Pardee v. Markle

Mr. Justice Clark

delivered the opinion of the court, February 15th, 1886.

In the year 1867, Ario Pardee, George B. Markle and W. A. M.. Grier, were associated as partners in the banking business, under the name of Pardee, Markle & Grier; of which firm Grier was the managing partner. In 1880, Markle having some reason to suspect that Grier was acting unfairly towards himself and Pardee, in the management of their partnership affairs, refused to continue the business after the 31st December of that year, unless he was indemnified against any loss that might be sustained after that date, by reason of the eon-duct of Grier. Pardee thereupon agreed to become responsible to Markle, for the acts and omissions of Grier in the conduct of the business from 1st January, 1881, until 1st April, 1881, and executed and delivered to Markle the contract of indemnity, which is the subject of this suit. On the 1st April, 1881, Pardee, Markle & Grier dissolved, Grier retiring from the firm, and thereafter the business was conducted by Pardee & Markle.

In August, 1881, upon settlement with Barker Brothers & Co., of Philadelphia, and the First National Bank of New York, who had been correspondents of Pardee, Markle & Grier, it was discovered that Grier had drawn and applied to his own use, moneys of Pardee, Markle & Grier, as follows: From Barker Brothers & Co., $28,730.67; of this $15,385.67 had been appropriated prior to 1st January, 1881, and the balance, $13,345, after that date, and before 1st April, 1881; from the First National Bank of New York, $18,505; $6,926 prior to 1st January, 1881, and the balance, $11,579, after that date, and before 1st April, 1881. The total amount, therefore, drawn by Grier prior to January, 1881, was $22,311.67, and the amount afterwards drawn, during the period for which Pardee was responsible under his covenant of indemnity, was $24,924. In partial repaj’ment of these overdrafts, Grier, on 30th June, 1881, deposited to the credit of Pardee & Markle with Barker Brothers & Co., $13,000, and on 4th August, 1881, with the First National Bank of New York, $8,000.

The verdict, under the instruction of the court below, was in favor of the plaintiff for $13,233.23, the full amount of one half of the overdrafts, between 1st January, 1881, and 1st April, 1881, with interest; a remittitur was afterwards filed as to $681.99; the amount paid pending the suit, and judgment was entered for $12,551.24.

At the trial of the cause, Pardee, by way of defence, alleged that the execution of the covenant of indemnity had been induced by the fraud of Markle; that Markle was at the time, to some extent, aware of Griers misconduct in the affairs of the firm, and that he had failed to inform Pardee of the fact, as in good faith he was bound to do, and that the covenant was thereby altogether avoided. In support of this, the defendant’s counsel offered to prove by Pardee that he had no knowledge or suspicion of Grier’s conduct in the affairs of the firm ; that Markle gave him no information concerning it; that if he had known or suspected it, he would not have made the covenant to indemnify Pardee.' This, it was contended, was admissible, because it already appeared by the evidence of A. M. Eby, a clerk in the banking house of Pardee, Markle & Grier, that Markle at the time did suspect Grier, and knew of some alleged “irregularity,” or “discrepancy” in the account of one of their New York correspondents. The exercise of the utmost good faith is certainly expected between partners in their dealings with each other, and if it had been shown that Markle fraudulently concealed facts, which in good faith he should have communicated to Pardee, the offer might have been received, but there was no such evidence. It is very clear that Markle regarded Grier with suspicion ; but of this .Pardee could not have been ignorant, for it was upon this ground, admittedly, that Markle expressed his unwillingness without indemnity to continue the business. There is some •evidence that, in November, 1880, there was an alleged discrepancy in the account of one of the New York correspondents, of which Eby informed Markle, but it was spoken of as a mere “discrepancy,” which had not been investigated or explained, and if Ebjr himself had an3r suspicion of the transaction being of an irregular and fraudulent character, he did not communicate his. suspicion to Markle. The admitted fact, however, that Markle declined, without indemnity from Pardee, to continue the business under Grier’s management, was the plainest possible expression, and the clearest notice of his want of faith in Grier, and that Markle had some real or supposed cause of suspicion concerning him. Marble’s instructions to Eby, given prior to his taking voyage to Europe to look after his interests, and regulating his conduct with the cashier and Grier, were given in the presence of Pardee; there is an entire absence of proof of an3' effort or intention to conceal anything. The assignments of error, so far as they relate to the exclusion of this evidence, are, we think, without merit.

The defendant’s further contention is, that the deposit of $13,000 with Barker Brothers & Co., 30th June; 1881, and of $8,000 with the First National Bank of New York, 4th August, 1881, already referred to, were applicable, in his relief as a ■surety, to the overdrafts, made after the 1st January, 1881-

It cannot be doubted, that as the payments by Grier were voluntarily made, he had a right, at the time, to fix the terms -upon which they should be accepted, and a subsequent acceptance would necessarily have been subject to the conditions, he might then have appointed. He had a clear right, in the first instance, to apply these payments as he pleased, but he does not appear to have exercised or to have attempted to exercise that right. He may have intended to pay the overdrafts for which Pardee was responsible, but if he did, he should have signified that intention at the time, either to the creditors or to the banks, through the medium of which the respective payments were made. The intention of a debtor in such a case, may be manifested by express direction, or it may be evidenced by circumstances or acts which will demonstrate the fact as plainly as words. Here, however, nothing whatever was either said or done, and no circumstances are shown, from which an intention to apply the payments specially can be inferred.

Nor was there anything shown, as to the source or fund from which the payments came, which would connect or identify them, or either of them, with any specific or particular item of the debt, so as thus to determine and direct their appropriation-upon the principle that where money has come from a particular fund, it must be applied by the creditor in relief of the source from which the fund arose. As therefore there was no actual appropriation by Grier, the debtor, either expressly declared or to be inferred from the circumstances, and as the considerations which ordinarily control the direction of the creditor are entirely wanting, it belonged to Pardee & Maride, under some restrictions, to apply the payments in their own interest. It is plain, however, that whatever they, or either of them, may have intended, no actual specific appropriation was by them at any time made, and the right being thus lost to both parties, it passes to the law, which will apply the payments, according to the intrinsic justice and equity of the case.

Certain established rules of law, however, have been found by experience to lead to equitable results. One of these is, “that where there are items of debt and credit in a running account, in the absence of specific appropriation, the credits will ordinarily be applied to the discharge of the items antecedently due, in the order of the account: ” Greenleafs Ev., 534; or, as stated in Souder v. Schechterly, 91 Pa. St., 88, “ each item of payment or credit is applied in extinguishment of the earliest items in the account, until the whole payment or credit is exhausted.” The rule, it is true, is subject to certain exceptions, but the case in hand is 2iot brought within any of the2n. So, “ where a general pajnnent is made without application, by either party, and there are divers claims, S02ne of which a2’e but imperfectly and partially secui'ed, the court will apply it to those debts for which the security is most precarious:” Greenleaf, 534; Reed v. Ward, 22 Pa. St., 144; Hollister v. Davis, 54 Id., 508; Johnson’s Appeal, 37 Id., 274.

In the application of these rules of law, the cases which have been adjudicated in this coui’t are, in so2ne respects pe2-haps, inconsistent with the cases elsewhere, but they are in no sense inconsistent with each other'. The latter rule mider our decisions, as betwee2i the debtor and creditor only, will ordinarily prevail over the former, whenever the interest of the creditor requires that it should: Pierce v. Sweet, 9 Casey, 151; but not to the prejudice of a surety, who may insist upon an appropriation under the rule first stated; and hold himself bound or discharged accordingly-: Berghaus v. Alter, 9 Watts, 386.

Thus in. Pierce v. Sweet, supra, it was held, that where a payment is made, in the absence of any appropriation of it by the parties, the law will, in general, apply it in discharge of the earliest liabilities of a running account, but if by so doing the creditor may lose a portion of his account unsecured by lien, the money will be first applied to the account thus unsecured, for bis interest, “ unless,” says the court, “ such an appropriation would be to the prejudice of a surety.” So in Berghaus v. Alter, supra; B. having purchased of A. at different times, several bills of goods at six months credit, gave a note at twelve months, with C. as collateral security for payment; several other purchases were afterwards made upon the same terms, during the twelve months, and subsequently B. made payments on account, which were credited generally in the boohs of A. without any special appropriation; it was held that such payments must be appropriated to the payment of the goods first due, and in relief of C. the surety in the note of B.

Whilst, therefore, a surety cannot require a general payment to be applied to the last debt, in ease of his liability for it, to the exclusion of the earlier items: Specht v. Commonwealth, 3 W. & S., 324, he can require that the rule shall not be inverted to his prejudice; that it shall not be turned against him, by applying the payment to the last item, and thus leave him liable dh the earlier ones. This, we think, is the outcome of all the cases in this court, and the cases cited by counsel of the plaintiff in error: Postmaster General v. Norvell, Gilpin Rep., 106, and Commonwealth v. Reitzel, 9 W. & S., 109, are not, as we understand them, in conflict with this view; they were determined on other grounds already intimated in this opinion.

Applying the principles stated to the case in hand, it is clear that if Pardee had been surety for the items of Grier’s defalcation, prior to 1st January, 1881, he might justly have complained, if the rule of appropriation had been inverted to his prejudice, by the application of the deposits to the items subsequent to that date ; but his obligation only extended to the later items, and the rule of appropriation of payments, to which we have referred, requires that the money shall be applied to the items of the account, in their order.

. It is of no legal consequence that the creditors were partners, and that their interests were diverse; the rules of law which we have stated are rules of general application and the justice and equity of any particular case are more likely to lee attained by an adherence to, than a disregard of them. Pardee voluntarily added to his relation of partner that of a surety, and he is bound accordingly. It was in the power of Grier to have applied the money in his relief, if he had chosen so to do; he has not done so, and the law defines the equities of the parties according to the rules stated.

Judgment affirmed.