Hallstead v. Coleman , 143 Pa. 352 ( 1891 )

Opinion,

Mr. Justice Williams:

The learned judge, before whom this case was tried, correctly-stated the principles that controlled the liability of partners to third persons dealing with them. There is no doubt that, where the relation is shown to exist, each partner is liable individually for all the debts of the firm. It is also true, as a general rule, that participation in profits makes one a partner as to persons dealing with the firm, although this rule is not without some well-recognized exceptions: Edwards v. Tracy, 62 Pa. 374; Hart v. Kelley, 83 Pa. 286. The business of banking is one in which a partnership may lawfully engage, and it is immaterial that the names of the partners do not appear in the firm name: Shamburg v. Ruggles, 83 Pa. 148. The liability of the partners depends, not on the name of the partnership, but on the existence of the partnership relation. These rules were correctly stated on the trial. The ground of complaint is the manner of their application to the facts of this ease.

In his charge to the jury the learned judge drew attention to the evidence showing the organization of the bank, the holding of stock by the defendants, and their receipt of dividends ; and then submitted the questions to the jury in the following order: First, was the bank indebted to the plaintiff as alleged; second, was the bank a partnership; and third, were the defendants members of the firms ? Having simply stated the second question, he proceeded tó consider and discuss the third, and among other things said to the jury: “Did they (the defendants) invest their money in this business, and did they stipulate for a share of the profits of the business ? ” To enable them to understand the significance of their finding upon this question, he immediately added, “If they did, they became partners, and individually liable for all the debts of the firm, unless they can show something by which they protect themselves from this liability. If the institution was an incorporated bank, then they would not be individually liable. But if it was incorporated, the burden is upon the defendants to show it. And if it was a limited partnership, the burden is on the defendants to show it.”

This instruction was calculated to divert attention from the second question, which was the important one, and fix it on the third. It assumed that there was competent and adequate proof before the jury to establish, prima facie, that the bank was a private enterprise owned and conducted by a partnership, and it put the burden of proof on the defendants. It left the jury to infer that, until the defendants should assume the burden put upon them, and show affirmatively that the bank was incorporated, or was organized as a limited partnership, they should be held liable as partners. But the learned judge went still further. Having put the burden on the defendants of showing the character of the bank, and having explained to the jury what the defendants must show in order to “ protect (.themselves from this liability,” he proceeded to say: “No evidence has been given before you that it (the bank) was incorporated, and no evidence that it was a limited partnership.” This left the jury no alternative. They must find that the defendants invested their money in the bank, with a view to share in the profits of the business, for this was not denied; and this they were told made them partners. They could protect themselves only by showing the incorporation of the bank, or its organization as a limited partnership, and this, they were told, had not been done. The conclusion naturally followed that they were liable as partners.

Now, the important question, in this case, which lay at the threshhold of the plaintiff’s cause of action, was whether this bank was a partnership. The plaintiff alleged it, and claimed to recover against the defendants as members of the banking firm. The burden of proving the partnership was on him, and until this proof was given the defendants were not called upon to enter upon their defence. They were not bound to prove the character of the organization of the bank, in order to “protect themselves,” until they were first put in danger of a verdict against them, by proof that the bank was a partnership, and that they were members of the firm. As they did not deny that they were stockholders, the only open question was that of the character of the bank, and this is the question to which the attention of the jury should have been drawn.

What was the evidence upon this question? The plaintiff showed the fact that the bank was organized; that it conducted a banking business under the management of a board of directors, with a president, vice-president and cashier, until 1887 when it failed. This was all. No articles of copartnership, or contract between the founders of the bank, was shown. How the organization was effected, or the business of the bank done, did not appear. There was not even a single act or declaration of any officer, director, stockholder, or clerk, tending to show that the bank had ever been represented, at any time or to any person, as a partnership. There was no proof that the defendants or either of them had ever attempted to exercise any control over the business of the bank, or had participated in it in any other way than by the receipt of a few small dividends. On the other hand, it appeared in the evidence that Kirby, the founder of the bank, represented that he had obtained a legal charter for it, while he was engaged in soliciting subscriptions to the stock. The certificates held by the defendants, which were put in evidence by the plaintiff, described the bank as “ Organized under Act of Legislature of Pennsylvania,” and as having an authorized capital of one hundred thousand dollars, divided into shares of one hundred dollars each. This description is certainly appropriate to an incorporated bank, and no inference can be drawn from it favorable to the position of the plaintiff that it was not such. Moreover, the defendants were severally upon the witness stand, and testified in the most positive manner that they were not partners with Kirby and others, but stockholders, as they understood and believed the fact to be, in an incorporated bank, and that the stock was sold to them, and bought by them, as and for the lawfully issued stock of a bank doing business under a valid charter. From this evidence the jury would have been justified in finding against the plaintiff ; and if their attention had been drawn to it, as its importance required, the result of their deliberations might have been just the opposite of what it was.

The position of the parties is not without some bearing on this question. The real plaintiff was the wife of one of the sons of the man who organized the bank, presided over its affairs for fourteen years, and conducted it into hopeless bankruptcy. Her husband had been in the employ of the bank for years as a clerk and book-keeper. He had the means of knowing, and, it is fair to presume, did know the character of the bank and the manner in which it was organized. His brother, who was the assignee both of his father and of the bank, and had actual custody of all the books and papers of both, at his place of business in another state, was present at the trial as a witness for the plaintiff. Whether the bank rested on a contract between its founders, or on a charter from the state, he was in a position to know, and to bring the document before the court. With these two witnesses the plaintiff was 'in a position to show all that the books and papers of the bank, or of its founder, contained relating to the organization. The defendants, on the other hand, were simply small stockholders, shown to have had no connection with or knowledge of the business of the bank and no access to its books and papers. How, in a contest between parties so situated, can it be said that the burden of showing the nature and character of the organization of the bank is on the defendants? The books and papers- from which this evidence is to be drawn are in another state, beyond the reach of process, and in the hands of the plaintiff’s witness and brother. The defendants have no means of reaching them or compelling their production. Under such circumstances, if the absence of exact proof of the nature of the organization affords a basis for a presumption against either party, it must be against him who is in a position to produce such proof. It was error, therefore, to say, on the facts of this case as they were presented in the court below, that the burden of proving a charter, or an organization as a limited partnership, was on the defendants. The burden of proving a partnership as alleged was on the plaintiff; and, until this was shown, the defendants were not called upon to enter upon a defence. It was error also to say that there was no evidence tending to show an incorporation of the bank. There was some evidence, and it should have been submitted to the jury in such manner as to draw their attention to the importance of the question.

Something has been said in the argument about the unconscionable position of bankers, who first invite the public confidence, and when they have secured it betray it, and then seek to escape from the legal consequences of their own frauds. We quite agree with all that has been said by way of censure of such conduct, but it is not quite appropriate upon the facts of this case. The defendants took their stock in an organized bank, doing business as a savings bank. They had nothing to do with its current business. They neither invited the plaintiff to make deposits, nor embezzled the money when deposited. It is not alleged that they aided in bringing about, or profited by the ruin of the bank. They are rather among the sufferers from the ruin, wrought apparently by the president. While he squandered the money of depositors, he sunk also the money of the stockholders. If the defendants are now liable to the creditors of the bank, it is not for their own fault or fraud, but because of their misfortune in being associated in business with one who lias wasted the money of his partners, and that of the customers of the firm at the same time, and left both remediless. This is their position, if the bank was a partnership. They must in that case bear their own loss, and make good, to the extent of their ability, the losses of the depositors. But he who asserts their liability .as partners must show it, and the sufficiency of the showing must be determined by the jury under proper instructions.

The judgment is reversed and a venire facias de novo awarded.