Robinson v. Floyd

28 A. 258, 159 Pa. 165, 1893 Pa. LEXIS 1492

Opinions

Opinion by

Mr. Justice Dean,

The American Bank was a partnership, of which appellants were members, organized April 6, 1869, in a banking and brokerage business in Pittsburgh, Pa. The capital, by the partnership articles, was $200,000, divided into 2000 shares of $100 each. This was all paid up, and certificates, of the amounts' subscribed and paid by each partner, delivered. The business was transacted by a president, cashier, and a board of directors, who were elected annually. While the methods and forms of business adopted were those of a joint stock company or a corporation aggregate, still the members, notwithstanding this, were well aware of their responsibilities as partners, as is shown by the first of the written special stipulations of their partnership articles, which is as follows :

“ And whereas, the stockholders will be individually bound for all liabilities of the company, and are therefore deeply interested in the character, credit and responsibility of each other, it is especially agreed upon that no person or persons under a legal disability or restriction of personal responsibility, such as married or single women, minors, and those acting in a representative capacity, shall be eligible to hold stock or to become or remain members of said company, nor shall any one not fully pecuniarily responsible, be eligible to become a member, or, being a member, to remain so.”

John Floyd was the first president, and was continued in the office until his death, Oct. 2,1881; then another president, William Floyd, was appointed to the vacancy, and the bank continued business without interruption down to November 25, 1887, when, because of insolvency, it went into the hands of a receiver.

Of these appellants, Graham Scott, 10 shares, O. F. Klopfer, 30 shares, O. Arbuthnot, 50 shares, Archibald Wallace, 50 shares, were original subscribers to the articles of association. Edward House and H. J. Murdoch apparently acquired their shares after the bank had commenced business, for their names do not appear among the original subscribers. Scott sold his shares to John Floyd, the president, November 6,1878 Klopfer sold his to John I. House, February 16,1876 ; Arbuthnot, his to J. H. Sewell, June 4, 1875. Wallace first sold 20‘ of his to John Shipton, then the remaining 80 to John Floyd,. August 30,1879. House sold his to John I. House on September 19, 1879. Murdoch sold his in 1880 to President Floyd. Each of them, after the sale, ceased all connection with the-business of the bank as partners.

As has been noticed, the president, John Floyd, probably the owner of the largest interest in the bank, subscribing first for' 250 shares and afterwards purchasing others, died October 2,-1881; others of the original subscribers had died before him.John I. House died January 8, 1879.

Samuel M. Robinson, the appellee, commenced depositing' in the bank September 15, 1870, and continued depositing and checking out until the bank failed in November, 1887. By am agreement he first was to receive six per cent interest on all-deposits left for six months ; this continued until June, 1875,-when the rate was reduced to five per cent; this ran until April 1, 1877, when the rate of interest was reduced to three-per cent, and so continued to the end. The interest at the-rates agreed upon was regularly paid him every six months up-to the date of the failure of the bank, when his balance was-$21,000. He had drawn out by check after the sale by Arbuth*not and Klopfer of their shares,$12,441.45; the receiver has paid him in distribution of the assets $6,892.73. After the sale by 'Wallace of his shares, Robinson deposited $5,530. On September 18,1891, almost four years after the insolvency of the bank, the appellee brought suit against these appellants and those joined with them as partners for the recovery of the balance yet unpaid, $16,369.74.

As will be noticed, in the suit brought in the common pleas, there are fourteen defendants; judgment for want of a sufficient affidavit of defence was entered against all of them ; but only six, Scott, Murdoch, Klopfer, Arbuthnot, Wallace and House, prosecute this appeal. The facts tending to create liability as partners are not precisely the same as to all of defendants.

The affidavit of defence by Scott admits : (1) The formatfon of the partnership, the subscription and payment of the capital, and his membership interest to the amount of ten shares. (2) Avers that he sold his stock by and with the consent of the president and directors, November 6,'1878, that the same was transferred on the books of the company, and thereafter his connection with the bank as a partner wholly ceased. (3) That during his connection with the bank he had not held any office therein, and had no share in the management of its business. (4) That he had no acquaintance with Robinson, the plaintiff, nor any knowledge that he was a depositor. (5) That after plaintiff had made deposits, and after deponent ceased to be a member of the firm, several of the partners, at different dates, died, which deaths worked a dissolution of partnership; that this was well known to plaintiff, yet he permitted settlements and distribution of the decedents’ estates without presentation of his demand, and now, nine years having elapsed since the deaths aforesaid, he and the other surviving partners have suffered irreparable damage. (6) That by reason of plaintiff’s laches he is now estopped from maintaining his action, and further, not having brought suit within six years from the time his right of action accrued, he is barred by the statute of limitations. In these particulars the other affidavits set up in substance the same defence. Arbuthnot, Klopfer and House, however, further allege they gave notice of their withdrawal, at or about the time of it, by publication in Pittsburgh newspapers. Wallace alleges he gave personal notice of his withdrawal to this plaintiff within three months of the sale of his stock, August 30, 1879.

Taking the averments in these affidavits, and those not denied in plaintiff’s statement, to be the truth, the “ American Bank ” was, so far as concerned creditors, nothing but a partnership composed of many individuals, among them these appellants. From time to time, some of them sold their stock and withdrew; at the time of the withdrawal of these appellants, and for years before, this plaintiff was a depositor; the partnership, when they retired, owed to him a large amount of money: he could at that time, and within six years thereafter, without question, have maintained this action for the indebtedness then existing. But, by subsequent deposits, the debt increased. What is their liability with reference to this increase? If plaintiff’s contract relations with the bank had commenced after they had ceased to be members of the partnership and they had given notice of their withdrawal, they are not answerable for the subsequent indebtedness of the partnership; and publication in the newspapers of their withdrawal would have been sufficient notice to him. In Watkinson v. The Bank of Pennsylvania, 4 Wharton, 482, it is said: “ The question presents itself in this case, what is sufficient notice of the dissolution of a partnership, so as to discharge a partner from debts subsequently contracted in the name of the firm without his participation or assent ? The rule seems to be that notice of the dissolution of the partnership given in a newspaper, printed in the city or county where the partnership business is carried on, is of itself notice to all persons who have had no previous dealings with the partnership. But as to persons who have had such previous dealing with the partnership, it is not sufficient.” In the fifty years that have passed since that decision, that rule has been invariably applied in this class of cases. So, as to the averments of Scott, Klopfer and House of notice by publication in the newspaper, it cannot avail as a defence here against subsequent partnership indebtedness, for this plaintiff had been a depositor from almost the organization of the bank. As to Wallace, who alleges he gave actual personal notice to the plaintiff of his withdrawal, within three months after August 30, 1879, if that be established by proper proof, his liability for any increase of indebtedness after that date was gone. We cannot ascertain from the statement of claim and admissions in the affidavit what was the exact indebtedness at that time. Appellee’s counsel, in his argument, undertakes to establish, from the copies of books and other evidence, that there was no substantial change after that in the total of the indebtedness; that although plaintiff made deposits afterwards the checks paid about equalled the amount of such deposits and must be charged against them, thus leaA'ing the debt about the same as when Wallace withdrew. If it be the fact that there was, by the subsequent dealings, no change in the amount of the indebtedness, then the fact of payments having been made on Robinson’s checks would not lessen Wallace’s liability Avhen he withdrew. The new indebtedness having been incurred by the partnership when Wallace was not a member of it, payments made covering the same period would be applied in discharge ■of such new indebtedness. Christy v. Sill, 131 Pa. 492, and ■the authorities therein cited, we think clearly rule this point in favor of plaintiff. Whether the indebtedness continued the :-same, is a question of fact incapable of certain determination from this record; the inferences drawn in the argument by ■counsel for appellee may be correct; we cannot say, however, ■they are indisputably warranted from the averments in plain■tiff’s statement, and the admissions and averments in the Wallace affidavit. But, in the view we take of this case, if there ■viras actual notice, and defendant persists in his plea of the statute of limitations, this question is immaterial; the case must •go to the jury on the question of actual notice, and this with•out regard to the plea of the statute. If, then, the jury should find the fact of actual notice, the statute would avail, so far as •concerns Wallace, to defeat a recovery; if they should find there was not actual notice, Wallace’s case would stand on no •better ground than the others.

The question of actual notice was not present in the case of ■Campbell v. Floyd and others, 153 Pa. 84, and the cases argued with and ruled by that opinion, all of which arose out of this •same partnership.

Wallace swears that when he sold his stock he gave actual ■personal notice of the fact to this plaintiff, and thereafter had ■no further connection with the bank, and no one was authorized to act for him with respect to this business. In his denial of authority to the remaining partners to act for him, he is corroborated by the agreement or articles of copartnership. His withdrawal did not effect the dissolution of the partnership, with all the legal consequences which generally follow such an event in business partnerships. It was not a cessation of business and .dissolution by consent of all the members, or a dissolution by •the expiration of the term fixed in the articles, or a dissolution •such as' finally did take place when the receiver was appointed; in either of 'these cases, active management is continued beyond the date of -dissolution, only for one purpose, winding up ■the business, that is, realizing on assets, the collection of debts due the partnership, and the payment of debts owing by it. It was not intended the withdrawal or death of a member should .operate as a dissolution in fact; so far as they could, by agreeínent, give it a perpetual existence, that was intended. Notice these stipulations in the articles: “ The company reserves the right for any cause whatever to dissolve its connection with any one or more of its members by a resolution of the board to that effect; and no member or members, short of a majority of the votes at a meeting called for that purpose, shall have power to dissolve the company, or cause a dissolution or winding up of its affairs.”

Then follow most minute details of a method of compensating any party who wishes to sell his stock and withdraw, or who has been “exscinded” from membership, and then this stipulation: “ And it is distinctly understood and fully agreed upon that no party or parties shall be able to effect a dissolution of the company by any proceedings at law or equity, but the mode or manner of any change in the parties or their interests shall be accomplished as hereinbefore provided; ” that is, by a majority of the members at a meeting called for that purpose. Then it was provided, in case of the death of a stockholder, his heir or legal representative, with the consent of the board, could become a member.

As between themselves, by their agreement, there could be no dissolution, in the usual sense of that term, except by a majority vote at a meeting called for that purpose; the partnership never was to cease business and be wound up in any other way. As the agreement expresses it, a partner might, by resolution of the board, be “ exscinded,” that is, cut off, or he might, by consent of the partnership, dispose of his interest and withdraw, or he might die, but in neither case was this to affect the continued life of the partnership. Therefore, the distinction which the law makes between the powers of liquidating partners and surviving partners, only to a limited extent, is applicable here, for the remaining partners were to immediately settle up nothing with any of the creditors; otherwise, the payment of depositors would have closed the bank every time a member •sold out his interest or died. In fact, under the agreement, although the financial responsibility of the partnership could be changed, the withdrawal of a member in no way impaired its paid-up capital; he did not draw his share of this out of the bank when he sold; he got his money from the buyer who took his place as a member of the partnership. Assuming, then, as a fact, which is disputed by plaintiff, that Wallace gave him personal notice that he had sold out and withdrawn, what knowledge is necessarily to be imputed to Robinson from the fact of notice ? It is not disputed by appellee that Robinson, from that time, knew he could make no assertion of liability against Wallace for subsequent deposits; and for the exisiting liability his demand must be preferred within six years, unless the statute was tolled. This suit was not brought for more than nine years after the right of action accrued, and the statute is pleaded in the affidavit. To this plaintiff replies, interest was paid after-wards on the balance every six months by the partnership, and this tolled the statute of limitation. But then plaintiff is met by this fact: As between tbe partners, by their articles, if one withdrew by a sale of his interest there was no authority, either express or implied, to the remaining partners to make any promise or any payment equivalent to a promise to a creditor. He, the partner, had no further interest in the assets or business of the company; he could not call on them to account, nor they on him for contribution.

Robinson knew when he commenced his deposits the bank was a partnership; prior to the notice, Wallace’s liability depended on the fact of his being a partner, and not on Robinson’s knowledge of the fact; but, when he got the notice, he knew as a fact Wallace had been one, had sold out and was no longer a partner; he knew, too, that there wag no dissolution in fact, but only a severance of Wallace’s connection as a member; he knew the bank continued on in business for years afterwards, for he continued to do business with it just as before, with no change in the accounts and no indication of a desire on the part of either depositor or bank to settle up and pay the old accounts, or to transfer them to a new partnership. He knew, as well as the bank did, it was not liquidating accounts ; he probably would not have permitted his money to remain for years with the liquidating partners of a dissolved partnership, nor have deposited more money with them. If he was notified by Wallace of the sale of his interest, the necessary reasonable inference is, he knew Wallace had no further interest in the old assets any more than in the new business; that he would confer on his copartners no authority to acknowledge and promise to pay an old debt, for, as between the partners, he owed none. He knew from the notice that from that time Wallace disclaimed all liability for either old debts or new ones; if he intended then to stand on his legal right as against Wallace, he should by legal method, by suit within six years, have enforced it.

On the exceptional facts presented in this case, it seems to us the conclusion must follow, if the notice were given, that the plaintiff knew there was no authority in the remaining partners to toll the statute, and as he brought no suit within the six years, as against Wallace he cannot recover.

As to the other five appellants, three of them allege they gave notice by publication of the sale of their respective interests. As airead}7 seen, such notice was not sufficient to relieve them from liability. As to the two others, notice of any kind is not alleged. But, as to all of them, it is alleged that the deaths of John Floyd, October 22,1881, and. of others, worked a dissolution of the partnership by operation of law; that death, ipso facto, dissolved the partnership.

It may be conceded, this worked a change in the partnership, so far as concerned its personality, and the law presumes notice of the fact of death to plaintiff; but this, in the face of this agreement, in no way affected the liability of the surviving members, for, by their agreement, it was not to affect the partnership ; and as to existing creditors, without notice, all were surviving or continuing partners, without regard to the fact of withdrawal. Death, the law presumes equivalent to actual notice; thereafter the creditor could not hold the deceased partner’s estate answerable for new indebtedness, nor, except within the statutory period, for the old; but these appellants neither died nor gave actual notice of the severance of their relations with the partnership; nor was presumptive notice to the creditor of the severance of one partner’s connection by death any notice to him that some of the living ones had withdrawn; as between them and this creditor they continued to be partners, and are therefore answerable for all business transactions of the firm during their actual and presumptive membership.

The questions here raised by appellants and now decided were not directly passed on in - Campbell v. Floyd, supra, because they were not neoessary to a decision of the cause. There was no positive averment of actual personal notice to the cred itor by the retiring partner of the sale of his partnership interest; nor was the dispute between the representatives of a deceased partner and a creditor, in which case, notice of the severance of the deceased partner’s connection with the firm would have been presumed. As to those retiring without notice, they were held, as to past indebtedness, to be sureties for the partnership, which assumed payment of the common obligation. This was the most favorable view which could have been taken of the case for defendants, on the facts in that issue, and, in that view, the decision was against them. That judgment was right, but it seems to us, a more clearly defined ground, sustained by a long line of well considered decisions from Watkinson v. Penna. Bank, supra, down to Clark v. Fletcher, 96 Pa. 416, is that upon which we base the present judgment.

The argument of the learned counsel for appellants, as to the intolerable hardship to retiring partners in holding them up to such a measure of liability, and that no partner, under such a rule, can retire with safety without a cessation of, and a complete winding up of the business, we have fully considered. It does not seem to us that the inference of hardship is warranted by the facts in this case, or by the law applicable to the facts. In partnerships other than banking, it has always been understood that, in case of a retiring partner with the assumption of existing indebtedness by the new firm, actual notice must be given to all creditors of the old firm of the change, if the retiring partner wishes to clear himself of continued liability. The perils attending a banking copartnership such as this, may be, doubtless are, greater than in other kinds of business; there is probably more risk incident to the care of other people’s money than of one’s own, but this is no reason for relaxing well-established rules of law for the protection of the public. In the case before us, a copartnership was formed by many individuals for profit; in the minds of a large part of the public, a voluntary banking partnership with individual responsibility is safer than one where the members are associated as a corporation ; not seldom the partnership holds out to the public, as an inducement to favor, this individual liability. On the faith of it, the depositor intrusts the partnership with his money; he does this, not only on the faith of the paid-up capital, but also, it may be assumed, on the good character, business capacity and individual wealth, of the copartners; he has all these as security for the repayment of his money. It may be considerable inconvenience to the retiring partner, but it is certainly no great hardship, to hold that he shall give actual notice of withdrawal to all who have trusted the partnership because of. his connection with it, otherwise he shall remain answerable to those who have a right to believe him still a member. On such notice of withdrawal, the creditor, if he sees proper, can also withdraw; if the partners do not give such notice, then, as he was there when confidence was reposed, he must be there when the money is wanted by the creditor. For those who desire to do a banking business, which invites the custody of other people’s money, yet do not wish to subject themselves to a greater responsibility than equals their contribution to the paid-up capital, the corporation laws of the United States and of this commonwealth furnish every facility.

The judgment as to Archibald Wallace is reversed, one sixth the costs to abide the event, and as to him a procedendo is awarded; as to the other appellants, the judgment is affirmed.