Reynolds v. New York Trust Co.

• Decision Date: 22 June 1911
• Docket Number: 918.
• Citation: 188 F. 611
• Parties: REYNOLDS v. NEW YORK TRUST CO.
• Court: U.S. Court of Appeals — First Circuit

188 F. 611

REYNOLDS v. NEW YORK TRUST CO.

No. 918.

United States Court of Appeals, First Circuit.

June 22, 1911

Albert S. Woodman (Tyler & Young, Woodman & Whitehouse, Charles H Tyler, Owen D. Young, John P. Wright, and Robert T Whitehouse, on the brief), for appellant.

Charles P. Howland (Charles W. Whittlesey and Howland, Murray &amp Prentice, on the brief), for appellee.

Before COLT, Circuit Judge, and ALDRICH and BROWN, District Judges.

BROWN District Judge.

This is an appeal by the trustee in bankruptcy of E. H. gay, from an order of the District Court for the District of Massachusetts, allowing a claim of the New York Trust Company for the sum of $14,875 against the individual estate of E. H Gay. A claim of like amount was allowed against the copartnership estate of E. H. Gay & Co., bankrupt. From the allowance of the claim against the copartnership estate there is no appeal.

The question before us is whether the Trust Company has the right to make double proof and to have its claim allowed both against the copartnership estate and against the individual estate of one of the copartners.

By stipulation the parties have agreed upon the following facts:

(1) E. H. Gay was the managing partner of E. H. Gay & Co. The New York Trust Company, owner of 25 $500 first-mortgage 6 per cent. bonds of the Manistee, Filer City & East Lake Street Railway Company, lodged them with E. H. Gay & Co. on March 14, 1905, together with $3,125 in cash, under a deposit agreement by which E. H. gay & Co. were to deliver to the New York Trust Company at par value $15,625 bonds of a corporation to be organized in the course of the reorganization of the Railway Company.

(2) In pursuance of this agreement the Manistee Light & Traction Company was incorporated. Its bonds were issued and delivered to E. H. Gay & Co., who received and held 15 625/950 of them for the New York Trust Company under the deposit agreement. These 15 625/950 bonds were pledged by E. H. Gay & Co., without authority from or knowledge of the New York Trust Company, as security for loans negotiated in the course of the firm business of E. H. Gay & Co. for their own benefit. No notice was ever sent to the New York Trust Company that the Manistee Light & Traction Company bonds had been received by E. H. Gay & Co. for the benefit of the New York Trust Company, and the Trust Company had no knowledge that E. H. Gay & Co. had the bonds.

(3) No attempt is made by the New York Trust Company to show that the unauthorized pledge of the bonds was the individual act of E. H. Gay.

(4) It is hereby stipulated by parties that the market value of bonds of the Manistee Light & Traction Company at the time of conversion herein was $950 for each bond of $1,000 face value, and, if said claim of the petitioner is allowed as a claim against the individual estate of E. H. Gay, it is agreed that such allowance may be in the sum of $14,875.

The claim filed against the copartnership estate made no allegation of a conversion either by the copartnership or by E. H. Gay, but, but alleged merely the receipt by E. H. Gay & Co. of bonds, for delivery to the Trust Company, and the nondelivery to the Trust Company.

The learned District Judge was of the opinion that the claim allowed against the firm estate was neither presented nor allowed as a claim based on a liability in tort, and that as against the firm no liability in tort had been waived in order to rest the claim on an implied promise arising upon the waiver of tort; but that failure to comply with the firm's express promise was the sole basis of proof against the firm.

The claim against the individual estate of E. H. Gay is based solely upon the theory of an implied contract or quasi contract, arising from the conversion of the bonds by E. H. Gay & Co. in the course of the firm business.

By its terms the claim against E. H. Gay individually alleged a conversion of the bonds by E. H. Gay. This allegation, however, becomes immaterial since the stipulation provides that no attempt is made to show that the unauthorized pledge was the individual act of E. H. Gay; and since it does not appear that E. H. Gay individually received benefit therefrom.

The Trust Company contends that the conversion was in course of the firm business, and that thereby the partners became jointly and severally liable in tort for the conversion; that upon the waiver of tort there arise implied contracts or quasi contracts both of the firm and of the individual partners to pay the value of the bonds converted to the use of the firm.

Where there are separate and distinct express contracts of the firm and of a copartner to pay a debt contracted by the firm, the right to prove against both estates may be conceded. If one dealing with a firm procures also the individual undertaking of a partner to answer for the firm debt, there are substantial reasons for permitting him to resort to both estates. In re McCoy, 150 F. 106, 80 C.C.A. 60; Chapman v. Bowen, 207 U.S. 89, 28 Sup.Ct. 32, 52 L.Ed. 116.

The additional several contract of a partner is not implied from the firm transaction, but must be created by a distinct act of the copartner.

As the conversion in the present case was by the firm, in the course of firm business; as the actual participation of E. H. Gay is not proved; as there is no evidence that his individual estate benefited by the firm conversion-- there is difficulty in finding any substantial ground upon which to imply from the circumstances a separate contract of E. H. Gay, which corresponds to an express individual contract to answer for a firm debt.

While the partnership relation exposes one partner to liability for firm debts contracted by another partner without his consent, one partner has no authority to make an individual contract for another partner.

In the present case it is contended that because under the partnership relation partners, through firm dealings, may be made jointly and severally liable in tort, there arise quasi ex contractu on waiver of tort, not only a joint contract, but also several contracts of each partner to pay the amount of the firm debt. This contention seems also to involve the proposition that upon a conversion of bonds or stock by a partnership there arise a number of debts; as many individual debts as there are partners, and also a firm debt.

The breach of an express contract to deliver the bonds to the Trust Company creates only a partnership debt, for payment of which resort must be had to the proceeds of the partnership property. Bankruptcy Act July 1, 1898, c. 541, Sec. 5f, 30 Stat. 547 (U.S. Comp. St. 1901, p. 3424).

Upon a suit for such a breach of contract only a single judgment could be had, a judgment against the firm, upon which resort would be had to the firm assets.

The claim against E. H. Gay is based entirely upon the fact, stated in the stipulation though not in the claim, that the copartnership converted the bonds.

Viewing both estates, we have asserted against E. H. Gay, as a joint debtor, either a breach of express contract or an implied contract to pay for value received; as an individual debtor, the conversion of the bonds, a tort, with a waiver of the remedy in tort.

We now reach the important question whether the fact that there was a conversion by the firm is in itself a sufficient basis for an implied or quasi contract of E. H. Gay individually.

As was said in the opinion of this court in Clarke v. Rogers, 183 F. 518, 106 C.C.A. 64:

'A claim based on a tort as known at common law is undoubtedly provable whenever it may be resolved into an implied contract. For example, it is a settled rule that where a tort-feasor by conversion of personal property has sold the property converted, and received cash therefor, the true owner may sue him for money had and received as on an implied contract.'

The trustee, appellant, claims that it is a well-established law that:

'Unless there has been a sale of the property and a receipt of the proceeds of the same in money, the tort cannot be waived, and an action or claim will not lie as for money had and received, upon an implied promise or quasi contract'--citing Jones v. Hoar, 5 Pick. (Mass.) 285; Ladd v. Rogers, 11 Allen (Mass.) 209; Allen v. Ford, 19 Pick. (Mass.) 217; Berkshire Glass Co. v. Wolcott, 2 Allen (Mass.) 227, 79 Am.Dec. 781; Brown v. Holbrook, 4 Gray (Mass.) 102; Hagar v. Norton, 188 Mass. 50, 73 N.E. 1073; Newmarket Mfg. Co. v. Coon, 150 Mass. 566, 23 N.E. 380; Cooper v. Cooper, 147 Mass. 373, 17 N.E. 892, 9 Am.St.Rep. 721.

While some of these cases might be distinguished on the ground that they relate merely to the scope of the special action for money had and received, yet it must be conceded that upon the whole they may be regarded as giving a somewhat narrow limitation to the doctrine of quasi contract. We should be reluctant, however, to rule that the claim should be disallowed on so limited a view of the scope of the law of quasi contracts.

It is difficult to find any substantial ground upon which the judicial conscience which admits the use of fiction to sustain an action of assumpsit for money had and received should refuse to adopt a similar fiction upon an action in assumpsit for goods sold and delivered. Where a person has converted personal property to his own use by keeping concealing, or consuming it, there is every reason for requiring him to pay its value and for giving the owner an option to sue upon contract. To hold him upon an implied contract if he has sold the goods for money and used the proceeds, but to refuse to hold him upon an implied contract for the value of goods consumed but not sold, is to limit the doctrine of quasi contracts by an arbitrary distinction which disregards...