Davies v. Atkinson , 1887 Ill. App. LEXIS 121 ( 1888 )

Bailey, J.

The only relief sought by the amended and supplemental bill in this case is to recover back from various parties moneys ¡laid to them by Atkinson, the complainant’s co-partner, out of the co-partnership funds, to settle his individual indebtedness to them for losses incurred in certain dealings had between him and them on the Board of Trade of Chicago. All of said moneys were paid out by Atkinson prior to October 3, 1884, and on that day Davies, the complainant, was notified of such misappropriation of the partnership funds, and at least as early as October 23, 1884, the date of the filing the original bill, Davies was fully informed of all the facts in relation to such misappropriation, as said bill avers specifically the several sums misappropriated, the various parties to .whom the same had been paid and the account upon which such payments had been made. To the original bill Atkinson alone was made a defendant, and the object of that bill was to obtain an accounting and settlement of the co-partnership affairs upon the basis of charging Atkinson, in the statement of the account, with the several sums of money so misappropriated by him. Ho attempt was made to reach said funds in the hands of the parties to whom they had been paid, or in any way to question the validity of such payments, so far as they were concerned, until' May 15, 1886, the date of-filing the amended and supplemental bill. Thus, for nearly nineteen months after obtaining full knowledge of all the facts, Davies acquiesced in the right of the parties now sought to be charged, to hold the moneys paid to them by Atkinson, and we are of the opinion that, upon well settled principles of law, he must be deemed to have ratified and confirmed the acts of his co-partner in paying said moneys to the defendants.

The legal principles involved seem to us to be settled by 'the decisions of the Supreme Court in Marine Co. v. Carver, 42 Ill. 66, and Casey v. Carver, 42 Ill. 225. In Marine Co. v. Carver, suit was brought by Carver & Company against the Marine Company, a banking institution, to recover the amount of a firm deposit which Carver, one of the co-partners, had misapplied to the payment of his individual debt to the bank-It appears that the firm, learning of said misappropriation of its funds, sent to the bank for a statement of its account, which was given, and the check by which the money had been drawn and appropriated to Carver’s individual account returned to the firm. The check was returned by Carver & Company, and after a lapse of nearly four years they, without any previous attempt to repudiate such misappropriation of the funds, brought suit to recover said money from the bank. The court, in holding that no such recovery could be had, say: “ If the firm of Carver & Company had repudiated his act and returned the check, they would have thus advised the Marine Company that, in the opinion of his co-partners, Carver was unworthy of credit, and this would have induced that company to make an effort for the collection of its debt. But the apparent acquiescence of the co-partners of Carver would indicate their own confidence in his pecuniary solvency, and thus tend to strengthen his credit with the Marine Company and lull it into a false security. In cases of this character it if to be remembered that the duties and obligations between the members of a partnership and third persons are reciprocal. While it is true that one partner can not rightfully appropriate the partnership funds in payment of his individual indebtedness, yet it is equally true that, if he does not so appropriate them, his acts, when they come to the knowledge of the other members of the firm, should be clearly and promptly repudiated. At least no room should be left for doubt in the minds of parties concerned as to whether the act is repudiated or ratified. Good faith requires this, for co-partners must necessarily understand the pecuniary condition of each other better than third persons can do, and if they seem to ratify an act of one of their firm, originally unauthorized, it is a declaration in his behalf that he possesses their confidence and is entitled to credit. In Casey v. Carver, the same rule is recognized. It is there said : “ Had it appeared that his partners knew of the settlement, or knew or had reason to suppose that appellants were relying upon the settlement, they could not be heard to repudiate the settlement unless they have given notice that they did not sanction the settlement, at the e irliest practicable period after they learned the facts. To permit them, after acquiescing in the settlement for any great length of time after notice, to repudiate it, would be a fraud on the creditor of the individual partner.”

But we think the rules established by the foregoing cases may also be sustained upon well recognized principles of the law of agency, apart from considerations drawn from the peculiar relations existing between partners. Each partner is the agent of his firm, and it is a familiar rule of the law of agency that, where the relation of principal and agent exists, the principal must disavow the unauthorized act of his agent within a reasonable time, or his silence will be held to be a ratification. Thus it is laid down by Chancellor Kent, that, “When the principal is informed of what has been done he must dissent and give notice of it within a reasonable time, and if he does not his assent and ratification will be presumed.” 2 Kent Com., 616. In Bred in v. Dubary, 14 Serg. & Rawle, 27, it is said by Hr. Justice Gibson: “I take it to be indisputable, that a principal who neglects promptly to disavow an act of his agent, by which the latter has transcended his authority, makes it his own; he is bound to disavow it the first moment the fact comes to his knowledge.” Kelsey v. National Bank, 69 Pa. St. 426. “The principal must, when informed, reject within a reasonable time, or be deemed to adopt by acquiescence.” Law v. Cross, 1 Black, 592. See, also, Walker v. Walker, 7 Baxt. 260; Peck v. Ritchey, 66 Mo. 114; Western & Atlantic R. R. Co. v. McElwee, 6 Heisk. 208; Norris v. Cook, 1 Curtis C. C. 464; Story on Agency, Sec. 258; Wharton on Agency, Sec. 86.

Atkinson being not only a partner but the managing partner of the firm, was an agent haying the custody, control and power to dispose of the partnership property. The partnership funds Were in his hands, and he had authority to deposit them in bank, and to check them out for all purposes within the purview of the partnership business. He had no authority to check them out to pay his individual debts, and his doing so was clearly in excess of his authority and in violation of his duty as agent. But his unauthorized acts would seem to invoke an application of the same rule which obtains in case of other agents. The failure of his firm, or of the partner who was injured, to promptly repudiate his unauthorized act, must, as to third persons, be held to be a ratification.

But there is another reason equally cogent why the decree for dismissing the bill must be affirmed. Ho account has been stated between Davies and Atkinson, and there is, therefore, no basis in the evidence for holding that Ackinson has withdrawn from the firm, for the payment of his individual debts, anything beyond his distributive share of the firm assets. If he has not, there are no equitable reasons why his creditors should restore the moneys so paid them. Ho creditor of the firm is complaining, and it does not clearly appear that there was any firm indebtedness outstanding at the date of the decree. The only possible basis for a recovery by Davies from Atkinson’s creditors of the moneys received by them in payment of Atkinson’s individual indebtedness is, that those moneys are required in order to give Davies his share of the firm assets. What that share is, and whether anything will be due him on final settlement, can only be determined upon an accounting between him and Atkinson. The accounting in the chancery suit was stayed on Davies’ own petition, he having elected to pursue his remedy at law by action of account. A settlement and compromise between him and Atkinson having been effected, the action of account was dismissed by stipulation, and Atkinson released from all personal liability to Davies, and no further steps have been taken either at law or in chancery to obtain a statement of the account. between said co-partners. An accounting was an indispensable prerequisite to the relief sought by the amended and supplemental bill, and there being no accounting, the court could not do otherwise than dismiss the bill. The decree will be affirmed.

Decree affirmed.