the assignment under consideration was, as we think, 
 the law of the State. In Gozvan v. Tunno ct aL, Rich. Eq. 
 Cases, 369 (1832), it was held that "though partnership 
 effects should be first applied to partnership debts, yet after 
 these are exhausted a judgment against the partners as such 
 binds the separate estate of each partner from its date." 
 
 In Fleming v. Billings & Belk (1856), 9 Rich. Eq., 149, 
 it was held that "copartnership creditors are first to be paid 
 out of the copartnership fund, and if that prove insufficient, 
 then they are to come in with the private creditors (respect 
 being had to liens) as against the individual property of the 
 copartners." In Gadsden v. Carson et aL, 9 Rich. Eq., 252 
 (1857), it was held that "the individual creditors of a part- 
 ner have not such exclusive right to be paid out of his indi- 
 vidual property as to render fradulent an assignment of it 
 for the benefit of the creditors of the firm. Partnership 
 creditors having two funds to which they can resort, and 
 individual creditors of the partners having but one — the pri- 
 vate property of the debtor (including any balance which 
 may remain to him from the firm, after its affairs are set- 
 tled) — such individual creditors have an equity to compel 
 the partnership creditors to resort first to the partnership
 
 700 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 assets ; but after they are exhausted, the partnership credit- 
 ors have as good right to be paid out of the private property 
 of a partner as his individual creditors," &c. In this case 
 Chancellor Johnston remarked that it "was in conformity to 
 Wardlaw v. Gray, with which we see no reason to be dis- 
 satisfied." 
 
 In JVilson v. McConncll, g Rich. Eq., 500 (1857), it 
 was held that "where a copartner, having a separate estate, 
 dies, the copartnership creditors have the right first to ex- 
 haust the copartnership estate, and if that proves insufficient 
 to pay their demands, then they are to be paid from the 
 separate estate of the copartners pro rata with his separate 
 creditors." In Adickcs v. Lowry, 15 S. C, 128 (1880), it 
 is true that an intimation is given that the question might 
 be still open, but that was not intended to decide anything. 
 The remark was: "But even if this were so, there would 
 still remain the very important and interesting question, 
 whether the separate creditors of Bratton would not have in 
 equity a preference over the partnership creditors to the 
 separate assets of Bratton, &c. But inasmuch as this ques- 
 tion was not raised in the court below, and has not been ar- 
 gued here, we do not propose to enter upon its consideration 
 now," &c. 
 
 In Hiitzlcr Bros. v. Phillips, 26 S. C, 136 (1886), it 
 was held "that partnership creditors, after exhausing part- 
 nership assets, are entitled to share the separate property 
 of the partners pro rata with unsecured individual credi- 
 tors." The Chief Justice reviewed all the authorities, say- 
 ing, among other things : "We think the true doctrine is as 
 stated by the Circuit Judge with respect to the right of the 
 separate creditors, if any equity exists in his behalf, such 
 as two funds, * * * ^q throw the copartnership 
 creditors on the partnership assets in the first instance, but 
 after the partnership assets have been fully and fairly ex- 
 hausted, to come in pro rata with the separate creditor. This 
 seems to be the weight of authority with us. Besides, a debt 
 contracted by a copartnership is not only a debt of the firm,
 
 BLAIR V. BLACK 701. 
 
 but a debt, in substance, of each individual member of the 
 firm, and the property of the firm and of each member is 
 liable for it. But the property of the firm is not liable for 
 the separate debt of a member; only the interest of a mem- 
 ber is liable, which is nothing until the firm debts are paid," 
 
 &c. 
 
 We think this case finally settled the law in this State. 
 But, as if to put the matter beyond all dispute, the very last 
 work upon the subject of partnership, published this year 
 (1889), expressly approves and cites from this case, as con- 
 taining the proper exposition of the law upon the subject, 
 both on principle and authority. The author says : "The 
 insolvent, by his inability to meet his liabilities, is not the 
 less, but all the more, a debtor. He owes to his creditors 
 not the property itself, nor any other asset, but merely the 
 price of the property. The debt is personal, without any 
 lien or preference for its payment out of the debtor's estate. 
 The individual partner is, however, not less liable for a 
 firm debt than is the firm itself. The several liability of the 
 partners is no less a constituent of the partnership obligation 
 than is their joint obligation. Both spring from the root of 
 partnership. The joint creditors, therefore, are entitled at 
 law to share the separate estate of a partner with his indi- 
 vidual creditors," &c. See Parsons on "Principles of Part- 
 nership," section 108, citing Hutsler Bros. v. Phillips, and 
 other cases. 
 
 We have not the least idea that the parties intended to 
 do anything wrong, but the assignment was not in conform- 
 ity with the law as we understand it, and had the effect of 
 creating preferences not allowed by law. 
 
 The judgment of this Court is, that the judgment of the 
 Circuit Court be reversed, and the cases remanded to the 
 Circuit Court for such further proceedings as the parties may 
 be advised, in accordance with the conclusions herein an- 
 nounced.' 
 
 ^ Note the following statement by Judge Lowell, in /;; ;r Wilcox, 94 
 Fed. 84, 1899, p. 102 : "The general rule [that firm creditors have 
 priority on firm assets, and separate creditors on separate assets] has
 
 702 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 been followed or recognized in Mississippi (Oakey v. Rabh's Ex'rs, 
 Freem. Ch. 546; Irby v. Graham, 46 Miss. 425 430, 432); in Nebraska 
 {Bowen v. Billings, 13 Neb. 439, 443, 14 N. W. 152) ; in Iowa {Hubbard 
 V. Curtis, 8 Iowa, i ; Miller v. Clarke, 37 Iowa, 325) ; in IMinnesota (Iz'es 
 V. Mahoney, Ji N. W. 720) ; in Tennessee {Fozvlkcs v. Bowers' Heirs, 
 ir Lea, 144). In none of these states has there been found a case 
 which deals with the exception in the absence of joint estate. Both 
 the rule and the exception have been recognized in Alabama (Smith v. 
 Mallory's Ex'r, 24 Ala. 628; I'an Jl'agner v. Chapman's Adm'r, 29 Ala. 
 172; Evans v. Winston, 74 Ala. 349) ; in New Jersey (Davis v. Howell, 
 3S N. J. Eq. '72) ; in Illinois (Rainey v. Nance, 54 111. 29; Young v. Clapp, 
 147 111. 176, 32 N. E. 187, and 35 N. E. 372; Ladd v. Griswold, 4 Oilman, 
 25, 39); in Missouri (Level v. Farris, 24 Mo. App. 445; Hundley v. 
 Earns, 103 Mo. 7'^, 15 S. W. 312) ; in Rhode Island (Colwell v. Bank. 
 16 R. I. 288, 290, 15 Atl. 80, and 17 Atl. 913 ; Pearce v. Cooke, 13 R. I. 
 184) ; in Wisconsin (Thayer v. Humphrey, 91 Wis. 276, 64 N. W. 1007) ; 
 in Maine (Harris v. Peabody, 73 Me. 262). The exception has been 
 somewhat doubtfully recognized in Georgia (Toombs v. Hill, 28 Ga. 
 371; Keese V. Coleman, 72 Ga. 658). The rule has been recognized, and 
 the exception disapproved, in Indiana (Weyer v. Thornburgh, 15 Ind. 
 124; Warren v. Able, 91 Ind. 107; Warren v. Farmer, 100 Ind. 593), and 
 in Massachusets (Potters Works v. Minot, 10 Gush. 592). In New 
 Hampshire the rule has been recognized, and the exception declared to 
 be unreasonable, though it is established in bankruptcy. If there be no 
 preference where there is no joint estate, it is said by the court that 
 there should be no preference where there is no separate estate. Weaver 
 V. Weaver, 46 N. H. 188, 192. In Ohio the rule was disapproved in 
 principle, though admitted to be established in bankruptcy, in Grosvener 
 V. Austin's Adm'rs, 6 Ohio 104. In Rodgers v. Meranda, 7 Ohio St. 179, 
 both the rule and the exception were approved. In Brock v. Bateman, 
 25 Ohio St. 609, where the joint estate was not sufficient to pay the 
 costs, the exception was allowed to operate, and, in the confusion of 
 mind caused by an attempt to reconcile the theory of the exception with 
 the theory of the rule, the court declined to say what would happen 
 where the partnership assets would yield to the joint creditors less than 
 the separate assets would yield to the separate creditors. Plainly, the 
 court was inclined to reduce the rule to a mere marshaling of assets. In 
 Kentucky it appears to be established that the joint creditor may waive 
 his right to proceed against the joint estate, and, if he does so, may 
 share equally with the separate creditor in both joint and separate 
 estate ; otherwise, the separate creditor receives from the separate 
 estate as large a dividend as the joint creditor has received from the 
 joint estate, and thereafter joint and separate creditors are paid pro rata 
 from the separate estate. Bank v. Kei::er, 2 Duv. 169. The general 
 rule has been disapproved in Vermont. The numerous exceptions in- 
 grafted thereon, it is said, show that the rule rests on no satisfactory 
 basis. Bardivell v. Perry, 19 Vt. 292. It has been disapproved in Con- 
 necticut (Camp v. Grant, 21 Conn. 41), and in Virginia (Pettyjohn y. 
 Woodroof, 10 S. E. 715). In Kansas the matter seems to be left in 
 some doubt. Fullum v. Abrahams, 29 Kan. 725. The list above given 
 is not supposed to be exhaustive, but it represents with some fulness 
 the rule of distribution as administered in the courts of equity of 
 the several states. It should be added that some of the decisions above 
 cited rest upon the language of particular statutes, as well as upon 
 general principles of law." 
 
 In Black's App., 44 Pa. 503, 1863, the Supreme Court of Pennsyl- 
 vania, on a bill in equity, approved the rule, expressly pointing out that 
 the exception, permitting the joint creditors to come in pari passu with 
 the separate creditors on the separate assets where there was no joint 
 estate and ro solvent partner, was not before them. See p. 507.
 
 5AXKRUPT ACT OF 1898 703 
 
 BANKRUPT ACT OF 1898. 
 
 Chapter III, Section 5, Partners. 
 
 a A partnership, during the continuation of the partner- 
 ship business, or after its dissolution and before the final 
 settlement thereof, may be adjudged a bankrupt. 
 
 h The creditors of the partnership shall appoint the 
 trustee ; in other respects so far as possible the estate shall be 
 administered as herein provided for other estates. 
 
 c The court of bankruptcy which has jurisdiction of 
 one of the partners may have jurisdiction of all the partners 
 and of the administration of the partnership and individual 
 property. 
 
 d The trustee shall keep separate accounts of the part- 
 nership property and of the property belonging to the indi- 
 vidual partners. 
 
 e The expenses shall be paid from the partnership 
 property and the individual property in such proportions as 
 the Court shall determine. 
 
 / The net proceeds of the partnership property shall 
 be appropriated to the payment of the partnership debts, and 
 the net proceeds of the individual estate of each partner to 
 the payment of his individual debts. Should any surplus 
 remain of the property of any partner after paying his in- 
 dividual debts, such surplus shall be added to the partner- 
 ship assets and be applied to the payment of the partnership 
 debts. Should any surplus of the partnership property re- 
 main after paying the partnership debts, such surplus shall 
 be added to the assets of the individual partners in the pro- 
 portion of their respective interests in the partnership. 
 
 g The court may permit the proof of the claim of the 
 partnership estate against the individual estates, and vice 
 versa, and may marshal the assets of the partnership estate 
 and individual estates so as to prevent preferences and se-
 
 704 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 cure the equitable distribution of the property of the several 
 estates. 
 
 h In the event of one or more but not all of the mem- 
 bers of a partnership being adjudged bankrupt, the partner- 
 ship property shall not be administered in bankruptcy, unless 
 by consent of the partner or partners not adjudged bank- 
 rupt; but such partner or partners not adjudged bankrupt 
 shall settle the partnership business as expeditiously as its 
 nature will permit, and account for the interest of the 
 partner or partners adjudged bankrupt.^ 
 
 * The following propositions have been taken from Collier on Bank- 
 ruptcy. The references are to the pages of the ninth edition, where the 
 student will find a full citation of authorities. 
 
 1. A partnership is in bankruptcy a legal entity. Page 115. 
 
 2. A partnership may be adjudged bankrupt, although the 
 partners who compose it are not so adjudicated. Page 116. 
 
 3. The firm must petition or be petitioned against ; if the 
 latter, the firm, or a member of it acting within the scope of the 
 partnership, must have committed an act of bankruptcy, and if 
 adjudication follows, the firm, eo nomine, must be adjudicated. 
 Page 116. 
 
 4. In determining the question of insolvency, the individual 
 property of the partners should be considered, and where the assets 
 of a partnership, together with the individual properties of each 
 partner, exceed their liabilities the partnership is not insolvent. 
 Page 119. 
 
 5. If all the partners petition voluntarily, the proceeding prior 
 to adjudication is identical with an individual petition. If the pe- 
 tition be involuntary, and insolvency is necessary to the act, it 
 must appear affirmatively that both the partnership as an entity 
 and the individuals composing it were and are insolvent. Page 122. 
 
 6. It has been held, following the entity doctrine, that where 
 the partners petition, separate petitions must be filed by the firm 
 and by the individuals. T' better opinion is, however, to the 
 contrary, viz, that but one petition need be filed. Page 122. 
 
 7. If the adjudication is of the firm only, the discharge follow- 
 ing it will be a bar only to firm debts. If the application is for 
 individual bankruptcies only the discharge will not affect firm 
 liabilities. Page 125. 
 
 8. Where there are no firm assets and the firm creditors are 
 duly scheduled and receive notice, there is a conflict of authority as 
 to whether the individual discharge of a bankrupt partner should 
 operate as a discharge of the bankrupt from the partnership debts. 
 Pages 126, 127. 
 
 The appareni contradiction between some of the foregoing propo- 
 sitions is evidently in part due to the partial adoption of the entity 
 theory of a partnership by the Act of 1898. On this point, see the fol- 
 lowing language of Lowell, J., In re Forbes. 11 Am. B. R. 787, P- 
 789: "For some purposes a partnership has been treated as an entity 
 apart from the partners; for other purposes it has been treated as a 
 congeries of partners. Some courts have suggested that the Act of 
 1898 has adopted for bankruptcy the theory of an entity separate from
 
 BANKRUPT ACT OF 1898 70S 
 
 the partners. Section i (19). 5a; /n re Meyer, 3 Am. B. R. 559, 98 
 Fed. 976; In re Mercur, 11 Am. B. R. 505, 122 Fed. 384. Yet this 
 treatment of a partnership is irreconcilable with other provisions of 
 the statute. Section 5h of the act provides that the partnership prop- 
 erty (except in case of consent) shall not be administered in bank- 
 ruptcy unless all the partners are adjudged bankrupt. This is, in effect, 
 a provision that the partnership shall not be made bankrupt except by 
 an adjudication of all its partners. Adjudication without accompanying 
 distribution of the bankrupt estate would be worse than a vain form, 
 for it would confuse inextricably questions of preference, lien, attach- 
 ment, and the like. The remedy given by clause 'h' to the trustee is, 
 in substance, the equitable remedy found so unsatisfactory in the days 
 of Lord Eldon. See In re wiicox (D. C), 2 Am. B. R. 117, 94 Fed. 
 84. 95. The negative provision of clause 'h' is more definite than the 
 affirmative provision of clause 'a,' which does not declare under what 
 circumstances the adjudication of a partnership shall be made, or what 
 shall be its form or effect. Section 5b contemplates that the adjudica- 
 tion under a joint petition shall be both joint and several. If the ad- 
 judication were joint only, there would be no object in providing that 
 the joint creditors alone shall elect the trustee. Still again, section 5c 
 gives to the court which has jurisdiction of one partner 'jurisdiction 
 of all the partners,' and says nothing about jurisdiction of the partner- 
 ship as an entity. Read as a whole, Form 2 [the official form pre- 
 scribed by the Supreme Court of the United States for the voluntary 
 partnership petition] agrees with section 5h, and not with the theory 
 of entity. It is in terms the petition of individuals. It sets out that 
 'they' owe debts which 'they' cannot pay and that 'they' desire the 
 benefits of the Bankrupt Act. The joint debts are styled 'the debts of 
 said partners,' not the debts of the firm, and the joint assets 'the prop- 
 erty, real and personal, of the said partners.' It is true that the last 
 paragraph of the petition contains a prayer that 'the firm may be ad- 
 judged by a decree of the court to be bankrupts,' but the use of the 
 plural shows that the word 'firm' is there a collective noun, as further 
 appears from the fact that the prayer is obviously intended to cover 
 a separate as well as a joint adjudication. 
 
 "But the rule that there can be no bankruptcy of a partnership 
 without bankruptcy of all the partners (save exceptional cases such 
 as In re Dunnlgan [D. C] 2 Am. B. R. 628, 95 Fed. 428, and the like) 
 is based, not so much upon a nice examination of the words of the 
 particular statute, as upon general principles of law. The equal and 
 equitable distribution of the estates of insolvents and their discharge 
 from the obligation of their debts are the ends sought by proceedings 
 in bankruptcy. Bankruptcy without insolvency, actual or presumed, 
 is almost inconceivable. Bankruptcy without discharge for the honest 
 debtor is a contradiction in terms. It is impossible to declare a part- 
 nership insolvent so long as the partners are able to pay its debts and 
 theirs, whether out of joint or separate estate, and so the courts have 
 generally held that a partnership is not insolvent unless by the in- 
 solvency of all its partners. See Vaccaro v. Bank of Meinpliis, 4 Am. 
 B. R. 474, 103 Fed. 436, 43 C. C. A. 279; In re Blair (D. C), 3 Am. B. 
 R. 568, 99 Fed. 76; Davis v. Stevens (D. C), 4 Am. Br. R. 763, 104 
 Fed. 235. Not the insolvency of any imaginary entity, as in the case 
 of a corporation, but the insolvency of its human component parts, lies 
 at the foundation of the bankruptcy of a partnership. Those who bring 
 an involuntary joint petition must certainly prove this, and by the 
 principles of sound pleading and the analog^' of Form No 2 they must 
 allege it. As the bankruptcy of a partnership begins with an inquiry 
 into the condition of its individual partners, the end of the proceedings 
 is normally their discharge. So far as I know, the discharge of a part- 
 nership as an entity has never been suggested, and what would be the
 
 706 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 effect of such a discharge can hardly be imagined. Herein appears the 
 difference between a partnership and a corporation. Under an adjudi- 
 cation merely joint, it is impossible to discharge the partners as indi- 
 viduals, even from their joint debts, for every joint debt of the part- 
 nership is also a separate debt of each partner, and separate debts can 
 be discharged only after an individual adjudication operating upon the 
 separate estate. For these reasons, this court of bankruptcy has con- 
 sistently refused to make the adjudication of a partnership, unless all 
 the partners be adjudged bankrupts at the same time. The confusion 
 which inevitably results from any other rule is abundantly illustrated 
 by the reports. Whether an adjudication of all the i^artners upon 
 separate petitions carries an administration of the partnership estate 
 need not be decided here. This may be implied from section sh, but 
 the implication is not s' ong. See In re Mercur, ii Am. B. R. 505, 122 
 Fed. 384, 58 C. C. A. 472." 
 
 As to whether an adjudication of all the partners upon separate 
 petitions carries with it an administration of the partnership estate see 
 the opinion of Sulzberger, J., Iron Company v. Mercur, 30 Pa. C. C. 
 406, 1904. (A and B, partners, made a voluntary assignment for benefit 
 of creditors. Subsequently each separately were adjudicated bankrupt 
 and received their discharges. Held, in a subsequent suit against the 
 partnership, that these discharges could not be set up as a defence.)
 
 IN RE WILCOX 70/ 
 
 In re WILCOX. 
 
 In the United States District Court for the Dis- 
 trict OF Massachusetts, 1899. 
 
 94 Federal Reporter, 84. 
 
 In Bankruptcy. On review of ruling of referee. 
 
 The certificate of the referee (Henry J. Field, referee 
 in bankruptcy for Franklin County, Mass.) was as follows: 
 "The bankrupt, three or four years ago, was a member 
 of a partnership at Lincoln, Nebraska. The other member 
 of the firm left, with all the funds; and she set herself about 
 to pay up the partnership debts, in which she succeeded so 
 far as to pay all of them except the one in question, amount- 
 ing to $1,000, besides accrued interest, which was presented 
 for proof against her individual estate in bankruptcy, and 
 allowed. Upon the question whether such creditor of a 
 former partnership should share pro rata with the individual 
 creditors, I ruled that as no evidence appeared showing that 
 there are any assets of said partnership, and there was some 
 evidence that there are none, under the law such creditor 
 is entitled to share with the individual creditors ; that is, pro 
 rata." 
 
 The case was submitted to the judge without argument. 
 
 Lowell, District Judge : Thus far the history of the 
 development in this country of the rule of distribution has 
 been considered apart from the bankrupt acts.^ The explicit 
 provisions of these acts and their construction by the courts 
 remain to be dealt with. The bankrupt act of 1800 (2 Stat. 
 19), contained no reference to the distribution of the assets 
 of a partnership and its component partners, and, except 
 
 ' The editors omit, on account of its great length, the first part of 
 the opinion of Judge Lowell with regret. It is an invaluable monograph 
 on the history both in England and America of the rule of the distribu- 
 tion in bankruptcy and equity of partnership and individual assets. The 
 editors have received great assistance from it in the work of arranging 
 the preceding cases and notes in this chapter.
 
 708 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 Tucker V. Oxley, no decision made under that act has been 
 found which bears upon the question. xA.ct 1841, Section 14 
 (5 Stat. 448), reads in part as follows : 
 
 "The assignees shall also keep separate accounts of the 
 joint stock or property of the company, and of the separate 
 estate of each member thereof; and after deducting out of 
 the whole amount received by such assignees the whole of 
 the expenses and disbursements paid by them, the net pro- 
 ceeds of the joint stock shall be appropriated to pay the 
 creditors of the company, and the net proceeds of the sepa- 
 rate estate of each partner shall be appropriated to pay his 
 separate creditors; and if there shall be any balance of the 
 separate estate of any partner, after the payment of his sepa- 
 rate debts, such balance shall be added to the joint stock, for 
 the payment of the joint creditors ; and, if there shall be any 
 balance of the joint stock, after payment of the joint debts, 
 such balance shall be divided and appropriated to and among 
 the separate estates of the several partners, according to 
 their respective rights and interests therein, and as it would 
 have been if the partnership had been dissolved without any 
 bankruptcy; and the sum so appropriated to the separate 
 estate of each partner shall be applied to the payment of his 
 separate debts." 
 
 This provision, it will be seen, recognizes the general 
 rule of distribution, and says nothing about any exception 
 thereto. In re Marwick (1845), - Ware, 229, Fed. Cas. 
 No. 9, 181, there was no joint fund except $40, paid by a 
 separate creditor for a worthless asset in order to create a 
 nominal joint estate, and so to prevent the joint creditors 
 from coming upon the separate estate. Judge Ware said: 
 *Tt has hitherto been found impracticable to establish any 
 general rule that will meet the equities of all the various 
 cases that come up in practice; and the courts have been 
 finally compelled, instead of subjecting the whole to a rigor- 
 ous analysis, and extracting a system of rules which will 
 carry out the principles of natural justice, to cut down the 
 difficulties by establishing a general rule, which at first
 
 IN RE WILCOX 709 
 
 seems conformable to general equity, and then to limit and 
 qualify it by a number of arbitrary exceptions, in order to 
 meet the particular equities of particular cases. This system 
 is admitted to be not entirely satis factory. It has sometimes 
 been departed from, and again restored, and is now adhered 
 to, not because it is in all respects conformable to the prin- 
 ciples either of positive law or of natural equity, but partly 
 as a rule of convenience, as it has been sometimes called, and 
 partly because no system has been hitherto presented as a sub- 
 stitute which is not found to be encountered by equal diffi- 
 culties." 2 Ware, 233, Fed. Cas. No. 9, 181. 
 
 After saying that the general rule is based upon the 
 theory of credit given to the different estates, the learned 
 judge continued : "The general rule therefore has its foun- 
 dation in natural equity, and it is established b}^ the law. 
 The law itself makes no exception. Now, admitting the case 
 of there being no joint estate to be a casus omissus, not con- 
 templated, and therefore not within the purview of the law, 
 it certainly covers all cases where there is a joint fund, with- 
 out inquiring into its origin. And it is a rule in the construc- 
 tion of statutes that, when the statute covers the whole case 
 in all its circumstances, and makes no exceptions, none can 
 be made by the court." 2 Ware, 235, Fed. Cas. No. 9,181. 
 
 It will be perceived that the learned judge approved the 
 general rule, disapproved the exception on principle, doubt- 
 fully recognized it upon authority, and avoided its effect by 
 permitting its flagrant evasion. 
 
 Act 1867, section 36 (Rev. St. Section 5121), is, in all 
 essentials, the same as section 14 of the act of 1841. hi re 
 Downing (1870) Fed. Cas. No. 4,044, Judges Dillon and 
 Krekel held that the provision for distribution made by the 
 act of 1867 "^li*^! "ot apply where the commission was sepa- 
 rate. The decision was rested largely upon section 27 of the 
 act of 1867 (Rev. St. section 5091), which provides that 
 "all creditors whose debts are duly proved and allowed shall 
 be entitled to share in the bankrupt's property and estate pro 
 rata, without any priority or preference whatever" (with
 
 710 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 certain immaterial exceptions). In re Knight (1871) 2 
 Biss. 518, Fed. Cas. No. 7,880, Judge Drummond seems to 
 have followed In re Downing, though it is a little hard to 
 say whether he meant to declare that, under a separate com- 
 mission, joint creditors could come ratably with the separate 
 creditors upon the separate estate, even where there was 
 joint estate (as would be the case if Rev. St. section 5 121, 
 and the general rule had no application to a seperate com- 
 mission), or meant to let them come upon the separate estate 
 only where there was no joint estate. See In re Goedde, 6 
 N. B. R. 295, Fed. Cas. No. 5,500. 
 
 In re Pease, 13 N. B. R. 168, Fed. Cas. No. 10,881, 
 Judge Nelson, of Minnesota, held that Rev. St. section 5 121, 
 was wholly inapplicable in the case of a separate commission, 
 saying: "We thus have a firm dissolved, no assets, and all 
 the partners insolvent and in bankruptcy, without any volun- 
 tary or inz'ituni proceedings being instituted to declare them 
 bankrupt as a firm. Under such circumstances, in my opin- 
 ion, the individual creditors of Pease have no prior rights to 
 the creditors of the old firm of which he was a member. 
 Their claims have been duly proved, and they are entitled to 
 share pro rota with the other creditors. The equity rule in 
 regard to the rights of firm and individual creditors does not 
 apply, for the reason that no proceedings have been insti- 
 tuted against the partnership under section 5 121 of the Re- 
 vised Statutes." 
 
 In re Lloyd (1884), 22 Fed. 88, Judge Atchison ap- 
 parently agreed with In re Knight, though the decision went 
 upon another question. See, also, U. S. v. Lewis, 13 N. B. 
 R. 33, Fed. Cas. No. 15,595. These decisions are a return 
 — apparently quite unconscious — to the bankruptcy practice 
 of Lord Thurlow, and to his distinction between joint and 
 separate commissions, but apparently without that remedial 
 intervention of equity which, under Lord Thurlow, made 
 the exception in bankruptcy practically inoperative. 
 
 In r^ Jewett (1868), Fed. Cas. No. 7,304, Judge Drum- 
 mond confirmed the decision of the register, which held that
 
 IN RE WILCOX 711 
 
 the exception in the absence of joint assets was apphcable 
 under the statute. In re Slocum, Fed. Cas. Nos. 12,950, 
 I2,g^i, Judge Wheeler, and, upon appeal. Judge Blatchford, 
 held that the exception in the absence of joint estate was 
 applicable under the statute of 1867; and this even where 
 there were joint assets insufficient to pay the expense of 
 realizing them. No reasons were given. In re Litchfield. 5 
 Fed. 47, Judge Choate followed In re Slocum, and he ex- 
 pressly differed from In re Knight in holding that section 
 5 12 1 applied to separate, as well as to joint, commissions. 
 In re Blumer, 12 Fed. 489, Judge Butler held that, where 
 there were joint assets collected which might have been di- 
 vided, though they were afterward spent in the vain attempt 
 to realize other assets, the exception did not apply. Judge 
 McKennan concurred in the opinion. In re Byrne (1868), 
 I N. B. R. 464, Fed. Cas. No. 2,270, Judge McCandless 
 affirmed the decision of a register which held that the excep- 
 tion in the absence of joint estate was not applicable under 
 the act of 1867. In re Johnson, 2 Low. 129, Fed. Cas. No. 
 7,369, Judge Lowell intimated in his opinion that the excep- 
 tion was not applicable, but that point was not involved in 
 the decision. See In re McLean, 15 N. B. R. 333, 337, Fed. 
 Cas. No. 8,879. 
 
 The act of 1898 differs materially from the acts of 
 1841 and 1867. * * * Following In re Knight, it 
 may be urged that the provisions of section 5, cl. f, 
 apply only where a joint commission has been taken 
 out, and that they are, therefore, inapplicable to the 
 case at bar. But, if this be the true construction, then, 
 under any separate commission, whether there be joint 
 estate or not, the joint creditor will be allowed to take 
 dividends from the separate estate ratably with the separate 
 creditors. If this be the law, joint creditors will commonlv 
 take out separate commissions, as was pointed out by Lord 
 Loughborough in Ex parte Elton. Lord Thurlow's rule, 
 viz. that of paying all creditors ratably under a separate com- 
 mission, did not prove so satisfactory even when it was tem-
 
 712 AIARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 pered by the equitable remedies which he administered, that 
 it should be readopted without those remedies. I hold, there- 
 fore, that section 5, cl. f, of the bankrupt act applies the rule 
 of distribution to separate as well as to joint commissions, 
 either directly or by analogy. See In re Litchfield, 5 Fed. 
 
 47- 
 
 Considering the plain language of the bankrupt act, 
 which recognizes no exceptions to the general rule, the his- 
 tory of the exception in the absence of joint estate, the dis- 
 credit and misconception which that exception has brought 
 upon the general rule both in England and this country, the 
 fantastic subexceptions imposed upon the exception, and the 
 language used by the Supreme Court in MnrriJl v. Ncill, I 
 think that I am justified in holding that the exception is in- 
 applicable under the present bankrupt act. If the language 
 and decisions of some wise and learned judges are thereby 
 disregarded, yet it has been shown that most, if not all, of 
 those judges acted under a misapprehension of the history 
 of the law. It is further to be noticed that section 5, cl. g. 
 has, by permitting the joint estate to prove against the sepa- 
 rate estate and vice versa, resolved a doubt which arose un- 
 der the English law, and has enabled a Court in banruptcy 
 to secure generally the equitable distribution of the property 
 of the several estates. Section 5, cl. h, provides expressly 
 for the settlement of the partnership affairs where one part- 
 ner has been adjudged a bankrupt under a separate commis- 
 sion by directing the remaining partners to settle the part- 
 nership business ; that is to say, to pay the joint debts. This 
 provision removes, at least in part, the difficulty pointed out 
 by Lord Eldon in the application of the general rule to a 
 separate commission. The decision of the referee is re- 
 versed, and the petitioning creditor is not to receive a divi- 
 dend until the separate debts have been paid in full.- 
 
 ^ Judge Lowell's construction of the Bankrupt Act has been con- 
 curred in by the Circuit Court of Appeals of the Second Circuit. In re 
 Janes. 133 Fed. 912, 1904, and by the Circuit Court of Appeals of the 
 Fourth Circuit, Euclid Nat. Bk. v. Union Trust and Deposit Co., 149 
 Fed. 975. 1906, but see the action of the Circuit Court of Appeals for 
 
 J
 
 IN RE WILCOX 713 
 
 the Third Circuit, in Conradcr v. Cohen, 121 Fed. 801, 1903, where 
 Judge Acheson, speaking for the Court, said : "That where there are 
 no partnership assets and no solvent partner, the firm creditors share 
 in the separate estate of the bankrupt partner pari passu with the indi- 
 vidual creditors, was the recognized rule under the Bankrupt Act of 
 1807 (14 Stat. 517); In re Downing, 7 Fed. Cas. No. 4,044; In re 
 Knight, 14 Fed. Cas. No. 7,880; In re Pease, 13 N. B. R. 168, Fed. Cas. 
 No. lO.'SSi. Here we cannot do better than quote what was saM by 
 Circuit Judge Dillon in Re Downing, supra: 
 
 " 'Section 36 of the Bankruptcy Act only comes into operation when 
 there are firm assets, and the proceedings are instituted against the 
 firm and each of its members, in which case the assets are to be mar- 
 shaled according to the equity rule ; firm creditors to have priority as 
 respects the joint assets, and individual creditors as respects the sep- 
 arate assets of their debtor. This construction of the Bankruptcy Act 
 has the merit of producing that equality which it is the leadin-^ and mani- 
 fest purpose of the act to secure, and, in effect, reaches the result which 
 the English chancellors have felt bound by equitable principles to adopt, 
 viz., that where there is no joint estate and no solvent partner, all the 
 creditors, joint and separate, shall share pari passu in the estate of the 
 bankrupt partner.' 
 
 "We discover no material difference between the provisions of the 
 Bankruptcy Act of 1867 and those of the act of 1898 touching the 
 question under consideration. In this regard, section 36, of the former 
 act (14 Stat. 534) and subdivisions 'd,' 'f, and 'g' of section 5 of the 
 latter act (30 Stat. 547, 548 [U. S. Comp. St. 1901, p. 3424]), are in 
 substantial agreement." The opinion does not refer to the case of 
 in re Wilcox. 
 
 Collier, in his work on Bankruptcy (edition of 1909), p. 132, says: 
 "It is to be hoped that it [Judge Lowell's opinion] has sounded the 
 knell of all exceptions to the broad rule that joint creditors share in 
 joint assets and individual creditors in individual assets."
 
 714 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 Ex Parte PLUMMER. 
 
 In the High Court of Chancery, Before Lord Cotten- 
 
 HAM, 1841. 
 
 I Phillips Reports, 56. 
 
 This was an appeal, in the form of a special case, from 
 the Court of Review. 
 
 The material facts, as stated in the case, were, that pre- 
 viously to the issuing of the commission, the bankrupts car- 
 ried on business in partnership as West India merchants, in 
 the course of which the firm became indebted to George 
 Joad, in the sum of 2000/. for monies lent, and in the further 
 sum of 5998/ 13^. ^d for the freight of ships of which Joad 
 was the owner. Being desirous of obtaining further ad- 
 vances, they assigned to Joad certain West India securities 
 belonging to the firm, and entered into joint and several 
 covenants for the payment of the 2000/. and any further 
 sum or sums which Joad might afterwards advance to them ; 
 and about the same time they gave him a similar security 
 for the payment of the 5998/. it^s. /\d., and any further sums 
 in which the firm might afterwards become indebted to him 
 for freight, not exceeding 10,000/. The amount due from 
 the firm of Joad, at the time of the bankruptcy, on the first- 
 mentioned security was 10,014/. ys. ^d., and on the other 
 security 10,742/. 4.?. '^d., in respect of which two debts he 
 tendered a proof to the commissioners, for the gross sum of 
 20,014/. ys. ^d., against each of the separate estates of the 
 bankrupts. The commissioners, however, disallowed the 
 proof, and the judges of the Court of Review having, on 
 two occasions, on which the case was subsequently brought 
 before them, been divided in opinion, it was eventually 
 arranged that an order should be made, allowing the proof, 
 without prejudice to the securities, in order that the question
 
 EX PARTE PLUMMER 715 
 
 might be submitted, in the form of a special case, to the Lord 
 Chancellor.^ 
 
 The Lord Chancellor : This was a special case stated, 
 under the act of parliament, by the Court of Review, for the 
 opinion of this Court. [His Lordship then stated the facts, 
 and proceeded as follows.] Upon these facts the question 
 submitted to this Court is, whether George Joad, being a 
 separate as well as joint creditor of the bankrupts, is entitled 
 to prove his whole debt against their separate estates; or 
 whether he is entitled to prove only for the balance which 
 shall remain due to him after realising the security which 
 he holds upon their joint estate. 
 
 Now what are the principles applicable to cases of this 
 kind? If a creditor of a bankrupt holds a security on part 
 of the bankrupt's estate, he is not entitled to prove his debt 
 under the commission, without giving up or realising his se- 
 curity. For the principle of the bankrupt laws is, that all 
 creditors are to be put on an aqual footing, and therefore, if 
 a creditor chooses to prove under the commission, he must 
 sell or surrender whatever property he holds belonging to 
 the bankrupt; but, if he has a security on the estate of a 
 third person, that principle does not apply : he is in that case 
 entitled to prove for the whole amount of his debt, and also 
 to realise the security, provided he does not altogether re- 
 ceive more than 20^. in the pound. 
 
 That is the ground on which the principle is established ; 
 it is unnecessary to cite authorities for it, as it is too clearly 
 settled to be disputed ; but I may mention Ex parte Bennett 
 [2 Atk. 527.] Ex parte Parr [i Rose, 76.] and Ex parte 
 Goodman [3 Mad. 373.], in which it has been laid down. 
 
 The next point is this : In administration under bank- 
 ruptcy, the joint estate and separate estate are considered 
 as distinct estates : and accordingly it has been held, that a 
 joint creditor, having a security upon the separate estate, 
 is entitled to prove against the joint estate without giving up 
 his security ; on the ground that it is a different estate. That 
 
 ^ The Reporter's notes of the arguments of counsel are omitted.
 
 716 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 was the principle upon which Ex parte Peacock proceeded, 
 and that case was decided first by Sir J. Leach and after- 
 wards by Lord Eldon, and has since been foUowed in Ex 
 parte Bowden. [i Dea. & Ch. 135.] Now this case is merely 
 the converse of that, and the same principle applies to it. 
 On these grounds I am of opinion that the creditor is 
 entitled to prove his whole debt, without giving up his 
 security, that security being no part of the estate under 
 administration; and therefore, that the order of the Court 
 below was right ; but as the point is one upon which the 
 Judges of that Court have been divided in opinion, on two 
 occasions on which it has been brought before them, I think 
 it is not a case for costs on either side.^ 
 
 ' The Bankrupt Act of 1898 provides, that a secured creditor's claim 
 shall be allowed for the purpose of receiving a dividend "for such 
 sums only as to the court seems to be owing over and above the value 
 of their securities." (Section 57.) A secured creditor shall include a 
 creditor who has security for his debt upon the property of the bankrupt 
 of a nature to be assignable under this act, or who owns such a debt 
 for which some indorser, surety, or other persons secondarily liable for 
 the bankrupt has such security upon the bankrupt's assets." (Section 
 I (23).)
 
 IN THE MATTER OF FARXUM 717 
 
 In The Matter of FARNUM. 
 
 In the District Court of the United States^ for'the 
 District of Massachusetts, 1843. 
 
 6 Boston Law Reporter, 21.' 
 
 Sprague, J. : Peter Farnum was a partner in five different 
 firms. One of them consisted of Peter Farnum, Luther 
 Wright, and Claudius B. Long, under the style of the Black- 
 stone Woollen Company. All the members of that firm 
 have, upon their own applications, been declared bankrupt. 
 The Blackstone Bank hold a bill of exchange, drawn by the 
 Blackstone Woollen Company and indorsed by Peter Far- 
 num, and the question is, whether they can prove their debt 
 both against the joint estate of the firm, and the separate 
 estate of Farnum, or must be put to their election. There 
 are many other creditors holding similar securities, and pre- 
 senting the same question. 
 
 The English rule, it is admitted on all hands, excludes 
 such double proof ; and although it is not binding as authority 
 here, yet, in a question concerning the rights and remedies 
 on commercial paper, the rule adopted by able and 
 enlightened judicial tribunals, in a country so highly commer- 
 cial, would be adopted as a safe guide unless good reasons 
 be presented for departing from it. The history of this rule 
 is not a little singular. It commences with Ex Parte Row- 
 landson, (3 Peere Williams, 405), before Lord Talbot, in 
 1735, and ends with E.v Parte Moult, before Lord Brough- 
 am, in 1832, (Montague and Bligh's Rep. 28). The first 
 case and those also of Ex Parte Parminter, in 1 736, Abing- 
 ton et a!s. in 1737, and Ex Parte Bond and Hill, in 1743, 
 (i Atkins, 98), and Ex Parte Banks, (I Atkins, 106), were 
 all cases of joint and several bonds. In the first case, Lord 
 
 *The Reporter's statement of the facts of the case is omitted.
 
 718 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 Talbot "at first inclined to think that the petitioner being 
 a joint and separate creditor ought to be at liberty to come 
 single satisfaction, but the next day his lordship held that at 
 law when A. and B. are bound jointly and severally to J. 
 S., if J. S. sues A. and B. severally, he cannot sue them 
 jointly, and on the contrary if he sues them jointly he cannot 
 sue them severally, but the one action may be pleaded in 
 abatement of the other, so by the same reason the petitioner 
 in the present case ought to be put to his election under which 
 of the two commissions he would come." And on page 408 
 he expressly distinguishes it from a former case determined 
 by Lord King in 1732, in which a creditor was allowed to 
 prove against a firm, and also against one of the members 
 on his separate bond for the same debt, and again relies on 
 the rule at law which precludes a party from proceeding 
 jointly and severally on the same bond at the same time. 
 
 In Ex Parte Moult, George Geddes was a member 
 of two firms, one of which was the drawer and the other 
 the acceptors of a bill of exchange; and the creditor claimed 
 to prove against both estates. It was decided, that, although 
 double remedies would exist at law, they shall not be allowed 
 in bankruptcy; and this is in accordance with many preced- 
 ing cases, all of which are there referred to and examined. 
 Ex Parte Moult was much discussed, and a strong effort 
 was made to overthrow the rule. It first came before the 
 Court of Review (Montague's Cases in Bankruptcy, 321), 
 and the four judges of that court were equally divided, two 
 of them being opposed to the rule, as founded neither in 
 law nor justice; and the Lord Chancellor finally decided 
 solely on the ground that the rule, although arbitrary, hav- 
 ing been acted upon for a length of time, had become the 
 law of the court, whatever may have been its origin. Here 
 we see, that the decision in Ex Parte Rowlandson, founded 
 avowedly on the course of proceedings at law, which pre- 
 vents a creditor maintaining a joint and several suit at the 
 same time on the same bond, has led to the establishment 
 of an arbitrary rule, confessedly in violation of law when
 
 IN THE MATTER OF FARNUM 719 
 
 applied to double mercantile securities. It is not necessary 
 to examine all the cases, and see by what steps this result 
 has been reached — they will be found collected in Ex Parte 
 Moult. 
 
 I have not been able to discover any sound principle 
 upon which this result rests. Indeed, it has been generally 
 admitted, even by those who have enforced the rule, that it 
 is as little consonant with justice as with the rules of law. 
 Lord Eldon, in Ex Parte Bevan (lo Ves. Jr. 107), says, 
 "The principle seems obvious; yet in bankruptcy, for some 
 reason not veiy intelligible, it has been said the creditor shall 
 not have the benefit of the caution he has used. I never 
 could see why a creditor, having both a joint and several 
 security, should not go against both estates." Mr. Eden, in 
 his treatise on Bankruptcy, ch. 11, sec. 4, says, "This doc- 
 trine, by refusing a creditor the benefit of the caution he has 
 used in obtaining a joint and several security, has been justly 
 reprobated, and is founded upon no sound principle or 
 analogy whatever." And this is repeated in the same lan- 
 guage in the last edition of his work, published in 1832, un- 
 der his title of Lord Henley, p. 181. Eminent counsel, who 
 have been called upon to sustain the rule, have shrunk from 
 defending it on principle. Mr. Wigram, in Ex Parte Moult, 
 (Montague's Cases, p. 333), commences his argument by 
 saying, "The rule is established by decision, and as the court 
 has always treated it as a rule founded on convenience, and 
 not upon principle, it must be considered as an arbitrary rule 
 which this court is bound implicitly to follow." The Chief 
 Judge in delivering his opinion against the double proof in 
 the Court of Review, in Ex Parte Moult (Montague's Cases, 
 ,p. 334), says, "it is not denied that the case urged by the re- 
 spondents (for both proofs), is most in accordance with 
 legal doctrines and rights; but it was said that the rule es- 
 tablished by practice in bankruptcy is too firmly settled to be 
 now shaken." And he does not attempt to defend the rule 
 on principle. Sir A. Pell, in giving his opinion in the same 
 case, p. 337, says: "Does the rule correspond with the law?
 
 720 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 It is admitted it does not. Is it consonant with jus- 
 tice? It is almost admitted it is not. We are therefore 
 called upon to give our assent to an arbitrary doctrine, not 
 founded on law or justice." Again, p. 340, "I cannot, as a 
 common lawyer, understand the principle of this arbitrary 
 rule." Sir Edward Sugden, in his argument before the Lord 
 Chancellor, in Ex Parte Moult (Montague and Bligh, p. 
 35 )", attempts to give the reason of the rule. He says, "Orig- 
 inally the rule might have seemed strange, because at law 
 both estates, upon a joint and several security, might have 
 been taken on execution. Why not so (it might have been ar- 
 gued) in bankruptcy? The reason is, that the fund of the 
 debtor is no longer open to the diligence of the creditor. All 
 litigation ceases, and the assets are to be distributed equitably 
 among the creditors. The joint fund to those who have 
 looked to it for security or satisfaction, and the separate to 
 the creditors who have trusted the individual partner." The 
 fund is no longer open to the diligence of the creditor. Be 
 it so. But this creditor, while the race of diligence continued 
 acquired rights to come on the joint estate by one contract, 
 and on the separate estate by another, both of them valid, 
 and why should either of these vested rights be taken away 
 because the fund is not now open to future diligence? Fur- 
 ther, it is said, "The joint fund is to be distributed to those 
 who have looked to it for security, and the separate to the 
 creditors who have trusted the individual partner." 
 
 This reason has also been strenuously urged at the bar 
 in the present case, and it is insisted that the exclusion of the 
 bank from both funds is a necessary corollary from the rule 
 which appropriates the joint funds primarily to joint debts, 
 and the separate funds to separate debts. But the answer is 
 obvious. This creditor looked to the joint fund for security 
 and satisfaction, and he also trusted the individual partner. 
 W^ithout two distinct contracts, giving him a right to come 
 upon both funds he would never have parted with his prop- 
 erty. If the joint fund is to pay joint debts, here is a joint 
 debt. Can you exclude A? It is admitted that you cannot.
 
 IN THE MATTER OF FARNUM 721 
 
 You must allow the creditor to come against the joint estate, 
 if he so elects. Neither can you exclude him from the sepa- 
 rate estate, if he elect against that. The joint creditors can- 
 not say, you shall not participate with us, because you have 
 a separate security; nor the separate creditors exclude him 
 because he has a joint security. Then certainly neither class 
 is wronged by his participating with them, and how are 
 they injured by his participating also with the others? The 
 reason is unsatisfactory, and if Sir Edward Sugden could 
 not defend it on principle, we may well conclude that it is 
 indefensible. 
 
 I think it apparent that Sir Edward Sugden was not 
 himself entirely satisfied with the reasons for the rule, for 
 he subsequently, page 36, says, "It is argued that all learned 
 judges, and Sir S. Romilly disapproved of the rule which 
 compels a creditor, having a joint and several security, to 
 elect upon which of them he will prove, and to abandon the 
 other. If, notwithstanding that strong expression of dis- 
 approbation, the rule exists, the expression of disapproba- 
 tion confirms the rule. It is like the canon of descents, 
 which excludes the half blood: the rule is disapproved, but 
 it must prevail till altered by legislation. The rule, it is 
 true, deprives a creditor of part of his common law right, if 
 bankruptcy happen." It is urged by the learned counsel for 
 the assignee, in the present case, that our bankrupt law was 
 made with reference to the English rule, and renders it ob- 
 ligatory. Our statute departs so widely from the English 
 that its constitutionality has been questioned on that ground. 
 It established a system in most respects entirely new, and 
 there is nothing in the statute to indicate that it was intended 
 to render English decisions obligatory in its adminstraton. 
 In England the rule excluding proof against the joint and 
 separate estates has been long established. Existing con- 
 tracts have been made under its operation, and with refer- 
 ence to it. In this country it is otherwise. Existing con- 
 tracts have been made under, and with reference to, the rule 
 of law which gives to a party holding two valid obligations
 
 722 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 the benefit of both. This right, founded both in law and 
 justice, I do not think myself bound or authorized to set 
 aside on account of an arbitrary rule, justly reprobated by 
 the most eminent judges and jurists in England, and never 
 recognised in this country. 
 
 Where a dividend has been paid on one estate the 
 amount thereof would be deducted, and a dividend only, 
 on the balance allowed from the other. But here dividends 
 on both estates are simultaneous, and the creditor is entitled 
 to prove against both for the whole.^ 
 
 ^ Compare: Fayette Nat. Bk. v. Kenney, 79 Kty. 133, 1880. (A and B 
 were partners. They gave notes to a certain bank, signing the same 
 in the firm name and adding their own individvial names. The firm and 
 the partners became insolvent. A assigned to C for the benefit of cred- 
 itors, and the firm also assigned to C for the same purpose. The bank 
 presented its claim and received a dividend out of the firm assets. C 
 filed a petition for the settlement of the trust, and the bank presented 
 its claim for a dividend pro rata with the separate creditors of A. 
 Pryor, J. : "There was certainly no lien created on the individual 
 estate of Kenney by his signature to the notes, upon which distribution 
 is sought, nor is it questioned that the parties had the right by contract to 
 create liens that the chancellor could not impair or disregard, or strengthen 
 their claims by having the name of a stranger to the firm as surety; 
 but it is maintained that although Kenney is individually liable, because 
 he is a member of the firm ; still there is a legal right, or an equity, 
 arising in favor of the partnership creditors in this case that would not 
 have existed in the absence of Kenney's individual signature. It is 
 conceded that a several and joint liability exists by reason of the firm 
 signature, and that Kenney's individual estate could be subjected to the 
 payment of the several debts, as well as his interest in the partnership; 
 but having evinced a purpose to make himself individually liable, and 
 appellants having accepted the notes with Kenney's individual signature 
 to them, that such a liability might be created, it is urged that he must 
 be regarded in this equitable distribution of assets as both a partner- 
 ship and an individual debtor. This, we think, he was without signing 
 his name to the paper, and that the appellants were both partnership 
 and individual creditors ; but when, at their own instance, they were 
 subrogated to the rights of the partners, and given an exclusive lien 
 on the assets of the firm for the payment of their debts, when asking 
 equity they will be required to do equity") 
 
 J
 
 IN RE McCOY 723 
 
 In Re McCOY. 
 
 In the Circuit Court of Appeals of the United 
 States^ for the Seventh Circuit^ 1906. 
 
 150 Federal Reporter, 106. 
 
 Grosscup^ Circuit Judge, delivered the opinion. 
 
 The firm of A. McCoy & Co., was, at the time of the 
 adjudication of bankruptcy, a banking copartnership at 
 Rensselaer, Indiana — the partners being Alfred McCoy and 
 Thomas McCoy, likewise bankrupts ; both the firm and the 
 individuals having been adjudged bankrupts July nth, 1904. 
 
 The appellant was, at the time of the transaction in 
 question, a banker in New York City, doing business under 
 the name of A. T. Bowen & Co. August 20th, 1903, there 
 was borrowed from appellant, upon ninety days time, the 
 sum of five thousand dollars, and on November 6th, 1903, 
 the further sum of five thousand dollars, for which two 
 promissory notes were given, signed by the firm of A. Mc- 
 Coy & Co., and by the individual names, Alfred McCoy, 
 and Thomas McCoy; the proceeds of the transaction going 
 into the copartnership business. Upon the firm becoming 
 bankrupt, and the individual partners becoming bankrupt 
 also, these notes were presented and allowed as claims 
 against the firm, and payments thereon have been made to 
 the extent of thirty per cent. The claim presented against 
 the estate of Alfred McCoy, and disallowed, is predicated 
 on these notes to the extent that they remain unpaid. 
 
 In addition to the presumption arising on the face of 
 the notes, with the signatures thereto, the record shows 
 that at the time the money was borrowed and the notes exe- 
 cuted, appellant said to Alfred McCoy, who negotiated the 
 loan, that he (appellant) "thought some collateral ought to 
 be put up" ; whereupon McCoy said that the partners "indi- 
 vidually owned four thousand acres of land, and that they 
 would sign the notes individually."
 
 724 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 At common law, the notes under the circumstances are 
 not only the obligation of the firm, but also of the indi- 
 viduals ; and this is the law in Indiana. Winslow v. Wallace, 
 ii6 Ind. 317, 17 N. E. 923, I L. R. A. 179. 
 
 "There seems to be no dispute," says Mitchell, J., in 
 Winslow V. Wallace, supra, "as indeed there could not well 
 be, upon the proposition that a creditor who holds a note 
 of which a firm are the makers, and one or more members 
 thereof endorsers, has in his hands a valid joint obligation 
 against the firm, and at the same time a distinct, several 
 and separate obligation against those who have signed as 
 endorsers. This result flows from the fact that the contract 
 of an endorser is entirely independent of and distinct from 
 that of the maker, each contract being in itself, when the 
 endorsement is in regular course, conclusive in its legal im- 
 port. The creditor holding a note so made and endorsed, 
 may, therefore, pursue his remedy against the partners as 
 makers, and he may also proceed against those individually 
 liable as endorsers. When the property of the firm, or the 
 individual estates of the members bound as endorsers, are 
 being judicially administered, the creditor is entitled to par- 
 ticipate with the partnership creditors in the joint estate, 
 and he may at the same time avail himself of any appro- 
 priate remedy he would otherwise have against the endors- 
 ers or their respective estates. He may receive dividends 
 from the joint estate as a partnership creditor, and from the 
 separate estate of the partners liable on their contract of 
 endorsement as an individual creditor." 
 
 In re Thomas ct al., 8 Biss. 139, Fed. Cas. No. 13,886, 
 the case of a note signed by the partners individually for a 
 loan, the proceeds of which went to the copartnership — it is 
 said : "There is a class of cases in which it has been held that 
 where a creditor holds notes signed by a firm, and signed or 
 indorsed also by an individual member of the firm, he may 
 prove against both estates, and receive dividends from both. 
 In re Farnum, Fed. Cas. No. 4,674 ; Mead v. National Bank 
 of FayetteviUe, Fed. Cas. No. 9,366; Emery v. Canal Na- 
 
 I
 
 IN RE McCOY 725 
 
 tional Bank, Fed. Cas. No. 4,446. These cases establish a 
 rule opposed to the old rule on the subject in England, and 
 the principle thus settled seems to reach out to the question 
 involved in the case at bar. The scope of these decisions is, 
 that when an individual member of a firm, as such, becomes 
 surety upon or indorses an obligation of the firm, he thereby 
 gives what is in the nature of security upon his separate es- 
 tate to the firm creditor; and, by reason of the individual 
 liability superadded to the joint obligation, he places the firm 
 creditor in a position where he can go against the individual 
 as well as the joint estate. Thus it results, that without 
 the indorsement or individual signature of one of the firm, 
 the firm creditor would have no right to claim against the 
 individual assets until individual creditors had been first 
 satisfied. But holding the individual indorsement or signa- 
 ture, the firm creditor may, in the first instance, prove 
 against the separate as well as the joint estate. Now, such 
 separate liability would seem to be, at least, in the nature 
 of security though differing radically, it is true, in character 
 and form from that of a mortgage, and yet double proof, 
 by the firm creditor in such case, may be made without any 
 abatement of advantage which his diligence has secured." 
 
 Indeed these principles are not seriously controverted 
 — the learned district judge predicating his opinion upon a 
 supposed modification of this rule introduced by the bank- 
 ruptcy act. That modification, if there be any, is contained 
 in section 5, subd. "f," Act July i, 1898. 
 
 This provision was not intended, as we look at it, to 
 modify in any respect, the pre-existing lav\^. The section is, 
 indeed, only a re-enactment of pre-existing law. The claim 
 disallowed, was not a claim for the payment of a partnership 
 debt out of the individual estate. Had it been the 
 disallowance would have been proper; for both under the 
 section of the statute, and under the pre-existing law, any 
 surplus remaining after the payment of individual debts 
 would have been added to the partnership assets, and thereby 
 have become available to the payment of appellant's debt. The
 
 ne MARSHALLING ASSETS LN PARTNERSHIP CASES 
 
 claim disallowed, was a claim for McCoy's individual debt 
 — as much so as if McCoy had individually, on a separate 
 piece of paper, obligated himself for this debt. And because 
 it is his individual debt it is provable under the section 
 cited, as well as under the general law, against his individual 
 estate. True, the proceeds of the loan having gone 
 into the partnership estate, it may be that individual cred- 
 itors could insist, that in the marshaling of assets, the part- 
 nership estate should be exhausted before payment is made 
 by the individual estate. That, however, is a question we do 
 not decide, for the appellant only seeks to prove his claim 
 against the individual estate, to the extent that it is unpaid 
 by the partnership estate. 
 
 The opinion of the District Court rests chiefly upon the 
 case of Gaiiss v. Schrader (C. C.) 48 Fed. 816, in which 
 two men, indebted as partners on two promissory notes past 
 due, entered into a written contract in consideration of an 
 extension of time, to convey to the creditor certain property, 
 not a part of the partnership assets, as additional security. 
 Upon the creditor seeking to prove his claim, arising out 
 of this executory promise, against the individual estate of 
 one of the partners, the court well said that the character 
 of the principal indebtedness was not thereby changed — 
 that the partnership debt was not thereby made an individual 
 debt. 
 
 In England the old rule was, that in administering 
 the bankrupt laws of that country, double proof against the 
 partnership estate and the individual estate of the partners 
 was not allowed. But this rule has not been followed in 
 this country {Emery v. Canal National Bank, Fed. Cas. No. 
 4,446; Blimp's Bankruptcy [5th Ed.] p. 198; In re Bradley, 
 Fed. Cas. No. 1,772; In re Farnum, Fed. Cas. No. 4,6'/4; 
 Mead v. National Bank of La Fayette, 6 Blatchf. 180, Fed. 
 Cas. No. 9,366; In re Bigelow, 3 Ben. 146, Fed. Cas. No. 
 1,397) 5 ^"d there is nothing in the bankruptcy act showing 
 that this English rule was intended to be embodied in our
 
 IN RE McCOY ' 727 
 
 act. Indeed, it is doubtful if the old rule is now in force in 
 England. 
 
 The order appealed from must be reversed, with in- 
 structions to the court below to allow the claim as a debt 
 against the individual estate of Alfred McCoy, to be paid 
 therefrom ratably with the other creditors of that estate, 
 to the extent that such debt is not paid in the administration 
 of the estate of the firm of McCoy & Co.^ 
 
 ^ Judge Anderson in the Court below said : "The petitioner contends 
 that by reason of his diligence in securing the individual names of the 
 partners to the notes, under the circumstances testified to by him, he 
 has the right to pursue the partnership estate and the individual estates 
 at the same time ; the only limitation being the full satisfaction of his 
 debt. Suppose it be conceded that petitioner's testimony as to his ex- 
 tending credit upon the faith of the individual property and the circum- 
 stances of the execution of the notes was properly admitted, and that 
 it be given full effect, then the case stands as though there had been 
 written into the notes an express stipulation that 'in the event of the 
 bankruptcy of the firm and the members composing it, the payee shall 
 have the right to file this note against the partnership estate and the 
 individual estate of the partners, and share in each until this note is 
 fully paid.' In effect this is what the petitioner claims. 
 
 "The bankrupt law impairs the obligation of the debtor's contracts 
 and discharges him from all of them. The Bankrupt Court steps in and 
 takes possession of the property of failing debtors, notifies creditors 
 to establish their debts, apportions the debtor's property among his 
 creditors, and gives the debtor his discharge. In case of a partnership 
 the act specifically provides how the partnership and individual property 
 shall be distributed. * * * 
 
 "If petitioner is right in his contention here, he, being one creditor 
 only, can make an agreement with his debtor that in the event of bank- 
 ruptcy another rule of distribution shall be effective. It may be con- 
 ceded that a failing debtor may make a contract with all of his creditors 
 to distribute the debtor's estate in a different way from that provided 
 in the bankrupt law, but how can it be contended that one creditor 
 may make such a contract with the debtor to the prejudice of other 
 creditors, when such other creditors are not parties to the contract and 
 know nothing about it? 
 
 "Petitioner claims that his notes are New York contracts, and that 
 he contracted with reference to that law, etc. All the creditors of the 
 firm and of the individuals composing the firm must be held to have 
 contracted with a view to the bankrupt law and of its provisions relating 
 to the distribution of the debtor's property in the event of bankruptcy, 
 and surely it cannot be held that one creditor, even bv the exercise of 
 'superior diligence,' can make a contract with the debtor, the effect of 
 which is to change the rule of distribution in the event of insolvency 
 and give him an advantage over other creditors of the class to which 
 he claims to belong. Yet this is just what the petitioner asks. His 
 debt is a partnership debt. He has so declared, and he has filed it 
 against the partnership estate and has already received 30 per cent, of 
 it from that estate. One thing is clear — he is a partnership creditor, 
 and, as such, under the plain letter of the law, he cannot resort to the 
 individual estate until individual creditors are first paid, so reads the 
 law, but he says the debtor agreed that he should be an individual
 
 728 MARSHALLING ASSETS IN PARTNERSHIP CASES 
 
 creditor also, and as such should have the right to resort, notwith- 
 standing it will prejudice the legal rights of the individual creditors, 
 and notwithstanding they knew nothing of and never assented to such 
 an agreement, to share equally with individual creditors for the pay- 
 ment of this debt. To state such a proposition is to answer it. 
 
 "As between themselves the debtor and petitioner can by contract 
 agree that a debt which is a partnership debt shall be treated as an 
 individual debt, but surely such agreement cannot affect the rights of 
 other individual creditors under the bankrupt law."
 
 CHAPTER XIII 
 
 FRAUD ON CREDITORS. 
 SECTION I.— ON PARTNERSHIP CREDITORS 
 
 Ex Parte RUFFIN. 
 
 In the High Court of Chancery, Before Lord Eldon, 
 
 1801. 
 
 6 Vesey Junior's Reports, 119. 
 
 In June, 1797, Thomas Cooper of Epsom, brewer, took 
 James Cooper into partnership. That partnership was dis- 
 soh'ed by articles, dated the 3d of November, 1798; under 
 which the buildings, premises, stock in trade, debts, and 
 effects, were assigned to James Cooper by Thomas Cooper ; 
 who retired from the trade. Upon the 2d of April, 1800. 
 a commission of bankruptcy issued against James Cooper; 
 under which the joint creditors attempted to prov^ their 
 debts; but the Commissioners refused to permit them; upon 
 which a petition was presented to Lord Rosslyn ; who 
 made an order, that the joint creditors should be at 
 liberty to prove; with the usual directions for keeping dis- 
 tinct accounts, and an application of the joint estate to the 
 joint debts, and of the separate estate to the separate debts. 
 At a meeting for the purpose of declaring a dividend the 
 Commissioners postponed the dividend, in order to give an 
 opportunity of applying to the Lord Chancellor; in conse- 
 quence of which this petition was presented; praying that 
 the partnership effects remaining in specie, and possessed by 
 the assignees, may be sold; and that the outstanding debts 
 may be accounted joint estate. 
 
 By the articles of dissolution the parties covenanted to 
 abide by a valuation to be made of the partnership property; 
 and James Cooper covenanted to pay the partnership debts 
 
 (729)
 
 730 FRAUD ON CREDITORS 
 
 then due, and to indemnify Thomas Cooper against them; 
 and Thomas Cooper covenanted not to carry on the trade of 
 a brewer for twenty years within twenty miles of Epsom. A 
 bond for £3,000, the calculated value of the partnership 
 property assigned, was given to Thomas Cooper by 
 James Cooper and his father, as surety. In pursu- 
 ance of the covenant the partnership property, consist- 
 ing of leases, the premises, where the trade had been car- 
 ried on, stock, implements, outstanding debts, and other 
 efYects, were valued by arbitrators at £2,030 after charging 
 all the partnership debts then due. James Cooper by his 
 affidavit stated that all the joint creditors knew of the dis- 
 solution and the assignment of the property; that adver- 
 tisements were published; and the deponent after the 
 dissolution received many debts due to the partnership; but 
 paid more on account of the partnership. His father by 
 affidavit stated, that he paid the interest of the bond regu- 
 larly; and intended to pay the principal, when due. 
 
 Mr. Romilly and Mr. Cullen for the joint creditors, 
 and Mr. Bell for Thomas Cooper. — If one partner can by 
 assigning all his interest in the effects prevent the joint cred- 
 itors from going against those effects, fraud must be the 
 consequence. The partners may agree to divide the effects, 
 and carry on business separately. By this agreement be- 
 tween the partners the whole fund of the joint creditors is 
 taken away. Upon the principles, upon which the effects, 
 joint at the date of the bankruptcy, are applied to the 
 joint debts, effects, joint at the dissolution of the partner- 
 ship, and remaining the same in specie at the time the com- 
 mission issues, should be considered joint property. The 
 ground is that credit has been given upon the faith of the 
 joint property; and it is a fraud upon the persons giving 
 that credit to apply that fund to the separate creditors, 
 trusting only to the individual and to the separate effects; 
 and that ground applies equally to this case. Until the part- 
 nership accounts are taken, there is no separate property but 
 in the surplus after paying the partnership debts {^Taylor v.
 
 EX PARTE RUFFIN 731 
 
 Fields, ante, vol. iv. 396; post, xv. 559, n.] : the cred- 
 itors standing in the place of the bankrupt. The joint cred- 
 itors, therefore, have a mediate, if not a direct, lien upon 
 the whole of the partnership effects. At law, the partner- 
 ship creditors have more advantage than under a com- 
 mission; taking the partnership effects exclusively, and the 
 separate effects with the separate creditors. What dif- 
 ference arises from the circumstance, that the partnership 
 did not exist at the time of the bankruptcy? That is not 
 sufficient to take the case out of the common rule. In West 
 V. Skip [i Ves. 239, 456] it is laid down that upon a 
 dissolution by agreement or by time the partner out 
 of possession is not divested of his property in and 
 lien upon the partnership effects. The same right re- 
 mains to an account of the partnership effects; in 
 which the first item always is the payment of the partner- 
 ship debts. The position, that partners can as between them- 
 selves by any act or agreement alter the partnership stock, 
 so as to affect the rights of third persons, cannot be main- 
 tained. Wliy have they not an equal right in the same 
 manner to discharge their persons by such act or agree- 
 ment; especially, if with the knowledge of the joint cred- 
 itors; but Heath v. Percival [i P. Will. 682.] shows that 
 circumstance will not bind them; the transaction being res 
 inter alias acta. That an actual assignment and divesting 
 partnership property out of one partner will not defeat the 
 right against the partnership effects, is proved by Ex parte 
 Biirnahy [i Cooke's Bank. Law, 253, 4th edit.; 8th edit, by 
 Mr. Roots, 269]. No evidence is produced to show that 
 the separate creditors thought this was separate property; 
 and gave credit accordingly : it must therefore be taken, that 
 the}^ knew, it was not. The assignment is made upon con- 
 dition and subject to the payment of the partnership debts. 
 A considerable part of the property consisted of debts ; which 
 are not assignable.^ 
 
 ^ The Reporter's notes of the argument of counsel for the assignees 
 are omitted.
 
 732 FRAUD ON CREDITORS 
 
 Lord Chancellor: This case is admitted, unless Ex 
 parte Burnaby applies to it, to be new in its circum- 
 stances. Therefore, if I was of opinion, that the peti- 
 tion could be supported, I should be very luiwilling to 
 express that in bankruptcy; where my opinion would not 
 be subject to review. If the case I have mentioned has 
 decided the point, there is the authority of Lord Hard- 
 wicke upon it ; which would weigh down the most considera- 
 ble doubt, that I could be disposed to entertain. I feel great 
 difficulty in complying with the prayer of the petition; and, 
 when I read it, was struck with it, as a new case ; and as one 
 upon which I do not clearly see my way to the relief prayed. 
 It is the case of two partners ; who owed several joint debts ; 
 and had joint effects. Under these circumstances their cred- 
 itors, who had a demand upon them in respect of those 
 debts, had clearly no lien whatsoever upon the partnership 
 effects. They had power of suing, and by process creating 
 a demand, that would directly attach upon the partnership 
 effects. But they had no lien upon or interest in them 
 in point of law or equity. If any creditor had brought an 
 action, the action would be joint : his execution might be 
 either joint or several. He might have taken in execution 
 both joint and separate effects. It is also true, that the sep- 
 arate creditors of each by bringing actions might acquire 
 a certain interest even in the partnership effects; taking 
 them in execution in the way, in which separate creditors 
 can affect such property. But there was no lien in either. 
 
 The partnership might dissolve in various ways : first 
 by death ; secondly, by the act of the parties ; that act 
 extending to nothing more than mere dissolution; without 
 any special agreement as to the disposition of the property, 
 the satisfaction of the debts, much less any agreement for 
 an assignment from either of the partners to the others. 
 The partnership might also be dissolved by the bankruptcy 
 of one or of both, and by effluxion of time. If it dissolved 
 by death, referring to the law of merchants and the well- 
 known doctrine of this Court, the death being the act of
 
 EX PARTE RUFFIN 733 
 
 God, the legal title in some respects, in all the equitable title, 
 would remain notwithstanding the survivorship; and the 
 executor would have a right to insist that the property should 
 be applied to the partnership debts. I do not know, that the 
 partnership creditors would have that right, supposing bpth 
 remained solvent. So, upon the bankruptcy of one of them 
 there would be an equity to say, the assignees stand in the 
 place of the bankrupt; and can take no more than he could; 
 and consequently nothing, until the partnership debts are 
 paid. So, upon a mere dissolution, without a special agree- 
 ment, or a dissolution by effluxion of time : to wind up the 
 accounts the debts must be paid ; and the surplus be distrib- 
 uted in proportion to the different interests. In all these 
 ways the equity is not that of the joint creditors, but that of 
 the partners with regard to each other, that operates to the 
 payment of the partnership debts. The joint creditors must 
 of necessity be paid in order to the administration of jus- 
 tice to the partners themselves. When the bankruptcy of 
 both takes place, it puts an end to the partnership certainly : 
 but still it is very possible, and it often happens in fact, that 
 the partners may have different interests in the surplus ; and 
 out of that a necessity arises, that the partnership debts must 
 be paid : otherwise the surplus cannot be distributed accord- 
 ing to equity, and no distinction has been made with ref- 
 erence to their interests, whether in different proportions, or 
 equally. Many cases have occurred upon the distribution 
 between the separate and joint estates; and the principle in 
 all of them, from the great case of Mr. Fordyce, has been, 
 that if the Court should say, that what has ever been joint 
 or separate property shall always remain so, the conse- 
 quence would be that no partnership could ever arrange 
 their affairs. Therefore a bona fide transmutation of the 
 property is understood to be the act of men acting fairly, 
 winding up the concern; and binds the creditors; and 
 therefore the Court always let the arrangement be, as they 
 stand, not at the time of the commission, but of the act of 
 1 bankruptcy.
 
 734 FRAUD ON CREDITORS 
 
 Thomas Cooper is admitted to be solvent. He cer- 
 tainly has no such equity, as if the partnership had been 
 dissolved by bankruptcy, death, effluxion of time, or any 
 other circumstance, not his own act. But he dissolves the 
 partnership a year and a half go, and, instead of calling 
 upon these effects according to his equity at the dissolution 
 to pay the partnership debts, he assigns his interest to the 
 other, to deal as he thinks lit with the property, to act with 
 the world respecting it ; desiring only a bond to pay a given 
 value in three or four years. Therefore he or his execu- 
 tors could not sue. If it was necessary for the creditors to 
 operate their relief through his equity, he has no equity. 
 It is then said, and the circumstance had struck me, that 
 all the property is not assignable at law : for instance the 
 debts : but as between the two Coopers they were the prop- 
 erty of the bankrupt; for debts are within the statute of 
 King James [Stat. 21 Jam. I. c. 19, s. 10, 11] ; and if left 
 in the order and disposal of the bankrupt, he is proprietor 
 of the debt. Therefore Thomas Cooper could never set up the 
 insufficiency of the legal operation of the assignment against 
 his own deed. The assignment was not made subject to 
 the payment of the debts, but in consideration of a cove- 
 nant, leaving no duty upon the property, but attaching a 
 personal obligation upon the assignee to pay the debts. 
 The creditors therefore cannot rest upon the equity of the 
 partner going out. I was struck with the argument of in- 
 convenience : the inconvenience on all sides is great. To 
 say this seems to me a monstrous proposition : that, which at 
 any time during the partnership has been part of the part- 
 nership effects, shall in all future time remain part of the 
 partnership effects; notwithstanding a bona fide act. Sup- 
 pose, an improbable case, that the partners in Child's house 
 chose to shift their shop from Temple Bar to the west end 
 of the town; and that house, now the property of the part- 
 nership, was bona fide bought by one of the partners; and 
 the money was invested in the purchase of the new house, 
 in which they were going to reside : suppose a still more 
 
 I 
 
 11
 
 EX PARTE RUFFIN 735 
 
 improbable case, that a year and a half or ten years aft- 
 erwards they became bankrupt : would that house be 
 part of the partnership effects? It would be so, if it re- 
 mained without the legal interest being passed, or without 
 any equitable claim, taking it out of the reach of a legal 
 execution: but where the effect is a bona fide transaction 
 of this sort, if it were held at any time afterwards to be 
 partnership property, not for the purpose of satisfying de- 
 mands of the partners, or of any creditor, who cannot 
 otherwise be satisfied, but to enable them to undo all the 
 intermediate equities, commercial transactions could not 
 go on at all. It would be much less inconvenience to ex- 
 amine the boiia fides of each transaction than to say, such 
 transactions shall never take place. 
 
 The case of JVest v. Skip falls within some of the ob- 
 servations I have made. Heath v. Percival does not apply 
 at all. The bond in that case was not given up ; and there- 
 fore the creditor keeping the best security, and refusing to 
 part with it, no inference can be made against the conclu- 
 sion arising from that. Hankey v. Garratt is also very dif- 
 ferent. There the partnership was dissolved by bankruptcy 
 or by death : and there was no actual transfer of the property 
 to take it out of the reach of legal execution. I am un- 
 willing to make any observation upon Burnahy's Case. I do 
 not know how to understand it. Whether there was any- 
 thing special in the assignment, I cannot find out from the 
 report. I shall endeavor to find the papers. It looks very 
 like this case; if it is in specie this case, as an authority 
 I should think myself bound to submit to it. But if it is 
 not in specie this case, there is so much doubt, whether this 
 relief can be given, that I am satisfied, it ought to be given, 
 if at all, in a jurisdiction, where my opinion would be sub- 
 ject to review. My present inclination is that the creditors 
 have not this equity. I have considerable doubt also, wheth- 
 er, if they have it, Thomas Cooper would be benefited by 
 it; and a farther subject of grave and serious doubt is, 
 whether, if the joint creditors disturb the arrangement, the
 
 IZd FRAUD ON CREDITORS 
 
 separate creditors would not have a right to set the ar- 
 rangement right at his expense. 
 
 I now think, there is a circumstance that distinguishes 
 Bwrnabys Case. The assignment was not by one to the 
 other two, but by one to one of the other two; which may 
 be very different. I think, that circumstances distinguishes 
 the case so much that I shall consult the interest of the 
 parties better by saying, they may file a bill, if they think 
 proper, than by farther delay. 
 
 The Petition was dismissed.^ 
 
 '^ Compare: Ex parte Williams, ii Ves. 3, 1805 (Eldon, J.: "I have 
 frequently since I decided the case of Ex parte Ruffin, considered it; 
 and I approve that decision. In a subsequent case the dissolution took 
 place only a week before the question arose; and the true question, I 
 thought, was upon the bona fides of the transaction, whether that, 
 which had been joint estate, has become separate estate * * *. 
 Upon the facts of this case * * * there is distinct evidence of 
 an agreement [among the partners] that the joint etfects shall be con- 
 sidered separate effects, and that fact calls upon me to declare the 
 conclusion of law, that there are separate effects.") 
 
 Holderness v. Shackels, 8 B. & C. 612, 1828 (A, B, et al., were 
 partners. The partnership property consisted in part of oil. The oil 
 was placed in barrels, the portion to be allotted to each partner marked 
 with his name, and deposited in a warehouse. The warehouseman 
 received instructions to deliver to each partner on demand the barrels 
 marked in the partner's name, unless the managing partner, B, notified 
 him that the partner was indebted to the partnership for his share of 
 the disbursements. B notified the warehouseman that A was indebted 
 to the partnership. A became a bankrupt. C, A's assignee, brought 
 an action of trover against B. Judgment for defendant).
 
 HOWE V. LAWRENCE 737 
 
 HOWE v. LAWRENCE. 
 
 In the Supreme Judicial Court of Massachusetts, 
 
 1852. 
 
 63 Massachusetts Reports, 553. 
 This was a iD€tition to this Court, under the insolvent 
 law of 1838, c. 163, §18, seeking to reverse an order of dis- 
 tribution made by Myron Lawrence, Esq., a commissioner 
 of insolvency, in the county of Hampshire, on the estate of 
 William W. Gardner, an insolvent debtor. The case was 
 referred to a master, upon whose report the following facts 
 appeared : 
 
 On the first day of January, 1850, Henry D. Shaw 
 and William W. Gardner formed a copartnership in trade, 
 in Haydenville, in the county of Hampshire, under the 
 name of Shaw and Gardner. On the twenty-fourth day of 
 January, 185 1, the parties being mutually dissatisfied, said 
 firm was dissolved, and Shaw conveyed all his interest in the 
 partnership property to Gardner, he agreeing in considera- 
 tion therefor, to pay all their joint debts. The firm and 
 both partners were at that time insolvent, although there was 
 not sufficient evidence to warrant the belief that either part- 
 ner then knew it. Immediately after the dissolution, Gardner 
 informed the creditors of the firm that he should continue 
 the business, and had agreed to pay all the partnership 
 debts of Shaw and Gardner. He did continue the business 
 a few weeks, and in that time added to the stock, to an 
 amount of five or six hundred dollars. On the twenty-sev- 
 enth day of February, 1851, said Gardner filed a petition 
 before said Myron Lawrence, Esq., for the benefit of the 
 insolvent laws of this commonwealth, and his whole stock 
 in trade, a greater portion of which was the identical prop- 
 erty formerly owned by Shaw and Gardner, passed into the 
 hands of Gardner's assignees. It was sold by them for 
 $1,670.39. The claims against the former firm of Shaw
 
 738 FRAUD ON CREDITORS 
 
 and Gardner, proved against Gardner's estate, were $5,050; 
 and his private debts proved, amounted to $850. The said 
 Myron Lawrence, commissioner of insolvency, ordered that 
 the separate creditors of said Gardner should be paid in full 
 from his estate, and that the balance remaining should be 
 distributed to the joint creditors of the firm of Shaw and 
 Gardner. The prayer of the petition in this case was, that 
 all that portion of said Gardner's estate which had formerly 
 belonged to Shaw and Gardner, might be distributed to the 
 creditors of that firm, to the exclusion of the separate cred- 
 itors of Gardner, or that his entire estate might be distrib- 
 uted, pari passu, to the joint and separate creditors. The 
 petitioners were creditors of the firm of Shaw and Gardner, 
 and had proved their claim against Gardner's estate. The 
 respondent Lawrence, admitted the facts set forth in the 
 petition and submitted himself to the direction of the Court. 
 The other respondents were separate creditors of said Gard- 
 ner, who had proved their claims against his estate, and ob- 
 jected to the prayer of the petition. The said Henry D. 
 Shaw was also in insolvency in the county of Hampden, and 
 there was no property of the former firm of Shaw and 
 Gardner except what had been conveyed to said Gardner as 
 before stated.-^ 
 
 BiGELow, J. : Upon the facts reported by the master in 
 this case, two questions arise. 
 
 The first is, whether the property, which belonged to 
 the partnership of Shaw and Gardner, and which, upon the 
 dissolution of the partnership, on the twenty-fourth of Jan- 
 uary, 185 1, was sold and transferred by Shaw to Gardner, 
 is tO' be treated as the separate estate of Gardner, and 
 to be appropriated as such to the payment of his sepa- 
 rate debts; or whether, notwithstanding the sale and transfer 
 by one partner to the other, it is still to be regarded as joint 
 estate, and to be applied to the payment of the debts of the 
 partnership accordingly. 
 
 ^ The Reporter's notes of the argument for the petitions are 
 omitted.
 
 HOWE V. LAWRENCE 739 
 
 The right of copartners upon dissolution to transfer 
 the joint property to one of the firm, is clear and unquestion- 
 able. The effect of such transfer as between the partners is 
 to vest the legal title to the property in the individual partner, 
 with a right to use and dispose of it as his separate estate. 
 It would seem to follow as a necessary consequence, that 
 the creditors of the firm, after such conveyance, would have 
 no right to look to the property transferred as joint prop- 
 erty, upon which they had any special claim or lien. If in 
 such transfer there is no fraud and collusion between the 
 copartners for the purpose of defeating the rights of the 
 joint creditors, and the transaction is made in good faith, 
 upon dissolution, and for the purpose of closing the affairs of 
 the partnership, the joint property thereby becomes separate 
 estate with all the rights and incidents both in law and 
 equity, which properly attach thereto. The mere fact of the 
 transfer of the property does not in any way affect the 
 rights of the joint creditors. During the continuance of the 
 partnership, and before the institution of proceedings in in- 
 solvency, the creditors of the firm have no specific claim or 
 lien, and, strictly speaking, no equity as against the effects 
 of the partnership. They can only institute actions at law 
 for their debts against the firm on which they can take the 
 partnership property, or the separate estate of such partner, 
 or both, for the purpose of satisfying the executions, which 
 they may obtain upon their judgments against the firm. The 
 joint property, after its transfer to one of the copartners, 
 is equally within the reach of legal process by the creditors 
 of the firm as if it had remained the property of the part- 
 nership. Beyond this right to seize the joint property on 
 legal process, the creditors of the firm, before proceedings in 
 insolvency, have no control over the partnership effects, and 
 no right, either in law or equity, to restrain the disposition 
 of them. The partners have the power to transfer them for 
 a valuable consideration to each other or to strangers. The 
 only limitation upon this right is, that it shall be exercised 
 bona fide, and without any intent to defraud the creditors
 
 740 FRAUD ON CREDITORS 
 
 of the firm or to deprive them of their legal or equitable 
 claims upon the joint estate in case of insolvency. The bona 
 flcs of the transaction is, therefore, the only test by which 
 to determine the right of joint creditors to have property, 
 which has been transferred upon dissolution to an individual 
 member of the firm, applied to the payment of the joint 
 debts. If the transfer has been made honestly and for a 
 valuable consideration, the property has thereby become sep- 
 arate estate, wholly free from any claims of the joint cred- 
 itors. These principles are fully recognized in the adjudged 
 cases both in this country and in England. Collyer on Part. 
 §§174, 894, 903; Story on Part. §358; Ex parte Ruffin, 6 
 Ves. 127 ; Ex parte Fell, 10 Ves. 347 ; Ex parte Williams, 1 1 
 Ves. T,; Ex parte Rowlandson, i Rose, 416* Campbell v, 
 Mullett, 2 Swan. 575; Allen v. Center Valley Co. 21 Conn. 
 130, 137; Ferson v. Monroe, i Foster, 462, 469. 
 
 These cases also recognize it as a settled rule that joint 
 estate is not, so far as the rights of creditors are concerned, 
 that which was such at the time of the dissolution, but that 
 in which the partners are jointly interested for the purposes 
 of the partnership and the settlement of its concerns at the 
 time of the institution of proceedings in insolvency by a 
 member of the firm. 
 
 The application of these principles to the present case 
 is decisive against the right of the joint creditors to require 
 the property, transferred by Shaw to Gardner, to be appro- 
 priated primarily to the payment of the debts of the firm. 
 Prima facie it is the separate estate of Gardner, and the bur- 
 den is on the petitioning creditors to show that it was con- 
 veyed to him mala fide and in fraud of the rights of creditors. 
 There is nothing in the facts reported by the master from 
 which any such inference can be fairly made. The dissolu- 
 tion took place, because the parties were mutually dissatis- 
 fied, and the retiring partner relinquished his right to the 
 partnership property, in consideration of an agreement by his 
 copartner to assume and pay the debts of the firm. It is not 
 pretended that the business of the firm has resulted in any
 
 HOWE V. LAWRENCE 741 
 
 surplus, nor that the agreement to pay the debts was not a 
 fair and full consideration for the transfer of the retiring 
 partner's interest in the partnership property. The subse- 
 quent conduct of Gardner is strongly confirmatory of the 
 good faith of the transaction. He continued to carry on the 
 business, formerly conducted by the firm, and notified the 
 creditors by letter of the dissolution, and that the business 
 would be continued by himself. While he so carried on 
 business on his sole account, he made considerable additions 
 to the stock on his own credit, amounting to five or six hun- 
 dred dollars. Nor is there any positive evidence that either 
 of the copartners, at the time of the dissolution, knew or be- 
 lieved that the copartnership would not be able to pay its 
 debts in full, although in fact it subsequently turned out to 
 have been at the time insolvent. Even if it were insolvent 
 within the knowledge of the partners, at the time of the dis- 
 solution and the transfer of the property, it is by no means 
 certain that the transaction would then be fraudulent. Coll- 
 yer on Part. § 902 ; Ex parte Peakc, i Mad. 346. But it is 
 sufficient for the present case that there is no proof of any 
 such knowledge by either of the copartners. 
 
 It is not to be inferred, however, that any conveyance 
 or transfer of joint property to a copartner made with a 
 knowledge of the insolvency of the firm and with an intent 
 to deprive the creditors of its proper application to the 
 payment of the joint debts, would defeat the right of the 
 joint creditors in proceedings in insolvency to follow the 
 partnership effects and have them appropriated to the pay- 
 ment of the debts of the firm. Such conveyance would be in 
 fraud of the law, and equity would be at once set aside. It is 
 only where partners act fairly for the purpose of dissolution 
 and winding up the affairs of the firm, that creditors will 
 be bound by a change of the partnership property, to the 
 separate estate of one of the copartners. 
 
 It was urged by the counsel for the petitioners, that, as 
 copartners have a lien upon the partnership effects for the 
 discharge of all the debts of the firm, even after a dissolu-
 
 742 FRAUD ON CREDITORS 
 
 tion, this lien might be made available in the present case 
 for the benefit of the joint creditors; and that in this way 
 the equities of the creditors might be worked out through 
 the medium of that of the retiring copartners. It is un- 
 doubtedly true, in the absence of any special agreement be- 
 tween copartners, as to the application of the partnership 
 effects after dissolution, that a retiring partner retains a lien 
 upon them to the extent of enforcing their application to 
 the payment of the joint debts, and that creditors, though 
 they have no lien on the property in their own right, are 
 allowed in equity to assert a quasi lien by administering the 
 equities between the partners themselves. But it is equally 
 well settled that a retiring partner may relinquish this lien, 
 in which case he has no equity through which the creditors 
 of the firm can work out their own. By the transfer of the 
 joint property to his copartner, and taking his personal con- 
 tract and security for the payment of the joint debts, he 
 discharges his lien and substitutes therefor the agreement 
 of his copartner, to which he can alone look for his rem- 
 edy, in case he is called on to pay the debts of the firm. 
 There is no duty left on the property, but only a personal 
 obligation by one copartner to pay the joint debts. The 
 creditors in such case cannot rest upon the equity of the 
 outgoing partner. Collyer on Part. § 894; Story on Part. 
 § 359 ; Ex parte Ruffin, iibi sup.; Ex parte Williams^ tibi sup. 
 The transfer in the present case falls within this principle. 
 Shaw, the retiring partner, relinquished all his right to the 
 property of the firm, in consideration of a promise by Gard- 
 ner to pay all the debts of the firm. Shaw, therefore, has 
 no lien which can be enforced for the benefit of the joint 
 creditors, upon the partnership effects. The property was 
 transferred absolutely, discharged from any lien or trust, 
 which would have attached to it in the absence of any spe- 
 cial agreement between the partners respecting it. 
 
 The remaining question presented by the petitioners is. 
 as to the right of the joint creditors of the firm to prove 
 their debts against the separate estate of Gardner, and take
 
 HOWE V. LAWRENCE 743 
 
 dividends thereon pari passu with the separate creditors. This 
 claim is founded upon the recognized exception to the gen- 
 eral rule of applying joint estate to the payment of joint 
 debts, and separate estate to the payment of separate debts, 
 which has been established by the English courts in bank- 
 ruptcy. That exception is, when there is no joint estate 
 and no solvent partner, the joint creditors are allowed to 
 prove and share equally with the separate creditors in the 
 separate estate. It is a sufficient answer to this claim of the 
 petitioners, that the statute of 1838, c. 163, § 21, recognizes 
 no such exception to the rule therein prescribed for the dis- 
 tribution of the assets of insolvent debtors. The rule is 
 distinct and peremptory, requiring the net proceeds of the 
 joint stock to be appropriated to pay the creditors of the 
 firm, and the net proceeds of the separate estate of each 
 partner to be appropriated to the payment of the separate 
 creditors. This provision was reported by the learned com- 
 missioners who drafted the insolvent act, and enacted by 
 the legislature with a full knowledge of the exceptions 
 which had been engrafted on the general rule of distribu- 
 tion by the course of judicial decisions in England. They 
 designedly omitted them. We know of no rule of construc- 
 tion by which we can now undertake to add them to the 
 statute. The rule fixed by the statute may sometimes op- 
 erate harshly, as all general rules do, but it is definite, clear, 
 and easily applied. The exceptions to it are artificial and 
 refined, leading to nice and subtle distinctions, and some- 
 times operating with great inequality and injustice. In- 
 deed, it has been said by high authority, that the character 
 of these exceptions has rendered the foundation of the 
 general rule, as one of justice and equity, open to criticism 
 and question, and difficult to be sustained. Story on Part. 
 §§ 379, 382. Under such circumstances, we are unwilling 
 to adopt it into our jurisprudence. The rule fixed by the 
 statute must be adhered to. If there is no joint estate and 
 no surplus of the separate estate after paying the separate
 
 744 FRAUD ON CREDITORS 
 
 debts, the creditors of the partnership can receive no divi- 
 dend. 
 
 Such being the legal and equitable principles applicable 
 to the case made by the petitioners before the commis- 
 sioner of insolvency, it is clear that there is no ground for 
 maintaining the petition. 
 
 Petition dismissed. - 
 
 ' Comf>are: In re Collier, Fed. Cas. 3,002, 1874 (The members of the 
 firm of Colher, Taylor & Co. transferred to Taylor all their interest in 
 the firm property, Taylor undertaking to pay the firm debts. Taylor 
 had individual debts and individual property. More than four months 
 after the assignment, the members of the firm were adjudged bank- 
 rupt. The question arose as to the standing of the firm and separate 
 creditors of B in regard to the assets in his hands. The Register, W. 
 F. Bowder, said : "It is now an elementary principle that the promise 
 by one to another for the benefit of a third is binding and enforceable 
 by and in the name of the third party. No principle is more deeply 
 rooted in the American system of jurisprudence than this familiar rule. 
 This doctrine is tenable, it seems, even where the beneficiary was not 
 cognizant of the promise when made, and although the consideration 
 did not move from him. To apply this rule to the case in hearing is 
 perceptibly easy. Taylor, in consideration of certain transfers of 
 property to him, agreed with the two retiring partners, to pay all the 
 debts owing by the firm of Collier, Taylor & Co. By this promise he 
 is bound, and the joint creditors can enforce it against him or claim 
 the benefit of it, either before or after the bankruptcy of their debtor. 
 The general promise of Taylor to pay all outstanding firm liabilities is 
 as much a contract, and is to be treated with as much solemnity as 
 though he had, in writing, indorsed his guaranty on the back of every 
 existing obligation of the copartnership. In a case similar to this, In 
 re Dozvning [Case No. 4,045], Judge Dillon uses this language, in ref- 
 erence to the creditors of the firm, T look upon their rights in equity 
 as being the same as if Downing had endorsed the pre-existing firm 
 paper, in which case they could have proved their debts against either, 
 if not both the firm and Downing.' 
 
 "It follows from the foregoing that, in our judgment, all the assets 
 should be treated as the separate property of Taylor, and all the cred- 
 itors should share pari passu in the dividends arising therefrom." Bal- 
 lard, District J., concurred in the opinion of the Register).
 
 BAKER'S APPEAL 745 
 
 BAKER'S APPEAL. 
 In the Supreme Court of Pennsylvania, 1853. 
 
 21 Pennsylvania Reports, 76/ 
 
 Lewis, J. : These are appeals from the decree of the 
 Common Pleas of Chester County, distributing the estate 
 and efifects of James and John Yearsley, lately trading under 
 the firm of James Yearsley & Brother. 
 
 On the I St April, 1847, the five brothers, James, John, 
 Nathan, Thomas, and Benjamin entered into partnership 
 in the iron business. On the 27th July, 1848, Thomas and 
 Benjamin retired from the firm, disposing of their interest 
 in the partnership estate and effects to the other three broth- 
 ers, the latter agreeing to pay the debts of the firm, and to 
 exonerate and for ever defend the said Thomas and Benja- 
 min from all obligation to pay any part of the same. 
 
 On the ist April, 1849, Nathan Yearsley sold his inter- 
 est in the partnership property to John Yearsley. It is stated 
 that this sale was without the approbation of James Yearsley. 
 James and John however continued the business, and con- 
 tracted debts until the 12th December, 1850, when they 
 executed an assignment of the partnership property of the 
 said James Yearsley and John Yearsley, trading and doing 
 business under the firm name of James Yearsley & Brother. 
 This assignment was expressly to pay the creditors of the 
 partnership "composed of the said James Yearsley and John 
 Yearslc}'." 
 
 There are three classes of creditors claiming distribu- 
 tion of the fund in the hands of the assignee, i. The cred- 
 itors of the first firm, consisting of the five brothers. 2. 
 The creditors of tlie second firm, consisting of the three 
 brothers. And, lastly, the creditors of the third firm, con- 
 sisting of the two brothers who made the assignment ex- 
 pressly for the benefit of their own partnership creditors. 
 
 *The Reporter's statement of the facts of the case is omitted.
 
 746 FRAUD ON CREDITORS 
 
 The appellants, Davis and Baker, are creditors of the 
 first firm, and McGowan was originally a creditor of that 
 firm, but now claims to be a creditor of the second firm 
 by means of a note given by the latter upon the surrender 
 of his claims against the first partnership. McGowan also 
 claims to be a creditor of the second firm for a sum of 
 money loaned ; but as this claim has been allowed to partici- 
 pate in the distribution, without exemption, its right will 
 not be considered here, nor its position disturbed. 
 
 Where the interest of one partner in the partnership 
 property passes to another person, it is immaterial whether 
 that transfer be efifected by a sale by the partner himself 
 for a valuble consideration — by a sale of his interests on 
 execution — by his death and the succession of his executor or 
 administrator, or by assignment under the bankrupt or the 
 insolvent laws. "In all these cases the party coming in the 
 right of the partner, comes into- nothing more than an 
 interest in the partnership which cannot be tangible, cannot 
 be made available, or be delivered, but under an account 
 between the partnership and the partner; and it is an item 
 in the account, that enough must be left for the partnership 
 debts." Taylor v. Fields, 4 Vesey Jr. 396; and Deal et al v. 
 Bogue. See 8 Harris 228. 
 
 But it is well settled, that the right to confine such 
 partner, or those who claim title under him, to his interest in 
 the surplus, after payment of the partnership debts, is an 
 equity which rests in the other partners alone, and not in the 
 creditors of the firm. The latter have no lien on the prop- 
 erty, and must work out their preference in the distribution 
 of the partnership funds, entirely through the medium of 
 the partners whose interests remain undisposed of: Story's 
 Equity, §_ 1253. If they consent or submit to a different dis- 
 position of the assets, the preference of the creditors is at 
 an end, and they must rely upon the personal responsibility 
 of the partners who contracted the debts. Where one part- 
 ner sells his interest to another, in consideration of an en- 
 gagement by the latter to pay the partnership debts, the rule 
 
 gm
 
 BAKER'S APPEAL 747 
 
 is the same. The engagement to pay them is but a personal 
 contract. It creates no lien on the property. It follows as 
 a necessary consequence, that if the partner who has acquired 
 the interests of his former associates, and in whom resides 
 the right to appropriate the partnership assets to the pay- 
 ment of partnership liabilities, thinks proper to exercise his 
 dominion, and to make a different disposition of them, he 
 has a right to do so; and the preference of the partnership 
 creditors engrafted upon, and deriving its support from his 
 equity, ceases to exist. The scion dies with the stock. These 
 principles are announced in Story on Partnership, sections 
 358, 359; Gow on Partn. Ch. 5. ^. i ; and Collyer on Partn. 
 b. 4, ch. 2, s. I ; and appear to be fully sustained by Ex parte 
 Ruffin, 6 Vesey, Jr. 126; Taylor v. Fields, 4 Ves. Jr. 396; 
 Kelly's Appeal, 4 Harris, 59; n Ves. Jr. 3; 10 Ves. Jr. 
 347; Doner V. Stauffcr, i Penn. R. 198; Campbell v. Mullet, 
 2 Szvanst. 552, and other authorities. Lord Eldon, in Ex 
 parte Rnffin, seemed to think that if the right to dispose of 
 the assets did not exist in the partners, "no partnership 
 could ever arrange its affairs." And Chief Justice Gibson 
 has shown, in Doner v. Stauffer, that after a sale of the in- 
 terest of one partner, the equity and the interest of the re- 
 maining partner is the subject of sale on a separate execu- 
 tion against him, which passes the entire interest to the pur- 
 chaser. And that where the interest of each is sold on sep- 
 arate executions for their individual debts, the partnership 
 creditors can neither follow the property in the hands of 
 the sheriff's vendee, nor claim any portion of the proceeds 
 of sale. There can be no stronger illustration than this of 
 the principle that the partnership creditors have no equity 
 of their own upon which they can enforce a preference, or 
 control the partners in exercising dominion over their as- 
 sets, so long as they remain unencumbered by liens. 
 
 If the property from which the fund in Court arises had 
 been assigned for the benefit of the creditors of the second 
 firm, composed of the three brothers, a question might arise 
 whether, by their agreement to pay the debts of the first
 
 748 FRAUD ON CREDITORS 
 
 firm, they did not convert those debis into debts of the sec- 
 ond. But it is not necessary to discuss that Cjuestion, inas- 
 much as the assets have been assigned for the benefit of the 
 creditors of the last firm, composed of the two brothers. 
 As the whole right of property existed in those two brothers, 
 at the time of the assignment, their right to appropriate it 
 to the payment of the partnership debts of the firm to whom 
 it belonged is clear and unquestionable. The Act of 1843 
 does not stand in the way of such an assignment. That 
 Act was not intended to deprive partners of their legal and 
 equitable right to appropriate partnership assets to the pay- 
 ment, without preference, of all the debts of the firm to 
 whom the property belonged at the time of the assignment. 
 
 The right of property existing in James and John 
 Yearsley at the time of assignment, their right to appropriate 
 it to the payment of the debts of the firm of which they were 
 the only members being established, and the fact that they 
 have so appropriated it being also shown, the only remain- 
 ing question is, do the appellants belong to that class of 
 creditors? This is the pinch of the case. They were all 
 originally creditors of the first fi.rm. McGowan afterwards 
 became a creditor of the second. But neither of them is a 
 creditor of the third, unless he has become so without his 
 knowledge or consent, by the sale made by Nathan Yearsley 
 to his brother John, and by the act of John in bringing his 
 interest thus purchased, into the new partnership, composed 
 of himself and his brother James. It is not necessary to cite 
 authorities to prove that it takes at least two to make a bar- 
 gain. Nothing can be clearer than that these transactions 
 between the partners created no contract with their creditors. 
 No creditor could thereby be compelled to release his de- 
 mand against five for the more uncertain security of a claim 
 against two. These transfers neither discharged the original 
 partners, nor imposed upon the subsecjuent firm any new lia- 
 bilities to the creditors of the first. And they furnish no 
 foundation whatever for an action l)y the creditors of the 
 two first firms against the partnership last established. A
 
 BAKER'S APPEAL 749 
 
 creditor without a right of action is a legal impossibility. If 
 John, when he purchased the interest of Nathan, had agreed 
 with the latter to pay the debts of the old firm, this would 
 not have made them his creditors; and if it had, they would 
 not thereby have become the creditors of the new partnership 
 about to be established. But we have no evidence of the 
 terms of this sale, or of the consideration upon which John 
 brought his interest into the new partnership with James, 
 and afterwards united with him in applying the assets to 
 the debts of that firm. The effect of the sale by Nathan to 
 John was to dissolve the old firm, and to transfer Nathan's 
 interest in the assets to John, subject to the right of James to 
 insist on applying them in the first place to the payment of 
 the liabilities of the old firm. This right he might insist upon 
 or waive, at his pleasure. That he waived it is demonstrated 
 by his application of the assets to other purposes. To allow 
 creditors of the two first firms to claim any portion of this 
 fund would invert the well established principle that the 
 preference of partnership creditors is not founded upon any 
 equity of their own, but must always be worked out through 
 the agency of the partners ; it would destroy, without author- 
 ity of law, the necessary dominion which every man has over 
 his own property, and give the control to those who have 
 fairly transferred all their rights to others. To class these 
 claimants as creditors of the last firm, without their consent, 
 without the consent of the last firm, without any release of 
 their claims against their original debtors, and without any 
 contract or consideration whatever, would be to create a 
 liability where none existed either by the contracts of the 
 parties, or by the law of the land. To permit this would be 
 an illegal interference with the rights of the creditors of 
 the last firm, and a palpable violation of the terms of the 
 assignment. 
 
 The errors assigned have not been sustained, and the 
 decree of distribution is therefore to be aflirmed. 
 LowRiE^ J.^ dissented.
 
 750 FRAUD ON CREDITORS 
 
 BULLITT V. THE CHARTERED FUND OF THE 
 
 METHODIST EPISCOPAL CHURCH. 
 
 In the Supreme Court of Pennsylvania^ 1856. 
 
 26 Pennsylvania Reports, 108/ 
 
 Black^ J. : James J. Boswell was in partnership with 
 Munson H. Treadwell. The firm was dissolved in 1850. 
 Treadwell transferring to Boswell all his interest In the 
 partnership effects, and Boswell agreeing to pay all the debts. 
 In 1 85 1 Boswell formed a limited partnership with two 
 other persons, he being the general partner. On the 29th of 
 January, 1853, he assigned to the "Chartered Fund" certain 
 claims against debtors of the firm composed of himself and 
 Treadwell, which was then in the hands of the defendants 
 for collection. The object of this assignment was to pay the 
 "Chartered Fund" a debt due from himself to it. On the 
 same day he assigned to the defendants, for the benefit 
 of creditors, all the property of the limited partnership; 
 and, to one of the defendants, all the other property he had. 
 This suit is brought by the "Chartered Fund" to recover the 
 money collected by the defendants on the claims assigned by 
 Boswell to it. 
 
 The first objection made against the right of the plain- 
 tiff to recover is the form of the action. The defendants 
 insist that the suit should have been brought in the name of 
 Boswell & Co., for the use of the "Chartered Fund," and 
 not by the "Chartered Fund," as the legal plaintiff. The 
 action is right enough. It is not brought on the original in- 
 debtedness to Boswell & Co., but on the implied undertaking 
 of the defendants that they would pay the money which 
 they collected to the party it belonged to. That party was 
 the "Chartered Fund," if its assignment of the debts was 
 valid. 
 
 It is argued that, these claims being part of the assets 
 
 *The Reporter's statement of the facts of the case, and his notes 
 of the arguments of counsel are omitted. 
 
 JK' 1
 
 BULLITT V. METHODIST EPISCOPAL CHURCH 751 
 
 of Boswell & Co., Boswell had no power to assign them in 
 payment of a debt due from himself. It is a sufficient answer 
 to this, that the partnership between Boswell and Treadwell 
 had been dissolved long before the assignment. The outgo- 
 ing partner had a right to demand that Boswell should pay 
 the debts of the firm, for such was the contract; but a stiit 
 on the contract was his only means of enforcing that obli- 
 gation. The creditors of Boswell & Co. had a right to de- 
 mand that the assets of the firm, as well as the separate 
 property of the remaining partner, should go to the satis- 
 faction of their just claims, but they had no specific lien on 
 either which would enable them to follow it into the hands of 
 a bona fide purchaser. When one of two partners retires 
 from the business, relinquishing to the other all his interest 
 in the partnership property, the remaining partner has the 
 same dominion over it as if it had always been his own sep- 
 arate property. 
 
 But, at the time Boswell made this assignment to the 
 plaintiff to pay a private debt of his own, there existed a 
 limited partnership between him and two other persons, he 
 being the general partner, and carrying on the business. It is 
 admitted that this partnership was insolvent. By the 21st 
 sect, of the Limited Partnership Law, every assignment by 
 the general partner of his own property, if made when the 
 partnership is insolvent, is void as against the creditors of the 
 partnership. The defendants are assignees for the benefit of 
 the partnership creditors, and in the name of those creditors 
 they claim the right to set aside the previous assignment 
 to the plaintiff as void under the section just cited. But 
 does a voluntary assignment like this put the assignees in 
 the place, and arm them with the power of creditors? The 
 cases of Tzvelvcs v. IVUlimns (3 Wharton 485), and of Van- 
 dyke V. Christ (7 W. & Ser. 373), decide the question in the 
 negative. Voluntary assignees represent only the debtor 
 himself ; and as to him, his own assignment of the claims to 
 the plaintiff was valid and binding. 
 
 Judgment affirmed.
 
 752 FRAUD ON CREDITORS 
 
 FRANKLIN SUGAR CO. v. HENDERSON. 
 In the Court of Appeals of Maryland^ 1897. 
 
 86 Maryland Reports, 452.' 
 
 McSherry^ C. J. : These four cases come up from a 
 pro forma order quashing attachments sued out by the ap- 
 pellants against the appellees, Henderson, Pfeil and Com- 
 pany. In November, eighteen hundred and ninety-two, John 
 B. Henderson, George Henry Pfeil and Alexander J. Mc- 
 Donald formed a copartership which carried on business in 
 Baltimore City until October the fourth, eighteen hundred 
 and ninety-five. On that day the copartnership was dis- 
 solved. It was indebted at the time to sundry persons, 
 but whether it was insolvent or not is one of the contro- 
 verted issues of fact that will be considered later on. Hen- 
 derson sold his interest in the concern to his associates, and 
 assigned and made over to them all of his right and title, 
 as a member of the firm, in and to the property and assets 
 of every kind, real, personal and mixed, owned by the co- 
 partnership. Notice of dissolution was given and Pfeil and 
 McDonald at once formed a new firm under the old name. 
 Just ten days afterwards — that is, on the fourteenth day of 
 October, eighteen hundred and ninety-five — Pfeil and Mc- 
 Donald executed a deed of trust to Oscar Wolff, Esq. The 
 deed was made by "George H. Pfeil and Alexander J. Mc- 
 Donald, trading as Henderson, Pfeil and Company," and is 
 not signed by Henderson. It recites that "the parties of the 
 first part," that is Pfeil and McDonald, "are indebted to 
 divers persons and firms in various sums of money, and have 
 become and are unable to pay such indebtedness in full ;" and 
 that, "in order to have their assets and effects collected and 
 faithfully applied to the payment of their said debts" (that 
 is, the debts due by the grantors) the assignment was made. 
 
 The Reporter's notes of the arguments of counsel are omitted.
 
 FRANKLIN SUGAR CO. v. HENDERSON 753 
 
 After making provision for the payment of costs and com- 
 missions and such preferences as the law creates, the deed 
 proceeds to declare that the trustee shall apply the "proceeds 
 of the joint stock of the said copartnership" — that is, the co- 
 partnership of which Henderson was not a member — to pay 
 the creditors of the copartnership, that is, the copartnership 
 composed of Pfeil and McDonald, "and to appropriate the 
 net proceeds of the separate estate of each partner to pay his 
 separate creditors," and the surplus of each partner's separate 
 estate after the payment of his individual creditors, is di- 
 rected to be added to the social assets, and the surplus, if any, 
 of the partnership assets is directed to be divided between 
 the partners in the proportions of their respective interests, 
 and to be applied to the payment of their separate debts. It 
 is important to observe that the deed of assignment makes 
 no reference whatever to the old firm of which Henderson 
 had been a member, and contains no provision, in terms or by 
 implication, for the payment of the creditors of that firm out 
 of the assets owned by it on October the fourth, the day of 
 its dissolution. 
 
 On October the fifteenth — the day following the execu- 
 tion and recording of the deed of trust — the appellants, who 
 are creditors of the old firm of Henderson, Pfeil and Com- 
 pany, sued out of the Superior Court of Baltimore City, 
 attachments which they caused to be laid in the hands of 
 Mr. Wolff as garnishee. They allege, as one of the grounds 
 upon which the attachments are founded, that Henderson, 
 Pfeil and ]\IcDonald have assigned, disposed of or concealed 
 or are about to assign, dispose of or conceal their property or 
 some part thereof with intent to defraud their creditors. The 
 garnishee appeared, pleaded nulla bona and filed a motion 
 to quash, founded on the claim that the property and assets 
 attached were the property and assets of Mr. Wolff, the 
 trustee, and not of the defendants. The motion was heard 
 and the learned Judge at Large was of opinion that the mo- 
 tion to quash ought to be overruled ; but by an agreement 
 made between the parties a pro forma order was signed over-
 
 754 FRAUD ON CREDITORS 
 
 ruling the motion and finally quashing the attachments. 
 From this pro forma order the pending appeals were taken. 
 
 A reversal is claimed upon two grounds, and these are : 
 First, that the deed of trust to Mr. Wolff is fraudulent in 
 law as hindering and delaying the creditors of the old firm ; 
 and, secondly, that the deed is fraudulent in fact. 
 
 We may as well dispose of the second ground first, be- 
 cause but little need be said respecting it. The record has 
 been minutely read and carefully considered, and we all agree 
 that it furnishes not the slightest warrant for impeaching 
 the deed on account of actual fraud. The conduct of Mr. 
 Wolff throughout is free from the faintest shade of bad 
 faith. There is nothing to suggest even a suspicion that he 
 was not actuated by the very highest and most honorable 
 motives and intentions; and there is no evidence whatever 
 that can be tortured into an imputation of bad faith. We 
 are thoroughly convinced that the trustee acted in the ut- 
 most good faith ; and we accordingly dismiss this branch of 
 the case without further comment, and turn, at once, to the 
 consideration of the other. 
 
 Partnership creditors have no lien on partnership assets, 
 but the partners themselves have a right to insist upon the 
 appropriation of the joint property to the payment of joint 
 debts, upon the principle that as the joint debts were con- 
 tracted in making the purchases of the joint assets the latter 
 ought primarily to be charged with the burden of paying the 
 former. The right of the partners to have the joint debts 
 paid out of the joint assets in preference to the right of the 
 separate creditors to be paid out of the same assets, gives rise 
 to the derivative equity of the joint creditors to have pay- 
 ment of their claims out of the proceeds of the copartnership 
 property before any of those proceeds can be devoted, either 
 to the separate use or appropriated to the payment of the 
 separate debts of any of the members of the firm. The 
 derivative right is the right of the creditor — it belongs to 
 him — and the partners have, if insolvent, no power or au- 
 thority to destroy or impair it to his injury or prejudice.
 
 FRANKLIN SUGAR CO. v. HENDERSON 755 
 
 This is so in the very nature of things. Any act, therefore, 
 of the partners which is destructive of this right of the 
 creditor and which, as a result, hinders, delays and interferes 
 with his assertion of it and impedes his ability to realize, 
 through its enforcement, the payment of the debt due to him 
 by the firm, is, by operation of law, a fraud upon the credit- 
 or if the copartnership is itself insolvent. This principle has 
 been often applied. In a number of cases it has been held, 
 and it may certainly be regarded as the law of Maryland to- 
 day, that the conversion of the firm's assets into individual 
 assets by an assignment from one partner of all his interest 
 in the concern to another, works a conversion of the property 
 from joint to separate property, and when the firm is in- 
 solvent, operates to hinder, delay and defraud the firm's 
 creditors, if the transfer be permitted to stand. It is obvious 
 that this must be so. As the creditor's preference or priority 
 to be paid out of the joint property can only be worked out 
 through the partner's right to have that property applied in 
 the first instance, to the payment of the firm's creditors ; and 
 as the individual creditors have a prior right to require that 
 the separate estate shall be first applied to the satisfaction of 
 the individual debts, it necessarily follows that the conversion 
 of the joint property into separate property, if sustained, 
 would, when the firm and its members are insolvent, destroy 
 the right of the partnership creditors to a preference over 
 the creditors of the individual partner to whom the assets 
 had been transferred ; because when the assets cease to be 
 joint assets the right of the partner to have them applied to 
 the payment of partnership debts is gone, and when that right 
 is gone the derivative right of the firm's creditor is ex- 
 tinguished. This being the consequence of such a transfer of 
 the assets, the transfer itself, when the firm is insolvent, is 
 inhibited and is deemed ineffectual to convert the joint prop- 
 erty into separate property as against the firm's creditors. 
 Collier v. Hanna, yi Md. 261 ; Darby v. Gilligan, 33 W. Va. 
 249 ; 6". C. with notes, 6 L. R. A. 740. 
 
 Whilst this principle is not denied as being applicable to
 
 756 FRAUD ON CREDITORS 
 
 a case where a transfer has been attempted by one or more 
 partners to another singly, it is insisted that it has no rela- 
 tion to a case where the transfer has been made by a retiring 
 partner to two or more of his copartners who continue busi- 
 ness; and the reason assigned is that the joint assets are 
 not, by such a transfer, converted into separate assets but 
 remain the joint property of the copartners to whom they 
 are transferred. The difference in the facts does not pro- 
 duce a difference in the result, so far as respects the cred- 
 itors. By the express agreement of the three partners and 
 by the withdrawal of Henderson from the firm the copart- 
 nership of Henderson, Pfeil and Company was dissolved 
 at the close of business on the fourth day of October, 
 eighteen hundred and ninety-five. The new copartnership 
 was at once formed and under the transfer from Henderson 
 assumed to acquire all his rights and title to the old firm's 
 property. The transfer of the old firm's whole assets to the 
 new firm, if valid, as effectually precluded the old firm's 
 creditors from asserting their derivative right through the 
 equity of the old firm's members as though the assets had 
 been converted into the separate assets of one member ; 
 because, whilst in the latter instance the right would have 
 been lost by reason of the separate creditors being preferred, 
 in the other instance the old firm's creditors' right would 
 have been lost by being either subordinated to the claims of 
 the new firm's creditors, or, by being placed on an equal 
 footing with it. 17 Am. & Eng. Ency. Law, 978, 979 and 
 notes I, 2, 3; Huiskamp. v. Moline Wagon Co., 121 U. S. 
 310. 
 
 It is not solely because the transfer by one to another 
 partner converts the joint into separate property that such 
 a transfer is, when the firm is insolvent, prohibited as against 
 the joint creditors; but it is because by such a conversion, 
 if effective, the equity of the joint creditors to have a 
 priority through the lien of the partners would be destroyed. 
 The destruction of this lien and the consequent extinguish- 
 ment of the creditor's derivative equity, is the injurious act
 
 FRANKLIN SUGAR CO. v. HENDERSON 757 
 
 — it is the detrimental cud; the transfer itself is merely 
 the means by which that end is accomplished. The law 
 levels its inhibition at the means merely because the end 
 worked out by those means is injurious. The results are 
 the things with wdiich it is chiefly concerned. If the equity 
 of the joint creditor is destroyed by a transfer that does not 
 convert joint into separate property, the result to the credi- 
 tor is precisely the same as though the joint had been con- 
 verted into separate assets ; and it will not do to say that 
 the right of the creditor to relief depends on the manner in 
 which the means employed to defeat him may produce 
 their result, rather than on the ultimate fact that he has in 
 reality been defeated by those means. And so whilst a trans- 
 fer of all his interest by one to two other members of an 
 insolvent firm may not convert what was joint into separate 
 property; it nevertheless does, if effective at all, by divest- 
 ing that property out of the old and vesting it in the new 
 firm, as completely defeat the equity of the old firm's cred- 
 itors and subordinate that equity to the equity of the cred- 
 itors of the new firm; or, place the equity of the latter on 
 an equality with that of the former. 
 
 We have just said that the transfer by one to two other 
 members of an insolvent firm conveying the retiring part- 
 ner's interest in the joint property, /'/ effective at all as 
 against the creditors of the firm, is prejudicial to their 
 equity. But is such a transfer any more effective when 
 assailed than the transfer from one or more to another 
 member of such a firm would be? In Collier v. Hanna, 
 supra, we held that a transfer from one to another member 
 of an insolvent firm cannot be upheld against the firm's 
 creditors, and precisely the same conclusion must be reached 
 in the other instance. Thus in Peyser v. Myers, 135 N. Y. 
 599, there were two sets of creditors, there was a change 
 in the firm, and in discussing the respective rights of these 
 creditors the Court said : "The priority of the lien of firm 
 creditors is jiot divested by a transfer by an insolvent firm 
 of the firm assets to one or more of the partners, nor can
 
 758 FRAUD ON CREDITORS 
 
 it be effected, as we conceive, by any mere change in the 
 personnel of the firm, as by the withdrawal of one partner 
 from the firm or the introduction of a new member." See 
 also Phelps v. McNcaly, 66 Mo. 554; Thayer v. Humphrey, 
 91 Wis. 276; 30 L. R. A. 549. 
 
 It was said in the argument that no case could be found 
 w^here the doctrine announced in Collier v. Hanna had been 
 applied to the state of facts presented by this record — that 
 is, where a retiring partner had transferred his interest in 
 the social assets to two or more remaining members of the 
 firm. But it is not material whether a parallel case can be 
 cited or not — we are not dealing with precedents, but with 
 principles; and if the legal principle underlying the one state 
 of facts is applicable to and fits the other state of facts, the 
 mere circumstance that no adjudged case actually applying 
 such principle can be produced, furnishes no reason for re- 
 fusing to make the application when the occasion does arise. 
 But the case oi Peyser v. Myers, supra, distinctly recognizes 
 the doctrine as applicable to such a case as this. 
 
 This brings us to the deed of trust, and in the light of 
 what has been just stated we are to determine whether its 
 legal effect is to hinder and delay the creditors of the old 
 firm, and whether, therefore, it is in law fraudulent and 
 invalid as to those creditors. The whole discussion thus 
 far has proceeded upon the theory that the firm of Hender- 
 son, Pfeil and Company, was insolvent on October the 
 fourth, eighteen hundred and ninety-five ; and what we have 
 said must be understood in that view; and as the ultimate 
 decision of these cases hinges on the question of solvency, 
 we now proceed to consider that question before examining 
 the terms of the deed of trust. 
 
 Henderson retired from the old firm on Friday, October 
 the fourth. The new firm took charge at the close of busi- 
 ness on that day. They continued in business until Mon- 
 day the fourteenth, when the deed of trust was made. 
 Excluding the two intervening Sundays — the sixth and the 
 thirteenth — they conducted the business for just seven days.
 
 FRANKLIN SUGAR CO. v. HENDERSON 759 
 
 On Saturday the twelfth of October — the last of those seven 
 days — the new firm was, as a matter of fact, no worse off 
 financially that it had been on the preceding fourth of the 
 same month. This is distinctly stated in the evidence of 
 Pfeil and nowhere controverted. On the fourteenth, when 
 the deed of trust was executed, the firm's financial condi- 
 tion had not changed from what it was the prior Saturday. 
 As its condition on the fourteenth was no worse financially 
 than on the fourth, if it was insolvent on the fourteenth it 
 could not have been solvent on the fourth. That it was 
 insolvent on the fourteenth is abundantly evident from the 
 recitals in the deed itself and from the statement of its lia- 
 bilities and assets furnished by the trustee to the creditors. 
 Its liabilities on the fourteenth were over fifty-six thousand 
 dollars ; and its actual assets were something over thirty-one 
 thousand dollars — which were afterwards swelled some five 
 thousand dollars by book accounts collected, but were dimin- 
 ished in the neighborhood of three thousand dollars by a sale 
 of the plant at less than the estimated value. Its liabilities 
 were far in excess of its assets when the assignment to 
 Mr. Wolff was made, and it was no worse off financially 
 then than when Henderson withdrew ten days pre- 
 viously. Its collapse in seven business days with no cause 
 existing to produce that result other than the demand of 
 some of the old firm's creditors for the payment of overdue 
 debts, conclusively shows that it was utterly insolvent — un- 
 able to pay its debts when due and demandable — at the time 
 Henderson retired; especially as at the time the deed was 
 executed the firm was confessedly no worse off financially 
 than it had been on October the fourth. We are convinced, 
 then, that both the old and the new firms were insolvent on 
 October the fourth. 
 
 The deed of trust, as we have seen, was signed only by 
 Pfeil and McDonald and made provision solely for the pay- 
 ment of the debts due by the copartnership composed of 
 those two individuals. The quotations we have made from 
 the deed are quite sufficient to show this conclusively.
 
 760 FRAUD ON CREDITORS 
 
 The deed thus undertakes to treat the assets which the 
 trustee claims under it — and they are largely the assets 
 which belonged to the old firm — as the property of the new 
 firm; and it further undertakes to appropriate those assets 
 to the payment of the new firm's debts without the slightest 
 regard to the rights of the creditors of the old firm who are 
 not creditors of the new concern. Had the transfer by 
 Henderson been made by himself and by one other member 
 of the firm to the remaining member, the firm itself be- 
 ing insolvent; and had the purchasing member executed a 
 deed of trust providing for the payment of his debts, the 
 deed would, under these circumstances, have been invalid. 
 Collier V. Hanna, supra ; Gable, Trustee, v. Williams, 59 
 Md. 53. For the reasons we have already suggested, the 
 mere fact that the transfer by Henderson was made to two 
 members of the old firm, does not rescue the deed from 
 condemnation. The deed entirely ignores, and if effect 
 were given to it, it would utterly destroy the privilege or 
 preference to which the creditors of the old firm are entitled, 
 of having the debts due to them paid out of the assets of 
 the old firm; and it would destroy this preference notwith- 
 standing no transfer by any member of an insolvent firm to 
 the other members thereof can be efficacious to defeat the 
 rights of such creditors. The deed expressly dedicates the 
 property conveyed by it to the payment of the creditors of 
 the grantors. This, Pfeil and McDonald had no right to do. 
 The insolvency of the old firm at the time of Henderson's 
 attempted transfer of his interest therein to his copartners 
 prevented that transfer from becoming effective as against 
 • the right of the creditors of Henderson, Pfeil and Company 
 to work out their equities through the lien of the partners; 
 and, therefore, did not vest the title in the remaining part- 
 ners as a bona fide sale by a partner of a solvent concern 
 would have done. The transfer by Henderson to Pfeil and 
 McDonald did not clothe the latter with a title which they 
 could by a deed of trust convey for the benefit of their cred- 
 itors alone ; and consequently the deed of trust, which by
 
 FRANKLIN SUGAR CO. v. HENDERSON 761 
 
 its terms excludes the creditors of the old lirm, is a convey- 
 ance that hinders, delays and defrauds those creditors. The 
 deed is, and can therefore be, no barrier to the condemna- 
 tion of the credits attached in the hands of the trustee. 
 
 The pro forma order quashing the attachments will be 
 reversed and the cases will be remanded for further proceecl- 
 ings ; and it is accordingly so ordered.^ 
 
 " Compare with this case and the three preceding cases the fol- 
 lowing : 
 
 A. Where the assignment took place when apparently neither 
 
 the firm nor the assignee partner was insolvent. 
 
 McGozi'U V. Sprague, 22, Ala. 524, 1853 (A and B were partners. 
 A retired and sold out his entire interest to B. B left with most of 
 the property and without paying the debts. A brought a bill in equity 
 on behalf of himself and the firm creditors to have a receiver for the 
 property left by B appointed, and for an order to apply such of the 
 property as had been firm property to the payment of firm debts. 
 Granted, one Judge dissenting). 
 
 Andrews v. Mann, 31 Aliss. 322, 1856 (A and B were partners. A 
 sold his interest in partnership property to C, who promised to pay 
 A's portion of partnership debts. C sold the interest thus acquired to 
 -B, who used the property to pay his individual debts. A brought his 
 bill against B, C, and the assignee of the goods, to enforce his, A's, 
 lien on them for the payment of firm debts. Bill dismissed). 
 
 Coffin v. McCnllough, 30 Ala. 107, 1857 (A and B were partners. 
 A new partner was added to the firm, and A and B were credited 
 equally on the books of the new firm with the stock of goods on hand 
 as their respective shares in the new firm. A died, and his adminis- 
 trator obtained a decree for his share of the. partnership effects. B 
 brought a bill in equity to subject the interest of A's estate in the 
 second firm, to pay the debts of the original firm. Bill dismissed). 
 
 B. Where the assignment took place when the firm was solv- 
 
 ent but the a:.signee partner insolvent. 
 
 Hapgood v. Cornwcll, 48 111. 64, 1868 (A, B and C were partners. 
 D, trustee for E, the wife of A, had loaned A considerable sums from 
 the trust estate. D, fearing for his loan, suggested to A that he. A, 
 buy out B's and C's interests in the firm and apply the firm property 
 to the payment of the debt due him, D, as trustee. This suggestion 
 was acted on. F, et al., secured a Judgment against the firm and 
 brought a bill against D and the members of the firm to have D pay 
 F, et al., the amount of the Judgment. Bill dismissed). 
 
 Stanton v. IVestovcr, loi N. Y. 265, 1886 (A and B were partners. 
 The partnership was solvent. B was insolvent though this fact was 
 unknown to A and B. A assigned his interest in the partnership prop- 
 erty to B, B giving A some outside property and A and B each agree- 
 ing to pay one-half of the partnership debts. B continued the busi- 
 ness for five months, then executed two mortgages on the property 
 assigned to him to secure his individual debts, and subsequently made 
 a general assignment for the benefit of creditors. C, a receiver of the 
 joint property appointed in a proceeding brought by the firm creditors, 
 brought a bill to have all these transactions set aside. Bill dismissed. 
 Finch, J.: "The insolvency of the purchasing partner, if known to him 
 and to the seller, might very well be strong evidence of an intent to 
 defraud the partnership creditors, and become conclusive upon that
 
 762 FRAUD ON CREDITORS 
 
 question if there was no explanation. But here the purchasing part- 
 ner supposed himself to be solvent, and was so believed to be by the 
 seller/' p. 269). 
 
 C. Where assignment took place when the firm, and appar- 
 
 ently the individual members thereof, were insolvent, 
 though the insolvency of the firm was not known to the 
 partners. 
 Allen V. The Center Valley Co., 21 Conn. 130, 1851 (A and B were 
 partners. The assets were not sufficient to pay the debts, but the busi- 
 ness was a going one, and the financial condition of the partnership 
 was unknown to the C Co. A and B sold to the C Co. an engine and 
 other property belonging to the firm, A and B each receiving as indi- 
 viduals 40 shares in the C Co. A and B became openly insolvent and 
 stopped business. Held, that the firm creditors could not invalidate 
 the sale, nor have the shares regarded as firm assets). 
 
 Ex parte Mayou, 4 De J. & Sm. 664, 1865 (A and B were part- 
 ners. They were each insolvent and the firm was also insolvent. A 
 assigned to B his interest in the firm, B undertaking to pay the firm 
 debts. The firm was declared bankrupt. Held, that the transfer was 
 void, and that the assets assigned should be regarded as firm assets. 
 Westbury, L. C. : "My strong impression therefore is that this trans- 
 action, had it been made the subject of judicial decision before the 
 statute of bankruptcy which introduced these words, 'fraudulent grant 
 or conveyance of any lands, tenements, goods or chattels with intent 
 to defeat or delay creditors,' would not have been denominated a real, 
 that is a boiia fide transaction, and therefore would not have been held 
 valid according to the purport of Lord Eldon's judgments in Ex parte 
 Ruffin and Ex parte Williams, for I regard his references to bona fides 
 as being nothing more than a short expression of that principle, which 
 has been expanded more fully into the form now found in the 67th 
 section of the Act of 1849.") 
 
 Singer v. Carpenter, 125 111. 117, 1888 (A, B, et a/., were partners. 
 The partnership was insolvent but this fact was unknown to the part- 
 ners. They entered into an agreement with C, et at., to join with C, 
 et al., in the formation of a corporation, transfer the property of the 
 firm to the corporation, and each receive as individuals shares of stock 
 in the corporation. Before the transaction was completed A died and 
 the shares awarded to him were delivered to his executors, who sold 
 them for the benefit of A's estate. Bill by firm creditors to have pro- 
 ceeds of sale applied to the satisfaction of their claims to the exclu- 
 sion of the separate creditors of A. Bill dismissed). 
 
 D. Where assignment took place when the firm and the indi- 
 
 vidual members were insolvent and the fact of insolvency 
 was known to the partners. 
 
 Ransom v. Van Deventer, 41 Barb. 307, 1863 (A and B were part- 
 ners. They were insolvent. A was indebted to the firm in a greater 
 amount than B. The firm sold property to C, who gave his notes. 
 A, to equalize B's indebtedness to the firm permitted B to take one of 
 these notes and give it to D, in payment of a debt owing by B to D. 
 D took the note with knowledge of all the facts. Held, that E, a Judg- 
 ment creditor of the firm, could in equity have the assignment of the 
 note to D set aside, and the proceeds of the note applied to the pay- 
 ment of firm debts.) 
 
 Goddard-Peck Grocery Co. v. McCiine, 122 Mo. 426, 1894 (A and 
 B were partners. A had borrowed his partnership contribution from 
 C and had given C his individual note. The firm was insolvent and 
 this fact was known or suspected by the partners. A and B gave a 
 firm note to C in lieu of A's individual note. Some six months later 
 the firm failed. Held, that C was a creditor of the firm ; on the ground 
 that the firm assets could have themselves been used to pay the indi-
 
 FRANKLIN SUGAR CO. z: HENDERSON 763 
 
 vidual debts of one of the partners with the consent of all the part- 
 ners. Barclay, J., concurred on the ground that the consideration 
 given by C was property which had been used by the firm and there- 
 fore, there was a meritorious consideration for the firm note). 
 
 Compare the folloiving cases in zvliich the individual creditors of 
 the assignor partner objected to the assignment. 
 
 Hamill v. Willett, 6 Bosw. 533, i860 (A and B were partners-. 
 They dissolved, B assigning all his interest to A, A agreeing toj)ay 
 the firm debts. A continued in business, used the firm name, and 
 employed B. The property was levied on by C, an individual creditor 
 of B's. Held, in an action by A against C to recover possession of 
 the property, that the jury were not justified from the above recited 
 facts in finding that the assignment by B of his interest in the firm 
 property was in fraud of his, B's, individual creditors). 
 
 Griffin v. Cranston, 10 Bosw. i, 1862 (A and B were partners in a 
 hotel. A was insolvent, as also the partnership, and A was indebted 
 to the firm in a large amount. A assigned all his interest in the firm 
 lo B, B agreeing to pay the firm debts, and also employ A and his 
 wife in the hotel, lodge them, and pay them a share in the profits if 
 any. C, an individual creditor of A's, brought an action against B 
 and A to set aside the assignment. Held, that the facts did not show 
 that the assignment was fraudulent as to B's individual creditors, or 
 that the beneficial use of the property granted to B created any trust 
 in the property for B. Judgment for defendants confirmed). 
 
 When one partner assigns to another partner his interest in the 
 firm property and the assignee partner covenants to use the firm prop- 
 erty to pay the firm debts, a trust in the property assigned is created for 
 the benefit of the partnership creditors. 
 
 Wildes V. Chapman, 4 Eds. Ch. 669, 1846 (A and B were in part- 
 nership, B retired and A covenanted to apply the property of the firm 
 to pay its debts. C, et al., firm creditors, brought bill against D, as- 
 serting that A in fraud of the plaintiffs had conveyed the firm prop- 
 erty to D; and praying that the property might be applied to the pay- 
 ment of firm debts. Demurrer of D overruled).
 
 764 FRAUD ON CREDITORS 
 
 In re HEAD. 
 
 In the United States District Court for the Western 
 District of Arkansas, 1902. 
 
 114 Federal Reporter, 489. 
 
 In Bankruptcy. On review of action of referee disal- 
 lowing exemptions claimed by bankrupts. 
 
 Rogers, District Judge : Clyde Head and Charles P. 
 Smith were merchants at Richmond, Ark., under the firm 
 name and style of Head & Smith. They fonned their co- 
 partnership and entered into business on the ist of January, 
 
 1 90 1, neither one of the partners having any capital. They 
 purchased the remnants of two small secondhand stocks of 
 goods on credit, and their purchases were subsequently made 
 on credit, and the scope of their business was largely the 
 furnishings of supplies to a large planter near by. They con- 
 tinued in business until the 14th of January, 1902; when 
 they dissolved. Both parties testified that the immediate 
 cause of their dissolution was a notice from said planter 
 that he did not intend to patronize them during the year 
 
 1902. The partner Head took for his share 2 horses, i 
 buggy, 25 bushels of corn, and some harness; the partner 
 Smith took the merchandise and open accounts, and, indeed, 
 all the other assets of the firm, nominally $4,000, and as- 
 sumed the debts of the concern, amounting to in the neigh- 
 borhood of $3,500. Smith testifies that he believed when 
 he took the business that he could carry it on and pay the 
 debts. He at once notified the creditors of the dissolution, 
 and applied for an extension. He failed in that, and on 
 the 7th of February, 1902, creditors filed their petition in 
 bankruptcy against the firm, after both partners had stated 
 in writing that they were insolvent, and expressed a willing- 
 ness to go into bankruptcy. Head was a single man ; Smith 
 married after the partnership was formed, and before it
 
 IN RE HEAD 765 
 
 dissolved. No inventory of the stock was taken when the 
 dissokition took place, but they estimated the stock would 
 invoice at between $4,000 and $4,500. After the dissolution 
 Smith bought some goods, sold others, and paid some small 
 firm debts. Smith had no property except the assets of the 
 dissolved firm, and no means of raising money to pay the 
 creditors except by a sale of the goods. Head testifies that 
 after the firm was dissolved he had no further connection 
 with it ; that he thought Smith would be able to take charge 
 of the stock, pay the debts, and continue the business ; they 
 neither had any idea of going into bankruptcy; they both 
 thought Smith could make sufficient arrangements to get 
 time and convert the goods into cash; that they estimated 
 the goods would invoice $4,250, and liabilities in the neigh- 
 borhood of $3,600. 
 
 On this state of proof the referee found the partner- 
 ship was insolvent when the dissolution occurred, and in 
 that finding of facts the Court concurs. If this transaction 
 is upheld, its inevitable effect is that the mere act of the 
 dissolution of the partnership converts all the partnership 
 assets into individual assets of the respective parties, thereby 
 enabling each partner, not only to claim exemptions out of 
 the partnership assets in violation of the exemption laws 
 of Arkansas as construed by its own courts (Richardson v. 
 Adlcr, 46 Ark. 43), but also to pay their respective indi- 
 vidual creditors out of the partnership assets to the ex- 
 clusion of the partnership creditors, in plain violation of 
 the express provisions of the bankrupt law (Bankr. Act 
 1898, § 5). Moreover, its effect is to enable the individual 
 creditors to gain an advantage over the other creditors, 
 which they did not have until the firm was dissolved. It 
 was, in effect, a gift by the insolvent firm to the creditors 
 of the individual members of the firm, and therefore a pref- 
 erence to them over the partnership creditors, who under 
 the bankrupt law and in equity and good conscience were 
 entitled to have the partnership assets appropriated to the 
 payment of the partnership debts, to the exclusion of the
 
 766 FRAUD ON CREDITORS 
 
 individual creditors of the respective partners. Nor will it 
 do to say that the members of this firm acted in good faith 
 in what they did ; that they did not intend to hinder, delay, 
 or defraud their creditors. Every man must be held in 
 law to have intended that which was the necessary and in- 
 evitable result of his acts, and the dissolution of an insolvent 
 firm, if valid, is, in effect, an appropriation by the firm of the 
 firm assets, which in equity and under the bankrupt law 
 should be appropriated to the payment of the firm creditors, 
 to the payment of the debts of the individual members 
 thereof. The firm, and the members thereof, must there- 
 fore be held to have intended that very result, and this the 
 bankrupt law forbids. 
 
 The injustice of such a transaction, and the inequitable 
 nature thereof, is, in the opinion of the Court, in direct con- 
 flict with the whole theory of the bankrupt law. I am of 
 the opinion that the dissolution of this firm, it being in- 
 solvent, and the withdrawal therefrom of assets by the re- 
 spective partners, to be held as individual property, was in 
 violation of section G/e, Bankr. Act 1898, and that the 
 Court should set aside the terms of the dissolution, and 
 treat the assets of the firm in the hands of both partners 
 as partnership property, and to do otherwise is to defeat 
 the whole spirit and policy of the bankrupt law. I am not 
 aware that this question has been authoritatively settled by 
 any Court of Appeals or by the Supreme Court of the 
 United States, and there appears to be a conflict of author- 
 ity upon the subject among the District Courts. In support 
 of the position assumed by the Court may be cited In re 
 Cook, Fed. Cas. No. 3,150; In re Byrne, Fed. Cas. No. 
 2,270; In re Sauthoff, 21 Fed. Cas. (No. 12,380); Love- 
 land, Bankr. p. 190; Coll. Bankr. (3d Ed.) 70; In re Jones 
 & Cook, 4 Am. Bankr. R. 141, 100 Fed. 781; In re Gil- 
 lette & Prentice, 5 Am. Bankr. R. 119, 104 Fed. 769. I am 
 aware that all of these cases are not directly in point, but 
 they bear upon the principle involved. 
 
 The case of In re Riidnick (C. C.) 102 Fed. 751, is
 
 IN RE HEAD 1(^ 
 
 cited as opposing the conclusion reached by the Court. The 
 cases arc not the same, but, if it may be treated as an 
 authority against the conclusion reached by the Court, I am 
 unable to follow it. The action of the referee in disallow- 
 ing the claim of both bankrupts is affirmed, and an order will 
 be entered accordingly. 
 
 The referee will proceed in accordance with this 
 opinion.^ 
 
 ^ The first part of Section 67, subsection e, of the Bankrupt Act 
 of 1890, referred to in the opinion reads as follows : "That all con- 
 veyances, transfers, assignments, or incumbrances of his property, or 
 any part thereof, made or given by a person adjudged a bankrupt 
 under the provisions of this act subsequent to the passage of this act 
 and within four months prior to the filing of the petition, with the 
 intent and purpose on his part to hinder, delay, or defraud his credi- 
 tors, or any of them, shall be null and void as against the creditors of 
 such debtor, except as to purchasers in good faith and for a present 
 fair consideration ; and all property of the debtor conveyed, trans- 
 ferred, assigned, or encumbered as aforesaid shall, if he be adjudged 
 a bankrupt, and the same is not exempt from execution and liability 
 for debts by the law of his domicile, be and remain a part of the 
 assets and estate of the bankrupt and shall pass to his said trustee, 
 whose duty it shall be to recover and reclaim the same by legal pro- 
 ceedings or otherwise for the benefit of the creditors."
 
 768 FRAUD ON CREDITORS 
 
 In re DENNING. 
 
 In the United States District Court for the District 
 OF Massachusetts, 1902. 
 
 114 Federal Reports, 219. 
 
 In Bankruptcy. 
 
 Lowell, District Judge : The bankrupt was formerly 
 in partnership with one Brown, doing business under the 
 firm name of Brown & Denning, up to August 22, 1899. 
 On that date they were insolvent, and may be supposed to 
 have known their financial condition. On that date Brown 
 sold all his interest in the partnership to the bankrupt, and 
 received from the bankrupt eight promissory notes, of $100 
 each, without interest, payable, respectively, in two, three, 
 four, five, six, seven, eight, and nine months. On October 
 25, 1899, the bankrupt filed his voluntary petition. At that 
 time the firm was indebted to the amount of about $1,100. 
 The assets in the bankrupt's hands were: (a) Proceeds of 
 the sale* of the business plant formerly owned by the firm 
 and transferred to the bankrupt as above set forth ; (b) pro- 
 ceeds of the collection of debts arising from the sale of 
 goods by the firm; (c) proceeds of a contingent interest 
 in real estate inherited by the bankrupt; (d) money re- 
 ceived for goods sold by the bankrupt after the partnership 
 was dissolved. Brown proved the promissory notes above 
 stated without objection. The trustee moved to expunge 
 the claim, which motion the referee allowed, and the claim 
 was expunged. Brown now seeks a review. 
 
 It is plain that the bankrupt's former partner cannot be 
 allowed to prove in this case. To permit him to do so would 
 permit him to compete with his own creditors. Under a 
 separate commission like this, joint creditors may prove, 
 and, at the least, they may share in the surplus of the sepa- 
 rate estate after payment of the separate debts. There are
 
 IN RE DENNING 769 
 
 joint creditors in this case who have proved, and, until the 
 claims of the joint creditors are settled, Brown cannot share 
 in the distribution of his former partner's estate. Lowell, 
 Bankr. § 133; Amsinck v. Bean, 22 Wall. 395, 402, 22 L. 
 Ed. 801. There is nothing in section 5g of the act to change 
 this well-established rule. 
 
 Certain creditors of the firm seek to prove their claims 
 against the bankrupt individually, and, together with the 
 separate creditors, to share in the estate now in the hands 
 of this Court. If they are to be treated as joint creditors 
 only, and if all the assets are to be treated as separate assets, 
 they will be entitled only to come upon the surplus after 
 payment of the separate debts. In re Wilcox (D. C.) 94 
 Fed. 84. In re Johnson, Fed. Cas. No. 7,369, 2 Lowell, 
 129, it was decided that joint creditors could, even after 
 bankruptcy, so assent to the bankrupt's undertaking to pay 
 the firm debts as to make themselves separate creditors of 
 the bankrupt, and thus to share alike with separate cred- 
 itors in the separate estate. In the same case it was inti- 
 mated that the conveyance of the firm assets to one partner 
 was a fraudulent preference, which could be set aside in 
 bankruptcy, and that thus the assets, which originally be- 
 longed to the firm, could be brought back into the estate. 
 If both these propositions are true, there will be confusion 
 in working them out together. Each joint creditor will 
 have an election ( i ) to come with the separate creditors 
 upon the separate estate, including that formerly joint, or 
 (2) to have the assets marshaled, and come with the other 
 joint creditors upon the former joint estate. It seems that 
 a former joint creditor, who has elected to become a sepa- 
 rate creditor of the bankrupt, assents to the conversion of 
 the joint into separate assets, and is permitted to come upon 
 the converted estate as a separate creditor. On the other 
 hand, a creditor who procures the avoidance of the con- 
 version and a marshaling of the assets comes as a joint 
 creditor upon the property thus returned to the joint estate, 
 and it is hard to see how accounts can be kept which treat
 
 770 FRAUD ON CREDITORS 
 
 the same property as joint property for the payment of some 
 claims and as separate property for the payment of others. 
 See St. Mass. 1865, c. 113; Biicklin v. Bucklin, 97 Mass. 
 256. 
 
 There are considerable difficulties in dealing with joint 
 estate under a separate commission. See In re JVilcox (D. 
 C. ) 94 Fed. 84. As was there pointed out, courts of bank- 
 ruptcy at one time permitted the creditors of the bankrupt, 
 whether joint or separate, to come upon all the estate in the 
 assignee's hands, both joint and separate, and share in it 
 alike, unless application was made for a separation of ac- 
 counts. This application had originally to be made, not to 
 the court of bankruptcy, but to a court of equity. Some 
 courts of bankruptcy in this country have held that the dis- 
 tribution of joint estate among joint creditors, and of sepa- 
 rate estate among separate creditors, is confined to cases 
 where the commission is joint. See 94 Fed. 105. The con- 
 trary was held by this Court In re Wilcox, and the prin- 
 ciple was treated as of general application, at least under 
 the provisions of this bankrupt act. The Court has, there- 
 fore, to consider if the assets in the bankrupt's hands which 
 came from the firm are to be treated as converted by the 
 transaction of August 22d, or if the conversion was avoided 
 by the adjudication October 25th. 
 
 It is somewhat difficult to construe the conversion as 
 a preference within the terms of section 60 of the act. 
 Under section 60 only that is a preference which enables a 
 creditor to obtain a greater percentage of his debts than 
 other creditors of the same class. If creditors are thus 
 classified exclusively with regard to the priorities established 
 by section 64, then the conversion of joint into separate 
 estate is a preference; but it is at least doubtful if joint and 
 separate creditors are "creditors of the same class". If 
 they are not, then the conversion does not enable any cred- 
 itor to obtain a greater percentage of his debt than any 
 other creditor of the same class. The conversion enables 
 creditors of the separate class to be paid in full, while de-
 
 IN RE DENNING 771 
 
 priving creditors of the joint class of any payment whatso- 
 ever. Even in England, however, the rule in Ex parte Ruf- 
 fin, 6 Ves. 119, is subject to an exception where, as here, 
 partnership and partners were insolvent at the time of the 
 conversion. Lindl. Partn. (2d. Ed.) *338. As to the Amer- 
 ican rule, see Lowell, Bankr. § 139. Moreover, section 5'g 
 of the bankrupt act was intended, I believe, to clear up the 
 whole matter, and to permit the Court to deal with con- 
 versions of this kind so as not only to prevent preference 
 in the technical meaning of that word, but also so as to 
 "secure the equitable distribution of the propertv of the 
 several estates." Lowell, Bankr. § 468; In re Gillette (D. 
 C.) 104 Fed. 769; In re Shapiro (D. C.) 106 Fed. 495. 
 That it is highly inequitable in this case to permit what 
 was joint estate before the dissolution of the partnership to 
 be treated as separate estate in the distribution of the bank- 
 rupt's effects is plain. To permit the joint creditors to come, 
 alike with the separate creditors, upon the whole estate, 
 even if admissible, seems to me to cut the knot, rather than 
 to untie it. The trustee should be directed to keep separate 
 accounts, the property belonging to the finn at the time of 
 the dissolution of the partnership on August 22d should be 
 applied first to the payment of the joint debts, and the 
 separate estate of the bankrupt should be applied first to 
 the payment of the separate debts. If there is any surplus 
 in either fund, that is to be distributed as provided in section 
 5f. It is true that section 5h provides that, if one partner 
 only is adjudged bankrupt, the partnership property shall 
 not be administered in bankruptcy unless by consent of the 
 other partners ; but that provision has plainly no application 
 to the case at bar. 
 
 The case is remanded to the referee, with instructions 
 to proceed in accordance with this opinion.^ 
 
 ^The pertinent part of Section 60, of the Bankrupt Act of 1898, 
 referred to in the text is as follows : "A person shall be deemed to 
 have given a preference, if. being insolvent, he has, within four months 
 before the filing of the petition, or after the filing of the petition and 
 before the adjudication, procured or sufifered a judgment to be entered
 
 772 FRAUD ON CREDITORS 
 
 against himself in favor of any person, or made a transfer of any 
 of his property, and the effect of the enforcement of such judgment 
 or transfer will be to enable any one of his creditors to obtain a greater 
 percentage of his debt than any other of such creditors of the same 
 class." 
 
 The case of In re Johnson, Fed. Cas. 7, 369, 1872, arose under the 
 Act of 1867 and was as follows: (A and B were partners. A assigned 
 to B, B promising to pay the debts of the firm. The firm and both 
 partners were insolvent at the time and within four months B brought 
 a voluntary petition in bankruptcy. J. Lowell, District J., said : "The 
 better mode of meeting the difficulty [arising out of the assignment 
 and the resulting absence of a joint fund] seems to me to be to per- 
 mit the joint creditors to assent to the conversion, and thus to be- 
 come separate creditors, even after bankruptcy has occurred. The 
 decisions have been tending to this point, though but few have yet 
 reached it. The early cases laid down the rigid rule, that there could 
 be no substitution or conversion by which a joint debt of two part- 
 ners should become the separate debt of the remaining partner; be- 
 cause there was no consideration for the relinquishment of the re- 
 sponsibility of the retiring partner. Lodge v. Dicas, 3 Barn. & Aid. 
 61 r; David v. Ellice, 5 Barn. & C. 196. This strict construction, under 
 the guise of protection to the rights of the creditor, really destroyed 
 them, in many cases ; and it is now well settled, in England, that if 
 the creditor has assented to the change, whether expressly or by a 
 course of dealing, the debt is severed. ThoDipson v. Percival, 5 Barn. 
 & Adol. 925; Oakclcy v. Pashellcr, 4 Clark & F. 207; Hart v. Alex- 
 ander, 2 Mees. & W. 484; Lyth v. Ault, 7 Exch. 669; i Lindl. Partn. 
 [2d Ed.] 454. In bankruptcy, it is always permitted to a creditor who 
 has assented to the arrangement to prove against the estate of the 
 substituted debtor. Colly. Partn. [5th Am. Ed.], Sec. 918; Robs. 
 Bankr., p. 508. Compare with cases cited supra, Howe v. Lawrence, 
 note 2.")
 
 JACKSON V. CORNELL 773 
 
 SECTION 2.— FRAUD ON THE SEPARATE 
 CREDITORS OF A PARTNER. 
 
 JACKSON V. CORNELL. 
 In the Court of Chancery^ New York, 1844. 
 
 I Sandford's New York Chancery Reports, 348. 
 
 Sandford, Assistant Vice-Chancellor : The assignment 
 made by Cornell to the two Farringtons is alleged to be 
 fraudulent, on various grounds. * * * 'phe assignment 
 devoted Cornell's individual property to the payment of the 
 partnership debts due from him and his assignee, in prefer- 
 ence to his individual debts. * * *i 
 
 It is not denied that the rule of equity is uniform and 
 stringent, that the partnership property of a firm shall all be 
 applied to the partnership debts, to the exclusion of the 
 creditors of the individual members of the firm; and that 
 the creditors of the latter are to be first paid out of the 
 separate effects of their debtor, before the partnership cred- 
 itors can claim anything. See Wilder v. Kcelcr (3 Paige's 
 R. 167); Egberts v. Wood (3 id. 517); Payne v. Mat- 
 thews (6 id. 19) ; Hutchinson v. Smith (7 id. 26) ; i Story's 
 Eq. Jur. 625, § 675. 
 
 It is, however, contended that each partner, before a 
 lien attaches by judgment, execution, or creditor's bill, has 
 a right with his individual property, to give such prefer- 
 ences to and amongst his creditors, as he pleases, whether 
 several or partnership creditors. 
 
 ^ Only so much of the opinion as relates to the invalidity of such an 
 assignment is reprinted.
 
 774 FRAUD ON CREDITORS 
 
 This is the principal question in the case, and it is one 
 of great importance in commercial law. The defendant's 
 proposition embraces the right, not merely to pay the money 
 or deliver the property of the individual debtor to the part- 
 nership creditor in discharge of his claim; or to secure him 
 v^ith a specific parcel of individual property. But it extends 
 to the general assignment of all the partner's separate estate. 
 And if he may, by such an assignment, prefer one partner- 
 ship creditor to his own, there is no stopping short of per- 
 mitting him to prefer all the creditors of the firm to the 
 entire exclusion of the individual creditors. * * * 
 
 It is well settled that such a disposition of the separate 
 property of the co-partner is inequitable. It is such an 
 appropriation as this court will not suffer, when by reason 
 of insolvency, the death of a partner, or any other cause, the 
 subject is brought within its jurisdiction. 
 
 The vice-chancellor of the eighth circuit has declared 
 that a partner cannot prefer his private debts with the assets 
 of the co-partnership; and the converse of the rule must 
 be equally tn.ie. And our learned Chancellor has gone so far 
 as to say that such an assignment, giving a preference to 
 a private debt, could not be sustained, so far as it provides 
 for the payment of that debt. 
 
 Let me pursue the consequences, in the case of the as- 
 signment of the effects of a co-partnership, giving a prefer- 
 ence to a private debt. 
 
 First. — It is inequitable, and therefore wrong. 
 
 In the next place, it cannot be sustained as to the debt 
 so preferred. Now, in what manner is the wrong which 
 the parties have attempted to perpetrate on the creditors of 
 the firm, to be prevented ? 
 
 Not by a mere appeal to the assignee, for he is to be 
 governed by the express directions of the trust which he 
 has undertaken to execute, and would not feel warranted in 
 deviating from them, without the sanction of the court. 
 Not by a bill by the creditors for the purpose of rectifying 
 this particular grievance, while their demands still rest in
 
 JACKSON V. CORNELL 775 
 
 simple contract. The case of Rohb v. Stephens decides that 
 such a bill will not be sustained. And while the creditors 
 are prosecuting their debts to judgment, so as to enable 
 them to exhibit a bill under that decision, a pliant assignee 
 of the debtor's own selection would be very likely to fore- 
 stall their proceedings by immediately paying off the ob- 
 noxious private debt so preferred. 
 
 The result of it is, that in order to remedy the evil, it 
 will be necessary for the creditors to resort to this court for 
 an administration of the whole trust. And if they would 
 not wait until such remedy would be fruitless, their resort 
 must be made immediately, and at the expense of the costs. 
 For the assignee is entitled to a reasonable time to wind 
 up his trust, and if the creditors speed him before he has 
 had that time, it will be at their own costs and charges. 
 
 On such a bill, the court would doubtless direct the as- 
 signee to follow the rule of equity, and to postpone the 
 private debt to all the joint debts. 
 
 In my opinion the courts have gone far enough in sus- 
 taining assignments, without proceeding to the length that 
 they will sustain one so framed that creditors for whose 
 benefit it professes to be made, are compelled to be at the 
 expense of a chancery suit, to prevent its accomplishing 
 gross injustice, and violating their manifest rights. We per- 
 mit insolvent debtors to make assignments, selecting their 
 own trustees, and preferring such creditors as they choose, 
 so that one may receive his whole debt, while another equally 
 meritorious, but less favored, loses his whole claim. Before 
 resorting to this nltimam rationem, debtors are allowed to 
 make similar preferences by actual payment in money or 
 property, to such as they choose. We go still farther. While 
 the debtor has control of his property, he may take $ioo 
 in his hand, and say to the creditor for $i,ooo, take this 
 and release the debt, or you shall receive nothing. I will 
 assign, and place your debt in the last class which is to be 
 paid. If the creditor accepts the offer, and executes a re-
 
 77(> FRAUD ON CREDITORS 
 
 lease, it is valid, notwithstanding the moral coercion thus 
 exercised over him. 
 
 But if the debtor, instead of making this use of his 
 property, places it in the hands of trustees, with a proviso 
 that it shall be paid only to such of his creditors as will 
 accept it and release their debts, the law no longer tolerates 
 the preference. It renders the whole transfer void. 
 
 I do not perceive why the same distinction should not 
 prevail in reference to the point under consideration. Let 
 the partner actually apply his own property as he thinks 
 proper, while he administers it himself. But when he avails 
 himself of the lenient provisions of our law, which enable 
 him to prefer such creditors as he pleases, on making an 
 assignment, and to select his own trustee, let us require him 
 to avoid violating the plainest principles of equity. Let 
 us prohibit him from vesting his property upon a trust which 
 this court frowns upon as unrighteous, and which, when 
 invoked, it must enjoin from being executed. 
 
 It appears to me that an assignment which attempts 
 to carry out through trustees, a principle which this court 
 will never permit any fiduciary to carry out, is a fraud upon 
 the court, and upon the law which tolerates assignments. 
 And that when such an instrument is made in a form that 
 will inevitably require the interposition of this court in order 
 to prevent gross wrong from resulting, and such a wrong 
 is the intended consequence of its provisions, it is made 
 in fraud of the law, and it should not be permitted to stand. 
 
 A party executing an assignment like this, does what 
 he knows is not honest or conscientious. He knows that no 
 court v/ill sanction his directions, and that if invoked, equity 
 will restrain their execution. He knows also that without 
 the expensive resort by his creditors, to a court of equity, 
 his inequitable and dishonest designs will be carried into 
 complete effect. Is not this fraudulent ? 
 
 It certainly is, in my judgment. I am prepared to say 
 with Judge Van Ness (Hyslop v. Clark, 14 Johns. 464), 
 that "an insolvent debtor has no right to place his property
 
 JACKSON V. CORNELL 777 
 
 in such a situation as to prevent his creditors from taking 
 it, under the process of a court of law, and to drive them 
 into a court of equity where they must encounter great ex- 
 pense and delay, unless it be under very special circum- 
 stances, and for the purpose of honestly giving a preference 
 to some of his creditors, or to cause a just distribution ^to 
 be made among them all." 
 
 What I have said of an assignment by co-partners, pre- 
 ferring their several private debts, is equally true of an 
 assignment by one partner preferring the debts of the co- 
 partnership to the exclusion of his own. The principle of 
 equity is equally operative in the one case as in the other. 
 
 If the preference is allowed for a single debt, it is 
 equally valid for all debts. So that a co-partner in order to 
 enrich his associate, if an assignment like this is to be up- 
 held, may assign all his separate property to such associate, 
 in trust to pay the assignor's half of the debts of the firm, 
 and after those are paid, to apply the residue to his private 
 debts. In other words, he may turn his whole private prop- 
 erty into the co-partnership, by means of one of these trusts 
 for the benefit of his co-partner, leaving his private cred- 
 itors penniless. 
 
 When the firm is so much insolvent, that all the indi- 
 vidual estate of the insolvent co-partner will merely dis- 
 charge his portion of the co-partnership debts, an assignment 
 made by him giving the preference to the latter, is a direct 
 gift of his property to the other partner. 
 
 Suppose, in this case, that Farrington and Cornell owed 
 $5,000 more than their joint means, and that the deficiency 
 on Taylor's mortgage will be the same sum. Cornell, by 
 preferring that deficiency to his own debts, pays out of his 
 separate property the whole deficit of the firm. He saves 
 to his partner, Farrington, by taking it from his own cred- 
 itors, $5,000, which F., if solvent, would, according to the 
 rule of equity, have to pay out of his own pocket. This 
 is the direct and legitimate consequence of permitting as- 
 signments like the one in question. How the partnership
 
 77S FRAUD ON CREDITORS 
 
 actually stood, the case does not disclose. Cornell was then 
 insolvent, and it appears that eight months afterwards Far- 
 rington was in doubtful circumstances. The inference is 
 quite strong that the co-partnership was not much better 
 off than Cornell himself, when he made the assignment. At 
 all events, the joint inference from these facts corroborates 
 the presumption arising from the assignment itself, that it 
 was designed to benefit Farrington, in respect of the co- 
 partnership debts, to the prejudice of Cornell's individual 
 creditors. And I have no hesitation in declaring that, in 
 my opinion, the assignment was for this cause, void as 
 against the latter. 
 
 Decreed accordingly.^ 
 
 -Compare: Collomh v. CaJdurU, 16 N. ¥.484, 1857. (The Caldwells, 
 A and B, were partners. They held certain property as tenants in 
 common. Being insolvent, both individually and collectively, they as- 
 signed their partnership property and the property held in common for 
 the benefit of the firm creditors, and provided that if any surplus 
 remained it should be returned to them. C, a separate creditor of B, 
 secured a judgment, and then instituted proceedings to set aside the 
 assignment. Comstock, J. : "The Caldwells being insolvent, assigned 
 the estate, which they owned together, to pay the debts which they 
 jointly owed, but one of them also owed debts individually, which were 
 entitled to be paid out of the residue of his share in the fund assigned. 
 Instead of making provision for paying these individual debts, the whole 
 fund was tied up under a trust, and after the particular trusts should be 
 satisfied the residue was reserved to the assignors. It is true, this 
 reservation might not vitiate the assignment, if the fund to which it 
 attached had consisted of partnership property only. The rights of a 
 creditor of one partner are subjected to an equitable adjustment of 
 accounts between the partners themselves, and therefore it may not be 
 fraudulent to provide, in an insolvent partnership assignment, that the 
 surplus of the effects shall be returned to the firm instead of being di- 
 rected to the payment of the private debts of either of the members. 
 But the real estate assigned by the Caldwells, as we understand the case, 
 was held by them as tenants in common. The interest of each was there- 
 fore his individual propert}', as much so as his separate estate. Thus 
 they had no right to convey in trust with a reservation in their own 
 favor, leaving their individual creditors unprovided for." Pages 486-7. 
 Assignment set aside.) 
 
 Gadsden v. Carson, 9 Rich. Eq. (S. C.) 252, 1857 (One Carson, being 
 a member of a firm, and insolvent, assigned certain of his individual 
 property in trust to pay firm creditors. Dargan, Ch. : "This misap- 
 propriation by the defendant, Carson, of his private assets, to the pay- 
 ment of his copartnership debts, to the postponement, and practically to 
 the entire exclusion of his individual debts, is in violation of the equitable 
 rights of the plaintiff, who is a large separate creditor. To this extent, 
 if no further, he would be entitled to relief." Page 257.") 
 
 Smith V. Hoivard, 20 How. Pr. 121, 1859. (A and B were partners. 
 Their individual debts and assets were unequal. Reciting that they were
 
 JACKSON V. CORNELL 779 
 
 unable to pay their debts punctually, or in full, they made a general 
 assignment of all their partnership and individual property to pay, first, 
 firm creditors, and second, to pay their separate creditors pro rata. 
 Held, that this showed an intention to apply the individual property of 
 one partner to the payment of the separate creditors of the other part- 
 ner ; that this was a fraud which invalidated the whole assignment, and 
 that therefore the assignment could be set aside at the instance of a 
 certain class of firjn creditors.) 
 
 Gallagher's App., 114 Pa. 353, 1886. (A, being a member of a fiun, 
 the day before an assignment for the benefit of creditors, and probably in 
 anticipation of the assignment, confessed judgments in favor of certain 
 firm creditors. Individual creditors asked to have the judgments post- 
 poned to individual debts. Request denied. Paxson, J. : "Jackson v. 
 Cornell, Sandford's ist Chan. Rep., 348, was cited by appellants as 
 sustaining the position that the assignor could not, by confession of 
 judgment, prefer partnership creditors as against his individual estate. 
 We do not regard it as authority upon the point referred to. The 
 question there arose upon the validity of such a preference in the deed 
 of assignment itself, a thing which would be wholly invalid by our law. 
 And that case recognized the principle contended for by the appellees 
 here, for the Court said : 'Let the partner actually apply his own prop- 
 erty as he thinks proper while he administers it himself.' That is pre- 
 cisely what the assignor did in the case at bar. Whilst having full 
 dominion over his property he confessed these judgments. To the ex- 
 tent of giving liens on his real estate he applied it to the payment of 
 certain debts. The assignee took the real estate bound by the judgments 
 and subject to their lien. It is too plain for argument that the proceeds 
 must be applied to their, payment. This disposes of the only point in 
 the case." Page 357.) 
 
 See also Purdy v. Lacock, 6 Pa. 490, 1847 (A and B were partners. 
 B confessed a judgment in favor of A to secure a lien for the capital A 
 had put into tlie firm. C. a separate creditor of B, secured a judgment 
 against B. Held, on a feigned issue, that the lien of A's judgment was 
 ahead of the lien of B's judgment.) 
 
 Thompson's App., 3 Walk. (Pa.) 345, 1883. (B and C were part- 
 ners. B confessed judgment to B and C for money advanced for him 
 by the firm. A subsequently obtained a judgment against B. Held, that 
 B had a right to admit his liabilities to the firm, waive technicalities, 
 and by confessing judgment create a lien in favor of his firm on his 
 individual real estate, and that therefore the lien of the firm's judgment 
 was ahead of the lien of A's judgment.)
 
 NAYLOR V. BROWN 781 
 
 SECTION 3.— FRAUD ON THE CREDITORS OF 
 A CORPORATION. 
 
 NAYLOR V. BROWN. 
 
 In the High Court of Chancery, Before Lord Not- 
 tingham, 1673. 
 
 Finch's Reports, rc. 
 
 The plaintiff Naylor having lent the Company of Wood- 
 mongers £500 they gave him a bond of the penalty of 
 £1000 under their common seal, conditioned for the pay- 
 ment of £500 and interest, and the said company assigned 
 another bond of £1000 due to them, and this was to Sir 
 William Wild for the payment of some of their debts, and 
 Sir William declared the trust as to £620. Parcel thereof 
 for Sir Edmund-Bury Godfrey, and for twelve others therein 
 named, and the rest for several members of the company. 
 
 Afterwards a Quo Warranto was brought against this 
 company, and they were dissolved, having forfeited their 
 charter, and then they parted stakes amongst themselves, 
 and some few others carving large shares out of their whole 
 estate to some of their own members, who pretended great 
 debts due to them; and left the plaintiff Naylor's debt, and 
 some other creditors, who were not plaintiff's unsatisfied. 
 
 The Court upon hearing this cause did not approve 
 these preceedings of the company towards their creditors, 
 especially towards such who were not members of the com- 
 pany, with whom they dealt, as bankrupts usually do, who 
 knowing they shall break, pay such friends as they like best. 
 
 And it appearing that the company had borrowed more 
 of strangers than the said £1000 would reimburse, (of which 
 the plaintiff Naylor's debt of £5000 was part) the distribution
 
 782 FRAUD ON CREDITORS OF CORPORATION 
 
 of that sum amongst particular members of the company was 
 injurious to such creditors who were not members thereof; 
 it being more reasonable, that of losses must fall upon the 
 creditors, such losses should be borne by those who were 
 members of the company, who best knew their estates and 
 credit, and not by strangers who were drawn in to trust the 
 company upon the credit and countenance it had from such 
 particular members ; and which in this case was more re- 
 markable, because several of the principal members of the 
 company had set their names to the plaintiff's bond of £500 
 under the common seal, which though it did not legally bind 
 them in their private capacities, yet it was certainly an in- 
 ducement to the plaintiffs to lend their money. 
 
 The Court was of opinion that the declaration of the 
 trust bySir Wm. Wild was utterly void as to the said £620 
 for that the corporation did not join therein, nor give him 
 any authority under their common seal, or by any corporate 
 act to make such a declaration. 
 
 And therefore decreed that the defendant Sir Ed. Bury- 
 Godfrey and the other defendants members of the said com- 
 pany, who have received any part of the said £620 by virtue 
 of such declaration of trust, do pay back the same with in- 
 terest; it being in equity still, a part of the estate of the late 
 company, and that for this purpose they come to an account 
 before a master, and that the plaintiff's debts be first paid to- 
 gether with damages and costs, so far as the estate of the late 
 company will extend, and that if that estate shall not be suffi- 
 cient, then the debts are to be paid in proportion, etc.
 
 WOOD t. DUAIMER 783 
 
 WOOD V. DUMMER. 
 
 In the Circuit Court of the United States for the 
 District of Maine, 1824. 
 
 3 Mason's Reports, 308. 
 
 Bill in equity brought by the plaintiffs, as holders of the 
 bank notes of the Hallowell and Augusta bank, against the 
 defendants, as stockholders in the same bank, for payment 
 of the same notes upon the ground of an asserted fraudu- 
 lent division of the capital stock of the bank by the stock- 
 holders. The defendants put in answers, denying the fraud, 
 but admitting the division of the capital stock, &c. ; and de- 
 nying the plaintiffs' title to relief. The general replication 
 was filed, and the cause was set down for a hearing upon 
 the whole merits, at the last October term of the Court, upon 
 certain admissions of the parties, and was argued by Alden 
 and Whitman for the plaintiffs, and by Bond and Longfel- 
 low for the defendants. And at this term the opinion of 
 the Court was delivered in substance at follows : 
 
 Story, /. The Hallowell and Augusta bank was incor- 
 proated in March 1804, by the Legislature of Massachusetts, 
 with a capital stock of $200,000, divided into shares of $100 
 each, for a term which expired on the first Monday of Oc- 
 tober 181 2, with the usual rights and privileges belonging 
 to the banks in the same state. In June 18 12, the Legisla- 
 ture passed an act [act of 1812, ch. 57] continuing all the 
 banks, whose charters would expire on the first Monday 
 of October 181 2, as corporate bodies until the first Monday 
 of October 1816, "for the sole purpose of enabling said 
 banks gradually to settle and close their concerns, and divide 
 their capital stock." And by a further act, passed in Decem- 
 ber 1816 (act of 1816, ch. no), the term was prolonged 
 for three years from the passing of this last act. In January 
 181 3, at a meeting of the stockholders of the Hallozvdl and
 
 784 FRAUD ON CREDITORS OF CORPORATION 
 
 Augusta bank, a vote was passed, ordering a dividend to be 
 made among the stockholders of the bank of fifty per cent. 
 of the capital stock thereof ; and in October in the same year, 
 a vote was passed for a further dividend of twenty-five per 
 cent, of the capital stock, making in the whole a dividend of 
 seventy-five per cent, of the whole capital stock among the 
 stockholders. The notes of the bank continued to circulate 
 in good credit until after November 1814; and the plaintiffs 
 were, in October and November 181 4, owners in their sev- 
 eral rights of notes of the same bank to a sum in the aggre- 
 gate amounting to more than $29,000, which were presented 
 for payment to the bank, and payment refused. The plain- 
 tiffs received certain notes of the directors as collateral se- 
 curity, but these were never paid. In fact one quarter part 
 of the capital stock of the bank had never been paid in, but 
 was secured by the notes of the stockholders, called stock 
 notes; and about $90,000 of debts (beside stock notes) were 
 due from certain directors of the bank, who became insolvent 
 and utterly unable to pay the same. So that nearly three- 
 quarters of the stock was lost or unpaid, either from insolv- 
 ency or some other cause, and left the bank involved, after 
 the division of its stock, in deep insolvency. In June 1812, 
 another and new bank was incorporated, composed in part of 
 the same persons, with the same corporate name. The new 
 bank, for a considerable time, continued to give credit to, 
 and circulate the notes of the old bank ; and the bill asserted 
 the new bank to have become possessed of the funds of the 
 old bank to a very large amount. 
 
 Such are the principal facts; and the claim of the plain- 
 tiffs is to be reimbursed by the defendants, (who are owners 
 of three hundred and twenty shares) out of the dividends of 
 the capital stock received by them, the amount of the debts 
 so due to the plaintiffs respectively, for the bank notes above 
 stated. 
 
 The case is full of difficulties. The bill is drawn in a 
 very loose and inartificial manner. It proceeds principally
 
 WOOD V. DU^niER 785 
 
 upon the grounds of a gross over issue of bank notes, and 
 other violations of the charter, and of a fraudulent dividend 
 by the stockholders with a knowledge of their insolvency ; 
 grounds which are denied by the answers, and are not in the 
 slightest degree established in the proofs. It does not directly 
 proceed upon the ground, that the defendants hold a trust 
 fund applicable to the payment of the debts of the corpora- 
 tion ; but leaves tliis to be picked up in fragments by a min- 
 ute analysis of the bill. I pass, however, over these objec- 
 tions, for the purpose of considering that, which is the prin- 
 cipal point argued in the cause, whether the capital stock in 
 the hands of the stockholders is liable to the payment of the 
 debts of the bank. 
 
 It appears to me very clear upon general principles, as 
 well as the legislative intention, that the capital stock of 
 banks is to be deemed a pledge or trust fund for the pay- 
 ment of the debts contracted by the bank. The public, as 
 well as the legislature, have always supposed this to be a 
 fund appropriated for such purpose. The individual stock- 
 holders are not liable for the debts of the bank in their pri- 
 vate capacities. The charter relieves them from personal 
 responsibility, and substitutes the capital stock in its stead. 
 Credit is universally given to this fund by the public, as the 
 only means of repayment. During the existence of the cor- 
 poration it is the sole property of the corporation, and can 
 be applied only according to its charter, that is, as a fund 
 for payment of its debts, upon the security of which it may 
 discount and circulate notes. Why, othei'A\nse, is any capital 
 stock required by our charters? If the stock may, the next 
 day after it is paid in, be withdrawn by the stockholders 
 without payment of the debts of the corporation, why is its 
 amount so studiously provided for, and its payment by the 
 stockholders so diligently required? To me this point ap- 
 pears so plain upon principles of law. as well as common 
 sense, that I cannot be brought into any doubt, that ihe 
 charters of our banks make the capital stock a trust fund
 
 786 FRAUD ON CREDITORS OF CORPORATION 
 
 for the payment of all the debts of the corporation. The 
 bill-holders and other creditors have the first claims upon 
 it; and the stockholders have no rights, until all the other 
 creditors are satisfied. They have the full benefit of all the 
 profits made by the establishment, and cannot take any por- 
 tion of the fund, until all the other claims on it are extin- 
 guished. Their rights are not to the capital stock, but to the 
 residuum after all demands on it are paid. On a dissolution 
 of the corporation, the bill-holders and the stockholders have 
 each equitable claims, but those of the bill-holders possess, 
 as I conceive, a prior exclusive equity. The same doctrine 
 has been recognized by the Supreme Court of Massachusetts, 
 in Vose v. Grant (15 Mass. R. 505, 517, 522), and Spear v. 
 Grant (16 Mass. R. 9, 15). 
 
 If I am right in this position, the principal difficulty in 
 the cause is overcome. If the capital stock is a trust fund, 
 then it may be followed by the creditors into the hands of 
 any persons, having notice of the trust attaching to it. As 
 to the stockholders themselves, there can be no pretence to 
 say, that, both in law and fact, they are not affected with the 
 most ample notice. 
 
 The doctrine of following trust funds into the hands of 
 any persons, who are not innocent purchasers, or do not 
 otherwise possess superior equities, has been long estab- 
 lished. Lord Redcsdale, in Adair v. Shaw (i Sch. & Lef. 
 243, 262), lays it down in very broad terms. He says, "if 
 we advert to the cases on this subject, we shall find, that 
 trusts are enforced not only against those persons, who right- 
 fully are possessed of the trust property, as trustees, but also 
 against all persons, who come into possession of the property 
 bound by the trust with notice of the trust; and whoever 
 comes so into possession, is considered as bound with respect 
 to that special property to the execution of the trust." And 
 a very strong recognition, as well as application of the prin- 
 ciple, will be found in Taylor v. Plmncr (3 Maule & Selw, 
 562, 574,) even in a court of common law. Upon this ground.
 
 WOOD V. DUMMER 787 
 
 assets disposed of by executors by misapplication, or existing 
 in the hands of debtors, where the executor is insolvent, or 
 there is collusion, are often reached in favor of creditors, as 
 a trust fund. Hill v. Simpson (7 Vez. 162), and the cases 
 there cited fully illustrate this position. The cases of part- 
 nership furnish also a pretty strong analog}-. There, "in 
 equity, partnership funds will be followed in favor of cred- 
 itors into the hands of third persons. It is true, that, as the 
 master of the rolls said in Campbell v. Mulleft (2 Swanston 
 R- 55C>' 575)' ^^^^ equities of creditors are to be worked out 
 through the medium of the partners. They have no lien, 
 but something approaching to a lien, which courts of equity 
 will regard and enforce, in all cases, where superior rights, 
 which ought to be protected, do not intervene. It is not, 
 however, necessary to search for analogous cases ; for upon 
 the plain import of the charter, the capital stock is a trust 
 fund for creditors, and the stockholders, upon the division, 
 take it subject to all equities attached to it. They are, to all 
 intents and purposes, privies to the trust, and receive it cum 
 oncre. * * *i 
 
 The next question is, what sort of decree the plaintiffs 
 are entitled to. Are they entitled to a decree, to the full 
 amount of the dividends received by the defendants re- 
 spectively, towards payment of the debts due from the bank 
 to them, or are they entitled only to a pro rata payment out 
 of that dividend, in the proportion, which the stock, held by 
 the defendants, bears to the whole capital stock? 
 
 The bill does not allege, that the other stockholders, who 
 have received dividends, are insolvent, or not of the jurisdic- 
 tion of the Court. Nor does it state what the amount of the 
 debts due from the bank to bill-holders, or others, is. It 
 would have been desirable, as far as it was practicable, that 
 all the other creditors, who had a common interest, might 
 
 ' The Court's discussion of questions of equity practice are omitted. 
 Judge Story decided, that as it was impossible to make all the credi- 
 tors and all the stockholders parties, the bill could be maintained by 
 some of the creditors against some of the stockholders.
 
 788 FRAUD ON CREDITORS OF CORPORATION 
 
 have been brought before the Court. But neither party has 
 urged it, or waived any formal objection to the introduction 
 of them. The Court, therefore, in proceeding to do equity 
 to those before it, must take care, that it is not the instru- 
 ment of injustice to others, who are not represented. Non 
 constat, if the whole fund is taken from the defendants in 
 favor of the plaintiffs, that there will remain any solvent 
 stockholders, from whom the other creditors can claim any 
 share. It is true, in the case of the City of London v. Rich- 
 mond (2 Vern. 421 ; i Bro. Par. Cas. 518), that, though all 
 the parties in interest were not before the Court, the full rent 
 was decreed. But that case furnishes no rule for the present, 
 for there the trustees of all the share-holders were before 
 the Court, and they were the assignees of the estate, and 
 therefore held it liable to the rent. In the anonymous case 
 in 2 Eq. Ca. Abr. 166, pi. 7, the decree was only for a pro- 
 portion of the money expended. But, there, the bill asked 
 for no more. I rather incline to think, that the judges in the 
 cases in 15 Mass. R. 505, & 16 Mass. R. 9, meant to indicate 
 an opinion in favor of the bill-holders only for a proportion, 
 unless special circumstances were made out, such as insolv- 
 ency, &c. 
 
 What would be the effect of the introduction of an aver- 
 ment of the insolvency of the other stockholders, or their 
 being out of the jurisdiction, or of other circumstances de- 
 noting a peculiar equity, in a bill of this nature, it is not now 
 necessary to decide. Taking into consideration the manifest 
 defects of the present bill, the long delay in instituting the 
 present suit (which is not accounted for in any averments 
 framed for this pupose), the possible, nay, probable interme- 
 diate insolvencies of some of the stockholders, the injustice, 
 which may arise to other creditors of the bank, not before 
 the Court, by any other course, I have come to the conclusion, 
 that our duty is best performed by holding the plaintiffs en- 
 titled to a decree, that the defendants pay out of the divi- 
 dends of the capital stock received by them, so much of the
 
 WOOD V. DUMAIER 789 
 
 debts due to the plaintiffs, as the number of shares held by 
 them in the same capital stock (viz. 320 shares) bears to the 
 whole number of shares in the capital stock (viz. 2000 
 shares). 
 
 There is much force in the suggestion, that the corpora- 
 tion books have been withdrawn and secreted, so that the 
 plaintiffs were unable originally to ascertain who the other 
 stockholders were. But this difficulty might, in som.e meas- 
 ure, have been overcome by apt averments in the bill ; and 
 the disclosure of the names of several stockholders in the 
 answers puts the plaintiffs in possession of facts, by which, 
 at their choice, they might by an amendment have brought 
 those persons before the Court, or have assigned a sufficient 
 reason for the omission. 
 
 My judgment accordingly is, that the defendants are to 
 pay the plaintiffs, in the proportion already intimated, and 
 no further. 
 
 Decree accordingly with costs. - 
 
 ^Compare: Bartlett v. Drew, 57 N. Y. 587, 1874. (The B Co. 
 was a New Jersey corporation. C was a large stockholder and presi- 
 dent of the board of trustees. The Company sold certain boats owned 
 by it, and distributed the proceeds among its stockholders, C receiving 
 his share. A recovered a judgment against the Company and issued 
 execution which was returned nulla bona. A brought an action in the 
 nature of a creditor's bill against C to reach C's share in the proceeds 
 of the sale of the boat, which share was much larger than the amount 
 of A's Judgment. Decree that C be required to pay A's Judgment 
 affirmed, the Court being of the opinion that as this was not a bill 
 to w^ind up the Company it was unnecessary for C to make the other 
 creditors parties plaintiff; that this was merely a proceeding to reach, 
 in equity the property of a debtor, and, therefore, that C had nothing to 
 do with the equities between the stockholders, but could collect his 
 whole debt from C). 
 
 Osgood V. Laytin, 3 Keye's [N. Y.], 521, 1867. (A statute pro- 
 vided that the receiver of an insolvent corporation might, for the 
 benefit of creditors, treat as void, and resist all acts done in fraud of 
 the rights of any creditor. A was appointed receiver of a corporation. 
 He brought a bill in equity against the stockholders, alleging that they 
 had been paid a dividend when the Company was insolvent, and de- 
 manding a decree against the stockholders severally for the amounts 
 they had received. The defendant's demurrer was overruled. The 
 Court w-as of opinion that no action would lie at common law against 
 a stockholder by any one creditor. Such action, however, can be given 
 by statute. For a case in which a Judgment creditor of a company 
 brought, under a statute, a suit against a stockholder for the amount 
 of the dividend he had been paid when the company was insolvent, 
 see American Steel & Wire Co. v. Eddy, 89 N. W. 952 [Mich.], 1902).
 
 790 FRAUD ON CREDITORS OF CORPORATION 
 
 CATLIN V. THE EAGLE BANK. 
 In the Supreme Court of Errors of Connecticut, 1826. 
 
 6 Connecticut Reports, 233. 
 
 This was a bill in chanceiy. 
 
 The Eagle Bank is a corporation, established by an act 
 of the legislature, in October, 181 1, for banking purposes, 
 with the usual powers of such an institution ; the charter be- 
 ing, at all times, subject to alteration, amendment or revoca- 
 tion by the General Assembly. The plaintiff is a creditor 
 of this corporation to the amount of between 90,000 and 
 100,000 dollars. The bank, on the 15th September, 1825, 
 failed, and was in fact insolvent. Among its creditors was 
 The Saz'iiigs Bank of Nezv Haven, a corporation empowered 
 to receive deposits from individuals, for safe-keeping and 
 management, and obliged to pay the depositors the interest 
 or profits that should accrue. This institution had deposited 
 with the Eagle Bank, at an interest of four per cent., and to 
 be returned on demand, all the money which it had received, 
 in small sums, from a great multitude of depositors, amount- 
 ing to between 80,000 and go, 000 dollars. In payment and 
 security of this demand, the directors of the Eagle Bank, 
 after its actual insolvency, mortgaged to the Savings Bank 
 real estate worth about 20,000 dollars paid to Samuel J. 
 Hitchcock, Esq., secretary of the Savings Bank, about 15,000 
 in money, and assigned to him sundry negotiable promissory 
 notes, to the amount of about 52,000 dollars. The bill 
 prayed that these conveyances might be set aside, and that all 
 the funds of the Eagle Bank, at the time of its failure, might 
 be equitably distributed among its creditors, in proportion to 
 to their respective claims. 
 
 The case was reserved for the advice of this Court. ^ 
 
 Hosmer, Ch. J. It is an undoubted principle, that the 
 
 ^The Reporter's notes of the arguments of Counsel arc omitted.
 
 CATLIN V. THE EAGLE BANK 791 
 
 powers of a corporation are solely derived from its char- 
 ter, which is the law of its nature ; and that it is invested 
 witli such powers only as are expressly delegated, or which 
 are necessar)', to carry the express delegations into effect. 
 The Nezv York Firemen Insurance Company v. Ely & al. 5 
 Co7m. Rep. 560. By the act of incorporation, the Eagle 
 Bank had authority to purchase, hold and convey property, 
 with the usual banking powers superadded ; and the direct- 
 ors of the bank were authorized to dispose of and manage 
 its monies, credits and property, and to regulate its con- 
 cerns, in all cases, not specially provided for. To this gen- 
 eral grant, in relation to the rights, privileges and duration 
 of the bank, there is neither exception nor limitation, save 
 that the charter is alterable, amendable, and revocable, at 
 the pleasure of the legislature. It results, undeniably, that 
 the rights, powers and duties of the bank, so far as they 
 depend on the act of incorporation, remain unchanged, until 
 it is revoked, and independent of its actual solvency or in- 
 solvency. The general laws of the land, or the principles 
 which guide this Court, as a court of chancery, may make a 
 difference on this subject ; but setting aside these considera- 
 tions, and admitting the operation of the charter exclu- 
 sively, the bank is authorized to exercise the same powers, 
 at all times, without reference to its condition. 
 
 Whether the directors of the corporation, after it has 
 become actually insolvent, can make payment or give secur- 
 ity to one of its creditors, and leave another unpaid and 
 without security, is the general question to be determined. 
 It has been contended, in behalf of the plaintifY, with no 
 inconsiderable ingenuity, that the legislature intended to 
 render the corporation at all times a trustee for the creditors. 
 This suggestion is too unfounded, and too destitute of prac- 
 tical importance, to be admitted or discussed. Such a prin- 
 ciple, during the solvency of the bank, must be dormant and 
 useless ; and neither the charter, nor the nature of the case, 
 furnishes any warrant for the supposition.
 
 792 FRAUD ON CREDITORS OF CORPORATION 
 
 If the corporation, so far as regards its right to man- 
 age and dispose of its property, has power analogous with 
 that which is vested in an individual, the plaintiff's bill is 
 wholly destitute of merits. An individual debtor, who is 
 actually insolvent, may prefer one creditor to another, un- 
 less in certain cases under the bankrupt laws ; and to do this, 
 as was said by Lord Kenyan, is neither illegal nor immoral. 
 We have no bankrupt system, to control the acts of the in- 
 solvent merchant; and in the absence of all legal liens, he 
 may prefer a creditor, if the act is done in good faith. To 
 discuss the reasons of the rule is unnecessaiT- It is suf- 
 ficient to say to those, who are not disposed to unsettle 
 foundations, that it is firmly and uniformly established, both 
 at law and in chancery. Estzvick v. Cailland, 5 Term Rep. 
 420. Nnnn v. Wilsmore, 8 Term Rep. 521. Hopkins v. 
 Gray, 7 Mod. Rep. 139. Meiix & al. v. Hozvell & al., 4 East 
 I. McMenomy & al. v. Ferrers, 3 Johns. Rep. 84. Willes 
 & al. V. Ferris, 5 Johns. Rep. 344. Small v. Oiidley, 2 P. 
 Wms. 427. Cock V. Goodfellozv, 10 Mod. Rep. 489. 
 Phoenix v. Assignees of Ingraham, 5 Johns. Rep. 412, 426, 
 427. liendrick v. Robinson, 2 Johns. Ch. Rep. 283. The 
 same rule is equally applicable to partners; and what is a 
 banking corporation, in the essence, but a partnership au- 
 thorized by a special act of the legislature? Gozv on Part. 
 234. It is an artificial person; and this denomination is 
 given to it, by reason of its resemblance to a natural per- 
 son, in respect to its powers, rights and legal duties. It is 
 difficult for me to conceive, where no restraint is inter- 
 posed, in a charter of incorporation, on what ground the 
 general authority delegated is subjected to exceptions, or 
 fettered by restrictions, from which an individual and a 
 mercantile company are free. And this difficulty is much 
 increased, as no case intimating this diversity between cor- 
 porations and individuals, has been cited, nor can be found, 
 by my utmost researches. Where no legal lien has been 
 obtained, it is a reasonable supposition, that the relation
 
 CATLIN V. THE EAGLE BANK 792> 
 
 of creditor and debtor, must, in all cases, infer the same con- 
 sequences ; and that where the same mischief exists, there is 
 the same law. The cases of an individual and of a corpora- 
 tion, in the matter under discussion, it appears to me, are 
 not merely analogous, but identical ; and I discern no reason 
 for the slightest difference between them. There exists no 
 doubt, that there have been many instances of actually in- 
 solvent corporations, where certain creditors have been pre- 
 ferred to others; and the perfect silence until now, on the 
 subject of this fancied diversity, is powerful to show what 
 has been the universal opinion. 
 
 It however has been insisted for the plaintiff, that on 
 the actual insolvency of the bank, the corporation were the 
 trustees of the creditors; and if this be true, the latter be- 
 come the cestity que trusts of all the corporate estate. The 
 consequence, on this supposition, would be, that all persons 
 coming into possession of the bank property, with notice 
 of the trust, must be considered as trustees. Daniels v. 
 Davison, i6 Ves. jun. 249. Moore v. Butler, i Scho. & 
 Lef. 262. No express trust was created, on the happening 
 of the bank's insolvency; but the charter, on every fair prin- 
 ciple of construction, conferred on the corporation the en- 
 tire control of its property, as well after as before this event. 
 
 It however has been imagined, that the trusts arose by 
 operation of law. I enquire of what law? No principle, or 
 case, or analog}^ has been referred to, that supports the 
 proposition, nor am I capable of conceiving any. The in- 
 solvent banking corporation is just as much a trustee of the 
 creditors, and no more, as 'the insolvent individual is the 
 trustee of his creditors. The relation of creditor and debtor 
 exists in both cases; but from this relation no trust arises. 
 Undoubtedly, in all cases of actual insolvency, the creditor 
 would derive security from this doctrine; and often great 
 losses might be prevented. But the interest of the insolvent 
 person is not to be entirely disregarded. His creditor has 
 voluntarilv become such with full knowledge, that his se-
 
 794 FRAUD ON CREDITORS OF CORPORATION 
 
 curity must very much depend on the integrity of his 
 debtor. With open eyes he has given credit, and the pubhc 
 charter of the corporation has instructed him in all the 
 powers and rights of the corporation. Now, it would be a 
 very harsh and inequitable doctrine, but on the plaintiff's 
 claim, it is inevitable, that the moment a banking institution 
 is unable to pay all its debts, the directors of the bank may 
 not issue a bank bill, dispose of bank property, make pay- 
 ment of a single debt, or perform one bank operation. May 
 not an individual, or mercantile company, under the same 
 circumstances, proceed in the usual train of business? This 
 is not disputed. It is the law of chancery, that they may 
 prefer one creditor to another; and this, on a principle of 
 analogy, refutes, entirely, the supposition of a trust in this 
 case. The novelty and unfoundedness of the plaintiff's 
 claim are such that it is difficult to support, or even to oppose 
 it, without taking leave of every established principle, and 
 beating the air. That the directors of the Eagle Bank are 
 trustees, I admit; but they are the trustees of the stock- 
 holders. The stockholders are the cestuy que trusts, and the 
 charge of breach of trust must come from them. The At- 
 torney General v. The Utica Insurance Company, 2 Johns. 
 Ch. Rep. 371, 385. 
 
 The funds of the corporation, after its insolvency, have 
 been called equitable assets; but the name was wholly mis- 
 applied. Equitable assets, generally speaking, are such as 
 the debtor has made subject to his debts generally, that 
 would not thus be subjected without his act; (2 Fonb. Eq. 
 402, n. d.) and which can be reached only by the aid of a 
 court of equity. They are divisible among the creditors, 
 as all property is, when placed under the jurisdiction of a 
 court of chancery, pari passu, in ratable proportions. Riggs 
 & al. V. Murray & al.,2 Johns. Ch. Rep. 565, 577. But they 
 must be assets, or they cannot be equitable assets; and this 
 term does not express the nature of property, in the hands 
 of an individual, partnership or corporation actually in-
 
 CATLIN V. THE EAGLE BANK 795 
 
 solvent. On the estate of such persons, there is no equitable 
 lien to interrupt the free progress of their business, or pre- 
 vent the fair disposition of their property. The case of 
 Benson v. Le Roy, 4 Johns. Ch. Rep. 651, cited for the 
 plaintiff, illustrates the principles advanced. It proves only 
 that a devise of an estate to trustees, in trust to pay debts, 
 and distribute the residue, places the assets under the juris- 
 diction of the court. Undoubtedly, it does; for by the ex- 
 press appointment of the devisee, the estate was a trust 
 estate. 
 
 There is a class of cases, in which chancery has ex- 
 ercised a control over corporations, in relation to breaches 
 of trust; but in such cases, the jurisdiction has alone been 
 extended to charitable institutions. Shaw v. Cunliffe, 4 
 Bra. Ch. Rep. 145. Ball v. Montgomery, 2 Ves. jun. 199. 
 In The King v. Watson & al. 2 Term Rep. 199, the court, 
 however, intimated, without discussion, if any corporation 
 misapplied monies, that it was an abuse of trust, which 
 might be the subject of application to the court of chancery. 
 This case has been doubted, by Lord Eldon, in Attorney 
 General v. Carmarthen, Coop. Eq. Rep. 30., and in com- 
 menting upon it, it was observed, by the late Chancellor 
 Kent, that the chancery cases do not recognize any such 
 general jurisdiction. Attorney General v. Utica Insurance 
 Co. 2 Johns. Ch. Rep. 384. In the case of Adley v. The 
 Whitstahle Company, 7 Ves. jun. 315, Lord Eldon, with 
 hesitancy, admitted a jurisdiction in equity against a cor- 
 poration, by ordering an account of profits, when, by an il- 
 legal by-law, the plaintiff was excluded from a share of 
 them. This, it will be observed, was merely an equitable 
 interposition, between the persons interested in certain 
 profits, and does not at all support the principle that chan- 
 cery, in behalf of a creditor, will take cognizance of cor- 
 porate funds misapplied. In Vose v. Grant, 15 Mass. Rep. 
 505, an action on the case was brought by a bill-holder, to 
 recover a sum of money of the defendant, as a stockholder 
 
 I
 
 796 FRAUD ON CREDITORS OF CORPORATION 
 
 and director of a bank; the stockholders of the bank hav- 
 ing divided their capital stock among themselves, so that the 
 corporate funds were insufficient to redeem the outstanding 
 notes and bills. The action was not sustained by the court ; 
 and in giving his opinion, it was said by Jackson, J., that a 
 court of chancery would probably give relief against the 
 stockholders. This obiter dictum of a learned judge, on a 
 point not made or discussed, and without the citation of 
 principle or case, was not intended to express any thing 
 more, than the first impression of his mind; and this is 
 clearly manifested by the word "probably," with which the 
 intimation was accompanied. On the other hand, in the 
 Attorney-General v. The Corporation of Carmarthen, Coop. 
 Eq. Rep. 30, the jurisdiction was denied, by the chancellor, 
 in the very case of a misapplication of funds. And in the 
 Mayor and Commonalty of Colchester v. Lowton, i Ves. & 
 Bea. 226, Lord Eldon held, that there was no instance of a 
 trust attaching, upon the ground of a misapplication of 
 funds by corporations, except in the case of corporations 
 holding to charitable uses. 
 
 From this discussion it is unquestionable, that the juris- 
 diction of chancery does not extend to the disposal of the 
 corporate estate or funds of the Eagle Bank. More time 
 has been occupied in the examination of the principle, 
 than perhaps can be justified, as it has no application to the 
 case before us. The bank has, in no proper sense, misap- 
 plied its funds. It has done what it had a right to do, and 
 what is uncontrollable by this Court; that is, it has pre- 
 ferred to pay and secure the claim of what was considered 
 a meritorious creditor. Of its creditors, the corporation 
 was not a trustee ; they had no lien upon its funds ; and no 
 case is made out, entitling the plaintiff to relief, or show- 
 ing any jurisdiction exercisable by this Court. 
 
 The plaintiff's bill must be dismissed.
 
 ROUSE V. MERCHANTS' NATIONAL BANK 797 
 
 ROUSE V. MERCHANTS' NATIONAL BANK. 
 
 In the Supreme Court of Ohio,, 1889. 
 
 46 Ohio State Reports, 493' 
 
 Williams^ /. The general question for decision in this 
 case, is, however a corporation for profit, organized under 
 the laws of this state, can, in the disposition of the cor- 
 po ration property, after it has become insolvent, and ceased 
 to further prosecute the objects for which it was created, 
 prefer some of its creditors over others. 
 
 The claim of the plaintiff in error is, that when the cor- 
 poration becomes insolvent and ceases to carry on business, 
 its property and assets constitute a trust fund for the benefit 
 of its creditors, and the directors in possession of the cor- 
 poration property, being trustees for all the creditors, can- 
 not lawfully dispose of it otherwise than for the equal ben- 
 efit of all the corporates creditors. The defendant in error, 
 on the other hand contends, that when not restricted by the 
 law of their creation, or prevented by the operation of some 
 bankrupt or insolvent law, insolvent corporations may, the 
 same as natural persons, make preferences among their cred- 
 itors. 
 
 Decisions of courts will be found, maintaining each of 
 these diverse positions. The precise question has not been 
 decided in this state, and in view of the conflict of authority 
 elsewhere, we are at liberty to adopt that rule, which best 
 harmonizes with the policy and legislation of the state, 
 rests upon the sounder reason, as we conceive it to be, and 
 coincides with our sense of justice and right. 
 
 The right of the individual debtor to prefer one creditor 
 to another, though at the time insolvent, rests upon his com- 
 plete dominion over, and consequent unrestricted power of 
 
 ^ The Reporter's statement of the facts of the case, and his notes 
 of the arguments of counsel are omitted.
 
 798 FRAUD OX CREDITORS OF CORPORATION 
 
 disposition of his property. And the cases which hold that 
 insolvent corporations are entitled to make preferences 
 among their creditors, attribute to them, the same unlimited 
 control over their property that is possessed by individuals 
 over theirs. In Catlin v. Eagle Bank of New Haven, 6 Conn. 
 233, which is the leading case in this country maintaining 
 the right of an insolvent corporation to prefer one or more 
 of its creditors over others, the decision is distinctly placed 
 upon the ground that the particular corporation was invested 
 with the control, and power to dispose of the corporate prop- 
 erty, as fully and to the same extent that natural persons 
 have with respect to their property. Hosmer, C. J., in the 
 opinion in that case, says : "If the corporation, so far as re- 
 gards its right to manage and dispose of its property, has 
 power analogous with that which is vested in an individual, 
 the plaintiff's bill is wholly destitute of merits. * * * 
 The cases of an individual and of a corporation in the mat- 
 ter under discussion, it appears to me, are not merely anal- 
 agous, but identical ; and I discern no reason for the slightest 
 difference between them." And again he says that "no ex- 
 press trust was created on the happening of the bank's insolv- 
 ency ; hilt the charter, on every fair principle of construction, 
 conferred on the corporation the entire control of its prop- 
 erty, as ivcll after, as before this event. * * * "The in- 
 solvent banking corporation is just as much a trustee of the 
 creditors, and no more, as the insolvent individual is the 
 trustee of his creditors. The relation of creditor and debtor 
 exists in both cases; but from this relation no trust arises." 
 
 We have not the charter of the corporation in question 
 in that case before us, but we assume that the learned Judge 
 was correct in saying that by every fair construction, it con- 
 ferred upon the corporation the entire control of its property 
 after its insolvency; if so, no fault need be found with his 
 conclusion, that it might, like any individual, prefer some of 
 its creditors over others. 
 
 Corporations generally do not possess such amplified
 
 ROUSE V. MERCHANTS' NATIONAL BANK 799 
 
 powers, and especially those created under the laws of this 
 state. In this state, corporations have not the same powers 
 and capacities as natural persons, but are authorized for spe- 
 cified and defined purposes. They are clothed with those at- 
 tributes only, with which the law, under which they are 
 created, invests them, and can exercise no powers not ex- 
 pressly conferred, or necessary to carry into effect those in 
 terms granted. 
 
 Since the constitution of 1851, it has been the settled 
 policy of this state, to afford adequate protection to the cred- 
 itors of corporations. That constitution contains the provi- 
 sion that "dues from corporations shall be secured by such 
 individual liability of the stockholders, and other means, as 
 Jiay be prescribed by law; but in all cases, each stockholder 
 shall be liable, over and above the stock by him or her owned, 
 and any amount unpaid thereon, to a further sum, at least 
 equal in amount to such stock." Legislation, under this 
 constitution has been shaped to fully effectuate the consti- 
 tutional guarantee. All corporations organized for profit, 
 are required to have a capital stock, fifty per cent, of which 
 must be subscribed, and at least ten per cent, paid in, be- 
 fore the organization can be effected and ; and the stock- 
 holders are made liable, in addition to their stock, to an 
 amount equal to the stock held by them, to secure the pay- 
 ment of the, debts of the corporation. This liability it has 
 uniformly been held by this court, is a security exclusively 
 for the benefit of the creditors of the corporation, over 
 which the corporation has no control ; and, moreover, the 
 security is for the equal benefit of all the creditors. The 
 suit to enforce it must be by all the creditors, and against 
 all the stockholders; and no creditor can acquire priority 
 over the others, with respect to it. And, while power is con- 
 ferred on corporations to reduce their capital stock, it is ex- 
 pressly provided that the rights of creditors shall not be 
 affected, nor in any way impaired. The corporate powers, 
 business and property of the corporation, must be exercised.
 
 800 FRAUD ON CREDITORS OF CORPORATION 
 
 conducted and controlled by a board of directors, all of 
 whom must be stockholders ; and, as a still further guarantee 
 for creditors, the powers of corporations over their prop- 
 erty, its use and disposition, are so circumscribed by posi- 
 tive statute that no corporation can employ its stock, means, 
 assets or other property, directly or indirectly, for any other 
 purpose whatever, than to accomplish the legitimate objects 
 of its creation. The extent of the powers expressly con- 
 ferred on them are, to sue and be sued, contract and be con- 
 tracted with, and acquire and convey such real and personal 
 estate as may be necessary or convenient to carry into effect 
 the objects of the incorporation, to make and use a common 
 seal, and do all needful acts to carry into effect the objects 
 for which they are created. It is obvious, that the corporate 
 property, can not with propriety be said to be owned by the 
 corporation, in the sense of ownership as applied to prop- 
 erty belonging to natural persons. The latter may without 
 restriction, acquire and dispose of property for any lawful 
 purpose, while both the power of acquisition and disposition 
 of the former, are limited to the special objects already men- 
 tioned. The corporate property is in reality a fund set 
 apart to be used only in the attainment of the objects for 
 which the corporation was created, and it can not lawfully 
 be diverted to any other purpose. As soon as acquired, it 
 becomes impressed with the character of a trust fund for that 
 purpose and the shareholder or creditor may interpose to 
 prevent its diversion from the objects of the incorporation, 
 injurious to him. Taylor on Private Corporations, sec. 34. 
 The custody and control of the property, and the man- 
 agement of the business of the corporation, are confided to 
 a board of directors chosen by the shareholders. Into the 
 hands of these officers, through whom alone corporations 
 can act, the shareholders surrender their funds, and entrust 
 the management of the affairs and property of the corpora- 
 tion to them. A relation of trust and confidence, therefore, 
 arises between the stockholders and directors of a corpora-
 
 ROUSE V. MERCHANTS' NATIONAL BANK 801 
 
 tion, out of which grow the duties of the latter, to so ad- 
 minister the trust as will best promote the interests of the 
 former, to pay them their appropriate dividends from time 
 to time, and upon the termination of the corporation, to 
 distribute to them their respective shares of the corporate 
 property, after the payment of its debts and liabilities. 
 These duties are eminently of a fiduciary nature. It is now so 
 well established as to be no longer a subject of controversy, 
 that the relation of trustee and cestui que trust subsists be- 
 tween the directors and shareholders. And since the direc- 
 tors, as such trustees, represent and act for all the share- 
 holders, they cannot lawfully favor any particular share- 
 holder or class of shareholders, but every authority and 
 power possessed by them, must be exercised for the benefit 
 of all alike. Otherwise, no corporation could endure. If 
 the directors and officers of a corporation were allowed, in 
 the conduct of the business, and disposition of the property, 
 to favor one or more shareholders to the detriment of the 
 others, the minority would be the prey of the majority; for, 
 it would then be within the power of the majority to com- 
 bine and elect the officers, who in turn should manage the 
 whole business and apply the whole corporate property for 
 the benefit of the majority, and thus practically confiscate 
 the entire property interest of the minority. Corporations 
 would thus become traps for the unwary, and legalized in- 
 struments, of fraud. The doctrine that the directors are 
 trustees for the shareholders, and for the equal benefit of 
 all, it is obvious, is essential to the existence of corporations. 
 But, it is the right of the creditors, equally with the 
 shareholders, to have the corporate property applied to the 
 purposes for which the corporation was created, and this 
 includes the payment of the corporate indebtedness con- 
 tracted in the prosecution of its business. The rights of the 
 creditors to the corporate property, so far as it is necessary 
 to meet their demands, are superior to those of stock- 
 holders.
 
 802 FRAUD ON CREDITORS OF CORPORATION^' 
 
 In Perry on Trusts, sec. 242, the relative rights of the 
 creditors and shareholders are thus defined : "A corpora- 
 tion holds its property in trust, first to pay its creditors, and 
 second to distribute to its stockholders pro rata-. If, there- 
 fore, a corporation should dissolve, and divide its property 
 among its shareholders without first paying its debts, equity 
 would enforce the claims of its creditors by converting all 
 persons, except bona fide purchasers for value, to whom 
 the property had come, into trustees, and would compel 
 them to account for the property and contribute to the pay- 
 ment of the debts of the corporation to the extent of its 
 property in their hands." 
 
 It is now firmly established, that the property and as- 
 sets of a corporation are a trust fund for the payment of 
 its debts, especially in case of its insolvency. Since the case 
 of Wood V. Diimmer, 3 Mason, 311, where Mr. Justice 
 Story is said to have first formulated the doctrine, it has 
 been generally accepted, and is sustained by the highest 
 authority. Mr. Justice Swayne announces it with great 
 clearness in Sanger v. Upton, 91 U. S. 56, 60, as follows: 
 "The capital stock of an incorporated company is a fund 
 set apart for the payment of its debts. It is a substitute 
 for the personal liabilities which subsist in private co-part- 
 nerships. When debts are incurred, a contract arises with 
 the creditors that it shall not be withdrawn or applied, other- 
 wise than upon their demands, until such demands are sat- 
 isfied. The creditors have a lien upon it in equity. If di- 
 verted, they may follow it as far as it can be traced, and 
 subject it to the payment of their claims, except as against 
 holders who have taken it bona fide for a valuable consid- 
 eration, and without notice. It is publicly pledged to those 
 who deal with the corporation, for their security." In 
 Curran v. State of Arkansas, 15 How. 312, Mr. Justice 
 "Curtis said on this subject. "The capital and debts of bank- 
 ing and other moneyed corporations, constitute a trust fund 
 and pledge for the payment of its creditors and stockhold-
 
 ROUSE V. MERCHANTS' NATIONAL BANK 803 
 
 ers, and a court of equity will lay hold of the fund, and see 
 that it be duly collected and applied." And in Upton, as- 
 signee V. Tribilcock, 91 U. S. 45, 47, Mr. Justice Hunt thus 
 lays down the doctrine: "The capital stock of a moneyed 
 corporation is a fund for the payment of its debts. It is a 
 trust fund, of which the directors are the trustees. It js a 
 trust to be managed for the benefit of its shareholders dur- 
 ing its life and for the benefit of its creditors in the event of 
 its dissolution. This duty is a sacred one, and can not be 
 disregarded. Its violation will not be undertaken by any 
 just-minded man, and will not be permitted by the courts." 
 The doctrine is sustained by many authorities : 2 
 Story's Eq. sec. 1252; Pomeroy's Eq., sec. 1046; Taylor 
 on Private Corp., sec. 654, 655 ; Haywood v. The Lincoln 
 Lmnher Co., 64 Wis. 639. It was held by this court, as 
 early as Taylor v. Miami Exporting Co., 5 Ohio, 165, where 
 the opinion of Mr. Justice Story in Wood v. Dunimer. 
 supra, is quoted with approbation, and it is more distinctly 
 announced in the later case of Gooden v. The Canal Co., 18 
 Ohio St. 182, where it is said to be "well settled that the 
 property of a corporation is a trust fund in the hands of 
 its directors, for the benefit of its creditors and stock- 
 holders." 
 
 It being established that the corporate property is a 
 trust fund for the benefit of the corporate creditors, i.t fol- 
 lows, that after the insolvency of the corporation is ascer- 
 tained, and the objects of its creation are no longer pursued, 
 the managing board of directors then having the custody 
 of the property, become trustees thereof for the creditors; 
 and this relation, necessarily forbids any discrimination be- 
 tween the beneficiaries, in the distribution or application of 
 ' the fund. The due execution of the trust, demands abso- 
 lute impartiality toward the cestui que trustent. They must 
 be treated alike, and no preference can be made among them, 
 without a direct violation of the duties arising from the re- 
 lation. It would seem clear, that, if the corporate prop-
 
 804 FRAUD ON CREDITORS OF CORPORATION 
 
 erty constitutes a fund for the creditors, it is as much so for 
 one creditor as for another, and that the directors in posses- 
 sion, are without authority to dispose of it in disregard of 
 the rights of any creditor. They can no more discriminate 
 between creditors in such case, than they could, before the 
 insolvency of the corporation, between the shareholders. The 
 objects for which the corporation was created being no 
 longer prosecuted, and the occasion, for the exercise by the 
 board of directors, of the power of control and disposition 
 of the property for such purpose having ceased, there re- 
 mains no purpose to which its assets can lawfully be devoted, 
 except to the payment of the debts. In equity the corporate 
 property becomes the property of the creditors, and their 
 equities are equal. Every creditor, who became such by 
 parting with his money, property or other thing of value to 
 the corporation, contributed to the accomplishment of its 
 purposes, and augmented its corporate fund; and when the 
 fund is no longer demanded for the purposes of the corpora- 
 tion, the rights of the creditors become fixed instantly and 
 equally; for each, having contributed to the common fund, 
 has an interest in it, in proportion to his claim, equally with 
 every other creditor. This interest is sometimes called the 
 equitable lien of the creditor on the corporate property, 
 which enables him to follow it, even after it has left the 
 hands of the directors, wherever it can be found, except in 
 the possession of bona fide purchasers for value, and subject 
 it to the payment of the corporate indebtedness. It would 
 seem to result as a necessary consequence, that insolvent 
 corporations which have ceased to carry on business, cannot, 
 by pledge or mortgage of the corporate property to some of 
 the creditors, in payment or security of antecedent debts, 
 without other consideration, create valid preferences in their 
 favor over others; and this is the view maintained by the 
 more recent writers on the subject. 
 
 In the last edition of Taylor on Private Corporations,, it 
 is said: "When corporations become insolvent, the duty of
 
 ROUSE V. MERCHANTS' NATIONAL BANK 805 
 
 the directors toward its creditors becomes even stricter and 
 more imperative; for, under such circumstances, the rights 
 of creditors are paramount, and it has become probable that 
 they will be somewhat damaged; and the plain duty of di- 
 rectors who control the funds from which corporate debts 
 are paid, is to see that the loss is as small as possible. More- 
 over, since, upon the insolvency of the corporation, the 
 rights of unsecured creditors are equal, it would seem to be 
 unlawful, even in the absence of a statute expressly forbid- 
 ding it, for directors to make preferences among them." 
 (Sec. 759.) And, in sec. 668, it is further said: "To allow 
 an insolvent corporation to make an assignment of its prop- 
 erty, giving preferences to a portion of its creditors over the 
 others, is unjust, as well as utterly repugnant to the doctrine 
 that corporate property is a trust fund, on the credit of 
 which persons contract with the corporation. If such prop- 
 erty constitutes such a fund, it is clearly held in trust for 
 the benefit of one creditor just as much as another, and to 
 prefer one creditor to another is evidently beyond the author- 
 ity of the trustee. This view is far from being unsupported 
 by direct authority." 
 
 Mr. Morawitz, in his excellent work on private corpora- 
 tions, referring to the cases which hold that corporate prefer- 
 ences are valid, says : 
 
 "This doctrine, in the opinion of the writer, is wholly 
 indefensible on principle. The capital provided for the secur- 
 ity of the creditors of a corporation is a fund held for the 
 benefit of all the creditors equally. That the unsecured 
 creditors of a corporation are entitled to an equal distribu- 
 tion of the common security, has often been recognized by 
 the courts of equity in adjusting the rights of creditors 
 among themselves, and in relation to the company's share- 
 holders. After a corporation has become insolvent, and has 
 ceased to carry on business, the rights of its creditors, be- 
 come fixed. If a corporation, whose assets are not sufficient 
 to satisfy all of its creditors in full, can prefer certain cred-
 
 <Sn6 I'RAUD OX CREDITORS OF CORPORATION 
 
 itors, leaving others unpaid, this must be by virtue of a 
 power reserved by implication to the company and its agents. 
 But this power cannot justly be included in the general 
 powers of management which a corporation must necessarily 
 possess over its property, in order to carry on its business 
 and further the purposes for which the company was 
 formed. The purposes of a corporation are not furthered in 
 any manner, by giving it or its agents the power, after the 
 company has become insolvent and has ceased to carry on 
 business, and after its shareholders have lost their interests 
 in the corporate estate, to prefer a portion of the creditors, 
 according to interest or mere whim, and to pay their claims 
 in full, leaving the others wholly without redress. The doc- 
 trine that an insolvent corporation may prefer certain cred- 
 itors at the expense of others, seems to have been first started 
 in Caflin v. Eagle Bank, (6 Conn. 2T)2>)y ^ case in which the 
 fundamental rule that the assets of an insolvent corporation 
 constitute a trust fund pledged for the security of creditors 
 was denied. It is a doctrine which is at variance with the 
 whole theory of the law concerning the rights of creditors 
 of insolvent corporations, and is contrary to the plainest prin- 
 ciples of justice." (2 Morawitz, Corporations, sec. 803.) 
 
 And in a very recent work on insolvent corporations it is 
 said : "The practical working of the rule sustaining corpo- 
 rate preferences is monstrous. The unpreferred creditors 
 have only a myth or shadow left to which resort can be had 
 for payment of their claims ; a soulless, fictitious, unsubstan- 
 tial entity that can be neither seen nor found. The capital 
 and assets of the corporation, the creditors' trust fund, may, 
 under this rule, be carved out and apportioned among a 
 chosen few, usually the family connections or immediate 
 friends of the officers making the preference. This rule of 
 law is entitled to take precedence among the many reckless 
 absurdities to be met with in cases affecting corporations, as 
 being a manifest travesty upon natural justice." (Wait on 
 Insolv. Corporations, section 162.) "Elsewhere we have
 
 ROUSE V. MERCHANTS' NATIONAL BANK 80/ 
 
 deprecated the right which is recognized in a number of 
 cases, of insolvent corporations to make preferential assign- 
 ments. It would seem to be an idle waste of words to desig- 
 nate the capital and assets of a corporation as a trust fund 
 for the benefit and security of creditors in the event of dis- 
 solution or insolvency, if one of the first principles of the 
 law of trusts — equality of distribution — could be openly vio- 
 lated, and the effects of the bankrupt company apportioned 
 among a favored few." (lb., section 654.) 
 
 Without extending the discussion, we are of opinion 
 that when a corporation for profit, organized under the laws 
 of this state, becomes insolvent and ceases to carry on its 
 business or further pursue the purposes of its creation, the 
 corporate property constitutes a trust fund for the equal 
 benefit of the corporate creditors, in proportion tp the 
 amounts of their respective claims ; and that it cannot then, 
 by pledge or mortgage of the property to some of its cred- 
 itors as security for antecedent debts, without other con- 
 sideration, create valid preferences in their behalf, over the 
 other creditors, or over an assignment thereafter made for 
 the benefit of creditors. 
 
 Instead of the individual liability of the stockholders 
 being a ground of objection to this conclusion, it furnishes 
 •an additional reason in its support. It is well settled that the 
 corporate property is the primary fund for the payment of 
 the debts of the corporation, and the statutory liability of the 
 stockholder is a security to be resorted to only when the 
 payment of its. debts. cannot be enforced against its propert}^ ; 
 .and .it w.a.s \\Q\(l-m- Harp old v.-Stobart, decided .-at this t-erm, 
 that s.tockhoklers who have assigned their stock tO' an .in- 
 solvent assignee, are liable only for such portion of the debts 
 existing while they were such stockholders, as is equal to 
 .the proportion which their stock bears to the stock held by 
 all stockholders liable for the same debts. Admit the power 
 of the board of directors of .an insolvent corporation to 
 make preferences among its creditors, and- it. ijiust- f oIIqw
 
 808 FRAUD ON CREDITORS OF CORPORATION 
 
 that they may prefer any they choose to select for that 
 purpose. This would be wholly inconsistent with the trust 
 relation subsisting between the directors and shareholders, 
 for since different stockholders, or classes of stockholders 
 may be liable for different debts, and not all for the same 
 debts, if the directors could apply the corporate property 
 to some of its debts leaving others entirely unprovided for, 
 they would be at liberty to select the debts for which particu- 
 lar stockholders alone were liable, and appropriate all of the 
 property to their satisfaction, leaving the other stockholders 
 to respond to the full extent of their statutory liability, for 
 the remaining debts. The directors would in this way, be 
 enabled to apply the whole corporate property to their own 
 exoneration. 
 
 Whether an insolvent corporation, which is still a going 
 concern, and in good faith engaged in the prosecution of its 
 business, may borrow money, or contract, or procure an ex- 
 tension of other bo>ia fide indebtedness, and convey or pledge 
 the corporate property in security thereof, is a question not 
 involved in this case, and upon which we here express no 
 opinion. 
 
 It appears from the finding of facts in this case, that the 
 directors of the corporation declared its insolvency, and di- 
 rected by the same resolution, the execution of an assignment 
 for the benefit of its creditors, and of the preferential mort- 
 gages to the bank, and other creditors. It does not appear, 
 that there had been any agreement between the mortgagees 
 and the corporation that such mortgages should be given, 
 nor, that they were given for any other consideration than 
 the antecedent indebtedness of the corporation to the cred- 
 itors receiving them. Being merely voluntary mortgages to 
 secure pre-existing debts, without other consideration, they 
 cannot prevail against the equitable rights of the corporate 
 creditors. Lezvisy. Anderson, 20 Ohio St. 281. 
 
 Counsel have argued at length, and with great ability, 
 another question sufficiently raised on the record, and that i..
 
 ROUSE V. MERCHANTS' NATIONAL Bx\NK 809 
 
 whether, in view of the facts found by the court below 
 that the execution of the assignment for the benefit of cred- 
 itors, and the preferential mortgages, was directed by the 
 same resolution, and were in fact executed at the same time, 
 the several instruments may not be treated as constituting 
 together an assignment in trust, with intent to prefer the 
 mortgagees, and so inure to the equal benefit of all creditors. 
 The determination of this question not being necessary to 
 the decision of the case, no opinion is expressed upon it. 
 
 Other questions presented in the argument, and con- 
 sidered by the court, do not call for further report. 
 
 No serious objection is made here to so much of the 
 judgment of the court below as establishes the amount of 
 the plaintiff's claim, and requires the assignee to allow the 
 same in the administration of his trust, and to that extent 
 the judgment is affirmed. But the judgment establishing the 
 validity of the mortgage, and giving it priority over the 
 assignment, is reversed, and judgment will be entered upon 
 that branch of the case for the trustee. 
 
 Judgment accordingly.^ 
 
 * Compare: Fowler v. Bell, 90 Tex. 150, 1896. (The law of Iowa 
 permits a corporation to prefer creditors ; the law of Texas prohibits 
 such preferences. The A Company, an Iowa corporation, did business 
 and owned property in Texas. It executed in Iowa a mortgage to C, 
 a creditor, on its land in Texas, the mortgage amounting to a prefer- 
 ence. Held, that the mortgage was void.) 
 
 For cases accord and contra involving preferences to the creditors 
 Of a corporation gencvally; See Amer. Dig. tit. Corporations, Key, No. 
 544; 12 Cent. Dig. tit. Corporations, §§ 2162-2169; Also, 10 Cyc. 1246. 
 et seq.
 
 810 FRAUD ON CREDITORS OF CORPORATION 
 
 OLNEY V. THE CONANICUT LAND CO. 
 In the Supreme Court of Rhode Island, 1889. 
 
 16 Rhode Island Reports, 597. 
 Bill in Equity to annul a mortgage and for a receiver. 
 
 Stiness, /. The complainants, judgment creditors of 
 the Conanicut Land Company, seek to set aside a mortgage 
 given to the defendants Lippitt, Davis, and Bradford, to 
 secure them for advances, and for their indorsements 
 of the notes of the company. The mortgage was given 
 immediately after the complainants had brought suits for 
 damage against the company for negligence, and zvlicii 
 the company zuas insolvent; the agreed statement of 
 facts showing that it had not sufficient assets with which 
 to discharge all its outstanding indebtedness, were pay- 
 ment of the same to be demanded when due. Since then 
 the complainants have levied execution on the property 
 of the company. The complainants claim that, as the mort- 
 gagees are three of the four directors who voted to give the 
 mortgage, thereby securing themselves, their action is so in- 
 consistent with their fiduciary relation that it should be set 
 aside. No fraudulent act in regard to the giving of the 
 mortgage is alleged, other than the fact itself and the case 
 being submitted on bill, answer, and agreed facts as to the 
 validity of the mortgage, we have the simple question 
 whether their directors of an insolvent corporation are de- 
 barred in equity, by virtue of their positions, from preferring 
 debts due to themselves. In so far as the mortgage is to be 
 regarded as a mere preference, it is not contended that 
 it is invalid. Except as limited by statute, the right of a 
 debtor to prefer a part of his creditors has always been up- 
 held in this State. Dockray v. Dockray, 2 R. I. 547; 
 Elliott V. Benedict, 13 R. I. 463. The vital question is, 
 whether a director of an insolvent corporation is to be re-
 
 OLNEY V. THE CONANICUT LAND CO. 811 
 
 garded as a 'trustee for its creditor. If he is so, the duty 
 of a trustee to a cestui que trust is plain. For a trustee to 
 collect his own debts, to the detriment of that of his cestui, 
 is a clear breach of fidelity. When one accepts the trust 
 of caring for another's interest he accepts the attendant 
 duty. It must be admitted that directors of a corporation 
 are not technical trustees. They do not have in themselves 
 the title to property which they hold for the benefit of 
 others; and certainly, as to creditors, they are under no 
 express trust. The corporation is a legal being, distinct 
 from its stockholders and officers. It may deal with them 
 as individuals and may owe them debts. It holds its own 
 property, and has the capacity and responsibility of acting 
 for itself. Nevertheless the conduct of its affairs must, of 
 necessity, be intrusted to officers in whom confidence is 
 reposed, to whom large powers are given, and by whom 
 its property is managed for the common benefit. As cor- 
 porations have multiplied and have become so greatly 
 concerned in business affairs in recent years, the obligations 
 arising from such a relation have become correspondingly 
 prominent. While the decisions in regard to this relation 
 are not harmonious, it has been generally agreed that di- 
 rectors are trustees for stockholders. This being estab- 
 lished, we think it follows naturally that, when the cor- 
 poration becomes insolvent and the stockholders have no 
 longer a substantial interest in the property of the cor- 
 poration, directors should be regarded as trustees of the 
 creditors to whom the property of the corporation must go. 
 If directors, with their office, assume the duty of caring for 
 the interests of the stockholders, why do they not also 
 assume the duty incidentally of caring for the interests 
 of those who, instead of the stockholders, may come to 
 have claims upon the corporate property 
 
 In speaking of directors as trustees for stockholders, 
 Mr. Justice Miller, in Saivycr v. Hoag, ly Wall, 6io, calls 
 this "a doctrine of modern date ;" 1)ut as long ago as the time
 
 812 FRAUD ON CREDITORS OF CORPORATION 
 
 of Lord Hardwicke we find the duties and obligations of a 
 director of a corporation thus clearly set forth : "I take 
 the employment of a director to be of a mixed nature ; it par- 
 takes of the nature of a public office, as it arises from the 
 charter of the crown. But it cannot be said to be an em- 
 ployment affecting the public government. Therefore coril- 
 mittee men are most properly agents to those who employ 
 them in this trust, and who empower them to direct and 
 superintend the affairs of the corporation. By accept- 
 ing a trust of this sort, a person is obliged to execute it with 
 fidelity and reasonable diligence ; and it is no excuse to say 
 that they had no benefit from it, but that it was merely 
 honorary ; and therefore they are within the case of com- 
 mon trustees." Charitable Corporation v. Sutton, 2 Atk. 
 400. To the effect that officers of a corporation are trustees 
 for the stockholders, see Hodges v. New England Screw 
 Co. I R. I. 312; Hoyle v. Plattshurgh & Montreal R. R. 
 Co. 54 N. Y. 314; Koehler v. Black River Co. 2 Black, 
 715; York & North Midland Railway Co. v. Hudson, 16 
 Beav. 485; 19 Eng. Law & Eq. 361; Great Luxembourg 
 Railway v. Magnay, 25 Beav. 586; Hope et ux. v. Valley 
 City Salt Co. 25 W. Va. 789. Indeed, no cases, that we 
 know of, deny a fiduciary relation of directors to stock- 
 holders, however they may differ in the use of terms to 
 describe it. This relation has led logically to the conclusion 
 that in case of insolvency, the assets of the corporation 
 being no longer held for the benefit of stockholders, but 
 for the benefit of creditors, the directors owe to the cred- 
 itors the duty of a trustee. This duty is clearly stated by 
 Clifford, /., in Bradley v. Converse, 4 Cliff. 375 : "Assets 
 of an incorporated company are regarded in equity as held 
 in trust for the payment of the debts of the corporation, 
 and courts of equity will enforce the execution of such trusts 
 in favor of creditors, even when the matter in controversy 
 may not be cognizable in a court of law. Such assets are 
 usually controlled and managed by directors or trustees, but
 
 OLNEY V. THE CONANICUT LAND CO. 813 
 
 courts of equity will not permit such managers, in dealing 
 with the trust estate, in the exercise of the powers of their 
 trust, to obtain any undue advantage for themselves, to the 
 injury or prejudice of those for whom they are acting in a 
 fiduciary relation. Exact equality of benefit may be en- 
 joyed, but the trustees are forbidden to protect, indemnify, 
 or pay themselves at the expense of those who are similarly 
 in relation to the same fund." 
 
 To the same effect are Bradley v. Farwell, i Holmes, 
 433; Jackson V. Ludeling, 21 Wall. 616; Corbett v. Wood- 
 ward, 5 Sawyer, 403 ; Stout v. Yaegers Milling Co. 3 Fed. 
 Rep. 802; Haywood v. Lincoln Lumber Co. 64 Wise. 639; 
 Richard v. New Hampshire Insur. Co. 43 N. H. 263 ; San 
 Francisco & North Pacif. R. R. Co. v. Lee, 48 Cal. 398; 
 Gaslight Improvement Co. v. Terrell, L. R. 10 Eq. 168; 
 Hopkins's & Johnsons Appeal, 90 Pa. St. 69. Of the cases 
 cited by the defendants, only three fully sustain their 
 claim that, as creditors of the company, directors may, 
 in the absence of fraud, secure themselves for their own 
 debt, viz. : Burr's Executors v. McDonald, 3 Gratt, 206 ; 
 Planters' Bank of Farmville v. Whittle, 78 Va. 737; Garrett 
 V. The Burlington Plow Co. 70 Iowa, 697. 
 
 In the case of Railroad Co. v. Claghorn, i Speer Eq. 
 545, 562, frequently cited upon this point, the mortgage 
 in question was not giyen to, nor was the suit brought 
 against, directors; neither did the court find that the com- 
 pany was insolvent when the mortgage was given. The 
 case depended mainly on a statute. In Stratton v. Allen, 
 16 N. J. Eq. 229, 232, the court expressed no opinion 
 upon the point taken that the defendant was a trustee 
 by virtue of his office as director, but did hold that he was 
 not entitled to priority, but must share proportionately 
 with other creditors. This case also depended upon a 
 statute. 
 
 In Buell v. Buckingham, 16 Iowa. 284, Judge Cole 
 stated there was no evidence that the company was in-
 
 814 I-RAUD ON CREDITORS OF CORPORATION 
 
 solvent. Judge IJillon conceded that directors are trustees 
 for stockholders, and treats the case as a sale voidable be- 
 tween trustee and cestui que trust, to which a subsequent 
 attaching creditor, having no lien upon the property 
 at the time, could not make objection.^ Garret v. The Bur- 
 lington Plow Co. depended upon this and other cases in 
 Iowa which had followed its apparent doctrine. In Burr's 
 Executors v. McDonald, the question was not discussed upon 
 prinpiple or authority. In Planters Bank of Farmville v. 
 Whittle, the question was elaborately discussed. The cases 
 upon which the court relied were Railroad Co. v. Claghorn; 
 Stratton v. Allen ; and Buell v. Buckingham, to which we 
 have referred; also Ashhurst's Appeal, 60 Pa. St. 290, 
 which was a suit by stockholders, denied on account of laches 
 and absence of fraud, the court saying: "Creditors could 
 have avoided what was done, but the complainants are not 
 claiming as creditors or through creditors." Smith v. 
 Skcary, 47 Conn. 47, in which the company was supposed 
 to be solvent at the time of the transaction complained of; 
 also Gordon v. Preston, i Watts, 385 ; Whit-ujell v. Warren, 
 20 Vt. 425 ; and Sargent v. Webster, 13 Met. 497, in neither 
 of which cases was this subject treated of at length, or as 
 an important element of the case. 
 
 We think the weight of recent authority regards direc- 
 tors of an insolvent corporation a.s trustees for creditors, 
 and that this authority stands upon the better reason. If, 
 as Judge Dillon said, the right to collect a debt is "a. race of 
 diligence," open alike to both, it must be admitted 
 that it is a race in which the outside creditor is 
 unduly handicapped. The parties do not contend upon 
 an equal footing; and although it is said that 
 the director has only an advantage which results 
 from his position, and which is known to all who 
 
 ^ Note by the Reporter. — [See, on this point, In re IVincham Ship- 
 building, &c., Co. Jessel's Decision, 240; L R. 9 Ch. Div. 322, 328. 
 
 On the doctrine of the decision see Curran v. Arkansas, 15 How. 
 U. S. 304, 311, and i Hare Amer. Constit. Law, 635-637, text and note.]
 
 OLNEY c'. THE CONANICUT LAND CO. 815 
 
 deal with the corporation, yet no one would say that an 
 ordinary trustee should be entitled to an unequal start with 
 his cestui, by means of information received in the discharge 
 of his trust. If, then, the director be a trustee, or one who 
 holds a fiduciary relation to the creditors, in case of insol- 
 vency he cannot take advantage of his position for hjs own 
 benefit to their loss. The right of the creditor does not de- 
 pend upon fraud or no fraud, but upon the fiduciary re- 
 lation. * * *2 
 
 Our conclusion is that, in view of the fiduciar}' relation 
 of the directors to the creditors of the company, they are 
 not entitled to priority over the complainants by virtue of 
 their mortgage.^ 
 
 'The Court's discussion of certain facts claimed to exist by the 
 defendants, but which the Court thought were not supported by the 
 evidence, is omitted. 
 
 *For reference to cases see note to Adams & Westlake Co. v. 
 Dyette, infra, p. 828.
 
 816 FRAUD OX CREDITORS Ol- CORPORATION 
 
 SANFORD FORK AND TOOL CO. v. HOWE. 
 
 In the United States Circuit Court for the District 
 OF Indiana, and in the Supreme Court of the 
 United States, 1890. 
 
 44 Federal Reporter, and 157 United States Reports, 312. 
 
 The San ford Fork and Tool Co. was organized in 
 1888. Requiring money to enable it to develop its business 
 it gave notes aggregating $69,000, endorsed by six of its 
 directors and stockholders to various persons. The money 
 from the notes went into property of the company. 
 
 At the time these directors and stockholders indorsed 
 these notes the Tool Company was a going concern, in full 
 operation, with property and means "amply sufficient to pay 
 all of its indebtedness if its property was worth what it had 
 cost in cash." They believe that such property was worth 
 what it had cost in cash, that the corporation was "solvent 
 and capable of becoming an independent and profitable 
 manufacturing institution as soon as it could win its way 
 to a favorable market for its manufactured products." As 
 these notes thus indorsed began to mature the directors found 
 that the company was unable to pay them, and required a 
 renewal or an extension. Thereupon, on March i, 1890, 
 they called a special meeting of the stockholders, which was 
 held on March 15. At this meeting, out of a total of three 
 thousand shares, two thousand two hundred and fifty were 
 represented, and a resolution was passed authorizing the 
 directors to execute a mortgage or mortgages upon all or 
 any part of the property of the corporation, to secure any 
 new indebtedness that might be incurred, or the renewal and 
 extension of any present indebtedness or liability of the 
 corporation. On March 17 the mortgage was executed, 
 though it was not recorded until May i, 1890. The direc- 
 tors and stockholders who were endorsees then paid or
 
 SANFORD FORK AND TOOL CO. v. HOWE 817 
 
 procured renewals of the several notes, and in addition two 
 of them endorsed and subsequently paid other paper of the 
 company to the amount of $6,000. On May 13, 1890, the 
 company failed and its property passed to John W. Davis, 
 as receiver. At the date of the execution of this mortgage 
 the Tool Company was indebted in the sum of two hundred 
 and seventy-five thousand dollars. The value of its pro- 
 perty at that tirne does not appear, but after the appoint- 
 ment of a receiver it was appraised, the manufacturing 
 plant — the property described in the trust deed and mort- 
 gage — being appraised at $116,055.39; the other and un- 
 encumbered property at $88,390.85. 
 
 This was a suit by the creditors of the companv to 
 set aside the mortgage. The defendants demurred.^ 
 
 Woods, District Judge.- The complainants are shown 
 to be general creditors of the company, with claims 
 which, as allowed by the Vigo circuit court, amount 
 to $11,631.39; and they dispute the validity of 
 the mortgage for the indemnity of the respondents 
 on the ground that the directors of the company had no right 
 to obtain a preference for themselves over other creditors. 
 It is not alleged, nor was it claimed in argument, that the 
 respondents, or any of them, did anything with an actual 
 intent to defraud. The question whether or not an insolvent 
 corporation which had not suspended business could prefer 
 its directors or managing agents, who were its creditors, or 
 liable as indorsers of its paper, was considered upon full 
 argument and citation of authorities pro and con in the case 
 of Lipincott v. Carriage Co., 25 Fed. Rep. 577, 586, and 
 the conclusion was reached that the weight of authority 
 and reason was against the validity of such preferences. 
 The theory upon which that conclusion was based is shown 
 in the following extract from the opinion : 
 
 "For while it is generally conceded that a corporation, 
 
 * The facts are restated. 
 
 ' His reference to the facts is omitted.
 
 818 FRAUD ON CREDITORS OF CORPORATION 
 
 notwithstanding insolvency, continues possessed [while a 
 going concern] of a general power of management of its 
 affairs, and, like natural persons, may give preferences by 
 way of payment or security to one creditor or class of credi- 
 tors over others, yet in close analogy to the rule which for- 
 bids the giving of preferences by individual debtors, for the 
 purpose of securing, or in such manner as to secure, advan- 
 tage or benefit to themselves, and in manifest accord with 
 the tendency of judicial opinion, as expressed upon con- 
 sideration of kindred questions, it has been decided in a 
 number of cases that perferences given by insolvent corpora- 
 tions, in such manner as to be of special benefit to the direc- 
 tors or managing agents, or any of them, will be set aside. 
 Indeed, it has been often said by judges, includng those of 
 the federal supreme court, that the property of an insolvent 
 corporation is a trust fund, and the directors trustees for 
 the creditors; and, if this were strictly so, it is manifest that 
 no preferences could be allowed between creditors standing 
 in the same relation to the fund. These statements are, 
 however, true in a qualified sense, and lead logically, if not 
 necessarily, to the conclusion that in such cases, if they give 
 preferences, they must do it unbiased by considerations of 
 personal advantage or gain." 
 
 That ruling has the support of a number of later de- 
 cisions, in some of which it is expressly approved : White, 
 etc., Mamifg Co. v. Pettes Importing Co., 30 Fed. Rep. 
 864 ; Adams v. Milling Co., 35 Fed. Rep. 433 ; Beach v. 
 Miller, (111.) 22 N. E. Rep. 464; Haywood v. Lumber Co., 
 64 Wis. 639, 26 N. W. Rep. i^^; Olney v. Land Co., 16 
 R. I. 361, 18 Atl. Rep. 181 ; Rouse v. Bank, (Ohio,) 22 N. 
 E. Rep. 293. See, also, Hope v. Salt Co., 25 W. Va. 789: 
 Gillet V. Moody, 3 N. Y. 479. On the contrary, the supreme 
 court of Iowa, in the recent case of Garrett v. Plow Co., 70 
 Iowa. 697, 29 N. W. Rep. 395, has declared such pref- 
 erences valid if fairly given, and in support of that view 
 counsel for the respondents have referred to the followin^^
 
 SANFORD FORK AND TOOL CO. v. HOWE 819 
 
 cases, not cited in Lippincott v. Carriage Co., supra: Strat- 
 ton V. Allen, i6 N. J. Eq. 229; Wilkinson v. Bauerle, 41 
 N. J. Eq. 635, 7 Atl. Rep. 514; Railroad Co. v. Dewey, 14 
 Mich. 477. 
 
 It is not to be overlooked that some of the later deci- 
 sions which deny the validity of preferences in favor of 
 directors proceed upon the theory that the directors of an 
 insolvent corporation, even before a suspension of business, 
 are trustees for the creditors, and, if that theory is essential 
 to the conclusion, the question is perhaps already foreclosed 
 in the federal courts ; because, in Purifier Co. v. McGroarty, 
 136 U. S. 241, 10 Sup. Ct. Rep. 10 1 7, the supreme court 
 has said that the decision in Rouse v. Bank, supra, "pro- 
 ceeded in part upon a theor}- that the property of an insol- 
 vent corporation is a trust fund for its creditors in a wider 
 and more general sense than could be maintained upon gen- 
 eral principles of equity jurisprudence." But I do not think 
 that theory indispensable. It seems to me enough to say 
 that a sound public policy and a sense of common fairness 
 forbid that the directors or managing agents of a business 
 corporation, when disaster has befallen or threatens the en- 
 terprise, shall be permitted to convert their powers of man- 
 agement and their intimate, and it may be, exclusive, know- 
 ledge of the corporate affairs into means of self -protection 
 to the harm of other creditors. They ought not to be com- 
 petitors in a contest of which they must be the judges. The 
 necessity for this limitation upon the right to give pref- 
 erences among creditors when asserted by corporations may 
 not have been perceived in earlier times, but the growing 
 importance and variety of modern corporate enterprises and 
 interests I think will compel its recognition and adoption. 
 The fact in this case that the stockholders authorized the 
 making of the mortgage seems to be immaterial. That ac- 
 tion was, it is averred, procured by the directors proposed 
 to be benefited, they, themselves, being stockholders; and, 
 even if this were not averred, the case would not, I think,
 
 820 FRAUD ON CREDITORS OF CORPORATION 
 
 be essentially different. Whether or not such preferences 
 are fairly given is an impracticable inquiry, because there 
 can be in ordinary cases no means of discovering the truth ; 
 and consequently the presumption to the contrary should in 
 every case be conclusive. Concede that it is a question of 
 proof, and that a preference in favor of a director will be 
 deemed valid if fairly given, and it may as well be declared to 
 be a part of the law of corporations that incases of insolvency 
 debts to directors and liabilities in which they have a special 
 interest must be first discharged. That will be the practical 
 effect, and the examples will multiply of individual enter- 
 prises prosecuted under the guise of corporate organization, 
 for the purpose, not only of escaping the ordinary risks of 
 business done in the owner's name, which may be legitimate 
 enough, but of enabling the promoters and managers, when 
 failure comes, to appropriate the remains of the wreck by 
 declaring themselves favored creditors. Besides incon- 
 sistency with that equality which Equity loves, such favors 
 involve too many possibilities of dishonesty and successful 
 fraud to be tolerated in an enlightened system of jurispru- 
 dence. 
 
 The demurrer is overruled. 
 
 The defendant appealed. 
 
 Mr. Justice Brewer : In the absence of any testimony, 
 and in the manner in which this case was submitted for deci- 
 sion, it must be assumed that the matters alleged in the bill 
 and not denied in the answer and the new matters set forth 
 in the answer are true. And the question which arises is 
 whether, upon these admitted facts, the decree in favor of the 
 plaintiffs can be sustained. 
 
 The manufacturing business in which the corporation 
 was engaged was a new enterprise. It had been carried on 
 for only about eighteen months. In that business had been 
 invested nearly $300,000, and the property possessed by the 
 corporation was at its cost price equal to the entire indebted- 
 ness. It thus appears that there had been no waste, mis-
 
 . SANFORD FORK AND TOOL CO. v. HOWE 821 
 
 management, or loss. Not a dollar of the indebtedness was 
 held by any director or stockholder, but the personal credit 
 of the six directors and stockholders had been loaned to the/ 
 company to the extent of $69,000. The corporation was 
 still a going concern. There was no purpose of abandoning 
 the business. The indorsers believed that if the corpora- 
 tion could be tided over its temporary embarrassment it 
 could be made successful. The stockholders authorized the 
 mortgage. It was given only upon part of the property, and 
 that part already encumbered by a fifty thousand dollar trust 
 deed. The value of this property was, according to the sub- 
 sequent appraisement, much below the sums secured by the 
 trust deed and the mortgage. In addition the corporation 
 had nearly $90,000 of unencumbered property to apply 
 in satisfaction of the claims of its creditors. The mort- 
 gage was not given simply as security for a past indebted- 
 ness, but to induce the indorsers to obtain for the corpora- 
 tion a renewal or extention of its obligations, and to make 
 further indorsements. In reliance upon this mortgage the 
 indorsers secured renewals or extensons, or themselves took 
 up the notes they had indorsed, and at the same time lent the 
 credit of their names to new paper of the company. Thus 
 they prevented a suspension of the business and enabled the 
 corporation to continue its operations, and did so believing 
 that by such continuance the corporation would be 
 enabled to work itself out of its temporary difficulties. All 
 this was done in the utmost good faith. 
 
 Under these circumstances, should the transaction be 
 condemned and the mortgage held void as against creditors? 
 This question, we think, must be answered in the negative. 
 It is said that the directors of a corporation stand m a fidu- 
 ciary relation to both the stockholders and the creditors. 
 Whatever may be the extent of the fiduciary obligations of 
 directors to stockholders, there can be no pretence in this 
 case of a breach thereof. The mortgage was expressl}^ au- 
 thorized by the stockholders, and they cannot claim tliat
 
 822 FRAUD ON CREDITORS OF CORPORATION 
 
 the directors in executing the instrument, which they had 
 themselves authorized, were guilty of any breach of duty 
 to them. It is often said that the directors may not take 
 advantage of their position and power to secure personal 
 advantage to themselves, but that proposition has no applica- 
 tion here, for the corporation itself directed this mortgage. 
 It was an application by the debtor of its property to secure 
 certain of its creditors, and not the act of the agents of a 
 debtor to protect themselves. The case involves no breach 
 of trust on the part of the agent towards the principal, but 
 more closely resembles the case of an individual debtor giv- 
 ing preferences to certain of his friends, and the general rule 
 is that, in the absence of statute, a debtor has such jus 
 disponendi in respect to his property that, although insolvent 
 and contemplating a cessation of business and the surrender 
 of his property to his creditors, he may lawfully prefer 
 certain of them, even though thereby others receive no pay- 
 ment. 
 
 But. passing from the relations of directors to the cor- 
 poration and its stockholders, it is one of the vexed questions 
 of the law as to how far the duty of a corporation and its 
 directors to creditors interferes with the otherwise con- 
 ceded power of a debtor to prefer certain of his creditors. 
 Into a discussion of this question in its length and breadth 
 we deem it unnecessary now to enter, for the facts of this 
 case remove many of the embarrassments that often attend 
 such questions. This is not like the case of Sutton Manu- 
 facturing Co. V. Hutchinson, 63 Fed. Rep. 496, decided 
 by the United States Court of Appeals for the Seventh 
 Circuit, in which the directors of a corporation, insolvent 
 and intending to discontinue business, gave a mortgage to 
 secure certain of their number who happened to be creditors, 
 and thus attempted to secure a preference in behalf of them- 
 selves. Nor is it the case of the directors of a corporation 
 in fact insolvent, though continuing and expecting to con- 
 tinue in business, executing a mortgage on the proper.ty .of
 
 SANFORD FORK AND TOOL CO. v. HOWE 823 
 
 the corporation to simply secure themselves for a past in- 
 debtedness; for here the corporation, although insolvent 
 within the rule which declares that insolvency exists when 
 a debtor has not property sufficient to pay his debts, was still 
 a going concern and intending to continue its business, and 
 the mortgage was executed not simply to secure directors 
 and stockholders for past indebtedness but to induce them 
 to procure a renewal or extension of paper of the company 
 then maturing or about to mature, and also to obtain further 
 advances of credit. 
 
 Will it be doubted that, if this mortgage had been given 
 directly to the holders of these notes, it would have been 
 valid? Are creditors who are neither stockholders nor di- 
 rectors, but strangers to a corporation, disabled from taking 
 security from the corporation by reason of the fact that upon 
 the paper they hold there is also the indorsement of certain 
 of the directors or stockholders? Must, as a matter of law, 
 such creditors be content to share equally with the other 
 creditors of the corporation, because, forsooth, they have 
 also the guarantee of some of the directors or stockholders, 
 whose guarantee may or may not be worth anything? 
 
 But even that is not this case, for here the corporation 
 was. a going concern and intending to continue in business, 
 and the mortgage was given with a view of enabling it to 
 so continue, and to prevent creditors whose debts were ma- 
 turing from invoking the aid of the courts to put a stop 
 thereto. Can it be that, if at any given time in the history 
 of a corporation engaged in business, the market value of its 
 property is in fact less than the amount of its indebtedness, 
 the directors, no matter what they believe as to such value, 
 or what their expectations as to the success of the business,. 
 act at their own peril in taking to themselves indemnity for 
 the further use of their credit in behalf of the corporation? 
 Is it a duty resting upon them to immediately stop business 
 and close up the affairs of the corporation? Surely, a doc- 
 trine like that would stand in the way of the development
 
 824 
 
 FRAUD ON CREDITORS OF CORPORATION 
 
 of almost any new enterprise. It is a familiar fact that in 
 the early days of any manufacturing establishment, and be- 
 fore its business has become fully developed, the value of 
 the plant is less than the amount of money which it has 
 cost, and if the directors cannot indemnify themselves for 
 the continued use of their personal credit for the benefit 
 of the corporation, many such enterprises must stop in their 
 very beginning. 
 
 It is worthy of note, too, that these directors placed the 
 encumbrance not on the entire property of the corporation, 
 but only upon that part which ordinarily shows the greatest 
 difference between value and cost, to wit, the building and 
 the machiner}' — property, too, which was already encum- 
 bered for a large sum, leaving free all the unencumbered 
 property of the corporation to answer to the claims of 
 creditors. 
 
 Of course, an underlying fact, expressly stated to have 
 existed in these transactions, is good faith. Carrying on 
 business after the giving of an indemnifying mortgage, with 
 a knowledge of insolvency, with the expectation of soon 
 winding up the affairs of the corporation, and only for the 
 sake of giving an appearance of good faith, leaves the trans- 
 action precisely as though the mortgage was executed at 
 the moment of distribution, and with the view of a personal 
 preference. 
 
 Again, not only was the corporation a going concern, 
 not only did the directors expect and intend that it should 
 continue, and believe that its continuance would bring finan- 
 cial success, but, as appears, they did continue the business 
 for two months, and during that time paid out in the 
 ordinary management of its affairs and in discharge of its 
 debts over $30,000. without appropriating a single dollar 
 to the payment of the claims for the indorsement of whicli 
 they had taken this indemnity. 
 
 We are of opinion that these facts clearly and fully dis- 
 tinguish this case from many which have been cited, in which
 
 SANFORD FORK AND TOOL CO. v. HOWE 825 
 
 the action of the directors of a corporation in securing to 
 themselves preferences in the hour of its extremities has 
 been adjudged void, and that it is going too far to hold 
 that a corporation may not give a mortgage to its directors 
 who have lent their credit to it, to induce a continuance of 
 the loan of that credit, and obtain renewals of maturing 
 paper at a time when the corporation, though not in fact 
 possessed of assets equal to its indebtedness, is a going 
 concern, and is intending and expecting to continue in busi- 
 ness. We are, therefore, of opinion that the Circuit Court 
 erred, and the decree will be 
 
 Reversed and the case remanded for further proceed- 
 ings not inconsistent with this opinion.^ 
 
 * Compare: Corey v. Wadsworth, 99 Ala 68, 1891. (Stone, C. J., 
 having set forth that the directors of an insolvent corporation cannot 
 prefer themselves as creditors, said : "At what stage of a corporation's 
 affairs must it be pronounced insolvent, so as to bring it within the 
 principle we have declared? Tt is not enough that its assets are insuffi- 
 cient to meet all its liabilities, if it be still prosecuting its line of busi- 
 ness, with the prospect and expectation of continuing to do so. In 
 other words, if it be, in good faith, what is sometimes called a going 
 business or establishment. Alany successful corporate enterprises, it 
 its believed, have passed through crises, when their property and 
 effects, if brought to present sale, would not have discharged all their 
 liabilities in full. We feel safe in declaring that when a corporation's 
 assets are insufficient for the payment of its debts, and it has ceased 
 to do business, or has taken, or is in the act of taking, a step which 
 will practically incapacitate it for conducting the corporate enterprise 
 with reasonable prospect of success, or its embarrassments are such 
 that early suspension and failure must ensue, then such corporation 
 must be pronounced insolvent." 
 
 West v. Hanson Produc; Co., 6 Colo. App. 467, 1895. (B, C and 
 D were directors of the A Company. The A Company desired to raise 
 money on its notes at a certain Bank. The Bank refused to take the 
 notes unless they w-ere endorsed by B, C and D, which was done. The 
 A Company, not being able to pay the notes at maturity, assigned all its 
 property to T in trust to sell the same, and pay the proceeds to the 
 Bank on account of the debt on the notes. P, a creditor of the A Com- 
 pany, began garnishee proceedings against T. Judgr^ent for P reversed 
 on appeal. Reed, P. J. : "After having stipulated 'that the money 
 was borrowed by the company and these parties became security for it,' 
 counsel for appellee, in argument, fall into error by regarding the debt 
 as that of the indorsers or sureties. They say, 'But we fail to find in 
 appellant's brief authorities sustaining preferences made by directors 
 of an insolvent corporation in favor of themselves.' Again, 'Any 
 attempt on the part of the directors of an insolvent corporation to pre- 
 fer themselves is a fraud upon the creditors.' This mistaken theory 
 of the case is ably argued at length, and authorities are cited sup- 
 posed to favor the contention, but the question is not involved. The
 
 826 FRAUD ON CREDITORS OF CORPORATION 
 
 fact that they were sureties for the payment of the debt and made 
 the note — and although the payment of the note would relieve 
 them of their liability and may have prompted them to prefer the bank, 
 — the debt remained the debt of the corporation and did not become 
 that of the individual officers. The great weight of modern authority 
 is to the effect that, as individuals, the officers of a corporation can 
 loan it money, or legally, in any other proper way, become its creditors 
 and deal with it in the same manner as with an outsider. If such is 
 the law, — and it seems to be where there is no statutory prohibition, — 
 it logically follows that the right to become a creditor carries with it 
 all the rights of a creditor, and authorizes the corporation to prefer 
 the officer if it sees fit." 
 
 Milledgeville Banking Co. v. Mclntyre Store, 98 Ga. 503, 1896. 
 (Lumpkin, J., having announced the principle that the directors of in- 
 solvent corporation, while they could prefer certain creditors, could not, 
 being creditors prefer themselves, said : "We think the mortgage in 
 favor of Waxelbaum & Sons stands upon as good a footing as does that 
 executed in favor of the Banking Company. It is true that the direc- 
 tors, or some of them, had given to Waxelbaum & Sons a joint promis- 
 sory note, binding upon each individually, as collateral security for the 
 payment of the debt incurred by the corporation ; but if Waxelbaum & 
 Sons became dissatisfied with the security thus given them, we see no 
 reason why they could not very properly request that their claim be 
 secured by mortgage, or why, upon getting the same, they are not 
 entitled to hold it and reap the benefit to be derived from it. They 
 certainly thereby gained no advantage over the complaining creditors 
 other than the law expressly allows ; and having kept strictly within 
 the bounds of their legal rights in securing their preference, even a 
 court exercising equitable jurisdiction has no power to restrain them 
 from enforcing their mortgage, or to declare the same inoperative or 
 void in their hands as against unsecured creditors.") 
 
 Mueller v. Fire Clay Co., 183 Pa. 450, 1898. (The A Company gave 
 notes to a Bank, the directors of the Company becoming endorsees. 
 The Company not having the ready money to pay the Bank, the liank 
 insisted that the Company confess judgment to the directors in trust 
 for the Bank. Held, that even if the Company was insolvent at the 
 time of the judgment, the judgment was not fraudulent because of the 
 interest of the directors as endorsees.) 
 
 In some jurisdictions preferences to directors and stockholders are 
 allowed. See, Warfield v. Marshall County Canning Co., 72 Iowa 666, 
 1887. (A Company, needing money, borrowed on notes given or en- 
 closed by some of its stockholders. The Company, being unable to pay 
 the notes by a vote of its stockholders gave a mortgage to the stock- 
 holders, who were creditors, and then assigned all the property of the 
 Company to a new Company formed by the shareholders of the first 
 Company and other persons, the consideration being the agreement of 
 the second Company to pay the mortgage, which was full value for the 
 property assigned. Held, that the creditors of the first Company could 
 not impeach the transaction, though it was with the knowledge of all 
 parties that the other creditors of the first Company would never 
 realize anything on their claims.) 
 
 Compare: Sells v. Rosedale Grocery and Commission Co., 72 
 Miss. 590, 1895. (The stockholders of the A Company and the B 
 stockholders, were in large part, but not entirely identical. The A 
 Company was a creditor of the B Company. The B Company was 
 insolvent. Held, that the B Company could prefer the A Company 
 to its other creditors.) 
 
 In Buell v. Buckingham, 16 Iowa 284, 291, Judge Dillon said: "Be- 
 ing an officer of the corporation did not deprive Buell of the right to
 
 SANFORD FORK AND TOOL CO. v. HOWE 827 
 
 enter into competition with other creditors and run a race of vigilance 
 with them, availing himself in the contest of his superior knowledge 
 and of the advantage of his position, to obtain security for, 'or payment 
 of, his debt." 
 
 The position that directors being creditors of the corporation have 
 power to give themselves preferences, but that tlie burden is on the 
 directors in such cases to show that they had a bona fide debt against 
 the corporation is taken in Schufeldt v. Smith, 131 Mo. 280, 1895. See, 
 to the same effect, the opinion of Judge Taft in Brown v. Grand 
 Rapids Co., 58 Fed. 286, 1893, 292. See also the opinion in Levering 
 v. Biincl, 146 Ind. 545, 1897. In this case, however, the vote -of the 
 director for his own preference was not necessary to carry the resolu- 
 tion. Query, whether this fact is of any importance? 
 
 It is suggested that the student discuss whether the law should or 
 should not discriminate between preferences to directors and prefer- 
 ences to stockholders.
 
 828 FRAUD ON CREDITORS OF CORPORATION 
 
 ADAMS AND WESTLAKE CO. v. DEYETTE. 
 In the Supreme Court of South Dakota, 1895. 
 
 S South Dakota Reports, iig. 
 
 On the 9th day of May, 1888, the Hicks-Trask Hard- 
 ware Co., a corporation, being insolvent, confessed judgment 
 against itself in favor of each of the defendants C. E. Deyette 
 and W. W. Lewis, amounting to $1,469.26; the Deyette 
 judgment being for $649.84, and the Lewis judgment for 
 $819.42. After entry of the above judgments, and on the 
 1 2th day of the same month, said defendant confessed 
 numerous other judgments, among which there was one in 
 plaintiff's favor for $1,319.47. Executions issued in suc- 
 cession, and the property of the defendant corporation was 
 levied upon in the order above indicated, and in the order 
 in which the respective judgments were entered and dock- 
 eted; and the property of the corporation was found 
 to be insufficient to satisfy the judgments which preceded 
 that of the plaintiff. The referee made, among others, the 
 following findings of fact: (14) That the consideration of 
 the confession of judgment in favor of Charles E. Deyette 
 was as follows: $514.60, money loaned to the Hicks-Trask 
 Hardware Company on January 20, 1888, was borrowed 
 by said company for the purpose of using the same to pur- 
 chase the stock of said company held by Trask, and on ac- 
 count of the indebtedness of $134.22, owing to said Deyette 
 by said corporation for work and labor done by said Deyette 
 for said corporation. (15) That the defendant Deyette had 
 actual knowledge of the purpose and intent of the said cor- 
 poration to use the same in the purchase of stock. (16) 
 That the consideration of the judgment of the defendant 
 Lewis was $514.60, money loaned to the said corporation 
 by him about January 20, 1888, and borrowed by said com- 
 pany for the purpose of using the same in the purchase of
 
 ADAMS AND WESTLAKE CO. v. DEYETTE 829 
 
 Stock of said corporation held by Trask; and the sum of 
 $304.07, due Lewis from said corporation on account of 
 services rendered by Lewis to said corporation. (17) That 
 defendant knew of the purpose and intent for which said 
 money was borrowed by said corporation. (18) That the 
 defendant Lewis, at the time of and prior to the making of 
 said confession of judgment to himself, was a director of 
 said corporation, and secretary thereof, and signed said con- 
 fessions as secretary on behalf of said corporation. (19) 
 That the defendant Deyette, at the time of said confessions 
 of judgment by said corporation to himself, was not a di- 
 rector. (20) That no written consent of the stockholders 
 of the Hicks-Trask Hardware Company was ever had to the 
 purchase of stock from Trask by said corporation. (21) 
 That on May 12, 1888, executions were issued from the 
 District Court upon the said judgment of said plaintiff to 
 the sheriff' of Brown county, in which said defendants the 
 Hicks-Trask Hardware Company had its place of business. 
 (22) That executions issued from the clerk of the District 
 Court of Brown County on each of the judgments of the 
 defendants Foster, Deyette and Lewis, and were by him 
 levied on the personal property of the Hicks-Trask Hard- 
 ware Company, and all thereof ; and the said sheriff sold 
 the same, and holds the money realized from said sale, to 
 be applied on said executions according to the decree of this 
 court, (23) That the proceeds arising from said sale are 
 not sufficient to pay the judgments against the Hicks-Trask 
 Hardware Company prior to the judgment of plaintiff. 
 Upon these findings of fact the following conclusions of law 
 were based : (2) That the judgment of the defendant Dey- 
 ette, as to the sum of $514.60, money loaned to the said 
 corporation for the purpose of purchasing stock, is invalid, 
 for the reason the Hicks-Trask Hardware Company, and the 
 officers thereof had no power to borrow money for the pur- 
 chase of its stock; and the defendant having loaned said 
 money knowing of the illegal purpose for which it was to be
 
 83U FRAUD OX CREDITORS OF CORPORATION 
 
 used, cannot recover the same from said corporation. (3) 
 That as to the sum of $134.25, included in the judgment of 
 said Deyette, the same is vahd, and should stand, and be en- 
 forced for said sum of $134.25. (4) That judgment of the 
 defendant Lewis is invalid for the reason that the confession 
 of the same, made by him and obtained by him when he was 
 a director of said corporation, was an illegal preference as 
 against the creditors of said corporation, and that the relief 
 prayed by plaintiff should be granted as against said 
 Lewis. (5)1 further find as to the judgment of the defend- 
 ant Lewis that as to the sum of $514.60 it is invalid for the 
 reason that, as to said amount, the consideration was for 
 money loaned to said corporation by Lewis for the illegal 
 purpose of purchasing stock of said corporation. Judgment 
 by the court was accordingly entered on motion of plaintiff's 
 counsel and defendants Deyette and Lewis appeal therefrom. 
 
 The Court, per Fuller, J ., affirmed their previous de- 
 cision confirming the judgment of the trial Court. ^ 
 
 Kellam^ /., dissenting.- In our former opinion, now 
 adhered to by a majority of the court, we went further, and 
 said that the judgment ought not to be enforced, because it 
 was an efl:ort on the part of an insolvent corporation to pre- 
 fer Deyette as a creditor, and that an insolvent corporation 
 could not do this. The same cause and the same reason 
 would condemn the entire judgment, as well for services as 
 for money loaned; but upon further reflection and a more 
 thorough examination of the question I am unable to con- 
 cur in the opinion that a corporation, by becoming insolvent 
 merely, ipso facto loses its right to pay or secure one cred- 
 itor in preference to another. We have declared the right 
 
 ^The opinion confirms at length the reasons for the conclusions 
 set forth by the trial Judge, supra. The greater part of the opinion 
 discusses the right of a corporation to purchase its own stock, a ques- 
 tion which the editors have made the subject of a separate chapter. 
 See infra. 
 
 ' Only so much of the opinion is reprinted as relates to the ques- 
 tion of the right of a corporation to prefer some of its creditors, and the 
 question of the right of a corporation to give its director, being a 
 creditor, a preference.
 
 ADAMS AND WESTLAKE CO. v. DEYETTE 831 
 
 of an individual debtor to make such preferences. Manu- 
 facturing Co. V. Max (S. D.), 58 N. W. 14. We said the 
 right of a debtor to prefer one creditor over another was 
 guaranteed to him by the express words of the statute. Sec. 
 4654. A corporation or a partnership becomes a debtor 
 under the same circumstances as an individual. If the so- 
 called "trust-fund doctrine" will prevent a corporation debtor 
 from so preferring one creditor to another, I am unable to 
 see why it should not have the same effect, and for the same 
 reason, in case of a partnership. A corporation becomes in- 
 solvent just when the partnership or the individual becomes 
 so — when it is unable to pay its debts from its own means as 
 they become due. Comp. Laws, section 4661. Is it well, 
 then, unless required by prevailing authority, to adopt the 
 rule that a private corporation, unable to meet its debts as 
 they mature, has no right to pay one creditor more than 
 it pays all others? It is often said in the books that the 
 assets of an insolvent corporation are a trust fund for the 
 payment of its debts, but this is also true of a partnership, 
 and really of an individual ; and for the same reason. Pome- 
 roy says this doctrine of trust is just as applicable to a part- 
 nership and its assets as to a corporation and its assets, and 
 that in either case the relation can only be so named by way 
 of "analogy or metaphor." He further says : "It is plain 
 that no constructive trust can arise in favor of the creditors 
 unless the partners or directors, through fraud or breach of 
 fiduciar}' duty, wrongfully appropriate the property and 
 acquire the legal title to it in their own names, and 
 thus place it beyond the reach of creditors through ordinary 
 legal means." 2 Pom. Eq. Jur. section 1046. If the rule 
 of disability applies to an insolvent corporation on the 
 ground of its trust relations to its assets, it would seem that 
 it should also apply to an insolvent partnership; but in 
 Manufacturing Co. v. Max, supra, we sustained the right of 
 Max & Baisch, an insolvent partnership, to make such prefer- 
 ences. I cannot see why, in the case either of a corporation
 
 832 FRAIJ; OX C ]>:i:i)l'J-(;RS OF L(JR1'()RA'J"10N 
 
 or a partnership, the mere fact of insolvency, without more, 
 should of itself change the character of what was the abso- 
 lute property of the corporation or partnership into trust 
 funds. Insolvency creates a condition which justifies a court 
 with equity powers in laying hold of assets, and then so 
 treating and disposing of them. While the assets remain 
 undisturbed in the hands of the corporation or partnership, 
 solvent or insolvent, it owns and may dispose of them as an 
 individual owner may, in any manner not fraudulent as to 
 its creditors, including stockholders in case of a corporation. 
 Nearly all commercial credit is given to the individual, the 
 partnership, or the corporation on the strength of its known 
 assets, and in reliance upon a prudent management and an 
 honest appropriation of them to the payment of its debts. 
 In this sense the property of every debtor is a trust fund, 
 with himself as trustee, for the payment of his debts. It is 
 no more so simply because the debtor is a corporation, so long 
 as it continues its active functions as such, and retains abso- 
 lute control of its property. At no time does the trust attach 
 to the property because it belongs to a coq)oration ; but when 
 the corporation becomes insolvent and unable to continue its 
 active life it it so far civilly dead that its assets become sub- 
 ject to the administration of the courts. From that time on 
 the assets coming into the hands of the court are treated as 
 a trust fund for the benefit of creditors and stockholders, for 
 they then constitute an estate to be administered. In Graham 
 V. Railroad Co., 102 U. S. 148, the learned Judge Bradley 
 said : "When a corporation becomes insolvent, it is so far 
 civilly dead that its property may be administered as a trust 
 for the benefit of its creditors and stockholders. A court of 
 equity, at the instance of proper parties, will then make these 
 funds trust funds, which are, in other circumstances as much 
 the absolute property of the corporation as any man's prop- 
 erty is his." 
 
 This trust doctrine, as applied to the assets of corpora- 
 tions, solvent and insolvent, was fully discussed by Judge
 
 ADAMS AND WESTLAKE CO. -: DEYETTE 833 
 
 Brewer in HoUins v. Iron Co., 154 U. S. 371, 14 Sup. Ct. 
 127, and the construction of the court is thus stated in the 
 head note : "The expression often used, that the property 
 of a corporation constitutes a 'trust fund' for its creditors, 
 only means that when the corporation is insolvent, and a 
 court of equity has possession of its assets for administration, 
 such assets must be appropriated to the payment of its- debts 
 before any distribution to the stockholders, but, as between 
 a corporation itself and its creditors, the former does not hold 
 its property in trust, or subject to lien in favor of the credi- 
 tors, in any other sense than does an individual debtor." In 
 Van Alstyne v. Cook, 25 N. Y. 489, the court, in speaking 
 of the assets of an insolvent, limited partnership, said : "They 
 are trust funds when the courts of equity are properly ap- 
 pealed to in behalf of the partners, or any partner or creditor, 
 to protect and distribute the same upon equitable prin- 
 ciples, and on such application assert the control over them. 
 They are not trust funds in the hands of the partners any 
 more than ordinary partnership property." The supreme 
 court of Illinois declares the same doctrine in Roschoom v. 
 Whittaker, 132 111. 81. 23 N. E. 339: "The mere insolvency 
 of a corporation cannot have the effect of depriving creditors 
 of their legal remedies, but they are at liberty, notwithstand- 
 ing the insolvency, to sue the corporation in an action at law, 
 and b}^ means of such proceeding establish a specific lien upon 
 the property seized by attachment or execution. Such lien, 
 when perfected, will doubtless entitle the creditor acquiring 
 it to a preference over other unsecured creditors. After the 
 aid of a court of equity has been invoked, and that court has 
 taken the assets of the insolvent into its hands, its jurisdiction 
 becomes necessarily exclusive ; and it will proceed, in admin- 
 istering the insolvent estate, upon the maxim that equality 
 is equity." See also, the later case of Peterson v. Tailoring 
 Co., 150 111. 290, T^y N. E. 242. In Tozvn v. Bank, 2 Doug. 
 (Mich.) 530, it was held that a corporation has the same 
 right to prefer one creditor over another that an individual
 
 834 FRAUD ON CREDITORS OF C0RP0RAT10.\ 
 
 has. This was followed in Kendall v. Bishop, 76 Mich. 634, 
 43 N. \V. 645, and again in the recent case of Bank of Mon- 
 treal V. E. J. Potts S. & L. Co., 90 Mich., 345, 51 N. W. 512, 
 where it was held that "a corporation may, in th(; absence ot 
 legislative restriction, deal with its property precisely as an 
 individual may, and may prefer one creditor over another; 
 and hence its assets do not become a trust fund for i^ro lata 
 distribution among all of its creditors, until steps are taken 
 under the 'winding-up act.' " This "trust-fuid" doctrine is 
 luminously discussed by Judge Mitchell in Hospcs v. Car Co., 
 48 Minn. 174, 50 N. W. 11 17, who demonstrates that, unless 
 prohibited by statute, an insolvent corporation has the satne 
 right as an inchvidual to prefer creditors, an.) that there is no 
 solid foundation for the doctrine that the insolvency of a 
 corporation has the effect of converting its assets into a "trust 
 fund," in any proper sense of that term. In Ang. & A. Corp. 
 802, it is laid down as an unqualified proposition of law that 
 "the mere insolvency of a corporation neither impairs its 
 powers to manage its affairs nor converts its property into a 
 trust fund for the benefit of its creditors." Almost precisely 
 the same thing was said in Catlin v. Bank, 6 Conn. 233, and 
 reiterated by the same court in Pondville Co. v. Clark, 25 
 Conn. 97. In the former case the court discussed the ques- 
 tion at great length. In the course of its opinion, it says : 
 "The cases of an individual and of a corporation in the mat- 
 ter under discussion, it appears to me, are not merely analo- 
 gous, but identical, and I discover no reason for the slightest 
 difference between them. * * * 'pj-,g insolvent banking 
 corporation is just as much a trustee of the creditors, and no 
 more, as the insolvent individual is the trustee of his cred- 
 itors." 
 
 The same doctrine as to when the assets of an insolvent 
 corporation become trust funds was declared by the Supreme 
 Court of Missouri in La Grange Butter Tub Co. v. NatMnal 
 Bank of Commerce, 26 S. W. 710. The Court said: "In 
 case of an insolvent corporation, a court of equity will make
 
 ADAMS AND WESTLAKE CO. v. DEYETTE 835 
 
 distribution of the corporation assets pro rata among the cor- 
 poration creditors, and to that end will regard the corporation 
 property as a trust fund. It is in this sense, and upon this 
 principle, that the assets are trust funds. They are trust 
 funds when a court of equity is appealed to in behalf of any 
 member of the corporation or creditor to protect and distrib- 
 ute the assets upon equitable principles." And again in Al- 
 berger v. Bank, 123 Mo. 313, 27 S. W. 657, Judge Barclay, 
 in speaking of the notion that insolvency transforms the as- 
 sets of a corporation into a trust fund said : "This theory 
 seems to have a singular fascination to some learned jurists, 
 but, in our opinion, it is wholly untenable as applied to the 
 facts of such a case as that before us, under the law of Mis- 
 souri ;" and, after a very thorough and instructive discussion 
 of the question he concludes that "the creditor of a corpora- 
 tion has the same right to secure, bv superior diligence or 
 persistency, and to retain, a preference for his claim against 
 a private corporation, that he would have were his debtor 
 an individual engaged in the same line of business, provided, 
 always, that the transaction is honest — that is to say, not a 
 mere cover to a purpose to hinder, delay or defraud other 
 creditors of the failing debtor." Such is also the declared 
 law in New Jersey. In JVilkinson v. Baucrlc, 41 X. J. Eq. 
 640, 7 Atl. 514, the court said: "If there be no legislative 
 prohibition against the transfer of corporate property or its 
 use in preferring creditors after insolvency, no reasons can 
 be given why such transaction should be invalidated, which 
 would not also invalidate the like transactions of individuals. 
 Both reason and authorit}- establish the proposition that a 
 corporation may sell and transfer its property, and may pre- 
 fer its creditors, although it is insolvent, unless such con- 
 duct is prohibited by law." The supreme court of Arkansas 
 in the recent case of JVortJicu v. Griffith, 59 Ark, 562, 28 S. 
 W. 286, holds the same way, and that "it is only when a 
 court of equity, at the instance of a proper party, and in a 
 proper proceeding, has taken possession of the assets of an
 
 836 FRAUD ON CREDITORS OF CORPORATION 
 
 insolvent corporation, that its assets may, in this state, oe 
 properly said to be a trust fund for its creditors." The same 
 question as to the right of an insolvent corporation to make 
 preferences was before the court in Gould v. Railway Co., 
 52 Fed. 680. Judge Caldwell said that it was settled law 
 in Arkansas — from which state the case came — that it might 
 lawfully do so, and added this significant statement: "The 
 established rule in that state is in harmony with the general, 
 though not quite uniform, current of authorities in this 
 country on the question." After referring to a large number 
 of supporting authorities he adds: "The cases which hold 
 the contrary doctrine are bottomed on the erroneous theory 
 that the insolvency of a corporation in effect dissolves it, 
 and makes the directors mere trustees to distribute its assets 
 ratably among its creditors. It is undoubtedly true that the 
 property of a corporation is, in one sense, a trust fund for 
 the payment of its debts; but this rule means no more than 
 that the property of a corporation cannot be distributed 
 among its stockholders, or applied to any purpose foreign to 
 the legitimate business of the corporation, until its debts are 
 paid. The rule, so far as it relates to the payment of debts, 
 is satisfied whenever the property of a corporation is applied 
 to the payment of its bona fide debts. The rule, as has been 
 often pointed out, does not prevent a corporation, whether 
 solvent or insolvent, from making preferences among its 
 creditors, and exercising in good faith absolute dominion 
 over its property in the conduct of its legitimate corporate 
 business, so long as its right to do so is not restrained by 
 statute or by judicial proceedings." In his opinion Judge 
 Caldwell refers to the following authorities, none of which 
 I have cited, as sustaining his conclusion : 2 Mor. Priv. Corp. 
 802 ; Allls V. Jones, 45 Fed. 148 ; Covert v. Rogers, 38 Mich. 
 363 ; Coats V. Donnell, 94 N. Y. 168 ; Dana v. Bank, 5 Watts 
 & S. 223 ; Warner v. Mower, 1 1 Vt. 390 ; JVhitwell v. War- 
 ner, 20 Vt. 426 ; Stratton v. Allen, 16 N. J. Eq. 229 ; Wilkin- 
 son V. Bauerle, 41 N. J. Eq. 635, 7 Atl. 514; Duncomh v.
 
 ADAMS AND WESTLAKE CO. 7: DEYETTE 837 
 
 Railroad Co., 84 N. Y. 190, 88 N. Y. i ; Harts v. Brozvn, yy 
 111. 226; Reichwald \*Hotel Co., 106 111. 439; Buell v. Buck- 
 ingham, 16 Iowa, 214 (opinion by Judge Dillon) ; Garrett 
 V. Plozv Co., 70 Iowa, 697, 29 N. W. 395 ; Smith v. Skcary, 
 47 Conn. 47; Bank v. Whittle, 78 Va. yT,y; Ashhurst's Ap- 
 peal, 60 Pa. St. 314; Sargent v. Webster, 13 Mete. (Mass.) 
 497; Hallam v. Hotel Co., 56 Iowa, 178, 9 N. W. 1 1 ir 
 
 The supreme court of Alabama is equally pronounced 
 against this "trust-fund" doctrine, and in a very able and 
 elaborate opinion, filed as recently as April of the present 
 year, it expressly repudiates such doctrine, and overrules a 
 number of cases in which its existence had been recognized 
 by that court. The learned judge who writes the opinion 
 says : "There is nothing clearer in principle than the proposi- 
 tion that the property of a corporation, solvent or insolvent, 
 bears identically the same relations to the creditors of such 
 corporation as the property of an individual or copartnership, 
 solvent or insolvent, sustains to the creditors of the individual 
 or partnership, and is or is not to be impressed with a trust 
 character upon the circumstances and under the same con- 
 ditions in the first case as in the latter two." Jeivelry Co. v. 
 Volfer (Ala.), 17 South. 525. In the still more recent case 
 of Thomson-Houston Electric Light Co. v. Henderson, Elec- 
 tric &• Gaslight Co., 21 S. E. 951, the North Carolina su- 
 preme court deliberately rejected the "trust-fund" theory, 
 and declared generally that the relation between a corpora- 
 tion creditor and the corporation, whether solvent or in- 
 solvent, is simply that of creditor and debtor, and that the 
 creditor had no equitable claim upon the corporation assets 
 either because it was a corporation or because it was insolv- 
 ent. The supreme court of Indiana has lately made the same 
 expression in emphatic terms in First Nat. Bank of Craw- 
 fordsville v. Dovetail, B. & G. Co.. 40 N. E. 810, and in the 
 same further held (bearing upon the first question discussed 
 in this opinion) that "the fact that one lending money to a 
 corporation knew that it was to be used by the directors for
 
 838 FRAUD ON CREDITORS OF CORPORATION 
 
 a purpose involving a breach of trust does not impair the 
 vahdity of the judgment against the corporation in his favor 
 for the amount loaned, entered by the corporation's consent, 
 with the purpose of creating a preference." In Burrill, 
 Assignm. (5th. Ed.) Sec. 64, it is said: "It has been ob- 
 jected * * * that on the happening of its insolvency the 
 corporation and its agents became trustees for the creditors, 
 who where entitled to a ratable payment out of the trust furtd 
 in proportion to the amount of their debts. This position, 
 however, has not been sustained, and apart from statutory 
 provisions, no distinction exists between an individual and 
 a corporation in regard to the exercise of the power of con- 
 ferring preferences." 
 
 Without quoting from other cases, in which very wise 
 and thoughtful judges have announced similar views, I am 
 satisfied to say that to me they seem right in principle. If, 
 for any reason, there should be a discrimination between 
 different classes of debtors in respect to the right to make 
 preferences among their creditors, as said by Judge Dillon 
 in Bitell v. Buckingham, supra, the rule should be declared by 
 the legislature, which has the constitutional power to make 
 and change the law, and not by the courts, which have no 
 such power. It may be remarked, however, that as to some 
 of the cases cited generally in support of the contrary doc- 
 trine they were controlled by local statutes which unfortun- 
 ately are not mentioned, or at least not made prominent, in 
 the opinion. For instance, both Ohio and Texas cases are 
 cited as opposed, and Rouse v. Bank, 46 Ohio St. 493, 22 N. 
 E. 293, and Lyons-Thomas Hardzvare Co. v. Perry Stoz'e 
 Manuf'g Co., 86 Tex. 143, 24 S. W. 16, do so read, but in 
 each state there was a statute declaring that any transfer of 
 property as a preference by a debtor who is insolvent "or in 
 contemplation of insolvency" shall not be valid as against 
 an assignment then in contemplation for the benefit of cred- 
 itors. What influence, if any, this declared policy of the 
 state law had upon the treatment of the general question by
 
 ADAMS & WESTLAKE CO. v. DEYETTE 839 
 
 the courts we do not know. I have read with interest wliat 
 Mr. Thompson says upon this question in his recently pub- 
 hshed work on Corporations. He is an author of acknowl- 
 edged learning and ability. Upon all matters he expresses 
 his personal views positively and clearly, and usually 
 courteously and dispassionately; but his treatment of this 
 question, his characterization of the deliberately declared 
 opinions of eminent courts and judges as "the mouthings of 
 judges" with "low conceptions," "destitute of a sense of 
 justice," and other similar flippancies, evince such a degree 
 of morbidity upon this subject as greatly to compromise the 
 value of his opinion. He says (Sec. 6496) the "fallacy" of 
 the conclusion to which these thoughtless judges have 
 "jumped" is in overlooking "the fact .that the analog}' be- 
 tween an individual and an insolvent corporation wholly 
 fails in this : that although an insolvent individual may turn 
 over his property to certain of his creditors whom he de- 
 sires to prefer, and may, by so doing, hinder and delay the 
 others, yet he merely delays and hinders them ; he does not, 
 by that act, destroy himself; he still lives; and he may, and 
 often does, get on his feet again, and acquire property, and 
 discharge his previous obligations. But when a corporation 
 becomes insolvent, and ceases to have the means of carrying 
 out the object of its creation, and dispossesses itself of all 
 its property, it destroys itself, and becomes ipso facto dis- 
 solved." In his zeal to demonstrate the "fallacy." has not 
 the learned author allowed himself to start from unstable 
 premises? Is it entirely safe to build upon the foundation 
 that when a corporation becomes insolvent, "and dispossesses 
 itself of all its property, it destroys itself, and becomes ipso 
 facto dissolved?" In Sec. 6483 of the same book he has 
 told us that "the assignment by a corporation of all its prop- 
 erty for the benefit of its creditors does not extinguish it as 
 a corporation, or disable it from maintaining an action, un- 
 less the subject-matter of the action passed from it 1)\' the 
 assignment." In this latter statement he seem^s well suj)-
 
 840 FRAUD ON ('RF.niTORS OF CORPORATION 
 
 ported by authority, though Judge Story, in a dissenting 
 opinion in Bcaston v. Bank, 12 Pet. 138, intimated a con- 
 trary opinion. See Burrill, Assignm. (5th Ed.) Sec. 64; 
 Ang. & A. Corp. Sec. 770; and cases cited by each of these 
 authors. The law is generally recognized to be, as stated 
 by Mr. Thompson, that neither the insolvency of nor a gen- 
 eral assignment by a private corporation works its dissolu- 
 tion. An individual debtor, stripped of his means for 
 satisfying his debts, "still lives" ; but it is just as true of a 
 corporation. Each is still a living debtor without present 
 ability to pay his or its debts. It is probably true that an 
 individual debtor is more likely to "get on his feet again," 
 but that is incidental merely, and does not prove or tend to 
 prove any difference in their legal status. The possession 
 of property is no more essential to the existence of a cor- 
 poration than it is to the existence of a man. If a cor- 
 poration becomes insolvent, there is nothing to prevent its 
 members, until its dissolution is legally declared, from fur- 
 nishing more funds, and proceeding to' use its corporate 
 powers. Mor. Priv. Corp. Sec. loio, and citations. My 
 conclusion is that the hardware company, although insol- 
 vent, might legally prefer Deyette as a creditor, and that his 
 judgment, founded on a good consideration, was not in- 
 valid or unenforceable on account of such preference. 
 
 As to Lewis and his judgment, the facts established by 
 the findings are the same, except that at the date of his judg- 
 ment and before — but how long before is not found — he was 
 a director and secretary of the company. He, too, loaned 
 money to the company for the purpose of buying the Trask 
 stock and it not being shown that at the time of such loaning 
 and purchase he had any connection with the company, he, 
 as a creditor, would stand upon the same footing as Deyetts, 
 except that when his judgment was confessed he was a di- 
 rector and officer of the company. On the 9th day of May 
 the company confessed these judgments — one to Deyette, 
 alreadv considered ; one to Foster, over which there seems
 
 ADAMS & WESTLAKE CO. v. DEYETTE 841 
 
 to be no controversy ; and one to Lewis, now in hand. Lewis 
 himself executed these confessions as secretary of the com- 
 pany. Executions were issued on these judgments, and 
 levied upon the personal property of the hardware company, 
 but when issued or when levied does not appear. On the 
 1 2th, execution was also issued on respondent's judgment. 
 The property was sold, and the proceeds which are "noi suf- 
 ficient to pay the judgments against the Hicks-Trask Hard- 
 ware Company prior to the judgment of plaintiff" (respond- 
 ent), are held by the sheriff "to be applied on said executions 
 according to the decree of this court." It not appearing 
 that executions were issued on other judgments than those 
 named, we understand from the language of the findings 
 that the proceeds are insufficient to pay the three judgments 
 first named. The Foster and the Deyette judgments being 
 good, and entitled to be paid, the contest is over the balance 
 in the hands of the sheriff, and between Lewis and the re- 
 spondent. While the findings do not expressly show — as we 
 wish they did — when the execution on the Lewis judgment 
 was issued or levied, it must have been prior to the issuance 
 of respondent's execution, for the property appears to have 
 been sold under the Lewis, Foster and Deyette executions. 
 The fact that the company was insolvent, that it confessed 
 these three judgments on the 9th, and that three days there- 
 after it confessed judgment to cjuite a number of other cred- 
 itors, including respondent, and that executions were issued 
 and levied on the first three judgments either prior to or on 
 the 1 2th, the date of the subsequent judgments, and before 
 respondent's execution, issued immediately upon obtaining 
 its judgment, is very convincing, though perhaps not incon- 
 testible, evidence that it was intended that Foster, Lewis and 
 Deyette should be given a preference over other creditors. 
 I have no doubt that it was so designed. So that the 
 question now in hand is, could the company legally prefer 
 Lewis, a director, and one of its managing officers, on ac- 
 count of an indebtedness not contracted on the strength of
 
 842 FRAUD ON CREDITORS OF CORPORATION 
 
 such preference, but for a general antecedent indebted- 
 ness? I think that we can hold that it could not, con- 
 sistently with what I have already said in respect to the right 
 generally of an insolvent corporation to prefer creditors. 
 While the directors and officers of a corporation, solvent or 
 insolvent, are not in any proper sense the trustees of the 
 creditors, they do occupy a relation to them demanding the 
 utmost good faith on their part in the handling of the corpo- 
 ration assets. To their honesty and fair dealing with the 
 property, and to their just and prudent management of the 
 business, the creditors must look for their continued security. 
 As in the case of others occupying a fiduciary position, they 
 cannot innocently sacrifice the interests of those who trust 
 them to their own personal advantage. As managers of the 
 corporation and its property, they owe a duty to those deal- 
 ing with them, which they violate when, to the detriment of 
 those who confide in them, they make themselves preferred 
 beneficiaries in the disposition of assets which without such 
 preference, would be available alike to all creditors. They 
 hold in their hands the property of the corporation to which 
 creditors must look for satisfaction of their claims and come 
 within the just principle that one who has possession and 
 control of property for the benefit of others besides himself 
 may not dispose of it for his own special advantage, to the 
 injury of others, for whom it is also held. 
 
 The judgment in this case was confessed. Lewis him- 
 self as secretaiy of the company executed the confession to 
 himself. It was not a hostile proceeding against the com- 
 pany in which he acted as a creditor only, but was a voluntary- 
 effort on the part of the company, executed through and by 
 him as its secretary, to give himself an advantage over 
 creditors generally, with no equities to justify such prefer- 
 ence, except that he was a general creditor on account of an 
 antecedent indebtedness. I do not think such a preference 
 should be sustained. 
 
 In many of the states which recognize the general right
 
 ADAMS & WESTLAKE CO. v. DEYETTE 843 
 
 of an insolvent corporation to make preferences among its 
 creditors, such preferences in favor of its own directors on 
 account of antecedent indebtedness, in the absence of special 
 equities are not sustained. See Gottlieb v. Miller, 154 
 111. 44, 39 N. E. 992, where a preference was sustained as 
 to outside creditors, and set aside as to directors. See, also 
 Lippincott v. Carriage Co., 25 Fed. 577, where a large- num- 
 ber of cases are cited to the point that directors and manag- 
 ing officers cannot be preferred. Montgomery v. Phillips 
 (N. J. Err. & App.) 31 Atl. 622, followed in Mallory 
 V. Kirkpatrick (N. J. Ch. ) 33 Atl. 205; Henderson y. Tritst 
 Co. (Ind. Sup.) 40 N. E. 516; Corey v. JVadsworth (Ala.) 
 1 1 South. 350. See, also, upon this a valuable note to Lyons- 
 Thorws Hardzvare Co. v. Perry Stove Manufg Co. (Tex. 
 Sup.) in 22 Lawy. Rep. Ann. 802, 24 S. W. 16, in which 
 the editor's conclusion is thus stated : **On examination of 
 the decisions, it is clear that the weight of authority is over- 
 whelmingly in favor of the legality of preferences to ordin- 
 ary creditors, except as restricted by statute, and ovei-whelm- 
 ingly against the validity of such preference when made in 
 favor of directors." 
 
 The trial court held the Lewis judgment invalid, both 
 because of the invalidity of its consideration and because it 
 was the result of an attempt to give preference to a director. 
 For reasons stated early in this opinion, I think the first 
 ground untenable. As to the second ground, I am of the 
 opinion that he, being a director, and one of the managing 
 officers of the company, ought not to get any advantage in 
 the nature of a preference, but that the court was wrong in 
 holding his judgment void and in denying him participation 
 in the distribution of the proceeds of sale in the hands of the 
 sheriff. This seems to be the policy of our statute. If, by a 
 general assignment, this preference had been attempted in 
 favor of Lewis, the preference would have failed, but he 
 would still have been entitled to share ratably with other 
 creditors. Comp. Laws, §4660. I think there is much in the
 
 844 FRAUD ON CREDITORS OF CORPORATION 
 
 majority opinion that is sentimentally good and wholesome, 
 but that the text from which it is elaborated cannot be found 
 anywhere in the facts returned by the trial court, or of which 
 we have any judicial knowledge. 
 
 Finally, I cannot quite understand how the court, having 
 deliberately declared that the assets of this corporation, being 
 insolvent, constitute a fund for ratable distribution among its 
 creditors without preference, can affirm this judgment, which 
 gives to this respondent creditor practically the entire assets 
 of the corporation, in the face of the record showing other 
 creditors, whose judgments were confessed at the same time, 
 and which must go unpaid. This is an equitable action in the 
 nature of a creditors' bill in behalf of this plaintiff only, and 
 the remark of Judge Thayer in Walker v. Miller, 59 Fed. 
 871, seems pertinent: "If this trust-fund theory is to be 
 adopted to prevent the corporation from granting a prefer- 
 ence because of its insolvency, we know of no reason why it 
 should not be invoked to keep attaching creditors at bay, and 
 thus relegate the disposal of the fund, so far as judicial pro- 
 ceedings are concerned, to a court of equity." See, also, 
 Mallory v. Kirkpatrick, supra} 
 
 *For other cases involving preferences to officers or stockholders 
 of a corporation. See Amer. Dig. tit. Corporations, Key, No. 545; 12 
 Cent. Dig. tit. Corporations, §§ 2170-2175. Also, 10 Cy. C. 1251-1258.
 
 CHICAGO, ETC., R. R. CO. v. NATIONAL BANK 845 
 
 CHICAGO, MILWAUKEE AND ST. PAUL RAIL- 
 ROAD CO. V. THIRD NATIONAL BANK OF 
 CHICAGO. 
 
 In the Supreme Court of the United States, 1890. 
 
 134 United States Reports, 276. 
 
 On April i, 1880, resolutions were passed by the stocK- 
 holders of the Chicago and Pacific Railroad Company, 
 authorizing the leasing of its property and franchises to 
 the Chicago, Milwaukee and St. Paul Railway Company, 
 and also the execution of a new mortgage; and on the next 
 day, the first-named company executed its lease to the last- 
 named company, and the two companies executed a joint 
 trust deed upon the same property to secure the payment 
 of $3,000,000 of bonds, payable in thirty years. By the 
 lease, which was for 999 years, the lessor (which will for 
 convenience be called the Pacific Company) not only dis- 
 abled itself from performing the functions and discharging 
 the duties of its incorporation, but also transferred all its 
 property and franchises to the lessee (hereafter called the 
 Milwaukee Company). The consideration of the lease was 
 $1.00, and the performance of the convenants of the lease 
 by the lessee. The Pacific Company was largely indebted 
 outside of th'; amount secured by the trust deed; it there- 
 fore surrendered to the Milwaukee Company all the means 
 it had of discharging its indebtedness. Among the recitals 
 in the lease were these : 
 
 "Whereas certain other parties to whom the said party 
 of the second part was so as aforesaid indebted have prose- 
 cuted their several demands in the Superior and Circuit 
 Courts of Cook County, and other courts of the State of 
 Illinois, and have procured divers judgments thereon, which 
 now remain unpaid and unsatisfied of record, and are a 
 lien upon the property of the said party of the first part,
 
 846 FRAUD ON CREDITORS OF CORPORATION 
 
 and other of said demands still remain unliquidated; and 
 whereas the said party of the second part, at the request 
 of the said party of the first part, now proposes to aid the 
 party of the first part in procuring a sufficient sum of 
 money to redeem said property from the aforesaid sale, 
 and to protect said property from all the aforesaid valid 
 judgment liens, and also to extend and construct the road 
 of said party of the first part to the Mississippi River; 
 . and also to pay all taxes, charges, or assessments 
 imposed or assessed, or whch may be hereafter imposed or 
 assessed, upon the property or premises of the party of the 
 first part." 
 
 And among the covenants of the lessee were these : 
 "The said party of the second part, in consideration 
 of the said demise and lease so as aforesaid made by the 
 said party of the first part, hereby covenants and agrees 
 that it will take up, pay, cancel, satisfy and discharge the 
 said three thousand bonds of one thousand dollars each at 
 maturity thereof, and will pay, cancel and discharge each 
 and every of the coupons or interest warrants attached to 
 the said bonds, and each of them, as the same shall be- 
 come due and payable, so as aforesaid to be made and issued 
 to the parties of the first and second parts and will, during 
 the continuance of this lease, at all times save the said 
 party of the first part free and harmless therefrom, and 
 from the mortgage so as aforesaid to be executed by the 
 said parties of the first and second parts to the Farmers' 
 Loan and Trust Company, on the second day of April, 1880, 
 and the said party of the second part shall and 
 will, at its own proper cost and expense, preserve and keep 
 the railway and premises hereby demised, and every part 
 of the same, in thorough repair, working order and con- 
 dition, and supplied with rolling-stock and equipment, so 
 that the business of the said demised railway shall be pre- 
 served, encouraged and developed. . . . The said party 
 of the second part hereby covenants, promises and agrees
 
 CHICAGO, ETC., R. R. CO. v. NATIONAL BANK 847 
 
 to and with said party of the first part that at the end of 
 said term, or other sooner determination of this said lease, 
 the said party of the second part shall re-deliver and sur- 
 render up to the party of the first part, its successors or as- 
 signs, the said demised railway and premises in as good 
 order and condition as the same shall be delivered to the 
 said party of the second part under this lease, and withr such 
 additions, betterments and improvements as shall have been 
 made thereto." 
 
 The bonds were sold at ninety-seven cents, and the 
 amount necessary to redeem from the foreclosure sale was 
 about $1,100,000. Out of the proceeds of these bonds the 
 Milwaukee Company not only completed the construction 
 of the entire road authorized by the charter of the Pacific 
 Company, from Chicago to the Mississippi River, but also 
 constructed a bridge over the Mississippi River, so as to con- 
 nect this road with its own line in Iowa. The Chicago Bank, 
 a judgment creditor of Pacific Company sought by a cross 
 bill in certain equitable proceedings instituted by the two 
 companies to have its judgment paid by the Milwaukee Com- 
 pany. 
 
 The court in its decree, ordered "that the Chicago, 
 Milwaukee and St. Paul Railway Company pay in to the 
 clerk of this court, within thirty days, a sum of money 
 sufficient to satisfy the judgment, costs and interest rendered 
 in favor of the Third National Bank of Chicago against The 
 Chicago and Pacific Railroad Company, including also the 
 amount, with interest, paid by the Third National Bank of 
 Chicago to the United States marshal for the Northern 
 District of Illinois, to redeem from the sale to Albert Keep 
 as aforesaid; and it is further ordered, adjudged and de- 
 creed, that in case the Chicago, Milwaukee and St. Paul 
 Railway Company shall fail to pay said sum of money 
 aforesaid within said thirty days, the Third National Bank 
 of Chicago may move the court for the appointment of a 
 receive;, with the usual power of receivers, to take possession
 
 848 FRAUD ON CREDITORS OF CORPORATION 
 
 of the said leased property and to operate it until the 
 amount due to the said Third National Bank of Chicago 
 upon its judgment as aforesaid, with costs and interest 
 thereon, and the amount, with interest thereon so paid by 
 the Third National Bank of Chicago to the United States 
 marshal for the Northern District of Illinois,, to redeem 
 from said sale to Albert Keep, is paid out of the earnings 
 of said road, and for any other proper relief." 
 
 From this decree the Chicago, Milwaukee and St. Paul 
 Railway Company appealed.^ 
 
 Mr. Justice Brewer. Upon the facts can the vahdity 
 of the decree requiring the Milwaukee Company to pay to 
 the bank, within a specified time, the amounts of the two 
 judgments held by it be successfully questioned? We think 
 not. It would perhaps be difficult to point out any separate 
 clause in the lease by which the Milwaukee Company obli- 
 gated itself to pay the judgment in favor of the bank, and 
 yet there is force in the contention that, taken as a whole, the 
 instrument casts this burden upon the company. A part of 
 the subject matter of the contracts was claims against the 
 Pacific Company. One recital is of the foreclosure debt; im- 
 mediately following is one of the existence of claims, some 
 of which had been sued on and passed into judgment and 
 become liens, others still unliquidated; followed by the 
 recital that the purpose of this arrangement is the redemp- 
 tion from said foreclosure sale, and the protection of the 
 property from all the aforesaid valid judgment liens. Nar- 
 rowly, the valid judgment liens referred to may include only 
 those already existing, mentioned in the preceding recital; 
 or, broadly all valid judgment liens perfected on the claims 
 named in that recital, whether already in judgment or not. 
 If these were all the provisions, the narrow construction 
 mJght be preferred; but the further and express covenants 
 
 * The facts are in part restated, and the Reporter's notes of the 
 argument of counsel omitted. Only so much of the facts and the 
 opinion are given as relate to the substantive rights of the creditors of 
 the Pacific Company against the Milwaukee Company.
 
 CHICAGO, ETC.. R. R. CO. v. NATIONAL BANK 849 
 
 of the Milwaukee Company were to pay and discharge fully 
 the proposed indebtedness of $3,000,000. and to return at 
 the end of the lease, to the lessor, the demised property. 
 Does not this indicate that the understanding and intent 
 were that the Milwaukee Company should discharge all 
 judgment liens founded upon existing claims, whether such 
 liens had already been perfected, or should be created in 
 subsequent suit? A judgment after a lease does not of its 
 own right defeat the lease, or deprive the lessee of his interest 
 and possession ; but it operates against the lessor, and what- 
 ever interest, great or small, is retained in the leased 
 premises. The purpose of this stipulation was not the pro- 
 tection of the lessee, but of the lessor. It was not that 
 the lessee should be able to retain and enjoy the possession 
 during the terms of the lease; but that the property should 
 be freed from all burdens, so that at the termination of the 
 lease the lessor might retake and enjoy it. The scope of the 
 contract was not the payment of the debts of the lessor, for 
 a mere debt, never passing into judgment, casts no burden 
 upon the interest of lessor or lessee in the property, and the 
 removal of all burdens Avas apparently the intent of the con- 
 tracting parties. But again, the express lien on the lessor's 
 property amounted only to about $1,100,000; yet, by the 
 arrangement, a new lien was created from which nearly 
 $3,000,000 was received, all of which sum passed into the 
 hands of the lessee. Will not equity, for the payment of 
 the debts of the lessor, follow this surplus into the hands 
 of the lessee? Can a corporation in debt transfer its entire 
 property by lease, so as to prevent the application of the 
 property, at its full value, to the satisfaction of its debts? 
 Central Railroad v. Pettiis, 113 U. S. 116. 124; Mellen v. 
 Moline Iron Works, 131 U. S. 352. 366. We do not care 
 to pursue an inquiry into this question at length, or consider 
 what limitations would surround this doctrine as applied 
 generally, preferring to notice a single matter, which is 
 significant and decisive. The contracting parties arranged
 
 850 FRAUD ON CREDITORS OF CORPORATION 
 
 not merely for the discharge of the foreclosure lien, but for 
 the completion of the road for which the lessor's franchise 
 was granted. The lessee not only performed these stipula- 
 tions, but with moneys arising from the sale of these bonds 
 built, for its own benefit, a bridge across the Mississippi 
 River, connecting this road with its line in Iowa, and thus 
 making a continuous line of road to Omaha. Neglecting to 
 pay the debts of the lessor, it appropriated a large amount 
 of the proceeds of the trust deed upon the lessor's property 
 to its own benefit, and the improvement of its own property. 
 Here clearly was a diversion of funds, which the creditors 
 of the lessor might follow in equity. This is only the applica- 
 tion of familiar doctrine. The properties of a corporation 
 constitute a trust fund for the payment of its debts ; and, 
 when there is a misappropriation of the funds of a corpora- 
 tion, equity, on behalf of the creditors of such corporation, 
 will follow the funds so diverted. The Milwaukee Com- 
 pany, from securities on the property of the Pacific Com- 
 pany, received nearly three millions of dollars; part it used 
 for the benefit of the lessor company, and part it appropriated 
 to its own benefit. Can it do this, and let the lessor 
 company's debt go unpaid? Equity answers this question 
 in the negative, and such was the ruling of the circuit iudgi 
 26 Fed. Rep. 820. * * * 
 Decree affirmed.
 
 VANCE X'. ^rcNABB COAL AND COKE CO. 851 
 
 VANCE V. McNABB COAL AND COKE CO. 
 In the Supreme Court of Tennessee, 1892. 
 
 92 Tennessee Reports, 47. 
 
 The McNabb Coal and Coke Co. sold and transferred 
 all its property to the Consolidated Coal and Iron Co., the 
 only real consideration moving to the McNabb Company 
 being $400,000 of the stock of the Consolidated Company, 
 which stock was not paid to the McNabb Company, but 
 distributed among the stockholders of that company. The 
 Consolidated Company had no other property or capital 
 of any kind except what it received from the McNabb Com- 
 pany. The McNabb Company sold 115,000 of its bonds to 
 C. W. Short for $115,000. Short, however, paying $20,000 
 of this sum to the Consolidated Company. The Consoli- 
 dated Company then mortgaged its property to the Farmers' 
 Loan and Trust Co. to secure an issue of $300,000 of bonds. 
 This bill was filed by the creditors of the McNabb Company 
 to set aside the conveyance of its property and to wind up 
 its affairs as an insolvent corporation. The chancellor ad- 
 judged that the McNabb Company was indebted to various 
 creditors in separate sums aggregating $4,358.92. He 
 further adjudged that the $20,000 paid to the Consolidated 
 Company by C W. Short was an asset of the McNabb Com- 
 pany, and that the plaintiffs should recover of the former 
 company $4,358.92. Both the plaintiffs and the Consoli- 
 dated Company sued out writs of error. ^ 
 
 Caldwell. /..• * * =■= It is perfectly obvious that the 
 decree is appropriate, and rested upon sound reason, as far 
 as it goes. The $20,000 paid by Short to the Consolidated 
 Coal and Iron Company, was part of the consideration 
 due from him to the McNabb Coal and Coke Com- 
 
 ' The facts are- restated froin the opinion of the Court, and that 
 part of the opinion in which the facts are set forth at length is omitted.
 
 852 FRAUD ON CREDITORS OF CORPORATION 
 
 pany for its $115,000 of bonds purchased by him, and. 
 as a consequence, the Consolidated Coal and Iron 
 Company had no legal right whatever to the money. 
 Its receipt and holding of the money, under whatever claim 
 or pretense, was, in legal contemplation, for the use of the 
 true owner, the McNabb Coal and Coke Company. By tak- 
 ing the money into its treasury, the Consolidated Coal and 
 Iron Company became, as it were, a trustee in its own wrong 
 for the benefit of the creditors of the McNabb Coal and 
 Coke Company, and in that capacity it must be held respon- 
 sible in a court of equity. 
 
 It is quite as clear that the Chancellor did not go far 
 enough in the measure of relief granted. 
 
 By every rule of law and equity the $400,000 of capital 
 stock issued by the Consolidated Coal and Iron Company to 
 the share-holders of the McNabb Coal and Coke Company 
 belonged to the latter company in its corporate capacity, 
 as assets for the benefit of its creditors in the first instance. 
 That stock was the only consideration actually passing from 
 the purchasing to the selling company for its property, and 
 could not rightfully be appropriated by share-holders, as was 
 done, to the detriment of creditors. 
 
 The consideration of the deed of Februar)'- 22, 1887, 
 though that deed did not cover all the property, was, as has 
 already been seen, not less than $1,000,000 of paid-up capital 
 stock, to be issued to the McNabb Coal and Coke Company. 
 The option contract, made with McNeale and Donohue some 
 five or six months later, recited that $400,000 of the capital 
 stock in the proposed "new corporation" should be issued 
 to the "McNabb Coal and Coke Company as part of the 
 purchase-price ;" and by the final proposition, under which 
 the Consolidated Coal and Iron Company claim to have ac- 
 quired the whole property, the $400,000 of stock provided 
 "for the benefit of the parities interested in the McNabb 
 Company," was to be held "in accordance with the terms 
 agreed upon" by the parties to the option contract, which, as
 
 VANCE V. McNABB COAL AND COKE CO. 853 
 
 just seen, recited that it should go to the "McNabb Coal and 
 Coke Company as part of the purchase-price." 
 
 Then, treating the sale and purchase of the property as 
 in every way legitimate and binding, the $400,000 of stock 
 was a part of the price paid, and, as such, belonged primarily 
 to the selling company, and not to its share-holders as such. 
 Therefore, the persons receiving and appropriating that "stock 
 were guilty of a conversion, and thereby became individually 
 responsible to the creditors of the McNabb Coal and Coke 
 Company, each for the value of the shares taken by him. 
 
 After stating that equity regards the property of a cor- 
 poration as held in trust for the payment of its debts, the 
 Supreme Court of the United States, in a well-considered 
 case, said : "Assets derived from the sale of the capital stock 
 of the corporation, or of its property, become, as respects 
 creditors, the substitutes for the things sold, and, as such, 
 they are subject to the same liabilities and restrictions as the 
 things sold were before the sale, and while they remained in 
 the possession of the corporation. Even the sale of the entire 
 capital stock of the company, and the division of the proceeds 
 of the sale among the stockholders, will not defeat the trust 
 nor impair the remedy of the creditors, if any debts remain 
 unpaid, as the creditors, in that event, may pursue the con- 
 sideration of the sale in the hands of the respective stock- 
 holders, and compel each one, to the extent of the fund, to 
 contribute pro rata towards the payment of their debts out 
 of the money so received and in their hands." Railroad 
 Company v. Hozvard, 7 Wallace, 410. 
 
 To the same effect is Carson v. State of Arkansas, 15 
 Howard, 527; 2 Story's Eq. Jur., Sec. 1252, and other au- 
 thorities there cited. 
 
 But complainants are entitled to more comprehen- 
 sive relief than any yet mentioned. The deed and other con- 
 tracts by which the McNabb Coal and Coke Company under- 
 took to pass the title to all its property to the Consolidated 
 Coal and Iron Company are fraudulent and void as against 
 creditors of the former company.
 
 854 FRAUD ON CREDITORS OF CORPORATION 
 
 The Consolidated Coal and Iron Company was or- 
 ganized by the sanction and concurrence, if not solely at the 
 instance, of the officers of the McNabb Coal and Coke Com- 
 pany, for the express and single purpose of acquiring the 
 latter's property ; and the transition was soon accomplished, 
 mainly through the efforts of those same officers, who, in 
 the meantime, had become directors in the other company. 
 
 Moreover, the Consolidated Coal and Iron Company 
 did not pay, or assume to pay, anything for all this valuable 
 property, save the nominal consideration of one dollar. 
 True, it bound itself to issue a small part of its stock to the 
 McNabb Coal and Coke Company, but that, under the 
 facts of this case, did not constitute a valid consideration, 
 or relieve the transfer of the just imputation of fraud; for 
 the only basis of its stock was the property received from 
 the McNabb Coal and Coke Company. That stock had 
 nothing else to rest upon or to give it value ; from no other 
 source did the Consolidated Coal and Iron Company receive 
 a dollar of capital either in money or property. At best, it is 
 but an effort to make a sale whereby the purchase-price is 
 to be paid by a return to the seller of a small part of the 
 property sold, and the buyer is to retain the larger part and 
 pay nothing for it. 
 
 The president of the McNabb Coal and Coke Company 
 says the consideration received by that company for its prop- 
 erty was the different sums of $60,000, $35,000, and 
 $20,000, paid by C. W. Short. But that cannot be so ; first, 
 because the deed was executed long before he paid those 
 sums, and upon an entirely different consideration; and, 
 secondly, because he made those payments as the consider- 
 ation for the $115,000 of bonds purchased by him. The 
 only connection those payments had with the sale of property 
 to the Consolidated Coal and Iron Company lies in the fact 
 that he received of that company's stock a bonus of 
 $200,000, by previous agreement witli McNeal and Donohue 
 as owners of an option, which was never made a\ailable, 
 except as to the sale of the bonds.
 
 VANCE V. McNABB COAL AND COKE CO. 855 
 
 The truth is, that by a series of unusual offers and 
 agreements, one corporation, while largely indebted and 
 without providing for its creditors, has, without a valid con- 
 sideration, denuded itself of all its property, and vested the 
 same in another corporation, conceived and brought into 
 existence for the sole purpose of such successorship. 
 
 A transaction of that kind will not stand for a moment 
 against creditors of the former corporation, but they may 
 follow and subject the property in the hands of the latter 
 corporation, the same as if no transfer had been made. Only 
 the rights of subsequent innocent purchasers for value can 
 intervene and prevent that result. 
 
 This is a familiar principle of law with reference to 
 fraudulent conveyances, applicable to corporations and in- 
 dividuals alike : 
 
 "Corporations cannot, any more than individuals, re- 
 lieve their property from the payment of debts, except by a 
 sale and transfer in good faith, and for a full consideration." 
 Rorke V. Thomas, 56 N. Y., 563; Wabash, St. Louis & 
 Pacific Railzvay Co. v. Ham, 114 U. S., 594; 2 Morawetz 
 on Private Corporations (2nd Ed.), Sec. 789. 
 
 "Equity regards the property of a corporation as held 
 in trust for the payment of the debts of the corporation, and 
 recognizes the right of creditors to pursue it into whosesoever 
 possession it may be transferred, unless it has passed into the 
 hands of a bona fide purchaser." Railroad Company v. 
 Howard, 7 Wallace, 409; Carson v. State of Arkansas, 15 
 Howard, 507; Graham v. Railroad Company, 102 U. S., 
 161; 2 Story's Eq. Tur., Sec. 1252; Wait on Insolvent 
 Corporations, Sees. 150 and 156; 2 Morawetz on Pri- 
 vate Corporations, Sec. 789; Chicago Railway Company v. 
 Chicago Bonk. 134 U. S. 287. 
 
 In Hibernia Insurance Company v. St. Louis and Nezv 
 Orleans Transportation Company the Court, as correctly 
 stated in the head-note, held that "equity will not permit th? 
 stockholders in one corporation to organize another, and
 
 856 FRAUD ON CREDITORS OF CORPORATION 
 
 transfer all the corporate property of the former to the latter, 
 without paying all the corporate debts;" and that, "where 
 such a transfer is made, the obligations of the old corpora- 
 tion may be enforced against the new to the extent of the 
 assets received by it." 13 Fed. Rep., 516. 
 
 In another case, where it appeared that no fraud was 
 intended by either party, the Court held that "a new corpora- 
 tion which takes, as owner, all the property and assets of an 
 old corporation (which is dissolved without providing for all 
 its debts), must pay the debts of the old corporation, at least 
 to the amount of the assets converted." 16 Fed. Rep., 140. 
 
 Though the transfer of its property by the McNabb 
 Coal and Coke Company was inoperative and void as to com- 
 plainants, they are not entitled to a sale under their at- 
 tachment, because the proof discloses the existence of 
 a mortgage upon the attached property prior in date to the 
 filing of the bill, and the mortgagee is not before the Court. 
 The validity of the mortgage is not impeached in the bill. 
 In fact, its existence seems not to have been known to com- 
 plainants until disclosed in the proof, and they did not then 
 attack it by amendment, as they might have done upon 
 proper ground. 
 
 Complainants may elect to ratify the transfer of its 
 property by the McNabb Coal and Coke Company, and re- 
 cover the value of the $400,000 of stock from the persons 
 receiving it ; or the\' may avoid the transfer altogether, and 
 pursue the property or its proceeds in the hands of the Con- 
 solidated Coal and Iron Company, subject to any rights that 
 may have been acquired by subsequent bona fide purchasers 
 for value. 
 
 Enter decree in accordance with this opinion, and al- 
 low sixty days for defendants to pay into this Court the 
 amount of debts adjudged, with interest and costs. If such 
 payment should not be so made, the cause will be remanded 
 for further appropriate proceedings. - 
 
 " Compare : Railroad Company v. Howard. 74 U. S. 302. 1868.
 
 VANCE V. McNABB COAL AND COKE CO. 857 
 
 (The A Company was not worth $5,500,000. Its mortgages amounted 
 to $7,000,000, and it had other debts. An agreement was made be- 
 tween the A Company, the B Company, the stockholders of the A 
 Company and the bondholders of the A Company, that the B Com- 
 pany would pay $5,500,000 for the property of the A Company ; that 
 the different bondho.lders would receive from 100 to 30 per cent, of 
 their claims, and the stockholders of the A company 16 per cent, of 
 the face value of their stock. The offer of the B Company was con- 
 ditional on rapid delivery of a good title and the method proposed 
 was the only one that all parties interested could agree on. C, a 
 judgment creditor of the A Company, brought a bill in equity for 
 payment of the money which was to go to the stockholders. Court 
 decreed that this money should not be paid to the stockholders, but 
 to a receiver for the benefit of the creditors, even though had fore- 
 closure of the mortgages proceeded in regular course the unsecured 
 creditors would have received nothing.) 
 
 The Missouri Lead Mining and Smelting Co. v. Reinliard, 114 
 Mo. 218, 1892. (The A Company assigned all its property to the B 
 Company, the consideration being stock of the B Company, which was 
 distributed among the stockholders of the A Company. Persons not 
 stockholders of the A Company at the same time subscribed and paid 
 for the remaining stock of the B Company. At the time of the assign- 
 ment no provision was made for a disputed claim of C's against the 
 A Company, but the assignment was not an effort to avoid paying this 
 claim. Five years afterwards C secured a judgment on this claim 
 against the A Company. Held, that C had no right to have the assign- 
 ment set aside, but that as the B Company purchased with knowledge 
 of C's claim, in equity the B Company was liable for C's claim.) 
 
 For oilier cases on conveyances made when insolvent or in con- 
 templation of insolvency, see Amer. Dig., tit. corporations Key, No. 524; 
 12 Cent. Dig., tit. corporations. Sees. 2154-2160. 
 
 A general discussion of the "Trust Fund Theory" by one of the 
 editors (G. W. P.) will be found in American Law Register and Re- 
 view. (Now University of Pennsylvania Law Review), Vol. 43 (Vol. 
 34 N. S.), p. 448, 456,^; secj. (1895).
 
 CHAPTER XIV. 
 
 PROBLEMS OF SET OFF. 
 
 SECTION I.— PARTNERSHIP CASES. 
 
 SLIPPER V. STIDSTONE. 
 In the Court of King's Bench, 1794. 
 
 5 Term Reports, 493. 
 
 To this action for work and labour done by the bank- 
 rupt, goods sold and delivered, and money lent by him, the 
 defendant pleaded the general issue, and gave a notice of 
 set-off for work and labour of the defendant and one P. 
 Abbot since deceased, whom the defendant survived, by 
 them performed for the bankrupt, &c. At the trial before 
 Lord Kenyan, the sum set off exceeded the plaintiff's de- 
 mand, upon which the plaintiff was nonsuited, though it was 
 contended on his behalf that the set-off was in autre droit, 
 and ought not to be allowed in this action. 
 
 Law on a former day in this term moved to set aside 
 the nonsuit, contending that the set-off should not have been 
 allowed, for that there was no mutuality of debt; that the 
 fund out of which the satisfaction was to be made by the 
 plaintiff to the defendant as surviving partner, was not the 
 same as that from which satisfaction was to be made to the 
 plaintiff by the defendant; that the only mutuality here con- 
 sisted in the persons of the plaintiff and defendant; that 
 before the death of Abbot it could not be pretended that the 
 debt due from the plaintiff to him and the defendant could 
 be set off in an action against the defendant; and that, on 
 
 (858)
 
 SLIPPER V. STIDSTONE 859 
 
 principle, the death of Abbot could not vary this question. 
 That this set-off could not be permitted any more than a debt 
 due from the plaintiff to any person to whom the defendant 
 happened to be executor; and that if this set-off were 
 allowed, it would create confusion in the arrangement of 
 the costs of the different suits. 
 
 The Court then granted a rule nisi: but on this day tliey 
 recommended it to the plaintiff not to draw up the rule, as 
 it would only enhance the expence of the suit, the question 
 being perfectly clear with the defendant. They said that 
 the defendant might have declared against the plaintiff 
 for this demand, and also for any sum due to him sepa- 
 rately, if any such had been due; and that therefore there 
 was no reason why the set-off should not be allowed. 
 
 Rule refused.
 
 860 PROBLEMS OF SET OFF— PARTNERSHIPS 
 
 FRENCH v. ANDRADE. 
 In the Court of King's Bench, 1796. 
 
 6 TcDii Reports, 582. 
 
 This was an action upon promises; to which the de- 
 fendant pleaded that the plaintiff and one /. Newton who 
 died before the commencement of the action were indebted 
 to the defendant in divers sums of money, &c., for work and 
 labour, money paid, «&c. ; that those sums remained unpaid 
 at the death of /. Newton, and at the time of commenc- 
 ing this actiori were and still are due from the plaintiff to 
 the defendant; and that they exceed the sum due from the 
 defendant to the plaintiff, against which sum the defendant 
 is willing to set-off, &c. 
 
 To this plea there was a general demurrer. 
 
 Marryat, in support of the plea, mentioned the case of 
 
 Slipper V. Stidstone as decisive of the present; which 
 
 Wood contra admitted. 
 
 Per Curiam. It is perfectly clear that the debt due 
 from the plaintiff as surviving partner may be set-off against 
 the demand he has in his own right on the defendant. 
 
 Judgment for the defendant.
 
 ) 
 
 ADDIS V. KNIGHT 861 
 
 ADDIS V. KNIGHT. 
 
 In the High Court of Chancery, Before Sir William 
 
 Grant, Master of the Rolls, 1817. 
 
 2 Merivale's Reports, 117. 
 
 Joshua Knight, deceased, carr}^ing on trade in partner- 
 ship with his brother, the Defendant Edward Knight, on the 
 i8th of August, 1801, shortly after the marriage of his 
 daughter with the Plaintiff, advanced to the Plaintiff £1200, 
 on his bond, payable to Joshua Knight, his Executors, &c. 
 
 During the partnership, which continued to the death 
 of Joshua, and up to the time of his death, the partners were 
 in the habit of drawing bills upon the Plaintiff for their 
 accommodation, which bills the Plaintiff always accepted, 
 without any valuable consideration, on the credit (as he 
 alleged) of his father-in-law, and in the confidence that he 
 could set off at any time to the amount of his bond. 
 
 Joshua Knight died in June, 1809, having made his 
 will, and appointed the three Defendants his executors, who 
 proved the same. 
 
 On the 23d of the same month, a commission issued 
 against the Defendant Edzvard Knight, as surviving part- 
 ner; under which he was declared bankrupt, and an assign- 
 ment made of his separate estate, and also of the partner- 
 ship estate. 
 
 At the time of Joshua's death, and of the commission 
 issued, the partnership was indebted to the Plaintiff £8029 
 in respect of his acceptances, of which £5983 it,s. was dis- 
 counted at the Bank, and the remaining £2045 7^- P^^id away 
 by the partnership, the whole of which the Plaintiff was 
 then liable to pay, and afterwards actually paid, to the hold- 
 ers of those bills upon application made to him. 
 
 The Plaintiff proved the £2045 7^- under the commis- 
 sion on the joint estate; and the Bank were admitted to
 
 862 PROBLEMS OF SET OFF— PARTNERSHIPS 
 
 prove in joint exoneration of the Plaintiff's liability upon 
 the several other acceptances, to the amount of £5983 13^. 
 Dividends were received on both proofs, by which the sum 
 proved by the Plaintiff was reduced to £1840 15^. 6d., and 
 that proved by the Bank to £5385 6^. lod. amounting in 
 all to £7226 5^". 4d.j remaining due to the Plaintiff from the 
 partnership. 
 
 The joint estate being insufficient to pay any further 
 dividend, the Assignees under the Commission filed a Bill, 
 on behalf of themselves and all other the joint creditors of 
 the partnership who should come in and contribute, against 
 the present Defendants as executors, and other persons hav- 
 ing beneficial interests under the will of JosJuia Knight, 
 claiming (among other things,) to be paid the remainder 
 of their debts out of the real and personal estate of the 
 Testator, after payment of his separate creditors, and call- 
 ing upon them to account for the same. 
 
 By the Decree at the Rolls, on the 26th of January, 
 1812, it was referred to the Master to take an account of 
 the partnership debts, and it was ordered that the residue 
 of the Testator's personal estate, after payment of his sepa- 
 rate debts, should be applied in payment of such partnership 
 debts as should remain unsatisfied after applying the whole 
 partnership estate in liquidation thereof, and, in case the 
 personal estate should prove insufficient, then the Testator's 
 real estate was declared to be liable, under the statute, to 
 make good the deficiency, and an account thereof was also 
 directed. 
 
 Under this Decree, the Plaintiff proved before the Mas- 
 ter the balance of £1840 15^. 6d. remaining due on his 
 proof under the commission; but, depending upon the Bank 
 for carrying in before the Master the £5385 6^'. lod., which 
 was the balance due on the unsatisfied acceptances, in fur- 
 ther exoneration of his liability, confined his proof to the 
 former sum, and was called upon by the Bank to pay, and 
 had since actually paid, the amount of those acceptances.
 
 ADDIS V. KNIGHT 863 
 
 Under these circumstances, the Plaintiff, being in- 
 debted to the estate of Joshua Knight £1465, for principal 
 money and interest on his bond, claimed a set-off for that 
 amount on the £1840 15^, 6d. proved by him; but the Master 
 refused to admit the claim; and the Plaintiff afterwards, 
 understanding that it was the intention of the Defendants 
 (the representatives of Joshua Knight) to bring an -action 
 against him on the bond, filed the present Bill, by which he 
 prayed an injunction from proceeding on the bond, and a 
 declaration that he was entitled to have the bond and 
 interest deducted from or set off against the £5385 6^. lod. 
 due from the estate of Joshua Knight, and to receive pay- 
 ment or satisfaction in respect of the residue out of his 
 assets, and that he might be admitted to prove the same 
 against, or be directed to be paid the same out of, the said 
 assets accordingly; for an account, if necessary; and that 
 the bond might be delivered up to be cancelled. 
 
 The Defendants, by their answers, submitted whether 
 the debt due from the joint estate to the Plaintiff was or 
 was not a debt which ought to be considered due from and 
 payable out of the assets of Joshua Knight only, contending 
 that the debt due from the Plaintiff was a separate debt due 
 and payable to the separate estate of Joshua Knight, and 
 that the Plaintiff was not entitled to set off the bond-debt 
 and interest against the said sum of £5385 6^. lod., but 
 ought to pay the amount of principal and interest on the 
 bond, upon payment whereof he would be entitled to receive 
 his dividend upon so much as had been actually paid by 
 him, rateably with the other creditors. 
 
 Hart and Rose, for the Plaintiff. 
 
 Admitting that the debt secured to Joshua Knight by 
 the Plaintiff's bond remained due at law, and might be 
 recovered by the representatives of Joshua Knight in an 
 action, and that the debt due from the joint estate of Joshua 
 and Edward Knight to the Plaintiff was extinguished at 
 law as against Joshua by his death, and survived against
 
 864 i'RC^I'.I.F.MS OF SET OFF— P.XRTNERSHTPS 
 
 Edward only ; contended that it nevertheless remained due 
 in equity against the assets of Joshua, and that the Plaintiff 
 had a right, in a Court of Equity, to be relieved against 
 legal proceedings at the suit of Joshuas representatives, 
 while his equitable demand remained unsatisfied; and, in 
 support of this argument, they cited Stephenson v. Chiswell, 
 (3 Ves. 566), Gray v. Chiswell (9 Ves. 118), and Ex parte 
 Quintin (3 Ves. 248), Ex parte Stephens (11 Ves. 24), 
 and Ex parte Hanson (12 Ves. 346, and see 8 Ves. 232, i 
 Rose, 156 and Bradley v. Miller, i Rose, 273), alleging that 
 the first-mentioned case established the doctrine for which 
 they contended, and that its principle was not contravened 
 by any of the later decisions referred to. 
 
 Sir 5. Romilly, Leach, and Barber, for different De- 
 fendants. 
 
 The Master of the Rolls : 
 
 Upon looking into the cases which have been cited in 
 support of the Plaintiff's demand, that of Stephenson v. 
 Chiswell, is the onl}^ one which I find to be applicable ; and, 
 in the result, that case appears to be rather against the claim 
 than in favour of it; for the demurrer was allowed. The 
 cases of Ex parte Stephens, and Ex parte Hanson, only es- 
 tablish that, under certain circumstances, there may be a 
 set-off in Equity when there can be none at Law. But it is 
 quite clear that, as at Law a joint cannot be set off against a 
 separate demand, the same rule prevails in Equity, and must 
 continue to prevail so long as the present system, in regard 
 to joint and separate estates, subsists. 
 
 The case of Ex parte Quintin, may be considered as an 
 exception; but in Ex parte Twogood (11 Ves. 517, 519), 
 the present Lord Chancellor expresses his disapprobation of 
 that decision. 
 
 It is difficult to discover what was the precise equity 
 sought in the case of Stephenson v. Chisivell. The Plaint- 
 iffs there claimed to retain their own debt until they should 
 be divested of it by somebody having a better right to it
 
 ADDIS t'. KNIGR.' 865 
 
 than themselves. But it is difficult to say what they would 
 have considered a better equity than their own. Lord Ross- 
 lyn, it is true, uses some expressions which appear to be in 
 favour of the present application; but the demurrer was to 
 the whole relief sought, and its being allowed, was a refusal 
 of that relief in any part and to any extent. 
 
 According to the scope of the argument, there would 
 be hardly any rule by which the right of set-off can be as- 
 certained. The criterion of set-off is supposed to be the 
 purpose to which the debt is intended to be applied ; since, 
 if it is wanted for the payment of separate creditors, the 
 Plaintiff does not pretend any right to retain ; he claims to 
 be entitled only in respect of its intended application to the 
 payment of joint creditors. But he is not called upon to 
 pa}^ this debt, in the same character in which he would re- 
 ceive, as a joint creditor. His right is not co-extensive with 
 his obligation. His obligation is to pay the whole ; his right 
 is to receive only a part; namely, his proportionate dividend 
 with the other joint creditors. 
 
 Bill dismissed with costs.^ 
 
 ^ But even at law a person who is sued by one may set off a point 
 and several obligation of the plaintiff and another to him. Owen v. 
 Wilkinson, 5 C. B. N. S. 526, 1858.
 
 ^66 PROBLEMS OF SET OFF— PARTNERSHIPS 
 
 WALN V. HEWES. 
 In the Supreme Court of Pennsylvania, 1820. 
 
 5 Sergeant and Rawle's Reports, 468. 
 
 This suit was brought by Robert Wain, surviving part- 
 ner of Jesse Wain against Josiah Hewes and others, execu- 
 tors of Joseph Anthony deceased, in which a verdict had 
 been found for the plaintiff against Hewes, for the sum of 
 970 dollars 39 cents, and judgment had been entered thereon, 
 A motion was now made on behalf of Hewes, for a rule on 
 the plaintiff to shew cause, why the amount of the judg- 
 ment in this case should not be defalked out of a judgment 
 obtained by Hewes against Robert Wain, in a suit brought 
 in this Court to the present Term, for the sum of 5143 dol- 
 lars y2f cents. Hezves was the only executor of Anthony 
 who had assets, and he had paid them all over to the lega- 
 tees of Anthony, at a time when there was not the least 
 expectation of claims by creditors, without taking securitv 
 The ground of recovery against him in this as well as in 
 other suits to a large amount, was an alleged fraud com- 
 mited by Anthony, on several insurances of a ship in the 
 year 1795. The plaintiff, Robert Wain,, had executed a gen- 
 eral assignment in trust for his creditors, on the 13th Sep- 
 tember, 1809.^ 
 
 Gibson, J. : 
 
 The judgment now attempted to be defalked, was ob- 
 tained against the plaintiff, not as a surviving partner, but 
 for his separate debt. At law, it is clear, the* remedy to 
 recover on choses in action belonging to the partnership, 
 survives; and the surviving partner may, therefore, set-off 
 a debt due to him as such, against a demand on him in his 
 own right. Slipper v. Lane, 5 Term Rep. 493 : so the de- 
 fendant may set-off a debt due by the plaintiff as surviving 
 partner, against a demand due to him in his own right. 
 
 * The Reporter's notes of the arguments of counsel are omitted. 
 (IS also the firgt part of the opinion, by Gibson, J.
 
 WALN z: HEWES 867 
 
 French v. Andrade, 6 Term Rep. 528. So far the rights of 
 the representatives of the deceased partner, and of the part- 
 nership creditors, are not affected. Where the siirvdving 
 partner is a defendant he may set-off a partnership claim, 
 because as resj^jects the plaintiff he may treat it as his own: 
 so where a person who is a surviving partner sues for his 
 separate debt, the defendant may set-off a partnership debt 
 against it. But there is no case to shew, that where the suit 
 is for a debt due to the partnership, the defendant can set- 
 off a debt separately due by the plaintiff ; for though a sur- 
 viving partner may chose to treat a partnership debt as due 
 to him in his own right, it does not follow that a defendant 
 sued for a debt separately due has a correspondent right ; 
 and even if he had such a right at law, I have no doubt 
 chancery would, if the surviving partner were insolvent, 
 interfere to prevent it from being exercised ; and this on 
 the same ground that it interferes to prevent an insolvent 
 surviving partner from disposing of the stock, or getting in 
 the outstanding debts ; as was done in Hartz v. Schroeder, 8 
 Ves. jun. 317. Equity, I know, will, under special circum- 
 stances, allow a set-off where none can be at law, as in 
 Ex parte Stephens, 1 1 Ves. jun. 24, and we find some chan- 
 cellors have been disposed to go a good way in cases not 
 very unlike the present. In Ex parte Edwards, i Atk. 100, 
 Lord Hardwicke inclined, under circumstances of extreme 
 hardship, to suffer the separate debt of one of the partners 
 to be defalked from a debt due to both jointly : but what 
 finally became of the cause does not appear, and we there- 
 fore cannot tell what terms he had in view. And in Ex 
 parte Quinten, 3 Ves. jun. 248, a separate commission hav- 
 ing issued against one of the partners, and the other having 
 paid the joint debts, a debtor to the partnership, who was 
 also a creditor of the l^ankrupt, was permitted to set-off 
 against the bankrupt's share of the joint debt, and to prove 
 for the residue of his demand, the solvent partner consent- 
 ing to receive only his proportion of the debts due to the
 
 868 PROBLEMS OF SET OFF— PARTNERSHIPS 
 
 partnership. But in Ex parte Twogood, ii Ves. jun. 587, 
 this case was, as I take it, overruled, where set-off was 
 denied under circumstances in all respects similar, except 
 that the solvent partner had not paid the joint debts ; but 
 the effect of that circumstance was, in Ex parte Quinten, re- 
 moved by the assent of the solvent partner to dispense with 
 any right arising from it. However, be that as it may, 
 equity will never allow a set-off of this sort without taking 
 special care that no injuiy shall, in any possible event, hap- 
 pen to the rights of any one having a claim on the partner- 
 ship ; and in doing so, chancery has facilities by directing 
 the accounts to be taken between the partnership and its 
 creditors, and between the partners themselves, which this 
 Court has not. A chancellor can call all the parties in inter- 
 est before him, and bind them by a decree, that will do com- 
 plete justice to every one : our equity means are limited, and 
 for some purposes miserably deficient. Here we can im- 
 pose no conditions, but must allow the set-off absolutely if 
 at all ; and to do so, might be to pay a debt due by the plaint- 
 iff out of the estate of his solvent partner, or out of the 
 property of the general creditors. It does not appear, 
 whether the joint debts are paid, or whether, if the accounts 
 were settled, the plaintiff would be in advance to the con- 
 cern. He insists he is ; but that is denied by the representa- 
 tives of the deceased partner, and on a motion of this kind 
 we cannot settle the account. But the plaintiff does not say 
 the partnership creditors are paid, and until that be done it 
 is impossible to say how the balance may fall. Were it 
 even certain the partners stood in all resepcts equal, still no 
 more than the half of this judgment would belong to the 
 plaintiff, and be a subject of equitable defalcation by his 
 separate creditors. As it is, the money recovered here will 
 go into the hands of the plaintiff's* assignees, subject, in the 
 first instance to all the rights of the partnership ; and when 
 the joint debts are paid and the partnership account is set- 
 tled, but not till then, the separate creditors will have a
 
 WALN V. HEWES 869 
 
 claim on it : whatever may then remain as a share of the 
 plaintiff, will be subject to his separate debts; but at this 
 stage of the business, we cannot interfere. This being an 
 application to our discretion, we must take care so to exer- 
 cise it, as not to invade the rights of third persons. The 
 defendant's case is a very hard one ; but the motion must be 
 denied. 
 
 Motion denied. - 
 
 'Compare: Gordon v. Ellis, 2 C. B., 820, 1846. (To assumpsit 
 by A., B. and C. against D. for money had and received, D. pleaded, 
 that, before the money had been received, &c., the plaintiffs carried 
 on the trade of founders in partnership ; that, while they were such 
 partners, A., with the privity and concurrence of B. and C., employed 
 D., an auctioneer, to sell certain property belonging to the firm : 
 that, at the time A. so employed D. to sell the said property, and 
 at the time of the sale thereof, and at the time when the debt after 
 mentioned became due from A. to D., D. believed that A. was the 
 sole and exclusive owner of the property, and had full power and 
 authority to sell the same, and to receive the proceeds for his own 
 sole use, D. having no notice or knowledge that B. and C. had any 
 right or interest in the property ; that, after A. had so employed D., 
 and before D. had any notice that A. was not the sole and exclusive 
 ownei" ol the property, or of the proceeds thereof, A. became in- 
 debted to D. in a sum exceeding the moneys m the declaration men- 
 tioned, out of which D. was read\^ and willing 10 =;et oif and allow the 
 sums in the declaration mentioned. Held, that the plea was 
 bad inasmuch that it did not allege that A appeared as sole owner 
 of the property with the assent or by the default of his partners. For 
 a case in which the person dealing w-ith the partner was deceived 
 by the action of his co-partners into believing that the debt was due 
 from the partner separately, and the set off was allowed. See Ross v. 
 Deey, 7 T. R., 361, note C.) 
 
 Billings v. Meigs, 53 Barb. 272, 1869 (A and B were partners. They 
 deposited money with C. C at the request of A transferred part of 
 the money to the individual account of A, C having reason to know 
 that A's request was in fraud of B. Held, that C was liable to B for 
 the full amount deposited by the firm. i. e. he, C, could not set off 
 against the claim of the partnership his, C's, claim against A).
 
 870 PROBLEMS OF SET OFF— PARTNERSHIPS 
 
 STEWART V. COULTER. 
 In the Supreme Court of Pennsylvania, 1824. 
 
 12 Sergeant and Rawle's Reports, 252, 445. 
 
 This cause was tried before Mr. Justice Duncan, at 
 nisi prills in April, 1824, when it appeared that it was a suit 
 brought by Abraham Stewart, against John Coulter and 
 William Day, to recover a compensation for services, as 
 supercargo of the ship Coromandel, on a voyage from Phil- 
 adelphia to Antwerp, thence to Java, back to Antzverp, and 
 thence to Philadelphia. The ship arrived in Philadelphia in 
 June or July, 1819, and on the i8th of August, 1819, the 
 plaintiff executed an assignment of his claim to A. C. Sal- 
 aignac and Cornelius Stevenson, for whose use the suit was 
 brought. On the trial, Coidter offered to set off a judg- 
 ment, which he had obtained against Stewart, long prior to 
 his assignment to Salaignac and Stevenson; and his Honour 
 having admitted the set-off, the plaintiff moved for a new 
 trial. ^ 
 
 Gibson, J. For myself, I cannot admit that this set- 
 off could be claimed at law, or that there is in this respect 
 any material difference between our act of assembly, and 
 the stat. 2 G. 2. ch. 22. But whatever difference does exist, 
 is against the set-off, our act having regard to cases where 
 a balance may be recovered by the defendant, and it cannot 
 be said that partners may recover a debt separately due to 
 one of them. But I throw this out only as my own opinion, 
 and as we all agree that the debt due by Stewart to Coulter 
 was a proper subject for equitable defalcation. I shall rest 
 the opinion o'f the court on that ground alone. 
 
 It is undoubted, that chancery held jurisdiction of set- 
 
 ^ The Reporter's notes of the arguments of counsel are omitted 
 The opinion of Duncan, J., allowing the set off under an Act of As- 
 sembly is also omitted.
 
 STEWART V. COULTER 871 
 
 off before any statute on the subject was passed; and 
 although a bill for an injunction would not now be sus- 
 tained, where relief may be had at law, yet for the partic- 
 ular equity chancery will go beyond the terms of the statute, 
 whose object seems to have been the convenience of suitors, 
 in enabling the common law courts, in the generality of 
 cases, to afford that relief which before was obtained only 
 in chancer}', without at all abridging the inherent powers of 
 that court in cases not within the statute. It is remarked 
 by Chancellor Kent, in Dale v. Cook, 4 Johns. Ch. 13, that 
 the cases in which there has been a relaxation of the rule 
 which forbids a set-off between joint and separate debts, are 
 those of bankruptcy ; and that it is said the chancellor's 
 jurisdiction relative to set-off in bankruptcy, is derived from 
 the Stat. 13 Elis. and 5 Geo. 2, and is wholly unconnected 
 with the general statute of set-off, of Geo. 2. It is so. But 
 I doubt whether this relaxation has arisen from any differ- 
 ence between the particular provisions of these statutes ; and 
 whether it would not be found to originate in the inherent 
 power of the court, exercised in conformity to the pro- 
 visions of the statute, only where the case presented no 
 equity beyond the statute; but exercised where it did, not 
 for the sake of convenience, but to prevent an absolute fail- 
 ure of justice, always taking care, however, that the inter- 
 ests of third persons be not jeoparded by the relief afforded 
 in the particular instance. I do not say, however, that as 
 a matter of course the several debt of one defendant can 
 be set off against the joint debt of all, even in equity. In 
 the case under consideration, one of the defendants pro- 
 poses to pay the debt for which suit is brought, out of his 
 own pocket, and there is therefore no reason to say the inter- 
 est of his partner is involved, particularly as his partner is 
 also a defendant and assents to it. Then, what is the par- 
 ticular equitv on which this set-off is claimed? The suit 
 against the defendants is brought for commissions earned 
 after the date of the judgment, which is proposed to be de-
 
 872 PROBT^EMS OK SET OFF— PARTNERSHIPS 
 
 falked ; and Stezvart, in whose name it is brought, assigned 
 his interest in it to the present plaintiff a month before 
 obtaining a discharge, as an insolvent debtor, doubtless with 
 the intention of eluding this claim on the part of Coulter, 
 one of the defendants. The insolvency 'of Stewart alone, 
 would furnish a sufficient equity for a chancellor, to prevent 
 him from getting the fruits of his demand into his hands, 
 without presenting to the defendants the means of coercing 
 the payment of theirs. But this is not all. The demand 
 of the plaintiffs arose from credit given chiefly, if not en- 
 tirely, to the defendant, whose separate debt is set against 
 it, and who was treated in the subsequent transactions of 
 the parties, all but the bringing of this suit, as the debtor 
 substantially liable; and, added to this, about the same time 
 that Stewart obtained the benefit of the insolvent laws, 
 Coulter settled with Day, his partner and co-defendant, paid 
 him, and took the responsibility arising from this demand 
 entirely on himself; so that the debt for which the defend- 
 ants are sued, is effectively the debt of Coulter, and nothing 
 is in the way of the set-off but the name of Day, as a party 
 of record. The difficulty, then, is only one of form, — Stew- 
 art and Coulter alone, standing substantially in the relation 
 of debtor and creditor. Would there not then be an abso- 
 lute failure of justice, in permitting assignees who stand in 
 no better equity than their assignor to recover against part- 
 ners, one of whom would, in consequence, be left to the 
 desperate chance of obtaining satisfaction for his separate 
 demand from the assignor, who is absolutely insolvent? 
 It seems to me, this would furnish a claim to relief on 
 grounds of general equity, which no chancellor could with- 
 stand. In such a case even a court of common law would 
 give relief, on the foot of its common law jurisdiction of 
 setting off one judgment against another. Roberts v. Biggs, 
 Bull. N. P. 336. Mitchell v. Old field, 4 Term Rep. 123. 
 The only thing that has weighed with me, is a doubt whether 
 that course ought not to have been pursued here. But in
 
 STEWART V. COULTER 873 
 
 delivering the opinion of tlie court in Wain v. Hewes, 5 
 Serg. & Rawle, 470, I am convinced that I erred, in suppos- 
 ing that relief could in no case be had, but after judgment. 
 This court possesses not only its common law jurisdiction 
 over the subject, but, in virtue of its chancery powers, the 
 jurisdiction of a court of equity, and may therefore afford 
 more extensive relief than what can be had at the common 
 law ; and there is beside a peculiar fitness and convenience, 
 in going into the inquiry at the trial, as there may be a 
 variety of facts such as the insolvency of the plaintiff, 
 which are proper for the decision of the jury. On general 
 grounds, however, I am clear that the set-off was properly 
 allowed, and the rule for a new trial must therefore be dis- 
 charged. 
 
 Rule discharged. - 
 
 '^Accord: Lewis v. Culhertson, 11 S. & R. 48, 1824. (A and B 
 were partners. A and B were indebted to C. C was indebted to A. 
 B died. C sued A on a partnership debt. Held, that A could set off 
 the debt due him by C.) 
 
 Compare: Watts v. Christie, 11 Beav. 546, 1849. (A and B were 
 partners. A as an individual, and the firm had accounts at a bank. 
 The account of A had a credit ; the account of the firm was over- 
 drawn. The bank stopped payment. A assigned his credit to the 
 firm. The bank refused to transfer the account of A to the credit 
 of the firm. The bank went into bankruptcy, and the assignees sued 
 the firm. The firm brought a bill in equity to allow them to set off, 
 against the claim of the bank, A's claim against the bank. Refused.)
 
 874 PROHLEMS OF SET OFF— PARTNERSHIPS 
 
 TUSTIN V. CAMERON. 
 In the Supreme Court of Pennsylvania, 1839. 
 
 5 Wharton's Reports, 379. 
 
 Error to the District Court for the City and County 
 of Philadelphia. 
 
 In the Court below John Cameron brought an action 
 on the case against Thomas Tustin and George VV. Harris, 
 lately trading under the firm of Tustin & Harris, upon two 
 promissoiy notes, dated the 2d of October, 1838, for five 
 hundred and fifty-three dollars each, drawn by the defend- 
 ants in favour of the plaintiff; one payable in thirty days, 
 and the other in sixty days after date. 
 
 The defendants filed the following affidavit of defence. 
 
 "George W. Harris, one of the defendants above named, 
 being duly sworn, says : — The above named defendants have 
 a just and legal defence to the whole of the plaintiff's claim 
 in this case, the nature and character of which defence are 
 as hereinafter set fortli. Prior to and on the 4th day of 
 November, a. d. 1838, the plaintiff was, and has ever since 
 continued to, be, and still is indebted, to a firm styled the 
 Western Transportation Company, (consisting of the above 
 named defendants and David Leech, Thomas S. Clark, Wil- 
 liam Little, Thomas Leuford, James Arthur, and Robert S. 
 Hays,) in the sum of two thousand dollars and upwards, 
 for money had and received by the said plaintiff, before the 
 said 4th day of November, a. d. 1838, as the agent of and 
 for the use of the said Western Transportation Company; 
 by all the members of which the defendants are expressly 
 authorised and requested and do therefore claim to set off 
 against the plaintiff's claim in this suit, so much of his said 
 debt to the said Western Transportation Company as may 
 be necessary to extinguish the plaintiff's said claim." 
 
 A rule to show cause why judgment should not be
 
 TUSTIN V. CAMERON 875 
 
 entered for want of a sufficient affidavit of defence, was 
 granted by the Court , and after argument the rule was made 
 absolute. Whereupon the defendants took this writ of 
 error. 
 
 Per Curiam. — This case has every feature of Wren- 
 shall V. Cook, except the plaintiff's insolvency. Such a 
 feature, however, is not an essential one; though, existing 
 in that case, it was stated as a circumstance to make the ex- 
 pediency of a set-off more apparent. It is the practicability 
 of avoiding circuity and needless costs with safety and con- 
 venience to all parties, which determines the question of set- 
 off : and an increasing liberality has greatly, but cautiously 
 and beneficially enlarged the doctrine within a few years 
 past. Thus in Childerston v. Hammond. (9 Serg. & Rawle, 
 68,) and Stezvart v. Coulter, (12 Serg. & Rawle, 252,) a 
 defendant jointly sued, was allowed to set off the plaintiff's 
 debt separately due to himself; a superior equity in a third 
 person not being in the way. Is not that the converse of 
 our case, in which a defendant separately sued proposes to 
 set off a partnership debt with the assent of his partners ? 
 In Henderson v. Lezvis, (9 Serg. & Rawle, 379,) a debt due 
 to the plaintiff by a co-obligor sued but not summoned, was 
 not allowed to be set off with the co-obligor's assent, only 
 because he was effectively a stranger to the action; and a 
 third person is never suffered to make it a medium of re- 
 covery by cross action, without risk of costs. That is very 
 different from a recovery of the defendant's own demand 
 with the license of those who have a concurrent interest in 
 it. Such is a partnership cross demand; and it is ground 
 of defence here. 
 
 Judgment reversed and a procedendo awarded.
 
 876 PROBLEMS OF SET OFF— PARTNERSHIPS 
 
 SMITH V. PARKES. 
 
 In the High Court of Chancery, Before Sir John 
 RoMiLLY^ Master of the Rolls, 1852. 
 
 16 Beavan's Reports, 115. 
 
 In 1845, 3- partnership which had previously existed 
 between Smith, Parkes and Brookfield was dissolved, and 
 by the deed of dissolution, dated the 7th of April, 1845, 3"<^ 
 subject to certain deductions therein mentioned, Parkes was 
 entitled to receive from Smith and Brookfield 5,750/. for 
 the good will, and 2,125/. fo^ ^^''s share of the profits. Wit- 
 ham thereupon joined the partnership. 
 
 On the 30th of April, 1845, P^^^kes agreed to assign 
 the interest which he took under this deed to the Defend- 
 ants Lucena and others. Disputes afterwards arose between 
 Smith, Parkes and Brookfield, and in December, 1845, 
 bonds were given by Smith and Brookfield to secure the 
 amount due to Parkes, and which he deposited in like 
 manner for the benefit of Lucena and the persons interested 
 under the former agreement of the 30th of April. Actions 
 were subsequently brought in the name of Parkes on the 
 bonds, but on the 23rd of December, 1846, an arrangement 
 was come to between the continuing partners and Parkes, 
 by a deed dated the 23rd of December, 1846, whereby 
 Smith, Brookfield and Witham covenanted to pay the sums 
 therein mentioned. This deed was given in substitution for 
 the former deeds and bonds, Lucena and the others in the 
 same interest accepted this deed of 1846 in lieu and sub- 
 stitution of the former securities, and the actions which had 
 been previously bought by them in the name of Parkes on 
 the bonds were discontinued. 
 
 Fresh difficulties afterwards arose under the deed of 
 1846, which were determined by arbitration. 
 
 In 1848, Smith, by the death of Witham and the in-
 
 SMITH V. PARKES 877 
 
 solvency of Brookfield, became the sole surviving member 
 of the firm; and after he had made some payments under 
 the deed of 1846, Lucena and the other assignees of 
 Parkes's interest brought an action at law against him in 
 the name of Parkes, to recover the amount remaining due 
 under the deed of 1846; whereupon the Plaintiff, Smith, 
 instituted this suit, alleging that at the date of the deed of 
 1846, Parkes was indebted to Smith, Brook field and Wit- 
 ham in sums amounting altogether to about 2,318/. for 
 money lent, and for a mortgage debt and business trans- 
 acted, and he insisted on his right to 5et off these sums 
 against the amount due on the covenant contained in the 
 deed of 1846. 
 
 Pending the suit Parkes obtained judgment in the 
 action.-^ 
 
 The Master of the Rolls, at the close of the argu- 
 ment, expressed his opinion on the principal points in the 
 case, and stated, that he was of opinion that the plaintiiT 
 (the sole surAnving member of the partnership of Smith. 
 Witham and Brookfield) was entitled, in equity, to set off 
 against the debt established against him at law by the De- 
 fendant Parkes, such sum as Parkes owed to the firm of 
 Smith, Witham and Brookfield. He also stated his opinion, 
 that the other Defendants to whom Parkes had assigned 
 his interest in and his claim against the finn, under the deed 
 of dissolution, were also bound to allow such set-off, to 
 the extent of all debts due to the firm from Parkes, at the 
 time the assignment was made to them; but he reserved his 
 opinion on the question whether the Plaintiff was entitled 
 to set off the debts incurred by Parkes subsequently 10 that 
 period.^ 
 
 'The Reporter's Notes of the arguments of counsel are omitted. 
 
 *The Master of the Rolls subsequently held that the plaintiff 
 was not so entitled, he having notice of the assignment. 
 
 For other cases involving questions of set off in partnership and 
 individual demands, see 43 Cent. Dig., tit. Set Off, Sees. 82-99; Amer. 
 Dig., tit. Set Off, Key numbers, 44 (2), and 45.
 
 878 PROBLEMS OF SET OFF— CORPORATIONS 
 
 SECTION 2.— CORPORATION CASES. 
 
 SAWYER V. HOAG. 
 In the Supreme Court of the United States, 1873. 
 
 84 United States Reports, 610. 
 
 The Liimbermairs Insurance Company was liable to 
 Sawyer on a policy of insurance. The assignee in bank- 
 ruptcy of the Company, Hoag, was proceeding against 
 Sawyer on the obligation described in the opinion of the 
 Court. This was a bill in equity brought by Sawyer v. 
 Hoag to enforce a right of set off. The court below de- 
 creed against the complainant. ^ 
 
 Mr. Justice Miller: The first and most important 
 question to be decided in this case is whether the indebted- 
 ness of the appellant to the insurance company is to be 
 treated, for the purposes of this suit, as really based on a 
 loan of money by the company to him, or as representing 
 his unpaid stock subscription. 
 
 The charter under which the company was organized 
 authorized it to commence business upon a capital stock of 
 $100,000, with ten thousand paid in, and the remainder se- 
 cured by notes with mortgages on real estate or otherwise. 
 The transaction by which the appellant professes to have 
 paid up his stock subscription is, shortly, this : He gave to 
 the company his check for the full amount of his subscrip- 
 tion, namely, $5000. He took the check of the company 
 for $4250, being the amount of his subscription less the 
 15 per cent, required of each stockholder to be paid in cash, 
 and he gave his note for the amount of the latter check, 
 with good collateral security for its payment, with interest 
 at 7 per cent, per annum. The appellant and the company, 
 
 ' The rest of the facts are stated in the opinion of the Court. The 
 facts as stated by the Reporter, and his notes of the arguments of 
 counsel are omitted.
 
 SAWYER V. HOAG 879 
 
 by its ofificers, agreed to call this latter transaction a loan, 
 and the check of the appellant payment in full of his stock; 
 and on the books of the company, and in all other respects 
 as between themselves, it was treated as payment of the sub- 
 scription and a loan of mone}'. It is agreed that at this 
 time the current rate of interest in Chicago was greater 
 than 7 per cent., and it is not stated as a fact whether these 
 checks were ever presented and paid at any bank, or that 
 an}' money was actually paid or received by either party in 
 the transaction. It must, therefore, be treated as an agree- 
 ment between the corporation, by its officers, on the one part, 
 and the appellant, as a subscriber to the stock of the com- 
 pany, on the other part, to convert the debt which the latter 
 owed to the company for his stock into a debt for the loan 
 of money, thereby extinguishing the stock debt. * * *2 
 
 The result of it [The transaction between Sawyer and 
 the company by which the company was said to re-loan 85 
 per cent, of the stock subscribed] was that the capital stock 
 of the company was neither paid up in actual money, nor 
 did it exist in the form of deferred instalments properly 
 secured. 
 
 It is said by the appellant's counsel that conceding this, 
 it is still a debt due by him to the corporation at the time 
 that he became the owner of the debt due by the corpora- 
 tion to Hayes, and, therefore, the proper subject of set-off 
 under the twentieth section of the Bankrupt Act. That 
 section is as follows : "In all cases of mutual debts or 
 mutual credits between the parties, the account between 
 them shall be stated, and one debt set off against the other, 
 and the balance only shall be allowed or paid, but no set-off 
 shall be allowed of a claim in its nature not provable against 
 the estate : Provided, that no set-off shall be allowed in favor 
 of any debtor to the bankrupt of a claim purchased by or 
 transferred to him after the filing of the petition."^ 
 
 'The Court's discussion of the transaction between the company 
 and its stockholders is omitted. 
 
 *The wording of Sec. 68a of the Act of 189S, is as follows:
 
 880 PROP.LEMS OF SET OFF— CORrORATIONS 
 
 This section was not intended to enlarge the doctrine of 
 set-off, or to enable a party to make a set-off in cases where 
 the principles of legal or equitable set-off did not previously 
 authorize it. 
 
 The debts must be mutual ; must be in the same right. 
 
 The case before us is not of that character. The debt 
 which the appellant owed for his stock was a trust fund 
 devoted to the payment of all the creditors of the company. 
 As soon as the company became insolvent, and this fact be- 
 came known to the appellant, the right of set-off for an 
 ordinary debt to its full amount ceased. It became a fund 
 belonging equally in equity to all the creditors, and could 
 not be appropriated by the debtor to the exclusive payment 
 of his own claim. 
 
 It is unnecessary to go into the inquiry whether this 
 claim was acquired before the commission of an act of 
 bankruptcy by the company, or the eft'ect of the bankruptcy 
 proceeding. The result would be the same if the corpora- 
 tion was in the process of liquidation in the hands of a 
 trustee or under other legal proceedings. It would still 
 remain true that the unpaid stock was a trust fund for all 
 the creditors, which could not be applied exclusively to the 
 payment of one claim, though held by the stockholder who 
 owed that amount on his subscription. 
 
 Nor do we thinlv the relation of the appellant in this 
 case to the corporation is without weight in the solution of 
 the question before us. It is very true, that by the power 
 of the legislature there is created in all acts of incorpora- 
 tion a legal entity which can contract with its shareholders 
 in the ordinary transactions of business as with other per- 
 sons. It can buy of them, sell to them, make loans to 
 them, and in insurance companies, make contracts of insur- 
 ance with them, in all of which both parties are bound by 
 
 "In all cases of mutual tlebts or mutual credits between the estate of 
 a bankrupt and a creditor the account shall be stated and one debt shall 
 be set off against the other, and the balance only shall be allowed or 
 paid."
 
 I 
 
 I 
 
 SAWYER r. HOAG 881 
 
 the ordinary laws of contract. The stockholder is also re- 
 lieved from personal liability for the debts of the company. 
 But after all, this artificial body is but the representative 
 of its stockholders, and exists mainly for their benefit, and 
 is governed and controlled by them through the officers 
 whom they elect. And the interest and power of legal con- 
 trol of each shareholder is in exact proportion to the arnount 
 of his stock. It is, therefore, but just that when the inter- 
 est of the public, or of strangers dealing with this corpora- 
 tion is to be affected by any transaction between the stock- 
 holders who own the corporation and the corporation itself, 
 such transaction should be subject to a rigid scrutiny, and 
 if found to be infected with anything unfair towards such 
 third person, calculated to injure him, or designed inten- 
 tionally and inequitably to screen the stockholder from 
 loss at the expense of the general creditor, it should be dis- 
 regarded or annulled so far as it may inequitably affect him. 
 These principles recjuire the affirmation of the decree 
 in the present case, and it is accordingly affirmed.^ 
 
 For other cases in accord: See Thompson on Corporations, edition 
 of 1910, Sec. 5854, notes. 
 
 Compare: Lawrence v. Nelson, 21 N. Y. 158, i860. (The A Co. 
 was a mutual insurance company, having no dealings with regard to 
 insurance with any but its own members. B was a member of the 
 company. On its insolvency B attempted to set ofif a loss sustained 
 by him, adjusted and payable by the company against his indebtedness 
 for premiums due upon policies. Held, that B could not do this, as 
 the premiums constittited a fund from which losses were paid, which 
 he as a member was bound to make good.) 
 
 Welles V. Stout, 38 Fed. 807, i88g. (The A bank was required by the 
 Controller to make good the value of certain securities, which had be- 
 come worthless. B, a stockholder contributed to a fund held by the 
 Bank in trust to carry out the directions of the Controller. Part of 
 this fund had been expended by the Bank before a receiver was appointed. 
 The Receiver treated the balance as part of the ordinary assets of the 
 Bank, and sued B for an assessment on his shares. Held, that B could 
 set oflf his interest in the balance of the fund.)
 
 882 PROBLEMS OF SET OFF— CORPORATIONS 
 
 MATHEZ V. NEIDIG. 
 In the Court of Appeals of New York, 1878. 
 
 72 New York Reports, 100' 
 
 Church, Ch. J. The plaintiff, as a creditor of "The 
 New York Improved Barrel Company," sought to recover 
 against the defendant, as a stockholder of the company, 
 under the provisions of section 10 of the General Manu- 
 facturing Law (chap. 40, Laws of 1848), which reads as 
 follows : "All the stockholders of every company incorpo- 
 rated under this act shall be severally individually liable to 
 the creditors of the company in which they are stockhold- 
 ers to an amount equal to the amount of stock held by 
 them, respectively, for all debts and contracts made by . 
 such company, until the whole amount of capital stock 
 
 fixed and limited by such company shall have been paid 
 jj^ " * * * 
 
 It was established and not disputed that the amount 
 of the capital stock had not all been paid in; and although 
 there was some dispute whether the defendant owned 
 $2,000, $3,000 or $5,000 of the stock, that question was 
 submitted to the jury, and is of no importance upon this 
 appeal. 
 
 The defendant v/as president of the company for about 
 three months, during which time he advanced $1,500. and 
 purchased three notes against the company amounting to 
 $3,000, which he surrendered to the company, and he also 
 advanced about $2,500 from his own means, with which 
 he paid the workmen. 
 
 The court held, in substance, that if the amount of 
 stock owned by the defendant did not exceed these advances, 
 the plaintiff could not recover. The learned counsel for 
 the appellant presented, and elaborately argued, several 
 
 The Reporter's notes of the arguments of counsel are omitted
 
 MATHEZ V. NEIDIG 883 
 
 propositions which, if correct, would require a reversal of 
 the judgment. His principal contention is, "that only those 
 payments which by law could be enforced against a stock- 
 holder, ma}'- be voluntarily paid by him, and offset against 
 a creditor." This proposition implies, I think, some mis- 
 apprehension as to the nature and character of the de- 
 fense interposed in this action, and the nature and extent 
 of the remedy of creditors under the statute cited. A stock- 
 holder may be absolutely discharged from all liability under 
 this statute, by payment, on legal compulsion, to any cred- 
 itor or creditors for whose debts he is liable, if such pay- 
 ment equals the amount of his stock. His liability is 
 measured by the amount of stock held by him. To entitle 
 a stockholder to interpose such discharge as an absolute bar 
 to a claim by other creditors, either at law or in equity, it 
 would, I think, be incumbent upon him to show that the 
 payment was made to a creditor or creditors for whose debts 
 he was liable under the statute. He is only liable to pay 
 the amount once ; but the payment must be made in dis- 
 charge of a statute liability. Probably the same effect would 
 result from a voluntar}- payment. The defense in this case 
 rests upon a very different principle. The defendant was 
 a creditor of the company for money advanced, and it mat- 
 ters not whether the money was used to discharge obliga- 
 tions for which the defendant was individually liable, under 
 the statute, or not. The company was bound to pay all its 
 debts, and could borrow money for that purpose. The 
 money was used for the benefit of the company, and it be- 
 came liable to the defendant, and he became its creditor for 
 the amount. I agree with the counsel for the appellant, 
 that the statute liability constitutes a fund which belongs 
 to the creditors to secure the payment of their debts, but 
 it belongs to all the creditors, as well as those who are stock- 
 holders as those who are not. The defendant, as a cred- 
 itor, had an interest in the fund as well as the plaintiff, and 
 his debt was one which would be chargeable against the
 
 884 PROBLEMS OF SET OFF— CORPORATIONS 
 
 fund, because it was a debt against the company, for the 
 payment of which stockholders were individually liable, and 
 this would be so irrespective of the question whether the 
 money advanced by the defendant was used to pay obliga- 
 tions for which he was individually liable or not. An action 
 at law cannot be maintained against a stockholder, who is 
 also a creditor to an amount equal to his stock, for the 
 reason that he has an interest in the fund sued for, and it 
 cannot be known but that the whole fund is sufficient to 
 pay all the debts. No accounting can be had, because the 
 proper parties are not before the court. If the liability of 
 other stockholders was sufficient to pay all the debts, his own 
 liability would be balanced by his debt against the company. 
 A stockholder owning $i,ooo of stock with a debt against 
 the company of $5,000, sued by a creditor for $1,000, would 
 himself be entitled to five-sixths of the $1,000, if there 
 were no other stockholders personally liable and no other 
 debts; and if there were other personal liabilities to the 
 amount of $5,000, and no other debts, he would be entitled 
 to $5,000 of the $6,000 constituting the fund. Hence it 
 would be inequitable to permit a recovery against a stock- 
 holder thus situated. The creditor has his election to bring 
 such an action against a stockholder, or to bring an action 
 in equit3^ and have an accounting between all the stock- 
 holders and all the creditors, when the rights of each can 
 be ascertained and protected. {Bk. of Poughkeepsie v. Ib- 
 hotson, 24 Wend., 73; Briggs v. Pennington, 8 Cow., 392.) 
 The defense interposed in this and analogous cases may 
 not constitute an absolute bar to all claim like a recovery, 
 and payment by another creditor for the whole amount of 
 personal liability of a stockholder, nor is it strictly an ofifset 
 at law, but it is a defense to this form of action, in the 
 nature of an equitable offset, based upon the equitable rights 
 of the defendant to the fund sought to be taken from his 
 possession, without the necessar}^ facts appearing to enable 
 the court to determine the extent of those rights.
 
 MATHEZ V. NEIDIG 885 
 
 This question is not a new one in this court. In Garri- 
 son V. Howe (17 N. Y., 458), where substantially the same 
 question was involved, Denio, J., said : "Suppose a stock- 
 holder to be a creditor to just the amount of his stock ; he 
 ought not to be required to pay anything, unless the sum 
 of the corporate debts is larger than the aggregate of all 
 the liabilities of the stockholders. But he cannot, in this 
 class of actions, have an account, because the proper par- 
 ties are not before the court. He must, therefore, upon the 
 doctrine of the plaintiff in this suit, pay the debt sued for, 
 though in equity he is not liable for anything;" and he 
 stated the rule to be: "If the creditor cannot find a re- 
 sponsible stockholder, who is not at the same time a creditor 
 to the amount of his stock, he must proceed for an account, 
 if he ascertains that such a proceeding will result in recover- 
 ing his debt." 
 
 A defendant in such an action may also, doubtless, 
 bring an action for an accounting, or he may be content with 
 interposing a defense, in whole or in part, to the plaintiff's 
 action at law. 
 
 In the matter of Empire City Bank (18 N. Y., 227), 
 the doctrine is reiterated. The court say : "In such a case 
 no account could be taken, and it would not regularlv ap- 
 pear but that the plaintiff's debt was the only one in exist- 
 ence against the corporation ; nor could it be shown but 
 that there were other stockholders who were not creditors, 
 whose liabilities were sufficient to satisfy the plaintiff's debt. 
 In such a case the plaintiff ought to be exonerated to the 
 extent of his own debt." I am not aware of any authority 
 in conflict with these decisions, and we have been referred 
 to none. 
 
 The rule commends itself to my judgment. Stock- 
 holders have the same right to deal with the corporation 
 that other persons have, and, as creditors, they are entitled 
 to the same measure of protection. It may be, as argued, 
 that the rule might enable officers of corporations to make
 
 886 PROBLEMS OF SET OFF— CORPORATIONS 
 
 preferential payments to favored creditors, and thus work 
 injustice to others; but, if any restrictions or Hmitations in 
 this respect are necessary, the remedy is with the Legis- 
 lature. Nothing appears in this case to warrant an infer- 
 ence of bad faith on the part of the defendant. The facts 
 disclosed justify the inference that the money was advanced 
 to the company to relieve it from pressing liability, and 
 enable it to prosecute its business. I see no reason why the 
 defendant, as a creditor, does not occupy as favorable a 
 position as the plaintiff, and there is no justice in permitting 
 the latter to recover money to which the former has an equal 
 claim, in an action where it cannot regularly be ascertained, 
 but that other portions of the aggregate fund, which are 
 accessible to the plaintiff, are sufficient to satisfy his de- 
 mand. - 
 
 Judgment affirmed.^ 
 
 ^ The Court's discussion of another section of the Act is omitted. 
 
 ^ For other cases allowing the set off when the proceeding iv to 
 enforce a statutory liability of the stockholders. See Thompson on 
 Corporations, edition of igio, Sec. 5855, notes. 
 
 Query: Does the "hopeless conflict in the decisions on the ques- 
 tion of the right of a stockholder to set off" referred to ibid., Sec. 5854. 
 5855 really exist?
 
 GALLAGHER v. GERMANIA BREWING CO. 887 
 
 GALLAGHER v. GERMANIA BREWING CO. 
 In the Supreme Court of Minnesota, 1893. 
 
 Z2 Minnesota, 214.' 
 
 Mitchell, J. The plaintiff, as assignee of one West- 
 phal under a general assignment for the benefit of creditors, 
 brought this action to recover for goods sold and delivered 
 by his assignor to the defendant corporation. Jacob Barge 
 and John Vander Horck inten^ened, and set up in their com- 
 plaint that they owned, and for nearly two years had owned, 
 (each one-half,) all the capital stock of the defendant, no 
 other person but themselves having any interest in the stock 
 or property of the corporation; that each of them had a 
 valid and unsatisfied judgment against Westphal upon a 
 cause of action which accrued before the assignment to 
 plaintiff; that Westphal was, and for over two years had 
 beeny utterly insolvent ; and that his estate, of which plaintiff is 
 the assignee, was so hopelessly insolvent that it was insuffi- 
 cient to pay even the expenses of administering the assign- 
 ment. The relief sought was that their claims against West- 
 phal might be allowed, in equal amounts, as equitable set-offs 
 to the claim of the plaintiff against the defendant corporation. 
 From an order overruling a demurrer to the complaint, the 
 plaintiff appeals, his contention being — First, that Barge 
 and Vander Horck had no such interest in the litigation as 
 to entitle them to intervene ; second, that their claims cannot 
 be set off against a claim against the corporation, because a 
 corporation is a legal entity, entirely distinct from its stock- 
 holders. These two propositions amount really to the same 
 thing, for, if Barge and Vander Horck cannot set off their 
 claims against that of plaintiff against the corporation, thev 
 have no such interest in the subject of litigation as would 
 
 * The Reporter's statement of the facts of the case, and his notes 
 of the arguments of counsel are omitted.
 
 888 PROBLEMS OF SET OFF— CORPORATIONS 
 
 entitle them to intervene; on the other hand, if their claims 
 are proper equitable set-offs, their right to intervene for 
 the purpose of setting them up is very clear. This case is 
 certainly a novel one, for we doubt whether an instance can 
 be found in the books where stockholders ever attempted to 
 set up their several equities by way of set-off to claims 
 against the corporation. Of course, the want of a precedent 
 is by no means controlling with courts, especially in ad- 
 ministering equitable relief; but it would seem that, if the 
 relief here asked was consistent with legal or equitable prin- 
 ciples, some case would be found where it had been granted. 
 
 The facts of the present case appeal to a natural sense 
 of justice, for while, by fiction of law, a corporation is a 
 distinct entity, yet in reality it is an association of persons 
 who are in fact the beneficial owners of all the corporate 
 property. Hence, if interveners cannot set off their claims, 
 the practical result is that Westphal's estate will collect its 
 entire claim out of what is really their property, while the 
 estate is at the same time indebted to them on claims of 
 greater amount, which they will wholly lose because of 
 Westphal's insolvency ; but, as has been often said, hard 
 cases are liable to make bad law. 
 
 The right of equitable set-oft' is, of course, not derived 
 from, or dependent upon, statute, but rests upon a distinctiv 
 equitable doctrine, which courts of equity have applied on 
 certain well-recognized equitable grounds, the object being 
 to effect a clear equity and prevent irremediable injustice: 
 and it may be stated as a general rule that, whenever neces- 
 sary to accomplish that end, the courts will permit an equit- 
 able set-off, although the debts accrued in different rights ; 
 as, for example, by allowing a separate debt to be set off 
 against a joint debt, or, conversely, a joint debt against a 
 separate debt. They will also disregard the nominal parties 
 to the record, and consider the real parties in interest; as, 
 for example, when the assignor of a chose in action sues 
 for the benefit of the assignee, or a trustee for the benefii-
 
 GALLAGHER v. GERMANIA BREWING CO. 889 
 
 of the cestui que trust. Hence, had the plaintiff's claim 
 been a joint one against the interveners, there would have 
 been no doubt of their right to set off their separate claims 
 against it, for insolvency is well recognized as a distinct 
 equitable ground for allowing such a set-off. But such a 
 case is not analogous to the present. To allow the set-off 
 here, it is necessary to wholly ignore the legal doctrine, or 
 fiction, whichever you may call it, that a corporation is an 
 entity separate and distinct from the body of its stockhold- 
 ers, and to treat it as a mere association of individuals who 
 are the real parties in interest. In dealing with the rights 
 of creditors, and the obligations existing between a corpora- 
 tion and its shareholders by reason of their contract of 
 membership, undoubtedly the courts often find it necessary 
 to consider the real parties in interest as the individual share- 
 holders; but it may be laid down as a rule that, except in 
 such cases, it has been found absolutely essential, for the 
 administration of justice, to treat a corporation as a collec- 
 tive entity, without regard to its individual shareholders. 
 In no other way can the title to corporate property be kept 
 free from complication and uncertainty. The transferable 
 nature of stock in a corporation is also a good reason why 
 the theory of a corporate entity should be preserved, and 
 why it is necessaiy to discriminate sharply between corpo- 
 rate rights and obligations and those of shareholders per- 
 sonally. If the rights or liabilities of a corporation could 
 be affected by the acts of the stockholders, except when 
 acting in the corporate name, or if shareholders could set up 
 their several equities against persons having claims against 
 the corporation, or, conversely, if claims in favor of the 
 corporation could be set off against claims against individual 
 stockholders, it can easily be seen into what confusion and 
 chaos corporate affairs would inevitably fall. 
 
 Inasmuch as the two interveners own all the stock of 
 this corporation, the facts of this case seem comparatively 
 free from embarrassments, and the contention of respond-
 
 890 PROBLEMS OF SET OFF— CORPORATIONS 
 
 ent quite plausible. But, suppose there were fifty other 
 stockholders, (which would not alter the principle,) what 
 would be the result? Could interveners then interpose their 
 claims at set-offs, and, if so, could they do so to the full 
 amount of their claims, or only in the proportion which 
 their shares bore to the whole capital stock? And, if the 
 former, would they have a claim for the excess against the 
 corporation, or a right to call on the other stockholders for 
 contribution ? 
 
 Again, the right of set-off, if any exists, must be mu- 
 tual. Hence, if stockholders can interpose their individual 
 demands as set-offs to a demand against the corporation, 
 it follows that a defendant can set up demands against the 
 individual stockholders at set-offs to demands in favor of 
 the corporation. 
 
 Illustrations might be multiplied indefinitely to show 
 that to recognize any such right would result in the worst 
 sort of complications, and that the only safe or sound rule 
 is to adhere strictly, in such cases, to the doctrine of a cor- 
 porate entity distinct from the individual stockholders. 
 
 What means, if any, the interveners might have had, 
 or may hereafter have, of protecting themselves, it is not 
 now our business to inquire, but we are clear that their 
 claims against plaintiff's assignor are not the subjects of 
 equitable set-off to a claim against the defendant corpora- 
 tion. 
 
 Order reversed.^ 
 
 Compare: New York Ice Co. v. Parker, 21 How., Pr., 302, 1861. 
 (The A Co. brought a suit against B. Held, that B could not set off 
 a claim which he, B, had against some [or all?] of the stockholders 
 of the A Co. jointly.)
 
 CHAPTER XV. 
 
 LIABILITY OF ORIGINAL SHAREHOLDERS 
 IN PRIVATE CORPORATIONS. 
 
 SECTION 1.— LIABILITY IN GENERAL. 
 
 THE CASE OF THE TWO LOMBARDS.^ 
 In The Court of Common Pleas, 1441-2. 
 
 Year Book 19 Henry VI, Folio 80, Placitum. 
 
 Markham came to the bar and showed how one brought 
 a writ against the Lombards, of London, scilicit. Praecipe 
 Socictati Luuibardoritui Loud. Mercatorum d'Florencia, 
 And two Lombards came — and he named their names, who 
 were at the bar in their own persons, being distrained by the 
 sheriff of London, and the issues- returnable here at ten 
 pounds. And Sir, you have here these same, etc., who ap- 
 peared in their own persons as Lombards to record their 
 presence. Newton [Chief Justice] demanded the plaintiff, 
 and he appeared, and afterwards lie demanded the defend- 
 ant, and the crier demanded them in this form : The fellow- 
 ship of Lombards, according to the writ. And the two Lom- 
 bards appeared as before. Newton : that is no appearance, 
 for the writ which we ha\e returned here is, the fellowship of 
 Lombards, and you say that you are not of the fellowship, 
 and if so, then the sheriff has done wrong to you when 
 he distrained }()u by liis writ ; in which case }-our remedy 
 lies against him, and not in this place in this way. Brown : 
 If a writ be brought against me by the name of John 
 
 ' Translated by M. C. K. 
 
 ^Issues: Profits growing from amerciaments or fines. See Terms 
 of the Law, p. 416. 
 
 (891)
 
 892 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 Brown, and the sheriff distrains me, whereas my name is 
 Thomas, when the issues are returned here, I may weU say 
 that my name is Thomas, and that I was distrained by the 
 name of John, and pray that the Court record my appear- 
 ance and save my issues. And this was denied to him by the 
 Court, but that his issues are lost and that he shall have 
 his recovery against the sheriff. Brown : Suppose that a 
 praecipe quod reddat was brought against J. B., who is 
 summoned in my land, and the summons returned ; I may 
 well say that I am named Thomas Brown, and although I 
 was summoned by the name of John Brown in my land, by 
 default, there is no default in me : so I shall plead as be- 
 fore to save my issues, otherwise I shall lose them, and no 
 default is in me. And the justices paid attention to some- 
 thing else which was at the bar, and gave him no reply. 
 Markham : it appears to you that the writ cannot be good 
 in this form — Societati; wherefore we pray your rule. 
 Paston, [Judge], if a writ be — Praecipe Majori and Societati 
 Civitaties Loud. If all the commonalty appear, and the 
 Mayor does not, they cannot plead in abatement of the writ 
 that there is no such corporation; Ergo nee hie. Markham, 
 Sir, then we will consider until to-morrow.^ 
 
 ' Sir Robert Brooke, in "La Graunde Abridgement Tille Trespass," 
 pi. 135, has the following note of this case : "Debt. At the distress the 
 sheriif distrained J. B. where the name of the defendant in the writ 
 was T. B. There J. B. shall have his remedy against the sheriff, and 
 hoc videtitr by a general action of trespass, but where he serves the 
 writ rightly, and it is imperfect, or he makes a false return, videtur 
 that action upon the case lies, also on the other hand of an actual tort, 
 as above. And the principal case was that debt was brought against, 
 socictatem Lumbardorum iiicrcatoruiii de Floranc, and the sheriff dis- 
 trained two Lumbards, who came in person and prayed their appearance 
 should be recorded to save their issues as distinct persons sed non de 
 sociatateate, Lumbardorum, and idee non allocatur, but that they should 
 be put to their remedy against the sheriff of London, ut supra, for 
 where a corporation is impleaded they should not distrain any private 
 person. Quod nota." Brooke's Abridgement Trespass, p. 290. pi. 135. 
 Query: May we conclude from the case that had the two Lombards 
 been of the fellowship the Judges would have still considered that the 
 sheriff would not have been justified in distraining on them? 
 
 Viner apparently had his information of the case from Brooke. 
 See Viner's Abridgement, Vol. 6, p. 310. "Debt was brought against 
 the Society of Lumbard Merchants of Florence, and the sheriff dis- 
 trained 2 Lumbards, zvho came in person, and prayed their appearance to 
 be recorded to save their issues as distinct persons, but not as of the
 
 THE CASE OF THE TWO LOMBARDS 893 
 
 Society of Lumbards & idea non allocatur, but that they shall be put to 
 their remedy against the Sheriff of London, by a general action of 
 trespass; for where a corporation is impleaded, they ought not to 
 distrain any private person; quod nofa. Br. Trespass, pi. n=5 cites lo 
 H. 6 80." 
 
 Professor Williston in his article on "The History of the Law of 
 Business Corporations before 1800," Select Essays on Anglo-American 
 Legal History, Vol. 3, p, 229, follows Viner, going indeed so far as to 
 say that it "seems to have been well understood," that the debt of a 
 corporation was not a debt of the individual members. "For instance, 
 in Y. B., 19 Hy._ VI 80, it was held that an action of debt being brought 
 against the Society of Lombards, and the sheriff having distrained two 
 individual Lombadrs, trespass would lie against hm. For where a 
 corporation is impleaded they ought not to distrain any private person.' "
 
 894 
 
 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 EDMUNDS V. BROWN. 
 In the Court of King's Bench, 1669. 
 
 I Levinz's Reports, 237. 
 
 Debt of an obligation of 500/. The Defendant pleads 
 Non est factum, and on the Evidence it appears. That the 
 Defendants were two of the Principal of the Company of 
 Woodmongers lately dissolved ; and that the Money was 
 borrowed in the Name of the Company, and the Obligation 
 sealed in the Company's Name, and with their Seal ; and the 
 Defendants, as was usual, set their Names to the Obligation, 
 but the Obligation was, Noverint universi per praesentes nos 
 Magistruin & Guardianos, &c. del Company de Wood- 
 mongers teneri, &c. And the Obligation was endorsed with 
 sigillat' & dclibcrat' in pracscntia, &c. and attested. And 
 now the Company being dissolved, the Plaintifif brought 
 the Action against the Defendants, intending to charge 
 them in their own Right. But it was ruled by the Chief 
 justice at Nisi prius at Guild-hall, that he could not so do, 
 it being tit supra ; whereupon the Plaintiff was nonsuit.
 
 SALMON V. THE HAIVIBOROUGH COMPANY 895 
 
 SALMON z'. THE HAMBOROUGH COMPANY. 
 
 In the House of Lords and the High Court of 
 Chancery, 1672. 
 
 Cases ill Chancery, 204. 
 
 Doctor Salmon against the Hamborough Company, 
 by the name of the Governor, Assistants and Fellowship 
 of Merchant Adventurers of England, and divers particular 
 members of that Company by name, in their natural capa- 
 tities. 
 
 The bill charged, that the company were incorporated 
 prout per letters patent, and had power to make by-laws 
 and to assess rates upon cloaths (which was the commodity 
 they dealt in) and by poll upon every member to defray 
 the necessary charge of the company, and that the com- 
 pany had imposed rates accordingly, as namely, 4s. 6d. upon 
 every white cloath exported, and divers others, and thereby 
 raised 8000/. per Annum towards the support of the common 
 charge of the company, and that they had thereby got 
 great credit, and borrowed great sums of money by their 
 common seal, and particularly the plaintiff lent 2000/. 
 upon that security many years since. And the bill did set 
 forth divers advantages they had in trade by being mem- 
 bers of this corporation, which others wanted. And the 
 bill did charge, that the company having no common stock, 
 the plaintiff had no remedy at law for his debt, but did 
 charge that their usage had been to make taxes, and levy 
 actions upon the members and their goods, to bear the charge 
 of their company to pay their debts, and did complain that 
 they now did refuse to execute that power, and did particu- 
 larly complain against divers of the members by name, that 
 they did refuse to meet and lay taxes, and that they did 
 pretend want of power by their charter to lay such taxes, 
 whereas they had formerly exercised power, and thereby 
 gained credit; whereupon the plaintiff lent them 2000/.
 
 896 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 which was for the use and support of the company's charge, 
 and so ought to be made good by them, and so prayed to be 
 relieved. 
 
 Paschae, 1656, this bill was filed, and the company 
 served with process, but would not appear, they having 
 nothing by which they may be distrained : But divers par- 
 ticular members being served in their natural capacities, did 
 appear and demur, for that they were not in that capacity 
 liable t© the plaintiff's demands. 10, May, 1666. On the 
 argument the demurrer was allowed, and the bill dismist 
 as to them, and that dismission enrolled, and thereupon a 
 petition of appeal was preferred to the Lords in Parliament, 
 admitting that in the ordinary course of proceedings in 
 Chancery that Court could not help the plaintiff. But in 
 causes of this nature the Lords house had given special 
 directions to the Chancei"y to relieve, and it had been ac- 
 cordingly so done, and produced two precedents against 
 companies in London for that purpose. And to this petition 
 the defendants particularly named did put in an answer. 
 Plea and demurrer, and the company, tho' several times 
 summoned, did not appear. And upon debate of the mat- 
 ters before the Lords at the Bar of the Lords house, 20 
 January, 1670, this order was made. 
 
 The matter upon the petition of Salmon, Dr. of 
 Physick, exhibited to the Lords spiritual and temporal in 
 Parliament assembled, against the Governors, assistants and 
 fellowship of the merchant adventurers of England, com- 
 monly called the Hamburg Company, and Sir Charles Lloyd, 
 Baronet, Sir Anthony Bateman Knight, Thomas Smith, 
 Richard Wyon, John Dogget, Henry Colliar, Henry Smith. 
 John Lethieulier, Christopher Pack, George Wytham. and 
 others, members of the said company, and upon the 
 answer, plea and demurrer of the said Rowland Wyan, 
 John Dogget, Henry Collier and John Lethieulier put in 
 to the said petition (the Governor, Assistants and Fellow- 
 ships, tho' several times summoned, not appearing) being 
 heard at the Bar of this house, in presence of counsel
 
 SALMON V. THE HAMBOROUGH COMPANY 897 
 
 learned on both sides, the said petition being on appeal made 
 from a dismission in the high Court of Chancery, and the 
 petitioners bill there. Their Lordships on reading the said 
 petition, the answer, plea and demurrer thereto, and the 
 said dismission and the charter by which the said Governor 
 and Fellowship are incorporated, and hearing what was 
 alleged on both sides, do order that the dismission, for 
 so much as concerns the said compan}^ be, and do stand 
 reversed, and that the Lord Chancellor, or the Lord Keeper 
 of the Great Seal of England for the time being, do retain 
 the said bill. And that the said Court of Chancery shall issue 
 forth the usual process of that Court, and if cause be, pro- 
 cess of distringas thereupon against the said corporation ; 
 provided the said process be served one month before the 
 return thereof. And if upon the return of the process, the 
 said corporation shall not file an appearance, or shall appear 
 and not answer, the said bill shall be taken pro confcsso, and 
 a decree shall thereupon pass. But in case the said corpora- 
 tion shall appear and answer within the time aforesaid, then 
 the Court of Chancer}^ shall proceed to examine what the 
 plaintiff's just debt is, and shall decree the said company 
 to pay so much money as the same shall appear to amount 
 unto, with reasonable damages. And in case the corporation 
 shall not pay the sum decreed within ninety days after the 
 sen'ice of the said decree upon their Governor, Deputy 
 Governor, Treasurer, Clerk or Secretary for the Time 
 being; then the lords Spiritual and Temporal do further 
 order, adjudge and direct, that the Lord Chancellor or Lord 
 Keeper for the time l)eing shall order and decree, that the 
 Governor or Deputy-Governor and the twenty-four as- 
 sistants of the said company, or so many of them as by the 
 tenor of their charter so constitute a quorum for the making 
 of leviations upon the trade, or members of the said com- 
 pany, for the use of the said company, shall within such 
 time as by the Lord Chancellor or Keeper shall be thought 
 fit, make such a leviation upon every member of the said 
 company as is to be contributary to the publick charge, as 
 shall be sufficient to satisfv the said sum to be decreed to
 
 898 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 the plaintiff in that cause, and to collect and levy the same, 
 and to pay it over to the plaintiff as the Court shall direct. 
 And such a leviation is to be put in writing, and signed with 
 the hand of the Governor, Deputy-Governor and Assistants 
 of the aforesaid company for the time being, and so many 
 of them, as by the Constitution of the said charter do 
 make a quorum, shall not make or return such leviations, as 
 aforesaid, the Lord Chancellor or Lord Keeper may issue 
 process of contempt against them, as is usual against per- 
 sons in their natural capacities. And if by the said time 
 so to be limited by the said Court of Chancery, the said 
 money so to be assessed, shall not be paid, then and from 
 thenceforth every person of the said company, upon such 
 a leviation, shall be made to be liable in his capacity to 
 pay his quota or proportion assessed. And the Lord 
 Chancellor or Lord Keeper is to order or decree, that such 
 process shall issue against any such member so refusing 
 or delaying to pay his quota or proportion, as is usual 
 against persons charged by the decree of the said Court, 
 for any duty in their federal capacities. And if the total 
 so returned and filed with the register shall not amount 
 to so much as shall be sufficient to satisfy the sum decreed, 
 with respect had to such person as shall make it appear 
 that they are overcharged, or ought not to be charged at 
 all, then the said Lord Chancellor or Lord Keeper for the 
 time being, may from time to time, order that a new 
 leviation be made and returned into the registers of the 
 Court of Chancery, of such sum as shall be sufficient, by 
 way of supplement for that purpose, to the payment 
 whereof every individual person is to be bound in such 
 manner as aforesaid. 
 
 6 March 1670. The Lord Keeper on a motion 
 grounded on the Lords, ordered that the dismission stand 
 reversed, and the bill stand revived, and that process and 
 other proceedings issue as is thereby directed, and the 
 service thereby directed be sufficient. 
 
 Accordingly the Treasurer and Secretary were served 
 with a distringas against the company, and copies of the
 
 SALMON V. THE HAMBOROUGH COMPANY 899 
 
 Lords Order. The sheriff returned nulla bona; and no ap- 
 pearance is made. 
 
 5 July 1 67 1. Ordered the cause be put into the paper 
 to be heard, and notice to be given to the Treasurer, Clerks 
 and Secretary. 
 
 And now the 5th of July, 1671, none appearing for 
 the defendants, the Court decreed the bill to be taken pro 
 confcsso, and the defendants to pay the plaintiff's debt, ac- 
 cording to the Lord's order in Parliament.^ 
 
 ^Compare: Hume v. JJ'aiido Canal Co., 4 Amer. Law Mag. 92. (A 
 bill was filed against the ]\Ieinbers of a Company by a creditor; one 
 defendant demurred on the ground that under the by-laws he was no 
 longer a member of the Company. The bill charged that there never 
 was any joint-stock capital, that the amount to be raised in order to pay 
 the plaintiff for his work, was to be raised by progressive assessments 
 on the stockholders. The defendant demurring was a member of the 
 Company at the time the contract was formed. Desaussure, C, held, 
 that the defendant was liable to pay his proportion of the debt. The 
 decision is based on our principal case. The opinion is an interesting 
 one, the learned Chancellor taking the position that at common law the 
 members of a corporation are liable for its debts. Query: Whether he 
 would have regarded stockholders as liable beyond the amount of stock 
 subscribed when there was definite capital stock? For an interesting 
 discussion of this case and our principal case see the Article in i Amer. 
 Law Mag. 96, and the Article in reply, 4 Amer. Law Mag. 363.) 
 
 Two questions may be said to be doubtful in regard to Salmon v. 
 Hamborough. 
 
 First, did the "leviation" directed ever take place? or did the 
 Doctor, w^earied out by his sixteen years of proceedings in chancery, 
 discontinue the proceedings ? 
 
 Professor Williston thinks that at least the "leviation" directed 
 actually took place. The evidence of this is a note by the Reporter, 
 Vernon, to Harvey v. East India Co., 2 Vern. 395, 1700, p. 396, 
 Edition 1729: "In the case between Dr. Salmon and the Ham- 
 borough Company, the members in their private persons were made 
 liable, the Company having no goods." Mr. Williston, Hist, of the Law 
 of Business Corporations, Select Essays in Anglo-American Legal His- 
 tory, Vol. Ill, p. 230. It may be doubted, however, whether the Re- 
 porter was doing more than referring to the principle of lawi enunciated 
 in Doctor Salmon's case, which was decided some nine years before 
 the earliest case we have from Vernon's manuscript, and a few months 
 before the future Reporter, at the age of eighteen, registered as a student 
 in Lincoln's Inn. It is not unlikely, therefore, that the only information 
 Vernon had of Doctor Salmon and his bill was "Cases in Chancery," 
 the first edition of which appeared in 1697, or three years before the 
 case of Harvey v. East India Company, and that this note is nothing 
 more than a syllabus of the principle "decided. 
 
 Second : It is not certain whether the Hamborough Company was 
 incorporated. 
 
 Fomblanque says: "If it was, the law of the decision seems very 
 doubtful." Fomblanque's Equity. Vol. I, Edition of 1795, p. 297, note 
 (p). Viner arranges the case under the title "Process against Corpora- 
 tions", 6 Viner, 310; but there is nothing in his report of the case to 
 show that he used any source of information besides the report in Cases 
 in Chancery which we have reprinted.
 
 900 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 CARR V. IGLEHART. 
 In the Supreme Court of Ohio, 1854. 
 
 3 Ohio State Reports, 457. 
 
 Per Curiam. This is a bill in chancery to collect the 
 amount due upon three bank bills, issued by the Lebanon 
 Miami Banking Company, for the payment, in the aggre- 
 gate, of the sum of fiye dollars. It is founded upon the idea 
 that the defendants, w^ho y^^ere stockholders in the bank when 
 the bills were issued, are indiyidually liable for its debts, 
 This liability is not deduced from any independent contract 
 by which they undertook to pay the debts, for no such con- 
 tract is alleged. Nor does it rest upon the ground that 
 they haye receiyed the assets of the corporation which were 
 bound for its liabilities, for no such fact is stated. Nor is it 
 pretended that there is, in the charter of the bank, any pro- 
 yision that, either expressly or by necessary implication, 
 makes it stockholders personally responsible. It is upon 
 neither of these grounds that relief is sought. The ground 
 upon which we are asked to sustain the bill is, that stock- 
 holders in a corporation are indiyidually liable for its debts, 
 unless, by some proyision of the charter or statute law, they 
 are exempted from such responsibility. The counsel for the 
 complainant admits that Blackstone, and diyers other emi- 
 nent writers upon the law, and also certain courts, have 
 entertained a contrary opinion ; but he is very clear they 
 were all wrong, and he hopes and thinks this court will not 
 be governed by such loose and inconsiderate expressions, 
 either of text writers or judges. 
 
 After a careful consideration of the elaborate and 
 learned argument of counsel, we are unable to perceive that 
 he has established the liability of the defendants. We sup-
 
 CARR V. IGLEHART 901 
 
 pose that no law is better settled than that they are not 
 liable. 1 
 
 Demurrer sustained and bill dismissed.^ 
 
 'That part of the opinion in w^hich the Court points out that the 
 subject of the suit is too trivial for the cognizance of a court of equity 
 is omitted. 
 
 ^Compare: In re The Sheffield and South Yorkshire Peananent 
 Building Society, L. R. 22, Q. B. D. 470, 1889. (A, et al., were some 
 of the members of a corporation. A statute provided that each share- 
 holder should be liable for the amount unpaid on his share, and also 
 provided that the rules of the Company shall provide a method by 
 which a shareholder may withdraw. A, et al., not having paid for 
 their shares in full, withdrew, following the rules prescribed by the 
 Company. Within a j-ear the Compan)- went into liquidation. In the 
 liquidation proceedings, held, that A. et al., were not liable for the un- 
 paid amounts on their shares. Cave, J. : "If he [A] had remained 
 a member, and had not paid them, he would have been 'in arrear,' and 
 be liable to pay a fine. But, under the circumstances of the case, he is 
 not liable at all. That disposes of the case so far as the county court 
 judge decided it. But Mr. Grosvenor Woods took a different point, 
 with which it is necessary for us to deal. He argued that persons who 
 unite together for trading or making profits in any way are, at com- 
 mon law, liable for all debts which are incurred during the time they 
 are members of the association, and that, if the association has ulti- 
 mately to be wound up, past members must pay their shares of the 
 debts. As a general rule — apart from legislation — that is perfectly 
 true with respect to partners, and with respect to associations in the 
 nature of partnership where there is no incorporation, but with re- 
 spect to corporations the case is entirely different where the legisla- 
 ture has not thought fit to intervene, or where the charter under which 
 the body is incorporated does not provide otherwise. A corporation is 
 a legal persona just as much as an individual; and, if a man trusts a 
 corporation, he trusts that legal piersona. and must look to its assets 
 for payment ; he can only call upon individual members to contribute 
 in case the Act or charter has so provided.") 
 
 For other cases in accord; see Thompson on Corporations, Edition 
 of 1910, §4725, notes.
 
 902 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 UPTON V. TRIBILCOCK. 
 In the Supreme Court of the United States, 1875. 
 
 91 United States Reports, 45. 
 
 Error to the Circuit Court of the United States for the 
 District of Iowa. 
 
 Mr. Justice Hunt : The plaintiff, as assignee of the 
 Great Western Insurance Company, a corporation organized 
 under the statute of the State of Ilhnois, brought his action 
 against the defendant, alleging that he was a stockholder of 
 said corporation to the amount of ten thousand dollars; that 
 twenty per cent, only had been paid upon his stock ; alleging 
 also the bankruptcy of the company, the appointment of the 
 plaintiff as assignee, and the demand of the amount claimed, 
 and seeking to recover the eight thousand dollars remaining 
 unpaid. The complainant averred that the defendant did 
 verbally agree to become such stockholder, and, with intent 
 to become such, did accept a certificate for the same whereby 
 he became bound to pay the full amount thereof, as follows : 
 Five per cent, upon delivery of the certificates; five per 
 cent, in three months ; five per cent, in six months ; five per 
 cent, in nine months ; and the residue whenever called for 
 by the company, according to the charter of the company 
 and the laws of the State of Illinois. 
 
 The defence is, that the subscription was obtained by 
 the fraudulent representations of the agent of the company 
 to the effect that the defendant would only be responsible 
 for twenty per cent, of the subscription made by him; that 
 afterwards he executed his promissory note for the twenty 
 per cent., and secured the same by a mortgage of real estate ; 
 ''and that thereupon (in the language of the answer), and 
 pursuant to agreement, said subscription contract was sur- 
 rendered and delivered up to defendant;" and also in the 
 language of the answer, "that said note was a full payment 
 and discharge of all obligations and personal liabilities of all
 
 UPTON v. TRIBILCOCK 903 
 
 kinds whatsoever by reason of his contract so made and the 
 relations created by the deHvery to him of said certificate, 
 and said note was received in full payment." 
 
 In his third amended answer, the defendant avers that 
 he did subscribe for stock on the conditions mentioned ; that 
 after that contract was made, and before a certificate was 
 delivered to him, and before executing his note, an agree- 
 ment was made with Overton on behalf of the company to 
 the effect before stated ; and thereupon he made and delivered 
 the note and mortgage which was received by Overton in 
 full discharge and payment of the amount due on his said 
 subscription. 
 
 The evidence contained in the bill of exceptions leaves 
 the case substantially as is averred in the pleadings. The 
 defendant offered evidence tending to prove representations 
 that twenty per cent, only was required to be paid; that 
 eighty per cent, was now assessable, and created no per- 
 sonal liability ; that the agent, Overton, exhibited a blank 
 form of certificate with the word "non-assessable" printed 
 across the face, "being a copy similar to that subsequently 
 filled up and delivered to defendant by Overton." It ap- 
 pears that, before the defendant made his subscription, a 
 copy of the charter and by-laws had been furnished to him 
 by Overton; and that, in returns made by the company to 
 the Auditor of the State of Illinois of the amount of "un- 
 paid subscribed capital for which the subscribers were 
 liable," the amount of the defendant's note was included. 
 
 The case standing in this position upon the pleadings 
 and the evidence, the plaintiff' requested the court to charge 
 the jury as follows : 
 
 2d. That any contract between the company or its 
 agents and the stockholders, limiting their liability as to 
 unpaid installments of stock, is void as to creditors of the 
 company, and as to the rights of the assignee who repre- 
 sents the creditors in this action. 
 
 3d. That if the jury find from the evidence that the 
 defendant, J. D. Tribilcock, became a stockholder of the
 
 9U4 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 Great Western Insurance Company in the month of Au- 
 gust, 1870, and that he continued to own and hold said stock 
 until after the insolvency of the company in February, 
 1873, that any representations by any agent of the com- 
 pany at the time defendant became such stockholder as to 
 the matter of his liability for eighty per cent, of the stock, 
 or any indorsement on the stock of the word "non-assess- 
 able," are wholly immaterial, and constitute no defence to 
 this action. 
 
 This request was refused. 
 
 It is hardly necessary to argue the proposition, that 
 if the defendant became a holder of shares of the capital 
 of this insurance company to the amount of $10,000. 
 and had paid but twenty per cent, thereof, its creditors were 
 entitled to require of him the payment of the eighty per 
 cent, remaining unpaid. The acceptance and holding of a 
 certificate of shares in an incorporation makes the holder 
 liable to the responsibilities of a shareholder. Brigham v. 
 Mead, 10 Allen, 245; Buff. City R. R. Co. v. Douglass, 14 
 N. Y. 336; Seymour v. Sturges, 26 id. 134. The capital 
 stock of a moneyed corporation is a fund for the payment 
 of its debts. It is a trust fund, of which the directors are the 
 trustees. It is a trust to be managed for the benefit of its 
 shareholders during its life, and for the benefits of its credit- 
 ors in the event of its dissolution. This duty is a sacred one, 
 and cannot be disregarded. Its violation will not be under- 
 taken by any just-minded man, and will not be permitted by 
 the courts. The idea that the capital of a corporation is a 
 football to be thrown into the market for the purposes of 
 speculation, that its value may be elevated or depressed to 
 advance the interests of its managers, is a modern and 
 wicked invention. Equally unsound is the opinion, that the 
 obligation of a subscriber to pay his subscription may be 
 released or surrendered to him by the trustees of the 
 company. This has been often attempted, but never suc- 
 cessfully. The capital paid in, and promised to be paid in, 
 is a fund which the trustees cannot squander or give away.
 
 UPTON V. TRIBILCOCK 905 
 
 They are bound to call in what is unpaid, and carefully to 
 husband it when received. Sazvyer v. Hoag, ly Wall. 6io; 
 Ttickennan v. Brown, t^t^ N. Y. 297; Ogilvie v. Knox Ins. 
 Co., 22 How. 380; Osgood v. Laytin, 3 Keys, 521 ; 37 How. 
 Pr. 63, affg. 48 Barb. 463; Gross, 111. Stat., p. 356, § 16. 
 
 We are of the opinion that the alleged representation of 
 the non-assessability of the stock held by him was quite' im- 
 material. It was so held in Ogilvie v. Knox Ins. Co., 22 
 How. 380.^ 
 
 Judgment reversed and new trial had.^ 
 
 'In the remainder of the opinion the Court holds (ij that the 
 alleged misrepresentations relied on by the defense were as to the legal 
 effect of the defendant's subscription, and that a misrepresentation or 
 misunderstanding of law' will not vitiate a contract; and (2), assuming 
 that fraudulent misrepresentations were made which would have en- 
 titled him to have rescinded the contract, the question whether he had 
 exercised due deligence in discovering the fraud and repudiating the 
 subscription was not properly placed before the jury by the trial Court. 
 On these two points Chief Justice Waite, and Justices Miller and Brad- 
 Icy dissented. 
 
 'For further cases in accord, see Thompson on Corporations, §3924, 
 note 23. 
 
 The matter discussed in our principal case is often the subject of 
 statutory regulation. For a typical statute and case arising under such 
 statute, see 
 
 In re Remington automobile and Motor Co., 153 Fed. 345, 1907. 
 (Chap. 185, Laws of New Jersey, 1896, provided: "Where the whole 
 capital of a corporation shall not have been paid in, and the capital paid 
 shall be insufficient to satisfy its debts and obligations, each stockholder 
 shall be bound to pay the sum necessary to complete the amount of such 
 share, as fixed by the charter of the corporation * * * " ^ Com- 
 pany issued stock to A at $25 per share of the par value of $100 as full 
 paid and non-assessible. Held, that the statute quoted required, on the 
 bankruptcy of the Company an assessment of $75 a share on A, if that 
 sum was required to pay the debts of the Company "without discussing 
 the question on general principles of corporation law." For other 
 cases in accord, see Thompson on Corporations, Edition of 1910, §3905.) 
 
 On the question of li'hat amounts to an estoppel, assuming that 
 there has been sufficient fraud in obtaining the subscription to zvarrant 
 the stockholder in cancelling it, see 
 
 Martin v. South Salem Land Co., 94 Va. 28, 1896. (A subscribed 
 to the stock of the B Co. The subscription was induced by fraud ; 
 but A took no steps to repudiate his contract until the B Co. was 
 insolvent, and a creditor's bill had been brought against A and other 
 stockholders of the B Co. Held, that A was liable for his unpaid 
 subscription. I'uchanan, .1. : "A partj^ who had been induced to sub- 
 scribe for stock in a corporation by false or fraudulent representa- 
 tions as to a material fact upon which he had the right to rely, 
 and did rely, is entitled to have the contract rescinded in the same 
 manner as if the question had arisen between two natural persons, 
 provided the question arises between the contracting parties and the 
 rights of third persons are not involved, t IMorawetz on Corp., sec.
 
 906 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 io8; 2 Thompson on Corp., sec. 1361 ; i Cook on Stocks & Stock- 
 holders, &c., sees. 151-161. 
 
 "A contract procured by fraud is not void, but voidable only, at 
 the option of the party defrauded. It is binding upon him until re- 
 scinded, and, if before he exercises the option to rescind, innocent third 
 parties have, in reliance on the fraudulent contract, acquired rights 
 which would be prejudiced by its rescission they may generally have 
 it enforced for their benetit, although the party by whose fraud it w.'is 
 procured could not do so. Oakes v. Tiirquand, &c. (House of Lords), 
 2 Eng. & Irish Appeal Cases, L. R. 325; Tcnnent v. City of Glasgow 
 (House of Lords), 4 Appeal Cases, L. R. 615; 2 Thompson on Corp., 
 sec. 1363 ; 2 Morawtetz on Corp., sec. 839. 
 
 "This principle is founded in reason and justice. If one of two 
 innocent persons must suffer from the misconduct of a third, the 
 burden must fall upon the one whose conduct enabled the third 
 person to perpetrate the wrong complained of.") See further in ac- 
 cord cases cited in Thompson on Corporations, Edition of 1910, sec. 
 4924 notes, especially note 23 ; also, Amer. Digest, tit. Corporations, 
 Key No. 80 (10). 
 
 On what amounts to a contract of subscription, see Haivley v. 
 Upton, 102 U. S. 314, 1880: (A, by his bond, acknowledged the 
 receipt from an insurance company of ten shares of its capital stock, 
 and agreed to pay $200 therefor, in instalments, — one-fourth on the 
 receipt of the stock certificate, and the remainder in three equal 
 amounts at three, six, and nine months from January 7, 1871, the date of 
 the bond. He paid on executing it $25, and his name was entered as 
 a stockholder on the books of the company. The certificate was not 
 delivered or demanded. In 1872, the company became bankrupt. Held, 
 that the assignee was entitled to recover of A the unpaid instalments. 
 Waite, C. J. : "It cannot be doubted that one who has become bound 
 as a subscriber to the capital stock of a corporation must pay his 
 subscription if required to meet the obligations of the corporation. A 
 certificate in his favor for the stock is not necessary to make him a 
 subscriber. All that need be done, so far as creditors are concerned, 
 is that the subscriber shall have bound himself to become a con- 
 tributor to the fund w^hich the capital stock of the corporation repre- 
 sents. If such an obligation exisfs, the courts can enforce the con- 
 tribution when required. After having bound himself to contribute, 
 lie cannot be discharged from the obligation he has assumed until the 
 contribution has actually been made or the obligation in some lawful 
 way extinguished") ; Amer. Dig. tit. Corporations, Key Nos. 75-77. 
 
 On circumstances whicli will release a stockholder from his sub- 
 scription, see Amer. Dig. tit. Corporations, Key No. 84; also 
 
 Potts V. Wallace, 146 U. S. 689. 1889. (The trustee for the benefit 
 of creditors of a Company brought an action against W, a stock- 
 holder of record, to collect the amount of the stock subscribed by 
 him. W, defended, on the ground that he had offered to pay the 
 subscription when the Company was solvent, and the Company re- 
 fused the tender. Shiras, /. : "It may be readily conceded that if the 
 evidence in the case disclosed that the defendant's offer of payment 
 and performance was refused by the company while solvent, and that 
 the defendant availed himself of such refusal, and declared himself 
 off from his contract of subscription, the defendant was thereby 
 exonerated from the obligation of his subscription, and that his 
 liability to pay would not be revived by the subsequent insolvency of 
 the company and by the demands of the assignee." The Court being 
 of opinion that the record showed that it was doubtful if W ever 
 oft'ered to pay his subscription, and in any event, did not show that 
 on the refusal to accept payment, he repudiated his contract of sub- 
 scription, refused to consider the defense good.)
 
 LOUISIANA PAPER COMPANY v. WAPLES . 907 
 
 LOUISIANA PAPER COMPANY v. WAPLES. 
 
 In the Circuit Court of the .United States for the 
 District of Louisiana, 1877. 
 
 3 Woods' Reports, 34. 
 
 Error to the district court. 
 
 The action was brought in the district court by the trus- 
 tees in bankruptcy of the Louisiana paper manufactur- 
 ing company, to recover of the defendant, who was a stock- 
 holder in the company, a balance alleged to be due and un- 
 paid on his subscription of stock. 
 
 The company was established under a general law of 
 this state (Rev. Stat., p. 183) which provided for the or- 
 ganization of corporations for works of public improve- 
 ment, manufacturing and other purposes, by the adoption 
 of a charter by the stockholders, and which directed that 
 every charter should contain, among other things, the name 
 of the corporation, its domicile, a description of the business 
 which it proposed to cari^ on, a statement of the amount of 
 the capital stock, the number of shares, the amount of each 
 share, and the time when and the manner in which payment 
 on stock subscribed should be made. The law also provided 
 that the charter of corporations organized under it should 
 be recorded in the office of the recorder of mortgages and 
 published in a newspaper at the domicile of the corporation, 
 once a week for at least thirty days. The statute also de- 
 clared : "No stockholder shall ever be held liable or re- 
 sponsible for the contracts or faults of such corporation in 
 any further sum than the unpaid balance due to the com- 
 pany on the shares owned by him." 
 
 The third section of the charter of the Louisiana paper 
 manufacturing compau}- declared, "the capital stock of this 
 corporation is hereby fixed at the sum of sixty thousand dol- 
 lars, divided into six hundred shares of one hundred dol- 
 lars each ; twenty-five dollars on each share to be paid at
 
 908 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 the time of the organization of this corporation, and five 
 dollars on each share in thirty days, five dollars in sixty 
 days, and five dollars in ninety days after said organization. 
 The balance on each share, or any portion of such balance, 
 shall not be called for, unless with the assent of three-fourths 
 of the stockholders, and then only to increase the business 
 of the corporation. 
 
 The defendant subscribed twenty-five shares, and paid 
 up the installment of twenty-five dollars and the three in- 
 stallments of five dollars each, mentioned in said third sec- 
 tion, making a total of forty per cent, of the stock sub- 
 scribed. 
 
 The suit was to enforce the payment of the remaining 
 sixty per cent, of the stock for the benefit of the creditors 
 of the corporation. 
 
 No meeting of the stockholders had ever been held to 
 give their assent to the calling in of the unpaid sixty per 
 cent, of the stock subscribed, nor had such assent been 
 given. 
 
 The defense was that the sixty per cent, sued for was 
 subscribed and to be paid only according to the terms of 
 the charter, on condition that it should not be called in un- 
 less with the assent of three-fourths of the stockholders, and 
 then only to increase the business of the corporation, and 
 that such assent had never been given. 
 
 The district court charged the jury that there was no 
 liability of the defendant beyond the forty per cent, of his 
 stock paid up, unless the remaining sixty per cent., or some 
 part of it, had been called in by the assent of three-fourths 
 of the stockholders, for the purpose of increasing the busi- 
 ness of the corporation. 
 
 This charge is assigned for error. 
 
 Woods, Circuit Judge. This is not the case where there 
 has been a subscription of stock, and the by-laws or other 
 regulations adopted by the stockholders or directors pre- 
 scribe how the subscriptions shall be called in, or the char-
 
 k 
 
 LOUISIANA PAPER COMPANY v. WAPLES 909 
 
 ter itself declares in wliat installments the directors niav call 
 in the stock payments. 
 
 In such a case, there can be no doubt that the entire 
 stock subscribed, whether called in by the directors or not. is 
 a fund for the satisfaction of the debts of the corporation, 
 and its payment can be enforced. Such regulations only per- 
 tain to the administration of the affairs of the corporation. 
 
 In this case, the charter, which was required to be re- 
 corded in a public office, and published in a newspaper at the 
 domicile of the corporation, prescribed the installments by 
 which forty per cent, of the stock subscribed should be paid, 
 and then declared that the residue, or any portion thereof, 
 should not be called for unless with the assent of three- 
 fourths of the stockholders, and then only to increase the 
 business of the corporation. 
 
 The rule with regard to unpaid subscriptions of stock 
 is this, that whatever sum is subscribed by the stockholders, 
 and held out to the public as the stock of the corporation, is 
 liable to be called in for the payment of its debts, even 
 though the directors may refuse to make the call : Purton 
 V. N. O. & C. Railroad Co., 3 La. An., 19. 
 
 The power conferred upon directors to call in install- 
 ments upon the shares, is a discretionaiy power; but that 
 discretion is merely modal relating to the time and manner 
 of making payments. When the wants of the company re- 
 quire those payments, it becomes the duty of the directors to 
 cause them to be made, as much so as to require payment of 
 debts due the company. It is not discretionary with the 
 directory to say whether or not the debts of the company 
 shall be paid when they have the power to compel payment : 
 Ward V. GriswoldvUlc Man. Company, 16 Conn., 601. 
 
 These doctrines are well established. Do they apply to 
 the case in hand? It is to the charter of a corporation that 
 reference is to be made to determine the rights of the pub- 
 lic : Stark V. Burke, 9 La. An., 341. 
 
 Now, looking at the charter of the Louisiana i)aper 
 manufacturing company, what was the contract which llie
 
 910 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 public was advised the stockholders had entered into with 
 the corporation? Not to pay their subscriptions absolutely, 
 nor to pay them when, in the discretion of the directors, it 
 might be necessary for the wants of the company. No obli- 
 gation was assumed to pay any more than forty per cent, 
 of the stock subscribed, unless upon the vote of three-fourths 
 of the stockholders, and then for a particular purpose. 
 Clearly, as between the corporation and the stockholders, the 
 unpaid stock above forty per cent, could not be called in ex- 
 cept on the terms prescribed by the charter. The public, the 
 creditors of the corporation, are in no stronger position than 
 the corporation itself, for the charter which informed the 
 public of the amount of the capital stock of the corporation, 
 also gave notice that the stockholders were under no obliga- 
 tion to pay more than forty per cent., except on their own 
 vote, carried by a majority of three-fourths, and for a par- 
 ticular purpose. 
 
 If the directors had called a meeting of the stockholders 
 to vote on the question of calling in the unpaid sixty per 
 cent, of the stock, and the stockholders had refused their 
 assent, would it have been the duty of the directors, would 
 they have had any power, to call .it in, notwithstanding the 
 adverse vote ? Clearly not. Is their duty to call in the stock 
 any clearer, or their power any greater because no such meet- 
 ing has been called and no such vote taken ? 
 
 The stockholders have made their contract with the 
 corporation, the public have been explicitly advised of its 
 terms, and the stockholders, therefore, can only be held to 
 perform what they have agreed to do. The company can 
 claim no more, nor can the creditors of the corporation 
 say they have been misled. 
 
 In my judgment, the stockholders are not liable to pay 
 the unpaid sixty per cent, until the same has been called in 
 by a three-fourths vote of the stockholders, for the purpose 
 of increasing the business of the corporation. Such residue 
 is not due until after such a vote, and the law of this State 
 declares that the stockholder of an incorporated company
 
 LOUISIANA PAPER COMPANY v. WAPLES 911 
 
 is only liable to the company for the unpaid balance due to 
 the company on the shares owned by him. The following 
 authorities hav-e been consulted, and tend to sustain the Views 
 expressed : Bur. & Mo. River Railroad Co. v. Boestler, 
 15 Iowa, 555; Penobscot & Kennebec k Railroad Co. v. 
 Dunn, 39 Maine, 587 ; Phila. & West Chester Railroad Co. 
 V. Hickman, 28 Pa. St., 318; Carlisle v. Cahawba & Marion 
 Railroad Co., 4 Ala. N. S., 70. 
 
 It results from these views that there was no error in 
 the charge of the district court. Its judgment is, therefore, 
 afifirmed.^ 
 
 ^Accord: Bent v. Underdoivn, 156 Ind. 516, 1900. (The articles 
 of association of the A Company provided that the stockholders should 
 never be required to pay more than 15 per cent, of their subscrip- 
 tions. These articles wfere recorded as required by law in two public 
 offices of the State. The A Company becoming insolvent, B was ap- 
 pointed Receiver. Held, that B could not recover from C, a stock- 
 holder, more than 15 per cent, of his subscription. Monks, J. : "The 
 charter of a corporation formed under a general law, consists of its 
 articles of association and the law under which it is organized.")
 
 912 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 LANE'S APPEAL. 
 In the Supreme Court of Pennsylvania, 1884. 
 
 105 P ennsylvania Reports, 49.' 
 
 Mr. Justice Green. 
 
 In this case a bill in equity was filed by certain credit- 
 ors of the Philadelphia and Susquehanna Blue Stone Com- 
 pany, suing as well for themselves as for all other creditors 
 who might become parties thereto, against the company and 
 the holders of its capital stock, for the purpose of compelling 
 the payment of the unpaid capital stock by the stockholders 
 in order that the same might be applied to the payment of 
 the debts due the plaintiffs. The bill alleged, and the master 
 found, that the defendant company was incorporated under 
 the general corporation law of April 29th, 1874, that the 
 capital stock was fixed at $24,000, divided into 240 shares at 
 $100 each, that a part only of the stock had been paid in, 
 that the defendants were stockholders at the time of the 
 assignment made by the company for the benefit of its credi- 
 tors, and were, indebted to the company in certain sums, 
 which are set forth in detail, for their unpaid subscriptions to 
 the capital stock, that the company was wholly insolvent, and 
 all its available assets, except the balances due upon its 
 capital stock, exhausted ; that neither the compan}^ nor its 
 assignee had made any call or assessment upon the stock- 
 holders to pay in the unpaid portion of the capital stock, but, 
 on the contrary, had refused to do so, and that payment of 
 such unpaid balances of the capital stock, or of some part 
 thereof, was necessaiy for the payment of the debts due the 
 plaintiffs. The bill prayed for an account of the amounts re- 
 maining unpaid upon the capital stock, and for a decree that 
 the stockholders pay whatever amounts were due by any of 
 them upon previous assessments, and also that an assessment 
 
 ' The Reporter's statement of the facts, and his notes of the argu- 
 ments of counsel are omitted.
 
 LANE'S APPEAL 913 
 
 be levied for so much of the balances due, and not previously 
 called for, as might be necessary to pay the ascertained debts 
 of the corporation, and prayed also for the appointment of a 
 receiver to whom the monies collected should be paid, and 
 for general relief. Most of the matters alleged in the bill 
 were admitted in the various answers filed, and such as were 
 material and not admitted were found by the master. The 
 debts due the plaintiffs were ascertained to be upwards of 
 $8,000, of which the sum of $7,036.93 was due to John 
 Maxwell, who had obtained judgment for the same. The 
 amounts of unpaid capital stock were in the neighborhood 
 of $10,000, the whole of which was decreed to be paid to a 
 receiver. 
 
 The chief contention before the master, as in this Court, 
 was upon the liability of the stockholders in this proceeding. 
 It was contended, on behalf of the defendants, that they 
 could not be called upon by bill in equity, as proposed in this 
 case, for two reasons : First. Because the complainants have 
 a complete and adequate remedy at law specifically provided 
 by the Act of 29th April, 1874, under which the company 
 was incorporated ; and. Second. That the plaintiff, John 
 Maxwell, the principal creditor, had a complete and ade- 
 quate remedy by attachment in execution upon his judg- 
 ment. 
 
 We will consider these defences separately and in their 
 order. 
 
 The remedy at law which it is said could be resorted to 
 by the plaintiffs is that which is provided by the fourteenth 
 and fifteenth sections of the Act of 1874. The fourteenth 
 section is, so far as it relates to the present controversy, in 
 the following words, viz. : "The stockholders in each of 
 said corporations shall be liable in their individual capacity 
 to the amount of stock held by each of them, for all work or 
 labor done, or materials furnished, to carry on the operations 
 of each of said corporations." The fifteenth section pro- 
 vides the method of proceeding to enforce the liabilities 
 created by the fourteenth.
 
 914 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 It will be perceived at once that the liability established 
 by the fourteenth section is of a special and extremely lim- 
 ited character. The stockholder is made directly liable 
 for work and labor done, and for materials furnished to 
 carry on the operations of the corporations. But two kinds 
 of indebtedness only are imposed upon the stockholders, in- 
 debtedness for labor and indebtedness for materials fur- 
 nished. No other form or species of debt of the corporation 
 can be collected from the stockholder under this section. 
 Moreover, the liability created by this section is a direct 
 liability from the stockholder to the creditor, and it exists 
 to the amount of the stock held by the stockholder, without 
 any reference to the question whether it has been paid for or 
 not. Hence the stockholder, although he has paid in full to 
 the corporation for his stock, is nevertheless still liable to 
 the extent of the whole value of his stock to the two classes 
 of creditors named. 
 
 This liability is, of course, of a purely statutory char- 
 acter, having no existence outside of the legislation, and 
 whenever it is invoked it must be enforced in the very man- 
 ner prescribed by the other portions of the Act. If that kind 
 of remedy is not literally pursued when that particular liabil- 
 ity is proposed to be enforced, then there can be no re- 
 cover}^ Such were the decisions of this court in many 
 cases, notably in Patterson v. Lane, 1 1 Cas., 275 ; Hoard 
 V. Wilcox, IT Wr. 51; Brinham v. The Wellersburg Coal 
 Co., Id., 43; Youghiogheny Shaft Co. v. Evans, 22 P. F. S., 
 331; Means' Appeal, 4 Norr., 75. These were decisions 
 under other Acts, principally the manufacturing law of 1849, 
 but the controlling idea of the whole of them was that the 
 liability and the remedy were special and statutory and 
 therefore the provisions of the statute must be strictly pur- 
 sued. Nothing more than this was decided in any of them. 
 Thus in Patterson v. Lane, which was under the Act of 
 1849, the 9th section of the Act provided that the stock- 
 holders should be individually liable for all the debts and 
 contracts of the corporation, to the amount remaining unpaid
 
 LANE'S APPEAL 915 
 
 on their shares respectively, until the whole amount of the 
 capital stock was paid in and a certificate by the officers to 
 that effect was made and recorded. It was alleged that a 
 false certificate had been made as to the amount of stock 
 paid in, and that the whole had not been paid, and a bill in 
 equity was filed against certain stockholders to enforce 
 their individual liability. But we held that such a bill would 
 not lie because by the 23d section a special mode of proceed- 
 ing for that purpose was provided and it must be strictly pur- 
 sued. This was the whole of that decision. Precisely the 
 same doctrine was held and applied in Hoard v. Wilcox, 
 though the source of individual liability was different, and 
 the defect in the proceeding was different, to-wit, the cor- 
 poration was not joined as required by the statute. Thomp- 
 son, J. said, on p. 58 : "It is veiy evident that the remedy 
 of the statute was not followed in these proceedings, and it 
 is also quite apparent on the face of the lease, that it is un- 
 der the statute that they seek to make the defendants answer- 
 able." He said also: "The remedy for the collection of 
 demands against such institutions is therefore statutory and 
 special and must be followed. This we have lately held in 
 Brinham, et oL, v. The Wellersburg Co., ct oL, ante, p. 43, 
 in obedience to the rule of Ihe Act of 1806 requiring the 
 remedy prescribed by a statute to be pursued." The other 
 cases referred to above were mere repetitions of the same 
 doctrine applied to the facts involved in them. 
 
 In no one of these or any other cases cited in the paper 
 book of the appellants, did any question arise as to the right 
 of a creditor to enforce the equitable obligation of every 
 stockholder in a moneyed corporation to pay the whole 
 amount, if necessary, of his unpaid capital stock, in dis- 
 charge of all the indebtedness of the corporation. That is 
 a species of obligation which is founded in no statute, but 
 exists by force of the consideration tliat the capital stock of 
 a corporation is a trust fund for the payment of its debts, 
 and upon the happening of the insolvency of the corporation, 
 and the exhaustion of its assets, its unpaid capital stock may
 
 916 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 be appropriated for the benefit, not of any one creditor, but 
 of the whole body of creditors. In none of the manufac- 
 turing laws of this Commonwealth is there any substitution 
 of any form of equivalent liability for this. On the con- 
 trary, the special, limited and restrained forms of liability 
 established by these Acts, are in the nature of penal obliga- 
 tions for derelictions of duty, or additional personal mone- 
 tary duties imposed upon stockholders in favor of laborers, 
 mechanics and material men, out of consideration for the 
 meritorious character of the claims. They are an added 
 means of satisfaction to these two classes of creditors under 
 the Act of 1874, but substitutionary for nothing. They may 
 be resorted to or they may not. If they are it must be in the 
 precise methods, and within the special limits imposed by 
 the legislation which authorizes them. But if they are not, 
 upon what principle of law or morals shall it be said that 
 these two meritorious classes of creditors shall be literally 
 ousted of other rights and remedies available to all creditors, 
 simply because of the relation of creditor to the common 
 debtor. 
 
 It is true that in the bill in this case the complainants, 
 other than Maxwell, allege that the debts due them are for 
 work and labor done, and materials furnished ; and as to 
 Maxwell, proof was offered, and refused, to show that the 
 consideration of his judgment was for materials furnished. 
 But of what consquence is this? The learned counsel for the 
 appellants argue with much ingeunity and earnestness, that 
 because a statutory and peculiar remedy is given to creditors 
 of this character, that one remedy alone must be pursued, 
 and if it is not, all their other remedies against the same 
 parties are taken from them. In other words, laborers and 
 material men can make the stockholders pay them, because 
 they are stockholders, and by the statute are bound to pay 
 such claims in addition to paying for the whole of their 
 stock, and because they have this right it is their sole, only 
 right of redress against such persons. It is conceded that all 
 other creditors can require the stockholders to pay in their
 
 LANE'S APPEAL 917 
 
 unpaid capital stock in satisfaction of their claims, but it 
 is contended that laborers and material men cannot do so, 
 because they have a right peculiar to themselves to resort to 
 an additional remedy which enables them to call upon the 
 stockholders, although they may have paid up the whole 
 price of their stock. The answer to this is very siniple. The 
 laborers and material men are creditors of the corporation in 
 as large and broad a sense as all other creditors, and of 
 course in that capacity they have all the remedies Avhich are 
 common to the whole mass. In addition to that, they have a 
 special remedy which the others do not possess. This might 
 be availed of if the other failed, but. in no possible view 
 of the case can we hold that its existence depriA'es them of 
 other remedies common to all creditors alike. 
 
 The doctrine that the capital stock of a moneyed cor- 
 poration is a trust fund available to creditors in the event of 
 insolvency is admitted by the appellants, and is established by 
 very numerous decisions. A few of them are the fol- 
 lowing: Sawyer r. Hoag, ly Wall., 6io; Sanger z'. Upton, 
 I Otto, 56; Hatch V. Dana, 11 Id., 205; Wood •z'. Dummer, 
 3 Mas., 308; Webster v. Upton, i Otto. 65 ; Wilbur v. The 
 Stockholders, 35 Leg. Int., 346; Story's Equity, § 1252; 
 Vose z'. Grant, 15 Mass.. 505; Spear v. Grant, 16 Mass., 9; 
 Stang's Appeal, 10 W. N. C., 409; Messesmith z'. Bank, 15 
 Norr., 440. In Upton z'. Tribilcock, i Otto, on p. 47, the 
 doctrine is thus 'fully and forcibly expressed : "The capital 
 stock of a moneyed corporation is a fund for the payment 
 of its debts. It is a trust fund of which the directors are 
 the trustees. It is a trust to be managed for the benefit of 
 its shareholders during its life, and for the benefit of its 
 creditors in the event of its dissolution. This duty is a 
 sacred one and cannot be disregarded." In Sanger z'. Up- 
 ton, I Otto, 60, it is said : "The capital stock of an incor- 
 porated company is a fund set apart for the payment of its 
 
 debts The creditors have a lien on it in equity. It 
 
 is publicl}' pledged to those who deal with the corporation 
 for their security. Unpaid stock is as much a part of this
 
 918 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 pledge, and as much a part of the assets of the company as 
 the cash which has been paid in upon it." 
 
 It is also entirely clear that the creditors of an insolvent 
 corporation may compel, by bill in equity, the payment of 
 the unpaid capital stock in discharge of their debts. Thus in 
 Myers, Assignee, v. Seeley, lo Nat. Bankruptcy Reg. Rep., 
 412, it was said: "Bills by creditors who have judgments 
 against the corporation have been sustained against the cor- 
 poration and its stockholders, said bills being framed in the 
 name of the judgment creditors, and of all others who may 
 choose to come in and be made parties thereto. In such 
 cases the decree has been for an account to be taken of the 
 debts and assets of the corporation, for the appointment of 
 a receiver to whom the stockholders and officers are ordered 
 to pay and account respectively for so much of the assets 
 and capital stock as are necessary to pay the debts due to the 
 creditors ; the assets thus collected and received to be applied 
 by the receiver in discharge of the debts." There are other 
 numerous authorities to the same efifect, but it is unnecessary 
 to repeat them, as the right to such a remedy is not at all dis- 
 puted by the appellants, if any right of recovery exists. * *^ 
 
 The second defence alleged relates to the plaintiff, John 
 Maxwell, who was the holder of about seven-eighths of all 
 the indebtedness of the corporation. Mr. Maxwell had ob- 
 tained a judgment for his debt, and it was argued he had a 
 complete and adequate remedy at law by process of attach- 
 ment in execution. 
 
 This writ is simply a species of execution, the purpose 
 of which is to obtain satisfaction of the judgment upon 
 which it is founded. It is not an original proceeding in- 
 stituted to enforce a real or supposed legal or equitable liabil- 
 ity by the procurement of a judicial decree as its result. In 
 other words, it is not a remedial process, and can scarcely 
 be spoken of as a remedy in the sense in which that term is 
 used in considering the subject of an adequate legal remedy 
 
 "The Court's discussion of the liability of an assignee of an 
 original stockholder is omitted.
 
 LANE'S APPEAL 919 
 
 which excludes a bill in equity. But leaving that thought 
 aside, we cannot concede the correctness of the appellant's 
 contention in this regard. 
 
 In considering this subject it is necessary to observe 
 some distinctions which must be borne in mind. There is 
 no doubt that a contract of subscription to the stock of a 
 moneyed corporation imposes upon the subscriber an obli- 
 gation to pay to the corporation the amount of the subscrip- 
 tion, according to the terms of the contract. If he fails to 
 pay, the corporation may sue him at law upon his contract 
 and recover whatever may be due. But recovery in this 
 mode must be in accordance with the terms of the contract. 
 If by those terms payment was to be made in any particular 
 manner, or only of a certain portion of the par value, with 
 an agreement that no more was to be paid, such contract 
 is valid and binding upon the corporation. But if the cor- 
 poration becomes insolvent and all its other assets are ex- 
 hausted, and it is requisite for the payment of its debts that 
 its unpaid capital should be paid up, then the law changes, 
 and it is perfectly well settled by many decided cases, that 
 all stipulations, conditions and devices agreed upon between 
 the stockholders and the corporation, releasing the former 
 from their obligation to pay in cash the full par value of 
 their stock, become nugatory and void. Notwithstanding 
 such terms of subscription the stockholders, in such circum- 
 stances, can be compelled to pay in full f(jr their stock. This 
 doctrine results from the character of the capital stock of 
 corporations. It is a trust fund. It exists for the benefit of 
 the creditors whenever their rights and interests require it. 
 Its payment can be enforced in modes which are not avail- 
 able to the corporation and without using its name. Thus, 
 creditors' bills in the names of individual creditors, whether 
 by judgment or otherwise, proceedings by assignees in bank- 
 ruptcy, either directly by bill or by petition to the court in 
 bankruptcy, and proceedings by insolvent assignees or re- 
 ceivers under direction of the proper courts, are the ordinary 
 modes in which the rights of the creditors are enforced in
 
 920 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 the circumstances we are now considering. In all of them, 
 however, it is absolutely essential that in some mode there 
 should be an ascertainment in some form of the fact of in- 
 solvency, of the exhaustion of all other assets, of the amovmt 
 of the debts due by the corporation, of the amount of capital 
 stock required for the discharge of the debts, and a call or 
 assessment upon the stockholders for the payment of the 
 amount necessary to be paid by each. If the contract of 
 subscription is absolute and without conditions or terms re- 
 lieving the stockholders from the pa3anent of the full par 
 value of the stock, the call or assessment may be made by the 
 directors of the corporation, and if the corporation is sui 
 juris and has not passed into the hands of assignees or re- 
 ceivers, the proceeding to recover the money may be prose- 
 cuted by the corporation in its own name. If, however, the 
 corporation refuses to act, or is disabled, either by the terms 
 of its contract, or by its legal incapacity by reason of in- 
 solvency or bankruptcy, the assessment must be made by 
 some court having jurisdiction of the matter and the parties, 
 in some suitable proceeding by way of bill or petition. 
 Upon such proceeding and the establishment of the requisite 
 facts above stated, the court will either order an assessment 
 to be made upon each stockholder of the amount to be paid 
 by him, and upon such assessment an action can be founded 
 and tried in the common law courts, or a decree can be made 
 directly against each stockholder who has been made a party 
 and served with process, for the payment of the money due 
 by him, and such decree can be enforced by immediate exe- 
 cution process. 
 
 These principles are announced and illustrated in many 
 cases: Wood v. Dummer, 3 Mason, 308, 314; Sagory v. 
 Dubois, 3 Sandf. Ch. Rep., 467; Ward v. Griswoldville 
 Manuf. Co., 16 Conn., 593; Ogilvie v. Knox Ins. Co., 22 
 How., 380; Mann v. Pentz, 3 Comst., 415, 423; Adler v. 
 The Milwaukee Patent Brick Manufacturing Co., 13 Wise, 
 63; Myers z'. Seeley, 10 Nat. Bank. Reg. Rep., 411 ; Upton 
 V. Tribilcock, i Otto, 45, 47; Sanger v. Upton, Id., 56, 60;
 
 LANE'S APPEAL 921 
 
 Webster -v. Upton, Id., 65; Wilbur v. Stockholders, 39 Leg. 
 Int., 346; Scovill 7'. Thayer, 15 Otto, 143; Patterson v. 
 Lynde, 16 Id., 519; Sawyer v. Hoag, 17 Wall., 610. 
 
 The question whether an attachment in execution will 
 lie at the suit of a single creditor to secure payment of his 
 own debt to the exclusion of all other creditors is one whose 
 solution depends upon the application of some of the'prin- 
 ciples above stated. If the corporation is solvent, and the 
 subscription is in the ordinary form of an absolute engage- 
 ment to pay the price of the stock, there is no doubt that an 
 attachment in execution is an effective remedy for a judg- 
 ment creditor of the corporation. The reason is that in such 
 circumstances the amount due by the subscriber to the stock 
 is an ordinary debt due directly by the stockholder to the 
 corporation, the payment of which may be enforced in an 
 action on the contract of subscription. Being a debt due, 
 there is a right of action for its recovery by the company, 
 and therefore it is strictly and properly subject to seizure by 
 attachment. Hence it was held in Peterson v. Sinclair, 2 
 Norr., 250, that a balance due on a subscription to stock of 
 a corporation is attachable as other debts are. No cjuestion 
 of the solvency or insolvency of the corporation was raised 
 or considered in that case. 
 
 In Hays v. Lycoming Fire Ins. Co., 2 Out., 184, an at- 
 tachment was sustained against money due upon an assess- 
 ment on the premium notes of the company for the purpose 
 of paying losses, but it was expressly said by our brother 
 Gordon in the opinion that it was admitted the company 
 was solvent, and the case was not complicated by the ques- 
 tion of insolvency. It was held that as the company was 
 solvent and the premium notes were assessable for the pay- 
 ment of the very debt in suit, and the assessment was law- 
 fully made and the money partially paid into the hands of 
 one of the garnishees, it was to be treated as any ordinary 
 debt and subject to attachment as other debts. In another 
 case between the same parties, reported in 3 Out., 621, the 
 facts were that a member had sustained a loss by fire, for
 
 922 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 which he had brought an action and obtained judgment be- 
 fore the insolvency of the company. An attachment in exe- 
 cution was issued, also before insolvency, and served upon 
 a member who had given a premium note for his insurance. 
 He became indebted upon his note, before insolvency, for 
 the proportionate part necessary to pay the plaintiff's loss, 
 and nothing remained to be done except to ascertain the 
 amount of that proportion. Upon these distinct grounds 
 the attachment was sustained. Mr. Justice Trunkey in de- 
 livering the opinion said, on p. 625. "The garnishee gave his 
 notes to the defendant, to be paid in such portions and at 
 such times as the directors may, agreeably to the Act of 
 incorporation, require. The losses by fire occurred, and this 
 judgment for one of said losses was obtained prior to the 
 proceedings for dissolution of the company. Before its dis- 
 solution the garnishee became indebted on his premium notes 
 for the proportionate sum necessary for payment of said 
 losses, and nothing remained to be done except to ascertain 
 the proper amount of his indebtedness prior to his liability 
 to an action to enforce payment. The writ of attachment 
 was issued and served before the dissolution of the company, 
 and the debt owing to the defendant by the garnishee became 
 bound by it. After the receiver was appointed by order of 
 the Court, he ascertained the measure or amount of the debt 
 which would be levied upon by the attachment of the 
 plaintiff." 
 
 The foregoing are the only cases of attachment in exe- 
 cution in the Pennsylvania Courts to which we are referred, 
 and with the exception of the cause In re Glen Iron Works, 
 bankrupt, 13 W. N. C, 387, to be hereafter considered, are 
 all we have found in the books of reports relating to this 
 subject. But there are many cases, as it seems to us, settle 
 the principles which ought to control the decision of the 
 question. 
 
 In order to sustain an attachment in execution there 
 must be a debt due from the garnishee to the defendant in 
 the judgment, which may be payable at the time of the
 
 LANE'S APPEAL 923 
 
 service of the writ, or may become payable subsequently. 
 This debt must be at least a cause of action. If it be not, 
 so that it cannot be enforced by the defendant against the 
 garnishee, it certainly cannot be converted into a cause of 
 action by the mere consideration that an attachment has is- 
 sued instead of a summons in a common law action. If 
 there is an inherent defect in the cause of action itself which 
 prevents any recovery by the defendant or his representa- 
 tives because of the nature of the defect, it is not possible 
 that such defect can be regarded as removed simply because 
 another proceeding is adopted. 
 
 Now, it is manifest, upon the plainest principles, that 
 in the case of an insolvent corporation, all of whose assets 
 are exhausted except its unpaid capital stock, there can be 
 no recovery against a delinquent stockholder until a call or 
 assessment has been made upon him fixing the amount he is 
 required to pay. Prior to insolvency this might be done by 
 the corporation if it is not disabled by the special terms of 
 the subscription contract. But when insolvency and exhaus- 
 tion of assets exist, the unpaid capital is not available to any 
 one creditor in satisfaction of his debt, because then the 
 whole amount of the unpaid capital is a trust fund which 
 does not belong to the coi-poration, but to the whole body of 
 its creditors. Hence, whether the proceeding originates in 
 the name of one, or of several, or of all the creditors, the 
 result is the same in each. The capital, when recovered en- 
 ures to the benefit of all, and must be distributed among all 
 ratably. Before any recovery can be had in such proceed- 
 ings, no matter of what particular form, there must be an 
 assessment made by a competent authority. The necessity 
 for an assessment arises from the consideration that only 
 so much of the unpaid capital can be called in as is required 
 for the payment of the unsatisfied debts. If the whole un- 
 paid capital is not required the whole cannot be called. In 
 order to ascertain how much is required there must be an ac- 
 count of debts, assets, and unpaid capital taken, and then a 
 decree for an assessment of tlie amount due bv eacli stock-
 
 924 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 holder. Tims in Alanii v. Pentz, 3 Comst., on p. 423, the 
 Court said: "This liability (for unpaid capital) is only in- 
 curred when the capital i)aid in is not sufficient to satisfy the 
 debts against the corporation, and then only to an amount 
 sufficient to satisfy such debts. It is therefore necessary that 
 an account of the assets and of the debts should be taken, of 
 the amount of capital remaining unpaid upon the shares, and 
 the amount unpaid by each stockholder, in order that they 
 may be made equally liable." 
 
 In Myers v. Seek}', 10 Nat. Bank, Reg. Rep., 411, the 
 court after stating the rule says: "The reason of that rule 
 is, that the unpaid subscriptions are assets applicable to the 
 payment of corporate debts which the corporate authorities 
 may call in for corporate purposes. If there are adequate 
 assets other than said calls, then the creditor has no legal or 
 equitable right to insist upon such calls. Primarily the 
 amount due on subscriptions is a debt due to the corpora- 
 tion which it alone can enforce, and unless the corporation 
 is without other assets to meet its obligations, and fails to 
 make the needed calls, creditors cannot interpose. When 
 the facts justify their interposition, an account of assets and 
 debts should be taken, in order that it may be known what, 
 if any, calls should be made. No further call should be made 
 than what is sufficient, together with the other assets, to meet 
 all debts; for the bill by creditors cannot reach beyond the 
 satisfaction of their demands. They have no other ecjuity." 
 
 In Wilbur z: The Stockholders, 39 Leg. Int., 346, Cad- 
 WALADER, J., said : "Where the corporation is solvent, the 
 unpaid capital is not due and payable by the stockholders 
 until payment in part or in whole is called for by the cor- 
 porate authorities, unless a postponement of the payment 
 would be inconsistent with some provision of the Act of in- 
 corporation, or with a conventional engagement with the 
 stockholders. Ordinarily there is no such inconsistency of 
 either kind, and thus in the case of a solvent corporation, a 
 call or levy by the corporate authorities assessing the amount 
 or amounts payable must ordinaril}- [)recede any ascertained
 
 LANE'S APPEAL 92S 
 
 obligation of the respective stockholders to pay. But in the 
 contrary case of an insolvent corporation the recourse of its 
 creditors does not depend upon such condition precedent, 
 and cannot be thus postponed. Every stockholder is, with 
 relation to creditors, under an obligation to pay sr much of 
 the amount represented by his share, or shares, of the capital 
 as may be required for the payment of the corporate debt. 
 . . . Upon the insolvency of the corporation the obliga- 
 tions of the stockholders thus at once becomes assets for the 
 payment of its debts to such an extent as other assets are 
 deficient. To this extent the obligation of every stock- 
 holder, in its just proportion, then becomes in equity a debt 
 payable for the benefit of the creditors. No act of the cor- 
 poration before or after its insolvency can derogate in this 
 respect from the rights of creditors." In Webster v. Up- 
 ton, I Otto. 71, Strong^ J., says: "All the cases agree that 
 creditors of a corporation may compel payment of the stock 
 subscribed, so far as it is necessary for the satisfaction of the 
 debts due by the company. This results from the fact that 
 the whole subscribed capital is a trust fund for the payment 
 of creditors when the company becomes insolvent." 
 
 The foregoing principles which are expressed in many 
 cases indicate the fundamental conditions which underlie 
 the whole subject of the liability of the stockholders as to 
 their unpaid capital stock. Such stock in cases of insolvency 
 is due as an entirety : it is due to the aggregate of the credi- 
 tors ; only so much is due as is requisite to discharge the in- 
 debtedness of the corporation after all other assets have been 
 thereto applied ; as a necessary consequence there must be an 
 account of debts, assets and unpaid capital taken; when such 
 account has been taken, and the amount required from each 
 stockholder has been ascertained, an assessment ordering 
 the payment of such proportionate amount by each may be 
 made by a court of competent jurisdiction in a proceeding in 
 which the corporation and the stockholders should he made 
 defendants. 
 
 I consider it as the clear result of the decisions that, ex-
 
 92o LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 cept in cases where the corporate authorities have them- 
 selves made calls which are authorized by the subscription 
 contracts, there is absolutely no liability of any kind what- 
 ever on the part of the stockholder to pay any part of his 
 unpaid capital, except under and by force of an assessment 
 made as above stated. If this be true there is nothing upon 
 which an attachment can fasten at any time prior to the as- 
 sessment. I apprehend this conclusion is sustained by spe- 
 cific authority which I now proceed to indicate : 
 
 The case of Chandler, Receiver, v. Siddle, a stock- 
 holder, lo Nat. Bank, Reg. Rep., 236, was an action at law 
 by a receiver of an insolvent insurance company against a 
 single stockholder, to collect eighty per cent., unpaid, of the 
 defendant's subscription to the capital stock of the com- 
 pany. The subscription contract provided for the payment 
 in installments, of twenty per cent, of the stock, and that 
 the balance should be subject to the call of the directors as 
 they may be instructed by a majority of the stockholders rep- 
 resented at any regular meeting. There was no call by the 
 directors, and the Receiver brought an action at law on the 
 contract to recover the eighty per cent, against one stock- 
 holder defendant. The Circuit Court of the United States 
 for the Southern District of Illinois, Miller, J., in dispos- 
 ing of the case, said on p. 238: "In this action at law, in 
 which neither the corporation nor its stockholders other than 
 the defendant are before the court, and in which the suit is 
 on the contract of subscription for the entire eighty per 
 cent, alleged to be due, I am of opinion, considering the 
 terms of that contract, and that no call or assessment is al- 
 leged, either by the company before the insolvency, or by 
 the court since, that the petition does not state a cause of 
 action. In other words, in this action at law on the contract 
 there must he a call or assessment, or something standing in 
 the place thereof and equivalent thereto, either by the com- 
 pany, or by a proper court in order to make the defendant 
 liable." 
 
 If there was not a cause of action, nothing to make the
 
 LANE'S APPEAL 927 
 
 defendant liable without an assessment, surely there could be 
 nothing to serve as the foundation of an attachment. For 
 the writ of attachment cannot create a liabilit}-. It can at 
 best appropriate a liability already existing. But if it already- 
 existed it could be enforced in the proceeding on the con- 
 tract. The attachment is also on the contract alone where 
 there has been no assessment, and must fall with the action 
 at law built upon the same foundation. * * *" 
 Decree affirmed.^ 
 
 ' The Court's further discussion of cases ilhistrating its position is 
 omitted. 
 
 *For cases in relation to the right of a judgment creditor of a 
 corporation to resort to the process of garnishment to obtain satis- 
 faction of his debts out of what is due by the stockholder to the 
 corporation on account of his debt, see Thompson on Corporations, 
 Edition of 1910, sec. 5843, notes ; also Amer. Dig. tit. Corporations. 
 Key No. 255. The remedy by process of garnishment has been extended 
 by statute. Thus in Alabama, section 2182, code of 1896, provides 
 that any judgment creditor of a corporation, having an execution 
 returned no property found, may by garnishment, subject the unpaid 
 subscription of an}' stockholder to the payment of his debts "without 
 regard to whether the corporation can maintain suit against the stock- 
 holder for each subscription or not." See Eiislen v. Nathan, 136 Ala. 
 412, 1902. 
 
 See, 0)1 the subject of creditors' bills generally, Thompson on Cor- 
 porations, Edition 1910, sec. 5083 and cases cited; also Amer. Dig. tit. 
 Corporations Kej' No. 259 (8). 
 
 On the rights of creditors to have receivers appointed see Thomp- 
 son on Corporations, Edition 1910, sec. 6351, and cases cited ; also 
 Amer. Dig. tit. Corporations, Key No. 556. 
 
 Compare ii>ith our principal case, Hatch v. Dana. loi U. S. 205, 
 1879. (Strong, J. : "This bill is an ordinary creditors' bill, the sole 
 object of which is to obtain payment of the complainant's judgment. It 
 is true it is brought on behalf of the complainant and all other creditors 
 of the corporation who might choose to come in and seek relief by it, 
 contributing to the expense of the suit. But no other creditors came in ; 
 and it does not appear that there is any other creditor, unless it be one 
 of the stockholders, who was made a defendant, and who hied a cross- 
 bill which he afterwards dismissed. All the stockholders were not 
 made defendants. 
 
 "The bill was not a bill seeking to wind up the company. It sought 
 simply payment of a debt out of the unpaid stock subscriptions. 
 
 "That unpaid stock subscriptions are to be regarded as a fund, 
 which the corporation holds for the payment of its debts, is an un- 
 deniable proposition. But the appellants insist that a creditor of an 
 insolvent corporation is not at liberty to proceed against one or more 
 delinquent subscribers to recover the amount of his debt, without an 
 account being taken of other indebtedness, and without bringing in 
 all the stockholders for contribution. They insist, also, that by the 
 terms of the subscriptions for stock made by these appellants they were 
 to pay for the shares set opposite their names respectively, 'as 
 called for by the said company ;' that the company made no calls for 
 more than thirty per cent. ; that, therefore, this company could not
 
 928 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 recover the seventy per cent, unpaid without making a previous call ; 
 and that a court of equity will not enforce the contract differently from 
 what was contemplated in the subscription. 
 
 "These positions, we think, are not supported by the authorities, — 
 certainly not by the more modern ones, — nor are they in harmony with 
 sound reason, when considered with reference to the facts of this case. 
 The liability of a subscriber for the capital stock of a company is 
 several, and not joint. By his subscription each becomes a several 
 debtor to the company, as much so as if he had given his promissory 
 note for the amount of his subscription. At law, certainly, his sub- 
 scription may be enforced against him without joinder of other sub- 
 scribers ; and in equity his liability does not cease to be several. A 
 creditor's bill merely subrogates the creditor to the place of the debtor, 
 and garnishes the debt due to the indebted corporation. It does not 
 change the character of the debt attached or garnished. It may be 
 that if the object of the bill is to wind up the affairs of this corpora- 
 tion, all the shareholders, at least so far as they can be ascertained, 
 should be made parties, that complete justice may be done by equalizing 
 the burdens, and in order to prevent a multiplicity of suits. But this 
 is no such case. The most that can be said is that the presence of all 
 the stockholders might be convenient, not that it is necessary. When 
 the only object of a bill is to obtain payment of a judgment against a 
 corporation out of its credits or intangible property, that is, out of its 
 unpaid stock, there is not the same reason for requiring all the stock- 
 holders to be made defendants. In such a case no stockholder can be 
 compelled to pay more than he owes.") 
 
 Pofts V. Wallace, 146 U. S. 689, 1892. (The A Co. made an assign- 
 ment to B for the benefit of creditors. B brought an action against 
 one William H. Wallace, a stockholder, for the full amount of his 
 subscription, no part of which had been paid. Shiras, J., in the course 
 of his opinion said: "Another ground of defence urged was that 
 the plaintiff had mistaken his remedy; that the proceeding to enforce 
 the liability of Wallace should have been by a bill in equity. 
 
 "We might dismiss this position by the observation that it does 
 not appear to have been taken by the defendant in his answer, or to 
 have been brought to the attention of the court at the trial. 
 
 "As, however, for other reasons, the case has to go back for 
 another trial, it may be well for us to briefly consider the merits of 
 the suggestion. 
 
 "It is undoubtedly true that, in Pennsylvania, in the case of an 
 insolvent corporation, its assets, including unpaid capital stock, con- 
 stitute a trust fund, and that such fund cannot be appropriated by indi- 
 vidual creditors, by means of attachments or executions directed against 
 particular assets, but should be distributed, on equitable principles, 
 among the creditors at large. 
 
 "Accordingly, it was ruled by the Supreme Court of Pennsylvania 
 in Lane's Appeal, 105 Penn. St. 49. and in Bell's Appeal, 105 Penn. 
 St. 88, cases cited by defendant's counsel, that a bill in equity is a 
 proper remedy whereby to subject the property of an insolvent cor- 
 poration to the claims of its creditors. 
 
 "Some general expressions were used in those opinions, cited in 
 the brief of defendant's counsel, which seem to countenance the propo- 
 sition that the only remedy in each case is by a bill in equity. But an 
 examination of the facts of the cases and of the reasoning of the 
 opinions clearly shows that what the court meant was that the pro- 
 ceeding must, in some form, be a remedy for all, and not for some, 
 of the creditors — that the remedy must be coextensive with the nature 
 of the property as a trust fund. 
 
 "That this is the proper reading of those cases is shown by the 
 later case of Citizens' Savings Bank v. Gillespie, 115 Penn. St. 564, 572. 
 That was the case of a suit brought by an assignee of an insolvent bank
 
 LANE'S APPEAL 929 
 
 for the benefit of creditors against a subscriber for stock remaining 
 unpaid, and the Supreme Court, per Paxson, C. J., said : 
 
 "'There being no assessment in evidence, the learned judge left 
 it to the jury to find w'hether the whole of the unpaid subscription was 
 required to pay the debts of the company. We see no error in this. 
 If the unpaid subscriptions were required to pay the creditors, no 
 assessment was necessary, under the authorit}^ of Yeager v. Scranton 
 Trust Company, (14 Weekly Xotes of Cases, 296.) * * * j^- ^y^s 
 there said that "the uncontradicted evidence shows that it was neces- 
 sary to collect the whole of this stock subscription in order to pay the 
 sums due the depositors of this insolvent corporation." There Js not 
 even an apparent conflict between the case referred to and the later 
 cases of Lane's Appeal. 105 Penn. St. 49, and Bell's Appeal, 115 Penn. 
 St. 88, 564. Those w-erc creditors' bills, filed against insolvent corpora- 
 tions, to compel the payment by the stockholders of their unpaid sub- 
 scriptions, and it was held that, in such cases, there must be an account 
 taken of the amount of debts, assets and unpaid capital, and a decree 
 for an assessment of the amount due by each stockholder. The reason 
 of this is plain. (Upon the insolvency of a corporation a stockholder 
 is liable for onh- so much of his unpaid subscription as may be re- 
 quired to pay the creditors. Hence, he may not be called upon in an 
 arbitrary way to pay any sum that an assignee or creditor may de- 
 mand. It is, therefore, requisite to ascertain, in an orderly manner, 
 the extent of the stockholders' liability before proceedings are com- 
 menced to enforce it. But the necessity for this does not exist when 
 the whole amount is required to pa\- the debts. Hence, /;/ such cases. 
 as was said in Yeager v. Scranton Bank, supra, an assessment is not 
 essential. The assignee may sue at once, for all is required.' 
 
 "At the trial in the present case (see page 27 of the record), the 
 counsel for the defendant consented to take the statement of the com- 
 pany's clerk, w'ithout contradicting it, that the assets of the company 
 appeared to be $250,000 and the liabilities $270,000 to $275,000. It was 
 not necessary, therefore, to have a preliminary assessment against Wal- 
 lace, as the jury could have found, under the concession of his counsel, 
 that the entire amount of his unpaid stock was necessary to meet the 
 indebtedness of the corporation, ^^'e understand the concession to 
 mean that the debts exceeded the assets, including. the unpaid subscrip- 
 tions of the defendant and the other stockholders. If we are wrong 
 in this, the defendant can show the facts, and invoke, if he be so 
 advised, the doctrine of The Savings Bank v. Gillespie, if, indeed, that 
 doctrine will avail him"). 
 
 A bill in equity would appear to be the only practical proceeding 
 where the creditor is himself a stockholder, if the substantive rights 
 recognized in the following case are to be wtorked out : 
 
 Blood V. La Serena Land and Jl'ater Co.. 150 Cal. 764, 1907. (A 
 was a creditor of a Company and also a stockholder. The amount due 
 by A on his stock exceeded the indebtedness of the Company to him. 
 A obtained a judgment against the Company for the amount due him. 
 and then proceeded against the v^ompany and his fellow stockholders 
 to recover from the latter their unpaid subscriptions and apply the same 
 in satisfaction of his judgment. Sloss, J.: "The just and equitable 
 rule appears to us to be that declared in Bissit v. Kentucky River Xar'i- 
 gation Co.. 15 Fed. 35.3. and IVilson v. Kiesel, 9 Utah, 397, [35 Pac. 488] 
 — i. e.. that in such case the plaintiff stockholder must contribute rat- 
 ably with the defendant stockholders toward the liquidation of his 
 demand against the corporation. This was the principle applied bv the 
 trial court as enunciated in the conclusion of law above nuoted. L^nde*- 
 it the court ascertained the total amount of the plaintiff's claim, and 
 apportioned the payment of that claim among the plaintiff and the de- 
 fendants in proportion to the amounts respectively due from them for 
 unpaid subscriptions.")
 
 930 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 COIT v. GOLD AMALGAMATING COMPANY. 
 In the Supreme Court of the United States, 1886. 
 
 119 United States Reports, 343. 
 
 This was a bill in equity against a corporation and its 
 stockholders to enforce a debt due from the former against 
 the latter. The case is stated in the opinion of the court. ^ 
 
 Mr. Justice Field: The defendant, the North Caro- 
 lina Gold Amalgamating Company, was incorporated under 
 the laws of North Carolina, on the 30th of January, 1874, 
 for the purpose, among other things, of working, milling, 
 smelting, reducing and assaying ores and metals, with the 
 power to purchase such property, real and personal, as might 
 be necessary in its business, and to mortgage or sell the 
 same. 
 
 The plaintiff is the holder of a judgment against the 
 company for $5489, recovered in the Court of Common 
 Pleas of Philadelphia, on the i8th of May. 1879, upon its 
 two drafts, one dated June ist, 1874, and the other August 
 15th, 1874, each payable four months after its date. Unable 
 to obtain satisfaction of this judgment upon execution, and 
 finding that the company was insolvent, the plaintiflf brought 
 this suit to compel the stockholders to pay what he claims to 
 be due and unpaid on the shares of the capital stock held 
 by them, alleging that he had frequently applied to the 
 ofificers of the company to institute a suit for that purpose, 
 but that under various pretences they refused to take any 
 action in the premises. 
 
 By its charter the minimum capital stock was fixed at 
 $100,000 divided into 1000 shares of $100 each, with power 
 to increase it from time to time, by a majority vote of the 
 stockholders, to two million and a half of dollars. The char- 
 ter provided that the subscription to the capital stock might 
 
 * The Reporter's notes of the arguments of counsel are omitted.
 
 COIT V. GOLD AMALGAMATING COMPANY 931 
 
 be paid "in such instalments, in such manner and in such 
 property, real and personal," as a majority of the corpora- 
 tors might determine, and that the stockholders should not 
 be liable for any loss, or damages, or be responsible beyond 
 the assets of the company. 
 
 Previously to the charter, the corporators had been en- 
 gaged in mining operations, conducting their business under 
 the name and title which they took as a corporation. Upon 
 obtaining the charter, the capital stock was paid by the prop- 
 erty of the former association, which was estimated to be 
 of the value of $100,000, the shares being divided among 
 the stockholders in proportion to their respective interests in 
 the property. Each stockholder placed his estimate upon 
 the property; and the average estimate amounted to 
 $137,500. This sum they reduced to $100,000, inasmuch as 
 the capital stock was to be of that amount. 
 
 The plaintiff contends, and it is the principal basis of 
 his suit, that the valuation thus put upon the property was 
 illegally and fraudulently made at an amount far above its 
 actual value, averring that the property consisted only of a 
 machine for crushing ores, the right to use a patent called 
 the Crosby process, and the charter of the proposed organi- 
 zation ; that the articles had no market or actual value, and, 
 therefore, that the capital stock issued thereon was not fully 
 paid, or paid to any substantial extent, and that the holders 
 thereof were still liable to the corporation and its creditors 
 for the unpaid subscription. 
 
 If it were proved that actual fraud was committed in 
 the payment of the stock, and that the complainant had 
 given credit to the company from a belief that its stock was 
 fully paid, there would undoubtedlv be substantial ground 
 for the relief asked. But where the charter authorizes capital 
 stock to be paid in property, and the shareholders honestly 
 and in good faith put in property instead of money in pay- 
 ment of their subscriptions, third parties have no ground of 
 complaint. The case is very different from that in which 
 subscriptions to stock are payable in cash, and where only
 
 932 LIABILITY OF ORIGINAT. SHAREHOLDERS 
 
 a part of the instalments has been paid. In that case there 
 is still a debt due to the corporation, which, if it becomes 
 insolvent, may be sequestered in equity by the creditors, as a 
 trust fund liable to the payment of their debts. But where 
 full paid stock is issued for property received, there must 
 be actual fraud in the transaction to enable creditors of the 
 corporation to call the stockholders to account. A gross 
 and obvious overvaluation of property would be strong 
 evidence of fraud. Boynton v. Hatch, 47 N. Y. 225 ; Van 
 Cott V. Van Brunt, 82 N. Y. 535 ; Carr v. Le Fevrc, 27 
 Penn. St. 413. 
 
 But the allegation of intentional and fraudulent under- 
 valuation of the property is not sustained by the evidence. 
 The patent and the machinery had been used by the corpora- 
 tors in their business, which was continued under the charter. 
 They were immediately serviceable, and therefore had to 
 the company a present value. The corporators may have 
 placed too high an estimate upon the property, but the court 
 below finds that its valuation was honestly and fairly made ; 
 and there is only one item, the value of the chartered privi- 
 leges, which is at all liable to any legal objection. But if 
 that were deducted, the remaining amount would be so near 
 to the aggregate capital, that no implication could be raised 
 against the entire good faith of the parties in the trans- 
 action.^ 
 
 Judgment affirmed.^ 
 
 'The remainder of the opinion, relating to alleged liability on stock 
 issued after the plaintiff had extended credit is omitted. 
 
 * For cases in accord, see Thompson on Corporations, Edition of 
 rgio, §4937, note 24; also Amer. Dig., tit. Corporations, Key No. 
 
 232 (3)- 
 
 Compare with our principal case. 
 
 Dieterle v. Ann Arbor Paint and Enamel Co.. 143 Mich. 416, 1906. 
 (The A Co. was insolvent. Alembers of the A Co. paid for their sub- 
 scriptions to the shares of the B Co. in stock of the A Co. Held, that 
 such payment was no defense by stockholders of the B Co. sued by a 
 creditor' of the B Co to enforce their liability as subscribers.) 
 
 Hobgood v. Ehlen, 141 N. C. 344, 1906. (A statute of Delaware 
 provides : "Any corporation existing under any law of this State may 
 issue stock for labor done or personal property or real estate or leases 
 thereof: in the absence of fraud in the transaction, the judgment of the 
 directors as to the value of such labor, property, real estate or leases
 
 COIT V. GOLD AMALGAMATING COMPANY 933 
 
 shall be conclusive." The value of the property in the business of A 
 and B was $896.63. A, B, and C organized a Company under the laws 
 of Delaware with a capital of $100,000; the directors valued the prop- 
 erty of A and B, at $100,000; took over the business of A and B and 
 issued the entire capital stock therefore. Held, that the jury were 
 justified in drawing the conclusion that there was actual fraud on the 
 part of the directors.) 
 
 Lester v. Bemis Lumber Co., 71 Ark. 379, 1903. (A statute per- 
 mitted subscription to stock to be paid in property. A paid for his 
 subscription in the B Co. by stock in the C Co. Held, that as one 
 compan}' in the State could not hold stock in another compan}i, there 
 was no payment for the stock, although had the B Co. realized any- 
 thing on the stock A could be credited with the amount realized, and 
 that A was liable to a creditor of the Company for the full value of 
 the stock.) 
 
 See V. Heppenheimer, 69 N. J. Eq. 36, 1905. (A statute of New 
 Jersey authorized stock of corporations to be issued for property. 
 B et al., each owned separately straw paper mills, the total value of 
 which was about $2,200,000. A and B, et al., entered into a transaction, 
 the final result of which was that a Company was formed, the mills 
 were acquired by the Company, the property mortgaged by the Com- 
 pany for $1,000,000, and $5,000,000 of stock issued against the property. 
 The stock and bonds were distributed between A and B, et al.. the idea 
 of the promoters being than in estimating the value of the mill proper- 
 ties, as the new corporation was going to run these properties, the value 
 of the good will of the different businesses, and the prospective profits 
 of the new' Company due to the savings to be effected and the monopoly 
 acquired by running the different mills as one business, could be valued 
 as property against which, under the statute, stock could be issued. The 
 Court refused to regard either as property, and held, that the stock 
 had been issued at an inflated value, and that the creditors of the 
 Company could force the holders to pay the difference.")
 
 934 LIABILITY OL ORIGINAL SHAREHOLDERS 
 
 WINSTON V. THE DORSETT PIPE & PAVING CO. 
 In the Supreme Court of Illinois^ 1889. 
 
 129 Illinois Reports, 64/ 
 
 t 
 
 Mr. Justice Magruder: This is a bill filed by the ap- 
 I^ellant, F. H. Winston, as a stockholder in the Dorsett Pipe 
 and Paving Company, a corporation organized under the 
 laws of this State, against said company, and its creditors, 
 and the other stockholders, all of whom are parties defendant 
 to this proceeding. The bill seeks the dissolution of the 
 corporation, the appointment of a receiver, the sale of the 
 corporate assets, the assessment of the shareholders, and the 
 payment of the creditors. 
 
 The company was organized in 188 1 with an authorized 
 capital of $125,000.00, divided into shares of $100.00 each. 
 Among the original subscribers to the stock, who participated 
 in the organization, were the following persons, whose sub- 
 scriptions were as follows : F. H. Winston, 50 shares, 
 $5000.00; Joseph Stockton. 100 shares, $10,000.00; M. S. 
 Chase, 100 shares, $10,000.00; I. S. Waterman, 100 shares, 
 $10,000.00; I. S. Waterman, trustee, 637 shares, $63,700.00. 
 W^aterman died before the filing of the bill, and his executors 
 were defendants in the court below. The only appellants in 
 this case are F. H. Winston, the complainant, and Stockton 
 and Chase, two of the defendants. The appellees, who are 
 chiefly interested in the controversy, are the executors of 
 AA'aterman's estate. None of the creditors, and none of the 
 stockholders, except the three appellants, complain of the 
 decree of the Circuit Court. 
 
 The decree assesses the whole amount of indebtedness, 
 found to be due. against all the stock, subject to assessment, 
 except that known as the "Waterman trustee stock." 
 amounting originally to 637 shares. It is only this feature 
 
 ' The Reporter's notes of the arguments of counsel are omitted.
 
 WINSTON V. THE DORSETT PIPE & PAVING CO. 935 
 
 of the decree which the appellants complain of. They claim 
 that the trustee stock should have been made to bear its pro 
 rata share of the indebtedness, and that, by the failure of the 
 court below to assess it, along with the rest of the stock, 
 they are compelled to contribute more than their fair pro- 
 portions towards the discharge of the debts of the com- 
 pany. 
 
 The original subscribers to the stock, besides those al- 
 ready named, were D. H. Dorsett, 250 shares, $25,000.00; 
 I. P. Ellacott, 10 shares, $1000.00; F. S. Winston, Jr., 3 
 shares, $300.00. After 613 of the 1250 shares had been 
 subscribed for, there was nobody to take the remaining 637 
 shares. It was deemed advisable to organize the corporation 
 at once, and to proceed with the business as soon as possible. 
 Under the statute a certificate of organization could not be 
 obtained from the Secretary of State, until the capital stock 
 should be fully subscribed. Accordingly it was suggested, 
 at the gathering of the original subscribers above named, 
 and while they were engaged in signing their names to the 
 subscription paper, that Waterman, who was the prime 
 mover and chief promoter of the scheme, should subscribe 
 for the 637 shares, as trustee. In pursuance of this sug- 
 gestion he signed the list: "I. S. Waterman, trustee, 637 
 shares, $63,700." The caption of the paper, so signed by 
 him and the others, is as follows : "We, the undersigned, 
 hereby severally subscribe, for the number of shares set op- 
 posite our respective names, to the capital stock of the Dor- 
 sett Pipe and Paving Company, and we severally agree to 
 pay the said company for each share the sum of one hundred 
 dollars." 
 
 There is some uncertainty expressed by some of the wit- 
 nesses as to the persons, for whom Wateniian was acting as 
 trustee when he so signed his name. We deem it unneces- 
 sary to consider whether he was technically a trustee for the 
 corporation, or for the stockholders, or for the future distrib- 
 utees of the stock. After a careful examination of all the 
 evidence we are satisfied, that there was a definite under- 
 standing between him and the other subscribers, as to the
 
 936 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 purpose for which he took the stock, and as to the nature of 
 the Habihty, which he assumed thereby. It was understood, 
 that, after the report should be made to the Secretary of 
 State, and the complete organization of the corporation 
 should be effected, Waterman should go to work to dispose 
 of the stock to third parties, and that the other stockholders 
 should help him to so dispose of it. As between him and his 
 co-stockholders, he was not to be liable upon the stock, and 
 was not to be required to pay assessments upon it. It was 
 explained to him and he was fully aware, that, as between 
 him and creditors of the company, he would be held liable 
 upon his subscription for the 637 shares. * * * *2 
 
 As between the creditors of the company and Water- 
 man, he must be regarded as a subscriber for the 637 shares. 
 The fact that he placed the word, "trustee" after his name 
 would make no difference in his liability to the creditors. 
 "Where shares are held by a person as trustee for another, the 
 legal holder of the shares, and not the equitable owner, is 
 primarily liable both to the company and to its creditors." 
 (2 Morawetz on Corp. sec. 853.) Appellees admit that the 
 estate of Waterman is liable to be assessed upon the shares 
 held by him as trustee, if such assessment becomes necessary 
 in order to pay the debts of the corporation. The rights of 
 the creditors in this regard are recognized by the decree of 
 the trial court. 
 
 But, in view of the understanding among the stock- 
 holders that the trustee stock should not be subject to assess- 
 ment as between Waterman and the original subscribers, the 
 Circuit Court, by its decree, makes an assessment against the 
 stock, other than the trustee stock, reserving the right to 
 make further assessments if the same shall be needed. The 
 decree provides that "in case money enough cannot be 
 realized from the assessments upon the stock, which is liabel 
 to contribute to and be assessed as aforesaid for the pay- 
 ment of the valid debts and obligations of the said corpora- 
 tion, then the said executors of said James S. Waterman, 
 deceased, shall be required to pay also, upon the said stock 
 
 *The Court's examination of some of the testimony is omitted.
 
 WINSTON V. THE DORSETT PIPE & PAVING CO. 937 
 
 taken by James S. Waterman as trustee, such sum as may 
 be necessary to pay said deficiency." The executors are 
 assessed upon the $10,000.00 of stock, subscribed for by 
 Waterman individually. 
 
 We cannot see why, under the facts disclosed by this 
 record, the decree of the court below is erroneous in hold- 
 ing, that the trustee stock should not be assessed prinTarily 
 and in the first instance, as between these three appellants 
 and the Waterman estate. The decree does not require 
 the appellants to pay more than they owe. Neither of them 
 ever paid his subscription to the capital stock in full. Unpaid 
 subscriptions to the capital stock of a corporation constitute 
 a trust fund, which may be subjected to the payment of the 
 debts, like any other asset. The assessments made by the 
 present decree against the appellants respectively do not 
 exceed, or equal, the several amounts due from them upon 
 their unpaid subscriptions. There is no hardship in requir- 
 ing them to carr}^ out the arrangement as to the trustee 
 stock, made with Waterman in their presence and with their 
 consent, and of which they reaped the benefit by a speedy 
 organization of the Pipe and Paving Company. 
 
 In most of the cases, where subscriptions to the capital 
 stock of corporations have been condemned, as being con- 
 ditional, or accompanied by secret or qualifying agreements, 
 the rights of creditors or stockholders have been prejudiced. 
 Creditors are entitled to look to the stock as it appears upon 
 the face of the subscription list. Each stockholder has a 
 vested right in the contract for subscription of every other 
 stockholder. In the case at bar, no creditor is injured, 
 and no creditor is complaining. The appellant stockholders 
 cannot object to the release of stock, which they permitted 
 to be subscribed for with the understanding that, so far 
 as they themselves were concerned, it should be released. 
 We are of the opinion that the Appellate Court committed 
 no error in affirming the decree of the Circuit Court. 
 
 The Judgment of the Appellate Court is, therefore, 
 affirmed. 
 
 Judgment affirmed.
 
 938 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 FIRST NATIONAL BANK OF DEADWOOD 
 
 V. 
 
 GUSTIN MINERVA CONSOLIDATED MINING CO. 
 In the Supreme Court of Minnesota, 1890. 
 
 42 Minnesota Reports, 327. 
 
 Mitchell, J. This action was brought upon a debt of 
 the defendant company, a corporation organized under the 
 laws of Dakota territory, and against the other defendants, 
 citizens of this state, as stockholders, to obtain judgment 
 against the company for the amount of the debt, and against 
 the other defendants for the respective amounts alleged to 
 be due and unpaid on the stock held by them, so far as 
 necessary to satisfy the judgment against the corpora- 
 tion. * * * ^ 
 
 The findings of fact, so far as here material, are, in sub- 
 stance, as follows: Prior to November 13, 1886, there had 
 been organized, and were at that date in existence, under 
 the laws of Dakota, two mining corporations, viz., the Gustin 
 Belt Gold Mining Company, and the Minerva Mining Com- 
 pany, of the latter of which the plaintiff, a national banking 
 association of Deadwood, Dak. was a creditor. On the date 
 named the defendant corporation was organized for the pur- 
 pose and with intention of consolidating the other two com- 
 panies, acquiring their property, and with the property so ac- 
 quired carrying on a general mining business. "At the time 
 of the organization of the defendant company, and as the 
 scheme on which the same was based, it was agreed by the 
 parties so incorporating, and by those representing and hav- 
 ing authority to act for the two existing companies, that all 
 the mines and mining property of such two corporations 
 should, upon its organization, be transferred and conveyed 
 to the new. or defendant, company, and constitute its en- 
 
 ' The Court's discussion of certain matters of practice are omitted.
 
 NATIONAL BANK v. MINING CO. 939 
 
 tire capital stock and resources for the prosecution of its 
 enterprise, and be represented in such organization by a 
 nominal capital stock of $2,500,000, divided into 250,000 
 shares, of $10 each, which should all be deemed and held 
 as represented by the properties so conveyed to it ; that 
 50,000 of said shares should be issued to the former share- 
 holders of each of the two old companies, and the remain- 
 ing 150,000 shares belong to and constitute the working 
 capital of the new corporation, and be sold under its au- 
 thority, and on such terms as it should direct; and the 
 proceeds of such sales constitute a fund to pay off the debts 
 on the properties, and develop the mines thereon, and be 
 used generally in the prosecution of the business of the 
 new corporation, for the benefit of all its stockholders. That 
 it was never expected or intended by such corporation, or by 
 those to whom its stock was issued, that any subscription 
 to the capital stock of the new company should ever be made, 
 or that any capital stock should ever be taken, or any capital 
 subscribed for or paid in, except by conveyance to it of the 
 mining properties referred to, and the sale of the stock 
 reserved for its working capital, in open market, for such 
 sum as could be obtained therefor." This scheme was car- 
 ried into effect by the conveyance to the new or defendant 
 corporation of the properties of the two old corporations, 
 and the issue to their stockholders, according to their respec- 
 tive holdings, of 100,000 shares of the stock of the new 
 company (called in the findings "Old Company Stock") as 
 paid-up stock, and by placing the remaining 150,000 in 
 charge of the board of directors, to be by them sold in the 
 open market for such price per share (not less than 50 cents) 
 as could be obtained therefor. The mining properties of the 
 two old companies conveyed to the new company were not 
 worth to exceed $50,000 cost, and were at the time of this 
 scheme of consolidation considered and estimated as of the 
 aggregate value of $100,000. The new and defendant com- 
 pany assumed payment of the indebtedness of the Alinerva 
 Mining Company to the plaintitl, which consented to a
 
 940 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 novation of its debt, accepting the notes of the defendant 
 company in place of those of the old Minerva Company. 
 This is the claim upon zvhich this action is brought. The 
 court also finds "that the payees in said notes named, and 
 the general managing officer of the plaintiff, well knew, 
 at the time of the execution of said notes and of their in- 
 dorsement and delivery to the plaintiff, all the facts herein- 
 before stated, relating to the organization of the defendant 
 corporation and the understanding and plan of its organiza- 
 tion, and so dealt with the defendant knowing such matters, 
 and were parties to and interested in the original scheme of 
 the incorporation of the defendant company as in the find- 
 ings set forth." This must be construed as meaning that the 
 "general managing officer" referred to is the person who 
 transacted the business with the defendant company in tak- 
 ing these notes, and of the benefit of whose action in that 
 regard the plaintiff has availed itself. Notice to him must be 
 deemed notice to the plaintiff. 
 
 Returning, now, to the subsequent management of the 
 affairs of the defendant company, the board of directors, 
 pursuant to the scheme of organizrtion, offered for sale in 
 the open market the 150,000 shares remaining in the 
 treasury, as fully paid-up stock, and some of it was bought as 
 such by the other defendants in good faith, for a price ex- 
 ceeding its fair market value, (but not exceeding one dollar 
 per share,) believing it to be fully paid-up stock. This is 
 called in the findings "Treasury Stock." The holders of 
 the old company stock also placed their stock in the market, 
 some of which the defendants also bought, under like cir- 
 cumstances and in the same belief. In March, 1887, the 
 board of directors, pursuant to a resolution adopted by them, 
 distributed pro rata among the individual shareholders all 
 the stock remaining unsold in the treasury. Of this the in- 
 dividual defendants received their respective shares, for 
 which they paid nothing. This is called in the findings 
 "Pro rate Stock." The court also finds that none of such 
 defendants ever contracted, promised, or in any manner
 
 NATIONAL BANK v. MINING CO. 941 
 
 agreed, or intended to contract, promise, or agree, to pay, on 
 account of such stock, any other or different or greater sum 
 or consideration, unless the law would impose or imply such 
 promise, contract, or agreement from the foregoing facts 
 The holdings of the defendants consist, in part, of old com- 
 pany stock, in part of treasury stock, and in part of private 
 stock. 
 
 The contention of the plaintiff is that the defendant 
 shareholders are individually liable, as for unpaid stock sub- 
 scriptions, for amounts equal to the amount of their stock, 
 less the value of what they have actually paid therefor, viz., 
 nine dollars per share on the old company and treasury stock, 
 for which they paid in value only one dollar per share, and 
 ten dollars per share on the pro rate stock, for which they 
 paid nothing. If these stockholders were indebted to the 
 corporation for unpaid instalments on stock, this debt would 
 be an asset of the corporation which, in case it became in- 
 solvent, any creditor might always enforce for the purpose 
 of satisfying his claim. But it is very clear from the facts 
 that the defendant company has no claim against the de- 
 fendant stockholders. They owe it nothing. As between 
 them and it, the arrangement by which this stock was issued 
 and sold, or given away, as fully paid stock, is entirely valid. 
 But the plaintiff bases its claim upon the familiar doctrine 
 that the capital stock of a corporation is a trust fund for the 
 benefit of its creditors, and that, if shares are not in fact 
 paid up, an arrangement between the corporation and the 
 shareholders that they shall be deemed paid up, although 
 valid between the company and the stockholder, will be in- 
 effectual as to creditors, and that equity will hold the share- 
 holder liable for the amount not in fact paid on his stock, to 
 the extent necessary to satisfy the demands of creditors. We 
 waive consideration of the question (which may, at least, 
 admit of doubt) whether plaintiff's complaint is sufficient to 
 entitle it to such relief. See Phelan v. Hazard, 5 Dill. 45 ; 
 Cook, Stocks, § 47; Scovill v. Thayer, 105 U. S. 143. 
 
 The general proposition advanced by plaintiff cannot be
 
 942 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 controverted, but the principle upon which this trust in favor 
 of creditors rests and is administered must not be overlooked. 
 The whole doctrine that the capital stock of corporations is 
 a trust fiund for the payment of creditors rests upon the 
 equitable consideration that the distribution of the capital 
 among stockholders without making adequate provisions for 
 the payment of debts, or the issue of fictitiously paid-up 
 stock, is a fraud upon creditors who contract with the cor- 
 poration in reliance upon its capital remaining intact, or in 
 reliance upon the professed capital having been in fact paid 
 up in full. But when the reason for the rule does not exist 
 the rule itself ceases to apply. This trust does not arise 
 absolutely in every case, in favor of every and atiy creditor. 
 It is not true, and no case can be found which holds that it 
 is in the power of a creditor in every and all cases, as a mat- 
 ter of right, to institute an inquiry as to the value or amount 
 of the consideration given for stock issued as fully paid up, 
 any more than that it would be his right, in any and every 
 case, to inquire into the distribution of the capital among 
 the shareholders. It is only those creditors who can fairly 
 allege that they have relied, or whom the law presumes to 
 have relied, upon the amount of capital stock of the com- 
 pany, who have a right to make such inquiry, or in whose 
 favor equity will impress a trust upon the subscription to 
 the stock, and set aside a fictitious arrangement for its pay- 
 ment. For example, to distribute the capital among the 
 shareholders without provision for paying corporate debts 
 would be a fraud on existing creditors, as well as on such 
 subsequent creditors as deal with the corporation in reliance 
 upon the assumption that its professed capital remains in- 
 tact. An illustration of this kind is to be found in the very 
 first case in which what is now called the "American doc- 
 trine" was announced by Justice Story. We refer to the case 
 of Wood V. Diimmcr, 3 Mason, 308, where a banking as- 
 sociation distributed three-fourths of its capital among its 
 shareholders without providing for the payment of bill- 
 holders, and the court impressed a trust in their favor upon
 
 NATIONAL BANK v. MINING CO. 943 
 
 the capital in the hands of the shareholders. So, again, 
 where corporations have organized and engaged in business 
 with a certain amount of ostensible and professed paid-up 
 capital, but which was not in fact paid in, there are numerous 
 cases in which the courts have set aside the arrangement by 
 which the stock was called "paid-up." and impressed a trust 
 upon the subscription of the shareholder in favor of' sub- 
 sequent creditors who relied upon, or whom the law would 
 presume to have relied upon, the apparent and professed 
 amount of capital. To this class belong many of the cases 
 cited by plaintiff, as, for example, Scnvyer v. Hoag, ly Wall. 
 6io; Wetherhee v. Baker, 35 N. J. Eq. 501. 
 
 While the courts have not always had occasion to state 
 the limitations upon the doctrine that "the capital is a trust 
 fund for the benefit of creditors," yet we think that it will 
 be found that in every case where they have impressed a 
 trust upon the subscription of the shareholders, it has been 
 in favor of creditors becoming such afterwards, and hence 
 fairly to be presumed as relying upon the amount of capital 
 which the company was represented as having. We are 
 referred to none, and have found none, where any such 
 trust has been enforced in favor of creditors who have dealt 
 with the corporation with full knowledge of the facts. The 
 reason is apparent, for in such cases no fraud, actual or 
 constructive, has been committed on such creditors. If a 
 corporation issue new shares after the claim of a creditor 
 arose, it is clear that the latter could not have dealt with the 
 company on the faith of any capital represented by them. 
 Whatever was contributed as capital in respect of the new 
 shares was a clear gain to the creditor's security. So, too. 
 if a party deals with a corporation with full knowledge of 
 the fact that its nominal paid-up capital has not in fact been 
 paid for in money or property to the full amount of its par 
 value, he deals solely on the faith of what has been actually 
 paid in, and has no equitable right to insist on the contribu- 
 tion of a greater amount of capital by the shareholders than 
 the corporation itself could claim as part of its assets. Coit
 
 944 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 V. Gold Amalgamating Co., 14 Fed. Rep. 12, same case 119 
 U. S. 343, (7 Sup. Ct. Rep. 231.) This doctrine with 
 respect to trusts has no appHcation to a case where a party, 
 like the plaintiff, was cognizant of the whole arrangement 
 under which the stock of the defendant company was issued, 
 and of what was paid or intended to be paid for it, and who 
 accepted a novation of its debt with full knowledge of these 
 facts, and received as great or greater security for it than 
 it had before. To hold otherwise would be to perpetrate a 
 fraud on the stockholders, and not on the creditors. 
 
 These views effectually dispose of the question of the 
 liability of the defendants, at least on account of their old 
 company and treasury stock. We think it also logically fol- 
 lows from what we have said that the defendants are not 
 liable to the plaintiff upon their "pro rate" stock as for un- 
 paid stock subscriptions. This stock had not been issued when 
 plaintiff's debt was contracted. It could not have dealt with 
 the company on the faith of any capital represented by these 
 shares. In fact, it knew that no such capital had been paid 
 in, unless the mining properties of the two old companies 
 can be considered as represented in part by them ; and the 
 value of these properties remained the same, and they were 
 equally available to creditors, whether represented by 
 100,000 shares or 250,000 shares of stock. Under such cir- 
 cumstances, the plaintiff has no equitable right to insist on 
 the contribution of a greater amount of capital by the holders 
 of these shares than the corporation itself could insist on. 
 2 Mor. Priv. Corp. §§ 832, 833. 
 
 Judgment affirmed.^ 
 
 * For other cases in accord with the proposition that the creditor's 
 knowledge that stock is not to he paid in full presents recoi'ery, see 
 Thompson on Corporations, Edition of 1900, §5022. Compare: cases 
 ibid.. §5028. 
 
 For cases Iiolding that creditors zvho extended credit to the cor- 
 poration prior to the issue of watered stock cannot recover from the 
 holders of such stock, see Thompson on Corporations, Edition 1910, 
 §5021. note 92. 
 
 Compare with our principal case: East on National Bank v. Ameri- 
 can Brick and Tile Co., 70 N. J. Eq. 732, 1905. (A statute provided 
 that "where the wtiole capital of a corporation shall not have been paid
 
 NATIONAL BANK v. MINING CO. 945 
 
 in, and the capital paid shall be insufficient to satisfy the claims of its 
 creditors, each stockholder shall be bound to pay on each share held 
 by him the sum necessary to complete the amount of such share, as 
 fixed by the charter of the company, or such proportion of that sum 
 as shall be required to satisfy the debts of the company." A Company 
 was organized and issued "full paid" stock, where this was not the case 
 in fact, A received some of the stock and subsequently became a 
 creditor of the Company. Held, that A w^s not debarred from par- 
 ticipating as a creditor in proceedings taken to enforce the liability of 
 delinquent creditors. Pitney, J. : "This brings us to a consideration 
 of the grounds upon which the learned vice-chancellor denied the re- 
 ceiver's prayer for relief so far as the Green claims are concerned. 
 There is a line of reported cases holding that stockholders who parti- 
 cipate or aid in the issue of paid-up stock upon payment of less than its 
 par value, or who have knowledge of the act and acquiesce therein, can- 
 not afterwards complain of the transaction, either as stockholders or 
 as creditors. Some of these are cited in Cook Stock, §39, referred to 
 in the opinion of the vice-chancellor. Others will be cited below. So 
 far as we have observed, however, all well-considered decisions that 
 adopt this doctrine are based upon general principles of equity, in the 
 absence of any controlling statute or public policy, resort being had 
 alone to the 'trust fund theory' as a basis for the stockholder's liability 
 to creditors. * * * But so far as this so-called 'trust fund doc- 
 trine' excludes any creditors from relief against the stockholders, it 
 does so on the theory that the liability of the latter rests alone upon 
 their having held out the capital of the company to persons extending 
 credit to it as the source from which repayment might be expected. If 
 this be the only foundation of the stockholder's liability, it is perhaps 
 not irrational to debar creditors whose claims accrued prior to the 
 stock issue in question, and subsequent creditors who had notice when 
 they extended credit that the stock issue did not represent in whole 
 or in part what it purported to represent — that is, an equivalent amount 
 in value added to the assets of the company. 
 
 "But in this state the stockholders' liability to creditors does not 
 depend alone or chiefly upon the theory of 'holding out.' It depends 
 upon the stockholders voluntary acceptance, for consideration touch- 
 ing his own interest, of 'a statutory scheme to which watered stock, 
 under whatever device issued, is absolutely alien, and which requires 
 stock subscriptions to be made good for the benefit of creditors of 
 insolvent companies, without distinction between prior and subsequent 
 creditors, or between creditors who had notice and those who had 
 none.")
 
 946 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 HANDLEY v. STUTZ. 
 
 In the Supreme Court of the United States, 1891. 
 
 139 United States Reports, 417. 
 
 The Clifton Coal Company at the time of its organiza- 
 tion had a capital of $120,000, divided into shares of $100 
 each, with power to increase its capital to $200,000. Being 
 led to believe that its coal would coke, and, therefore, its 
 products could be profitably extended from grate and steam 
 purposes to iron-making coke, and needing money to make 
 the necessary changes in the plant, the Company decided to 
 issue $50,000 worth of bonds, secured by a trust mortgage. 
 Finding that the bonds were unsalable, the Company de- 
 cided to increase its capital stock to $200,000, and offer to 
 the purchasers of the bonds, as a bonus, an equal amount of 
 the new stock. This plan was carried out, each purchaser 
 of a $1,000 bond receiving ten shares of new stock, the re- 
 ceipts reciting that the stock "was issued with bonds for the 
 same amount, as per agreement." The certificates, on their 
 face, recited that the shares of stock were fully paid up "and 
 were non-assessable." 
 
 The remaining $30,000 shares of increased stock, which 
 were not needed to secure the subscribers to the bonds, ap- 
 peared to have been distributed pro rata among the old stock- 
 holders. In the latter part of 1887, and in the early part of 
 the following year, plaintiffs obtained judgments against 
 the company, which were unsatisfied, and in September, 
 1887, by an order of the Circuit Court of Hopkins County, 
 Kentucky, the entire property of the company was placed 
 in the hands of a receiver, and its operations stopped. 
 
 On Februai-y 8, 1889, this bill was filed against the coal 
 company and the holders of this increased stock, to compel 
 payment therefor, and to recover the amounts of the judg- 
 ments against the company. The court dismissed the bill as 
 to three of the defendants not served with process, and as to
 
 HANDLEY r. STUTZ 947 
 
 the rest held them liable to all the creditors of the Company 
 whose debts originated after the alleged increase of stock, 
 and fixed May, 1886, as the date of such increase. As to 
 debts contracted prior to that date, they were excluded be- 
 cause, as between the company and the stockholders, the lat- 
 ter held such stock properly, and without liability to the com- 
 pany, and all creditors who dealt with the company prior to 
 such increase, and not upon the faith of such stock, had no 
 equity to demand more than the company itself could. Five 
 of the defendants against whom decrees were rendered in 
 excess of $5000 appealed to this court, and the Circuit 
 Court suspended the execution of the decree as to those who 
 could not appeal, until this court should determine the rights 
 of the appellants. 
 
 The opinion of the Circuit Court is reported in 41 Fed. 
 Rep. 531.1 
 
 Mr. Justice Brown : ^ So far as the question of liability 
 to the proposed assessments is concerned, these defendants, 
 with respect to their relations to this corporation, are divi- 
 sible into two distinct classes : First, those of the original 
 stockholders who received the $30,000 increased stock as a 
 gift; second, those who subscribed to the $50,000 bonds, and 
 received an equal amount of stock, as a bonus or inducement 
 to make the subscription. * ♦ *3 
 
 Somewhat different conditions apply to those who sub- 
 scribed for the bonds of the company, with the understand- 
 ing that they were to receive an amount of stock equal to the 
 bonds as an additional inducement to their subscription. The 
 facts connected with this transaction are substantially as fol- 
 lows : Some three years after the company was organized it 
 
 ' The facts are restated. 
 
 ' The Court's discussion of certain questions pertaining to the 
 action taken at the meeting of stockholders which authorized the in- 
 crease is omitted. 
 
 ' The Court's discussion of the HabiHty of the original stockholders 
 in so far as they had received part of the stock increase is omitted. 
 The Court held that such stockholders were liable for the full value 
 of the stock to creditors who had given credit to the Company after 
 the increase.
 
 948 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 became apparent that the enterprise, as originally contem- 
 plated, namely, the mining and selling of coal for steam and 
 domestic purposes, was not likely to be a success, owing to 
 the inferior character of the product; and the only hope of 
 the company lay in the manufacture of the coal into an iron- 
 making coke, that is, a coke containing a percentage of 
 sulphur low enough to admit of the manufacture of mer- 
 chantable pig iron. To embark in this, however, money was 
 needed, and as the stock of the company was «ot worth more 
 than 50 cents on the dollar, it was evident this could not be 
 effected simply by the issue of new stock. It was proposed 
 at the meeting in March that money should be raised by the 
 issue of $50,000 of bonds, with which to add the requisite 
 structures to the plant. But it was soon evident that the 
 bonds could not be negotiated without the stock, and, acting 
 upon the suggestion of a Nashville banker, it was resolved 
 at the meeting in May that the stock should be increased 800 
 shares, 500 of which should be turned over to the sub- 
 scribers to the bonds, as a bonus or an additional considera- 
 tion. The evidence is uncontradicted that the bonds could 
 not have been negotiated without the stock; that they were 
 both sold as a whole ; that the transaction was in good faith, 
 and, considering the risk that was taken by the subscribers, 
 the price paid for the stock and bonds was fair and reason- 
 able. The directors appear to have done all in their power 
 to obtain the best possible terms, and there is no imputation 
 of unfair dealing on the part of any one connected with the 
 transaction. At that time the mines and property of the 
 company were in good condition, and the prospects of suc- 
 cess were fair. 
 
 The case then resolves itself into the question whether 
 an active corporation, or as it is called in some cases, a 
 "going concern," finding its original capital impaired by loss 
 or misfortune, may not, for the purpose of recuperating 
 itself and providing new conditions for the successful prose- 
 cution of its business, issue new stock, put it upon the mar- 
 ket and sell it for the best price that can be obtained. The
 
 HANDLEY v. STUTZ 949 
 
 question has never been directly raised before in this court, 
 and we are not, consequently, embarrassed by any previous 
 decisions on the point. In the Upton Cases, arising out of 
 the failure of the Great Western Insurance Company ; in 
 Hatch V. Dana, loi U. S. 205, and in Hazvkins v. Glenn, 
 131 U. S. 319, the defendants were either original sub- 
 scribers to the increased stock, at a price far below its par 
 value, or transferees of such subscribers; and the stock was 
 issued, not as in this case to purchase property or raise 
 money to add to the plant, and facilitate the operations of 
 the company, but simply to increase its original stock in 
 order to carry on a larger business, and the stock thus is- 
 sued was treated as if it formed a part of the original capital. 
 In County of Morgan v. Allen, 103 U. S. 498, the same prin- 
 ciple was applied to a subscription by a county to the capital 
 stock of a railroad company, for which it had issued its 
 bonds, although such bonds had been surrendered to the 
 county with the consent of certain of its creditors. 
 
 To say that a corporation may not, under the circum- 
 stances above indicated, put its stock upon the market and 
 sell it to the highest bidder, is practically to declare that a 
 corporation can never increase its capital by a sale of shares, 
 if the original stock has fallen below par. The wholesome 
 doctrine, so many times enforced by this court, that the 
 capital stock of an insolvent corporation is a trust fund for 
 the payment of its debts, rests upon the idea that the cred- 
 itors have a right to rely upon the fact that the subscribers 
 to such stock have put into the treasury of the cor- 
 poration, in some form, the amount represented by it; but 
 it does not follow that every creditor has a right to trace 
 each share of stock issued by such corporation, and inquire 
 whether its holder, or the person of whom he purchased, has 
 paid its par value for it. It frequently happens that corpora- 
 tions, as well as individuals, find it necessary to increase 
 their capital in order to raise money to prosecute their busi- 
 ness successfully, and one of the most frequent methods re- 
 sorted to is that of issuing new shares of stock "and putting
 
 950 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 them upon the market for the best price that can be obtained ; 
 and so long as the transaction is bona fide, and not a mere 
 coyer for "watering" the stock, and the consideration ob- 
 tained represents the actual value of such stock, the courts 
 have shown no disposition to disturb it. Of course no one 
 would take stock so issued at a greater price than the orig- 
 inal stock could be purchased for, and hence the ability to 
 negotiate the stock and to raise the money must depend upon 
 the fact whether the purchaser shall or shall not be called 
 upon to respond for its par value. While, as before ob- 
 served, the precise question has never been raised in this 
 court, there are numerous decisions to the effect that the gen- 
 eral rule that holders of stock, in favor of creditors, must 
 respond for its par value, is subject to exceptions where the 
 transaction is not a mere covcer for an illegal increase. 
 
 Thus in A^^^e' Albany v. Burke, 1 1 Wall. 96, a city sub- 
 scribed to the stock of a railroad, and issued bonds for a part 
 of the subscription, agreeing to issue them for the rest of it. 
 when the road should be built to a certain point. The road 
 relied mainly upon these bonds to raise the necessary money. 
 The validity of the bonds being denied by taxpayers, who 
 had filed bills to enjoin the raising of a tax to pay the inter- 
 est, their value in the market was largely impaired, and it 
 was found they could not be sold without a sacrifice. Under 
 these circumstances the company applied to the city to pay a 
 certain sum which had been borrowed by the road upon the 
 pledge of the bonds already issued, with sundry other 
 moneys, and in consideration thereof the city obtained from 
 the company a large number of bonds which had not been 
 negotiated, and a cancellation of the subscription. In a suit 
 brought by a judgment creditor to enforce the original sub- 
 scription, it was held that the compromise was legal, and the 
 payment of such subscription would not be enforced, al- 
 though it subsequently turned out that the bonds were worth 
 more than they could have been sold for. Said Mr. Justice 
 Strong, speaking for the court : "Had the company sold to 
 a stranger, and then the city become a purchaser from the
 
 HANDLEY v. STUTZ 951 
 
 Stranger, it will not be contended that any creditor of the 
 company could complain. And it can make no difference 
 whether the purchaser was made directly or indirectly from 
 the first holder of the bonds, assuming that there was no 
 fraud. The transaction . . . was, in substance, plainly 
 nothing more than a purchase by the city of its own bonds, 
 some of which had been issued and others of which it was 
 under obligations to issue, at the call of the vendor. . . . 
 Looking at it in the light of subsequent events, it was no 
 doubt an advantageous purchase for the city; and, if the un- 
 contradicted evidence is to be believed, it was deemed at the 
 time an advantageous sale or arrangement for the com- 
 pany. . . . We may add, the evidence is convincing that 
 the contract between the city and the company was made in 
 the utmost good faith, with no intention to wrong creditors 
 of the latter; that it was at the time considered advan- 
 tageous to the company, and it is not proved that all was not 
 paid for the bonds issued and to be issued that they could 
 have been sold for in the market." * * *^ 
 
 A case nearer in point is that of Clark v. Beaver, ante,, 
 96, decided at the present term of this court. In this case, a 
 railroad company, of which defendant's intestate was presi- 
 dent and stockholder, had a settlement with a construction 
 company, of which defendant's intestate was also a mem- 
 ber, for work done in building the road. The railroad com- 
 pany, being unable to pay the claim of the construction com- 
 pany, delivered to it thirty-five hundred shares of its stock 
 at 20 cents on the dollar, and the same were accepted in full 
 satisfaction of the debt. The stock was not worth anything 
 in the market, and was issued directly to the defendant's 
 intestate. No other payment than the 20 per cent, was ever 
 made on account of this stock. A judgment creditor of the 
 railroad company filed a bill to comjjel the payment by the 
 defendant of his claim, upon the tlieory that he was liable 
 for the actual par \'alue of such stock, whatever may have 
 
 * The Court's examination of Coit v. Gold Amalgamating Co.. 
 supra, is omitted.
 
 952 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 been its market value at the time it was received. It was 
 held he could not recover. "Of course, under this view," 
 says Mr. Justice Harlan, in delivering the opinion of the 
 court, ''every one having claims against the railway com- 
 pany — even laborers and employees — who could get nothing 
 except stock in payment of their demands, became bound, by 
 accepting stock at its market value in payment, to account 
 to unsatisfied judgment creditors for its full face value, al- 
 though, at the time it was sought to make them liable, the 
 corporation had ceased to exist, or its stock had remained, 
 as it was when taken, absolutely worthless. . . . To say 
 that a public corporation, charged with public duties, may 
 not relieve itself from embarrassment by paying its debt in 
 stock at its real value — there being no statute forbidding 
 such a transaction — without subjecting the creditor, surren- 
 dering his debt, to the liability attaching to stockholders who 
 have agreed, expressly or impliedly, to pay the face value of 
 stock subscribed by them, is, in effect, to compel them either 
 to suspend operations the moment they become unable to 
 pay their current debts, or to borrow money secured by mort- 
 gage upon the corporate property." 
 
 So in Fogg v. Blair, ante, ii8, also decided at the pres- 
 ent tenn, it was held to be competent for a railroad, exercis- 
 ing good faith, to use its bonds or stock in payment for the 
 construction of its road, although it could not, as against 
 creditors or stockholders, issue its stock as fully paid with- 
 out getting some fair or reasonable equivalent for it. It was 
 there said : "What was such an equivalent depends pri- 
 marily upon the actual value of the stock at the time it was 
 contracted to be issued, and upon the compensation which, 
 under all the circumstances, the contractors were equitably 
 entitled to receive for the particular work undertaken or 
 done by them." It appeared in that case that full and ade- 
 quate compensation for the work done had been paid by the 
 company in its mortgage bonds, and, as the bill contained 
 no allegation whatever as to the real or market value of such 
 stock, it was held that the contractors receiving this stock
 
 HANDLEY v. STUTZ 953 
 
 were not liable to creditors for its par value. It was added : 
 "If, when disposed of by the railroad company, it was with- 
 out value, no wrong was done to creditors by the contract 
 made with Blair and Taylor. If the plaintiff expected to re- 
 cover in this suit on the ground that the stock was of sub- 
 stantial value, it was incumbent upon him to distinctly allege 
 facts that would enable the court — assuming such facts, to be 
 true — to say that the contract between the railroad company 
 and the contractors was one which, in the interest of credi- 
 tors, ought to be closely scrutinized." It would seem to fol- 
 low from this that if the stock had been of some value, that 
 value, however much less than par, would have been the 
 limit of the holder's liability. 
 
 In Morrow v. Nashville Iron and Steel Co., 87 Ten- 
 nessee, 262, 275, 276, the Supreme Court of Tennessee held, 
 that a contract with a subscriber to stock of a corporation, 
 that for every share subscribed he should receive bonds to an 
 equal amount, secured by mortgage on the company's plant, 
 is void as against creditors, and also between the subscriber 
 and the corporation. But the court drew a distinction be- 
 tween such a case and sales of or subscription to the stock of 
 an organized and going corporation. It said : "The neces- 
 sities of the business of an organized company might de- 
 mand an increase of capital stock, and if such stock is law- 
 fully issued, it may very well be offered upon special terms. 
 In such case, if the market price was less than par, it is clear 
 that a purchaser or subscriber for such stock at its market 
 value would, in the absence of fraud, be liable only for his 
 contract price. So a case might arise where the stock of a 
 going concern was much depreciated, and where its bonds 
 were likewise below par, and there was lawful authority to 
 issue additional stock and bonds. Now, in such case, the 
 real market value of an equal amount of stock and bonds 
 might not exceed, or even equal, the par value of either. In 
 sucli cases, the question of fraud aside, a purcliaser would 
 only be held for his contract price." This case from Tennes-
 
 954 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 see puts as an illustration the exact case with which we are 
 now dealing. 
 
 The Hability of a subscriber for the par value of in- 
 creased stock taken by him may depend somewhat upon the 
 circumstances under which, and the purposes for which, such 
 increase was made. If it be merely for the purpose of add- 
 ing to the original capital stock of the corporation, and 
 enabling it to do a larger and more profitable business, such 
 subscriber would stand practically upon the same basis as a 
 subscriber to the original capital. But we think that an 
 active corporation may, for the purpose of paying its debts, 
 and obtaining money for the successful prosecution of its 
 business, issue its stock and dispose of it for the best price 
 that can be obtained. Stein v. Howard, 65 California, 616. 
 As the company in this case found it impossible to negotiate 
 its bonds at par without the stock, and as the. stock was 
 issued for the purpose of enhancing the value of the bonds, 
 and was taken by the subscribers to the bonds at a price 
 fairly representing the value of both stock and bonds, we 
 think the transaction should be sustained, and that the de- 
 fendants cannot be called upon to respond for the par value 
 of such stock, as if they had subscribed to the original stock 
 of the company. Our conclusion upon this branch of the 
 case disposes of it as to those who were held liable by virtue 
 of their subscription to the bonds. * * +5 
 
 Reversed and the cause remanded for further pro- 
 ceedings in accordance with this opinion. 
 
 Mr. Chief Justice Fuller, with whom concurred Mr. 
 Justice Lamar, dissenting. 
 
 I dissent from the conclusion of the court in respect of 
 the stock received by the subscribers to the bonds. That 
 stock was not paid for in money or money's worth, or issued 
 in payment of debts due from the company, or purchased at 
 sale upon the market. It was a mere bonus, thrown in with 
 
 ^The Court's discussion of the decision of the Circuit Judge that 
 only subsequent creditors were entitled to enforce their claims against 
 stockholders is omitted.
 
 HANDLEY v. STUTZ 955 
 
 the bonds as furnishing the inducement to the bond sub- 
 scription, of larger control over the corporation, and of pos- 
 sible gain without expenditure. Becoming secured credi- 
 tors through the bonds, the subscribers increased their power 
 through the stock. In my view, there was no actual payment 
 for the stock, and to treat it as paid up, is to sanction an ar- 
 rangement to relieve those who would reap the benefit de- 
 rived from the possession of the stock, in the event of the 
 success, from liability for the consequences, in the event of 
 the failure, of the enterprise. 
 
 When the capital stock of a corporation has become im- 
 paired, or the business in which it has engaged has proven so 
 unremunerative as to call for a change, creditors at large 
 may well demand that experiments at rehabilitation should 
 not be conducted at their risk. 
 
 My brother Lamar concurs with me in this dissent.^ 
 
 "Compare with our principal case: Rickerson Roller-Mill Co. v. 
 Farrell Foundry & Machine Co., 75 Fed. 554, 1896. (Judgment creditors 
 bill. The corporation issued $100,000 stock for patent rights. To secure 
 working capital, capital stock increased to $150,000. A agreed to take 
 extra stock for $25,000. The stock was issued to A as full paid. B et 
 al., became creditors of the Company knowing the above facts. Lurton, 
 J.: "The second defense is that this increase of stock was for the pur- 
 pose of restoring the impaired capital of the Rickerson Roller-Mill Com- 
 pany; that the case was that of a going, active corporation, whose capital 
 had become impaired, and whose stock was, on the market, worth only 
 50 cents on the dollar ; and that, as the stock was actually sold in good 
 faith for its actual market value, neither the corporation nor its cred- 
 itors are injured, and neither can call upon such a purchaser for the dif- 
 ference betw^een the sum actually paid and the par of the stock. For 
 this counsel cite Hundley v. Stutc, 139 U. S. 417, 11 Sup. Ct. 530; Clark 
 V. Bever, 139 U. S. 96, 11 Sup. Ct. 468; Fogg v. Blair, 139 U. S. 118, 11 
 Sup. Ct. 476: Morroiv v. Steel Co., 87 Tenn. 262, 10 S. W. 495; Young 
 V. Iron Co., 65 Mich, ill, 31 N. W. 814. Were the circumstances such as 
 to enable a purchaser of these increased shares to buy them from the 
 company at less than their par value without incurring a liability to the 
 creditors for the difference between the par of the stock and the price 
 actually paid? The case for decision certainly differs most materially 
 from Clark v. Bever and Fogg v. Blair. These shares were not, as in 
 those cases, the shares of an insolvent corporation, received by a credi- 
 tor, in payment and discharge of his debt, at less than par, and at a value 
 in excess of the actual market value. In neither of the cases above re- 
 ferred to was the stock taken in any sense as an investment, or for the 
 purpose of enabling the company to enlarge or increase its business, but 
 was accepted by the creditor, in each instance, as the best settlement ob- 
 tainable from an insolvent corporation. Neither is this the case of a go- 
 ing corporation, whose capital stock had become impaired or diminished 
 by losses or misfortunes. It is true that in some sense this corporation 
 had been doing business in a small way for a month or more before this
 
 956 
 
 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 new stock was issued, but there is no evidence that its capital stock had 
 been impaired by losses. Upon the contrary, the Messrs. Fox were 
 admitted as shareholders in consequence of the necessity for increasing 
 the capital stock of the company, and enabling it to begin the business 
 for w'hich it had been organized. Their purchase of these shares was 
 in accordance with the original scheme of the promoters, and they 
 were bought as an investment in a manufacturing corporation which 
 had not yet acquired a plant, or begun the business for which it had 
 been organized. The arrangement by which they were to buy these 
 shares from the corporation, and pay but 50 per cent, of the par value 
 of the stock, was subject to the contingency that they wpuld be liable, 
 in the event of the insolvency of the corporation, to creditors who 
 should become such in ignorance of the arrangement, and who had a 
 right to suppose that this increased stock had been paid in full, or was 
 subject to call." The Court held that the plaintiff's knowledge of the 
 circumstances under which A received the stock, in the absence of any 
 statutory or charter provisions that stock should be paid for in full, 
 barred their right to recover.) 
 
 See V. Heppenheimer, 69 N. J. Eq. 36, 1905. (C, et ai, subscribed 
 to the bonds of A Company, and received with each bond a bonus of 
 stock. Held, that the fact that they did not pay for the stock was 
 sufficient to put C, et al., on notice that the stock had not been paid for 
 either in cash or property, and that C, et al., were liable to the Com- 
 pany's creditors thereon.) 
 
 Key Number of Amer. Digest, in re liability of holders of "bonus" 
 stock or stock issued as a gratuity, Corporations, 243 (6).
 
 HOSPES V. NORTHWESTERN MFTG. & CAR CO. 957 
 
 HOSPES V. NORTHWESTERN MANUFACTURING 
 AND CAR CO- 
 IN THE Supreme Court of Minnesota. 
 
 48 Minnesota Reports, 174.' 
 
 Mitchell, J. This appeal is from an order overruling 
 a demurrer to the so-called "supplemental complaint" of the 
 Minnesota Thresher Manufacturing Company. The North- 
 Western Manufacturing & Car Company was a manufactur- 
 ing corporation organized in May, 1882. Upon the com- 
 plaint of a judgment creditor, Hospes & Co., after return 
 of execution unsatisfied, judgment was rendered in May, 
 1884, sequestrating all its property, things in action, and ef- 
 fects, and appointing a receiver of the same. This receiver- 
 ship still continues, the affairs of the corporation being not 
 yet fully administered; but it appears that it is hopelessly 
 insolvent, and that all the assets that have come into the 
 hands of the receiver will not be sufficient to pay any con- 
 siderable part of the debts. The Minnesota Thresher Manu- 
 facturing Company, a corporation organized in November, 
 1884, as creditor, became a party to the sequestration pro- 
 ceeding, and proved its claims against the insolvent corpora- 
 tion. In October, 1889, in behalf of itself and all other 
 creditors who have exhibited their claims, it filed this com- 
 plaint against certain stockholders (these appellants) of the 
 car company, in pursuance of an order of court allowing it 
 to do so, and reqiiiring those thus impleaded to appear and 
 answer the complaint. The object is to recover from these 
 stockholders the amount of certain stock held by them, but 
 alleged never to have been paid for. What was said in 
 Meagher's Case, ante, p. 158, N. W. Rep. 1114 (just de- 
 cided), is equally applicable here as to the right to enforce 
 such a liability in the sequestration proceeding upon the 
 
 'The Reporter's statement of the facts of the case and his notei 
 of the argument of cases are omitted.
 
 958 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 petition or complaint of creditors who have become parties 
 to it. There is nothing in this practice inconsistent with 
 what was decided in Minnesota Thresher Mfg. Co. v. Lang- 
 don, 44 Minn. 37, (46 N. W. Rep. 310). The complaint is 
 not the commencement of an independent action by creditors 
 in their own behalf, antagonistic to the rights of the receiver, 
 but is filed in the sequestration proceeding itself, and in aid 
 of it. 
 
 The principal question in the case is whether the com- 
 plaint states facts showing that the thresher company, as 
 creditor, is entitled to the relief prayed for; or, in other 
 words, states a cause of action. Briefly stated, the allega- 
 tions of the complaint are that on May 10. 1882, Seymour, 
 Sabin & Co. owned property of the value of several million 
 dollars, and a business then supposed to be profitable. That, 
 in order to continue and enlarge this business, the parties in- 
 terested in Seymour, Sabin & Co., with others, organized the 
 car company, to which was sold the greater part of the assets 
 of Seymour, Sabin & Co. at a valuation of $2,267,000, in 
 payment of which there were issued to Seymour, Sabin & 
 Co. shares of the preferred stock of the car company of the 
 par value of $2,267,000, it being then and there agreed by 
 both parties that this stock was in full payment of the prop- 
 erty thus purchased. It is further allaged that the stock- 
 holders of Seymour, Sabin & Co., and the other persons who 
 had agreed to become stockholders in the car company, were 
 then desirous of issuing to themselves, and obtaining for 
 their own benefit, a large amount of common stock of the car 
 company, "without paying therefor, and without incurring 
 any liability thereon or to pay therefor;" and for that pur- 
 pose, and "in order to evade and set at naught the laws of 
 this State," they caused Seymour, Sabin & Co. to subscribe 
 for and agree to, take common stock of the car company of 
 the par value of $1,500,000. That Seymour, Sabin & Co. 
 thereupon subscribed for that amount of the common stock, 
 but never paid therefor any consideration whatever, either in 
 money or property. That thereafter these persons caused
 
 HOSPES r. NORTHWESTERN MFTG. & CAR CO. 959 
 
 this stock to be issued to D. M. Sabin as trustee, to be by him 
 distributed among them. That it was so distributed without 
 receipt by him or the car compan}'-, from any one, of any 
 consideration whatever, but was given by the car company 
 and received by these parties entirely "gratuitously." The 
 car company was, at this time, free from debt, but after- 
 wards became indebted to various persons for about $3,000.- 
 000. The thresher company, incorporated after the insol- 
 vency and receivership of the car company, for the purpose 
 of securing possession of its assets, property, and business, 
 and therewith engaging in and continuing the same kind of 
 manufacturing, prior to October 2"/, 1887, purchased and 
 became the owner of unsecured claims against the car com- 
 pany, "bona fide, and for a valuable consideration," to the ag- 
 gregate amount of $1,703,000. As creditor, Standing on the 
 purchase of these debts, which were contracted after the is- 
 sue of this "bonus" stock, the thresher company files this 
 complaint to recover the par value of the stock as never hav- 
 ing been paid for. The complaint does not allege what the 
 consideration of these debts was, nor to whom originally 
 owing, nor what the inter\^ener paid for them, nor whether 
 any of the original creditors trusted the car company on the 
 faith of the bonus stock having been paid for. Neither does 
 it allege that either the thresher company or its assignors 
 were ignorant of the bonus issue of stock, nor that they or 
 any of them were deceived or damaged in fact by such issue, 
 nor that the bonus stock was of an\- value. Neither is there 
 any traversable allegation of any actual fraud or intent to 
 deceive or injure credit(jrs. A desire to get something with- 
 out paying for it. and actually getting it. is not fraudulent or 
 unlawful if the donor consents, and no one else is injured by 
 it; and the general allegation that it was done "in order to 
 evade and set at naught the laws of the State" of itself 
 amounts to nothing but a mere conclusion of law. As a 
 creditors' bill, in the ordinaiy sense, the complaint is mani- 
 festly insutificient. The thresher company, however, plants 
 itself upon the so-called "trust-fund" doctrine, that the
 
 960 LIABILITY OF ORIGINAL SHAREHOLDERS" 
 
 capital stock of a corporation is a trust fund for the payment 
 of its debts; its contention being that such a "bonus" issue of 
 stock creates, in case of the subsequent insolvency of the cor- 
 poration, a liability on part of the stockholder in favor of 
 creditors to pay for it, notwithstanding his contract with the 
 corporation to the contrary. 
 
 This "trust-fund" doctrine, commonly called the 
 "American doctrine," has given rise to much confusion of 
 ideas as to its real meaning, and much conflict of decision in 
 its application. To such an extent has this been the case 
 that many have questioned the accuracy of the phrase, as 
 well as doubted the necessity or expediency of inventing any 
 such doctrine. While a convenient phrase to express a cer- 
 tain general idea, it is not sufficiently precise or accurate to 
 constitute a safe foundation upon which to build a system 
 of legal rules. The doctrine was invented by Justice Story 
 in Wood V. Dummer, 3 Mason, 308, which called for no 
 such invention, the fact in that case being that a bank divided 
 up two-thirds of its capital among its stockholders without 
 providing funds sufficient to pay its outstanding bill holders. 
 Upon old and familiar principles this was a fraud on credi- 
 tors. Evidently all that the eminent jurist meant by the doc- 
 trine was that corporate property must be first appropriated 
 to the payment of the debts of the company before there can 
 be any distribution of it among stockholders, — a proposition 
 that is sound upon the plainest principles of common hon- 
 esty. In Fogg v. Blair, 133 U. S. 534, 541 (10 Sup. Ct. 
 Rep. 338), it is said that this is all the doctrine means. The 
 expression used in Wood v. Dummer has, however, been 
 taken up as a new discovery, which furnished a solution of 
 every question on the subject. The phrase that "the capital 
 of a corporation constitutes a trust fund for the benefit of 
 creditors" is misleading. Corporate property is not held in 
 trust, in any proper sense of the term. A trust implies two 
 estates or interests — one equitable and one legal ; one person, 
 as trustee, holding the legal title, while another, as the cestui 
 que trust, has the beneficial interest. Absolute control and
 
 HOSPES V. NORTHWESTERN MFTG. & CAR CO. 961 
 
 power of disposition are inconsistent with the idea of a 
 trust. The capital of a corporation is its property. It has 
 the whole beneficial interest in it, as well as the legal title. 
 It may use the income and profits of it, and sell and dispose 
 of it, the same as a natural person. It is a trustee for its 
 creditors in the same sense and to the same extent as a 
 natural person, but no further. This is well illustrated and 
 clearly announced in the case of Graham v. La Crosse & M. 
 R. Co., 102 U. S. 148. That was a creditors' suit to reach a 
 piece of real estate on the ground that it had been conveyed 
 by the corporation fraudulently for a wholly inadequate con- 
 sideration. The trust-fund doctrine was invoked by a sub- 
 sequent creditor, and it was claimed that, as the trust had 
 been violated, the deed should be set aside. If the premise 
 was correct that the corporation held it in trust for creditors, 
 the conclusion was inevitable ; but the court denied the pre- 
 mise, saying that a corporation is in law as distinct a being 
 as an individual is, and is entitled to hold property (if not 
 contrary to its charter) as absolutely as an individual can 
 hold it. Its estate is the same, its interest is the same, its 
 possession is the same ; and that there is no reason why the 
 disposal by a corporation of any of its property should be 
 questioned by subsequent creditors any more than a like pro- 
 posal by an individual ; that the same principles of law apply 
 to each. That the phrase that "the capital of a corporation 
 is a trust fund for the payment of its creditors" is mislead- 
 ing, if not inaccurate, is illustrated by the character of the 
 actions that are frequently mistakenly instituted on the 
 strength of it. For example, in the case of Wabash, etc., R. 
 Co. V. Ham, 114 U. S. 587 (5 Sup. Ct. Rep. 1081), two 
 roads had been consolidated, the new company acquiring the 
 property of the old ones. A creditor of one of the old com- 
 panies, on the strength of the "trust-fund" doctrine, claimed 
 a lien on its property in the hands of the new corporation. 
 If this property was impressed with a trust in favor of credi- 
 tors in the hands of the old company, it would logically fol- 
 low that it would continue so in the hands of the new one.
 
 962 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 But the court denied the rehef, and, in giving its construc- 
 tion of the "trust-fund" doctrine, said : "The property of a 
 corporation is doubtless a trust fund for the payment of its 
 debts in the sense that when the corporation is lawfully dis- 
 solved, and all its business wound up, or when it is insolvent, 
 all its creditors are entitled in equity to have their debts paid 
 out of the corporate property before any distribution thereof 
 among the stockholders. It is also true, in the case of a cor- 
 poration as in that of a natural person, that any conveyance 
 of the property of the debtor without authority of law and in 
 fraud of existing creditors is void." This is probably what 
 is meant when it is said in some cases, as in Clark v. Bever, 
 139 U. S. 96, no (11 Sup. Ct. Rep. 468). that the capital 
 of a corporation is a trust fund sub modo. If so, no one 
 will dispute it. But it means very little, for the same thing 
 could be truthfully said of the property of an individual or 
 a partnership. And obviously it would make no difference 
 whether the disposition of the corporate property is to a 
 stranger or to a stockholder, except that, of course, the lat- 
 ter could not be an innocent purchaser. 
 
 There is also much confusion in regard to what the 
 "trust-fund" doctrine applies. Some cases seem to hold that 
 unpaid subscribed capital is a trust fund, while other assets 
 are not, — that is, so long as the subscription is unpaid, it is 
 held in trust by the corporation, but, when once paid in, it 
 ceases to be a trust fund ; while other cases hold that, paid 
 or unpaid, it is all a trust fund. The first seems to be the 
 rule laid down in Sazvyer v. Hoag, 17 Wall. 610, in which 
 the "trust-fund" doctrine was first squarely announced by 
 that court with all the vigor and force characteristic of the 
 great jiu-ist who wrote the opinion. In that case a stock- 
 holder in an insurance company had given his note, as the 
 court found the fact to be, for 85 per cent, of his subscrip- 
 tion to the stock of the company. After the company had 
 become bankrupt, and the stockholder knew the fact, he 
 bought up a claim against the company for one-third its 
 face, and in a suit by the assignee in bankruptcy on his note
 
 HOSPES V. NORTHWESTERN MFTG. & CAR CO. 963 
 
 set up this claim as an off-set. That this would have been 
 a fraud on the bankrupt act, and at least a moral fraud on 
 policy holders, is quite apparent without invoking the "trust- 
 fund" doctrine; and, if the note for unpaid stock was a trust 
 fund, there could have been no offset, whether the company 
 was solvent or insolvent. In the opinion it is said that, if 
 the subscription had been paid by the note or otherwise, the 
 note ceased thereby to be a trust fund to which creditors can 
 look, and becomes ordinary' assets, with which directors may 
 deal as they choose. But in Upton v. Tribilcock, 91 U. S. 
 45, it is stated : "The capital paid in and promised to be 
 paid in is a fund which the trustees cannot squander or give 
 away." While in Sanger v. Upton, Id. 56, it is said: 
 "When debts are incurred a contract arises with the creditors 
 that it [the capital] shall not be withdrawn or applied other- 
 wise than upon their demands until such demands are satis- 
 fied." And in the same connection it is distinctly stated that 
 there is no difference between assets paid in and subscrip- 
 tions ; that "unpaid stock is as much a part of this pledge 
 and as much a part of the assets of the company as the cash 
 which has been paid in upon it. Creditors have the same 
 right to look to it as to anything else, and the same right to 
 insist upon its payment as upon the payment of anv other 
 debt due to the company. As regards creditors, there is no 
 distinction between such a demand and any other asset ivhich 
 may form a part of the property and effects of the corpora- 
 tion." This language is quoted and approved in County of 
 Morgan v. Allen, 103 U. S. 498. 508. It would seem clear 
 that this is the correct statement of the law. The capital 
 (not the mere share certificates) means all the assets, how- 
 ever invested. If a subscriber gives his note for his stock, 
 that note is no more and no less a trust fund than the money 
 would have been if he had paid cash down. Capital cannot 
 change from a trust to not a trust by a mere change of form. 
 It is either all a trust or all not a trust, and the "trust-fund" 
 rule, whatever that be, must apply to all alike, and in the 
 same way. If the assets of a corporation are given back to
 
 964 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 Stockholders, the result is the same as if the shares had been" 
 issued wholly or partly as a bonus. The latter is merely a 
 supra, to the proposition that the complaint should have 
 the capital, voluntary conveyances, stock paid in overvalued 
 property ; all are forms of one and the same thing, all reach- 
 ing the same result (a disposition of corporate assets), 
 which may or may not be a fraud on creditors, depending 
 on circumstances. This much being once settled, the solu- 
 tion of the question when a subsequent creditor can insist on 
 payment of stock issued as paid up, but not in fact paid for, 
 or not paid for at par, becomes, as we shall presently see, 
 comparatively simple. 
 
 Another proposition which we think must be sound is 
 that creditors cannot recover on the ground of contract 
 when the corporation could not. Their right to recover in 
 such cases must rest on the ground that the assets of the 
 stockholders with reference to the corporate capital consti- 
 tutes a fraud on their rights. We have here a case where 
 the contract between the corporation and the takers of the 
 shares was specific that the shares should not be paid for. 
 Therefore, unlike many of the cases cited, there is no ground 
 for implying a promise to pay for them. The parties have 
 explicitly agreed that there shall be no such implication, by 
 agreeing that the stock shall not be paid for. In such a case 
 the creditors undoubtedly may have rights superior to the 
 corporation, but these rights cannot rest on the implication 
 that the shareholder agreed to do something directly con- 
 trary to his real agreement, but must be based on tort or 
 fraud, actual or presumed. In England, since the Act of 
 1867, there is an implied contract created by statute that 
 "every share in any company shall be deemed and be taken 
 to have been issued and to be held subject to the payment 
 of the whole amount thereof in cash." This statutory con- 
 tract makes every contraiy contract void. Such a statute 
 would be entirely just to all, for every one would be advised 
 of its provisions, and could conduct himself accordingly. 
 And in view of the fact that "watered" and "bonus" stock
 
 HOSPES V. NORTHWESTERN MFTG. & CAR CO. 965 
 
 is one of the greatest abuses connected with the management 
 of modern corporations, such a law might, on grounds of 
 public policy, be very desirable. But this is a matter for 
 the legislature, and not for the courts. We have no such 
 statute; and, even if the law of 1873, under which the car 
 company was organized, impliedly forbids the issue of stock 
 not paid for, the result might be that such issue would be 
 void as ultra vires, and might be canceled, but such a pro- 
 hibition would not of itself be sufficient to create an implied 
 contract, contrary to the actual one, that the holder should 
 pay for his stock. 
 
 It is well settled that an equity in favor of a creditor 
 does not arise absolutely and in ever)' case to have the holder 
 of "bonus" stock pay for it contrar}^ to his actual contract 
 with the corporation. Thus no such equity exists in favor 
 of one whose debt was contracted prior to the issue, since he 
 could not have trusted the company upon the faith of such 
 stock. First Nat. Bank v. Giistin, etc.. Mining Co., 42 Minn. 
 327 (44 N. W. Rep. 198) ; Coit v. Gold Amalgamating Co., 
 119 U. S. 343 (7 Sup. Ct. Rep. 231) ; Handley v. Stuts, 139 
 U. S. 417, 435 (11 Sup. Ct. Rep. 530). It does not exist 
 in favor of a subsequent creditor who has dealt with the cor- 
 poration with full knowledge of the arrangement by which 
 the "bonus" stock was issued, for a man cannot be de- 
 frauded by that which he knows when he acts. First Nat. 
 Bank V. Gustin, etc., Mining Co., supra. It has also been 
 held not to exist where stock has been issued and turned out 
 at its full market value to pay corporate debts. Clark v. 
 Bever, snpra. The same has been held to be the case where 
 an active corporation, whose original capital has been im- 
 paired, for the purpose of recuperating itself issues new 
 stock, and sells it on the market for the best price obtain- 
 able, but for less than par {Handley v. Stutz, supra) ; al- 
 though it is difficult to perceive, in the absence of a statute 
 authorizing such a thing (of which every one dealing with 
 the corporations is bound to take notice), any difference be- 
 tween the original stock of a new corporation and addi-
 
 966 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 tional stock issued by a "going concern." It is difficult, if 
 not impossible, to explain or reconcile these cases upon the 
 "trust-fund" doctrine, or, in the light of them, to predicate 
 the liability of the stockholder upon that doctrine. But by 
 putting it upon the ground of fraud, and applying the old 
 and familiar rules of law on that subject to the peculiar 
 nature of a corporation and the relation which its stock- 
 holders bear to it and to the public, we have at once rational 
 and logical ground on which to stand. The capital of a cor- 
 poration is the basis of its credit. It is a substitute for the 
 individual liability of those who own its stock. People deal 
 with it and give it credit on the faith of it. They have a 
 right to assume that it has paid-in capital to the amount 
 which it represents itself as having; and if they give it credit 
 on the faith of that representation, and if the representation 
 is false, it is a fraud upon them ; and, in case the corporation 
 becomes insolvent, the law, upon the plainest principles of 
 common justice, says to the delinquent stockholder, "Make 
 that representation good by paying for your stock." It cer- 
 tainly cannot require the invention of any new doctrine in 
 order to enforce so familiar a rule of equity. It is the mis- 
 representation of fact in stating the amount of capital to be 
 greater than it really is that is the true basis of the liability 
 of the stockholder in such cases ; and it follows that it is only 
 those creditors who have relied, or who can fairly be pre- 
 sumed to have relied, upon the professed amount of capital, 
 in whose favor the law will recognize and enforce an equity 
 against the holders of "bonus" stock. This furnishes a 
 rational and uniform rule, to which familiar principles are 
 easily applied, and which frees the subject from many of 
 the difficulties and apparent inconsistencies into which the 
 "trust-fund" doctrine has involved it; and we think that, 
 even when the trust-fund doctrine has been invoked, the de- 
 cision in almost every well-considered case is readily refer- 
 able to such a rule. 
 
 It is urged, however, that, if fraud be the basis of the 
 stockholders' liabilitv in such cases, the creditor should af-
 
 HOSPES V. NORTHWESTERN AIFTG. & CAR CO. 967 
 
 firmatively allege that he believed that the bonus stock had 
 been paid for, and represented so much actual capital, and 
 that he gave credit to the corporation on the faith of it; and 
 it is also argued that, while there may be a presumption to 
 that effect in the case of a subsequent creditor, this is a mere 
 presumption of fact, and that in pleadings no presumptions 
 of fact are indulged in. This position is very plausible, and 
 at first sight would seem to have much force; but we think 
 it is unsound. Certainly any such rule of pleading or proof 
 would work very inequitably in practice. Inasmuch as the 
 capital of a corporation is the basis of its credit, its financial 
 standing and reputation in the community has its source in, 
 and is founded upon, the amount of its professed and sup- 
 posed capital, and every one who deals with it does so upon 
 the faith of that standing and reputation, although, as a mat- 
 ter of fact, he may have no personal knowledge of the 
 amount of its professed capital, and in a majority of cases 
 knows nothing about the shares of stock held by any par- 
 ticular stockholder, or, if so, what was paid for them. 
 Hence, in" a suit by such creditor against the holders of 
 "bonus" stock, he could not truthfully allege, and could not 
 affirmatively prove, that he believed that the defendants' 
 stock had been paid for, and that he gave the corporation 
 credit on the faith of it, although, as a matter of fact, he 
 actually gave the credit on the faith of the financial stand- 
 ing of the corporation, which was based upon its apparent 
 and professed amount of capital. The misrepresentation as 
 to the amount of capital would operate as a fraud on such a 
 creditor as fully and effectually as if he had personal knowl- 
 edge of the existence of the defendants' stock, and believed 
 it to have been paid for when he gave the credit. For this 
 reason, among others, we think that all that it is necessary 
 to allege or prove in that regard is that the plaintiff is a sub- 
 sequent creditor; and that, if the fact was that he dealt with 
 the corporation with knowledge of the arrangement by 
 which the "bonus" stock was issued, this is a matter of de- 
 fense. Gogebic Inv. Co. v. Iron Chief, Min. Co., 78 Wis.
 
 968 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 427 (47 N. W. Rep. 726). Counsel cites Fogg v. Blair, 
 supra, to the proposition that the complainant should have 
 stated that this stock had some value ; but that case is not in 
 point, for the plaintiff there was a prior creditor; and, as his 
 debt could not have been contracted on the faith of stock not 
 then issued, he could only maintain his action, if at all, by 
 alleging that the corporation parted with something of 
 value. 
 
 In one respect, however, we think the complaint is 
 clearly insufficient. The thresher company is here asking the 
 interposition of the court to aid in enforcing an equity in 
 favor of creditors against the stockholders by declaring them 
 liable to pay for this stock contrary to their actual contract 
 with the corporation. While the proceeding is not, strictly 
 speaking, an equitable action, yet the relief asked is equitable 
 in its nature. Under such circumstances, it was incumbent 
 upon the thresher company to show its own equities, and 
 that it was in a position to demand such relief. It was not 
 the original creditor of the car company, but the assignee of 
 the original creditors. By that purchase it, of course, suc- 
 ceeded to whatever strictly legal rights its assignors had; 
 but it is not rights of that kind which it is here seeking to 
 enforce. Under such circumstances, we think it was in- 
 cumbent upon it to state what it paid for the claims, or at 
 least to show that it paid a substantial, and not a mere nomi- 
 nal consideration. The only allegation is that it paid "a valu- 
 able consideration." This might have been only one dol- 
 lar. It appears that it bought the claims after the car com- 
 pany had become insolvent, and its afifairs were in the hands 
 of a receiver; also that the indebtedness of that company 
 amounted to about $3,000,000, and that there were not cor- 
 porate assets enough to pay any considerable part of it. 
 The mere chance of collecting something out of the stock- 
 holders does not ordinarily much enhance the selling price 
 of claims against an insolvent corporation. If any person 
 or company had gone to work and bought up for a mere 
 song this large indebtedness of the car company for the
 
 HOSPESz'. NORTHWESTERN MFTG. & CAR CO. 969 
 
 purpose of speculating on the liability of the stockholders, no 
 court would grant them the relief here prayed for. It would 
 say to them, "We will not create and enforce an equity for 
 the benefit of any such speculation." Counsel for respond- 
 ent suggest that the thresher company is but an organization 
 of the original creditors, who formed it, and pooled their 
 claims, sp as to.save something out of the wreck of the car 
 company ; but nothing of the kind is alleged. On this ground 
 the demurrer should have been sustained. * * *- 
 
 Order reversed. 
 
 GiLFiLLAN, C. J., took uo part. 
 
 (Opinion published 50 N. W. Rep. 11 17.) 
 
 The Court's discussion of the statute of limitations is omitted.
 
 970 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 CHRISMAN-SAWYER BANKING CO. 
 
 V. 
 
 INDEPENDENCE WOOL MANUFACTURING CO. 
 In the Supreme Court of Missouri, 1902. 
 
 168 Missouri Reports, 634. 
 
 John McCoy subscribed for fifty shares of stock of the 
 Independence Wool Manufacturing Co. The Company an- 
 nounced that its stock was fully paid up in cash. This 
 statement was not true. The Company, with the consent 
 of all the stockholders, without receiving any consideration, 
 released McCoy from his subscription. Subsequently the 
 Chrisman-Sawyer Banking Co. became creditors of the 
 Independence Company. There was no evidence that the 
 Bank or their assignee, one Simpson, knew of the transaction 
 of the Independence Company and McCoy in re the fifty 
 shares. The assets of the Independence Company being ex- 
 hausted, Simpson seeks to recover from McCoy the sum of 
 $5000, as the unpaid subscription for the fifty shares of 
 stock. ^ 
 
 Marshall, J. : The first question that is presented 
 is, whether a subscriber to stock in an incorporated company, 
 that has not been fully paid up, can, by any device or ar- 
 rangement with the company, its officers or all of the other 
 stockholders, surrender his stock to the company and be 
 released from all liability for the amount remaining, unpaid 
 on such stock, and thereby be relieved of all responsibility 
 on account of such stock to existing or subsequent creditors 
 of the company. 
 
 It is conceded by all text-writers and adjudications and 
 by the plaintiffs herein, that such a subscriber can not be so 
 released as to existing creditors, without their consent. But 
 it is claimed by the defendants that subsequently creditors 
 
 ^The facts of the case are restated, only so much of the facts 
 being given as bears on the part of the opinion republished.
 
 BANKING CO. v. WOOL MANUFACTURING CO. 971 
 
 can not complain or object, because when they gave credit 
 to the company such unpaid subscription did not constitute 
 an asset of the company, and in support of this contention 
 the defendants cite Erskine v. Peck, 13 Mo. App. 280, af- 
 firmed by this court in 83 Mo. 465 ; Johnson v. Lullman, 15 
 Mo. App. 55, affirmed by this court in 88 Mo. 567; Hill v. 
 Mining Co., 124 Mo. 167; i Beach on Private Corp,- sees. 
 lOi and 113; Cook on Stocks and Stockholders, sec. 168; 
 and cases in other jurisdictions, including Morgan v. Lewis, 
 46 Ohio St. I ; Ins. Co. •;:.'. Swigert, 135 Ills. 162; Dunn v. 
 Howe, 96 Fed. Rep. 163; Graham v. Railroad, 102 U. S. 
 148; Trust Co. V. Abbott, 162 Mass. 148; Steacy ik Railroad, 
 5 Dillon 348. 
 
 Beach on Private Corporations, vol. I, sec. 113, states 
 this to be the law, and in support of the statement that subse- 
 quent creditors have no right to complain, the author cites 
 Hollingshead v. Woodward, 35 Hun 410; Johnson v. Lull- 
 man, 15 Mo. App. 55, and Erskine v. Peck, 13 Mo. App. 280. 
 And this statement and this section of Beach on Private 
 Corporations is cited, in Hill v. Mining Co., 124 Mo. 1. c. 
 167, as authority for that doctrine. 
 
 Thus it will be seen that Beach relies principally on the 
 St. Louis Court of Appeals, and on this court, in Erskine v. 
 Peck and Johnson v. Lullman, as his authority for so stating 
 the doctrine, and afterwards in Hill v. Mining Co., this 
 court relies on Beach as authority for the doctrine. 
 
 In Hollingshead v. Woodward, 35 Hun 410, it ap- 
 peared that the company had issued to the defendant twenty- 
 five shares of stock as a stock dividend based upon surplus 
 profits. Afterwards this was cancelled before the plaintiff 
 became a creditor. It was held that the defendant was not 
 liable. 
 
 In Graham v. Railroad, 102 U. S. 148, it was held that : 
 "Where a corporation, solvent at the time, and having no 
 actual intent to defraud creditors, disposes of its lands for an 
 inadequate consideration or by a voluntary conveyance, its 
 subsequent creditors can not question the transaction."
 
 972 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 In Morgan v. Lewis, 46 Ohio St. i, the defendant sold 
 a furnace to the company and took pay therefor in stock of 
 the company. The company became dissatisfied with the 
 furnace, and the sale was rescinded, the company giving 
 back the furnace and taking back the stock. It was held 
 to be a good defense as against a claim by subsequent cred- 
 itors for unpaid subscriptions on the stock. 
 
 In Insurance Co. v. Swigert, 135 Ills. 162, the question 
 was the power of a receiver of a corporation to sue for 
 unpaid subscriptions on stock where the stockholder by ar- 
 rangement with the company had surrendered his stock and 
 been released. It was held that as the company could not 
 maintain such an action, the receiver (who was held to 
 have no more power, under the law applicable to such cases 
 in Illinois, than a voluntary assignee would have here) could 
 not do so. The rights of creditors were not properly be- 
 fore the court, and, hence, it was only stated, at page 163 
 of the opinion, that such a surrender was fraudulent as to 
 existing creditors, but that as between the surrendering 
 stockholder and the company there was no longer any in- 
 debtedness on account of subscriptions for stock. 
 
 Trust Co. V. Abbott, 162 Mass. 148, was a bill against 
 the executor of a deceased stockholder to compel specific per- 
 formance of a contract of the deceased stockholder that upon 
 his death the stock should be appraised and sold to the com- 
 pany. The questions involved in this case were not present 
 in that case at all. 
 
 In Dunn v. Howe, 96 Fed. Rep. 160, it was held that 
 under the statutes of Maine an assignee of an insolvent cor- 
 poration can sue stockholders for unpaid subscriptions on 
 stock. The questions under consideration in the case at bar 
 were not present in that case, and what is therein said about 
 "treasury stock," must be read in the light of the case in 
 judgment. 
 
 On the other hand, it is contended by the plaintiff 
 herein that neither the coi-poration, its officers nor stock- 
 holders have any power to agree with a subscriber for stock
 
 BANKING CO. v. WOOL MANUFACTURING CO. 973 
 
 that his subscription be cancelled, unless such power is ex- 
 pressly given to them by charter or statute, and that unpaid 
 stock subscriptions constitute assets of the corporation which 
 all creditors, existing or subsequent to the time of such at- 
 tempted cancellation, have a right to look to for the pay- 
 ment of their debts, and that this right exists whether the 
 creditor knew the fact that there were any such unpaid stock 
 subscriptions when he extended credit to the company or 
 not, the only exceptions to this rule being the right of the 
 company to protect itself by forfeiting stock where the 
 subscriber fails to pay for it, and in cases of a dispute be- 
 tween the company and the stockholder as to his liability, 
 the matter may be compromised and the stock surrendered, 
 if done in good faith. As to such exceptions, see Morawetz 
 on Priv. Cor. p., sees. 125 and 114, and 2 Thompson on Law 
 of Corp., sec. 1553, and see also sec. 961. Revised Statutes 
 1899, which provides substantially the same thing. In sup- 
 port of the general rule stated, the plaintiff aptly cites the 
 following authorities : i Morawetz on Private Corporations, 
 sec. 109, et seq ; 2 Ibid., sec. 824, et seq. ; 2 Thompson's Com. 
 on Law of Corporations, sec. 1151, et seq. ; Insurance Co. v. 
 Floyd. 74 Mo. 286; Nichols v. Stevens, 123 Mo. 96; Olles- 
 heimer v. Mfg. Co., 44 Mo. App. 172; Wells & Co. v. 
 Thompson Mfg. Co., 54 Mo. App. 41 ; Shickle v. Watts, 
 94 Mo. 410; Rawhide Co. v. Hill, ■/2 Mo. App. 142; 
 Skrainka 7'. Allen, 7 ]Mo. App. 434; s. c, 76 Mo. 384; Gill v. 
 Balis, yz Mo. 424; Ramsey v. Mfg. Co., 116 Mo. 313 ; State 
 ex rel. v. McGrath. 86 Mo. 239; Thompson v. Lake, 19 Nev. 
 103 ; Hamor ?•'. Eng. Co.. 84 Fed. ?Q2 ; Putnam z: Hutchison 
 
 45 Pac. Rep. 931 ; s. c, 4 Kans. App. 273 ; Allibone v. Hager, 
 
 46 Pa. St. 48 ; Railroad v. Bowser, 48 Pa. St. 29 ; Ailing v. 
 Wenzel, i^^ 111. 264; Singer z'. Given. 61 Iowa 93 ; Railroad 
 V. Eastman, 34 N. H. 140; Upton v. Tribilcock, 91 U. S. 
 45 ; Crandall z'. Lincoln, 52 Conn. y;^. 
 
 To these cases it is only necessary to add Camden v. 
 Stuart, 144 U. S. 1. c. 113-114, and Van Clcvc ;:•. Berkey. 
 143 Mo. 109.
 
 974 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 111 the case last cited, Brace^ J., speaking for this court, 
 in an elaborate and exhaustive opinion, reviewed the cases 
 in this State and in other jurisdictions, and concluded as 
 follows : 
 
 "Upon a review of all the cases decided by the appellate 
 courts of this State since the adoption of the Constitution of 
 1875, the ruling in all of which will be found to be in har- 
 mony, it is impossible to escape the conviction that in this 
 State, whatever may- be the case in some of the other States, 
 the American Trust Doctrine, as suggested by Mr. Justice 
 Harlan, has indeed been 'reinforced' by its Constitution and 
 statutes ; and that the proposition that the stock of a corpora- 
 tion must be paid for 'in meal or in malt,' in money or in 
 money's value, is not a mere figure of speech, but really has 
 the significance of its terms. It may be paid for in property, 
 but in such case the property must be the fair equivalent in 
 value to the par value of the stock issued therefor; that it is 
 the duty of the stockholders to see that it possesses such 
 value; that when a corporation is sent forth into the com- 
 mercial world, accredited by them as possessed of a capital 
 in money, or its equivalent, in property, equal to the par 
 value of its capital stock, every person dealing with it, unless 
 otherwise advised, has a right to extend credit to it on the 
 faith of the fact that its capital stock has been so paid and 
 that the money or its equivalent in property will be forth- 
 coming to respond to his legitimate demands. In short, that 
 it is the duty of the stockholder, and not of the creditor, to 
 see that it is so paid ; hence, the inquiry in a case between the 
 creditor and a stockholder when property has been paid in 
 for the capital stock of a corporation, is not whether the 
 stockholder believed or had reason to believe that the prop- 
 erty was equal in value to the par value of the capital stock; 
 but whether, in point of fact, it was such equivalent." 
 
 In the opinion just referred to, the cases of Insurance 
 
 ^ 
 
 'The rest of the opinion, dealing with a question under the Mis- 
 souri statute of limitations and with whether Simpson was a bona fide 
 holder of the claim, is omitted.
 
 BANKING CO. v. WOOL MANUFACTURING CO. 975 
 
 Co. V. Floyd, 74 Mo. 286 ; Gill v. Balis, 72 Mo. 424 ; Ramsey 
 V. Mfg. Co., 116 Mo. 313, and Upton v. Tribilcock, 91 U. 
 S. 45, which hold that a corporation can not make an ar- 
 rangement with any of its stockholders by which they are 
 to be released from the payment of their stock subscribed, or 
 any part thereof, so as to affect the rights of the creditors, 
 are cited, followed, approved and that doctrine firmly re- 
 stated. The cases of Erskine v. Peck and Johnson v. Lull- 
 man, were distinguished in the Upton case, supra, and over- 
 ruled as far as it was possible for that court to do so, and 
 the contrary doctrine announced by the St. Louis Court of 
 Appeals in Ollesheimer v. Mfg. Co., 44 Mo. App. 172, and in 
 Wells & Co. V. Thompson Mfg. Co., 54 M. App. 41, was 
 approved. 
 
 So that the law is now well settled in Missouri, as well 
 as by the weight of authority in America, that unpaid stock 
 subscriptions constitute an asset of an incorporated com- 
 pany, which all creditors, without regard to when their debts 
 were contracted, have a right to look to and which can not 
 be extinguished, released, given away, wiped out or im- 
 paired by any act of the corporation or the stockholder to 
 the injury of the creditor except by his consent. 
 
 This is not only the legal rule but it conforms also to the 
 demands of business integrity and honesty and is the logical 
 sequence of the voluntary act of the stockholder flowing 
 from his subscription. The statutes of this State authorize 
 the formation of a business corporation — such as this com- 
 pany — only upon condition that all of the stock has been 
 bona fide subscribed and that at least fifty per cent thereof 
 has been paid up in lawful money of the United States (or 
 in its equivalent). This is the statement and representation 
 that is held out to the world by the incorporators, and their 
 transferees, of every incorporated company. If the incor- 
 porators or stockholders could be allowed, as soon as the 
 incorporation was completed, to sell out their stock to the 
 company, and thereby escape liability for unpaid subscrip- 
 tions, or in case the stock was fully paid, to receive back
 
 976 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 from the company the amount paid in, and to turn back to 
 the company the stock subscribed, the doors for great frauds 
 upon the creditors would be thrown wide open, and the con- 
 sequences would not only be disastrous to creditors, but 
 would also be fatal to the corporations themselves, inasmuch 
 as no one would deal with corporations under such con- 
 ditions. 
 
 The statutes afford ample, honest and sufficient 
 methods for reducing the stock of an incorporated com- 
 pany, and the rights of creditors as well as the interests of 
 such companies are fully protected. Such a proceeding as 
 was resorted to in this case is wholly without legal au- 
 thority or protection. Either the whole stock was only paid 
 up to the extent of eighty per cent, or else there were one 
 hundred shares subscribed for (of which the defendant 
 McCoy had fifty) upon which not one cent was paid to the 
 company by the subscribers, and for which the company paid 
 the subscribers not one cent when it resolved to buy them 
 back at one hundred dollars a share, and to make them 
 "treasury stock." 
 
 The parties have treated these shares as absolutely un- 
 paid shares, and they can not complain if the consequences 
 of such a position are visited upon them. It is a legal 
 solecism to say that any business corporation, under our law, 
 can become the owner of shares in such corporation, which 
 are wholly unpaid for. At least fifty per cent was paid 
 thereon before the company was incorporated, or else the 
 incorporators did not tell the truth, and the incorporation 
 was a fraud upon the State. But it has passed into a legal 
 truism in Missouri that so far as creditors are concerned, 
 unpaid stock subscriptions constitute an asset of the corpora- 
 tion that can be subjected to the payment of the debts of 
 the corporation. The American doctrine is that such unpaid 
 stock subscriptions constitute, in equity, a trust fund in the 
 hands of the directors of the corporation for the payment 
 of debts. Strictly and technically, of course such unpaid 
 subscriptions are not a trust fund, but are rather an asset
 
 BANKING CO. v. WOOL MANUFACTURING CO. 977 
 
 of the corporation which it would be a fraud upon the cred- 
 itors for the directors to dispose of in any manner or for 
 any purpose except for the payment of the debts of the 
 corporation. And this being true the courts will undo the 
 fraudulent transfer and gather in the asset for the benefit 
 of the creditors. 
 
 From these considerations it follows that the instruetion 
 given by the court to the effect that if the stock subscription 
 sued on was cancelled and surrendered by the defendant 
 with the consent of all the stockholders of the company 
 prior to the time the debt in suit was contracted, the plaintiff 
 can not recover, was erroneous, and that on the contrary the 
 defendant is liable to the creditors of the company, without 
 regard to when their debts were contracted, for the unpaid 
 subscription for such stock, and that the attempted sur- 
 render and cancellation of the subscription and the purchase 
 of such stock by the company as ''treasury stock," is void, 
 and of no more effect than if no such thing had ever been 
 attempted, and that the plaintiff is entitled to a judgment 
 unless some of the other defenses are well founded.^ 
 
 Affirmed.^ 
 
 "The rest of the opinion dealing with a question under the Missouri 
 statute of Hmitations is omitted. 
 
 ^Compare: Hill v. Silvcy, 8i Ga. 500, 1888. (The charter of a 
 bank provided the sum of $200,000 as the minimum amount of capital 
 which would authorize it to do business, and that subscribers for stock 
 should be liable for the debts of the bank to the extent of the unpaid 
 stock subscribed for by them, in proportion to the number of shares 
 held by them. There was a stock subscription list amounting to 
 $408,200, and an organization of the bank in which 2,400 shares of stock 
 were represented. In pursuance of regular calls, the subscribers rep- 
 resented in the organization paid fifty per cent, on their subscribed 
 stock. On June 30, 1873, a return was made to the governor, 
 under section 1467 of the code, representing the capital stock paid in 
 as $140,340, and containing no statement of the capital stock subscribed. 
 No action was taken definitely fixing any amount as the capital stock, 
 until January, 1874, when the stockholders, by resolution, declared that 
 it was thought best to reduce the stock to full paid up stock, that certi- 
 ficates of stock be issued for the amount actually paid in, and that the 
 capital stock and subscriptions be reduced to the amounts actually paid 
 in; providing further that the books should be opened for additional 
 subscriptions of full paid up stock, to remain open until the whole capi- 
 tal stock subscribed should reach the sum of $400,000. No certificates 
 of stock were issued until after this action. Other returns to the gov- 
 ernor were made from year to year, showing the amount of capital 
 stock as gradually increasing to $186,300, then decreasing to $160,000 on 
 December 31, 1880, when the last return was made. The bank, becom- 
 ing insolvent in 1881, made an assignment of all its property, rights,
 
 978 
 
 LIABILITY OF ORIGINAL SHAREHOLDERS 
 
 etc., for the benefit of its creditors. Under a bill filed by the State of 
 Georgia in behalf of itself and other creditors, the assignees were 
 appointed receivers of all the property, etc., assigned to them. They 
 brought a bill against the stockholders to collect the remaining fifty 
 per cent, on their subscriptions, alleging that the resolutions above 
 referred to were void, and that the unpaid fifty per cent, were assets 
 of the bank w)hich passed by the deed of assignment, and were a fund 
 in equity to be collected and applied to the payment of the bank's 
 debts." Bill dismissed. Gustis, J. : "In later years, another class of 
 cases has arisen in which, after the capital stock has been subscribed, 
 the fund representing it has been reduced by arrangements among the 
 stockholders, either to treat the whole subscription as paid, when part 
 only has been, to reduce the capital stock after subscription, or other 
 agreements of like character ; and the question has arisen in these 
 cases whether as to future creditors the same absolute liability attaches, 
 or whether certain qualifications are to be made according to the cir- 
 cumstances of each case. * * * It must be apparent that the 
 stock as originally shown by the subscription list, was never held out 
 to the world as the stock of the corporation, and that the creditors did 
 not rely nor will they be legally presumed to have relied thereon. No 
 creditor has by any pleadings or evidence sought to set up any such 
 claim ; they rest on the naked fact that the subscription was made. 
 To the extent of the two hundred thousand dollars, the minimum 
 capital stock allowed by the charter upon which business could be 
 commenced, they certainly had a right to presume that the stock had 
 been subscribed ; the fact alone of the commencement of business 
 created that presumption, and to that extent we have no doubt that the 
 stockholders were correctly held liable. But beyond that amount no 
 such presumption arises. No act, no statement of the corporation, is 
 shown by which it has ever in any manner sought to mislead the 
 public as to the real amount of its capital stock.")
 
 APPENDIX A. 
 
 PENNSYLVANIA LEGISLATURE ON 
 ASSOCIATIONS. 
 
 SECTION I.— ASSOCIATIONS ORGANIZED ON 
 THE NON-REPRESENTATIVE PRINCIPLE. 
 
 LIMITED PARTNERSHIPS. 
 
 ACT OF MARCH 21, 1836.^ 
 
 Section i. Limited partnerships for the transaction of 
 any agricultural, mercantile, mechanical, mining and trans- 
 porting of coal, or manufacturing business, within this state, 
 may be formed by two or more persons, upon the terms, 
 with the rights and powers, and subject to the conditions 
 and liabilities herein prescribed; but the provisions of this 
 act shall not be construed to authorize any such partner- 
 ship for the purpose of banking or making insurance. 
 
 Section 2. Such partnerships may consist of one or 
 more persons, who shall be called general partners, and who 
 shall be jointly and severally responsible as general partners 
 now are by law, and of one or more persons who shall con- 
 tribute in actual cash payments,- a specific sum as capital to 
 the common stock, who shall be called special partners, and 
 who shall not be liable for the debts of the partnership be- 
 yond the fund so contributed by him or them to the capital. 
 
 Section 3. The general partners only shall be author- 
 ized to transact business and sign for the partnership, and 
 to bind the same. 
 
 *P. L. 143. 
 
 ^ These payments may now be made in goods or merchandise. See 
 Act of 1865, infra, page 8.
 
 2 PENNSYLVANIA ASSOCIATION ACTS 
 
 Section 4. The persons desirous of forming such 
 partnership shall make and severally sign a certificate, which 
 shall contain : — 
 
 I. The name or firm under which such partnership is 
 to be conducted. 
 
 II. The general nature of the business intended to be 
 transacted. 
 
 III. The names of all the general and special partners 
 interested therein, distinguishing which are general and 
 which are special partners,^ and their respective places of 
 residence. 
 
 IV. The amount of capital which each special partner 
 shall have contributed to the common stock. 
 
 V. The period at which the partnership is to com- 
 mence, and the period at which it will terminate. 
 
 Section 5. The certificate shall be acknowledged by 
 the several persons signing the same, in the manner, and 
 before the same persons, that deeds are now acknowledged, 
 and the said acknowledgment shall be certified in the same 
 manner as the acknowledgment of deeds are now certified. 
 
 Section 6. The certificate so acknowledged and certi- 
 fied, shall be recorded and filed in the office of the recorder 
 of deeds of the proper county, in which the principal place 
 of business of the partnership shall be situated, and shall 
 also be recorded by him at large, in a book to be kept for 
 that purpose open to public inspection: If the partnership 
 shall have places of business situated in different counties, a 
 transcript of the certificate and of the acknowledgment 
 thereof, duly certified by the recorder in whose office it shall 
 be filed, and under his official seal, shall be filed and re- 
 corded in like manner in the office of the recorder of every 
 such county. 
 
 Section 7. At the time of filing the original certifi- 
 cate, with the evidence of the acknowledgment thereof, as 
 before directed, an affidavit of one or more of the general 
 
 See, however, Act of-iSsS, section i, infra, page 5.
 
 LBIITED PARTNERSHIPS 3 
 
 partners shall also be filed in the same office, stating the 
 sums specified in the certificate to have been contributed by 
 each of the special partners to the common stock, and to 
 have been actually, and in good faith, paid in cash. 
 
 Section 8. No such partnership shall be deemed to 
 have been formed until a certificate shall have been made, 
 acknowledged and filed, and recorded, nor until an affidavit 
 shall have been filed as above directed; and if any false 
 statement be made in such certificate or affidavit, all the 
 persons interested in such partnership shall be liable for all 
 the engagements thereof, as general partners. 
 
 Section 9. The partners shall publish the terms of the 
 partnership, when registered, for at least six weeks imme- 
 diately after such registry, in two newspapers, to be desig- 
 nated by the recorder of deeds of- the county in which such 
 registry shall be made, and to be published in the county or 
 counties in which their business shall be carried on ; and if 
 such publication be not made, the partnership shall be 
 deemed general. 
 
 Section 10. Affidavits of the publication of such no- 
 tice by the printers of the newspapers in which the same 
 shall be published, may be filed with the recorder, directing 
 the same, and shall be evidence of the facts therein con- 
 tained. 
 
 Section ii. Every renewal or continuance of such 
 partnership beyond the time originally fixed for its dura- 
 tion, shall be certified, acknowledged and recorded, and an 
 affidavit of a general partner be made and filed, and notice 
 be given in the manner herein required for its original 
 formation, and every such partnership which shall be 
 otherwise renewed or continued, shall be deemed a general 
 partnership. 
 
 Section 12, Every alteration which shall be made in 
 the names of the partners, in the nature of the business, or 
 in the capital or shares thereof, or in any other matter speci- 
 fied in the original certificate, shall be deemed a dissolution 
 of the partnership, and every such partnership which shall
 
 4 PENNSYLVANIA ASSOCIATION ACTS 
 
 in any manner be carried on after any such alteration shall 
 have been made, shall be deemed a general partnership, 
 unless renewed as a special partnership, according to the 
 provisions of the last section. 
 
 Section 13. The business of the partnership shall be 
 conducted under a firm, in which the names of the general 
 partners only shall be inserted, without the addition of the 
 word "Company,"'* or any other general term, and if the 
 name of any special partner shall be used in such firm, with 
 his privity, he shall be deemed a general partner. 
 
 Section 14. Suits in relation to the business of the 
 partnership may be brought and conducted by and against 
 the general partners, in the same manner as if there were 
 no special partners. 
 
 Section 15. No part of the sum which any special 
 partner shall have contributed to the capital stock, shall be 
 liable for any debts previously contracted by the general 
 partners, nor shall any part of such sum be withdrawn by 
 him, or paid or transferred to him in the shape of dividends, 
 profits, or otherwise, at any time during the continuance of 
 the partnership; but any partner may annually receive law- 
 ful interest on the sum so contributed by him, if the pay- 
 ment of such interest shall not reduce the original amount 
 of such capital, and if after the payment of such interest, 
 any profits shall remain to be divided, he may also receive 
 his portion of such profits. 
 
 Section 16. If it shall appear that by the payment of 
 interest or profits to any special partner, the original capi- 
 tal has been reduced, the partner receiving the same shall be 
 bound to restore the amount necessary to make good his 
 share of capital, with interest. 
 
 Section 17. A special partner may, from time to time, 
 examine into the state and progress of the partnership con- 
 cerns, and may advise as to their management, but he shall 
 not transact any business on account of the partnership, nor 
 
 * See, however, Act of 1865, section 2, and 1868, section i, infra, 
 page 9.
 
 LIMITED PARTNERSHIPS 5 
 
 be employed for that purpose as agent, attorney or other- 
 wise; if he shall interfere contrary to these provisions, he 
 shall be deemed a general partner. 
 
 Section i8. The general partners shall be liable to ac- 
 count to each other and to the special partners, for the 
 management of their concern, both in law and equity, as 
 other partners now are- by law. 
 
 Section 19. Every partner who shall be guilty of any 
 fraud in the affairs of the partnership, shall be liable civilly 
 to the party injured, to the extent of his damage. 
 
 Section 20. Every sale, assignment, or transfer of any 
 of the property or effects of such partnership, made by such 
 partnership when insolvent, or in contemplation of insolv- 
 ency, or after or in contemplation of the insolvency of an}- 
 partner, with the intent of giving a preference to any credi- 
 tor of such partnership or insolvent partner over other cred- 
 itors of such partnership, and every judgment confessed, 
 lien created, or security given by any such partner under 
 the like circumstances and with the like intent, shall be void 
 as against the creditors of the partnership. 
 
 Section 21. Every such sale, assignment, or transfer 
 of any of the property or effects of the general or special 
 partner, made by such general or special partner when in- 
 solvent, or in contemplation of insolvency, or after or in 
 contemplation of the insolvency of the partnership, with the 
 intent of giving to any creditor of his own or of the part- 
 nership a preference over creditors of the partnership, and 
 ever)' judgment confessed, lien created, or security given by 
 any such partner under the like circumstances and with the 
 like intent, shall be void as against the creditors of the part- 
 nership. 
 
 Section 22. Every special partner who shall violate 
 any provision of the two last preceding sections, or who 
 shall concur in or assent to any such violation by the part- 
 nership, or by any individual partner, shall be liable as a 
 general partner. 
 
 Section 23. In case of the insolvency or bankruptcy
 
 6 PENNSYLVANIA ASSOCIATION ACTS 
 
 of the partnership, no special partner shall, under any cir- 
 cumstances, be allowed to claim as a creditor, until the 
 claims of all the other creditors of the partnership shall be 
 satisfied. 
 
 Section 24. No dissolution of such partnership by the 
 acts of the parties, shall take place previous to the time 
 specified in the certificate of its formation, or in the certifi- 
 cate of its renewal, until a notice of such dissolution shall 
 have been filed and recorded in the recorder's office in which 
 the original certificate was recorded, and published once in 
 each week for four weeks, in a newspaper printed in each 
 of the counties where the partnership may have places of 
 business. 
 
 ACT OF APRIL 1 6, 1838.^ 
 
 A general partner in any limited partnership may, with 
 the assent in writing of his partner, by deed duly acknowl- 
 edged and recorded, or by last will and testament, in writ- 
 ing, sell, assign, dispose of or bequeath his interest in such 
 limited partnership ; and when such general partner dies 
 without having disposed of his interest in such limited part- 
 nership, his administrator nv executor may, in like manner, 
 sell, assign and transfer his interest therein for the benefit 
 of his estate ; and on every such sale, transfer or bequest, a 
 corresponding alteration shall be made in the name or firm 
 under which the business of such partnership is conducted, 
 and the same shall be forthwith acknowledged, certified, re- 
 corded and published, in the same manner as is provided by 
 law in the case of the original formation of the partnership. 
 
 A special partner, with the assent of his partner, in 
 writing, first had and obtained, may sell or assign his in- 
 terest in a limited partnership without causing thereby a 
 dissolution of the partnership. 
 
 The insolvency of any special partner shall not cause 
 
 ' P. L. 689, 691.
 
 LIMITED PARTXERSHIPS 7 
 
 a dissolution of the limited partnership, but his interest 
 therein shall be sold by his assignees for the benefit of his 
 creditors. 
 
 When any special partner shall die, without having 
 disposed of his interest in the limited partnership, his ex- 
 ecutor or administrator may either continue his interest 
 therein for its unexpired term, for the benefit of his estate, 
 or may sell the same at public auction, under the dii:«ction 
 of the Orphans' Court of the county in which the principal 
 place of business of such partnership may be, in the same 
 manner as the estates of intestates are now by law sold; 
 testamentary dispositions, in writing, of the interest of 
 special partners may also be made; the decease of special 
 partners shall not dissolve such limited partnership, unless 
 by the agreement between the parties it is provided that 
 such decease shall have that -effect. 
 
 Every alteration in such limited partnership, according 
 to the provisions of this resolve, shall be notified to the 
 general partner, and shall be duly acknowledged, certified 
 and recorded, as in the case of the original formation of 
 such partnership. 
 
 ACT OF APRIL 21, 1858.'^ 
 
 Section i. The terms of the partnership required to 
 be published by the ninth section of the act to which this is 
 a further supplement [Act of March 21st, 1836] shall con- 
 sist of — 
 
 I. The name of the firm under which such partner- 
 ship shall be conducted. 
 
 II. The general nature of the business intended to be 
 transacted. 
 
 III. The names of the general partners, and their re- 
 spective places of residence. 
 
 IV. The aggregate amount of capital contributed by 
 the special partners to the common stock. 
 
 ' P. L. 383.
 
 8 PENNSYLVANIA ASSOCIATION ACTS 
 
 V. The period at which the partnership is to com- 
 mence, and the period at which it will terminate. 
 
 Section 2. The consent of the partners to a sale 
 or transfer, by either the general or special partners, of 
 their respective interests in the partnership, in pursuance 
 of the resolution of the sixteenth of April, one thousand 
 eight hundred and thirty-eight, may be given in advance, 
 either in the original articles of partnership or other like 
 instrument; and a sale or transfer of any part or share of 
 the interest in the firm of any partner, if made in pursuance 
 of the articles of copartnership, or previously expressed 
 consent of the partners as aforesaid, shall be equally 
 valid as a sale of the whole interest of any one or more 
 of the partners; and it shall further be lawful for the gen- 
 eral partner or partners, or either of them, to purchase part 
 or the whole of the interest or shares of one or more of the 
 special partners. 
 
 Section 3. The capital of the firm may be in- 
 creased either by taking in new special partners, or new 
 subscriptions of capital from the partners previously in the 
 firm ; such increase being made in pursuance of the consent 
 of the partners, as expressed in the original articles of 
 partnership, or in any subsequent instrument of writing. 
 
 Section 4. Ever\^ such increase of capital shall be 
 duly acknowledged, certified and recorded ; but no neg- 
 lect in recording the certificate of any such increase of 
 capital, or of any sale or transfer of the interests or shares 
 of the special partners, or any of them, shall be construed 
 to operate as a dissolution of the firm, or to make the spe- 
 cial partners liable as general partners. 
 
 act of march 30, 1865.''' 
 
 Section i. It shall and may be lawful for any special 
 partner to make his contribution to the common stock of any 
 
 ' P. L. 46.
 
 LIMITED PARTXERSHIPS 9 
 
 limited partnership, he may become a member of, in cash, 
 sroods or merchandize : Provided, That when such contri- 
 butions are made, in goods or merchandize, the same shall 
 first be appraised, under oath, by an appraiser, who shall 
 be appointed by the court of common pleas of the county, 
 in which such partnership is to be carried on: Aiid provided 
 also. That in the certificate now required by law, the nature 
 and value of the said goods shall be fully set forth and 
 described. 
 
 Section 2. The business of the partnership shall be 
 conducted under a firm, in which the names of all the gen- 
 eral partners shall be inserted, except, that when there are 
 more than two general partners, the firm name may con- 
 sist of either two of such partners, with the addition of the 
 words, "and company," but the said partnership shall put 
 up, upon some conspicuous place on the outside, and in front 
 of the building in which it has its cliief place of business, 
 some sign, on which, shall be painted, in legible English 
 characters, all the names, in full, of all the members of said 
 partnership, stating who are general, and who are special, 
 partners. 
 
 ACT OF FEBRUARY 21, 1 868.^ 
 
 Section i. The firm name of any limited partnership 
 may consist of the name of any general partner, with the 
 addition of the words "and company," notwithstanding the 
 name of such general partner may be common to him and 
 any special partner ; but the said partnership shall put up the 
 sign required by the second section of the act approved the 
 thirtieth of March, one thousand eight hundred and sixty- 
 five, to which this is a supplement.^ 
 
 ' P. L. 42. 
 
 ^ For annotations to these statutes see Pepper and Lewis'? Digest 
 of Laws, edition of 1909, title, Limited Partnership, paragraph i, et seq.
 
 10 PENNSYLVANIA ASSOCIATION ACTS 
 
 SECTION 2. — ASSOCIATIONS ORGANIZED ON 
 THE REPRESENTATIVE PRINCIPLE. 
 
 REGISTERED PARTNERSHIPS UNDER THE ACT 
 
 OF 1899.^ 
 
 Section i. Where two or more persons may desire 
 to associate themselves in partnership for the purpose of 
 conducting any kind or kinds of business, trade or occu- 
 pation, except the construction and operation of electric 
 light and power companies, banking or trust companies, ar- 
 tificial or natural gas companies, water companies, railroad, 
 street passenger railway, or traction companies, within this 
 State, or any portion of the United States or elsewhere, 
 whose principal office or place of business shall be specified 
 in the way and manner hereinafter set forth as being in- 
 tended to be established and maintained within this State, 
 and may desire to limit the liability of one or more or all of 
 the partners for the debts of the partnership to the amount 
 of capital subscribed by such partner or partners, respect- 
 ively, it shall and may be lawful to do so in the manner fol- 
 lowing, to wit : Said partners, so desiring to associate them- 
 selves, shall subscribe to articles of partnership, wherein 
 shall be stated the name and style of the partnership, its 
 purposes and duration, the county wherein its principal office 
 or place of business is to be located, the names of the sev- 
 eral partners, and the amount of the capital subscribed by 
 each partner and when and how the same is to be paid, and 
 the names of the partners, one or more or all, whose liabil- 
 ity is to be limited to the amount subscribed by each to the 
 capital. Such articles of partnership shall be acknowledged 
 before some officer competent to take the acknowledgment 
 of deeds, and shall be recorded in the office of the recorder 
 of deeds of the county in which is located the place desig- 
 nated as the principal office or place of business. Amend- 
 
 ' Act of May 9, P. L. 261.
 
 REGISTERED PARTNERSHIPS 11 
 
 ments to said articles of partnership shall be made in like 
 manner, and shall be effective only when recorded in the 
 office of the said recorder of deeds. A copy of said articles 
 of partnership, and of all amendments thereto, duly certi- 
 fied by the recorder of deeds, shall also be filed, within 
 thirty days after the recording of said articles or amend- 
 ments in said recorder's office, in the office of the Secretary 
 of the Commonwealth. The business of the partnership 
 may be commenced after the articles of partnership ha\'e 
 been left for record in the office of the recorder of deeds.- 
 
 Section 2. Notice of the formation of the partnership 
 shall be published in a newspaper of general circulation in 
 the county wherein is located the place designated as the 
 principal office, or place of business. This notice shall be 
 published once a week for three weeks. The first publica- 
 tion shall appear not later than the day following the filing 
 of the articles of partnership in the office of the recorder 
 of deeds. This notice shall state the name, style and gen- 
 eral purpose of the partnership, the names of the partners, 
 the amount of capital subscribed for by each partner, and 
 when and how the amount of such subscription is to-be paid. 
 It shall also state the fact that the liability of one or more 
 or all of the partners is limited in accordance with this stat- 
 ute, and that the articles of partnership have been left for 
 record in the office of the recorder of deeds. If a time be 
 fixed in the articles of partnership for its duration, such 
 time shall also be stated in the said notice. No name or 
 style of partnership shall be adopted which will include the 
 name of any partner whose liability is intended to be lim- 
 ited, unless there shall be added the word ''Registered.'' 
 
 Section 3. No member of any such partnership thus 
 formed, recorded and published, whose liability is stated as 
 intended to be limited in the manner hereinbefore set forth, 
 shall be liable for its debts under any circumstances saving 
 to the extent of the amount of his or her subscription, with 
 
 ^ The words in italics were added by the Act of Julv 9, 1901, P. L. 
 625.
 
 12 PENxXSYLVANIA ASSOCIATION ACTS 
 
 interest on unpaid subscriptions from the date or dates at 
 which the same became actuahy due and payable. Payment 
 of the amount of the subscription of such member of the 
 partnership, with interest as aforesaid, shall exonerate such 
 partner from all further liability. A partner or partners 
 whose liability is thus limited shall not be precluded from 
 transacting business with or for the partnership. 
 
 Section 4. It shall be lawful for said partnership to 
 adopt such by-laws, rules and regulations, as a majority 
 of the number in interest of the partners from time to time 
 may prescribe for the regulation of the affairs of the part- 
 nership. Official positions for the transaction of the busi- 
 ness of the partnership may be constituted by such by-laws, 
 rules and regulations, and the powers and duties of the re- 
 spective officers prescribed therein. The partners may pro- 
 vide that certain only of the members shall have active 
 charge of the business and be authorized to enter into con- 
 tracts, undertakings or engagements whereby the partner- 
 ship shall be held liable, and may change the same as they 
 see fit. It shall be optional with the partnership whether 
 such provision shall or shall not be made. It shall also be 
 optional with the partnership, if such provision be made, to 
 state the same in the original articles of partnership, or in 
 amendments thereto, or in any statement subscribed by the 
 partners. If the partners shall desire, any such statement 
 may be acknowledged, and may be recorded in the office of 
 the said recorder of deeds. The partnership may at its 
 option adopt and use a common seal. 
 
 Section 5. It shall be the duty of said partnership to 
 keep posted in the place designated as its principal office, 
 or place of business, in some place therein accessible to the 
 public during business hours, a plainly written or printed 
 list of the partners with the amount of capital subscribed 
 hv each, the amount paid in by each partner, and in the case 
 of any partner whose liability is limited the words "Lim- 
 ited Liabilitv" shall be added to his name where it appears 
 in such list. This notice shall also state the volume and
 
 REGISTERED PARTNERSHIPS 13 
 
 page of the record of the articles of partnership in the office 
 of the recorder of deeds. If on the signs used by the part- 
 nership, or if on any bill-heads, letter-heads, or other pub- 
 lications of the partnership, the names of the several part- 
 ners should be stated, the words "Limited Liability" shall 
 be added to the name of the partner whose liability is lim- 
 ited in the way herein provided. A violation of any of the 
 provisions of this section shall be a misdemeanor. "Each 
 member of the partnership who shall participate in such 
 violation shall be liable to prosecution for such misde- 
 meanor, and upon conviction shall be sentenced to pay a fine 
 of not less than one hundred dollars, and not more than 
 five hundred dollars, for each violation of the provisions of 
 said section. 
 
 Section 6. If any partner whose liability is limited in 
 the manner herein provided shall obtain credit, money, 
 goods or other valuable thing by a false statement to the 
 efTect that he is a general partner, he shall be deemed guilty 
 of a misdemeanor, and upon conviction thereof shall be 
 sentenced to pay a fine of not less than one hundred dollars, 
 and not more than five hundred dollars. 
 
 Section 7. Interest in said partnership shall be per- 
 sonal estate, and may be transferred, given, bequeathed, 
 distributed, sold or assigned, under such rules and regula- 
 tions as may, from time to time, be prescribed by a vote of 
 the majority in number and interest of the partners; but, in 
 the absence of such rules and regulations, the transferee of 
 any such interest shall not be entitled to participation in the 
 subsequent business of the partnership unless elected as a 
 partner therein by a vote of the majority in number and 
 interest of the remaining partners. And any change of 
 ownership, whether by sale, death, bankruptcy or otherwise, 
 which shall occur in the absence of such rules and regula- 
 tions, and which shall not be followed by election to mem- 
 bership, shall entitle the owner or transferee to the book 
 value of the interest so acquired, as ascertained and fixed, 
 as hereinafter provided, at the last period preceding the 
 date at which the member parted with or lost his interest,
 
 14 PENNSYLVANIA ASSOCIATION ACTS 
 
 with interest from such date. It shall be the duty of the 
 partnership at the close of each calendar year to ascertain 
 and fix the book value of the several interests, a copy of 
 which statement shall be delivered to each partner, and this 
 settlement shall be conclusive and final upon all members of 
 the said partnership, and upon all subsequent owners or 
 transferees of any interest. The transfer of any interest, 
 however occurring, shall not dissolve the partnership, nor 
 shall said partnership be dissolved by reason of the death of 
 one or more of the partners, unless the articles of associa- 
 tion shall prescribe to the contrary. In case of a change 
 in the members of the partnership by reason of death, trans- 
 fer or otherwise, it shall not be necessary to make any pub- 
 lication of the fact thereof. 
 
 Section 8. If at the expiration of the time fixed for 
 the duration of the partnership, if any time be so fixed, 
 the persons then constituting the partnership shall desire to 
 renew the same, they may do so by articles specifying the 
 fact of such renewal and the length of time fixed for the 
 duration of the renewed partnership. Such agreement of 
 renewal shall be recorded and published in the way and 
 manner hereinbefore provided in the case of an original 
 partnership. 
 
 Section 9. The partnership may take, hold, mortgage, 
 incumber, lease or convey, in fee simple, or for any less 
 estate, real estate or interests therein, in the firm name. The 
 place of record of the articles of partnership shall be stated 
 in all instruments of writing relating to real estate, but 
 failure so to state shall not invalidate the instrument. Any 
 instrument relating to real estate may be signed or sealed by 
 one or more of the partners, for the partnership and in the 
 partnership name, if the by-laws, rules or regulations shall 
 so provide, but in case less than all the partners are vested 
 with this power the fact shall be stated in the original arti- 
 cles of partnership, or in amendments thereto, or in a state- 
 ment duly signed and acknowledged by the partners and 
 recorded in the office of the said recorder of deeds. 
 
 Section id. Partnerships may be dissolved at any time
 
 REGISTERED PARTNERSHIPS 15 
 
 by a vote of the majority in number and interest of those 
 who at such time shall constitute the partnership, unless 
 the articles of association shall provide to the contrary. In 
 case of dissolution for any cause, whether by expiration of 
 the period fixed for the partnership or otherwise, notice 
 thereof shall be published in one newspaper published in the 
 count}' designated as the place wherein the principal office, 
 or place of business, is located, for six consecutive issues, 
 and immediately upon the commencement of said advertis- 
 ing said partnership shall cease to carry on its business, ex- 
 cept so far as may be required for the beneficial winding up 
 thereof. In case of dissolution, one or more liquidating 
 partners shall be elected by a vote of the majority in inter- 
 est of the partners, who shall have full power, and be 
 charged with the duty of settling the affairs of the partner- 
 ship and distribution of the assets thereof after payment of 
 its debts among the partners in proportion to their interest. 
 
 Section ii. The partnership shall sue and be sued in 
 the partnership name, and not by or in the individual names 
 of the partners. Service in case of suit may be had upon 
 any partner in the county designated as that in which the 
 principal office, or place of business, of the partnership may 
 be located. If no partner can be served in such county, 
 service may be made upon any one or more of the partners 
 in any county of the Commonwealth in which service can 
 be had. 
 
 Section 12. All laws or parts of laws inconsistent 
 herewith are hereby repealed. Nothing herein contained, 
 however, shall prevent the formation of limited partnerships 
 under the act approved the twenty-first day of March, one 
 thousand eight hundred and thirty-six, and the supplements 
 thereto, or the formation of joint stock companies undei- 
 the provisions of the act approved the second day of June, 
 one thousand eight hundred and seventy-four, and the sup- 
 plements thereto.^ 
 
 ' See also, Pepper and Lewis's Digest of Laws, edition of 1909, 
 title, Limited Partnerships, paragraphs 38-60.
 
 16 PEXXSYLVAXIA ASSOCIATION ACTS 
 
 PARTNERSHIP ASSOCIATIONS UNDER THE ACT 
 
 OF 1874.1 
 
 FORMATION. 
 
 Section i. When any three or more persons may 
 desire to form a partnership association, for the pur- 
 pose of conducting any lawful business or occupa- 
 tion, including the construction, equipment, installation, 
 and operation of a telephone or telegraph line, within the 
 United States, or elsewhere, whose principal office or place 
 of business shall be established and maintained within this 
 State, by subscribing and contributing capital thereto, which 
 capital shall alone be liable for the debts of such association, 
 it shall and may be lawful for such persons to sign and 
 acknowledge, before some officer competent to take the 
 acknowledgment of deeds, a statement, in writing, in which 
 shall be set forth the full names of such persons, and the 
 amount of capital of said association subscribed for by each; 
 the total amount of capital, and when and how paid; the 
 character of the business to be conducted, and the location 
 of the same; the name of the association, with the word 
 "limited" added thereto as part of the same; the contem- 
 plated duration of said association, which shall not in any 
 case exceed twenty years, and the names of the officers of 
 said association, selected in conformity with the provisions 
 of this act ; and any amendment of said statement shall be 
 made only in like manner, which said statement and amend- 
 ments shall be recorded in the office of the recorder of deeds 
 of the proper county: Provided, however. That the capital 
 stock of any telephone or telegraph company, incorporated 
 or created in accordance zvith the provisions of this act, shall 
 not be capitalized at more than the sum of five thousand 
 dollars.- 
 
 'Act of June 2, 1874, P. L. 271. 
 
 " The words in italics were added by the Act of June 7, 1907, P. L. 
 432. 
 
 As to the character of the capital to be contributed, see infra, 
 page 21.
 
 PARTNERSHIP ASSOCIATIONS 17 
 
 LIABILITY OF MEMBERS OF THE ASSOCIATION. 
 
 Section 2. The members of any such partnership as- 
 sociation shall not be liable under any judgment, decree or 
 order which shall be obtained against such association, or 
 for any debt or engagement of such company, further or 
 otherwise than is hereinafter provided; that is to say, if any 
 execution, sequestration or other process in the nature of 
 execution, either at law or in equity, shall have been issued 
 against the property or effects of the company, and if there 
 cannot be found sufficient thereof, whereon to levy or en- 
 force such execution, sequestration or other process, then 
 such execution, sequestration or other process may be issued 
 against any of the members to the extent of the portions of 
 their subscriptions, respectively, in the capital of the asso- 
 ciation not then paid up: Provided akvays, That no such 
 execution shall issue against any member, except upon an 
 order of court or of a judge of the court in which the action, 
 suit or other proceeding shall have been brought or insti- 
 tuted ; and the said court or judge may compel the produc- 
 tion of the books of the association, showing the names of 
 the members thereof and the amount of capital remaining 
 to be paid upon their respective subscriptions, and from 
 them or other sources of information, ascertain the truth 
 in regard thereto, and may order execution to issue ac- 
 cordingly ; and the said association shall be and it is hereby 
 required to keep a subscription list book for that purpose, 
 and the same shall be open to inspection by the creditors 
 and members of the association at all reasonable times. 
 
 Section 3. The word "limited" shall be the last word 
 of the name of every partnership association, formed under 
 the provisions of this act ; and every such association shall 
 ])aint or affix, and shall keep painted or affixed, its name on 
 the outside of every office or place in which the business 
 of the association is carried on, in a conspicuous position, 
 in letters easily legible, and shall have its full name men- 
 tioned in legible characters in all n<^tices, advertisements and
 
 18 PENNSYLVANIA ASSOCIATION ACTS 
 
 Other official publications of such association, and in all bills 
 of exchange, promissory notes, checks, orders for money, 
 bills of lading, invoices, receipts, letters and other writ- 
 ings used in the transaction of the business of the partner- 
 ship association: Provided, That the omission of the word 
 "limited" in the use of the name of the partnership associa- 
 tion shall render each and every person participant in such 
 omission, or knowingly acquiescing therein, liable for any 
 indebtedness, damage or liability arising therefrom. 
 
 TRANSFER OF INTEREST. 
 
 Section 4. Interests in such partnership associations 
 shall be personal estate, and may be transferred, given, be- 
 queathed, distributed, sold or assigned, under such rules 
 and regulations as such partnership associations shall, from 
 time to time, prescribe by a vote of a majority of the mem- 
 bers in number and value of their interests; and in the ab- 
 sence of such rules and regulations, the transferee of any 
 interest in any such association shall not be entitled to any 
 participation in the subsequent business of such association, 
 unless elected to membership therein, by a vote of a majority 
 of the members in number and value of their interests. And 
 any change of ownership, whether by sale, death, bank- 
 ruptcy or otherwise, which occurs in the absence of any 
 rules and regulations of such associations regulating such 
 transfer, and which is not followed by election to member- 
 ship in such associations, shall entitle the owner or fraiis- 
 feree only to the value of the interest so acquired at the date 
 of acquiring such interest, at a price and upon terms to be 
 mutually agreed upon, and in default of such agreement, at 
 a price and upon terms to be fixed by an appraiser to be 
 appointed by the court of common pleas of the proper 
 county, on the petition of either party, which appraisement 
 shall be subject to the approval of said court.^ 
 
 ^ The words printed in italics were added by the Act of June 25, 
 1885, P. L. 182. This first amendment, without changing the meaning, 
 changes slightly the wording of the text of the section as it stood in 
 the Act of 1874.
 
 PARTNERSHIP ASSOCIATIONS 19 
 
 ORGAXIZATIOX. 
 
 Section 5. There shall be at least one meeting of the 
 members of the association in each year, at one of the meet- 
 ings there shall be elected not less than three nor more than 
 five [nine] managers of the association, one of whom shall 
 be the chairman, one the treasurer and one the secretary, 
 or the offices of both treasurer and secretary may be 
 filled by one person, who shall hold their respective offices 
 one year and until their successors are duly installed. The 
 hoard of managers are authorized to fix the salary and 
 eonipensation of such officers and the salary and com- 
 pensation of other employes, but the president, secretary 
 and treasurer shall not receive, as salary or compensation, 
 after such association has been in existence for five years, a 
 sum in the aggregate greater than the amount of net earn- 
 ings actually earned during the year preceding, unless by 
 the consent of tzvo-thirds of all the members of the associa- 
 tion; and the salary of the president, secretary and treas- 
 urer shall be fixed for the ensuing year, by a two-thirds 
 vote of the value of interest present at the annual meeting 
 of the association, and after the annual report has been 
 made. Xo debt shall be contracted or liability incurred for 
 such association except by one or more of the managers, 
 and no liability greater than five hundred dollars except 
 against the person incurring it shall bind the association, 
 unless reduced to writing and signed by at least two man- 
 agers.^ 
 
 * The words printed in italics were added by the Act of Maj' 10, 
 1889, Section i, P. L. 183. The wording, but not the meaning, of the 
 rest of the section is shghtly changed. See supra, note 3. The section 
 was shghtly amended by the Act of June 11, 1879, P. L. 124, which per- 
 mitted seven managers to be chosen. The Act of 1889 returns to the 
 earlier provision on this subject. The section, however, is again 
 modified by the Supplement of June 8, 1S95, P. L. 186, which provides: 
 "Section 2. That all associations organized under the act to which 
 this is a supplement shall have the power, by the vote of a majority 
 in number and interest of its members, to adopt by-laws for the regu- 
 lation thereof, fixing therein the number of managers, which number 
 shall not be less than three nor more than nine, and designating the 
 principal executive officer either as president or chairman. 
 
 "Section 3. The managers of all associations, organized under the
 
 20 PENNSYLVANIA ASSOCIATION ACTS 
 
 CERTAIN RIGHTS AND DUTIES. 
 
 Section 6. The association may, from time to time, 
 divide the profits of its business in such manner and in such 
 an amount as a majority of its managers may determine, 
 which profits so divided shall not at the time diminish or 
 impair the capital of the said association; and any one 
 consenting to a dividend which shall diminish or impair 
 the capital shall be liable to any person or persons inter- 
 ested or injured thereby to th'S amount of such diminution 
 or impairment. 
 
 Section 7. It shall not be lawful for such association 
 to loan its credit, its name or its capital to any member of 
 said association, and for such loan to any other person or 
 association the consent in writing of a majority in number 
 and value of interest shall be requisite. 
 
 dissolution. 
 
 Section 8. Such association may be dissolved. 
 
 First. Whenever the period fixed for the duration of 
 the association expires. 
 
 Second, ^^1^enever, by a vote of a majority in number 
 and value of interest, it shall be so determined, and notice 
 of such winding up shall be given by publication in two 
 newspapers published in the proper city or county at least 
 six consecutive times, and immediately upon the com- 
 mencement of said advertising, said association shall cease 
 to carry on its business, except so far as may be required 
 for the beneficial winding up thereof. 
 
 Section 9. When any such partnership association 
 shall be dissolved by the voluntary action thereof, its prop- 
 erty shall be applied and distributed as follows; 
 
 First. To the payment of all debts for wages of labor. 
 
 Second. To the satisfaction of its other liabilities and 
 indebtedness. 
 
 act to which this is a supplement, shall be chosen by ballot, in person 
 or by proxy, by a majority in value of interest of the members thereof 
 voting at such election."
 
 PARTXHRSHIP ASSOCIATIONS 21 
 
 Third. After payment thereof, the same shall be dis- 
 tributed to and among the members thereof in proportion 
 to their respective interests, in the following manner : 
 
 Fourth. Three liquidating trustees, not more than two 
 of zi'horn shall have been a manager of the association so dis- 
 solved and in liquidation, shall be elected by the members of 
 tlie association, who shall have full power to settle the afifairs 
 of the association, and distribute the assets thereof after 
 the payment of its debts, among the members under the 
 direction of the court of common pleas of the proper county."' 
 
 Section io. That no amendment, modification or re- 
 peal of this act shall affect any thing duly done, right ac- 
 quired, liability incurred, or penalty, forfeiture or other pun- 
 ishment incurred or to be incurred, in respect of any offence 
 against the provisions of this act before such amendment, 
 modification or repeal comes into operation. 
 
 EXECUTION OF DEEDS. ^ 
 
 Section i. Whenever any association, formed under 
 the act to which this is a supplement, shall have occasion to 
 execute any deed of conveyance, or bonds with or without 
 coupons, and mortgages, to secure, purchase or borrow 
 moneys, such association shall have a right to adopt and use 
 a common seal, and to acknowledge such instruments or 
 writings by their chairman and secretary. 
 
 character of contribution.' 
 
 Section i. It shall and may be lawful for any person 
 desiring to form a partnership association, under the act 
 to which this is a supplement, to make contribution to the 
 capital thereof in real or personal estate, mines or other 
 property, at a valuation to be approved by all the members 
 
 ° The words printed in italics were added by the Act of May lo, 
 1889, Section 2, P. L. 184. The wording, but not the meaning of the 
 rest of the clause is slightly changed. See supra, note 3. 
 
 'Act of February 18, 1875, P. L. 3. 
 
 'Act of May i, 1876, P. L. 89.
 
 22 PENNSYLVANIA ASSOCIATION ACTS 
 
 subscribing to the capital of such association : Provided, 
 That in the statement required to be recorded by the first 
 section of the said act, subscriptions to the capital, whether 
 in cash or in property, shall be certified in this respect ac- 
 cording to the fact; and when property has been contrib- 
 uted as part of the capital, a schedule containing the names 
 of the parties so contributing with a description and valua- 
 tion of the property so contributed shall be inserted. 
 
 Section 2. That all contributions to the capital of such 
 associations, heretofore organized under the act to which 
 this is a supplement, in real or personal estate, mines or other 
 property, at a valuation agreed upon by all the members 
 subscribing to such capital, shall be as complete and effectual 
 as if the same had been made in cash: Provided, A certifi- 
 cate of the same shall be recorded as required in the first 
 section of this act. 
 
 Section 3. That all real estate owned or purchased by 
 any association heretofore created, or which may be here- 
 after created, under and by virtue of the act to which this 
 is a supplement, shall be held and owned and conveyance 
 thereof shall be made in the association name ; that said 
 association shall sue and be sued in their association name ; 
 and when suit is brought against any such association, ser- 
 vice thereof shall be made upon the chairman, secretary or 
 treasurer thereof, which service shall be as complete and 
 effective as if made upon each and every member of such 
 association. 
 
 SERVICE OF LEGAL PROCESS.^ 
 
 Section i. Any partnership association, organized 
 under the said act and the several supplements thereto, may, 
 in addition to the methods already authorized, be serv^ed 
 with legal process in any county of this commonwealth 
 where said association shall maintain and keep an office for 
 the transaction of business, by serving such process upon 
 any agent, chief or any other clerk or upon any director 
 
 'Act of June lo, 1881, P. L. 115.
 
 PARTNERSHIP ASSOCIATIONS 23 
 
 or manager of such association, and such service shall be 
 good and valid in law to all intents and purposes as service 
 upon such association. 
 
 •r 9 
 
 COXTINUATIOX. 
 
 Section i. It shall and may be lawful for a majority 
 in number and value of interest of the members of any part- 
 nership association fonned under the provisions of the act 
 of Assembly to which this is a supplement, to renew or con- 
 tinue such partnership association for a period of time not 
 exceeding twenty years beyond the time originally fixed for 
 its duration, under the following conditions and restrictions, 
 to wit : 
 
 First. A meeting of the members of the association 
 shall be called, of the time, place and oljject of which 
 meeting due notice shall be given by publication once a 
 week for two successive weeks preceding such meeting in 
 one newspaper published in the county in which the prin- 
 cipal office or place of business shall be established, and by 
 such further notice as shall be prescribed in the by-laws; 
 and at such meeting the resolution for the renewal or con- 
 tinuance of the association shall be considered, and a vote by 
 ballot, in person or by proxy, taken for the adoption or re- 
 jection of the same; and if a majority in number and value 
 of interest of the members of such association shall be in 
 favor of such renewal or continuance, then a statement in 
 writing shall be signed and acknowledged by three or more 
 members, in which shall be set forth the full names of the 
 members desiring to renew or continue such association, 
 and the contemplated duration or continuance, which shall 
 not in any case exceed twenty years beyond the time origi- 
 nally fixed for the duration of the association. 
 
 Second. Upon the filing of such statement such associa- 
 tion shall be renewed and may be continued for the extended 
 time herein mentioned. 
 
 Act of June 8, 1895, P- L. 186.
 
 24 PENNSYLVANIA ASSOCIATION ACTS 
 
 Third. That if any member of any such partnership 
 association shall be dissatisfied with or object to any such re- 
 newal or continuance, then the owner shall be entitled to 
 his interest in the association at a price and upon terms to be 
 mutually agreed upon; and in default of such agreement, 
 the price and terms shall be fixed by an appraiser appointed 
 by the court of common pleas of the proper county, subject 
 to the approval of the said court, and, upon the payment 
 of the interest as aforesaid, the said member shall transfer 
 his interest to said association to be disposed of by the 
 managers, or be retained by them for the benefit of the re- 
 maining members.
 
 CORPORATIONS 25 
 
 THE CORPORATION ACT OF 1874.^ 
 
 Section i. Corporations may be formed under the 
 provisions of this act by the voluntary association of five or 
 more persons, for the purposes, and in the manner men- 
 tioned herein, and when so formed, each of them by virtue 
 of its existence as such, shall have the following powers, 
 unless otherwise specially provided : 
 
 ^ Act of April 29, 1874, P. L. jt,. Those sections of the Act which 
 relate only to one or more kinds of corporations, but not to all cor 
 porations of either the first or second class, or both, are omitted. 
 
 Besides the Act of 1874, its amendments and supplements, many 
 different kinds of companies have been made, both before and since 
 the Act of 1874, the subject of separate legislation. A list of the more 
 important acts relating to railroad and street railroad companies and 
 other important kinds of companies, will be found infra, page 78; 
 but a complete view of the history and present status of the legislation 
 of the State on corporations, apart from the special charters granted 
 prior to the Constitution of 1874, can be obtained by examining Pepper 
 and Lewis's Digest of Laws, edition of 1909, title. Corporations, cols. 
 1659-2044, and the other titles referred to, col. 1659, together with the 
 list of acts repealed, amended, supplied and in force, printed in con- 
 nection with the title Corporations, cols. 1676-1687, and similar lists 
 printed in connection with such titles as Banks and Banking, Insurance, 
 Railroads and Canals, and other titles referred to, col. 1659. 
 
 The provisions in the Constitution of the State relating to corpora- 
 tions will be found in Art. Ill, Section 7; which provides, "The General 
 Assembly shall not pass any * * * special law * * * creating 
 corporations, or amending, renewing, or extending the charters thereof" ; 
 Art. IX, Section 3, which provides, that "The poweY to tax corporations 
 and corporate property shall not be surrendered or suspended by any 
 contract or grant to which the State shall be a party" ; Art. IX, Section 
 7, which prohibits the General Assembly from authorizing any public 
 corporation to become a stockholder in, or to loan its credit to, any 
 corporation ; and Art. XVI, which relates exclusively to private cor- 
 porations. 
 
 The provisions of Art. XVI to be especially noticed are. Section 4. 
 which provides that "In all elections for directors or managers of a 
 corporation each member or shareholder may cast the whole number 
 of his votes for one candidate, or distri'-ute them upon two or more can- 
 didates, as he may prefer" ; Section 6, which prohibits any corporation 
 from engaging in any business not "expressly authorized in its charter" ; 
 Section 7, which provides that stock or bonds shall not be issued, "ex- 
 cept for mone}', labor done, or money or property actually received." 
 and that the stock and indebtedness shall not be increased except in 
 pursuance of general law. "nor witliout the consent of the persons 
 holding the larger amount in value of the stock, first obtained at a meet- 
 ing to be held after sixty days' notice given in pursuance of law" ; and 
 Section 10, which confers on the General Assembly the power "to 
 alter, revoke or annul any charter of incorporation now existing and 
 revocable at the adoption of this Constitution, or any that may here- 
 after be created, whenever in their opinion it may be injurious to 
 the citizens of this Commonwealth, in such manner, however, that no 
 injustice shall be done to the corporators."
 
 26 PENNSYLVANIA ASSOCIATION ACTS 
 
 GENERAL POWERS. 
 
 First. To have succession by its corporate name for the 
 period hmited by its charter, and when no period is hmited 
 thereby, or by this act, perpetually, subject to the power of 
 the general assembly, under the constitution of this com- 
 monwealth. 
 
 Second. To maintain and defend judicial proceedings. 
 
 Third. To make and use a common seal and alter the 
 same at pleasure. 
 
 Fourth. To hold, purchase and transfer such real and 
 personal property as the purposes of the corporation re- 
 quire, not exceeding the amount limited by its charter or by 
 law. 
 
 Fifth. To appoint and remove such subordinate officers 
 and agents as the business of the corporation requires, and 
 to allow them a suitable compensation. 
 
 Sixth. To make by-laws not inconsistent with law, for 
 the management of its property, the regulation of its affairs 
 and the transfer of its stock. 
 
 Seventh. To enter into any obligation necessary to the 
 transaction of its ordinary affairs. 
 
 CLASSES. 
 
 Section 2. The purposes for which the said corpora- 
 tion may be formed, shall be as follows, and shall be divided 
 into two classes : 
 
 CORPORATIONS NOT FOR PROFIT FIRST CLASS. 
 
 The first, those for — 
 
 I. The support of public worship. 
 
 II. The support of any benevolent, charitable, educa- 
 tional or missionary undertaking. 
 
 III. The support of any literary, medical or scientific 
 undertaking, library association, or the promotion of music, 
 painting or other fine arts.
 
 CORPORATIONS 27 
 
 IV. The encouragement of agriculture and horticul- 
 ture. 
 
 V. The maintenance of public or private parks, and of 
 facilities for skating, boating, trotting and other innocent 
 or athletic sports, including clubs for such purposes, and for 
 the preservation of game and fish. 
 
 VI. The maintenance of a club for social enjoyments. 
 
 VII. The maintenance of a public or private ceme- 
 tery. 
 
 VIII. The erection of halls for public or private pur- 
 poses. 
 
 IX. The maintenance of a society for beneficial or pro- 
 tective purposes to its members from funds collected 
 therein. 
 
 X. The support of fire engine, hook and ladder, hose 
 or other companies for the control of fire. 
 
 XI. For the encouragement and protection of trade 
 and commerce. 
 
 XII. For the formation and maintenance of military 
 organizations. - 
 
 XIII. For the maintenance of a society for the im- 
 provement of the streets and public places in any city, bor- 
 ough or township in this commonwealth." 
 
 XIV. For receiving and holding property, real and 
 personal, of and for unincorporated religious, beneficial, 
 charitable, educational, and missionary societies and associ- 
 ations, and executing trusts thereof.'* 
 
 [The prevention of cruelty to children and aged per- 
 sons.]^ 
 
 " Paragraphs XI and XII were added by the Act of June lo, 1893, 
 P. L. 435, 439. 
 
 ' Paragraph XIII was added by the Act of June 25, 1895, P. L. 313. 
 
 * Paragraph XIV was added by the Act of July 15, 1897, P. L. 283. 
 
 ° This provision is found in the amendment to the Act of 1874, of 
 May 25, 1887, P. L. 266. The Act of June 10, 1893, P. L. 435. which 
 purported to amend Section 2 of the Act of 1874, in attempting to 
 recite the section as it had been amended, omitted to inchide in the 
 "Corporations not for profit," the "prevention of cruehy to children 
 and aged persons." All reference to this class of corporations was 
 also omitted in the enacting clauses. Query, whether this class of
 
 28 PENNSYLVANIA ASSOCIATION ACTS 
 
 Each of the said corporations may hold real estate to 
 an amount the clear yearly value or income whereof shall 
 not exceed twenty thousand dollars.^ 
 
 CORPORATIONS FOR PROFIT SECOND CLASS. 
 
 The second class, those for — 
 
 I. The insurance of the lives of domestic animals. 
 
 II. The insurance of human beings against death, 
 sickness or personal injury. 
 
 III. The prevention and punishment of theft or wilful 
 injuries to property, and insurance against such risks. 
 
 IV. The construction and maintenance of any species 
 of road other than a railroad, and of bridges in connection 
 therewith. 
 
 V. The construction and maintenance of a bridge over 
 streams within this state. 
 
 VI. The construction and maintenance of a telegraph 
 line. 
 
 VII. The establishment and maintenance of a ferry. 
 
 VIII. The building of ships, vessels or boats, and car- 
 riage of persons and property thereon. 
 
 IX. The supply of water to the public. 
 
 X. The supply of ice to the public. 
 
 XL The manufacture and supply of gas, or the sup- 
 ply of light or heat to the public by any other means. 
 
 XII. The transaction of a printing and publishing 
 business. 
 
 XIII. The establishment and maintenance of an hotel 
 
 associations not for profit can now be incorporated under the Amend- 
 ment of 1887? 
 
 'The Act of June 8, 1891, P. L. 21T, provides: "It shall and may be 
 lawful for any corporation incorporated under the laws of this State, 
 or of any other State of the United States, to take, have and hold 
 real estate heretofore given or devised, or hereafter given or devised 
 to such corporation to be used for any religious or charitable purposes : 
 Provided, That nothing herein contained shall be taken to relieve such 
 real estate from being taxed in like manner with other real estate 
 within this Commonwealth : And provided further. That all real estate 
 held under the provisions of this act, shall be sold by such corporations 
 within five years from the time the right of possession shall accrue to 
 such corporation."
 
 CORPORATIONS • 29 
 
 and drozryard/ or boarding house, opera and market house, 
 or either. 
 
 XIV. The creating, purchasing, holding and selhng of 
 patent rights for inventions and designs, and the purchas- 
 ing of copyrights for book publications, and registered 
 trade-marks,^ with the right to issue license for the same 
 and receive pay therefor. 
 
 XV. Building and loan association. 
 
 XVI. Associations for the purchase and sale of real 
 estate, or for holding, leasing and selling real estate, for 
 maintaining or erecting zvalls or banks for the protection of 
 lozu lying lands,^ for safe deposit companies, a)id for buy- 
 ing, selling, trading or dealing in any kind or kinds of goods, 
 zvares and merchandise at wholesale}^ 
 
 XVII. The manufacture of iron or steel, or both, or 
 of any other metal, or of any article of commerce from 
 metal or wood, or both. 
 
 XVIII. The carrying on of any mechanical, mining, 
 quarrying or manufacturing business, including all the 
 purposes covered by the provisions of the acts of 
 the General Assembly, entitled "An act to encourage manu- 
 facturing operations in this Commonwealth," approved 
 April seventh, one thousand eight hundred and forty-nine, 
 entitled "An act relating to corporations for mechanical, 
 manufacturing, mining and quarr}'ing purposes,'.' approved 
 July eighteenth, one thousand eight hundred and sixty- 
 three, and the several supplements to each of said acts, 
 including the incorporation of grain elevators, storage 
 house '^'^ and storage yard companies; also including com- 
 panies for the storage, transportation and furnishing'^- of 
 water, with the right to take rivulets and land and erect 
 
 'Added by the Act of June lo, 1893, P- L. 435. 
 * Added by the Act of May 16, 1889, Section i. P. L. 241. 
 "Added by the Act of April 17, 1876, P. L. 31. 
 " Added by the Act of June 25, 1895, P. L. 295. 
 " The Act of 1874 read "Warehouse." Changed by Act of June 
 22, 1883, P. L. 156. 
 
 "Added by the Act of May 21, 1889, P. L. 259.
 
 30 PEXXSYLVAXIA A330CIATIOX ACTS 
 
 reservoirs for holding water, for manufacturing and other 
 purposes, and for the creation, establishing, furnishing, 
 transmission and nsing of water power therefrom;^^ the 
 construction of dams in any stream, and the driving and 
 floating of sazv logs, lumber and timber on and over any 
 stream, not exceeding thirty-five miles in length from their 
 source, by the usual methods of driving and floating logs, 
 timber and lumber on streams, and so as not [/o] obstruct 
 the descending navigation by rafts and boats ;'^^ also includ- 
 ing the manufacture and brewing of malt liquors,^'' and 
 also including companies for the transaction of any lawful 
 business not otherwise specifically provided for by act of 
 Assembly: Provided, hozvever, That no corporation shall 
 be chartered under this amendment zvith the authority to 
 transact more than one kind of business, zvhich must be 
 set forth in the charter.''-'^ 
 
 "Added by the Act of May 21, 1889, P. L. 259. 
 
 "Added by the Act of June 22, 1883, P. L. 156. The length of 
 streams in the Act of 1883 was 20 miles. The Act of June 10, 1893, 
 P. L. 412, extended the "length of the streams" which may be used 
 from 20 to 35 miles. The words "from their source" were also added 
 by the Act of 1893. 
 
 ''Added by the Act of April 10. 1879. P-.L- 20. The Act of 1874 
 contained the words "and excluding the distilling or manufacture of 
 intoxicating liquors." These words were retained in all amendments 
 until the Act of July 9, 1901, P. L. 624. 
 
 "Added by the Act of July 9, 1901, P. L. 20. 
 
 The difificulty of properly stating this eighteenth paragraph is greatly 
 increased by the confusion resulting from the legislation of 1893. In 
 that year we find two acts, both approved on June 10, one printed on 
 page 412 of the Pamphlet Laws, the other on page 435. The act on 
 page 412 purports to amend only the eighteenth paragraph of Section 
 2 of the Act of 1874. It correctly recites the paragraph as it had been 
 extended by prior amendments, and then re-enacts the paragraph, 
 changing merely the length of streams which may be used by certain 
 companies. See supra, note 14. The act on page 435 purports to be 
 a general amendment of Section 2 of the Act of 1874. This act, in 
 reciting the eighteenth paragraph, recites the paragraph as it stood 
 in the Act of 1874, ignoring the intervening amendments extending 
 the paragraph. So also, in re-enacting the eighteenth paragraph, the 
 language of the paragraph as it stood in the Act of 1874 was used. The 
 Act of July 9, 1901, amends the eighteenth paragraph merely. In re- 
 citing the paragraph, the Act of 1893 printed on page 43=; is ignored, 
 and the paragraph is recited and re-enacted with the additions noted, 
 siif'ra, as the paragraph stood with all its extensions orior to the le^is- 
 In^'nn of 1893. In stating the paragraph we have followed the Legis- 
 lature of T90T and, as far as this paragraph is concerned, ignored the 
 Act of 1893, printed on page 435 of the Pamphlet Laws.
 
 CORPORATIOXS 31 
 
 XIX. The insurance of owners of real estate, mort- 
 gagees, and others interested in real estate, from loss by 
 reason of defective titles, liens and incumbrances. 
 
 XX. The re-chartering of corporations of either of 
 these classes the charters whereof are about to expire. 
 
 XXI. The construction and maintenance of a wharf 
 or wharves, for public and private use, and the mainte- 
 nance of any unincorporated wharf or wharves already 
 constructed. 
 
 XXII. The construction, erection and maintenance of 
 observatories for public use or scientific j^urposes. 
 
 XXIII. The formation and operation of stage and 
 omnibus lines. 
 
 XXI\'. The formation and operation of inclined 
 planes for the transportation of passengers and freight.^' 
 or for the construction and maintenance of tunnels or un- 
 derground passageways.^^ 
 
 XXV. The construction and maintenance of sewers, 
 culverts, conduits and pipes, with all necessary in- 
 lets and appliances for surface, under-surface and sewage 
 drainage for the health, comfort and convenience of in- 
 habitant, and sanitar}- improvement in cities, boroughs and 
 townships of the Commonwealth, and for this purpose to 
 enter upon and occupy any public highway with the consent 
 of the local authorities.^^ 
 
 MODE OF IXCORPORATIOX. 
 
 Sectiox 3. The charter of an intending corporation 
 must be subscribed by five or more persons, three of whom ' 
 at least must be citizens of this commonwealth, and shall 
 set forth^'^ 
 
 " Paragraphs XXI, XXII, XXIII, and this much of paragraph 
 XXIV were added by the Act of April 17, 1876, P. L. 30. 
 
 "Added by the Act of June 25, 1895, P. L. 311. 
 
 "Paragraph XXV was added by the Act of Ji:ne 10. 189.3, P. L- 
 435. The Act of June 13. 1883. Section 6. P. L. 122, provided for the 
 motors and cables." 
 
 °° By the Act of April 23, 1903. P. L. 272. three persons may form 
 a corporation of the second class; two of wh.om must subscribe to the 
 charter, one of whom must be a citizen of Pennsylvania.
 
 Z2 PENNSYLVANIA ASSOCIATION ACTS 
 
 CONTENTS OF CERTIFICATE. 
 
 I. The name of the corporation. 
 
 II. The purpose for which it is formed. 
 
 III. The place or places where its business is to be 
 transacted. 
 
 IV. The term for which it is to exist. 
 
 V. The names and residence of the subscribers and the 
 number of shares subscribed by each. 
 
 VI. The number of its directors and the names and 
 residences of those wdio are chosen directors for the first 
 year. 
 
 VII. The amount of its capital stock, if any, and the 
 number and par value of shares into which it is divided.-^ 
 
 NOTICE TO BE GIVEN. 
 
 Notice of the intention to apply for any such charter 
 shall be inserted in two newspapers o-f general circulation, 
 printed in the proper county, for three weeks, setting forth 
 briefly the character and object of the corporation to be 
 formed, and the intention to make application therefor. 
 
 CERTIFICATES FOR FIRST CLASS. 
 
 The said certificates of incorporation of the first class 
 shall be acknowledged by at least three of those who sub- 
 scribe to them before the recorder of deeds of the county 
 in which the business of the corporation is to be transacted, 
 
 ^ The Act of June 25, 1895, P. L. 310, Section i. provides: "All cor- 
 porations organized not for profit under the provision of 'An act to 
 provide for the incorporation and regulation of certain corporations.' 
 approved April twenty-ninth, one thousand eight hundred and seventy- 
 four and the several supplements thereto, shall have authority, if a 
 majority of its members shall so ordain, to issue capital stock to an 
 amount not exceeding two hundred a.-d fifty thousand dollars, in shares 
 of the par value of fifty dollars. ' Said power to vest upon the recording 
 of the minute authorizing said issue in the county in which the cor- 
 poration was created, and filing an exemplification thereof with the 
 Secretary of the Commonwealth. Thereafter such corporations shall be 
 subject to the same taxation as corporations for profit." 
 
 The Act of May 23, 1887, P. L. 165, provides that the charter may 
 contain a provision that one-half or one-third or one-fourth of the 
 board of directors shall be elected each year. See infra, note 28.
 
 CORPORATIOXS 33 
 
 to be their act and deed, and the same being duly certified 
 under the hand and official seal of the said recorder of 
 deeds [or a notary public of the commonwealth of Penn- 
 sylvania]-- shall be presented to a law judge of the said 
 county, accompanied by proof of the publication of the no- 
 tice of such application, who is hereby required to peruse and 
 examine said instrument, and if the same shall be found to 
 be in the proper form, and within the purposes named'in the 
 first class specified in the foregoing section, and shall appear 
 lawful and not injurious to the community, he shall endorse 
 thereon these facts, and shall order and decree thereon that 
 the charter is approved, and that upon the recording of the 
 said charter and order, the subscribers thereto and their 
 associates, shall be a corporation for the purposes and upon 
 the terms therein stated, and the said order and charter shall 
 be recorded in the office for the recording of deeds in and 
 for the county aforesaid, and from thenceforth the persons 
 named therein and subscribing the same, and their associ- 
 ates and successors, shall be a corporation by the name 
 therein given.-^ 
 
 CERTIFICATES FOR SECOND CLASS. 
 
 The certificate for a corporation embraced within the 
 second class, named in the foregoing section, shall set forth 
 all that is hereinbefore required to be set forth, and except 
 building and loan associations, shall also state that ten per 
 centum of the capital stock thereof has been paid in cash 
 to the treasurer of the intended corporation, and the name 
 and residence of such treasurer shall be therein given. The 
 same shall be acknowledged by at least three of the sub- 
 scribers thereto, before the recorder of deeds of the coimty 
 
 "■ For the provision in brackets see Act of April 25, 1891, P. L. 18. 
 
 " By the Act of February 20, 1854. P. L. 90, the Court, in granting a 
 charter of incorporation for any purpose, is required "to limit the 
 yearly income of such corporation, other than from real estate, to such 
 sums as in the opinion of the Court will not be injurious or prejudicial 
 to the community." The better practice is to set forth in the certificate 
 itself the limit of the income. In re IMiddletown v. Country Club, 30 
 Pa. C. C. 174, 1904.
 
 34 PENNSYLVANIA ASSOCIATION ACTS 
 
 in which the chief operations are to be carried on, or in 
 which the principal office is situated [or a notary pubhc of 
 the commonweahh of Pennsylvania],-^ and they shall also 
 make and subscribe an oath or affirmation before him, to 
 be endorsed on the said certificate, that the statements 
 contained therein are true. The said certificate, accom- 
 panied with proof of publication of notice as herein- 
 before provided, shall then be produced to the governor 
 of this commonwealth, who shall examine the same, and 
 if he find it to be in proper form and within the purposes 
 named in the second class, specified in the foregoing 
 section, he shall approve thereof and endorse his approval 
 thereon, and direct letters patent to issue in the usual 
 form, incorporating the subscribers and their associates 
 and successors into a body politic and corporate, in deed 
 and in law, by the name chosen, and the said certificate 
 shall be recorded in the office of the secretary of the com- 
 monwealth, in a book to be by him kept for that purpose, 
 and he shall forthwith furnish to the auditor general an 
 abstract therefrom, showing the name, location, amount of 
 capital stock, and name and address of the treasurer of 
 such corporation. • The said original certificate, with all of 
 its endorsements, shall then be recorded in the office for the 
 recording of deeds, in and for the county where tlie chief 
 operations are to be carried on, and from thenceforth the 
 subscribers thereto, and their associates and successors, shall 
 be a corporation, for the purposes and upon the terms named 
 in the said charter. Certified copies of both the records 
 thereof and of the charters of the corporations named in 
 the first class specified in the foregoing section, shall be 
 competent evidence for all purposes in the courts of this 
 commonwealth. The secretary of the commonwealth shall 
 charge and receive a fee of five dollars upon every paper 
 relating to a corporation filed or recorded in his office. 
 
 ■* See, supra, note 22. Query: Whether the acknowledgment before 
 a notary must be in the county where the chief operations are carried 
 on, or in which the principal office is situated? 
 
 In view of the Act of April 23, 1903. supra, note 20, a corporation 
 for profit formed by three persons, would only have to be subscribed 
 and acknowledged by two persons.
 
 CORPORATIONS 35 
 
 LENGTH OF GRANT POWER TO REVOKE. 
 
 Section 4. The charters for incorporations named in 
 this act may be made perpetual, or may be Hmited in time 
 by their own provisions; and the general assembly reserves 
 the power to revoke or annul any charter of incorporation 
 granted or accepted under the provisions of this act, when- 
 ever in the opinion of the said general assembly it iijay be 
 injurious to the citizens of this commonwealth, in such 
 manner, however, that no injustice shall be done to the 
 corporators or their successors. 
 
 GOVERNOR TO ISSUE LETTERS PATENT. 
 
 [Upon the application of the president and secretary of 
 any corporation heretofore or hereafter created under any 
 general or special law of this commonwealth, accompanied 
 by due proof that said corporation has complied with all 
 the conditions provided by law and the constitution to en- 
 able it to have a corporate existence and transact business, 
 it shall be lawful for the governor to issue letters patent 
 under the great seal of the commonwealth, in such form as 
 he may prescribe, to such corporation, declaring it to be 
 and erecting it into a body corporate or politic in deed and 
 in law.]-^ 
 
 BY-LAWS. 
 
 Section 5. The by-laws of every corporation created 
 under the provisions of this statute, or accepting the same, 
 shall be deemed and taken to be its law, subordinate to this 
 statute, the charter of the same, the constitution and laws 
 of this commonwealth, and the constitution of the United 
 States. They shall be made by the stockholders or mem- 
 bers of the corporation, at a general meeting called for 
 that purpose, unless the charter prescribes another body, or 
 a different mode. They shall prescribe the time and place 
 of meeting of the corporation, the powers and duties of its 
 
 ^^Act of May 15, 1874, P. L. 186. It was not an amendment 
 or supplement to the Act of 1874.
 
 36 PENNSYLVANIA ASSOCIATION ACTS 
 
 officials, and such other matters as may be pertinent and 
 necessary for the business to be transacted, and may con- 
 tain penalties for the breach thereof, not exceeding twenty 
 dollars. 
 
 OFFICERS AND THEIR DUTIES. 
 
 The business of every corporation created hereunder, 
 or accepting the same, shall be managed and conducted 
 by a president, a board of directors or trustees, a secretary 
 or clerk, a treasurer, and such other officers, agents and 
 factors as the corporation authorizes for that purpose, and 
 nothing in any lazv contained shall prevent or he construed 
 to prohibit the vice president, treasurer, solicitor, or other 
 officer of any corporation organized or existing under this 
 act, from being a director of such company and receiving at 
 the same time such compensation for his services as such 
 officer as the board of directors of such company may direct. 
 The directors or trustees shall be chosen annually by the 
 stockholders or members, at the time fixed by the by-laws, 
 and shall hold their office until others are chosen and quali- 
 fied in their stead; the manner of such choice, and of the 
 jhoice or appointment of all other agents and officers of the 
 company shall be prescribed by the by-laws. The number 
 of directors or trustees shall not be less than three; one of 
 them shall be chosen president by the directors, or by the 
 m.embers of the corporation, as the by-laws shall direct. 
 The members of said corporation may, at a meeting to be 
 called for that purpose, determine, fix or change the num- 
 ber of directors or trustees that shall thereafter govern its 
 affairs, and a majority of the whole number of such direc- 
 tors or trustees shall be necessary to constitute a quorum. 
 The secretary or clerk shall be sworn and shall record all 
 the votes of the corporation and the minutes of its transac- 
 tions in a book to be kept for that purpose. The treasurer 
 shall give bond in such sum, and with such sureties, as 
 shall be required by the by-laws for the faithful discharge 
 of his duties, and he shall keep the moneys of the corpora- 
 tion in a separate book account to his credit as treasurer,
 
 CORPORATIONS 17 
 
 and if he shall neglect or refuse so to do, he shall be liable 
 to a penalty of fifty dollars for every day he shall fail to 
 do so, to be recovered at the siut of any informer in an 
 action of debt.-^ 
 
 PLACE OF ANNUAL MEETING. 
 
 [It shall be lawful for any corporation of this State, 
 now existing or hereafter created, to change the location of 
 its principal office, the place of its annual and other meet- 
 ings of stockholders, or the time for holding such annual 
 meetings, or either, or all, by resolution of its board of di- 
 rectors, adopted by a two-thirds vote thereof, approved at 
 any annual meeting or special meeting duly called of the 
 stockholders, by a two-thirds vote thereof. Upon such ap- 
 proval of the stockholders, it shall be the duty of the presi- 
 dent of such corporation to file in both the offices of the 
 Secretary of the Commonwealth and the Auditor General 
 of this Commonwealth a report, under the seal of the com- 
 pany, specifying the change or changes so made. Nothing 
 in this act, however, shall authorize the location of the 
 principal office or the holding of the annual or other meet- 
 ings of stockholders outside of the limits of this Common- 
 wealth. J^^ 
 
 PART OF BOARD MAY BE ELECTED ANNUALLY. 
 
 [Whenever the stockholders of any corporation incor- 
 porated under the act of April twenty-ninth, one thousand 
 eight hundred and seventy-four, or any other law of this 
 
 ^'The parts printed in italics were added by the Act of May 14, 1891, 
 P. L. 61. 
 
 "Act of June 8, 1893, P- L. 355. It is not an amendment or supple- 
 ment to the Act of 1874. The Act^ of February 6, 1830, Section 2, 
 P. L. 42, and May 31, 1887, P. L. 281, as far as they relate to changing 
 the time of the annual meeting, are superseded by this act. The Act of 
 1830. supra, gives to the directors or trustees the power to change by a 
 two-thirds vote the times of their own meetings. 
 
 By the Act of November 27. 1865. See Pamphlet Laws for t866. p. 
 1228, provides that where the majority of the directors or stockholders 
 are citizens of other States all meetings may be held out of the State, 
 provided that the annual meeting for the election of officers be held 
 within the State.
 
 38 PENNSYLVANIA ASSOCIATION ACTS 
 
 Commonwealth, shall, at a meeting called for the purpose, 
 decide, by a majority vote of those present either in person 
 or by prox}', to elect a portion of their directors for a term 
 or terms longer than one year, it may and shall be lawful 
 for such corporation, at the next ensuing election, to divide 
 the directors or managers, which are to be chosen, into two, 
 three or four classes, and to elect the first class to serve for 
 the term of one year, and the second, third or fourth to 
 serve for two, three or four years, respectively, and at all 
 ensuing elections of said corporations, the stockholders 
 shall only elect the number of directors necessary to take 
 the place of those whose term of office shall then expire, 
 and such directors shall be elected for the longest term for 
 which any class may have been elected as hereinbefore pro- 
 vided. J^s 
 
 NUMBER OF DIRECTORS. 
 
 [In all corporations heretofore or hereinafter incor- 
 porated under the laws of this Commonwealth, and in all 
 foreign corporations heretofore or hereafter domesticated 
 under the laws of this Commonwealth, the board of direc- 
 tors may consist of any number of persons not less than 
 three. The number of directors may be increased or 
 diminished, from time to time, by the stockholders of any 
 such corporations, at any regular annual meeting or at any 
 special meeting called for that purpose, of which notice 
 shall be given as required by the by-laws ; and it shall be 
 lawful for any such corporation, by its by-laws, to authorize 
 the board of directors to increase or decrease the number 
 of the directors from time to time without a vote of the 
 stockholders.]^® 
 
 "^Act of June 17, 1887, Section i. P. L. 411, a supplement to the 
 Act of 1874. See note 21, supra. 
 
 ^°Act of April 19, 1901, P. L. 80. It is not an amendment or sup- 
 plement to the Act of 1874. 
 
 The Act of May 31, 1887, P. L. 281, provides : "It shall be lawful 
 * * * for any corporation * * * ^o determine by a vote of its 
 stockholders, holding a majority in interest of all its stock, at a
 
 CORPORATIONS 39 
 
 QUORUM OF STOCKflOLDERS. 
 
 Section 6. Every such corporation may determine, by 
 its by-laws, what number of stockholders shall attend, either 
 in person or by proxy, or what number of shares or amount 
 of interest shall be represented at any meeting to constitute 
 a quorum; if the quorum is not so determined, a majority 
 in interest of the stockholders shall constitute a quorum. 
 
 CERTIFICATES OF STOCK. 
 
 Section 7. [Any stockholder of any company incor- 
 porated under the laws of this Commonwealth shall be 
 entitled to receive a certificate of the number of shares 
 standing to his, her or their credit on the books of the 
 corporation, which certificate shall be signed by the presi- 
 dent or vice-president or other officer designated by tlie 
 board of directors, countersigned by the treasurer and 
 :iealed with the common seal of the corporation, which 
 certificate or evidence of stock ownership shall be trans- 
 ferable on such books at the pleasure of the holder, in 
 person or by attorney, duly authorized as the by-laws may 
 prescribe, subject, however, to all payments due or to 
 become due thereon; and the assignee or party to whom 
 the same shall have been so transferred shall be a mem- 
 ber of said corporation and have and enjoy all the im- 
 
 meeting duly called for the purpose * * * the number of directors 
 that shall hereafter govern its affairs." 
 
 The Act of April 15, 1869, P. L. 29. provides: "Whenever the num- 
 ber of directors or managers of any corporation may be increased 
 under authority of law, a majority of the whole number shall be 
 necessary to constitute a quorum." 
 
 The Act of March 31, i860. Section 66, P. L. 382. prohibits any 
 director, trustee, etc., of any corporation from being' a salaried officer 
 of the corporation subordinate to the president or directors. But the 
 .^ct of May 20, 1891, P. L. loi, permits a director of "any trust, deposit. 
 or_ other purely private or business corporation." to serve as such sal- 
 aried officer. The words "purely private" would seem to exclude public 
 service corporations, and manv corporations of the fir«;t class 
 
 The Act of March 31, i860. Section 67, P. L. 7S2. makes void anv 
 contract with a corporation for supplies or materials where the other 
 ^■^nll tlt'f T any officer of the company a reward to induce him to 
 iake the contract. The person giving the reward is iruilty of a misde- 
 meanor. " J '-'L a 111I3UC
 
 40 PEXXSYLVAXIA ASSOCIATION ACTS 
 
 munities, privileges and franchises and be subject to all 
 of the liabilities, conditions and penalties incident thereto, 
 in the same manner as the original subscriber or holder 
 would have been. And upon a sale of such stock in satis- 
 faction of any debt for ivhich it is pledged the purchaser 
 shall hare the right to conipcl a transfer of such stock upon 
 the corporation books aiui the delivery of a proper certifi- 
 cate therefor.Y^ 
 
 OATH OF OFFICERS HOLDING ELECTIONS. 
 
 Section 8. No person acting as judge or officer hold- 
 ing an election for any such corporation, shall enter on the 
 duties of his office or appointment until he take and sub- 
 scribe an oath or affirmation before a judge, alderman, 
 justice of the peace, or other person qualified by law to ad- 
 minister oaths, that he will discharge the duties of his office 
 or appointment with fidelity, that he will not receive any 
 vote but such as he verily believes to be legal ; and if any 
 such judge or officer shall, knowingly and wilfully, violate 
 his oath or affirmation, he shall be subject to all the penalties 
 imposed by law upon the officers of the general election of 
 this commonwealth violating their duties, and shall be pro- 
 ceeded against in like manner, and with like effect; and if 
 any election, as aforesaid, be held without the person holding 
 the same having first taken an oath or affirmation, as afore- 
 said, or be invalid for any other reason, such election shall 
 be set aside in the manner now provided by law, and a new 
 election ordered by the court of common pleas of the proper 
 county, upon the petition of not less than five stockliolders 
 supported by proof satisfactory to said court. 
 
 ^"This is the Act of June 24. 1895, P. L. 258. It is not in terms an 
 amendment or supplement of Section 7 of the Act of 1874. The lan- 
 guage is somewhat different, but the part printed in italics is the only 
 part which is new. 
 
 The Act of 1874, after the words "in the same manner as the orig- 
 inal subscriber or holder would have been," added "but no certificate 
 shall be transferred so long as the holder thereof is indebted to said 
 company, unless the board of directors shall consent thereto." Query, 
 whether this proviso is still in force .^
 
 CORPORATIONS 41 
 
 VACANCIES. 
 
 Section 9. In case of the death, removal, or resigna- 
 tion of the president or any of the directors, treasurer or 
 other officer of any such company, the remaining directors 
 may supply the vacancy thus created until the next election. 
 
 CUMULATIVE VOTING. 
 
 Section 10. In all elections for directors, managers or 
 trustees of any corporation created under the provisions of 
 this statute, or accepting its provisions, each member or 
 stockholder or other person having a right to vote, may cast 
 the whole number of his votes for one candidate, or dis- 
 tribute them upon two or more candidates as he may prefer, 
 that is to say: If the said member or stockholder or other 
 person having a right to vote, own one share of stock or has 
 one vote, or is entitled to one vote for each of six directors 
 by virtue thereof, he may give one vote to each of said six 
 directors, or six votes for any one thereof, or a less number 
 of votes for any less number of directors, zvhatever max be 
 the actual niimher to he elected, and in this manner may dis- 
 tribute or cumulate his votes as he may see fit ; all elections 
 for directors or trustees shall be by ballot, and every share of 
 stock shall entitle the holder thereof to one vote, in person 
 or by proxy, to be exercised as provided in this section. ^^ 
 
 " The parts printed in italics were added by the Act of April 25, 
 1876, P. L. 47. 
 
 The Act of May 26, 1893, P. L. 141, provides that the certificate of 
 stock and transfer book, or either shall be prima facie evidence of the 
 right to vote. Any stockholder may object that the registered owner 
 is not the real owner. The question of ownership is determined sum- 
 marily by the judge of election. Executors, administrators, guardians 
 or trustees created by last will or testament, or by decree of court, 
 can vote the stock standing in the name of the decedent [See also, Act 
 of March 16. 1905, P. L. 42]. In other cases, the beneficial owner is 
 the person entitled to vote, and as between the pledgor and pledgee, 
 the pledgor is the person entitled except where by written agreement 
 between them the pledgee has that right. 
 
 The Act of March 5, 1903, P. L. 14, regulates voting bv proxv; 
 while the .Act of March 24. 1903. P. L. qo, provides, under certain 
 conditions, for taking a stock vote on any question.
 
 42 PENNSYLVANIA ASSOCIATION ACTS 
 
 CAPITAL STOCK. 
 
 Section ii. The capital stock of every such corpora- 
 tion that has or requires a capital stock, shall consist of not 
 more than one million dollars,^- and shall be divided into 
 shares of not more than one hundred dollars each; and all 
 subscriptions to the capital stock shall be paid in such in- 
 stalments and at such times as the directors may require, and 
 if default be made in any payment the person or persons 
 in default shall be liable to pay, in addition to the amount 
 so called for and unpaid, at the rate of one-half of one 
 per centum per month for the delay of such payment, and 
 the directors may cause suit to be brought for the recovery 
 of the amount due, together with the penalty of one-half 
 of one per centum per month as aforesaid, or the directors 
 may cause the stock to be sold in the manner provided in 
 clause two of section thirty-nine of this act; and no stock- 
 holder shall be entitled to vote at any elect'on, or at any meet- 
 ing of the stockholders, on whose share or shares any in- 
 stalments or arrearages may have been due and unpaid for 
 the period of thirty days immediately preceding such election 
 or meeting. The shares of the capital stock of every such 
 company may be transferred on the books of the company, 
 in person or by attorney, subject to such regulations as the 
 by-laws may prescribe ; but the provisions of this section 
 shall not apply to corporations in which by this act different 
 and other rules and provisions are enacted for their regu- 
 lation and government. 
 
 Section 12. The stock of every corporation created 
 vmder the provisions of this statute shall be deemed personal 
 property; and no shares shall be transferable until all pre- 
 vious calls thereon shall have been fully paid in, or shall 
 have been declared forfeited for the non-payment of calls 
 
 '- By the Act of May 9, 1889, P. L. 180, water companies may have 
 a capital stock of two millions. 
 
 See, however, the power of all corporations to increase their capital 
 stock to thirty millions of dollars, infra, Section i8, as effected by the 
 Act of June 10, 1893, P. L. 417.
 
 CORPORATIONS 43 
 
 thereon. ^^ No note or obligation given by a stockholder, 
 whether secured by pledge or otherwise, shall be considered 
 as a payment of any part of the capital stock. It shall and 
 may be lawful for any corporation, organized under the pro- 
 visions of this act either for the purpose of carrying on any 
 manufacturing business, or for the supply of water, or for 
 the manufacture or supplying of light, to subscribe for, take, 
 purchase, hold, and dispose of the bonds or stock in any 
 company of the same character incorporated under the 
 provisions of this act or its supplements, or guarantee the 
 payment of said bonds and the interest thereon, or either 
 principal or interest, or to enter into contracts for the use 
 or lease of the corporate property, real, personal or mixed, 
 of such company, upon such terms as may be agreed upon 
 with the company or companies owning the same, and to 
 run, use and operate such property in accordance with such 
 contract or lease.^^ 
 
 POWER TO MORTGAGE. 
 
 Section 13. It shall be lawful for all corporations to 
 borrow money or to secure any indebtedness created by them, 
 by issuing bonds, with or without coupons attached thereto, 
 and to secure the same by a mortgage or mortgages to be 
 given and executed to a trustee or trustees, for the use of the 
 bondholders, upon their real estate and machinery, or on their 
 real estate alone, to an amount not exceeding one-half of the 
 capital stock of the corporation paid in, and at a rate of in- 
 
 ^ The Act of 1874 at this point provided : "And every corporation 
 may, from time to time, at a legal meeting called for the purpose, 
 assess upon each share of stock such sums of money as the corpora- 
 tion may think proper, not exceeding in the whole the amount at which 
 each share was originally limited : and such sums assessed shall be paid 
 to the treasurer at such times and in such instalments as the corpora- 
 tion directs." This provision was struck out by the Act of May 2S. 
 1887,^ P. L. 273. 
 
 ^* The Act of 1874 expressly prohibited the purchase of stock 
 of other corporations. This policv was reversed bv the Act of Tune 
 26, 1895, P. L. .369. The Act of March 24. 1Q05, P. L. 56. which is 
 substituted in the text for the 12th Section of the Act of ^1874, is the 
 Act of 1905, with the addition of the words printed in italics.
 
 44 PENNSYLVANIA ASSOCIATrON ACTS 
 
 terest not exceeding six per centum : Provided, That it shall 
 be lazvfitl for siicJi corporations as belong to the classes 
 named in clauses four, five, six, seven, nine and eleven of 
 corporations for profit, of the second class, as set forth in 
 section two of the act of zvhich this is a supplement, and 
 also for such corporations as belong to the class named in 
 clause tzventy-four, section tivo, of the act of Assembly ap- 
 proved April seventeenth, one thousand eight hundred and 
 seventy-six, so to borrozv money and so to secure the pay- 
 ment of the same, by a mortgage or mortgages on its prop- 
 erty and franchises, to an amount not exceeding double the 
 amount of the capital stock of the corporation actually paid 
 in, and at a rote of interest not exceeding six per centum, 
 and this section shall not be construed to prevent mortgages 
 for a greater amount and at a higher rate of interest, where 
 the power to make the same is expressly given by the terms 
 of this statute to certain classes of corporations, or is con- 
 tained in the charter of any private corporations accepting 
 this act, or in the statutes under which certain other classes 
 thereof are by the provisions of this statute to be controlled, 
 governed and managed. ^^ 
 
 LIABILITY OF STOCKHOLDERS. 
 
 Section 14. The stockholders in each of said corpora- 
 tions shall be liable, in their individual capacity, to the 
 amount of stock held by each of them, for all work or labor 
 done to carry on the operations of each of each of [said] 
 corporations; but this section shall not be construed to in- 
 
 ^°The parts printed in italics were added by the Act of May 21, 
 1889. P. L. 257. 
 
 The Act of May 15, 1874, Section i, P. L. 186, provided: "It shall 
 and may be lawful for any corporation existing by or under the author- 
 ity of any law of this commonwealth, which shall have mortgaged 
 any part of its estate, corporate property and franchises, for the secur- 
 ity of all or any portion of its bonded indebtedness, to mortgage its 
 remaining estate, corporate property and franchises, or any part of 
 the same, as a further and additional security for the same bonded in- 
 debtedness: Provided hoivcvcr. That no lien then existing upon such 
 remaining estate, property and franchises, shall be thereby impaired 
 or affected."
 
 CORPORA! 10 XS 45 
 
 crease or diminish the Habihty of stockholders in corpora- 
 tions which, by the terms of this statute, are to be gov- 
 erned, controlled and managed by the provisions of other 
 statutes, but their liability shall be fixed and defined by the 
 terms of the statutes by which said corporations are to be 
 governed, controlled and managed. ^*^ 
 
 Section 15. In any action or bill in equity, brought to 
 enforce any liability under the provisions of this aet, the 
 plaintiff may include as defendants, any one or more of the 
 stockholders of such corporation, claimed to be liable there- 
 for; and if judgment be given in favor of the plaintiff for 
 his claim, or any part thereof, and any one or more of the 
 stockholders so made defendants, shall be found to be liable, 
 judgment shall be given against him or them. The execu- 
 tion upon such judgment shall be first levied on the property 
 of such corporation, if to be found in the county where the 
 chief business of the corporation is carried on, and in case 
 such property, sufficient to satisfy the same, cannot be found 
 in said county, the deficiency, or so much thereof as the 
 stockholder or stockholders, defendants, in such judgment, 
 shall be liable to pay, shall be collected of the property of 
 such stockholder or stockholders; on the payment of any 
 judgment as aforesaid, or any part thereof, by one or more 
 stockholders, the stockholder or stockholders so paying the 
 same shall be entitled to have such judgment, or so much 
 thereof as may have been paid by him or them, assigned to 
 him or them for his or their benefit, with power to enforce 
 the same in manner aforesaid, first against the company, and 
 in case the amount so paid by him or them shall not be col- 
 lected of the property of the corporation, then ratably 
 against the other solvent stockholders, if any such there be, 
 originally liable for the claim on which such judgment was 
 obtained ; but no stockholder shall be personally liable for 
 
 ^' This section was amended by the Act of April 17, 1876. Section 
 3, P. L. "^2. The section as it stood in the Act of 1874 contained the 
 words "or materials" after the words "labor done." 
 
 The statute of limitations in actions to enforce the liability of 
 stockholders is six years. See Act of March 28. 1867, P. L. 48.
 
 46 PENNSYLVANIA ASSOCIATION ACTS 
 
 payment of any debt contracted by any such corporation, 
 unless suit for the collection of the same shall be brought 
 against such stockholder or stockholders within six months 
 after such debt shall have become due.^''' 
 
 PREFERRED STOCK. 
 
 Section i6. Every corporation created under the pro- 
 visions of this act, or accepting its provisions, may, with the 
 consent of a majority in interest of its stockholders, obtain- 
 ing at a meeting to be called for that purpose, of which pub- 
 lic notice shall be given during thirty days in a newspaper of 
 the proper county, issue preferred stock of the corporation, 
 the holders of which preferred stock shall be entitled to 
 receive such dividends thereon as the board of directors of 
 the corporation may prescribe, payable only out of the net 
 earnings of the corporation.^^ 
 
 PROPERTY MAY BE TAKEN FOR STOCK DEFERRED STOCK. 
 
 Section 17. Every corporation created under the pro- 
 visions of this act or accepting its provisions, may take such 
 real and personal estate, mineral rights, patent rights and 
 other property, as is necessary for the purposes of its or- 
 ganizations and business, and issue stock to the amount of 
 the value thereof, in payment thereof, and the stock so issued 
 shall be declared and taken to be full paid stock, and not lia- 
 ble to any further calls or assessments; and in the charter 
 and the certificates and statements to be made by the sub- 
 scribers and officers of the corporation, such stock shall not 
 be stated or certified as having been issued for cash paid into 
 the company, but shall be stated or certified in this respect 
 
 " On the service of process in actions brought to charge the stock- 
 holders of any corporation with any of the debts of such corporations, 
 or to enforce payments of instalments due upon stock, see Act of May 
 14, 1874, P. L. 146. 
 
 ^' Under the Act of April 3, 1872, P. L. Zl^ the interest on the pre- 
 ferred stock cannot be greater than twelve per cent. Query, whether 
 this provision applies to an increase under the i6th Section of the Act 
 of 1874? The Act of April 28, 1873, P. L. 79, amends the Act of April 
 3, 1872, P. L. I', by permitting preferred stock to be issued in classes.
 
 CORPORATIOXS 47 
 
 according to the fact ; and the executors or adniinistrafors 
 of any deceased tenant in common of lands, mines and min- 
 eral rights so proposed to be taken may, and they are hereby 
 authorized, to convey the individual estate and interest of 
 such decedent therein to such company, receiving therefor 
 so much stock in such company as the said decedent zvould 
 have been entitled to receive in his lifetime, to be held in the 
 same manner as the lands : Provided, That no directions or 
 limitations contained in any last will and testament of such 
 decedent sJiall be in any manner interfered with: And pro- 
 vided. That before making such conveyance, such executors 
 or administrators shall give sufficient security, to be ap- 
 proved by the orphans' court having jurisdiction of their 
 accounts, for the faithful application of the stock received 
 therefor; no such corporation shall issue either bonds or 
 stock except for money, labor done or money or property 
 actually received, and all fictitious increase of stock or in- 
 debtedness in any form shall be void ; every such corporation 
 may provide for the issue of deferred stock in payment for 
 such real or personal estate or mineral rights, and if so pro- 
 vided, it shall be expressly stated in the charter filed, or in 
 a certificate to be made and recorded, or in the accept- 
 ance of this statute, to be filed by any corporation accepting 
 its provisions, with the amount of such deferred stock, and 
 the consideration of the same, and the terms on which the 
 same shall be issued; and the said stock may be made to 
 await payments of dividends thereon, until out of the net 
 earnings at least five per centum has been declared and paid 
 upon the other full paid stock of the corporation.^*^ 
 
 INCREASE OF CAPITAL STOCK. ^'^ 
 
 [Section i. The capital stock or indebtedness, or 
 both, of any corporation created by general or special 
 law may, with the consent of the persons or bodies 
 
 ''The words printed in italics were added by the Act of April 17. 
 1876, Section 4. P. L. ^2. 
 
 *" This was the subject of Sections 18-22 inclusive, of the Act of
 
 48 PENNSYLVANIA ASSOCIATION ACTS 
 
 corporate holding the larger amount in value of its 
 stock, be increased to such an amount in the aggregate of 
 each, without regard to the amount of the other, and regard- 
 less of any limitation upon the amount of either, prescribed 
 in any general or special law regulating any such corporation, 
 as it shall deem necessary to accomplish and carry on and 
 enlarge the business and purposes of such corporation. 
 Such increase of either may be made at once or from time 
 to time, as the majority in interest of the stockholders shall 
 determine, as aforesaid ; and upon the authoridng of any 
 such increase of indebtedness by the stockholders of such 
 corporation, in the manner hereinafter provided, it shall he 
 lawful for such corporation to secure the payment of the 
 principal or interest, or both, of all or any part of sucJi 
 indebtedness by mortgage, deed of trust, or other pledge 
 or conveyance, by zi'ay of security, of all or any part of 
 its real and personal property, rights, privileges, and fran- 
 chises, and in such manner and upon such terms as its board 
 of directors may determine.^'^ 
 
 [Section 2. That any corporation desirous of increas- 
 ing its capital stock or indebtedness, or both, as authorized 
 by this act, shall by resolution of its board of directors, 
 adopted by a majority of the entire number thereof, declare 
 such purpose, and thereupon by resolution, similarly 
 adopted, direct that the question of such proposed increase 
 
 1874, which is now superseded bj' Act of February 9, 1901. See, 41 
 ivfra. Section i8 provided that the holders of the larger amount in value 
 of the stock could increase the "capital stock or indebtedness" to such an 
 amount as such corporation is by this act authorized to increase its 
 "capital stock or indebtedness." In the Act of 1874 the usual limit was 
 two millions, though special kind of corporations, as mechanical, min- 
 ing, manufacturing, or other business, in Clause XVIII of the second 
 class, could have a capital stock of five millions, while the real estate 
 companies were confined to a capital stock of two hundred thousand 
 dollars. The Act of June 10, 1893, P. L. 417, provided that any cor- 
 poration created by a general or special law could have a capital stock 
 not exceeding thirty millions. 
 
 " This and the next three sections are of the Act of February 9, 
 1901, P. L. 3. Section i has been amended by the Act of April 22, 
 1905, P. L. 280. The parts printed in italics were added by the amend- 
 ing act.
 
 CORFORATIOXS 49 
 
 shall be submitted to the stockholders of such corporation 
 for their consent ; either, 
 
 (A). At any prescribed regular annual meeting or 
 adjournment thereof, the notice whereof, stating inter alia 
 that such subject would be considered thereat, shall have 
 been published once a week for sixty days prior to such 
 meeting in at least one newspaper published in the county, 
 city or borough wherein the chief office or place of business 
 of the corporation is situate. At said meeting the question 
 shall be submitted to the stockholders, and it shall be the duty 
 of the president and secretary of said meeting, by such 
 agencies or methods as to them may seem meet, to ascer- 
 tain whether the persons and bodies corporate holding the 
 larger amount in value of the stock of said corporation shall 
 have consented to such increase, and upon being so satis- 
 fied to certify in duplicate the fact, under oath duly adminis- 
 tered : Provided, That should a stock vote be duly demanded 
 at said meeting, it shall be the duty of the president and 
 secretary, in ascertainment of the fact of the consent, to 
 cause such vote to be taken at the same time and place, 
 by the same persons and in the same manner, as the vote 
 for directors or managers of such corporation shall be 
 taken; or, 
 
 (B). At a special meeting of the stockholders, notice 
 of the time, place and object of which shall have been pub- 
 lished once a week for sixty days prior to said meeting in at 
 least one newspaper published in the county, city or borough 
 wherein such office or place of business is situated. At 
 such meeting thus called, or any adjournment thereof, an 
 election of the stockholders shall be taken for or against 
 such increase, which shall be conducted by three judges, 
 stockholders of such corporation, appointed by the board 
 of directors to hold said election, and if one or more of said 
 judges be absent the judge or judges present shall appoint 
 a judge or judges who shall act in the place of the judge 
 or judges absent; and said judges shall respectively take 
 and subscribe an oath or affirmation before an officer author-
 
 50 PENNSYLVANIA ASSOCIATION ACTS 
 
 ized by law to administer the same, well and truly and 
 according to law to conduct such election to the best of their 
 ability; and the said judges shall decide upon the qualifica- 
 tions of voters, and when the election is closed count the 
 number of shares voted for and against such increase, and 
 declare whether the persons and bodies corporate holding 
 the larger amount of the stock of such corporation have 
 consented to such an increase or refused to consent thereto, 
 and shall make out duplicate returns of said election, stating 
 the number of shares of stock that voted for such increase 
 and the number that voted against such increase, and sub- 
 scribe and deliver the same to one of the chief officers of 
 said company. Each ballot shall have endorsed thereon the 
 number of shares thereby represented, but no share or 
 shares transferred within sixty days shall entitle the holder 
 or holders thereof to vote at such election or meeting; nor 
 shall any proxy be received, or entitle the holder to vote, un- 
 less the same shall bear date and have been executed within 
 four months next preceding such election or meeting; and 
 it shall be the duty of such corporation to furnish the judges, 
 at said meeting, with a statement of the amount of its capital 
 stock, with the names of persons or bodies corporate hold- 
 ing the same, and number of shares by each respectively 
 held, which statement shall be signed by one of the chief 
 officers of such corporation, with an affidavit thereto an- 
 nexed that the same is true and correct to the best of his 
 knowledge and belief. 
 
 [Section 3. That it shall be the duty of such corpora- 
 tion, if consent is given to such increase, to file in the Office 
 of the Secretary of the Commonwealth, within thirty days 
 after such election, one of the copies of the certificates of the 
 president and secretary of the annual meeting, or one of 
 the copies of the return of such election at the special meet- 
 ing hereinbefore provided for, with a copy of the resolution 
 and notice calling the same thereto annexed ; and thereafter 
 the increase may be made at such time or times as shall 
 be determined by the directors. Upon the actual increase
 
 CORPORATIONS 51 
 
 of the capital stock or indebtedness of such corporation, 
 made pursuant thereto, it shall be the duty of the president 
 or treasurer of such corporation, within thirty days there- 
 after, to make a return to the Secretary of the Common- 
 wealth, under oath, of the amount of such increase actually 
 made, and concurrently therewith such corporation shall pay 
 to the State Treasurer, for the use of the Commonwealth, 
 such bonus on the actual increase shown by said return as 
 shall then be prescribed by law. In case of neglect or omis- 
 sion to make said return, such corporation shall be subject 
 to a penalty of five thousand dollars, in addition to tlic 
 bonus, which penalty shall be collected on an account 
 settled by the Auditor General and State Treasurer as ac- 
 counts for taxes due the Commonwealth are settled and 
 collected ; and the Secretary of the Commonwealth shall 
 cause said return to be recorded in a book for that purpose 
 and furnish a copy of the same to the Auditor General. 
 
 [Section 4. Nothing in this act contained shall be con- 
 strued as compelling resort to the process herein provided 
 in the case of indebtedness contracted in the usual course of 
 corporation business. All acts and parts of acts inconsist- 
 ent with the provisions of this act are hereby repealed : Pro- 
 vided, however. That any proceeding for increase of capital 
 stock or indebtedness, begun under existing law prior to and 
 not completed at the date this act becomes effective, shall be 
 consummated under the authority of this act if the ante- 
 cedent proceeding shall have conformed to its require- 
 ments; but if such antecedent proceeding shall not have 
 so conformed, then the proceeding shall be consummated 
 under the provisions of the law existing prior to the passage 
 of this act: Provided, however, That the provisions of this 
 act shall inure to the benefit of any railroad, canal or 
 other transportation corporation, unless such railroad, canal 
 or other transportation corporation shall, before claiming 
 or using the benefits of this act, file in the office of the 
 Secretary of the Commonwealth an acceptance of all the 
 provisions of article seventeen of the Constitution of this
 
 52 PENNSYLVANIA ASSOCIATION ACTS 
 
 Commonwealth, which acceptance shall be made by resolu- 
 tion adopted at a regular or called meeting of the directors, 
 trustees or other proper officers of such railroad, canal or 
 other transportation corporation, certified under the seal of 
 the corporation, and a copy of which resolution, certified 
 under the seal of the Office of the Secretary of the Common- 
 wealth, shall be evidence for all purposes. ]"*- 
 
 CAPITAL STOCK MAY BE REDUCED. ^^ 
 
 [Section i. The capital stock of any corporation cre- 
 ated b\ general or special lazu may be reduced, from time to 
 time, by the consent of the persons or bodies corporate hold- 
 ing the larger amount in value of the stock of such corpora- 
 tion, provided that such reduction shall not be below the 
 minimum amount of capital stock required by law for the 
 formation of corporations formed for similar purposes.^"^ 
 
 [Section 2. That any corporation desirous of reducing 
 its capital stock as provided by this act shall, by a reso- 
 lution of its board of directors, call a meeting of its stock- 
 holders therefor, which meeting shall be held in its chief 
 office or place of business in this Commonwealth, and notice 
 of the time, place and object of said meeting shall be pub- 
 lished once a week for sixty days prior to such meeting in at 
 least one newspaper published in the county, city or bor- 
 ough wherein such office or place of business is situate. 
 
 "The Act of April 18, 1874, P. L. 61. also provided for an increase 
 in capital stock. Section 6 of this act requires that, when requested by 
 the Auditor General, a report of the amount of the increase "issued 
 pursuant to the provisions of this Act" shall be rendered. 
 
 " Provision for the reduction of capital stock was made in Section 
 23 of the Act of 1874. This section was amended by the Act of April 
 17. 1876. Section 5. P. L. Ti;^. The amendment added a provision for 
 the sale of the property and franchises of a corporation, but followed 
 the language of the Act of 1874 in dealing with the reduction of 
 stock. The Act of June 8. 1893, P. L. 351, which is printed in the text, 
 while it did not in terms repeal that part of Section 23 of the Act of 
 1874 which relates to reduction of stock, completely supplies its place. 
 The first section of the Act of 1893 was itself amended by the Act of 
 April 22, 1905, as noted infra. 
 
 *^This and the next four sections is the Act of June 8. 1893, P. L. 
 3?T. The first section was amended by the Act of April 22, 1905, P. L. 
 264. The words printed in italics were added by the amending act.
 
 CORPORATIONS 53 
 
 [Section 3. At the meeting called pursuant to the sec- 
 ond section of this act, an election of the stockholders of 
 such corporation shall be taken for or against such reduc- 
 tion, which shall be conducted by three judges, stockholders 
 of said corporation, appointed by the board of directors 
 to hold said election, and if one or more of said judges be 
 absent, the judge or judges present shall appoint a judge or 
 judges who shall act in the place of the judge or' judges 
 absent, and who shall respectively take and subscribe an 
 oath or affirmation before an officer authorized by law to 
 administer the same well and truly and according to law, to 
 conduct such elections to the best of their ability, and the 
 said judges shall decide upon the qualification of voters, and 
 when the election is closed, count the number of shares voted 
 for and against such reduction, and declare whether the per- 
 sons or bodies corporate holding the larger amount of the 
 stock of such corporation have consented to such reduction 
 or refused to consent thereto, and shall make out duplicate 
 returns of said election, stating the number of shares of 
 stock that voted for such reduction and the number that 
 voted against such reduction, and subscribe and deliver the 
 same to one of the chief officers of said company. 
 
 [Section 4. Each ballot shall have endorsed thereon 
 the number of shares thereby represented, but no share 
 or shares transferred within sixty days shall entitle the 
 holder or holders thereof to vote at such election or meeting, 
 nor shall any proxy be received or entitle the holder to vote 
 unless the same shall bear date and have been executed 
 within three months next preceding such election or meet- 
 ing, and it shall be the duty of such corporation to furnish 
 the judges at said meeting with a statement of the amount 
 of its capital stock with the names of persons or bodies 
 corporate holding the same, and number of shares by each 
 respectively held, which statement shall be signed by one of 
 the chief officers of such corporation with an affidavit 
 thereto annexed that the same is true and correct to the best 
 of his knowledge and belief.
 
 54 PENNSYLVANIA ASSOCIATION ACTS 
 
 [Sf.ction 5. That it shall be the duty of such corpora- 
 tion, if consent is given to such reduction, to file in the 
 office of the Secretary of the Commonwealth, within thirty 
 days after such election or meeting, one of the copies of the 
 return of such election provided for by the third section 
 of this act with a copy of the resolution and notice calling 
 the same thereto annexed, and upon the reduction of the 
 capital stock of such corporation made pursuant thereto, it 
 shall be the duty of the president or treasurer of such cor- 
 poration, within thirty days thereafter, to make a return to 
 the Secretary of the Commonwealth, under oath, of the 
 amount of such reduction, and in case of neglect or omis- 
 sion so to do, such corporation shall be subject to a penalty 
 of five thousand dollars, which penalty shall be collected on 
 an account settled by the Auditor General and State Treas- 
 urer as accounts for taxes due the Commonwealth are set- 
 tled and collected, and the Secretary of the Commonwealth 
 shall cause said return to be recorded in a book kept for that 
 purpose and furnish a certified copy of the same to the 
 Auditor General.] 
 
 LIMIT OF LIABILITIES. 
 
 Section 24. That the officers and stockholders of cor- 
 porations organized under or accepting the provisions of this 
 act shall not be individually liable for the debts of said cor- 
 poration otherwise than in this provided. 
 
 CONSTRUCTION OF GRANT OF POWER. 
 
 Section 25. The incorporation of any association of 
 persons for the purposes named in this act, or accepting the 
 same, shall be held and taken to be of the same force and 
 effect as if the powers and privileges conferred, and the 
 duties enjoined, had been conferred and enjoined by special 
 act of the legislature, and the franchises granted shall be 
 construed according to the same rules of law and equity as 
 if it had been created by special charter, and no modification 
 or repeal of this act shall affect any franchise obtained 
 under the provisions of the same.
 
 CORPORATIONS 55 
 
 RETURN TO AUDITOR GENERAL.^^ 
 
 Section 26. Hereafter no institution or company, in- 
 corporated or organized by or under any law of this com- 
 monwealth, general or special, or incorporated or organized 
 under the laws of any other state and doing business in 
 this commonwealth shall go into operation without first hav- 
 ing the name of the institution or company, the date of in- 
 corporation or organization, the act of assembly or authority 
 under which incorporated or organized, the place of busi- 
 ness, the post office address, and names of the president, 
 secretary and treasurer, the amount of capital authorized by 
 its charter, and the amount of capital paid into the treasury 
 of the company, registered in the office of the auditor gen- 
 eral ; and every institution or company now engaged in 
 business in this commonwealth shall, within ninety days 
 after the passage of this act, register as herein required in 
 the office of the auditor general; and any such institution or 
 company which shall neglect or refuse to comply with the 
 provisions of this section, shall be subject to a penalty of five 
 hundred dollars, which penalty shall be collected on an ac- 
 count settled by the auditor general and state treasurer, 
 in the same manner as taxes on stock are settled and col- 
 lected.'*^ 
 
 CORPORATIONS ACCEPTING. 
 
 Any corporation or corporations for any of the pur- 
 poses named and covered by the provisions of this act, here- 
 tofore created by any special act or acts, or in existence un- 
 der the provisions of any general law of this commonwealth, 
 shall be entitled to all the privileges, immunities, franchises 
 and powers conferred by this act upon corporations to be 
 created under the same, upon filing in the office of the sec- 
 
 *^ In the Act of 1874, the first part of Section 26 dealt with this 
 subject, though "confining the requirements regarding notice to the 
 Auditor General to corporations of the second class."' This part of the 
 section was re-enacted hy the Act of April 17, 1876. Section 6, P. L. 
 33. But the Act of June 7, 1879, Section i, printed in the text, seems 
 to completely covers the subject. 
 
 "A~t of June 7th, 1879, Section i, P. L. 112.
 
 56 PENNSYLVANIA ASSOCIATION ACTS 
 
 retary of the commonwealth a certificate of a single corpora- 
 tion, or a joint certificate if two or more corporations incor- 
 porated for and doing the same kind of business, under the 
 seal or seals of said corporation or corporations, accepting 
 the provisions of the constitution and of this act, didy 
 authorised by a meeting of stockholders called for that pur- 
 pose; and upon such acceptance and approval by the gover- 
 nor, he shall issue letters patent to said corporation, or if two 
 or more corporations, to said corporations as one corpora- 
 tion, under such name as shall be designated by said corpora- 
 tion or corporations in said single or joint certificate, to- 
 gether ivith the amount and capital, number of shares and 
 par value thereof, as shall be designated by said corporation 
 or corporations in said certificate : Provided, That zvhere 
 two or more corporations shall make a joint certificate as 
 aforesaid, and letters patent shall be issued to said new cor- 
 poration, said corporations shall thenceforth be deemed, held 
 and taken to be merged and consolidated, and be subject to 
 all the limitations and liabilities of this act}'^ 
 
 RE-CHARTERING CORPORATIONS. 
 
 Section 40. Corporations created by or under the 
 laws of this state, embraced within either of the classes 
 named in section two of this act, the charters whereof are 
 about to expire by lapse of time from their own limitation, 
 may be re-chartered, or the charters thereof renewed, under 
 the provisions of this act, by preparing, having approved 
 and recorded the certificate named in said section for the 
 class of corporation of which the same is one, in addition 
 to the requirements provided in this act for a new corpora- 
 tion; the certificate for a re-charter shall state the fact that 
 it is a renevi^al of the former charter, naming the corpora- 
 
 " This is the last part of Section 26 of the Act of 1874 as it was 
 amended by Section 6 of the Act of April 17, 1876, P. L. t,t,. The parts 
 printed in italics were added by the later act. 
 
 Sections 27 to 39 inclusive, not applying to all corporations, either 
 of the first or second class, incorporated under the Act of 1874 or 
 its supplements, are omitted.
 
 CORPORATIOXS 57 
 
 tion and the date of its first charter. It shall also be accom- 
 panied with a certificate, under the seal of the corporation, 
 showing the consent of at least a majority in interest of 
 such corporation to such re-charter. It shall also state the 
 financial condition of the said corporation at the date of 
 such certificate, showing capital stock paid in, funded debt, 
 floating debt, estimated value of property and cash assets, 
 if any. It shall expressly accept the provisions of the con- 
 stitution of this state and of this act, and expressly surren- 
 der all privileges conferred upon such corporation by its 
 original charter that are not enjoyed by corporations of its 
 class under this act or general laws of this commonwealth. 
 From the date of recording of such certificate, if the cor- 
 poration be of the first class named in section two of this 
 act, and from the date of letters patent, if of the second 
 class, the said re-chartered corporation shall be and exist 
 as a new corporation under the provisions of this act and 
 of its said renewed charter; and all of the rights, privileges, 
 powers, immunities, lands, property and assets, of whatever 
 kind or character the same may be, possessed and owned 
 by the said original corporation, shall vest in and be owned 
 and enjoyed by the said re-chartered corporation, as fully 
 and with like effect as if its original charter had not ex- 
 pired, save as herein and by said certificate expressly stated 
 otherwise ; and all suits, claims and demands by said cor- 
 porations in existence at the date of such re-charter, shall 
 and may be sued, prosecuted and collected, under the laws 
 governing the said corporation prior to its re-charter, and 
 all claims and demands of ever}- nature and character in 
 existence at said re-charter, may be collected from and off 
 the said re-chartered corporation, as fully and with like 
 effect as if no change had taken place. '^^ 
 
 " Section 41, not applying to all corporations incorporated undf 
 the Act of 1874 or its supplements, is omitted.
 
 58 PEXXSYLVAXIA ASSOCIATIOX ACTS 
 
 AMENDMENTS TO CHARTERS CORPORATIONS OF THE FIRST 
 
 CLASS. 
 
 Section 42. As often as the corporations named in the 
 first class, specified in the second section of the act to which 
 this is a supplement, including all such corporations now in 
 existence, and academies, colleges and universities, shall be 
 desirous of improving, amending or altering the articles and 
 conditions of their charters, it shall and may be lawful for 
 such corporations, respectively, in like manner to specify 
 the improvements, amendments or alterations which are or 
 shall be desired, and exhibit the same to the court of com- 
 mon pleas of the proper county in which said corporation is 
 situated as aforesaid, where [when], if said court shall be 
 of opinion such alterations are or will be lawful and benefi- 
 cial, and do not conflict with the requirements of the stat- 
 ute to which this is a supplement or of the constitution, it 
 shall be the duty of said court to direct notice to be given, 
 as provided in the third section of the act to which this is a 
 supplement, of such application, and after decree made and 
 such amendments are recorded, the same shall be deemed 
 and taken to be a part of the charter of the said corpora- 
 tion; and if any two or more such corporations shall desire 
 to consolidate and merge zvith each other, or one or more 
 within the other, upon application to the court of common 
 pleas of the county in zvhich the corporation is situated, into 
 which the one or more desire to merge or become consoli- 
 dated zvith the same, proceedings shall take place as are 
 required on an application to amend; and upon decree being 
 made by said court, and the same being recorded in said 
 county, upon the terms specified in said application, the said 
 corporations, zvith all their rights, privileges, franchises, 
 pozvcrs and liabilities, shall merge and be consolidated into, 
 bv the name, style and title given to the same in such decree, 
 and upon the terms, limitations and zvith the pozvers stated 
 and conferred in said application and decree^^ 
 
 "This is Section 42 of the Act of 1874. as amended by the Act 
 of April 17, 1876, Section 12, P. L. 2:7- The parts printed in italics 
 were added by the amending act.
 
 CORPORATIONS 59 
 
 AMENDMENTS TO CHARTERS CORPORATIONS OF THE SECOND 
 
 CLASS.^^ 
 
 [Section i. When any corporation, formed for any of 
 the purposes named in the second class of section two of the 
 act to which this is a supplement, or embraced in that class 
 by any of its supplements, and which shall have been or may 
 hereafter be incorporated under the provisions of that act 
 or its supplements, as also any corporation of the second 
 class which has heretofore or may hereafter accept the pro- 
 visions of said act and the several supplements thereto, and 
 the Constitution of this Commonwealth in the manner pro- 
 vided by law, shall desire to improve, amend or alter the 
 article and conditions of the charter or instrument upon 
 which said corporation is formed and established, it shall 
 and may be lawful for such corporation to apply to the 
 Governor of this Commonwealth for such improvement, 
 amendment or alteration in the manner provided by this 
 act. 
 
 [Section 2. The corporation desiring such improve- 
 ment, amendment or alteration shall give notice of the in- 
 tention to apply therefor, in two newspapers of general cir- 
 culation, printed in the county wherein the principal office 
 or place of business of said corporation is located, once a 
 week for three weeks, setting forth briefly the character 
 and objects of the desired improvements, amendments or 
 alterations, and the intention to make application therefor. 
 
 [Section 3. The said corporation shall prepare a cer- 
 tificate, under its corporate seal, setting forth the character 
 and objects of the proposed improvement, amendment or 
 alteration of their charter, or the instrument upon which 
 the said corporation is formed or established ; also, that all 
 reports required by the Auditor General of the Common- 
 wealth have been filed, and that all taxes due the Common- 
 wealth of Pennsylvania have been paid ; acknowledged by 
 
 ■'"' The Act of 1874 did not deal with this subject. The provision 
 in the text is the supplement of June 13, 1883, P. L. 122, amended as 
 indicated infra, note 51.
 
 60 PENNSYLVANIA ASSOCIATION ACTS 
 
 the president and secretary of said corporation and before 
 the recorder of deeds of the county wherein such corpora- 
 tion has its principal office or place of business; which cer- 
 tificate, together with proof of publication of notice, as 
 provided i)i section tzvo of the siipplenicnt to an act of zvhich 
 this is an amendment, shall then be produced to the Gov- 
 ernor of the Commonwealth, who shall examine the same, 
 and, if he find it to be in proper form, and that such im- 
 provements, amendments or alterations are or will be law- 
 ful and beneficial, and not injurious, to the community, and 
 are in accord with the purpose of the charter, and that all 
 reports required by the Auditor General of the Common- 
 n'calth have been duly filed, and that all taxes due the Com- 
 monzvealth of Pennsylvania have been paid, he shall approve 
 thereof and endorse his approval thereon, and direct letters 
 patent to issue, in the usual form, reciting the said improve- 
 ments, amendments or alterations; and the said certificate 
 shall then be recorded in the office of the Secretary of the 
 Commonwealth, and, with all its endorsements, shall then 
 be recorded in the office for the recording of deeds in and 
 for the proper county, where the principal office or place of 
 business of said corporation is located; and from thence- 
 forth the same shall be deemed and taken to be a part of 
 the charter or instrument upon which said corporation was 
 formed or established, to all intents and purposes, as if the 
 same had originally been made a part thereof : Provided, 
 That nothing herein contained shall authorize the amend- 
 ment, alteration, improvement or extension of the charter 
 of any gas or water company, so as to interfere with or 
 cover territory previously occupied by any other gas or 
 water company.^ ^ 
 
 [Section 4. Nothing in this act contained shall be con- 
 strued to repeal or authorize the repeal of any of the 
 requirements or restrictions of the said act of April twenty- 
 
 •" This is Section 3 of the Act of June 13, 1883, P. L. 123, as amended 
 by the Act of the 31st of March, 1905, P. L. 93. The words printed 
 in italics are those added by the amending act.
 
 CORPORATIONS 61 
 
 ninth, one thousand eight hundred and seventy-four and 
 its supplements, nor to dispense with any of the provisions 
 of the said act, nor to authorize the right of eminent domain 
 to be given to any corporation by amendment of its charter, 
 nor to permit any change in the objects and purposes of 
 such corporation as shown by its original charter. ]'^- 
 
 BONUS.^^ 
 
 [Section i. All corporations hereafter created under 
 any general or special law of this Commonwealth, except 
 building and loan associations, and excepting all corporations 
 named in the first class of section two of an act, entitled "An 
 act to provide for the incorporation and regulation of certain 
 corporations," approved the twenty-ninth day of April, Anno 
 Domini one thousand eight hundred and seventy-four, shall 
 pay to the State Treasurer, for the use of the Common- 
 wealth, a bonus of one-third of one per centum upon the 
 amount of the capital stock which said company is author- 
 ized to have, and a like bonus on any subsequent author- 
 ized increase thereof, and a like bonus shall be paid by all 
 such companies heretofore incorporated upon any increase 
 of their capital stock hereafter authorized. And no com- 
 pany as aforesaid shall have or exercise any corporate pow- 
 ers until the said bonus is paid, and the Governor shall not 
 issue letters patent to any company until he is satisfied that 
 the said bonus has been paid to the State Treasurer. And 
 no company incorporated as aforesaid shall go into opera- 
 tion, or exercise any corporate powers or privileges, until 
 said bonus has been paid. The Secretary of the Common- 
 wealth shall not permit the filing in his office of any pro- 
 ceedings for increase of capital stock until he is satisfied 
 
 " Section 50 of the Act of 1874, not relating to all corporations 
 either of the first or second class, is omitted. 
 
 •■^This was the subject of Section 44 of the Act of 1874. The sec- 
 tion was amended by the Act of May 22, 1878. P. L. 97, and again 
 amended by the Act of June 15, 1897, P. L. 155. In the second amend- 
 ing act the section was stated for the purpose of amendment as it stood 
 in 1874, the amendment of 1878 being ignored. The addition to the 
 law by the amendment of 1878 failed, therefore, to be re-enacted.
 
 62 PENNSYLVANIA ASSOCIATION ACTS 
 
 that the said bonus upon said authorized increase has been 
 paid to the State Treasurer. J'^^ 
 
 Section 45. It shall be the duty of the Secretary of the 
 Commonwealth, every tzvo years, to prepare and publish, in 
 separate pamphlet form, a certified list of all charters of in- 
 corporations filed in his office, and incorporated under the 
 provisions of this act, stating the style, title, purpose and 
 location of every such corporation, and he shall prepare and 
 publish a complete alphabetical index to the same.^"^ 
 
 The Act of May 3, 1899, Section l, P. L. 189, which is printed in the 
 text, though it does not purport to be an amendment or supplement 
 to the Act of 1874, covers the entire subject, and has apparently supplied 
 Section 44 of the Act of 1874 and its amendments. 
 
 " Act of May 3, 1899, Section i, P. L. 189. The Act of April 18, 
 1874, Section 7, P. L. 62, provides : "That every company, except rail- 
 road, canal, turnpike, bridge or cemetery companies, and companies 
 incorporated for literary, charitable or religious purposes, which shal! in- 
 crease its capital stock under the provisions of this act shall pay to the 
 state treasurer, for the use of the commonwealth, a bonus of one-quarter 
 of one'per centum upon the amount of said increase, in two instalments, 
 the first to be due upon the filing of the certificate required by the 
 preceding section of this act, to be filed in the office of the secretary of 
 the commonwealth, and the second instalment one year thereafter: 
 Provided, That nothing in this act shall be construed to reduce the 
 amount of bonus to be paid by any company having in its charter a 
 special provision requiring the payment of a bonus at a higher rate 
 than one-quarter of one per centum." 
 
 ^'The parts printed in italics were added by the Act of June 7, 1901, 
 P. L. 530. The Act of 1901 also provides for the distribution of the 
 publication. 
 
 The Act of June 13, 1883, Section 7, P. L. 122. provides that the 
 Act of 1874 "shall hereafter be cited and known as the Corporation Act 
 of 1874."
 
 CORPORATIONS 63 
 
 LAWS RELATING TO ALL CORPORATIOXS, 
 EITHER OF THE FIRST OR SECOND CLASS 
 OR BOTH. DEALING WITH SUBJECTS FOR 
 W^HICH NO PROVISION WAS MADE IN THE 
 ACT OF 1874.^ 
 
 ORGANIZATION. 
 
 Any corporation of the second class, created under the 
 provisions of the act to which this is a supplement, or any 
 of its supplements, that shall not within two years from the 
 date of its letters patent proceed in good faith to organize 
 and to do the things contemplated by its charter, and have 
 paid up at least one-fourth of its capital stock, shall be held 
 and deemed to have forfeited its charter, and the Attornev 
 General shall, on the application of any citizen, take the 
 proper legal steps to forfeit and vacate its said charter, but 
 any corporation now in existence shall have two years from 
 the date of this act to do and perform the things by this 
 section required.- 
 
 CHANGE OF PAR VALUE OF SHARES.^ 
 
 Section i. It shall be lawful for any corporation, 
 organized under the laws of this State, to change the par 
 value or face value of the shares into which its capital stock 
 is divided. Such change shall be authorized by a vote of a 
 majority of the stockholders of any such company, present 
 in person or by proxy at any annual meeting, or any special 
 meeting duly called for that purpose. Such change of the 
 par value of the capital stock shall not be taken to increase 
 or diminish, or change in any way, the total aggregate par 
 value of the capital stock which said company may be au- 
 thorized to issue or may have issued, but only to change the 
 number of shares into which the same mav be divided. 
 
 * Omits laws relating to suits against corporations, execution and 
 taxation. 
 
 *Act of June 13. 1883. Section 5, P. L. 123. 
 
 ^ Act of July 2, 1901, P. L. 606.
 
 64 PENNSYLVANIA ASSOCIATION ACTS 
 
 Section 2. In case the stockholders, so present at such 
 meeting, shall vote to increase or diminish the par value of 
 the shares of the capital stock of the company, as above 
 provided, it shall be the duty of the proper officers of the 
 company to file a certificate of the fact in the office of the 
 Secretary of the Commonwealth, under the seal of the cor- 
 poration; and thereupon the proper officers of such corpora- 
 tion shall issue to the stockholders the proper number of 
 shares of the capital stock of the new par value, in ex- 
 change for outstanding shares of the former par value, upon 
 the surrender of such outstanding shares by the respective 
 holders and the cancellation thereof. 
 
 MERGER AND CONSOLIDATION.^ 
 
 Section i. It shall be lawful for any corporation now 
 or hereafter organized under, or accepting the provisions of, 
 the act, entitled "An act to provide for the incorporation 
 and regulation of certain corporations," approved April 
 twenty-ninth, one thousand eight hundred and seventy-four, 
 or of any of the supplements thereto, or of any other act 
 of Assembly authorizing the formation of corporations, to 
 buy and own the capital stock of, and to merge its corporate 
 rights, powers and privileges with and into those of, any 
 other corporation, so that by virtue of this act such cor- 
 porations may consolidate, and so that all the property, 
 rights, franchises and privileges then by law vested in either 
 of such corporations, so merged, shall be transferred to and 
 vested in the corporation into which such merger shall be 
 made : Provided, That nothing in this act shall be construed 
 so as to permit railroad, canal, telegraph companies, which 
 own, operate or in any way control parallel or competing 
 roads, canals or lines, to merge or combine : And provided 
 further. That any corporation formed for the purpose of 
 carrying on any manufacturing business under the seven- 
 teenth or eisfhteenth clause of section two of an act entitled 
 
 *Act of ^lay 29, 1901, P. L. 349.
 
 CORPORATIONS 65 
 
 "An act to provide for the incorporation and regulation of 
 certain corporations,** approved April twenty-ninth, one 
 thousand eight hundred and seventy-four, with the powers 
 conferred by section thirty-eight or section thirty-nine of 
 said act, may be merged and consolidated, under the pro- 
 visions of this act, with any other corporation formed for 
 any purpose provided for in either the seventeenth or eigh- 
 teenth clause of section two of the act above cited; but noth- 
 ing in this act contained shall extend or enlarge beyond its 
 former territorial limits the exclusive franchise of any gas 
 or water company. 
 
 • Section 2. Said merger or consolidation shall be made 
 under the conditions, provisions and restrictions, and with 
 the powers herein set forth, to wit : 
 
 I. The directors of each corporation may enter into 
 a joint agreement, under the corporate seal of each corpora- 
 tion, for the merger and consolidation of said corporations ; 
 prescribing the terms and conditions thereof, the mode of 
 carrying the same into effect, the name of the new corpora- 
 tion, the number and names of the directors and other 
 officers thereof, and who shall be the first directors and offi- 
 cers and their places of residence, the number of shares of 
 the capital stock, the amount or par value of each share, and 
 the manner of converting the capital stock of each of said 
 corporations into the stock of the new corporation, and how 
 and when directors and officers shall be chosen, with such 
 other details as they shall deem necessary to perfect the 
 said consolidation and merger ; but said agreement shall not 
 be effective unless the same shall be approved by the stock- 
 holders of said corporations, in the manner hereinafter pro- 
 vided. 
 
 II. Said agreement shall be submitted to the stockholders 
 of each of said corporations, at separate special meetings, of 
 the time, place and object of which respective meetings due 
 notice shall be given by publication, once a week for two 
 successive weeks before said respective meetings, in at least 
 one newspaper in the county or each of the counties in which
 
 66 PENNSYLVANIA ASSOCIATION ACTS 
 
 the principal offices of said respective corporations shall be 
 situate; and at said meetings the said agreement of the 
 directors shall be considered, and a vote of the stockholders 
 in person or by proxy shall be taken, by ballot, for the adop- 
 tion or rejection of the same, each share of stock entitling the 
 holder thereof to one vote, and if a majority in amount of 
 the entire capital stock of each of said corporations shall 
 vote in favor of said agreement, merger and consolidation, 
 then that fact shall be certified by the secretary of each cor- 
 poration, under the seal thereof, and said certificates, to- 
 gether w^ith the said agreement or a copy thereof, shall be 
 filed in the office of the Secretary of the Commonwealth, 
 whereupon the said agreement shall be deemed and taken 
 to be the act of consolidation of said corporations. 
 
 Section 3. Upon the filing of said certificates and 
 agreement, or copy of agreement, in the office of the Sec- 
 retary of the Commonwealth, the said merger shall be 
 deemed to have taken place and the said corporations to be 
 one corporation under the name adopted in and by said 
 agreement, possessing all the rights, privileges and fran- 
 chises theretofore vested in each of them, and all the estate 
 and property, real and personal, and all the rights of action 
 of each of said corporations, shall be deemed and taken to 
 be transferred to and vested in the said new corporation, 
 without any further act or deed : Provided, That all rights 
 of creditors and all liens upon the property of each of said 
 corporations shall continue unimpaired, and the respective 
 constituent corporations may be deemed to be in existence to 
 preserve the same; and all debts, duties and liabilities of each 
 of said constituent corporations shall thenceforth attach to 
 the said new corporation, and may be enforced against it 
 to the same extent and by the same process as if said debts, 
 duties and liabilities had been contracted by it. But such 
 merger and consolidation shall not be complete, and no 
 such consolidated corporation shall do any business of any 
 kind, until it shall have first obtained from the Governor of 
 the Commonwealth new Letters Patent, and shall have paid
 
 CORPORATIONS 67 
 
 to the State Treasurer a bonus of one-third of one per 
 centum on all its corporate stock in excess of the amount 
 of the capital stock of the several corporations so consoli- 
 dating, upon which the bonus required by law had been 
 theretofore paid: Ajtd provided further, That new letters 
 patent of such consolidated corporation shall not be issued 
 by the Governor of the Commonwealth until each and every 
 corporation, entering and forming the consolidated corpora- 
 tion, shall have filed with the Secretary of the Common- 
 wealth a certificate from the Auditor General of the Com- 
 monwealth, setting forth that all reports required by the 
 Auditor General of the Commonwealth have been duly filed, 
 and that all taxes due the Commomvealth of Pennsylvania 
 have been paid.^ 
 
 Section 4. A certified copy of said certificate and 
 agreement, or copy of agreement, so to be filed in the 
 office of the Secretary of the Commonwealth, shall be evi- 
 dence of the lawful holding and action of such meetings, and 
 of the merger and consolidation of said corporations. 
 
 Section 5. If any stockholder or stockholders of any 
 corporation which shall become a party to an agreement of 
 merger and consolidation hereunder, shall be dissatisfied 
 with or object to such consolidation, and shall have voted 
 against the same at the stockholders' meeting, it shall and 
 may be lawful for any such stockholder or stockholders, 
 within thirty days after the adoption of said agreement of 
 merger and consolidation by the stockholders as herein pro- 
 vided, and upon reasonable notice to said corporation, to 
 apply by petition to any court of common pleas of the 
 county in which the chief office of such corporation may be 
 situate, or to a judge of said court in vacation, if no such 
 court sits during said period, to appoint three disinterested 
 persons to estimate and appraise the damages, if any, done 
 to such stockholder or stockholders by said consolidation. 
 Upon such petition, it shall be the duty of said court, or 
 
 ^The words in italics were added bv the Act of March 31, 1905, 
 P. L. 95.
 
 68 PENNSYLVANIA ASSOCIATION ACTS 
 
 judge, to make such appointment; and the award of the 
 persons so appointed, or of a majority of them, when con- 
 firmed by the said court, shah be final and conclusive ; and 
 the persons so appointed shall also appraise the share or 
 shares of said stockholders in the said corporation, at the 
 full market value thereof, without regard to any apprecia- 
 tion or depreciation in consequence of the said consolidation, 
 which appraisement, when confirmed by the said court, shall 
 be final and conclusive; and the said corporation may, at its 
 election, either pay to the said stockholder or stockholders 
 the amount of damages so found and awarded, if any, or the 
 value of the stock so ascertained; and upon the payment of 
 the value of the stock as aforesaid, the said stockholder or 
 stockholders shall transfer the stock so held by them to the 
 said corporation, to be disposed of by the directors thereof 
 or to be retained for the benefit of the other stockholders; 
 and in case the value of said stock, as aforesaid, shall not be 
 so paid within thirty days after the said award shall have 
 been confirmed by said court, the damages so found and 
 confirmed shall be a judgment against said corporation, and. 
 may be collected as other judgments in said court are by 
 law recoverable. 
 
 CHANGE OF NAME. 
 
 It shall be lawful for the several courts of common 
 pleas of this Commonwealth to change the name, style and 
 title of any corporation of the class named in the first sec- 
 tion of this act [corporations not for profit] within their 
 respective counties, with the same proceedings and in the 
 same manner as they are now authorized to improve, amend 
 or alter the charters of such corporations.^ 
 
 It shall be lawful for any corporation of this Com- 
 monwealth, heretofore or hereafter created by any gen- 
 eral or special law, to change its corporate title by resolu- 
 tion of its Board of Directors, adopted by a two-thirds vote 
 
 'Act of May 2. 1899, Section 2, P. L. 160. The first section of the 
 act validates certain changes of names heretofore made.
 
 CORPORx\TIONS 69 
 
 thereof, approved at any annual meeting, or special meeting 
 duly called, of the stockholders by a two-thirds vote thereof. 
 Upon such approval by the stockholders, it shall be the duty 
 of the President of said corporation to file in the office of 
 the Secretary of the Commonwealth a certificate, under the 
 seal of the company, setting forth the resolution adopted by 
 the Board of Directors and approved by the stockholders, 
 the date of the adoption of such resolution by the Board of 
 Directors and the date of its approval by the stockholders, 
 the date of the original incorporation of the company, the 
 act of Assembly under which the said corporation wa-5 
 created, the name under which the said corporation was 
 originally incorporated and all subsequent changes therein, 
 and the name which the corporation desires. to adopt. The 
 Secretary of the Commonwealth shall examine the records 
 in his office, and, if he find that the name desired by said cor- 
 poration does not conflict with the name of any corporation 
 appearing upon said records, he shall require the said certificate 
 to be recorded, and shall issue to the said corporation a cer- 
 tificate, under his hand and the seal of his office, granting 
 to said corporation the use of said new corporate title. The 
 Secretary of the Commonwealth shall, upon the issuing of 
 any such certificate, require the same to be recorded in a book 
 kept for that purpose, and certify the said change in the 
 corporate title to the Auditor General of this Common- 
 wealth : Provided, That any corporation, required to record 
 the original certificate of incorporation in the office for the 
 recording of deeds, shall, before being entitled to use the new 
 corporate title, record in the office for the recording of 
 deeds, where the original certificate of incorporation was 
 recorded, the said certificate granted by the Secretary of the 
 Commonwealth authorizing the use of the new corporate 
 title : Provided also. That this act shall not apply to corpora- 
 tions not for profit.''' 
 
 ^ Act of April 22, 1903. Section t, P. L. 251.
 
 70 PENNSYLVANIA ASSOCIATION ACTS 
 
 CERTAIN RIGHTS AND DUTIES, 
 (a) Obligations to be redeemable in gold and silver. 
 
 It shall not be lawful for any corporation within this 
 commonw^ealth, directly or indirectly, either by itself or 
 through any agent or agents, individual or individuals, to make, 
 issue, re-issue, pay out or circulate, or cause to be issued, re- 
 issued, put out or circulated, any certificate, check, order or 
 due bill, or acknowledgment of indebtedness of any descrip- 
 tion for any purpose whatsoever, payable or redeemable in 
 any goods, property or effects, or payable or redeemable in 
 anything except in gold and silver, and that any violation 
 of the provisions of this act shall be held and deemed to be 
 a forfeiture of the charter of any company so offending, 
 and any private citizen may by quo warranto proceed, accord- 
 ing to law, to have such forfeiture declared : Provided, That 
 this act shall not be construed to authorize any corporation 
 or individual, not expressly authorized by existing laws, to 
 issue any note, bill, check or certificate whatever, in the 
 nature or similitude of a bank note, and intended for circu- 
 lation; and that all laws inconsistent with this act, be and 
 the same are hereby repealed: And provided further, That 
 this section shall not be construed so as to prevent any cor- 
 poration from drawing orders in the ordinary course of 
 business, not intended for circulation, or in payment of in- 
 terest, and that such orders shall not be negotiable.^ 
 
 (b) Corporations for profit may pension employees. 
 Corporations organized for profit may, out of the earn- 
 ings of said corporations, grant allowances or pensions to 
 employes for faithful and long continued service, who have, 
 in such service, become old, infirm or disabled : Provided, 
 That the provisions of this act shall not apply to any director 
 or officer of any such company or corporation.^ 
 
 'Act of April 21. 1849, Section i, P. L. 6y2,. 
 *Act of May 11, 1893, Section i, P. L. 42.
 
 CORPORATIONS 71 
 
 (c) Paj'ments of dividends due the Commonwealth. 
 In all incorporated companies (banking companies ex- 
 cepted) now created, or which may hereafter be created b}' 
 virtue of any law of this commonwealth, and in which any 
 portion of the stock now is or hereafter shall be held by the 
 state, and whereon dividends have been or hereafter may be 
 declared by the directors or managers thereof, respectively, 
 it shall be the duty of each and every of the treasurers of 
 the said incorporations respectively, to pay the proportions 
 due to the state into the treasury of this commonwealth, 
 within sixty days after each declaration of dividends, and 
 within sixty days after passage of this act with respect to 
 dividends heretofore declared, and on failure to make such 
 payment, the governor is hereb}^ directed to instruct the 
 attorney general to bring suit therefor against such default- 
 ing company. ^° 
 
 (d) Power to purchase stock and securities of other companies. 
 Any corporation organized for profit, created by gen- 
 eral or special laws, may purchase, hold, sell, assign, trans- 
 fer, mortgage, pledge, or otherw.ise dispose of, the shares 
 of the capital stock of, or any bonds, securities or evidences 
 of indebtedness created by, any other corporation or cor- 
 porations of this or any other State, and while the owner of 
 said stock may exercise all the rights, powers and privileges 
 of ownership, including the right to vote thereon. ^^ 
 
 DISSOLUTION, 
 (a) Voluntary. 
 
 It shall be lawful for any court of common pleas of the 
 proper county to hear the petition of any corporation under 
 
 "Act of March 19, 1816, 6 Sm. L. 390. 
 
 " Act of July 2, 1901, P. L. 603. The Act of March 31, 1868, Section 
 I, P. L. 50, permits the investment of the surplus funds of a corpora- 
 tion "in mortgages on improved real estate, in ground rents, in the 
 loans of the United States, in purchase from the holders thereof any 
 of the shares of the capital stock of the respective company, and also 
 in the puhlic dclit of the State of Pennsylvania, or of the City of Phil- 
 adelphia, or in other good stocks and securities."
 
 72 PENNSYLVANIA ASSOCIATION ACTS 
 
 the seal thereof, by and with the consent of a majority of 
 a meeting of the corporators, duly convened, praying for 
 permission to surrender any power contained in its charter, 
 or for the dissolution of such corporation; and if such court 
 shall be satisfied that the prayer of such petition may be 
 granted without prejudice to the public welfare, or the inter- 
 ests of the corporators, the court may enter a decree in ac- 
 cordance with the prayer of the petition, whereupon such 
 power shall cease or such corporation be dissolved : Pro- 
 vided, That the surrender of any such power shall not in 
 anywise remove any limitation or restriction in such charter ; 
 and that the accounts of the managers, directors, or trustees 
 of any dissolved company shall be settled in such court, 
 and be approved thereby ; and dividends of the effects shall 
 be made among any corporators entitled thereto, as in the 
 case of the accounts of assignees and trustees : Provided 
 further, That no property devoted to religious, literary or 
 charitable uses shall be diverted from the objects for which 
 they were given or granted : Provided, That the decree of 
 said court shall not go into effect until a certified copy 
 thereof be filed and recorded in the office of the secretary 
 of the commonwealth. ^- 
 
 (b) Involuntary. 
 
 Writs of quo warranto in the form and manner herein- 
 after provided, may also be issued by the several courts of 
 common pleas, concurrently with the supreme court, in the 
 following cases, to wit : 
 
 IV. In case any association, or number of persons, 
 shall act as a corporation, or shall exercise any of the fran- 
 chises or privileges of a corporation, within the respective 
 county, without lawful authority. 
 
 V. In case any corporation as aforesaid, shall forfeit by 
 
 *^Act of April 9. 1856, P. L. 293. The Supplemental Act of April 
 4, 1872, P. L. 40, provides that the "proper county" in which to make 
 the application may be either the county in which the corporation's 
 principal operations are carried on, or the county in which its principal 
 office is located, but publication must be made in both counties.
 
 CORPORATIONS 73 
 
 misuser, or non-user, its corporate rights, privileges or fran- 
 chises, or shall do, suffer, or omit to do, any act, matter or 
 thing, whereby a forfeiture thereof shall by law be created, 
 or shall exercise any power, privilege or franchise not 
 granted or appertaining to such corporation. 
 
 And in any such case, the writ aforesaid may be issued 
 upon the suggestion of the Attorney General, or his deputy, 
 in the respective county, or of any person or persons desir- 
 ing to prosecute the same.^^ 
 
 Whenever any corporation, incorporated under the 
 laws of this commonwealth, shall have been dissolved by 
 judgment of ouster, upon proceedings of quo zvarraiito in 
 any court of competent jurisdiction, all the estate, both real 
 and personal, of which such corporation are in any wav 
 seized or possessed, shall pass to and vest in the persons who 
 at the time of such dissolution are the officers of such corpor- 
 ation, in trust to hold the same for the benefit of the stock- 
 holders and creditors of the corporation.^'* 
 
 Whenever any corporation incorporated under the laws 
 of this Commonwealth shall be dissolved by judgment of 
 ouster upon proceedings by quo warranto in any court of 
 competent jurisdiction, the said court, or in vacation any 
 one of the law judges thereof, shall have power to appoint 
 a receiver, who shall have all the powers of a receiver ap- 
 pointed by a court of chancery, to take possession of all the 
 estate, both real and personal thereof, and make distribution 
 of the assets among the persons entitled to receive the same 
 according to law. The powers of such receiver may con- . 
 tinue as long as the court deems necessary for said purposes 
 and he shall be held to supersede an assignee of the corpora- 
 tion in possession. ^^ 
 
 '■'' Act of June 14, 1836, Section 2, P. L. 623. 
 
 "Act of April 4, 1872, Section i, P. L. 46. 
 
 " Act of April 26, 1893, Section i, P. L. 26. Tt takes the place of 
 Section 2 of the Act of April 4, 1872, P. L. 46, in which the right to 
 appoint a receiver was confined to a member of the Supreme Court. 
 
 The Act of April 15. 1891. P. L. 15, provides for the sale of the 
 real estate of a dissolved corporation, and the distribution of the pro- 
 ceeds of the sale.
 
 74 PENNSYLVANIA ASSOCIATION ACTS 
 
 SALE OF CORPORATE FRANCHISES AND PROPERTY. 
 
 Whenever the material, rolling stock, property and 
 franchises of any gas, zuater, coal, iron, steel, lumber, oil, 
 or mining or manufacturing, transportation or telegraph 
 company, or any railroad, canal, turnpike, bridge or plank 
 road, or of any corporation, created by or under any law of 
 this State, shall be sold and conveyed, under and by virtue 
 of any process or decree of any court of this State or of 
 the circuit court of the United States, [or under or by vir- 
 tue of a power of sale contained in any mortgage or deed 
 of trust, without any process or decree of a court in the 
 premises,] the person or persons for or on whose account 
 such material, rolling stock, property and franchises of any 
 gas, water, coal, iron, steel, lumber, oil, or mining or manu- 
 facturing, transportation or telegraph company, or any rail- 
 road, canal, turnpike, bridge or plank road, or of any cor- 
 poration, created by or wider any lazv of this State, may be 
 purchased, shall be and they are hereby constituted a body 
 politic arid corporate, and shall be vested with all the right, 
 title, interest, property, possession, claim and demand in law 
 and equity, of, in and to such material, rolling stock, prop- 
 erty or franchises of any gas, water, coal, iron, steel, litmber, 
 oil, or mining or manufacturing, transportation or telegraph 
 company, or any railroad, canal, turnpike, bridge or plank 
 road, or of any corporation, created by or under any law of 
 this State, w4th the appurtenances, and with all the rights, 
 powers, immunities, privileges and franchises of the corpora- 
 tion, as whose the same may have been so sold, and which 
 ma}' have been granted to or conferred thereupon, by any 
 act or acts of Assembly whatsoever, in force at the time of 
 such sale and conveyance, and subject to all the restrictions 
 imposed upon such corporation by any such act or acts, ex- 
 cept so far as the same are modified hereby; and the person 
 for or on whose account any such material, rolling stock, 
 property and franchises of any gas, water, iron, steel, lumber, 
 oil, or mining or manufacturing, transportation or telegraph, 
 company, or any railroad, canal, turnpike, bridge or plank
 
 CORPORATIONS 75 
 
 road, or of any corporation, created by or under an\ law 
 of this State, may have been purchased, shall meet, within 
 thirty days after the conveyance thereof shall be delivered, 
 public notice of the time and place of such meeting having 
 been given, at least once a week for two weeks, in at least 
 one newspaper published in the city or county in which such 
 sale may have been held, and organize said new corporation 
 by electing a president and board of six directors, (to con- 
 tinue in office until the first ^Monday of ]\Iay succeeding such 
 meeting, when and annually thereafter on the said day a like 
 election for a president and six directors shall be held to 
 serve one year, ) and shall adopt a corporate name and com- 
 mon seal, determine the amount of the capital stock thereof, 
 not exceeding the amount authorized in the original charter, 
 and shall have power and authority to make and issue certifi- 
 cates therefor to the purchaser or purchasers aforesaid, to 
 the amount of their respective interests therein, in shares of 
 fifty dollars each, and may then or at any time thereafter 
 create and issue preferred stock to such an amount and on 
 such terms as they may deem necessary, and from time to 
 time to issue bonds, at a rate of interest not exceeding six 
 per centum, to any amount not exceeding their capital stock, 
 and to secure the same by one or more mortgages upon the 
 real and personal property and corporate rights and fran- 
 chises, or either, or any part or parts thereof : {^Provided, 
 That no coal, iron, steel, lumber, or oil. or mining, manufac- 
 turing, transportation or telegraph company, shall have the 
 benefit of this act, unless it shall have previously filed, with 
 the Secretary of State, its acceptance of all the provisions of 
 the Constitution, as provided by law.]^*^ 
 
 The provisions of this act shall not inure to the benefit 
 of any corporation unless such corporation shall, before 
 
 "Act of April 8, 1861, P. L. 259. The words printed in italics were 
 added by the amendment of May 25, 1878, P. L. 145, and those in 
 brackets by the amendment of May 31. 1887. P. L. 278. 
 
 Section 2 of the Act of April 8. t86i, P. L. 260. as re-enacted by 
 the Act of :\Iay 25, 1878, Section 2, P. L. 146, provides that any corpora- 
 tion to take the benefit of the act must accept Article xvi of the Con- 
 stitution of the State.
 
 n PENXSYLVAXIA ASSOCIATIOX ACTS 
 
 claiming or using the benefits of this act. file in the office of 
 the secretary of the commonwealth, an acceptance of the 
 provisions of article sixteen of the constitution of this com- 
 monwealth, which acceptance shall be made by resolution 
 adopted at a regular or called meeting of the directors, trus- 
 tees or other proper officers of such corporation, certified 
 under the seal of the corporation ; and a copy of which reso- 
 lution, certified under the seal of the office of the secretary 
 of the commonwealth, shall be eyidence for all purposes.^' 
 In all cases in which the property and franchises of any 
 corporation, mentioned in the act [of April 8th, 1861, P. L. 
 259, and its supplement of May 25th, 1878, P. L. 148], 
 or of any telegraph company, may haye been or shall here- 
 after be purchased at any sale, by virtue of any process or 
 decree of any court of this Commonwealth or the circuit 
 court of the United States, or under or by virtue of a power 
 of sale contained in any mortgage, or deed of trust, without 
 any process or decree of a court in the premises, the person 
 or persons, for or on whose account the same may have been 
 or shall hereafter be purchased, shall have power and au- 
 thority to determine the amount of the capital stock and 
 bonds to be issued therefor, and to issue therefor certifi- 
 cates for the said capital stock, and also bonds, and secure 
 the same by mortgage or mortgages on the real and personal 
 property, corporate rights and franchises purchased. Such 
 stock or bonds, or both, shall be issued to the purchaser or 
 purchasers for their respective interests, in such amounts and 
 proportions as may be determined by themselves, and shall 
 be deemed and taken to have been issued for and in con- 
 sideration of the property and franchises so purchased and 
 received : Provided, That no railroad, canal or other trans- 
 portation company, or telegrapli company, shall have the 
 benefit of this act, unless it shall Jiave previously filed, with 
 the Secretary of State, its acceptance of all the provisions 
 
 ■'Act of May 25, 187S, Section 3, P. L. 145.
 
 CORPORATIONS V 
 
 of the Coiisfitittion of this State, in manner and form as 
 provided by laiv^^ 
 
 In all cases in which the property and franchises of any 
 corporation mentioned in the act and its supplements, and 
 to which this is a further supplement, or of any telegraph 
 company, have been sold, by virtue of any [order] or de- 
 cree of any court of this commonwealth or the circuit court 
 of the United States, and the person or persons for or on 
 whose account the same have been purchased, have organized 
 a corporation under the provisions of said act, and have 
 issued stock and bonds to the purchaser or purchasers for 
 their respective interests, secured by mortgage, in such 
 amount and proportions as may have been determined and 
 agreed upon by them, such issues are hereby ratified, ap- 
 proved and confirmed.^^ 
 
 " Act of May 25, 1878, Section i, P. L. 148. The words printed in 
 italics were added by the amendment of May 31, 1887, P. L. 276. 
 
 "Act of May 25, 1878. Section 2. P. L. 148, Section 3, provides 
 that any corporation to take the benefit of the act must accept Article 
 xvi of the Constitution of the State.
 
 78 PENNSYLVANIA ASSOCIATION ACTS 
 
 LEGISLATION SPECIALLY PERTAINING TO 
 IMPORTANT KINDS OF CORPORATIONS. 
 
 RAILROADS. 
 
 Act of February 19th, 1849, P. L. 79, and supple- 
 ments. 
 
 Act of April 4th, 1868, P. L. 62, and supplements. 
 
 Pepper & Lewis's Digest of Laws, edition of 1909, 
 title, Railroads and Canals. 
 
 STREET RAILWAYS. 
 
 Act of March 22nd, 1887, P. L. 8. Pepper & Lewis's 
 Digest of Laws, edition of 1909, title, Corporations, pars. 
 415, 419, 422 to 428. 
 
 Act of May 14th, 1889, P. L. 211. Pepper & Lewis's 
 Digest of Laws, edition of 1909, title. Corporations, pars. 
 509, et seq. 
 
 Act of June 7th, 1901, P. L. 514. Pepper & Lewis's 
 Digest of Laws, edition of 1909, title, Corporations, pars. 
 528, et seq. 
 
 GAS AND WATER COMPANIES. 
 
 Pepper & Lewis's Digest of Laws, title. Corporations, 
 edition of 1909, pars. 242-291. 
 
 BANKS. 
 
 Act of April 1 6th, 1850, P. L. 477. Pepper & Lewis's 
 Digest of Laws, edition of 1909, title, Banks and Banking, 
 pars. 44, et seq. 
 
 BANKING CORPORATIONS. 
 
 Act of May 13th, 1876, P. L. loi. Pepper & Lewis's 
 Digest of Laws, edition of 1909, title, Banking Companies, 
 pars. I, et seq.
 
 CORPORATIONS 79 
 
 BANKING DEPARTMENT. 
 
 Act of February nth, 1895, P. L. 4. Pepper & Lewis's 
 Digest of Laws, edition of 1909, title. Banks and Banking, 
 pars. I, et seq. 
 
 ELECTRIC LIGHT, HEAT AND POWER COMPANIES 
 
 Pepper & Lewis's Digest of Laws, edition of 1909, title, 
 Corporations, pars. 221-226. 
 
 INSURANCE COMPANIES. 
 
 Act of May ist, 1876, P. L. 53. Pepper & Lewis's 
 Digest of Laws, edition of 1909, title. Insurance, pars. 32, 
 et seq. 
 
 MANUFACTURING CORPORATIONS. 
 
 Pepper & Lewis's Digest of Laws, edition of 1909, title. 
 Corporations, pars. 309-329.
 
 1 
 
 I
 
 University of California 
 SOUTHERN REGIONAL LIBRARY FACILITY 
 305 De Neve Drive - Pari<ing Lot 17 • Box 951388 
 LOS ANGELES, CALIFORNIA 90095-1388 . 
 
 Return this material to the library from which it was borrowed.
 
 >^ V